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1890
|
non-electoral
|
2011
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 499/2010
In the matter between:
THE ATTORNEYS FIDELITY FUND BOARD OF
CONTROL
Appellant
and
METTLE PROPERTY FINANCE (PTY) LTD
Respondent
Neutral Citation: Attorneys Fidelity Fund v Mettle Property Finance
(499/2010) [2011] ZASCA 133 (16 September 2011)
Coram:
HARMS DP, VAN HEERDEN, MAYA, THERON &
WALLIS JJA
Heard:
25 August 2011
Delivered:
16 September 2011
Summary:
Claim against Fidelity Fund in terms of s 26(a) of the
Attorneys Act 53 of 1979 – pecuniary loss suffered
allegedly as a result of attorney’s theft of money
entrusted to him – entrustment not proved.
ORDER
On appeal from: North Gauteng High Court, Pretoria (Tolmay J sitting as
a court of first instance):
(a) The appeal is upheld with costs.
(b) The order of the court below is set aside and replaced with the
following:
‘The action is dismissed with costs.’
JUDGMENT
VAN HEERDEN JA (HARMS AP, MAYA, THERON AND WALLIS
JJA concurring):
[1] Mettle Property Finance (Pty) Ltd, a factoring company, paid
certain sums of money into an attorney’s trust account pursuant to three
bridging finance transactions. In terms of an agreement between Mettle and
the attorney, the latter undertook to make payments to Mettle from the
proceeds of the registration of a bond and two property transfers, once such
proceeds were received. When the funds did not materialise and the
attorney was sequestrated, Mettle sued the Attorneys Fidelity Fund Board
of Control in terms of s 26(a) of the Attorneys Act 53 of 1979, claiming the
pecuniary loss that it had suffered, allegedly as a result of the attorney’s
theft of money entrusted to him by Mettle. These claims succeeded before
Tolmay J in the North Gauteng High Court, hence the appeal by the
Fidelity Fund which comes to us with the leave of the court below.
[2] The applicable provisions of s 26(a) of the Act read as follows:
‘Subject to the provisions of this Act, the fund shall be applied for the purpose of
reimbursing persons who may suffer pecuniary loss as a result of – (a) theft committed
by a practising practitioner . . . of any money or other property entrusted by or on behalf
of such persons to him . . . in the course of his practice . . . .’
[3] The issues on appeal are whether Mettle succeeded in proving that
the money in question had been ‘entrusted’ to the attorney by or on behalf
of Mettle and, if so, whether the attorney had stolen such money, both
being requirements for a claim in terms of s 26(a).
[4] To the extent here relevant, Mettle’s particulars of claim allege:
‘THE PLAINTIFF’S BUSINESS
5. The Plaintiff’s business is and was at all times relevant hereto inter alia the factoring
of immovable property transactions where-
5.1 a mortgage bond or mortgage bonds is/are to be registered over the immovable
property of an owner of such immovable property; or
5.2 an owner of immovable property sells his immovable property to a purchaser of
such immovable property,
and such owner requires the loan equity of the bond(s) to be registered or the equity of
the sale before registration of the mortgage bond or registration of transfer to the
purchaser, in which case the conveyancing attorney attending to such bond registration
or registration of transfer undertakes to counter-perform on date of registration from the
proceeds of the bond or from the proceeds of the sale, as the case may be; or
. . .
MASTER AGREEMENT
6. On 23 January 2007 the Plaintiff and the Attorney concluded a written agreement
titled: MASTER AGREEMENT (ATTORNEY) (PURCHASE OF SELLER’S
EQUITY AND MORTGAGOR’S LOAN EQUITY) (hereinafter referred to as “the
master agreement”).
. . .
9. In the master agreement the Plaintiff is referred to as “Mettle” and the Attorney is
referred to as “the Conveyancer”.
10. Express terms of the master agreement are inter alia the following:
10.1 the purchase price payable by the Plaintiff in respect of each sold claim (as defined
in clause 2 of the master agreement) shall be an amount equal to the sum of the initial
purchase price and the additional purchase price (as defined in clause 2 of the master
agreement).
(Clause 6.1)
10.2 the purchase price shall be discharged as follows-
10.2.1 the initial purchase price shall be paid into the Attorney’s trust account in cash on
the second business day following the date of acceptance of the offer in accordance with
the provisions of Clause 5.2 of the master agreement; and
10.2.2 the additional purchase price, on the date of registration of transfer of the
property in the relevant deeds office, against payment of the sale proceeds to the
Plaintiff, which amount the Plaintiff authorises the Attorney to deduct from the sale
proceeds, and to pay same directly to the client;
(Clause 6.2)
10.3 accordingly, on the date of registration of transfer of the property, the Attorney
irrevocably undertakes to distribute the sale proceeds as follows:
10.3.1 by deducting an amount equal to the additional purchase price, and paying same
to the client (or its creditors); and
10.3.2 by paying the balance to the Plaintiff in cash, without any deduction or set-off.’
[5] In this case, the attorney, Mr Langerak, approached Mettle to
arrange for bridging finance on his own behalf as well as on behalf of two
clients. As was Mettle’s practice, it verified Langerak’s standing in the
legal profession and his possession of a fidelity fund certificate.
[6] Pursuant to the conclusion of the master agreement, Langerak
requested Mettle to enter into three bridging finance transactions, which
transactions form the basis of Mettle’s three claims against the Fidelity
Fund. One was a Purchase of Bond Proceeds Agreement in which the
mortgagor was Langerak in his personal capacity, the second was a
Purchase of Seller’s Claims Agreement in which the seller was Whirlaway
Trading 120 CC and the third was also a Purchase of Seller’s Claims
Agreement, in which the seller was Angelfish Investments 709 CC.
[7] The thrust of Mettle’s case was that it had in terms of the aforesaid
three agreements and pursuant to various warranties and undertakings
issued by Langerak, effected payment of ‘initial purchase prices’ of
R400 000, R560 000 and R600 000, respectively, into Langerak’s trust
account on behalf of the mortgagor or seller concerned. It relied on the fact
that, in terms of the Master Agreement, Langerak undertook to repay
Mettle these amounts on the date of registration, from the bond proceeds or
the sale proceeds, as the case may be, and that he had failed to do so.
[8] Needless to say, Langerak did not procure registration of transfer of
the relevant properties in the second and third transactions and did not
make any payment to Mettle in respect of any of the three transactions.
While the bond was registered in the first transaction, there is no evidence
that the proceeds were received in Langerak’s trust account.
[9] Mettle alleged that Langerak had committed theft of the money
entrusted to him and reported this to the Law Society of the Northern
Provinces. Langerak was subsequently struck off the roll of attorneys
following a financial investigation by the Law Society.
[10] Both Whirlaway and Angelfish have been liquidated. Mettle sued
Langerak and obtained judgement against him for all three claims.
However, the estate of the attorney was sequestrated on 2 October 2008. It
was agreed between the parties that Mettle would receive no dividend from
any of the three estates.
[11] The meaning of the word ‘entrust’ for the purposes of a claim in
terms of s 26(a) of the Act has been dealt with in a number of cases. In
Industrial & Commercial Factors (Pty) Ltd v Attorneys Fidelity Fund 1997
(1) SA 136 (A) at 144B-D, this court (per F H Grosskopf JA) quoted with
approval the following passages of the judgment of Nicholas J in Provident
Fund for the Clothing Industry v Attorneys, Notaries and Conveyancers
Fidelity Guarantee Fund 1981 (3) SA 539 (W) at 543E-F:
‘From these definitions it is plain that “to entrust” comprises two elements: (a) to place
in the possession of somebody, (b) subject to a trust. As to the latter element, this
connotes that the person entrusted is bound to deal with the property or money
concerned for the benefit of others (cf Estate Kemp and Others v McDonald’s Trustee
1915 AD at 499).
“(The trustee) is bound to hold and apply the property for the benefit of some
person or persons or for the accomplishment of some special purpose” (ibid at 508).’
[12] The first element is not contentious – the moneys, representing the
initial purchase price in each case, were indeed placed in Langerak’s
possession. The second element is more problematic. There is no doubt that
Mettle trusted the various warranties and the undertakings given by
Langerak and relied upon Langerak for repayment of, inter alia, the initial
purchase price on the date of registration. That does not, however, mean
that Mettle ‘entrusted’ the money to Langerak as required by s 26(a) of the
Act.
[13] As indicated above, Langerak is referred to throughout the Master
Agreement as the ‘Conveyancer’. The agreement provides that:
‘3.1 The Conveyancer has been and will from time to time hereafter be duly authorised
by a Client to conclude a transaction with Mettle for and on their behalf.
3.2 Any reference in this Agreement to a Client shall (unless the context indicates to the
contrary) be a reference to that Seller, Purchaser or Mortgagor duly represented by the
Conveyancer.’
[14] Importantly, ‘Client’ – who could be a seller, a purchaser or a
mortgagor – is defined as ‘the Conveyancer’s Client’. ‘Client’s claim’ is
defined as a ‘loan claim’ or a ‘seller’s claim’.
[15] It follows that Mettle – in paying the initial purchase price in each
transaction to Langerak as the representative of the mortgagor or seller
from whom Mettle had purchased a loan claim or a seller’s claim – was
simply discharging its debt to such mortgagor or seller. The payment was
unconditional and, the moment the initial purchase price was paid into
Langerak’s trust account in terms of the Master Agreement, Mettle’s debt
was discharged. Langerak was no more than a conduit for the money. All
this was largely borne out by the evidence of both Ms Nichols, a trader
employed by Mettle, and Mr Prinsloo, a director of Mettle. It also accords
with the express terms of the Master Agreement and the Purchase of Bond
Proceeds and of Seller’s Claims Agreements in regard to the payment of
the initial purchase price.
[16] This being so, there was no ‘entrustment’ of money by Mettle to
Langerak. In the words of F H Grosskopf JA in the Industrial &
Commercial Factors case:1
‘Where money is paid into the trust account of an attorney it does not follow that such
money is in fact trust money . . . If money is simply handed over to an attorney by a
debtor who thereby wishes to discharge a debt, and the attorney has a mandate to
receive it on behalf of the creditor, it may be difficult to establish an entrustment.’2
[17] It must be remembered that ‘the indemnity against loss for which
the Act provides is not unlimited in its scope. It does not provide
1 At 143I-144A.
2 See also Provident Fund for the Clothing Industry at 544B-G.
indemnification against any kind of loss suffered as a consequence of any
conceivable kind of knavery in which an attorney might indulge in the
course of his or her practice.’3 It is not an insurance policy against all ills
that may befall money paid to an attorney. In this case, Mettle may well
have claims in contract or delict against Langerak based on the warranties
and undertakings given – and, in some instances, breached – by Langerak.
But Mettle does not have a claim against the Fidelity Fund in terms of
s 26(a) of the Act.
[18] In view of my finding that there was no ‘entrustment’ of the money
paid by Mettle to Langerak, it is not necessary to decide whether Langerak
was guilty of the theft of such money. Suffice it to say that, in the case
where Langerak in his personal capacity was the mortgagor, the initial
purchase price paid by Mettle into Langerak’s trust account belonged to
Langerak as the client. He could hardly be said to steal his own money. As
regards Whirlaway and Angelfish, there was simply no evidence
whatsoever as to what happened to the initial purchase price paid by Mettle
in respect of each of these entities.
[19] It follows that the appeal should succeed.
[20] The following order is made:
(a)
The appeal is upheld with costs.
3Industrial & Commercial Factors at 146F-G (per Marais JA).
(b)
The order of the court below is set aside and replaced with the
following:
‘The action is dismissed with costs.’
______________________
B J VAN HEERDEN
JUDGE OF APPEAL
APPEARANCES:
APPELLANT:
Q PELSER SC
Instructed by Petzer, Du Toit & Ramulifho,
Pretoria
McIntyre & Van Der Post, Bloemfontein
RESPONDENT:
H M DE KOCK
Instructed by Smit & Marais Attorneys,
Pretoria
Goodrick & Franklin, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
16 September 2011
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
THE ATTORNEYS FIDELITY FUND BOARD OF CONTROL V
METTLE PROPERTY FINANCE (PTY) LTD
(499/10) [2011] ZASCA 133 (16 September 2011)
The Supreme Court of Appeal (the SCA) today set aside an order of the North
Gauteng High Court (Pretoria), and replaced it with an order dismissing the action
with costs.
The respondent, Mettle Property Finance (Mettle), had deposited sums of money
into an attorney’s trust account pursuant to three bridging finance transactions. In
terms of an agreement between Mettle and the attorney, the latter undertook to
make payments to Mettle from the proceeds of the registration of a bond and two
property transfers, once the proceeds were received. When the funds did not
materialise and the attorney was sequestrated, Mettle sued the appellant, the
Attorneys Fidelity Fund (the Fund), in terms of s 26(a) of the Attorneys Act 53 of
1979, claiming pecuniary loss suffered allegedly as a result of the attorney’s theft of
money entrusted to him by Mettle.
The issues on appeal were whether Mettle had succeeded in proving that the money
in question had been entrusted to the attorney by or on behalf of Mettle and, if so,
whether the attorney had stolen such money, both being requirements for a claim in
terms of s 26(a).
The SCA analysed the so-called ‘Master Agreement’ between the parties and came
to the conclusion that the attorney acted as the representative of the mortgagor or
seller to whom bridging finance was provided. By paying the money to the attorney
as such representative, Mettle was simply discharging its debt to the mortgagor or
seller. The payment was unconditional and the moment the money was paid into the
attorney’s trust account in terms of the Master Agreement, Mettle’s debt was
discharged. The attorney was no more than a conduit for the money.
The SCA held that there was no entrustment of money by Mettle to the attorney.
While Mettle might have a claim in contract or delict against the attorney, it did not
have a claim against the Fund in terms of s 26(a) of the Act. Since there was no
entrustment of the money by Mettle to the attorney, it was not necessary to decide
whether the attorney was guilty of the theft of such money.
The appeal was upheld with costs.
-- ends --
|
1214
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Reportable
CASE NO 469/2007
In the matter between
WANDISILE NTAKA
Appellant
and
THE STATE
Respondent
Coram:
Cameron, Maya et Cachalia JJA
Heard:
19 FEBRUARY 2008
Delivered: 28 MARCH 2008
Summary: Sentence – appeal against effective sentence of six years’ imprisonment
imposed on 17 year-old boy on conviction of rape of fellow pupil – correctional
supervision not appropriate in the circumstances – majority finding custodial sentence
under s 276(1)(i) of Act 51 of 1977 appropriate – appeal allowed – order in para [46].
Neutral citation: This judgment may be referred to as Ntaka v The
State (469/2007) [2008] ZASCA 30 (28 March 2008)
___________________________________________________________
MAYA JA /
MAYA JA:
[1] The appellant was convicted of rape in the Regional Court, East
London (Mr IJC Kitching) and sentenced to undergo ten years’
imprisonment of which four years were conditionally suspended. An
appeal against both the conviction and sentence was dismissed by the
Grahamstown High Court (Froneman J, Mathee AJ concurring). With the
leave of that court he appeals further but only against sentence.
[2] The essence of the appellant’s attack on the sentence in this court is
that the magistrate’s rejection of correctional supervision without a full
investigation of the practical circumstances relating to such possible
option was a vitiating, material misdirection and that the sentence is so
excessive that it induces a sense of shock.
[3] The events giving rise to the charge are these. The appellant and
the complainant, both aged 17 years, attended the same high school and
were friends. They lived in the same neighbourhood, about 300m apart,
and occasionally walked together from school. Sometimes the appellant
visited the complainant at her home where she lived with her mother and
a younger sister. The complainant had previously suffered serious
psychological problems seemingly arising from her parents’ divorce and
her mother’s liaison with another man. She had even attempted suicide
and consequently received treatment for depression, a fact which she had
confided in the appellant.
[4] The appellant, on the other hand, was a highly popular and
confident pupil held in high esteem for his prowess at sport and hard
work at his studies by teachers and fellow scholars alike at his school. His
mother had, in 2003, left the country to pursue a nursing career in the
United Kingdom leaving the appellant and his siblings in their father’s
care. A decision was, thereafter, taken to relocate the entire family to the
United Kingdom. The appellant’s father had recently joined his wife
there, leaving the children with their grandfather, to follow in due course,
when the rape occurred.
[5] Shortly before 20h00 during the evening of 5 July 2004, the
complainant was visiting a girlfriend’s home when she received a
message from the appellant on her cellular phone asking her to come to
his house as he ‘needed to talk’. Against the advice of her friend and her
mother, who did not consider it safe to go out so late, she went to see
him. Her mother had relented but requested her to return home by 22h00.
It is during that visit that the appellant assaulted the complainant into
submission and raped her in his room despite her protestations. Thereafter
he drove her home in his parents’ motor vehicle. Afraid to disclose her
ordeal to her mother for fear of censure, the complainant merely called
out to her that she was home. She washed her bloodied underwear and
pants. The appellant sent her another message telling her that she should
not get excited as there was nothing in it for her and that he did it to make
her happy. Overwhelmed by these events, she cut her wrist with a razor
and took an overdose of pills but, fortunately, suffered no serious harm.
[6] She reported the incident to her friend on the following morning.
She was distraught and, at the friend’s urging, she told her mother that
afternoon that she had been raped. A subsequent medical examination
revealed that in addition to neck bruises, her hymen was freshly torn and
that she had sustained injuries to her genital organs which were consistent
with forced penetration. The matter was reported to the police and the
appellant was then arrested.
[7] Upon his conviction, two pre-sentence reports were obtained in
respect of the appellant from a probation officer and a correctional
officer. Both social workers reported that the appellant showed no
remorse for his action as he denied guilt. In the correctional officer’s
opinion, the appellant seemed to have no ‘insight into the extent of harm
he has inflicted on the victim’ and she concluded that he would not
benefit from correctional supervision. According to the probation
officer’s report the appellant refused to cooperate with her stating that ‘he
has already informed the court [and] refused to repeat the same thing’.
Her recommendation was that a sentence of imprisonment would be
appropriate because of the seriousness of the crime but that the appellant
could be ‘referred to correctional supervision for assessment’ if the court
was so minded.
[8] The magistrate rejected the option of correctional supervision and
the suspended sentence requested by the appellant’s representative. He
concluded that a term of direct imprisonment, which would have been
higher than the one he imposed but for the appellant’s young age, was the
only suitable sentence in the circumstances.
[9] The basis of the appeal against this conclusion in the court below
was that the magistrate erred in accepting the recommendations against
correctional supervision in the pre-sentence reports which were premised
on the appellant’s refusal to admit his guilt even after conviction. Whilst
the contention found favour with the court below, the court nonetheless
found that the magistrate had given ‘proper, serious and anxious
consideration’ to the appellant’s personal circumstances and held that
there were present in the matter, other factors which justified the sentence
imposed by the magistrate, including the possibility of the appellant
continuing to live in close proximity to the complainant which would be
intolerable to her, the seriousness of the offence, the appellant’s lack of
remorse and the apparent lack of suitable persons to oversee a
correctional supervision program in view of his family’s relocation.
[10] In this court, it was contended that the reasons cited by the court
below for upholding the magistrate’s decision did not warrant the
rejection of correctional supervision, particularly as the practicalities of
such a sentence were never investigated, and that the sentence imposed
by the magistrate was, in any event, excessive. It was further argued that
the magistrate had materially misdirected himself in the exercise of his
sentencing discretion by concluding, first, that the social workers found
the appellant to be an unsuitable candidate for correctional supervision
when the correctional officer had, in fact, not ruled out the possibility of
an exploration of this option and then blindly following that
recommendation without exercising his own discretion by considering
whether or not the option of correctional supervision was viable. It was
urged upon us that any custodial sentence would be inappropriate and that
only correctional supervision in terms of s 276(1)(h) of the Criminal
Procedure Act 51 of 1977 (the Act) would be the suitable sentence for the
appellant.
[11] The well-established test for interference with a sentence on appeal
was restated by this court in S v Malgas1 where Marais JA said:
‘A Court exercising appellate jurisdiction cannot, in the absence of material
misdirection by the trial court, approach the question of sentence as if it were the trial
court and then substitute the sentence arrived at by it simply because it prefers it. To
do so would be to usurp the sentencing discretion of the trial court. Where material
misdirection by the trial court vitiates its exercise of that discretion, an appellate Court
is of course entitled to consider the question of sentence afresh … However, even in
the absence of material misdirection, an appellate Court may yet be justified in
interfering with the sentence imposed by the trial court … when the disparity between
the sentence of the trial court and the sentence which the appellate Court would have
imposed had it been the trial court is so marked that it can properly be described as
‘shocking’, ‘startling’ or ‘disturbingly inappropriate’.
[12] It should be said at the outset that although the magistrate clearly
gave due consideration to the findings set out in the pre-sentence reports
relating to the appellant’s personal circumstances, he misconceived the
import of the probation officer’s recommendation. Whilst the probation
officer obviously had misgivings about the appellant’s attitude towards
the offence, she nevertheless did not reject correctional supervision as a
sentencing option. Furthermore, as the court below pointed out, the
magistrate’s
seemingly
unquestioning
reliance
on
a
negative
recommendation in the reports based on the appellant’s persistent denial
1 2001 (2) SA 1222 (SCA) para 12.
of his guilt was another misdirection on his part. I would add that the
reference by the court below to the absence of the appellant’s family from
the country (and hence a lack of supervision) as a further reason for
doubting the propriety of a non-custodial sentence was, in my view,
wrong. Evidence showed that he had been left in the care of family
friends and his grandfather and remained close with his family despite the
distance.
[13] That said, however, it must be borne in mind that an error
committed by a court in determining or applying the facts for assessing
the appropriate sentence does not necessarily spell the end of the enquiry.
A mere misdirection is not by itself sufficient to entitle the appeal court to
interfere; it must be of such a nature, degree or seriousness that it shows
directly or inferentially, that the court did not exercise its discretion at all
or exercised it improperly or unreasonably such as to vitiate its decision
on sentence.2 Assuming, without deciding, that the misdirections are not
of a vitiating nature when proper regard is had to all the relevant factors,
it must nonetheless be considered whether the sentence was appropriate
in the circumstances of the case.
[14] The submissions advanced on the appellant’s behalf for a non-
custodial punishment were based on a principle prescribed by various
relevant international instruments dealing with the administration of child
justice3 and the provisions of s 28(1)(g) of the Constitution4 which a court
2 S v Pillay 1977 (4) SA 531 (A) at 535E-G; S v Siebert 1998 (1) SACR 554 (A).
3 The United Nations Convention on the Rights of the Child (1989) ratified by South Africa on 16 July
1995; The United Nations Guidelines for the Prevention of Juvenile Delinquency (1990) (The Riyadh
Guidelines); The United Nations Standard Minimum Rules for the Administration of Juvenile Justice
(1985) (The Beijing Rules); The United Nations Rules for the Protection of Juveniles Deprived of their
sentencing a child is enjoined to consider in addition to the traditional
aims and elements of sentencing. Further to these legal instruments is the
Child Justice Bill on juvenile justice drafted by the South African Law
Commission Project Committee on Juvenile Justice (Project 106).5
[15] The fundamental principle in these instruments is that a child6
offender should not be deprived of his or her liberty except as a measure
of last resort, for the shortest appropriate period7 and where detention is
unavoidable, it must be individualised with the focus on the child’s
rehabilitation. In addition to these guiding standards, the sentencing court
must take into account the child’s best interests in accordance with s
28(2) of the Constitution.8 Notably, regardless of the requirement of
limited use of deprivation of liberty, the trite principle of proportionality,
which is now required by the Constitution itself, namely that the sentence
imposed must fit the nature and seriousness of the offence of which the
accused was found guilty and must be fair to both the offender and
society, is also applicable to child offenders.9
[16] In DPP, KwaZulu-Natal v P10 this court, determining an
Liberty (1990) and the African Charter on the Rights and Welfare of the Child ratified by South Africa
on 7 January 2000.
4 In terms of s 28(1)(g) ‘[e]very child has the right not to be detained except as a measure of last resort,
in which case … the child may be detained only for the shortest appropriate period of time’.
5 This Bill was released in the National Assembly in August 2000 and its explanatory summary
published in Government Gazette No 23728 of 8 August 2002. Its recommendations have not yet been
adopted by Parliament.
6 A ‘child’ is defined in s 28(3) of the Constitution as ‘a person under the age of 18 years’.
7 What ‘the shortest possible period’ can be decided only on a case by case basis having regard to the
requirement of an individualised, tailor-made sentence for each offender.
8 Section 28(2) of the Constitution decrees that ‘[a] child’s best interests are of paramount importance
in every matter concerning the child.’
9 See S v Kwalase 2000 (2) SACR 135 (C) at 139e-f; S v Brandt 2006 (1) SACR 311 (SCA); DPP,
KwaZulu-Natal v P 2006 (1) SACR 243 (SCA) para 16.
10 2006 (1) SACR 243 (SCA) para 19.
appropriate sentence in respect of a 12 year-old girl convicted of
murdering her grandmother, highlighted the fact that the Constitution and
the international instruments do envisage imprisonment of children who
have been convicted of serious and violent offences. Mthiyane JA said:
‘It must be remembered that the Constitution and the international instruments do not
forbid incarceration of children in certain circumstances. All that it requires is that the
‘child be detained only for the shortest period of time’ and that the child be ‘kept
separately from detained persons over the age of 18 years’. It is not inconceivable that
some of the courts may be confronted with cases which require detention. It happened
in the United Kingdom not so long ago in the case of R v Secretary of State for the
Home Department, Ex Parte Venables; R v Secretary of State for the Home
Department, Ex Parte Thompson [1997] 3 All ER 97 (HL) where two boys aged ten
were convicted of the murder of a two-year-old boy in appalling circumstances [and]
they were sentenced to ten years.’
[17] With that background in mind, I must determine what an
appropriate sentence is, in this particular case of rape, for an industrious
17 year-old youth with a clean record, raised in a stable, religious and
relatively privileged family environment.
[18] Precisely what does correctional supervision entail and is it an
appropriate sentence in the circumstances of this case? Section 1 of the
Act defines this form of sentencing as ‘a community-based punishment’
which has been interpreted to mean a form of punishment executed
within the community and in co-operation with and/or to the benefit of
the community.11 It encompasses a wide range of measures executed
within the community such as house arrest, community service,
11 SS Terblanche A Guide to Sentencing in South Africa 2 ed p 281.
monitoring, rehabilitation programmes etc.12 Its value lies mainly in that
it is lighter than direct imprisonment and offers an offender an
opportunity of remaining within the community without the negative
influences of prison whilst serving a substantial punishment. These
features render it especially useful in the case of child offenders as it
emphasizes the rehabilitation of the offender and allows for an
individualised punishment.
[19] Section 276A sets out the procedure to be followed by a court
imposing correctional supervision. The relevant provisions thereof read:
‘(1) Punishment shall only be imposed under section 276(1)(h) –
(a) after a report of a probation officer or a correctional official has been placed
before the court; and
(b) for a fixed period not exceeding three years…
(2) Punishment shall only be imposed under section 276(1)(i) –
(a) if the court is of the opinion that the offence justifies the imposing of
imprisonment, with or without the option of a fine, for a period not exceeding five
years; and
(b) for a fixed period not exceeding five years.
(3) …
(4) …’.
[20] Correctional supervision under s 276(1)(h) is, therefore, an
appropriate sentencing alternative in cases where direct imprisonment of
12 S v R 1993 (1) SACR 209 (A) at 220h.
more than three years is not necessary.13 In S v Ingram14 this court said:
‘As correctional supervision under s 276(1)(h) can … only be imposed for a
period not exceeding three years, it is not a sentence that readily lends itself to the
very serious category of crimes (which would normally call for higher sentences)
and should therefore not be too lightly imposed in such cases.’
[21] The more stringent option in terms s 276(1)(i) provides for
imprisonment from which the prisoner can be released on correctional
supervision by the Commissioner or parole board without the court’s
further involvement. As regards its nature and effect, the comments of
this court in S v Scheepers,15 dealing with sentence in a matter involving
two counts of theft of R130 and R1 000, are apposite. This court said:
‘[Section] 276(1)(i) … permits the discretionary conversion of the prison sentence
into correctional supervision. The particular advantage of s 276(1)(i) should always be
in the foreground when the sentencer considers that a custodial sentence is essential,
but the nature of the offence suggests that an extended period of incarceration is
inappropriate. In such cases, s 276(1)(i) achieves the object of a sentence
unavoidably entailing imprisonment, but mitigates it substantially by creating the
prospect of early release on appropriate conditions under a correctional supervision
programme.’ (Emphasis added.)
[22] It must be pointed out that in that case the trial court did not
consider the nature of the offence to warrant imprisonment; the custodial
sentence was necessitated by the accused’s previous convictions.
13 See, for example, S v Nel 1995 (2) SACR 362 (W) at 366H per Streicher J.
14 1995 (1) SACR 1 (A) at p 9e-f.
15 2006 (1) SACR 72 (SCA) paras 9-10.
[23] Despite the apparent advantages, it has often been cautioned by the
courts that the imposition of correctional supervision should be exercised
with care, to maintain its credibility,16 and certainly not where the crime
is too serious. In S v Blank17 E M Grosskopf JA stated:
‘The Legislature set limits of three and five years respectively in the case of sentences
[of correctional supervision] under paras (h) and (i). These cut-off points are
significant. They give an idea of the seriousness of the crimes for which these
sentencing options would be appropriate. But in the same way as the Appellate
Division emphasised in Van Vuuren’s case [1992 (1) SACR 127 (A)] that the options
constituted by those paragraphs should be used in appropriate cases, so a court should
not be seduced by the availability of these new options to impose a sentence which
would be unbalanced and inappropriate when proper regard is had to the (often
competing) purposes of judicial punishment. In serious crimes, including crimes of
the nature considered in Van Vuuren’s case [theft of money], imprisonment also falls
to be considered as an option and the more serious the crimes, the greater the
possibility that imprisonment will be the only suitable sentence.’18
[24] Expressing the same views in a case involving the offences of
murder, attempted murder and public violence, S v Ningi19 Scott JA held:
‘The question is, therefore, whether in all the circumstances a sentence of correctional
supervision would be appropriate. It is unnecessary to repeat what has been said
before of the advantages of correctional supervision. They are well known. What I
think must be acknowledged, however, is that insofar as a first offender in particular
is concerned and leaving aside for the moment the practicalities of administering a
non-custodial sentence, whether correctional supervision as opposed to direct
imprisonment is to be imposed must depend ultimately on the seriousness of the
16 See S v Sinden 1995 (2) SACR 704 (A) at 708c-i; S v Farmer 2001 (2) SACR 103 (SCA) para 11; S
v Schutte 1995 (1) SACR 344 (C).
17 1995 (1) SACR 62 (A) at p 76d-e.
18 See also S v Volkwyn 1995 (1) SACR 286 (A) at 289d-e; SS Terblanche A Guide to Sentencing in
South Africa 2 ed pp 290-291.
19 2000 (2) SACR 511 (A) para 8.
offence and the particular circumstances in which it was committed. This is so
because, whatever its advantages, correctional supervision remains a lighter sentence
than direct imprisonment. Any contention to the contrary I think would be
unrealistic.’
[25] There are serious aggravating features present in the matter, which
must be weighed against the factors favourable to the appellant. As
regards the effect of the rape on the complainant who was a virgin at the
material time, her drastic reaction – the attempt to kill herself, her relapse
into depression, her inability to sleep and fear to sleep alone, the
nightmares and the consequent fear of males – dispenses with the need to
articulate the devastation wreaked by the excruciating rape she described,
perpetrated by a trusted friend and confidant upon her.
[26] Although lack of remorse may not be taken as an aggravating
factor, the appellant’s conduct and attitude towards the incident and the
proceedings that followed must certainly be considered in determining a
proper sentence. It begins with the message he sent to the complainant
after the rape which, in the circumstances, can only mean that he believed
that he had somehow done her a favour. He did not stop at his ill-
conceived attempt to escape criminal liability by denying any
wrongdoing, but persistently exhibited an arrogant and unrepentant
attitude which pervades the record and which his own counsel was
constrained to concede – in the manner he responded to questioning
during the trial, his blatant disdain for the pre-sentence investigation
evidenced by his refusal to cooperate with the probation officer and his
boorish conduct towards the complainant who testified, without
challenge, that a few days before sentencing in the trial the appellant and
his friends whistled and pointed at her in the street.
[27] To my mind, this shows clearly that the enormity of his deplorable
deed and its horrible effect on the complainant simply never dawned on
the appellant. It is, in my view, an extremely disturbing feature which
inexorably draws one to question the mindset towards sexual violence in
the home, the community and indeed the greater society from which the
appellant comes.
[28] In addition to these aggravating factors is the nature of rape. In S v
Chapman20 this court described the offence as follows:
‘Rape is a very serious offence, constituting as it does a humiliating, degrading and
brutal invasion of the privacy, the dignity and the person of the victim. The rights to
dignity, to privacy and the integrity of every person are basic to the ethos of the
Constitution and to any defensible civilisation.’
Women in this country are entitled to the protection of these rights … The courts are
under a duty to send a clear message to the accused, to other potential rapists and to
the community: We are determined to protect the equality, dignity and freedom of all
women, and we shall show no mercy to those who seek to invade those rights.’
[29] In S v Swart21 Nugent JA qualified these comments by observing
that the court no doubt did not intend to suggest that the quality of mercy,
an intrinsic element of civilised justice, should be altogether overlooked,
but rather meant to emphasise that retribution and deterrence will come to
20 1997 (2) SACR 3 (SCA) at 5a-e.
21 2004 (2) SACR 370 (SCA) at para 17.
the fore (and that the rehabilitation of the offender will play a smaller
role) in relation to such serious crimes.22 I agree with this qualification.
[30] Bearing in mind that a sentence does more than deal with a
particular offender in respect of the crime of which he has been convicted
– it constitutes a message to the society in which the offence occurred23 –
the interests of society must thus also be taken into account. The sense of
outrage justifiably roused by the offence of rape in the right thinking
members of a South African society in which sexual violence is so
endemic and hardly shows any sign of abating, must, in my view, be a
critical factor in the imposition of a suitable sentence here.
[31] Having said that, it is well to bear in mind that too harsh a
punishment serves neither the interests of justice nor those of society.
Neither does one that is too lenient. Courts should therefore strive for a
proper balance that has due regard to all the objects of sentencing. A
proper balance of those objects in this case informs me that the interests
of society – these include the interests of the complainant, herself a child
when violently introduced into womanhood by the appellant, which very
nearly ended her life, who must now pick up the pieces and contend with
the adverse and obviously long-term psychological and emotional
consequences of the rape – and the nature and gravity of the offence
demand that the elements of retribution and deterrence must take
precedence over the appellant’s interests, including his young age. An
extended custodial sentence is, without doubt, the only appropriate
punishment.
22 See also R v Karg 1961 (1) SA 231 (A) at 236A-C; S v Williams 1995 (3) SA 632 (CC) para 87; S v
Mhlakaza 1997 (1) SACR 515 (SCA) at p 519d-e.
23 S v Sinden supra at 709b-c.
[32] As to the suitability of correctional supervision, it appears clearly
from the authorities dealing with correctional supervision set out above,
regardless of the fact that none of them dealt with the offence of rape
committed by a child offender,24 that correctional supervision is woefully
inadequate in this case. It lacks the appropriate punitive impact demanded
by the gravity of the offence and does not carry the requisite strong
deterrent message to other would-be rapists in the community that rape is
repugnant and shall be severely punished no matter who commits it. This,
in my judgement, includes the option under 276(1)(i) which, as indicated
above, although also aimed at serious crimes, excludes very serious
crimes, which rape is, by its limit in duration.25
[33] I am satisfied, taking all relevant considerations into account, that
whilst undoubtedly a robust punishment, the effective sentence of six
years’ imprisonment imposed by the magistrate is fitting in the
circumstances of the case and will not deny the appellant the possibility
of rehabilitation. The appeal should, therefore, fail.
_________________
MML MAYA
24 In Kwalase, the High Court substituted a sentence of twelve months’ correctional supervision under
(i) for one of three years’ imprisonment with 18 months thereof conditionally suspended imposed by a
magistrate on a boy aged 15 years, 11 months with a previous conviction of housebreaking and theft,
who expressed remorse and pleaded guilty to the offence of robbery of goods which were immediately
recovered by the police. In Brandt this court substituted a sentence of 18 years’ imprisonment for life
imprisonment imposed on a young offender for the murder of an elderly woman he had committed at
the age of 17 years, seven months. In DPP, KZN v P – the facts are discussed at para [16] – this court
expressed a strong view contrary to that of the High Court, which had imposed a sentence of 36
months’ correctional supervision under (h), that the murder warranted a prison term for the 14 year-old
girl but because it was too late to impose it in the circumstances of the case, substituted the sentence
imposed by the High Court with a conditionally suspended seven year-term of imprisonment and 36
months’ correctional supervision under (h).
25 According to SS Terblanche A Guide to Sentencing in South Africa 2 ed pp 252-253, this form of
sentencing is appropriate where correctional supervision is considered insufficient punishment, but
imprisonment of longer than five years is unnecessary.
JUDGE OF APPEAL
CAMERON JA:
[34] My colleague Maya JA has set out the facts and her reasoning with
fair-mindedness and care, for which I am grateful to her. Only after
hesitation do I differ from her conclusion that the appeal against the six-
year effective sentence must fail.
[35] As Maya JA indicates (para 12), there are cognisable errors in the
regional magistrate’s approach to sentencing the appellant. Principal is
that he thought both pre-sentence reports shut the door on correctional
supervision, when only one did. This attenuation of the options he
conceived as available to him in my view entitled the high court to
intervene, should it have been minded to; and now entitle this court to do
so. But the high court considered despite the magistrate’s mistake that
six years’ imprisonment was right for what the appellant did, and Maya
JA agrees. With deference to the care with which my colleagues in each
instance have come to that conclusion, I cannot share their view.
[36] The appellant’s crime was horrible. Maya JA’s exposition (paras
25ff) if anything grants him the benefit of understatement. He preyed on
his school-friend, a vulnerable young girl with a history of instability,
who had drawn close to him and looked to him for the respect and
support she was entitled to seek in friendship. Instead, he took by force
from her ultimate sexual intimacy after she refused to grant it. He did so
in a wilful act of domination and bodily intrusion that left her physically
bruised and psychically shaken. And some of his actions afterwards
displayed a bare arrogance that makes it hard to warm to him as a
sentencing subject.
[37] But that it is hard to say anything in his favour does not mean that
there is nothing. His crime was unplanned. It seems to have stemmed
from a terrible, but impulsive, error of judgment. The magistrate rightly
observed in his judgment:
‘Here I can state that your initial intentions perhaps were not to rape this young girl,
but to create an opportunity in your room where you could make some romantic
advances to her, … to test the air so to speak. But alas, to your disappointment and
surprise, she was totally unprepared and unwilling …’
And in the High Court Froneman J said:
‘[W]hat appears to have been a budding and sensitive friendship went awfully awry
during the evening of 5 July 2004’.
[38] And then, connected intricately with the ‘awful awryness’ and
impulsivity of the crime, there is his youth. Three months before the
rape, on 5 April 2004, he turned seventeen. Constitutionally, he was still
a child.26 What does this mean for sentence? Youth gives us no warrant
to sentimentalise him or any other child. He was a fit and able young
man, with the capacities of choice, who had earned the admiration of his
peers and teachers through his achievements at school, but who on this
occasion grossly violated another.
[39] But the clear constitutional injunction is that we must weigh in the
mix the fact that he was only seventeen. Prison must therefore be a ‘last
26 Bill of Rights s 28(3): a child ‘means a person under the age of 18 years’.
resort’.27 This bears not only on whether we choose prison as a
sentencing option, but on the sort of prison sentence we impose, if we
must. So if there is a legitimate option other than prison, we must choose
it; but if prison is unavoidable its form and duration should also be
tempered. Every day he spends in prison should be because there is no
alternative.
[40] Together with the magistrate, the judges in the High Court and
Maya JA, I do not think that prison can be avoided. We were urged to
send the matter back for the regional court to impose correctional
supervision under s 276(1)(h) of the Criminal Procedure Act, 51 of 1977
(the Act). That would avoid prison altogether, and place the appellant (on
good behaviour and under the threat of a suspended sentence) on a
supervised community-related work scheme. I do not think we can.
Every rape sentence sends a public message. This option would be so
soft that its message would be misunderstood. It would enable the courts’
seriousness in seeking to punish and deter rapes to be called into
question.
[41] To this extent, the appellant must bear the brand and carry the
burden of these times, in which rape is a mass circumstance – more than
50 000 were reported in 2004/5, the year of his crime (over 7 000 in the
Eastern Cape).28 The face of public policy, from the executive, the
legislature and the courts, must be set unmistakably against its
perpetration. Even for a child offender over 16 but not yet 18, where this
court has held that the sentencing court ‘starts with a clean slate’, it must
27 Bill of Rights s 28(1)(g): every child has the right ‘not to be detained except as a measure of last
resort’.
28 Statistics for April 2004 to March 2005 accessed on 26 March 2008 from
http://www.saps.gov.za/statistics/reports/crimestats/2005/crime_stats.htm.
nevertheless take into account the weighting effect29 of the statutorily
prescribed minimum sentences (ten years for rape by a first offender).30
Pure correctional supervision cannot be.
[42] A prison sentence is therefore unavoidable. But what sort of prison
sentence? Maya JA considers that six years, while robust, is fitting. I
respectfully disagree. To me, that sentence disregards the youthfulness of
the appellant when he committed the crime. It treats him too much like
the adult he was not when he raped his victim. It may set him up for ruin,
while foreclosing the possibility, embodied in his youth, that he will still
benefit from resocialisation and re-education.31 It fails to individualise
the sentence with the emphasis on preparing him, as a child offender, for
his return to society.32 I would rephrase that: for his first entry into
society, for a seventeen year old schoolboy in grade 11 has hardly entered
society.
[43] In my respectful view, a five-year prison sentence imposed under s
276(1)(i) of the Act comes closer to doing justice.33 It ensures that the
appellant goes to jail. But the term he serves is variable, depending on
his behaviour. He is incarcerated for a minimum one-sixth of the time
imposed (ten months). Thereafter, he becomes eligible for the
Commissioner of Correctional Services to place him out on correctional
supervision. If his arrogant behaviour continues, he risks forfeiting that
option, and serving his entire sentence. The sentence takes the matter out
of the hands of the courts, and places it in his, and in the Commissioner’s.
29 S v B 2006 (1) SACR 311 (SCA) para 11, per Ponnan AJA for the court.
30 Criminal Law Amendment Act 105 of 1997 s 51(2)(b), read with Part III of Schedule 2.
31 S v B 2006 (1) SACR 311 (SCA) para 15.
32 S v B 2006 (1) SACR 311 (SCA) para 19.
33 Compare S v Scheepers 2006 (1) SACR 72 (SCA).
[44] Is this too soft? I cannot say No with any assurance. But I am less
unsure that it may be too soft than I am sure that an undifferentiated
sentence of direct imprisonment is too harsh. And if we are to risk erring
at all, the Constitution requires us to err by recognising the possibility of
promise that may still flower from his youth, rather than fixing on the
destruction that was immanent in his crime.
[45] It is true that if the rape had been committed just nine months later,
the appellant would have been eighteen, and would not have had the
benefit of any extra mercy. But it is at least equally true that if he had
been just nine months older, he might not have made the awful error that
led to his crime. That is the premise on which the Constitution
differentiates him from older offenders. We distinguish child offenders
from adults because we recognise that their crimes may stem from
immature judgment, from as yet unformed character, from youthful
vulnerability to error and to impulse. We recognise that imposing full
moral responsibility for a misdeed might be too harsh. In that we allow
them some leeway of hope and possibility. That is not maudlin or
sentimental, but necessary if we are to have any belief in our future.
[46] In my view the appeal must succeed. The judgment of the High
Court is set aside and in its place substituted an order allowing the appeal
against the magistrate’s sentence, and in its stead imposing the following
sentence:
‘Five years’ imprisonment in terms of s 276(1)(i) of the Criminal Procedure
Act, 51 of 1977.’
___________________
E CAMERON
JUDGE OF APPEAL
CONCUR:
CACHALIA JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
28 March 2008
Status:
Immediate
Please note that the media summary is intended for the benefit of
the media and does not form part of the judgment of the Supreme
Court of Appeal
Wandisile Ntaka v The State
In a judgment delivered today, the Supreme Court of Appeal has
upheld an appeal against a judgment of the Grahamstown High
Court which confirmed an effective sentence of six years’
imprisonment imposed by the Regional Magistrate, East London
on a 17 year-old boy for the rape of a school friend of the same
age.
The appellant invited the complainant, who had a troubled history
stemming from her parents’ divorce and whom he had befriended,
to his home, where he raped her. The trial court indicated that his
crime, which was unplanned, stemmed from an impulsive error of
judgment. The magistrate found that the appellant’s initial
intentions were not to rape, ‘but to create an opportunity’ in his
room where he could ‘make some romantic advances’ to his friend.
The High Court found that what appeared to have been ‘a budding
and sensitive friendship’ went ‘awfully awry’. The rape had a
devastating effect on the young girl who was a virgin. It re-
triggered a history of suicide attempts but fortunately she survived
although she subsequently had to undergo psychological
treatment for depression and other symptoms of trauma.
The SCA held that a prison sentence was unavoidable having
regard to the nature of the offence and its prevalence and other
factors relevant to sentencing. All the judges therefore rejected the
argument on behalf of the appellant that the case should be sent
back to the sentencing court to impose correctional supervision.
In a split decision, the majority of the court (Cameron and Cachalia
JJA) however held that the six-year sentence imposed by the
magistrate was inappropriate as it disregarded (a) the fact that he
was very young when he committed the crime – in terms of the
Constitution he was still a child (under 18), and had to be treated
as a child offender; and (b) that the crime, although horrible, was
unplanned and resulted from an impulsive error of judgment,
connected to his youthfulness.
The majority expressed fear that the six-year sentence foreclosed
the possibility, embodied in his youth, that he would benefit from
re-socialisation and re-education and concluded that a suitable
sentence would be a five-year prison sentence imposed under s
276(1)(i) of the Criminal Procedure Act 51 of 1977. This provision
permits the Commissioner of Correctional Services to place a
prisoner on correctional supervision after serving at least one-sixth
of a sentence. This would ensure that the appellant served a
minimum jail sentence of ten months, which would thereafter be
variable depending on his behaviour.
The minority of the court (Maya JA) acknowledged the
constitutional imperative to avoid incarcerating young offenders
except as a measure of last resort and for the shortest possible
period. She however held that a proper balance of the factors
relevant to the process of sentencing, including the nature of the
crime involved, especially in the light of the prevalence of sexual
violence which shows no signs of abating in South Africa, the
appellant’s disturbing arrogant and unrepentant attitude, and the
interests of society which include those of the young victim (whose
life nearly ended as a result of the rape and who has to contend
with adverse and long-term psychological and emotional effects of
the rape), demanded that the elements of retribution and
deterrence override the appellant’s interests, even his young age.
In the view of the minority judge, a sentence of correctional
supervision lacked the appropriate punitive impact and did not
carry the requisite, strong deterrent message to other would-be
rapists that rape will be severely punished, no matter who commits
it. Maya JA concluded that the sentence imposed by the
magistrate did not induce a sense of shock and was fitting in the
circumstances.
|
2858
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 753/11
In the matter between:
FARJAS (PROPRIETARY) LIMITED
Appellant
and
MINISTER OF AGRICULTURE AND LAND AFFAIRS
FOR THE REPUBLIC OF SOUTH AFRICA
First Respondent
REGIONAL LAND CLAIMS COMMISSIONER
Second Respondent
CHIEF LAND CLAIMS COMMISSIONER
Third Respondent
AND
In the matter between:
RAINY DAYS FARMS (PROPRIETARY) LIMITED
Appellant
and
MINISTER OF AGRICULTURE AND LAND AFFAIRS
FOR THE REPUBLIC OF SOUTH AFRICA
First Respondent
REGIONAL LAND CLAIMS COMMISSIONER
Second Respondent
CHIEF LAND CLAIMS COMMISSIONER
Third Respondent
Neutral citation: Farjas (Pty) Ltd v Minister of Agriculture and Land Affairs for
RSA (753/11) [2012] ZASCA 173 (29 November 2012)
Coram: LEWIS, PONNAN, MHLANTLA and SHONGWE JJA and ERASMUS
AJA
Heard: 2 November 2012
Delivered: 29 November 2012
Summary: Restitution of Land Rights Act 22 of 1994 – land claims – determination
of proper compensation for expropriation of properties – application of the Consumer
Price Index – adequate indicator of the change in value of money over time.
___________________________________________________________________
ORDER
_____________________________________________________________________________________
On appeal from: Land Claims Court (Mia AJ sitting with an assessor as court of
first instance):
The appeal is dismissed save for paragraph 4 of the order of the court below
which is set aside and substituted with the following:
‘4 The plaintiffs are entitled to costs herein on a party and party scale
including the costs of two counsel where so employed.’
The appellants are ordered to pay the costs of the appeal.
JUDGMENT
MHLANTLA JA (LEWIS, PONNAN and SHONGWE JJA and ERASMUS AJA
concurring):
[1] Farjas (Pty) Ltd and Rainy Days Farms (Pty) Ltd (the appellants) are two
companies, (the sole director of each being Mr F Jasat) which owned immovable
properties on the Farm Whispers, Pietermaritzburg. The appellants had purchased the
properties for the purpose of developing a township thereon. The properties were
rezoned and the plans were drafted for that purpose. On 24 June 1991, both
properties were expropriated by the Minister of Housing (House of Delegates) in
terms of the Expropriation Act 63 of 1975. The appellants received compensation as
follows: Farjas, an amount of R260 000 and Rainy Days, a sum of R280 000. They
were promised an amount of R10 000 each as solatia but this was never paid.
[2] The appellants were not satisfied with the compensation paid. As a result, they
instituted proceedings in the Natal Provincial Division in terms of the Expropriation
Act for increased compensation. They subsequently aborted these legal proceedings
when the Restitution of Land Rights Act 22 of 1994 came into operation and lodged
claims with the Regional Land Claims Commissioner, KwaZulu-Natal (the second
respondent) for the restoration of the properties in terms of the Restitution Act. The
second respondent rejected the claims but the decision was set aside by the Land
Claims Court in review proceedings instituted by the appellants.1
[3] Subsequent to the review proceedings, the appellants abandoned their claims
for the restoration of the properties and sought payment of the solatia promised as
well as equitable redress in the form of financial compensation. The respondents
sought an opinion from Nicholas Maritz, a land valuer. Mr Maritz concluded that the
compensation paid to the appellants was not just and equitable and that they had been
under-compensated in the sum of R 656 000 made up as follows: Farjas in the sum of
R380 000 and Rainy Days Farms in the sum of R276 000. The parties agreed on the
amounts proposed by Maritz. The respondents, however, did not accept his other
recommendations. There was a dispute about the payment of solatia. The appellants
1 See Farjas (Pty) Ltd & another v Regional Land Claims Commissioner, KwaZulu-Natal 1998 (2) SA 900 (LCC).
sought compensation with interest contending that the amounts had remained unpaid
for a period of more than 19 years. The methods for adjusting the
amounts of under-compensation proposed by various experts were rejected by the
respondents.
[4] Before dealing with the issues on appeal, it is apposite at this stage to outline
the statutory scheme. The Restitution Act was enacted to give effect to section 25(7)
of the Constitution. This section provides that ‘[a] person or community dispossessed
of property after 19 June 1913 as a result of past racially discriminatory laws or
practices is entitled, to the extent provided by an Act of Parliament, either to
restitution of that property or to equitable redress’.
[5] In Alexkor Ltd & another v The Richtersveld Community & others,2 the
Constitutional Court stated the purpose of the Restitution Act as follows:
‘[A]lthough it is clear that a primary purpose of the Act was to undo some of the damage wreaked
by decades of spatial apartheid, and that this constitutes an important purpose relevant to the
interpretation of the Act, the Act has a broader scope. In particular, its purpose is to provide redress
to those individuals and communities who were dispossessed of their land rights by the
Government because of the Government’s racially discriminatory policies in respect of those very
land rights.’
2 Alexkor Ltd & another v The Richtersveld Community & others 2004 (5) SA 460 (CC) para 98.
[6] In Department of Land Affairs & others v Goedgelegen Tropical Fruits (Pty)
Ltd,3 a case involving a claim for restoration of land under the Restitution Act,
Moseneke DCJ stated that the declared purpose of the Restitution Act ‘is to provide
restitution and equitable redress to as many victims of racial dispossession of land
rights after 1913 as possible’.
[7] It has to be borne in mind that the Land Claims Court is a specialist court
which functions in a specialised area of the law. The Legislature enacted the
Restitution Act and left it to that court to interpret the Act. In Goedgelegen,4 the
learned Deputy Chief Justice said:
‘Section 355 of the Restitution Act confers vast remedial powers on the Land Claims Court. They
range from restoration of land claimed or any other right in land to paying the claimant
compensation or granting any alternative relief. It would not be appropriate to venture into
formulating a remedy beyond a declaratory order and costs. We have heard no evidence on the
possible variants of remedies to be preferred. In any event, it would not be desirable to be a court
3 Department of Land Affairs & others v Goedgelegen Tropical Fruits (Pty) Ltd 2007 (6) SA 199 (CC) para 42.
4 Para 84. See also Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs 2004 (4) SA 490(CC) para 48.
5 Section 35(1) provides:
‘(1) The Court may order–
(a) the restoration of land, a portion of land or any right in land in respect of which the claim or any other claim is
made to the claimant or award any land, a portion of or a right in land to the claimant in full or in partial settlement of
the claim and, where necessary, the prior acquisition or expropriation of the land, portion of land or right in land:
Provided that the claimant shall not be awarded land, a portion of land or a right in land dispossessed from another
claimant or the latter’s ascendant, unless−
(i) such other claimant is or has been granted restitution of a right in land or has waived his or her right to restoration
of the right in land concerned; or
(ii) the Court is satisfied that satisfactory arrangements have been or will be made to grant such other claimant
restitution of a right in land;
(b) the State to grant the claimant an appropriate right in alternative state-owned land and, where necessary, order the
State to designate it;
(c) the State to pay the claimant compensation;
(d) the State to include the claimant as a beneficiary of a State support programme for housing or the allocation and
development of rural land;
(e) the grant to the claimant of any alternative relief.’
of first and last instance on a matter best left to the Department or a specialist court, which the Land
Claims Court is.’
[8] The Land Claims Court is primarily charged to administer and interpret the
Restitution Act. It has wide remedial powers as set out in section 35. In considering
its decision on the appropriate order to be made, the court is obliged to consider
various factors and these are set out in section 33 as follows:
“Factors to be taken into account by Court–
In considering its decision in any particular matter the Court shall have regard to the
following factors:
‘(a)
the desirability of providing for restitution of rights in land to any person or community
dispossessed as a result of past racially discriminatory laws or practices;
(b)
the desirability of remedying past violations of human rights;
(c)
the requirements of equity and justice;
(cA) if restoration of a right in land is claimed, the feasibility of such restoration;
(d)
the desirability of avoiding major social disruption;
(e)
any provision which already exists, in respect of the land in question in any matter, for that
land to be dealt with in a manner which is designed to protect and advance persons, or categories
of persons, disadvantaged by unfair discrimination in order to promote the achievement of equality
and redress the results of past racial discrimination;
(eA) the amount of compensation or any other consideration received in respect of the
dispossession, and the circumstances prevailing at the time of the dispossession;
(eB) the history of the dispossession, the hardship caused, the current use of the land and the
history of the acquisition and use of the land;
(eC) in the case of an order for equitable redress in the form of financial compensation, changes over
time in the value of money;
(f) any other factor which the Court may consider relevant and consistent with the spirit and
objects of the Constitution and in particular the provisions of section 9 of the Constitution.’ (my
emphasis).
[9] The appellants in their statements of claim sought an order against the
respondents for payment of the amounts that would, in terms of section 33 (eC),
make provision for the changes over time in the value of money. They claimed first
the amounts that would be achieved by applying the ABSA House Price Index. In the
alternative, they sought an order adjusting the amounts by applying for compensation
in terms of section 12(3) of the Expropriation Act and in the further alternative the
Consumer Price Index (CPI). The matter came before the Land Claims Court (Mia
AJ sitting with an assessor). The appellants adduced the evidence of Mr Jasat and
four experts. Mr Ramballi, formerly a consultant researcher to the Commission on
Restitution of Land Rights, testified on behalf of the respondents.
[10] The appellants contended for a range of alternatives and in this regard they
relied on the evidence of three actuaries, namely Mr Mickey Lowther, Mr Phillip
Hellig and Mr Gerard Jacobson as well as Mr Richard Pardy, a valuer. The
testimony of the experts related to the method to be applied to adjust the amounts
of under-compensation. All the witnesses focused on the returns the appellants
would have made had they received the amounts in 1991 and invested them. They
were opposed to the application of the CPI stating that most investors would expect
a return in excess of that provided by the CPI. They were each critical of the
methods proposed by the others and had different views on the issue. Mr Hellig
preferred the use of building society rates. Mr Jacobson, on the other hand, was
of the view that the ABSA House Price and Land Value Indices would be
appropriate. Mr Lowther recommended the addition of compound interest whilst
Mr Pardy proposed a township development approach. Not one of them
considered that the CPI was the appropriate measure of value of money over time
to compensate a developer of property for loss of growth on an investment.
[11] Mr Jasat’s testimony related to the acquisition of the properties. He did not
testify about any hardship the appellants experienced as a result of the expropriation.
He sought compound interest as it would provide the maximum amount of
compensation.
[12] Mr Ramballi in his testimony, dealt with the massive nature of the land reform
process that had been established. He also related the administrative and financial
hurdles experienced by the Commission and the complex questions of policy and
compensation they had to deal with. He explained that the Commission, after
conducting some research, accepted that the CPI was the best method of assessing
the value of money over time. According to Ramballi, the Commission received
72 000 land claims nationwide. It had applied the CPI in settling other claims and
there had been no opposition to the use of that method. Regarding solatium, he
testified that it is not provided for in the Restitution Act.
[13] Mia AJ concluded that the CPI adequately catered for changes over time in the
value of money. The judge rejected the methods relied upon by the appellants. She
held that section 33(eC) of the Restitution Act did not envisage an application of
compound interest rates and housing and land indices to determine changes over time
in the value of money and that commercial instances had to be distinguished from
claims for restitution under the Restitution Act. The judge thereafter applied the CPI
to adjust the amounts of under-compensation and awarded Farjas an amount of
R1 053 376 and Rainy Days R1 454 192.6 She did not make any order with regard to
the appellants’ claims for solatia. The appellants appeal against this order with leave
of the Land Claims Court contending that it erred in applying the CPI and in failing
to award them the solatia they were promised.
[14] The appeal turns on three issues. Firstly, whether the court below erred in
applying the CPI and rejecting the methods proposed by the appellants. Put
differently, the question is whether the court below misdirected itself in the exercise
of its discretion. Secondly, whether the appellants are entitled to payment of solatia
6 In its judgment, the Land Claims Court made a mistake and stated that Farjas was under-compensated by R276 000 and
provides that Rainy Days was under-compensated by R380 000. This mistake was carried through in its award of the
adjusted amounts. In fact Farjas was entitled to the higher amount. Nothing turns on this as the appellants are related
companies.
under the Restitution Act. And thirdly, whether the respondents should have been
ordered to pay the costs of the matter on a punitive scale.
[15] When the appeal was heard, we invited counsel to address us on whether an
appeal did in fact avail the appellants in the circumstances of this case. It will be
recalled that CPI was one of the alternative claims advanced on behalf of the
appellants before the Land Claims Court. Judgment was entered in their favour in
respect of that claim. Having successfully obtained judgment in respect of one of the
alternative claims advanced by them, one could not help wondering why an appeal
would lie in those circumstances. Counsel sought to contend that by the time the
matter had come to be argued before the Land Claims Court there had, by
implication, been an abandonment by the appellants of any reliance on CPI and that it
was no longer open to the Land Claims Court to enter judgment in their favour on
that alternative claim. A perusal of the record, however, does not support that
contention. Counsel sought – and was granted – an opportunity to file additional
written argument on this point. That has been done. Those written submissions
conclude: ‘Appellants cannot find authority precisely on the issue raised at the
appeal’. Given the apparent novelty of the matter and also the conclusion to which I
come on the other issues that call for a decision in this appeal, I shall assume
(without deciding) in favour of the appellants that an appeal does indeed avail them.
[16] The Land Claims Court exercised a discretion when it applied the CPI. The
discretion is a strict one. In Mphela & others v Haakdoornbult Boerdery CC &
others,7 Mpati AJ said the following in relation to the exercise of the discretion by
the lower courts in restitution cases:
‘(I)n coming to its decision on whether or not to order the return of the whole of the land claimed
the Supreme Court of Appeal exercised a discretion. The question whether leave should be granted
will therefore require a consideration of the circumstances in which this court will interfere with
the exercise by the Supreme Court of Appeal of its discretion.
The discretion exercised by the Supreme Court of Appeal in this matter is one in the strict
sense, or as was said in S v Basson, a “strong” discretion or “true” discretion, in the sense that a
range of options was available to it. As such this court, exercising appellate jurisdiction, will not
set aside the decision of the Supreme Court of Appeal merely because it would itself, on the facts
of the matter before the Supreme Court of Appeal, have come to a different conclusion. It will only
interfere where it is shown that the Supreme Court of Appeal
had not exercised its discretion judicially, or that it had been influenced by wrong principles or a
misdirection on the facts, or that it had reached a decision which in the result could not reasonably
have been made by a court properly directing itself to all the relevant facts and principles.’
It follows that this court may only interfere with the order of the Land Claims Court
if the appellants can show that the court below did not exercise its discretion
judicially.
[17] Where the order to be made is in the form of financial compensation, the
Legislature did not prescribe the method to be applied to determine ‘changes over
7 Mphela & others v Haakdoornbult Boerdery CC & others 2008 (4) SA 488 (CC) paras 25 and 26.
time in the value of money’. The Legislature left it to the Department and the Land
Claims Court to consider all the options available and determine an appropriate
method having regard to the relevant provisions of the Restitution Act. In this regard
section 25(3) of the Constitution requires that the amount of compensation be just
and equitable.8 This section requires an equitable balance to be struck between the
public interest and the interests of the appellants. In National Coalition for Gay and
Lesbian Equality & another v Minister of Justice & others,9Ackerman J said that
‘justice and equity must also be evaluated from the perspective of the State and the
broad interests of society generally’.
[18] In Haakdoornbult Boerdery CC & others v Mphela & others,10 Harms ADP
said:
‘(C)ompensation, to be fair… must recompense. The purpose of giving fair compensation is to put
the dispossessed, insofar as money can do it, in the same position as if the land had not been taken.
Fair compensation is not always the same as the market value of the property taken; it is but one of
the items which must be taken into account when determining what would be fair compensation.
Because of important structural and politico-cultural reasons indigenous people suffer
disproportionately when displaced and Western concepts of expropriation and compensation are
not always suitable when dealing with community held tribal land. A wider range of socially
8 Section 25(3) provides:
‘The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable
balance between the public interest and the interests of those affected, having regard to all relevant circumstances,
including–
(a) the current use of the property;
(b) the history of the acquisition and use of the property;
(c) the market value of the property;
(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property;
and
(e) the purpose of the expropriation.’
9 National Coalition for Gay and Lesbian Equality & another v Minister of Justice & others 1999 (1) SA 6 (CC) para
94.
10 Haakdoornbult Boerdery CC & others v Mphela & others 2007 (5) SA 596 (SCA) para 48.
relevant
factors should consequently be taken into account, such as resettlement costs and, in appropriate
circumstances, solace for emotional distress.’
[19] A claim for compensation under the Restitution Act is a claim sui generis. As
Moseneke DCJ said in Goedgelegen:11
‘(N)either liability nor culpability in the conventional sense is a feature of the restoration scheme
envisaged by s 25(7) of the Constitution and the Restitution Act. Entitlement to redress under the
Restitution Act does not hinge on any form of blameworthy conduct such as intention or
negligence or a duty of care. Equally important is that the operative legislation does not hold liable
any party for historical dispossession, whatever the motive of the dispossessor. It merely sets
conditions that entitle a claimant to restitution . . ..
The claim is against the State. It has a reparative and restitutionary character. It is neither
punitive in the criminal law sense nor compensatory in the civil law sense. Rather, it advances a
major public purpose and uses public resources in a manifestly equitable way to deal with
egregious and identifiable forms of historic hurt.’
I turn now to consider the issues raised on appeal.
[20] Regarding the claim for compound interest, counsel for the appellants argued
that the Land Claims Court erred in rejecting the expert evidence on behalf of the
appellants. He informed us that the appellants persist in their claim for compound
interest and were no longer interested in the other alternatives advanced. A revised
schedule of calculation prepared by Mr Lowther was handed in. In support of this
contention, counsel called in aid the decisions in Davehill (Pty) Ltd & others v
Community Development Board,12 Crookes Brothers Ltd v Regional Land Claims
Commission for the Province of Mpumalanga & others13 and Mokala Beleggings &
11 Paras 67 and 68.
12 Davehill (Pty) Ltd & others v Community Development Board 1988 (1) SA 290 (A).
13 Crookes Brothers Ltd v Regional Land Claims Commission for the Province of Mpumalanga & others [2012]
ZASCA 128.
another v Minister of Rural Development and Land Reform & others,14 which re-
affirmed the principle that ‘interest is the life-blood of finance’.
[21] These cases do not assist the appellants as they involved commercial
transactions and interest in terms of the Expropriation Act. Both Crookes and
Mokala dealt with mora interest. The parties in these cases had concluded contracts
of sale of immovable properties subject to certain conditions. Both properties were
subject to land claims under the Restitution Act. The sellers claimed mora interest as
a result of the purchasers’ failure to pay the purchase price within the stipulated
period. This court substituted the orders of the courts below which had dismissed the
sellers’ claims for interest. Similarly reliance on Davehill is misplaced as that case
dealt with section 12(3) of the Expropriation Act, which provided for interest to be
paid by the expropriating authority. There is no mention of interest in the Restitution
Act.
[22] Having regard to the facts of this matter, the judge considered and evaluated
all the evidence. She was faced with conflicting expert evidence and had to
determine what would constitute just and equitable compensation having regard to an
equitable balance between the public interest and the interests of the claimants. The
evidence of the experts reveals that they prepared their reports from an investor’s
point of view
14 Mokala Beleggings & another v Minister of Rural Development and Land Reform & others 2012 (4) SA 22 (SCA).
whereas restitution has nothing to do with commercial transactions, but with
redressing massive social and historical injustice. The experts asserted that the CPI
was not appropriate; however, that is not the test. A court when considering a claim
under the Restitution Act has to determine what is just and equitable having regard to
the factors set out in section 33 of the Restitution Act. The judge analysed the
evidence of the experts and, in my view, correctly chose not to accept it. The
appellants have not demonstrated that the application of the CPI is inappropriate or
perhaps more accurately would on the facts of this case lead to an unjust or
inequitable result. None of the experts demonstrated that resort to the CPI would
have the effect that the compensation would be unjust and inequitable.
[23] In my view, an application of compound interest will defeat the purpose of the
Restitution Act. It will result in the over-compensation of the appellants.
Furthermore, this method is not contemplated in the provisions of the Restitution
Act. In Hoffmann v South African Airways,15 the Constitutional Court stated that
‘[f]airness requires a consideration of the interests of all those who might be affected
by the order’. It follows that the compensation awarded must be just and equitable
not only to the appellants but also to the members of society who have an interest in
the manner in which public resources are utilized.
[24] Counsel for the appellants submitted that the court below erred in applying the
15 Hoffmann v South African Airways 2001 (1) SA 1 (CC) para 43.
CPI without any acceptable evidence being produced to support it. This argument is
without merit. The CPI is an official government statistic and published monthly in
the Government Gazzette. There was no need for expert evidence in that regard and
the court below was entitled to take judicial notice thereof. Furthermore, the courts
have for a long time applied the CPI to adjust amounts of financial compensation. It
is apposite at this stage to have regard to instances where the courts have recognised
the CPI as an adequate indicator of the change over time in the value of money and
endorsed its application.
[25] The first of these examples is National Director of Public Prosecutions v
Gardener & another,16 where this court applied the CPI to adjust the amounts by
which the respondents had benefited from their criminal activities so as to deprive
them of the full extent of the benefit they had received from the commission of the
offences. In Minister of Safety and Security v Seymour,17 this court applied the CPI to
update an earlier award for wrongful arrest. Similarly in Ex Parte Sidelsky,18 the
court changed the terms of a bequest in a will to increase it by the application of the
CPI to cater for inflation and the change in the value of money. It follows that the
reasoning and conclusion of the court below with regard to the application of the CPI
cannot be faulted.
16 National Director of Public Prosecutions v Gardener & another 2011 (4) SA 102 (SCA) para 32.
17 Minister of Safety and Security v Seymour 2006 (6) SA 320 (SCA) para 16.
18 Ex Parte Sidelsky1983 (4) SA 598 (C) at 603F-604A.
[26] This brings me to the claims for solatia. As stated earlier, Mia AJ made no
order on the appellants’ claims for solatia. It may be accepted that she dismissed
those claims. The appellants persist in their claims. It became clear during the
hearing
of this appeal that the appellants’ claims were based on promises made to them in
1991. In this regard counsel for the appellants referred us to notices issued in terms
of
the Expropriation Act. No reliance can be placed on these notices as the appellants’
claims are now governed by the provisions of the Restitution Act. A claimant has a
duty in terms of the Restitution Act to adduce evidence to prove any entitlement to
solatium. In Hermanus v Department of Land Affairs: In re Erven 3535 and 3536,
Goodwood,19 Gildenhuys AJ said that solatium awards are by no means automatic.
The appellants, in the instant case, had to tender evidence of the hardship caused by
the expropriation to justify payment of solatia. They failed to do so. Their claims
were accordingly correctly rejected.
[27] It needs to be emphasised that given the nature of the discretion exercised by
the Land Claims Court appellate interference is permissible on restricted grounds
only. Here it has not been suggested that the Land Claims Court exercised its
discretion capriciously or upon a wrong principle or failed to bring an unbiased
19 Hermanus v Department of Land Affairs:In re Erven 3535 and 3536, Goodwood 2001 (1) SA 1030 (LCC) para 24.
judgment to bear on the matter. In the result the appellants have failed to establish
that the Land Claims Court misdirected itself in the exercise of its discretion. They
also failed to establish any entitlement to solatia
. There is accordingly no basis for this court to interfere with the order of the court
below. In the result the appeal must fail.
[28] The final issue is costs. Counsel for the appellants contended that the
respondents caused the delays in bringing the matter to finality. He sought a punitive
costs order against the respondents, alternatively, a costs order which would include
the qualifying fees of the appellants’ experts.
[29] It seems to me that both parties were responsible for the delays. There was no
malice on the part of the Commission. Counsel for the respondents, correctly,
conceded that the evidence points to incompetence on the part of the staff of the
Commission. It is evident from the record that offers were made to the appellants but
these were rejected by their representative, Mr Jasat. Both parties stuck to their
positions. In so far as the qualifying fees of the experts are concerned, it has to be
borne in mind that these experts were called by the appellants to advance their case.
Their conflicting evidence did not assist the court below and was correctly rejected.
It follows that there is no basis to interfere with the discretion of the court below
when it ordered the respondents to pay the appellants’ costs on a party and party
scale.
[30] Finally, the court below requested the parties to submit a report relating to
international trends on compensation in restitution matters. The appellants engaged a
second counsel to assist with the research and production of such a report, which was
handed into court. The costs associated with the production of the report were
excluded in the ultimate order issued by the court. In my view the court below erred
in this regard as it had expressly asked for this report. In the result the employment of
the second counsel for this purpose was justified. The appellants are accordingly
entitled to these costs.
[31] In the result, the following order is made:
The appeal is dismissed save for paragraph 4 of the order of the court below
which is set aside and substituted with the following:
‘4 The plaintiffs are entitled to costs herein on a party and party scale
including the costs of two counsel where so employed.’
The appellants are ordered to pay the costs of the appeal.
_____________________
NZ MHLANTLA
JUDGE OF APPEAL
APPEARANCES
For Appellant:
A J Dickson SC
Instructed by:
Cajee Setsubi Chetty Inc, Pietermaritzburg
Lovius-Block, Bloemfontein
For Respondent:
A A Gabriel SC
Instructed by:
The State Attorney, Durban
The State Attorney, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
29 November 2012
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.
Farjas (Pty) Ltd & another v Minister of Agriculture and Land Affairs of RSA & others
(173/11)
Today, the Supreme Court of Appeal (SCA) dismissed an appeal against an order of
the Land Claims Court (Mia AJ).
The appellants had purchased immovable properties for the purpose of developing a
township thereon. The properties were, however, expropriated in 1991 in terms of the
Expropriation Act 63 of 1975. The appellants received financial compensation. They
were promised an amount of R10 000 each as solatia but this was never paid. The
appellants were not satisfied with the compensation paid and instituted proceedings
first, in terms of the Expropriation Act and later under the Restitution of Land Rights
Act 22 of 1994 claiming increased compensation. The respondent obtained a report
from a land valuer, who confirmed that the appellants had been under-compensated.
The parties agreed on the amounts proposed by the valuer but not on the method of
adjusting the amounts of under-compensation. As the amounts remained unpaid for
more than 19 years, the appellants sought compensation with interest. Various
methods for adjusting the amounts of under-compensation were proposed by their
experts, inter alia, by applying the Absa House Price Index or building society rates
or the addition of compound interest. All the experts considered that the Consumer
Price Index was an inappropriate measure of value of money over time to
compensate a developer of property for loss of growth on an investment.
The matter was heard by Mia AJ with an assessor in the Land Claims Court. The
judge rejected the methods proposed by the appellants’ experts and concluded that
the CPI adequately catered for changes over time in the value of money. She
thereafter applied the CPI to adjust the amounts of under-compensation. She did not
make any order regarding the appellants’ claims for solatia. The appellants appealed
against that conclusion and persisted in their claim for compound interest and solatia.
The SCA had to consider whether the LCC erred in rejecting the methods proposed
by the appellants and whether the appellants were entitled to payment of solatia. The
last issue related to costs - the appellants contending that the LCC should have
issued a punitive costs order against the respondents.
Regarding the first question, the SCA concluded that the LCC correctly considered
and evaluated all the evidence and exercised its discretion properly in accepting the
CPI as an appropriate measure of the change over time of the value of money. In so
far as the claims for solatia were concerned, this court concluded that the appellants
had failed to adduce evidence of any of hardship caused by the expropriation to
justify payment of solatia.
On the issue of costs, this court held that both parties were responsible for the delays
and that a costs order on the ordinary scale was appropriate under the
circumstances. The SCA accordingly concluded that there was no basis to interfere
with the discretion of the LCC.
Consequently the SCA dismissed the appeal with costs.
--- ends ---
|
3902
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 346/2021
In the matter between:
LEBASHE FINANCIAL SERVICES (PTY) LTD
APPELLANT
and
THE PRUDENTIAL AUTHORITY
FIRST RESPONDENT
BOPHELO LIFE INSURANCE COMPANY LIMITED
SECOND RESPONDENT
NZALO INSURANCE SERVICES LIMITED
THIRD RESPONDENT
TRUE SOUTH ACTUARIES AND CONSULTANTS
(PTY) LTD
FOURTH RESPONDENT
FRANCOIS HUGO N.O.
FIFTH RESPONDENT
PAUL ZONDAGH N.O.
SIXTH RESPONDENT
THE FINANCIAL SECTOR CONDUCT AUTHORITY
SEVENTH RESPONDENT
THE TRANSPORT SECTOR RETIREMENT FUND
EIGHTH RESPONDENT
Neutral citation:
Lebashe Financial Services (Pty) Ltd v The Prudential Authority
and Others (346/2021) [2022] ZASCA 141 (24 October 2022)
Coram:
PONNAN, VAN DER MERWE and MOTHLE JJA and BASSON and
WINDELL AJJA
Heard:
15 September 2022
Delivered:
24 October 2022
Summary:
Practice – standing on appeal – depends on directness and sufficiency
of interest in relief claimed on appeal – creditor and shareholder of holding company of
insolvent insurer has no locus standi to seek curatorship of insurer under s 54 of
Insurance Act 18 of 2017 (Insurance Act) instead of liquidation.
Insurance Act – interpretation of s 54(5) – precludes commencement of business
rescue or winding-up by resolution or court order – proceedings as such not prohibited
and not void – nature of powers of curator under s 54(2) – to hold, investigate and
report – no duty to seek rescue or recapitalisation of insurer.
ORDER
On appeal from: Gauteng Local Division of the High Court, Johannesburg (Yacoob J),
sitting as court of first instance:
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Van der Merwe JA (Ponnan and Mothle JJA and Basson and Windell AJJA
concurring):
[1] In terms of s 32 of the Financial Sector Regulation Act 9 of 2017, the first
respondent, the Prudential Authority, is a juristic person that operates within the
administration of the South African Reserve Bank. On 6 November 2018, the Prudential
Authority obtained orders in the Gauteng Local Division, Johannesburg (the high court)
placing Bophelo Life Insurance Company Limited (Bophelo) and Nzalo Insurance
Services Limited (Nzalo) under provisional curatorship in terms of s 54(1) of the
Insurance Act 18 of 2017 (the Insurance Act). Whilst these orders were in force and, at
the instance of the Prudential Authority, the high court placed Bophelo and Nzalo under
provisional winding-up. Eventually the high court discharged the provisional curatorship
orders and made final liquidation orders in respect of both of them. The appellant,
Lebashe Financial Services (Pty) Ltd (Lebashe), which had by agreement been granted
leave to intervene in the liquidation applications, obtained leave from the high court to
appeal to this court. Lebashe, in essence, seeks to have the liquidation orders
overturned and the curatorships reinstated. The main issues are whether: firstly,
Lebashe has standing to obtain that relief on appeal and, secondly, a proper case has
been made out for such relief. Only Lebashe and the Prudential Authority took part in
the appeal.
Background
[2] Bophelo and Nzalo are public companies that were licensed to conduct
insurance business under the Insurance Act. On 10 April 2014, Bophelo was licensed
as a long-term insurer. Nzalo was licensed as a short-term insurer on 2 November
2016. Bophelo and Nzalo (jointly referred to as the insurers) are wholly owned by
Bophelo Insurance Group Limited (BIG). Prior to the developments that I shall allude
to, Vele Financial Group (Pty) Ltd (Vele) held a 70 per cent shareholding in BIG and
the Public Investment Corporation (SOC) Limited held the remaining 30 per cent. Vele
was also a shareholder in VBS Mutual Bank Limited (VBS).
[3] Section 36(1) of the Insurance Act provides:
‘An insurer must at all times maintain its business in a financially sound condition, by holding
eligible own funds that are at least equal to the minimum capital requirement or solvency capital
requirement, as prescribed, whichever is the greater.’
The Prudential Authority prescribes these requirements under s 36(6). In addition, it
was a condition of the registration of Bophelo as an insurer that it had to maintain a
capital adequacy cover of 1.2. This meant that capital held by Bophelo at any given
time had to amount to at least 1.2 times the aggregate of its obligations to policyholders
and other liabilities.
[4] To comply with these requirements, Bophelo deposited an amount of
approximately R114 million with VBS. That represented in the order of 68 per cent of
Bophelo’s total assets. However, VBS was placed under curatorship in terms of the
Banks Act 94 of 1990 during March 2015 and subsequently placed in final winding-up.
Lebashe accepts that the deposit of Bophelo was ‘effectively lost’.
[5] This understandably caused the Prudential Authority to become concerned
about the financial soundness of Bophelo. As Vele was a shareholder in both VBS and
BIG, it also had concerns about the ability of BIG to continue to fund Nzalo. Therefore
the Prudential Authority proceeded to engage with the insurers, as well as BIG. On 26
April 2018, the Prudential Authority notified the insurers that they were, with immediate
effect, prohibited from writing new business.
[6] These engagements naturally raised the matter of the recapitalisation of the
insurers. At a meeting held on 1 June 2018, the Prudential Authority informed these
parties that it required proof that an amount of at least R100 million was immediately
available to meet the capital requirements of the insurers. It required such proof by no
later than 8h30 on 8 June 2018. The deadline was not met, but on 12 June 2018, the
Prudential Authority received written confirmation that Lebashe had deposited R100
million into its attorneys’ trust account. According to this document, R60 million would
be paid to Bophelo and R40 million to Nzalo. The Prudential Authority insisted on proof
that these funds had actually been paid to the insurers. On 28 June 2018, it eventually
received confirmation thereof.
[7] The arrangements that led to these payments were as follows. Lebashe, who
described itself as an investment holding company, was approached to recapitalise
BIG. According to Lebashe, it obtained Vele’s 70 per cent shareholding in BIG at
around this time. After negotiations, Lebashe and BIG entered into a written loan
agreement on 26 June 2018. In terms thereof, Lebashe lent and advanced the capital
sum of R100 million to BIG. The loan agreement did not evidence a long-term
commitment by Lebashe. The loan had to be repaid 30 calendar days after the
‘Advancement Date’. That meant the first business day after the ‘Effective Date’. That,
in turn, referred to the date on which Lebashe confirmed in writing that the suspensive
conditions to the loan agreement had been fulfilled or waived. But in terms of clause 2,
the suspensive conditions had to be fulfilled by no later than 22 June 2018 (except if
an extended date was mutually been agreed upon, which did not happen).
[8] The loan agreement provided that the capital received by BIG ‘shall
immediately be transferred in agreed proportions’ to the insurers, in exchange for
subscriptions by BIG for additional shares in each of the insurers. On 26 June 2018,
Bophelo and BIG concluded a written share subscription agreement in terms of which
Bophelo would issue and allot 100 ordinary shares in the name of BIG, in exchange for
the subscription price of R60 million. On the same date, Nzalo and BIG concluded a
similar agreement. It provided that BIG would pay the subscription price of R40 million
for 120 newly issued ordinary shares in Nzalo. Both these agreements were subject to
suspensive conditions. Lebashe stated that these conditions were not fulfilled timeously
or at all, as a result of ‘the hasty manner in which the whole process was handled and
due to the pressure’ of the Prudential Authority. According to Lebashe, the result was
that these monies were paid by BIG to the insurers respectively as shareholders’ loans.
[9] On 31 July 2018, Vele was placed in winding-up at the instance of the curator
of VBS. Meanwhile, so Lebashe said, a due diligence process exposed issues
regarding the management of the insurers. In terms of a letter of demand dated 26
October 2018, Lebashe claimed repayment of the capital and interest under the loan
(then amounting to approximately R106 million) from BIG. On the same day, BIG paid
the sum of R87 million to Lebashe, leaving an outstanding balance of some R19 million.
[10] On 29 October 2018, the Prudential Authority was advised that Lebashe had
withdrawn its capital injection. As a result, the Prudential Authority ex parte approached
the high court on an urgent basis for orders placing each of the insurers under
provisional curatorship in terms of s 54(1)(a) of the Insurance Act. The high court
granted the orders sought on 6 November 2018. The return date of each provisional
order was 11 March 2019.
[11] These orders appointed True South Actuaries and Consultants (Pty) Ltd,
represented by Mr Francois Hugo and Mr Paul Zondagh, as the provisional curator (the
curator) of each of the insurers. Pending the return date, the curator was vested with
all the powers and duties in s 54(2) of the Insurance Act. Paragraph 5 of the order in
the Bophelo application provided:
‘Pending the return day of this order, all actions, proceedings, the execution of all writs,
summonses and other processes against Bophelo, including any proceedings before the
Commission of Conciliation, Mediation and Arbitration, are hereby stayed and are not to be
instituted or proceeded with, without the leave of this Court.’
The order in respect of Nzalo, of course, contained an identical provision.
[12] The provisional curatorship orders directed the curator to furnish a report to the
high court (with a copy served on the Prudential Authority) by no later than 5 days prior
to the return date, regarding the matters listed therein. For convenience, I again
reproduce the relevant extract from the Bophelo order:
‘9.1
[T]he overall financial position of Bophelo, with specific details of its financial
soundness, assets, liabilities, Minimum Capital Requirements and Solvency Capital
Requirements;
9.2
the status of any business conducted by Bophelo or any of its subsidiaries, holding
companies, affiliated or associated companies, involving money received from
policyholders and other parties in connection with insurance;
9.3
the number and value of policies issued by Bophelo in the various classes of insurance
business;
9.4
any irregularities committed by Bophelo, its directors, management, officers, members,
auditors, investors (including but not limited to Lebashe Financial Services
(Proprietary) Limited) (“Lebashe”) and shareholders, and full details of the
contravention of any laws in the conduct of its business;
9.5
what further steps should be taken and by whom in order to safeguard the interests of
the policyholders and other creditors of Bophelo;
9.6
the viability of the business of Bophelo and any other entity in which the Bophelo has
a direct interest, and set out the ways to ensure the survival of the business of Bophelo
in particular with regard to the protection of the interests of its policyholders;
9.7
the curator’s opinion as to whether Lebashe was permitted to withdraw the funds
invested by it in Bophelo (if indeed such funds have been withdrawn by Lebashe);
9.8
the curator’s opinion as to whether Bophelo should be placed in liquidation; and if so,
the persons to be appointed as liquidators of Bophelo. This must include: the number
of persons to be appointed as liquidators and details of their experience; and
9.9
the curator’s opinion as to whether the rule nisi should be confirmed, its provisional
appointment should be made final, and if so, to give an indication of the term required
for completion of the curatorship.’
[13] The high court also ordered the curator to furnish the Prudential Authority with
progress reports on a weekly basis, the first to be submitted 30 days after acceptance
by the curator of the provisional appointment. The curator, however, produced only one
combined progress report, on 5 December 2018. The curator explained that it was
unable to furnish other or further progress reports or a final report, because the insurers
had insufficient funds. That was something that it could not fairly be criticised for.
[14] The progress report, nevertheless, told a woeful tale about the financial
position and long-term business prospects of each of the insurers. The report
demonstrated that, as at 30 November 2018, the liabilities of Bophelo exceeded its
assets by R58 million. On the same date, Nzalo’s liabilities were R30 million in excess
of its assets.
[15] Bophelo’s main business was to provide risk policies to two group schemes, the
Private Security Sector Provident Fund (PSSPF) and the Transport Sector Retirement
Fund (TSRF). As at November 2018, Bophelo provided cover under roughly 272 000
policies. Roughly 200 000 of these related to the PSSPF, which had given notice of the
termination of its agreement with Bophelo at the end of December 2018. About 70 000
of these policies resorted under the TSRF. On the ground that Bophelo would be unable
to pay claims under these policies, the curator urged the TSRF to arrange alternative
cover from 1 January 2019, but no commitment to do so was forthcoming. At the end
of November 2018, the curator consequently gave 90 days’ notice of the termination of
the contract between the TSRF and Bophelo. Thus, only some 2 000 policies remained
extant. At the time almost all policies with Nzalo had been cancelled and moved to
other insurers.
[16] In the respect of each insurer, their curator reported:
‘After having settled all liabilities and adequately capitalised the business, it would also be akin
to a new insurer (apart from the brand damage sustained), starting from having to sell the first
policy and thus the reality of operational expense overruns until scale can be achieved in due
course.’
It concluded:
‘As set out through general reasoning above, both insurers are facing bleak longer-term
prospects. At the date hereof, it seems that only substantial recapitalisation could possibly
ensure the continued existence of the insurers over the longer-term.’
[17] In the light of this report, the Prudential Authority resolved to apply for the
provisional liquidation of the insurers. On 4 February 2019, it launched such
applications, which were set down for hearing on 12 February 2019. In the main, the
grounds for winding-up were that both the insurers were ‘hopelessly insolvent’, had no
directors and had ceased to be going concerns. The Prudential Authority also averred
that in the event of the provisional winding-up of the insurers, the provisional
curatorships would have served their purpose and indicated that it would seek their
discharge.
[18] On 11 February 2019, Lebashe delivered an application for leave to intervene
in the liquidation applications. In addition, on 7 March 2019, Lebashe filed what was
described as a ‘conditional answering affidavit’, which so it stated, ‘will become
unconditional if and when Lebashe is granted leave to intervene in the winding-up
application’. On 12 February 2019, however, the high court issued a provisional
liquidation order in respect of each insurer, with the same return date as the provisional
curatorship orders, namely 11 March 2019. It postponed Lebashe’s intervention
application to the same date.
[19] On 11 March 2019 and subsequently, the return date of the four provisional
orders was extended. In the meantime, the high court granted leave to Lebashe to
intervene in the liquidation applications, by agreement between the relevant parties.
Thus, Lebashe’s earlier conditional answering affidavit was duly placed before the high
court. The high court also granted leave to the TSRF to intervene in the Bophelo
liquidation application. These were the only parties that opposed the relief sought. The
curator filed affidavits confirming that the insurers were insolvent.
[20] In its answering affidavit, Lebashe rightly did not dispute that the insurers were
insolvent. It contended, however, that s 54(5) of the Insurance Act precluded the
provisional liquidation orders. I shall reproduce this subsection shortly. Lebashe also
adequately foreshadowed an argument that para 5 of the provisional curatorship orders
did the same. Alternatively it sought the setting aside or stay of the provisional
liquidation orders on the ground that the curator had not reported on steps taken by it
to recapitalise the insurers.
[21] All four applications eventually came before Yacoob J, who conveniently dealt
with them in one judgment. The high court determined that the provisional curatorship
orders should be discharged. It rejected Lebashe’s contention that s 54(5) of the
Insurance Act rendered the provisional liquidation orders incompetent and proceeded
to confirm them.
Analysis
[22] In the light of what I have said, there are three issues in the appeal, namely
whether:
(a)
Lebashe has standing in the appeal;
(b)
Section 54(5) of the Insurance Act and/or para 5 of the provisional curatorship
orders precluded final liquidation orders in respect of the insurers; and
(c)
The curator was in law required to seek - or effect - the recapitalisation of the
insurers.
Standing
[23] As I have said, Lebashe had been granted leave to intervene in the liquidation
applications by agreement and obtained leave from the high court to appeal to this
court. That, however, did not relieve Lebashe of the duty to satisfy this court that it has
locus standi to obtain the relief that it seeks on appeal. That is so for two main reasons.
The first is that the respective tests are not identical. Germane to the second, are the
oft-repeated dicta that the scarce resources of this court should not be expended on
deciding abstract or academic issues.
[24] As Harms JA said in Gross & Others v Pentz 1996 (4) SA 617 (A) at 632C:
‘The question of locus standi is in a sense a procedural matter, but it is also a matter of
substance. It concerns the sufficiency and directness of interest in the litigation in order to be
accepted as a litigating party.’
See also Sandton Civic Precinct (Pty) Ltd v City of Johannesburg & Another [2008]
ZASCA 104; 2009 (1) SA 317 (SCA) para 19. Although there are no hard and fast rules
in this regard, the general rule is that a direct and existing interest in the relief is
required. A direct interest is one that is not too far removed and an existing interest is
one that is not abstract, academic or hypothetical. See Cabinet of the Transitional
Government for the Territory of South West Africa v Eins 1988 (3) SA 369 (A) at 388B-
H; Jacobs en ‘n Ander v Waks en Andere 1992 (1) SA 521 (A) at 534A-E and Public
Protector v Mail & Guardian Ltd & Others [2011] ZASCA 108; 2011 (4) SA 420 (SCA)
para 29.
[25] The winding-up orders in respect of the insurers do not, of course, operate
against Lebashe. What then is Lebashe’s interest in having the liquidation orders
overturned? Lebashe is a creditor of BIG. I accept that it is also the majority shareholder
of BIG, which holds the shares in the insurers. These were the only factors referred to
by counsel for Lebashe when this court raised this issue during argument. On this
basis, however, Lebashe is only a creditor and shareholder of the holding company of
the insurers. As such, there are no legal relationships between Lebashe and the
insurers. Lebashe has no rights to a preferred legal process of dealing with the
undisputed insolvency of the insurers, even though it may have an indirect financial or
commercial interest therein. In my view, Lebashe’s interest is too indirect and
insufficient to clothe it with locus standi in the appeal.
[26] The high court ought to have considered these matters in determining whether
leave to appeal should be granted. And, quite frankly, that should have resulted in a
refusal of leave to appeal. It follows that the appeal must fail for this reason alone.
Ordinarily that would have been the end of the matter. However, the remaining issues
have been fully argued, are novel and are likely to arise in the future. In the
circumstances, I regard it in the interests of justice to determine the remaining issues.
Statutory context of s 54 of the Insurance Act
[27] Chapter 9 (ss 52-59) of the Insurance Act is entitled ‘Resolution’. It consists of
four parts that provides powers to the Prudential Authority to deal with non-compliant
insurers and controlling companies (as defined). It is not necessary to make further
reference to controlling companies. Part 1 (s 53) provides that the Prudential Authority
may appoint a statutory manager in terms of s 5A of the Financial Institutions
(Protection of Funds) Act 28 of 2001 (FIPF) in respect of an insurer. Part 2 (s 54) deals
with curatorship. In terms of Part 3 (ss 55-56) provision is made for the Prudential
Authority to apply to a court for an order placing an insurer under business rescue in
terms of the Companies Act 71 of 2008 (the Companies Act).
[28] Part 4 (ss 57-59) provides for the winding-up of an insurer at the instance of
the Prudential Authority, in these terms:
‘Despite any other law under which an insurer is incorporated, sections 79 to 81 of, and item 9
of Schedule 5 to, the Companies Act shall, subject to this section and with the necessary
changes, apply in relation to the winding-up of an insurer or a controlling company, and to the
exclusion of any similar provisions under the Co-operatives Act or any other law under which
an insurer or controlling company is established or incorporated, and in such application the
Prudential Authority is deemed to be a person authorised under the Companies Act to make
an application to the court for the winding-up thereof.’
Section 57(2) gives particulars as to how these provisions of the Companies Act should
be applied to the winding-up of an insurer in terms of this section.
[29] Section 54(1) of the Insurance Act reads:
‘(1)
Despite any other law–
(a)
the court may, on application by the Prudential Authority; or
(b)
the Prudential Authority may by agreement with an insurer or controlling company and
without the intervention of the court,
appoint a curator in terms of section 5 of the Financial Institutions (Protection of Funds) Act in
respect of any insurer or controlling company.
[30] Section 5(1) of the FIPF provides for an application, on an ex parte basis, for
the appointment of a curator. Section 5(2) reads:
‘(2)
Upon an application in terms of subsection (1) the court may–
(a)
on good cause shown, provisionally appoint a curator to take control of, and to manage
the whole or any part of, the business of the institution on such conditions and for such
a period as the court deems fit; and
(b)
simultaneously grant a rule nisi calling upon the institution and other interested parties
to show cause on a day mentioned in the rule why the appointment of the curator
should not be confirmed.’
If at the hearing pursuant to the rule nisi, the court is satisfied that it is desirable to do
so, it may confirm the appointment of the curator (s 5(4) of the FIPF).
[31] In terms of s 5(5), a court may for the purposes of a provisional appointment
under s 5(2)(a) and a final appointment under s 5(4), make an order with regard to inter
alia: the suspension of legal proceedings against the institution for the duration of the
curatorship; the authority of the curator to investigate the affairs of the institution; and
the powers and duties of the curator. Section 5(9) provides that the court may, on good
cause shown, cancel the appointment of a curator at any time.
Final liquidation precluded?
[32] Section 54(5) of the Insurance Act reads:
‘An insurer or a controlling company may not begin or enter business rescue or be wound-up
while under curatorship within the meaning of the Financial Institutions (Protection of Funds)
Act, unless the curator applies for the business rescue or winding-up.’
[33] In rejecting Lebashe’s argument that s 54(5) precluded the provisional
liquidation orders, the court a quo essentially reasoned that the expression ‘be wound-
up’ did not refer to the commencement of a winding-up, but to the process of winding-
up. See GCC Engineering & Others v Maroos [2018] ZASCA 178; 2019 (2) SA 379
(SCA) para 17. For the reasons that follow, this interpretation is not tenable.
[34] First, it fails to have regard to the full text of s 54(5). The phrase ‘An insurer
may not begin or enter business rescue . . .’, clearly refers to the adoption and filing of
a resolution to begin business rescue in terms of s 129 and a court order placing a
company under business rescue in terms of s 131 of the Companies Act. Thus, unlike
s 53(2) of the Insurance Act (which provides that no business rescue or winding-up
proceedings may be commenced whilst a statutory manager holds office), s 54(5) has
to do with the effecting of business rescue or winding-up. Winding-up of a solvent
company is effected either by the adoption and filing of a special resolution in terms of
s 80 or a court order under s 81 of the Companies Act. The same applies to an insolvent
company in terms of s 343, s 344 and s 349 of the Companies Act 61 of 1973 (which
continues in force by reason of item 9 of Schedule 5 to the Companies Act). Thus, it
would make no sense to prohibit the coming into effect of business rescue whilst a
curatorship is in place, but not the commencement of liquidation, which would have far
more drastic consequences.
[35] The process of winding-up (the realisation of assets) is, of course, not itself
something that one can apply for in a court. A curator can only apply for a winding-up
order. The phrase: ‘An insurer may not be wound-up . . . unless the curator applies for
the . . . winding-up’, must therefore mean that in these circumstances a liquidation may
not be ordered unless the curator applies for it.
[36] In the second place, having regard to the powers and duties of curators and
liquidators respectively, curatorship and liquidation cannot co-exist. Who, one might
ask, would have the duty to take custody and control of the assets of the insurer and to
safeguard them, should it simultaneously be under curatorship and in liquidation? This
is a powerful indicator that a liquidation order may not be issued in respect of an insurer
that is under curatorship.
[37] On this basis, there is conflict between the provisions of s 54(5) and those of s
57(1). Should the latter mean that the Prudential Authority may, irrespective of an
existing curatorship, at any time obtain a winding-up order, s 54(5) (and s 53(2)) would
be rendered nugatory. That could clearly not have been intended. In my view, the
answer lies in the maxim generalia specialibus non derogant. See Sunny South
Canners (Pty) Ltd v Mbangxa & Others NNO 2001 (2) SA 49 (SCA) para 27. The special
provision (s 54(5)) limits the application of the general one (s 57(1)).
[38] It follows that by reason of s 54(5), the provisional liquidation orders in respect
of the insurers should not have been granted. That result should also have flowed from
the provisions of para 5 of the provisional curatorship orders. It will be recalled that it
provided, inter alia, that pending the return date of the order, proceedings against the
insurer ‘are hereby stayed and are not to be instituted or proceeded with, without the
leave of the Court’. That leave had not been obtained.
[39] In Born Free Investments 247 (Pty) Ltd v Pierre du Plessis Kriel NO [2019]
ZASCA 21, this court was called upon to determine the legal effect of an order that was
materially the same as para 5 of the provisional curatorship orders. It reasoned as
follows:
‘Although paragraph 6.2 is clumsily worded, it does not state that non-compliance with its
provisions would result in a nullity. To accept that failure to obtain leave of the court prior to
instituting legal proceedings leads to nullity would, in my view, lead to injustice. It would also
lead to inconsistency, because existing actions would be stayed, but an action instituted without
prior leave would be dismissed, which seems an extreme and unnecessary result. It would be
contrary to s 34 of the Constitution which provides that “everyone has the right to have any
dispute that can be resolved by the application of the law decided in a fair public hearing before
a court”. Suppose a creditor, oblivious to the moratorium, issued summons without obtaining
the leave of the court, it would mean that it would be precluded from proceeding with its claim
because its summons was a nullity for want of prior leave of the court. Such a construction, in
my view, would be unjust. It seems to me that a sensible interpretation of paragraph 6.2 is that
an action may not be instituted without the leave of the court, and where it has been instituted,
such action should be stayed until leave is obtained.’
[40] In my view, this reasoning is not only applicable to para 5 of the provisional
curatorship orders, but also to non-compliance with s 54(5). As I have demonstrated, it
does not seek to prohibit the institution of proceedings, but the commencement of
business rescue or winding-up by a resolution or court order. If anything, therefore,
there is a clearer indication in s 54(5) that the liquidation applications were not
themselves rendered null and void. The provisional liquidation orders were
incompetent, but the applications for liquidation not. By operation of law, they were
stayed whilst the curatorships were in place.
[41] It follows that the liquidation applications could be proceeded with once the
curatorships came to an end. That, in effect, was what happened in the court a quo.
The court firstly considered whether it was desirable (in terms of s 5(4) of the FIPF) to
confirm the provisional curatorship orders and concluded that they should be
discharged. It then proceeded to hold that final winding-up orders should be issued.
[42] While a final winding-up order is usually preceded by a provisional order and a
rule nisi, calling upon interested parties to show cause why on the return date a final
winding-up order should not be made, that is not invariably so and valid provisional
liquidation orders are not prerequisites for final winding-up orders. Thus, the issuance
of the final winding-up orders were not precluded by s 54 (5) of the Insurance Act, nor
by para 5 of the provisional curatorship orders.
Duty on curator to effect recapitalisation?
[43] Lebashe complained that the liquidation of the insurers was premature, as the
curator had not yet reported on the steps taken by it to recapitalise them. This
contention implied that the curator had a duty to do so. As I shall show, however, this
contention is refuted by the text, context and purpose of the provisional curatorship
orders.
[44] These orders, in essence, conveyed that the curator had to take control of the
businesses of the insurers, investigate their affairs and report to the high court on the
stipulated topics. They said nothing about seeking or obtaining capital injections or
long-term financing for the insurers. The stipulated topics themselves demonstrated
that the curator was not required to do anything of the sort.
[45] This accorded with the provisions of s 54(2) which, as I have said, were
incorporated in these orders. It is not necessary to reproduce this lengthy subsection.
It suffices to say that it provided the curator with wide powers to manage and
investigate. In terms of s 54(2)(e), the powers vested in the curator had to be exercised
‘with a view to conserving the business’. And in terms of s 54(2)(e)(iii), it could only
raise funding on behalf of the insurer with the prior approval of the Prudential Authority
to provide security over the assets of the insurer.
[46] Thus, the curatorship of the insurer was only a means to an end. By its nature
it would be of temporary duration. And its purpose was not to rescue the business of
the insurer. That option, as I have said, was available to the Prudential Authority under
Part 3 of Chapter 9. It follows that this argument cannot be sustained.
[47] The appeal is dismissed with costs, including the costs of two counsel.
_______________________
C H G VAN DER MERWE
JUDGE OF APPEAL
Appearances:
For appellant:
T J B Bokaba SC and A C McKenzie
Instructed by:
Rams Attorneys, Sandton
Honey Attorneys, Bloemfontein.
For first respondent:
A E Bham SC and J E Smit
Instructed by:
Werksmans Attorneys, Sandton
Symington & De Kok, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
24 October 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Lebashe Financial Services (Pty) Ltd v The Prudential Authority and Others (346/2021) [2022]
ZASCA 141 (24 October 2022)
The Supreme Court of Appeal (SCA) today dismissed an appeal from the Gauteng Division of the High
Court, Johannesburg (high court). On 6 November 2018, the Prudential Authority, a juristic person that
operates within the administration of the South African Reserve Bank, obtained orders in the high court
placing Bophelo Life Insurance Company Limited (Bophelo) and Nzalo Insurance Services Limited
(Nzalo) (the Insurers) under provisional curatorship in terms of s 54(1) of the Insurance Act 18 of 2017
(the Insurance Act). The Insurers are wholly owned by Bophelo Insurance Group Limited (BIG). While
these orders were in force, and at the insistence of the Prudential Authority, both were also placed under
provisional winding-up. Eventually, final liquidation orders were made in respect of both Bophelo and
Nzalo. Lebashe Financial Services (Pty) Ltd (Lebashe), an intervening party in the high court, appealed
to this court seeking to have the liquidation orders overturned and the curatorships reinstated. This
appeal revolved around whether Lebashe had standing in the appeal, and if it could satisfy this Court
that it did, whether s 54(5) of the Act and the provisional curatorship orders precluded final liquidation
orders in respect of the Insurers. Lastly, was the curator required to seek or effect the recapitalisation of
the Insurers?
The SCA found that Lebashe failed to satisfy the Court that it had sufficient interest in the matter to
clothe it with the required locus standi. This Court accepted that Lebashe was a creditor and majority
shareholder of BIG, but this was insufficient to establish a legal relationship between itself and the
Insurers. Lebashe had no rights to a preferred legal process of dealing with undisputed insolvency of
the Insurers. The appeal ought to have failed for this reason alone, but as the other reasons were novel
and likely to arise in future, the SCA provided further clarity on the other two issues.
With regards to whether the provisional curatorship orders precluded final liquidation orders in respect
of the insurers, the SCA held that the Insurance Act provided powers to the Prudential Authority to, in
conjunction with the Financial Institutions (Protection of Funds) Act 28 of 2001 and the Companies
Act 71 of 2008 (Companies Act), deal with non-compliant insurers. Similar to business rescue, winding-
up of a solvent company is effected either by the adoption and filing of a special resolution in terms of
s 80 or a court order under s 81 of the Companies Act. The same applies to an insolvent company in
terms of s 343, s 344 and s 349 of the Companies Act. Since section 54(5) clearly prohibited the
effecting of business rescue, it would make no sense to prohibit the coming into effect of business rescue
whilst a curatorship is in place, but not the commencement of liquidation, which would have far more
drastic consequences. Moreover, curatorship and liquidation cannot co-exist. It followed that by reason
of s 54(5) and the terms of the provisional curatorship orders, the provisional liquidation orders in
respect of the insurers should not have been granted. The SCA found, however, that the liquidation
applications were not themselves rendered null and void. The provisional liquidation orders were
incompetent, but the applications for liquidation not. By operation of law, they were stayed whilst the
curatorships were in place. The liquidation applications could have been proceeded with once the
curatorships came to an end and that, in effect, was what happened in the high court.
Lastly, Lebashe complained that the liquidation orders of the insurers were premature, as the curator
had not yet reported on the steps taken to recapitalise them. The provisional curatorship orders conveyed
that the curator had to take control of the businesses of the insurers, investigate their affairs and report
to the high court. Nothing was required regarding seeking or obtaining capital injections or long-term
financing for the insurers. The curator was not required to do anything of the sort. This accorded with
the provisions of the Insurance Act which provided the curator with wide powers to manage and
investigate. Thus, the curatorship of the insurer was only a means to an end; by its nature it would have
been only a temporary measure and its purpose was never to rescue the business of the insurer. Had
rescue proceedings been contemplated, the Prudential Authority could have followed that route.
In the result, the SCA dismissed the appeal.
--------oOo--------
|
3752
|
non-electoral
|
2022
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 990/2020
In the matter between:
ESKOM HOLDINGS SOC LIMITED
APPELLANT
and
LETSEMENG LOCAL MUNICIPALITY
FIRST RESPONDENT
NATIONAL ENERGY REGULATOR
OF SOUTH AFRICA (“NERSA”)
SECOND RESPONDENT
MINISTER OF ENERGY
THIRD RESPONDENT
MINISTER OF PUBLIC ENTERPRISES
FOURTH RESPONDENT
THE MEC: DEPARTMENT OF COOPERATIVE
GOVERNANCE, HUMAN SETTLEMENTS AND
TRADITIONAL AFFAIRS, FREE STATE PROVINCE
FIFTH RESPONDENT
Neutral citation:
Eskom Holdings SOC Limited v Letsemeng Local Municipality and
Others (Case no 990/2020) [2022] ZASCA 26 (9 March 2022)
Coram:
SALDULKER ADP, SCHIPPERS and PLASKET JJA and SMITH and
PHATSHOANE AJJA
Heard:
26 November 2021
Delivered:
This judgment was handed down electronically by circulation to the parties’
legal representatives via email. It has been published on the Supreme Court of Appeal
website and released to SAFLII. The date and time for hand-down is deemed to be 9h45
on 9 March 2022.
Summary:
Electricity Regulation Act 4 of 2006 – interdict and counter-application –
municipality’s obligation to pay for electricity supplied to it by Eskom – interdict to prevent
the interruption of the electricity supply for non-payment – counter-application to compel
payment as agreed to by the municipality.
__________________________________________________________________
ORDER
__________________________________________________________________
On appeal from: Free State Division of the High Court, Bloemfontein (Loubser J, sitting
as the court of first instance):
The appeal is upheld with costs, including the costs of two counsel.
The order of the court below dismissing the appellant’s counter-application is set
aside and replaced with the following order:
‘The Municipality is directed to pay to Eskom:
(a)
all amounts, in respect of the electricity it receives from Eskom, when
such amounts are due and payable, in accordance with clause 9 of the
electricity supply agreement concluded between the parties and s 65(2)
of the Local Government: Municipal Finance Management Act 56 of
2003;
(b)
all arrear debts due and payable to Eskom, in accordance with the terms
of the acknowledgement of debt and payment plan concluded between
the parties which is attached to the founding affidavit as annexure ‘FA2’;
(c)
such portion of the equitable share that relates to electricity within 24
hours of receipt of the equitable share;
(d)
the amount of R 5 million which the national treasury made available to
the municipality for the payment of its electricity debt;
(e)
costs, including the costs of two counsel.’
__________________________________________________________________
JUDGMENT
__________________________________________________________________
Phatshoane AJA (Saldulker ADP and Plasket JA and Smith AJA concurring):
[1] Eskom Holdings SOC Limited (Eskom), the appellant, and Letsemeng Local
Municipality (Letsemeng), the respondent, are locked in a dispute over the non-payment
by Letsemeng of its electricity supply account. As at 31 January 2020, Letsemeng’s debt
had accumulated to an astronomical figure of R41 094 530.19. Based on Letsemeng’s
recurrent failure to comply with its obligations, Eskom issued a final notice to interrupt
electricity supply with effect from 18 February 2020. This precipitated the launching of an
urgent application in the Free State Division of the High Court, Bloemfontein (the high
court) by Letsemeng to interdict Eskom from implementing the interruption pending the
review of that decision and the determination of a dispute between the parties to be
referred to the National Energy Regulator of South Africa (Nersa), the second respondent,
in accordance with the provisions of the Electricity Regulation Act 4 of 2006 (the ERA).
[2] Eskom opposed the application and filed a counter-application in which it sought,
inter alia, to compel Letsemeng to comply with its obligations in terms of the electricity
supply agreement (ESA) that it and Letsemeng had concluded. Letsemeng’s failure to
meet its payment obligations lies at the heart of the counter-application which is founded
on two acknowledgements of debt (AOD) signed by Letsemeng and a certificate of
balance issued by a senior manager of Eskom.
[3] The high court (per Loubser J) acknowledged that Eskom could not continue to
supply electricity without Letsemeng paying for it. However, it was of the view that it could
not grant Eskom an order for payment as Letsemeng had no funds with which to satisfy
the debt. In any event, the high court held, such an order would have no practical effect.
The high court was of the view that Eskom had itself to blame as it could have resorted
to a number of alternative legal processes to remedy the default. Eskom proceeded at a
glacial pace, so reasoned the high court, until it deemed it appropriate to resort to a threat
to interrupt the supply of electricity to Letsemeng in order to force it to pay. The high court
granted Letsemeng the interim interdict but dismissed Eskom’s counter-application.
[4] Leave to appeal was granted by the high court in unqualified terms against both
its order on the interim interdict and the counter-application. Despite this, Eskom only
appeals against the order dismissing its counter-application.
Background:
[5] Eskom is the sole supplier of electricity on the national grid within the borders of
the Republic of South Africa and is a licensee in terms of the ERA for the generation,
transmission and distribution of electricity to bulk consumers and end-users. Letsemeng
is also a holder of a temporary distribution license issued by Nersa. The ERA authorises
Eskom to enter into ESAs with municipalities which, in turn, distribute to end-users who
reside in their areas of jurisdiction.
[6] Eskom and Letsemeng entered into an ESA on 13 February 2006. The material
terms of relevance for present purposes are contained in clauses 4 and 9. In terms of
clause 4.1, Eskom agreed to supply Letsemeng with electricity and Letsemeng agreed to
take from Eskom all the electricity required by it for its distribution system on terms and
conditions set out in the agreement. Clause 9.1 provided that the electricity accounts for
all charges payable under the ESA would be sent to Letsemeng as soon as possible after
the end of each month and each account would be due and payable on the date the
account was received by Letsemeng. Clause 9.2 provided that if payment was not
received within 10 days from the date the account was deemed to have become payable
in terms of sub-clause 9.1, Eskom could discontinue the supply to Letsemeng or terminate
the ESA. In terms of clause 9.3, if Letsemeng disputed an account it would not be entitled
to reduce or set-off its debts or defer payment but had to settle the account in full pending
resolution of the dispute. Finally, clause 9.5 provided that a certificate signed by an
authorised employee of Eskom setting out the amount due and payable by Letsemeng at
any time would be prima facie proof, subject to manifest error, of Letsemeng’s debt.
[7] During 2017, Letsemeng first fell into arrears with the payment of its account. At
that stage, it owed Eskom R5 247 883.94. Eskom threatened to commence a process
that would culminate in the interruption of the electricity supply, a measure that is
authorised by s 21(5) of the ERA. Letsemeng acknowledged its indebtedness, undertook
to make arrangements with Eskom to settle the debt and pleaded with Eskom not to
interrupt the supply of electricity. Despite that, Letsemeng failed to discharge its payment
obligations. It repeated its unequivocal admission of liability on 28 September and 02
November 2017 but defaulted in making payments.
[8] On 23 February 2018 Letsemeng once more acknowledged its indebtedness
which had grown, by then, to R12 037 025.83 and undertook to pay the full amount owed
by 31 December 2019. It reneged on its obligations yet again. On 11 October 2019 Eskom
informed Letsemeng that in the light of its breach, the debt had increased to R30 million.
It urged Letsemeng to pay by 31 October 2019 and threatened to interrupt the supply of
electricity if Letsemeng did not pay. Eskom was, however, still willing to enter into another
payment arrangement with Letsemeng, which once again readily acknowledged the debt
but still did not honour payment.
[9] On 6 December 2019, Letsemeng signed the second AOD on terms identical to
that of 23 February 2018. The amount then owed was R35 865 884.81. Letsemeng failed
to make good on its commitment to pay yet again.
[10] In light of the various breaches, on 31 January 2020, Eskom, exercising the power
conferred upon it by s 21(5) of the ERA, issued a final notice to interrupt Letsemeng’s
electricity supply with effect from 18 February 2020. On 5 February 2020, Letsemeng,
with a view to preventing the interruption, sought a R5.4 million advance from the Free
State Provincial Treasury which would be set-off against its subsequent equitable share.
The Treasury undertook to make the advance and Eskom and Letsemeng agreed that
Letsemeng would pay R5 million to Eskom on 25 February 2020. On the eve of the
payment date, however, Letsemeng launched the urgent proceedings in the high court. It
did not pay the R5 million as promised.
The issues
[11] The primary issue to be addressed in this appeal, as I see it, is whether Eskom
was entitled to the relief sought in its counter-application. It is necessary first to outline
the relief claimed in the counter-application.
The counter-application
[12] In the first three prayers, orders were sought to compel Letsemeng ‘to comply with
the payment conditions’ set out in clause 9 of the ESA concluded by the parties; directing
Letsemeng to pay for its electricity consumption in accordance with s 65(2) of the Local
Government: Municipal Finance Management Act 56 of 2003 (MFMA); and directing
Letsemeng to ‘pay all monies due and payable on its current account to Eskom as set out
in the ESA’.
[13] Prayer 4 stands on its own. It is a prayer for a declarator that Letsemeng is ‘in
breach of section 153(a) of the Constitution in that it has failed to structure and manage
its administration, budgeting and planning processes in order to give priority to basic
needs, including the payment of electricity to Eskom, and promote the social and
economic development of its community’.
[14] Prayers 5, 6 and 7 seek structural interdicts. Prayer 5 is for an order directing
Letsemeng to ‘deliver a notice, on affidavit’ to the high court and Eskom ‘on or before the
8th day of each month indicating and providing evidence of its compliance with its
obligations under the acknowledgement of debt and repayment plan, and its monthly
current account obligations to Eskom’. Prayer 6 states that the Municipal Manager ‘is
mandated and ordered to ensure compliance with the terms of this order and give effect
thereto’. Prayer 7 directs Letsemeng to ‘report to this Court on affidavit and to the
applicant . . . before the last business day of every second month after the granting of this
order furnishing full and comprehensive details as to the manner of such compliance with
paragraphs 1-4’.
[15] In prayers 8 and 9, Eskom sought orders declaring that Letsemeng has ‘a legal
obligation, on a monthly basis, to ring fence such portion, as determined in its electricity
distribution licence, of its electricity revenue collected from all electricity sales in terms of
its (sic) sec 27(i) [of the] Electricity Regulation Act’; and directing Letsemeng ‘to ring fence
a certain portion of its electricity revenue collected from all electricity sales in terms of sec
27(i) [of the] Electricity Regulation Act . . . and its Licence for the Distribution of Electricity’.
[16] Prayer 10 sought an order directing Letsemeng to ‘pay such portion of the
equitable share, as may be determined, as relates to electricity, directly to the Applicant
within 24 hours of receipt of such share by and forthwith to give written notice to the
applicant and court that it has implemented this order’. Prayer 11 sought an order directing
Letsemeng ‘to pay the amount of R5 million to Eskom which National Treasury has made
available for payment to Eskom on 25 February 2020’.
[17] Before I turn to the defences raised by Letsemeng, I intend to dispose at the outset
of those prayers to which Eskom has not established an entitlement. First, Eskom is not
entitled to an order declaring Letsemeng in breach of s 153(a) of the Constitution. It has
not put up any evidence in this regard, apart from Letsemeng’s non-payment of its
electricity account. It consequently has not made out a case for this relief. In any event, it
has made out no case for its standing to obtain such an order.
[18] Secondly, Eskom sought vaguely drafted structural orders that would require
affidavits being filed with the high court from time to time. No explanation was given as to
why these orders were necessary and what purpose they were intended to serve. No
case was made out for the structural orders and I can see no point in granting them.
Eskom is able to enforce its rights in the event of non-compliance by Letsemeng without
structural orders.
[19] Thirdly, the orders Eskom sought in relation to ring-fencing of funds are not borne
out by the legislation and are vague. It sought an order directing Letsemeng to ‘ring-fence
a certain portion of its electricity revenue collected from all electricity sales’. Section 27(i)
of the ERA provides no more than that municipalities must exercise their executive
authority and perform their duties by, inter alia, ‘keeping separate financial statements,
including a balance sheet of the [electricity] reticulation business’. In Resilient Properties
(Pty) Ltd v Eskom Holdings SOC Ltd and Another1 Van der Linde J, with reference to s
27(i), described the obligation to keep separate accounts as ‘ring-fencing’. At best, Eskom
may have been entitled to an order directing Letsemeng to keep separate financial
statements in respect of electricity reticulation, but there is no evidence that it does not
do so.
The remainder of the counter-application
[20] A local government is required to strive, within its financial and administrative
capacity, to achieve, among others, its object of ensuring the provision of services to its
community in a sustainable manner.2 Electricity is an important basic municipal service
which local government is ordinarily obliged to provide.3 Reciprocal obligations are
created by the ESA concluded by the parties: Eskom is obliged to supply bulk electricity
to Letsemeng; and Letsemeng is obliged to pay for this service. In terms of s 51(1)(b)(i) of
the Public Finance Management Act 1 of 1999, Eskom must take effective and
appropriate steps to collect all revenue due to it; and s 65(2) of the MFMA places an
obligation on Letsemeng to take all reasonable steps to ensure that money that it owes
is paid within 30 days of receiving the relevant invoice or statement.
[21] The remaining prayers sought by Eskom in its counter-application are aimed at
securing payment from Letsemeng on the basis of its contractual and statutory
obligations. The undisputed evidence is that Letsemeng did not honour any of the AODs
and the various payment arrangements it made with Eskom. Indeed, it is common cause
that Letsemeng is in default of its obligation to pay Eskom for the electricity that has been
supplied to it. Furthermore, Letsemeng undertook to pay the amount of its equitable share
earmarked for electricity, and then to pay R5 million to Eskom that was advanced to it by
1 Resilient Properties (Pty) Ltd v Eskom Holdings SOC Ltd and Others 2019 (2) SA 577 (GJ) para 56.
2 Rademan v Moqhaka Local Municipality and Others [2013] ZACC 11; 2013 (4) SA 225 (CC); 2013 (7)
BCLR 791 (CC) para 10. See also s 4(2)(d) of the Local Government: Municipal Systems Act 32 of 2000
which provides: ‘The council of a municipality, within the municipality’s financial and administrative capacity
and having regard to practical considerations, has the duty to. . .strive to ensure that municipal services are
provided to the local community in a financially and environmentally sustainable manner. . ..’
3 Joseph and Others v City of Johannesburg and Others [2009] ZACC 30; 2010 (4) SA 55 (CC); 2010 (3)
BCLR 212 (CC) para 40.
the Treasury, but did not do so. Counsel for Letsemeng properly conceded that, at the
least, the R5 million was owed to Eskom. It cannot be disputed that, given the facts I have
outlined, Letsemeng is in breach of its obligation in terms of s 65(2) of the MFMA. In the
context of Letsemeng having applied to interdict Eskom from interrupting the supply of
electricity, Eskom has no suitable alternative remedy other than its counter-application
for mandatory orders to enforce Letsemeng’s reciprocal obligations to pay for the
electricity it has and will receive.
[22] Letsemeng’s defence on the merits is no defence at all – that it should not be
ordered to pay what it agreed to pay because it was unable, due to its financial weakness,
to do so. To the extent that this may amount to the tacit raising of a defence of impossibility
of performance, the position is clear: if a person promises to do something that can be
done, such as delivering a thing or paying a debt, but which that person cannot do due to
circumstances peculiar to themselves, they are nonetheless liable on the contract.4 The
commercial mayhem that would result, if the rule was otherwise, is not difficult to imagine.
Contractual obligations are enforced by courts irrespective of whether a defaulting party
is able to pay or not. The focus is on the rights of the innocent party, not the means of the
defaulting party.
[23] Letsemeng also raised as a defence the disputes it claims to have in respect of the
quantum of its debt. That too is no defence because clause 9.3 of the ESA provides that
Letsemeng is required to settle its account pending the resolution of any dispute it may
have with Eskom.
[24] It is necessary to make brief mention of an assertion, not pressed before us by
Letsemeng, that the Intergovernmental Relations Framework Act 13 of 2005 (the IRFA)
provided it with a defence. In Eskom Holdings SOC Ltd v Resilient Properties (Pty) Ltd
and Others5, this Court held that, in terms of the IRFA, Eskom had been required to
4 Post Office Retirement Fund v South African Post Office and Others (Case no. 1134/2020) [2021] ZASCA
186 (30 December 2021) paras 83-84.
5 [2020] ZASCA 185; 2021 (3) SA 47 (SCA) paras 74-84.
attempt, in good faith, to settle its disputes with the municipalities concerned before
deciding to interrupt the supply of electricity to them. The fact that it had not done so
meant that a precondition for the valid exercise of its power in terms of s 21(5) of the ERA
was absent. That was the basis of the applicants’ prima facie right for purposes of the
interim interdicts applied for. The same idea applies in this case to the interim interdict,
but it is not the subject of this appeal. Only Eskom’s counter-application is, and the IRFA
has no bearing on that: once Letsemeng applied for an interim interdict, nothing precluded
Eskom from seeking counter-performance for having to continue to supply electricity. As
a result, the IRFA provides no defence to Letsemeng in relation to the counter-application.
[25] For the most part, Eskom’s entitlement to the remaining orders is clear. It is,
however, necessary to say something of one of the orders sought by Eskom, namely that
Letsemeng pay to Eskom that portion of the equitable share that relates to electricity.
Local governments raise their revenue through rates and other charges but are also
funded to varying degrees by grants from the national government. A municipality is
entitled to an equitable share of the revenue raised nationally to enable it to provide basic
services and perform the functions allocated to it.6 Steytler and De Villiers say that each
municipality's equitable share is calculated according to a formula consisting of various
components including a basic service component to enable municipalities to provide
water, sanitation, electricity, refuse removal and other basic services.7 The equitable
share is intended to assist municipalities to provide services. The use of the equitable
share falls within the discretion of the municipality.8 Letsemeng exercised its discretion
by undertaking to pay to Eskom that part of its equitable share that related to electricity,
but failed to do so. In my view, this entitles Eskom to the order in respect of the equitable
share.
6 Section 227(1)(a) of the Constitution.
7 N Steytler and J De Villiers ‘Local Government’ in Constitutional Law of South Africa 2 ed (2013) ch 22 at
107-108.
8 Ibid ch 22 at 110.
Conclusion
[26] Eskom has granted Letsemeng ample opportunity to make arrangements for the
payment of its debt and to keep its current account up to date. Letsemeng, on the other
hand, has displayed bad faith throughout. It has promised to pay, reached agreements
on payment plans which, in every instance, it has said it could afford, but has on every
occasion cynically breached its undertakings. It cannot continue to receive electricity
without paying for it. The high court erred in dismissing Eskom’s counter-application in its
entirety.
[27] In the result, the following order is made:
The appeal is upheld with costs, including the costs of two counsel.
The order of the court below dismissing the appellant’s counter-application is set
aside and replaced with the following order.
‘The Municipality is directed to pay to Eskom:
(a)
all amounts, in respect of the electricity it receives from Eskom, when such
amounts are due and payable, in accordance with clause 9 of the electricity supply
agreement concluded between the parties and s 65(2) of the Local Government:
Municipal Finance Management Act 56 of 2003;
(b)
all arrear debts due and payable to Eskom, in accordance with the terms of the
acknowledgement of debt and payment plan concluded between the parties which is
attached to the founding affidavit as annexure ‘FA2’;
(c)
such portion of the equitable share that relates to electricity within 24 hours of
receipt of the equitable share;
(d)
the amount of R 5 million which the national treasury made available to the
municipality for the payment of its electricity debt;
(e)
costs, including the costs of two counsel.’
_________________
M V PHATSHOANE
ACTING JUDGE OF APPEAL
Schippers JA
[28] I have had the benefit of reading the judgment prepared by my colleague,
Phatshoane AJA and shall utilise the abbreviations used in it. As stated in that judgment,
this appeal is confined to the order dismissing Eskom’s counter-application. I gratefully
adopt the summary of the relevant facts and the relief sought in the counter-application,
in paragraphs 1 to 16 of the first judgment. Concerning the relief, I would merely add that
Eskom also requested an order directing the municipal manager to give effect to the
orders sought in the counter-application.
[29] I agree with the order upholding the appeal in relation to the relief sought in
paragraph 11 of the counter-application – that Letsemeng be directed to pay the sum of
R5 million, which the Free State Provincial Treasury (the provincial treasury) made
available for payment to Eskom on 25 February 2020. I do so for the reason that there is
no dispute between the parties regarding this issue, as contemplated in s 40(1) of the
IRFA. However, I find myself in respectful disagreement with the orders issued in
paragraph 27 of the first judgment, save for the order in paragraph 27(2)(d), for reasons
of both principle and practicality.
[30] The fundamental point is one of principle, most recently affirmed by this Court in
Eskom v Resilient Properties.9 The dispute between Eskom and Letsemeng is of a
financial nature and both parties, as organs of state, have a constitutional and statutory
duty ‘to avoid judicial proceedings before a genuine attempt has been made to settle the
dispute’, and are bound to report the matter to the national Treasury, which may mediate
the dispute.10
[31] At the outset it is necessary to define the dispute between the parties. This is
necessary in the light of Eskom’s contentions that the IRFA is inapplicable because ‘there
9 Eskom Holdings SOC Ltd v Resilient Properties (Pty) Ltd and Others [2020] ZASCA 185; 2021 (3) SA 47
(SCA).
10 Resilient Properties fn 9 para 67.
is no justiciable or bona fide dispute between the parties’; that Letsemeng had ‘contrived
a dispute’; and that it had acknowledged its indebtedness to Eskom.
[32] In Resilient Properties,11 Petse DP made it clear that in the context of a case such
as the present, the IRFA finds application. He said:
‘As to the question whether there is a dispute between Eskom on the one hand and the ELM
[Emalahleni Local Municipality] and the TCLM [Thaba Chewu Local Municipality] on the other, the
following bears emphasis. It is true that there is no real dispute as to the existence of the debts
owed to Eskom by both the ELM and the TCLM. Nor is there a dispute as to the inability of these
municipalities to make any meaningful payments themselves due to their parlous financial state.
The real disputes concerned the manner in which these two municipalities could be enabled or
empowered to pay their debts to Eskom and thus whether it was appropriate in the circumstances
to interrupt the supply of electricity to exact payment from them. It was in relation to these disputes
that Eskom and the affected municipalities, in collaboration with the other state role players, were
constitutionally obliged to make “every reasonable effort” to avoid or settle, but failed to do so.’
[33] Petse DP went on to say:
‘I am therefore persuaded that there was a live dispute between Eskom on the one hand and the
ELM and the TCLM on the other, in relation to the manner as to how the debt would be liquidated
and the remedies available to Eskom in the event of default. That the two municipalities involved
signed acknowledgements of debt detailing how the debt was to be liquidated cannot assist
Eskom. This must be so because the acknowledgments of debt themselves under the heading
“Default” provided in terms that “Eskom may with due regard to all the relevant legislation . . . take
whatever legal remedies [are] available to it including disconnection of supply of electricity . . .”.
In the context of the facts of these proceedings the “relevant legislation” is the IRFA, s 139 of the
MFMA and PAJA.’12
[34] At this stage three preliminary observations are called for. The first is that the
application of the IRFA is not confined to a case where Eskom threatens to terminate the
supply of electricity to a municipality due to non-payment, as authorised by s 21(5) of the
ERA. The IRFA also applies to the real dispute: how to enable the municipality to pay its
11 Resilient Properties fn 9 para 74.
12 Resilient Properties fn 9 para 75, emphasis in the original.
debt to Eskom. This is buttressed by the provisions of s 139 of the Constitution and the
Local Government: Municipal Finance Management Act 56 of 2003 (MFMA).
[35] Section 139(5) of the Constitution provides that if, as a result of a crisis in its
financial affairs, a municipality persistently breaches its obligations to provide basic
services or meet its financial commitments, the relevant provincial executive must impose
a recovery plan aimed at securing the municipality’s ability to meet those obligations.13 If
a provincial executive cannot or does not do so, the national executive must intervene.14
[36] The purpose of the MFMA is to ‘secure sound and sustainable management of the
financial affairs of municipalities and other institutions in the local sphere of government’.
In terms of s 44(1) of the MFMA, whenever a dispute of a financial nature arises between
organs of state, the parties concerned must promptly take all reasonable steps to resolve
the dispute out of court. Section 44(2) provides that if the national Treasury is not a party
to the dispute, the parties must report the matter to it and may request the national
Treasury to mediate the dispute.
13 Section 139(5) of the Constitution provides:
‘139 Provincial intervention in local government
. . .
(5) If a municipality, as a result of a crisis in its financial affairs, is in serious or persistent material breach
of its obligations to provide basic services or to meet its financial commitments, or admits that it is unable
to meet its obligations or financial commitments, the relevant provincial executive must-
(a) impose a recovery plan aimed at securing the municipality's ability to meet its obligations to provide
basic services or its financial commitments, which-
(i) is to be prepared in accordance with national legislation; and
(ii) binds the municipality in the exercise of its legislative and executive authority, but only to the extent
necessary to solve the crisis in its financial affairs; and
(b) dissolve the Municipal Council, if the municipality cannot or does not approve legislative measures,
including a budget or any revenue-raising measures, necessary to give effect to the recovery plan, and-
(i) appoint an administrator until a newly elected Municipal Council has been declared elected; and
(ii) approve a temporary budget or revenue-raising measures or any other measures giving effect to the
recovery plan to provide for the continued functioning of the municipality; or
(c) if the Municipal Council is not dissolved in terms of paragraph (b), assume responsibility for the
implementation of the recovery plan to the extent that the municipality cannot or does not otherwise
implement the recovery plan.
14 Section 139(7) of the Constitution provides:
‘139 Provincial intervention in local government
(7) If a provincial executive cannot or does not or does not adequately exercise the powers or perform the
functions referred to in subsection (4) or (5), the national executive must intervene in terms of subsection
(4) or (5) in the stead of the relevant provincial executive.’
[37] Section 135(2) of the MFMA imposes a duty on a municipality to meet its financial
commitments. If it encounters a serious financial problem, it must ‘notify the MEC for local
government and the MEC for finance in the province’. The criteria for serious financial
problems are set out in s 138. These include a failure by a municipality to make payments
as and when due, and instances where a municipality has defaulted on its financial
obligations for financial reasons.
[38] In terms of s 136(1), if the MEC for local government in a province becomes aware
that a municipality is experiencing a serious financial problem, he or she is obliged to
promptly consult the mayor to determine the facts, assess the seriousness of the situation
and the municipality’s response to it, and decide whether the situation requires
intervention in terms of s 139(1) of the Constitution.15 Section 136(2) of the MFMA
provides that if the financial situation has been caused by or resulted in a failure by the
municipality to comply with an executive obligation in terms of legislation or the
Constitution and the conditions for intervention under s 139 of the Constitution have been
met, the MEC must promptly decide whether to intervene in the municipality. Section 150
of the MFMA authorises intervention by the national executive where the provincial
executive ‘cannot or does not adequately exercise the powers or perform the functions’
referred to in s 139(4) or (5) of the Constitution.16
15 Section 139(1) of the Constitution provides:
‘139 Provincial intervention in local government
(1) When a municipality cannot or does not fulfil an executive obligation in terms of the Constitution or
legislation, the relevant provincial executive may intervene by taking any appropriate steps to ensure
fulfilment of that obligation, including-
(a) issuing a directive to the Municipal Council, describing the extent of the failure to fulfil its obligations
and stating any steps required to meet its obligations;
(b) assuming responsibility for the relevant obligation in that municipality to the extent necessary to-
(i) maintain essential national standards or meet established minimum standards for the rendering of a
service;
(ii) prevent that Municipal Council from taking unreasonable action that is prejudicial to the interests of
another municipality or to the province as a whole; or
(iii) maintain economic unity; or
(c) dissolving the Municipal Council and appointing an administrator until a newly elected Municipal
Council has been declared elected, if exceptional circumstances warrant such a step.’
16 Section 150(1) of the MFMA reads:
‘150 National interventions
(1) If the conditions for a provincial intervention in a municipality in terms of section 139 (4) or (5) of the
Constitution are met and the provincial executive cannot or does not or does not adequately exercise the
powers or perform the functions referred to in that section, the national executive must-
[39] The second preliminary observation, as was held in Resilient Properties, is that the
dispute is about the terms of repayment of the debt by a municipality and the method of
the enforcement of Eskom’s rights, irrespective of whether that municipality has signed
an AOD in favour of Eskom.17 In fact, as stated in Resilient Properties, the relationship
between Eskom and municipalities is not solely contractual, governed by an ESA.18 So,
Eskom’s contention that ‘a party to a contract should not by its own unlawful conduct be
allowed to obtain an advantage for itself to the disadvantage of its counterpart’, is
inapposite.
[40] The third preliminary observation is that neither Eskom nor Letsemeng have
considered a rational repayment plan – if necessary co-ordinated with the assistance of
other organs of state such as NERSA and the national government, which funds both
Eskom and Letsemeng. The parties made no attempt to engage the national Treasury,
as required by s 44 of the MFMA.19 The high watermark of Eskom’s case on this score is
a letter by the Minister of Public Enterprises dated 4 July 2018 in which he informed his
colleague, the Minister of Co-operative Governance and Traditional Affairs, that a task
team would be established concerning the non-payment of electricity debt and the lack of
capacity and leadership in municipalities. However, the intervention by the Minister of
Public Enterprises did not bear any fruit.
[41] Turning then to the applicability of the IRFA, s 41 of the Constitution provides that
‘[a]n organ of state involved in an intergovernmental dispute must make every reasonable
effort to settle the dispute by means of mechanisms and procedures provided for that
purpose, and must exhaust all other remedies before it approaches a court to resolve the
dispute’. This principle has been given effect to in s 40(1) of the IRFA, which inter alia
enjoins all organs of state to make every reasonable effort ‘to settle intergovernmental
(a) consult the relevant provincial executive; and
(b) act or intervene in terms of that section in the stead of the provincial executive.’
17 Ibid.
18 Resilient Properties fn 9 para 79.
19 Resilient Properties fn 9 para 82.
disputes without resorting to judicial proceedings’.20 What is more, s 41 requires that even
before declaring an intergovernmental dispute, an organ of state must in good faith make
every reasonable effort to settle the dispute.21
[42] In National Gambling Board v Premier, KZN,22 the Constitutional Court
emphasised that the obligation on all spheres of government and organs of state within
each sphere to avoid legal proceedings against one another imposed by s 41(1)(h)(vi) of
the Constitution, entailed much more than an effort to settle a pending court case. This
obligation, an important aspect of co-operative government which lies at the heart of
Chapter 3 of the Constitution, requires each organ of state to fundamentally re-evaluate
its position.23
[43] Applied to the present case, Eskom is an organ of state in the national sphere of
government and is bound by the Constitution, which contemplates the generation and
transmission of electricity as a national competence. Eskom supplies bulk electricity to
municipalities which, in turn, distribute electricity to local consumers over a municipal
electricity reticulation network.24 This Court, in Resilient Properties, said the following
about this relationship:
20 Section 40(1) of the IRFA provides:
‘40 Duty to avoid intergovernmental disputes
(1) All organs of state must make every reasonable effort-
(a) to avoid intergovernmental disputes when exercising their statutory powers or performing their
statutory functions; and
(b) to settle intergovernmental disputes without resorting to judicial proceedings.
(2) Any formal agreement between two or more organs of state in different governments regulating the
exercise of statutory powers or performance of statutory functions, including any implementation protocol
or agency agreement, must include dispute-settlement mechanisms or procedures that are appropriate to
the nature of the agreement and the matters that are likely to become the subject of a dispute.
21 Section 41 of the IRFA reads:
‘41 Declaring disputes as formal intergovernmental disputes
(1) An organ of state that is a party to an intergovernmental dispute with another government or organ of
state may declare the dispute a formal intergovernmental dispute by notifying the other party of such
declaration in writing.
(2) Before declaring a formal intergovernmental dispute the organ of state in question must, in good faith,
make every reasonable effort to settle the dispute, including the initiation of direct negotiations with the
other party or negotiations through an intermediary.’
22 National Gambling Board v Premier, KwaZulu-Natal and Others 2002 (2) SA 715 (CC).
23 National Gambling Board fn 22 paras 29, 33 and 36.
24 The municipal competence is limited to ‘[e]lectricity and gas reticulation’ under Part B of Schedule 4 to
the Constitution.
‘As an organ of state, Eskom bears certain constitutional duties. The relationship between Eskom
on the one hand and the ELM and the TCLM on the other is more than merely a contractual one
regulated purely in terms of the ESAs that the parties concluded. Eskom supplies bulk electricity
to the municipalities which, in turn, have a concomitant duty to supply it to the end users. The
unique feature of this relationship is that Eskom, as an organ of state, supplies electricity to local
spheres of government to secure the economic and social well-being of the people. This then
brings the relationship within the purview of the IRFA.’25
[44] Since Eskom is an organ of state bound by the Constitution, it cannot act in a
manner that directly violates constitutional rights. Neither can it act in a way that indirectly
violates constitutional rights by preventing other organs of state from fulfilling their
constitutional obligations. In Resilient Properties, Petse DP stated the rule in these terms:
‘It must therefore perforce follow that Eskom is under a constitutional duty to ensure that
municipalities which are solely dependent on it for electricity supply, are enabled to discharge
their obligations under the Constitution. Thus, it goes without saying that Eskom cannot act in a
way that would undermine the ability of municipalities to fulfil their constitutional and statutory
obligations to the citizenry.’26
[45] This is entirely consistent with the constitutional obligation on local government to
provide basic municipal services, including electricity. In Joseph v City of Johannesburg,27
the Constitutional Court said:
‘The provision of basic municipal services is a cardinal function, if not the most important function
of every municipal government. The central mandate of local government is to develop a service
delivery capacity in order to meet the basic needs of all inhabitants of South Africa, irrespective
of whether or not they have a contractual relationship with the relevant public-service provider.’
[46] Regarding Eskom’s modus operandi to obtain payment, Petse DP, in Resilient
Properties, said:
‘As already indicated, s 41(3) requires organs of state to exhaust all other remedies to resolve
disputes before they approach a court. True, in this instance, Eskom never approached a court.
25 Resilient Properties fn 9 para 79.
26 Resilient Properties fn 9 para 80.
27 Joseph and Others v City of Johannesburg and Others [2009] ZACC 30; 2010 (4) SA 55 (CC) para 34.
Instead, it took the impugned decisions to interrupt electricity supply to the municipalities, hoping
that doing so would coerce the municipalities to pay for the electricity supplied over several years.
This, Eskom asserts, had the desired effect in the Sabie matter that was settled between the
parties. In taking this route, Eskom in effect circumvented the consequences that flow from the
prohibition contained in ss 40 and 41 of the IRFA against instituting proceedings in a court to
settle intergovernmental disputes if the dispute has not been declared a formal intergovernmental
dispute, and all efforts to resolve that dispute have not been exhausted in terms of chapter 4 of
the IRFA and proved unsuccessful. Nothing less than a 'reasonable effort, in good faith' to resolve
the dispute will suffice.’28
[47] Taking a decision to interrupt the electricity supply to force payment for electricity
is precisely what Eskom has done in this case. The litigation came about as a result of
Eskom’s notice of its intention to disconnect its electricity supply services to Letsemeng
with effect from 18 February 2020. Eskom decided on this course as a debt collection
measure. This was confirmed by its Senior Manager and deponent, Ms Fatima Bedir. She
said:
‘The municipal debt has become so dire that it has to be curbed. Therefore, in preventing an
unmanageable escalation of the debt, Eskom is compelled to effect some form of interruptions . .
. to the supply of electricity to the municipality.’
[48] This, when on its own version, Eskom has neglected its duties under the Public
Finance Management Act 1 of 1999 (PFMA) to collect the debt owed to it by Letsemeng
since at least June 2017, when the amount of the debt was significantly less – R5 247
883.94.29 Had Eskom not neglected these duties it would have been able to collect
outstanding amounts through the judicial process, to execute manageable amounts of
arrears on a regular basis without putting the future of local government in Letsemeng at
risk, and the debt would not have spiralled to some R41 million.
28 Resilient Properties fn 9 para 81.
29 Section 51(1)(b)(i) of the PFMA provides:
‘51 General responsibilities of accounting authorities
(1) An accounting authority for a public entity-
. . .
(b) must take effective and appropriate steps to-
(i) collect all revenue due to the public entity concerned . . . .’
[49] Thus, Eskom could not side-step the provisions of the IRFA, by resort to a counter-
application for payment of all amounts under the ESA, and all arrears in accordance with
the terms of the AODs. It follows that Eskom’s submission that its counter-application
‘places the present matter on a vastly different footing and renders it distinguishable, both
in law and on the facts’ from Resilient Properties, is wrong.
[50] Apart from this, the remaining relief sought in the counter-application raise
quintessentially intergovernmental disputes to which the IRFA applies. A perfect example
is the declaratory order that Letsemeng is in breach of its obligations under s 153(a) of
the Constitution, by failing to structure and manage its administration, budgeting and
planning processes in order to give priority to the basic needs of the community. So too,
the order that Letsemeng pay a portion of its equitable share of national revenue, as it
relates to electricity, directly to Eskom.
[51] There is a dispute between the parties concerning the manner in which Letsemeng
could be enabled to settle its indebtedness to Eskom, as envisaged in s 41(3) of the
Constitution. Both parties were obliged to make every reasonable effort to resolve the
dispute, in accordance with the procedures provided for in, amongst others, s 139 of the
Constitution, ss 40, 41 and 45 of the IRFA and ss 44 and 139 of the MFMA. Given the
important requirements of co-operative government, a court will rarely decide an
intergovernmental dispute unless the organs of state involved have made every
reasonable effort to resolve it.30 Solely for this reason, the order in paragraph 27 of the
first judgment, is, in my view inappropriate, except for the order in paragraph 27(2)(d).
[52] However, the order sought by Eskom that the amount of R5 million be paid to it,
which Letsemeng received from the provincial treasury for the specific purpose of
payment of its arrear electricity account, stands on a different footing. Here, there can be
30 Uthukela District Municipality and Others v President of the Republic of South Africa and Others 2003 (1)
SA 678 (CC) para 14.
no question about enabling Letsemeng to pay that amount and s 40 of the IRFA is not
engaged.
[53] By letter dated 5 February 2020, Letsemeng informed the provincial treasury that
it was in a dire financial crisis and that Eskom would cut the power supply if no payment
was made by 18 February 2020, which would result in loss of revenue to the municipality
and community unrest. Letsemeng requested assistance in the sum of R5.4 million. On
17 February 2020 the provincial treasury acceded to this request.
[54] But Letsemeng did not pay the R5 million over to Eskom. Instead, on the eve of
the date on which it undertook to pay this amount, Letsemeng launched an urgent
application for an interdict to stop Eskom from implementing its decision to disconnect the
electricity supply. Worse, Letsemeng provided no explanation for its failure to pay the R5
million over to Eskom. Its Municipal Manager, Mr Tshemedi Lucas Mkhwane, who had
been involved in the discussions with Eskom and the provincial treasury, did not in the
founding papers disclose the fact that the provincial treasury had on 17 February 2020
agreed to advance the R5 million, nor that Letsemeng had received it.
[55] When the non-payment of the R5 million by Letsemeng was raised in the
answering affidavit, there was still no explanation why this money was not paid to Eskom,
or how it had been utilised. Mr Mkhwane glossed over the issue and simply stated that
Letsemeng had ‘eventually reasoned that payment of that amount to Eskom would not
resolve the situation’. He then attempted to explain away the clear purpose of
Letsemeng’s request to the provincial treasury – to pay Eskom to avert the termination of
the electricity supply – by saying that the R5 million was for ‘technical support’. The
explanation was opportunistic and contrived.
[56] The inescapable inference to be drawn from these facts is that Letsemeng acted
in bad faith. The provincial treasury, by providing the necessary funds, enabled
Letsemeng to pay Eskom for electricity. An order directing it to pay the sum of R5 million
to Eskom is therefore justified. Since Eskom has not achieved substantial success in its
counter-application, I do not think that it should be awarded costs for being partially
successful in the appeal.
[57] That brings me to the practical difficulty in implementing the relevant orders in the
first judgment. Letsemeng, like most municipalities in this country, is in financial crisis. It
is unable to comply with an order to settle all arrear amounts and to pay all amounts due
to Eskom when they become payable. It is trite that a court will not make an order which
will have no practical effect.31
[58] When launching the counter-application, Eskom, on its own version, was aware
that Letsemeng was not by the means to settle its outstanding electricity debt of some
R41 million. Ms Bedir described the bleak ‘national picture of municipal debt owed to
Eskom in the Republic’ as follows:
‘Overdue debt increased from R1.2Bn as at March 2013 to R26.8Bn at the end of
December 2019. The debt has grown by R25.6Bn. The Top 10 municipalities account for
69% of the debt whilst the top 20 municipalities account for 80%. The top 20 payment
levels have dropped from a peak of 91% in March 2016 to 45% in December 2019. There
are 44 municipalities individually owing over R100m, 75 municipalities individually owing
over R10m and 96 municipalities individually owing over R10.5m.’
[59] The following reasons advanced by Letsemeng for its inability to pay the
outstanding debt, are common to most municipalities across the country. The rate of
recovery of payment for municipal services from consumers is poor, mainly due to
unemployment (a rate in excess of 60%) and the declining economy in the Free State.
This on its own has seriously and negatively impacted on the municipality’s ability to
recover amounts for services and property rates. Of some 5000 households, only 1700
have registered as indigent households. In the result, Letsemeng supplies free water and
services to about 3300 households for which it receives no compensation in the form of
its equitable share of national revenue. Moreover, the subsidies paid by government for
31 Rand Water Board v Rotek Industries (Pty) Ltd 2003 (4) SA 58 (SCA) para 26.
indigent consumers are significantly less than the cost of municipal services rendered to
them.
[60] In December 2019 the national Treasury penalised Letsemeng by reducing its
equitable share from R23 million to R19 million, apparently due to its incorrect budget.
Electricity is lost on the grid and unaccounted for because of old and derelict systems,
and the theft of electricity, in respect of which no monies are recovered, and for which
Letsemeng is held liable. Eskom has imposed penalties for late and non-payment of
electricity.
[61] Letsemeng alleged that Eskom had encroached on its area of jurisdiction by
supplying electricity directly to consumers in Jacobsdal, Oppermansgronde, and the
townships of Luckhoff and Petrusburg. Eskom fails to recover charges for electricity as it
is obliged to do under the PFMA, or to terminate the supply of electricity to those
consumers when they do not pay. This has resulted in consumers in these areas not
paying for any municipal services at all, including those rendered by Letsemeng, such as
sewerage, the supply of water and the like, and property rates. Letsemeng struggles to
recover charges for municipal services and rates in the said areas, because consumers
know that it is not permitted to cut the supply of water. When the application for the
interdict was brought, arrear rates were in excess of R220 million.
[62] Eskom’s answer to all of this evidence was a bald denial. It criticised Letsemeng
for not remedying the situation regarding the registration of indigent households. It said
that Letsemeng ‘merely makes a bald assertion that it lacks resources to meet its
constitutional and statutory obligations’. It did not dispute the statement that Letsemeng
simply did not have the resources to pay the amounts claimed. Neither did Eskom dispute
the fact that the problem had become so serious that it would not be resolved without the
assistance of the provincial or national governments, nor could it.
[63] In Resilient Properties this Court emphasised that government intervention in a
case such as this is critical.32 It cited with approval the following dictum by the full court
in Cape Gate (Pty) Ltd and Others v Eskom Holdings (SOC) Ltd and Others:33
‘[T]here are only two sources of funds on which Eskom can rely for payment in respect of on-
going supply of electricity to Emfuleni. The one is Emfuleni’s paying consumers, and the other is,
ultimately, national treasury. And since in this country civilized society cannot exist and the
economy cannot function without Eskom remaining economically viable, national treasury and
ultimately National Government must inevitably step in when and where local authorities fail; that
is what the Constitution expressly envisages.’
Petse DP continued:
‘What this means is that without the national and provincial governments’ intervention in the
financial crises experienced by the ELM and the TCLM – and many other similarly-situated
municipalities – all are doomed.’
[64] In these circumstances, it was unrealistic of Eskom to expect Letsemeng to
forthwith comply with its obligations under the AODs and the ESA, liquidate its
indebtedness of R41 million, and pay a portion of its equitable share relating to electricity
to Eskom. And this, when Eskom itself acknowledged that Letsemeng is in financial
trouble; that it ‘failed to invoke s 139 and call for provincial intervention’; and that most
municipalities in the country are in dire financial straits and unable to pay their electricity
debt owed to Eskom. For these reasons, its claim for payment of the arrears of R41 million
is inexplicable.
[65] The high court (Loubser J) was accordingly correct, in my opinion, in its
observation that the grant of the wide-ranging orders sought in the counter-application
would not assist Eskom, if Letsemeng could not pay in any event. The court however
overlooked the fact that Letsemeng had raised the IRFA in its defence to the counter-
application, and asserted that the relief sought by Eskom was premature. The high court
erred in failing to apply the provisions of the IRFA. The dispute should have been remitted
32 Resilient Properties fn 9 para 97.
33 Cape Gate (Pty) Ltd and Others v Eskom Holdings (SOC) Ltd and Others 2019 (4) SA 14 (GJ) para
148.
to the parties for resolution in accordance with its provisions. Given that the issues
between them have become definite and clear, there seems to be no reason why attempts
to resolve the dispute should not be completed within a period of four months.
[66] In conclusion, the evidence discloses that the relevant orders sought by Eskom in
the counter application are impractical: they are difficult to implement. More
fundamentally, there are constitutional and statutorily mandated interventions that impede
the grant of the orders.34
[67] For the above reasons I would make the following order:
The appeal succeeds in part.
The order of the court below dismissing the appellant’s counter-application is set
aside and replaced with the following:
‘(a) The first respondent is directed to pay Eskom the sum of R5 million which the Free
State Provincial Treasury advanced to it for payment of its electricity debt, within 30
calendar days of the date of this order.
(b)
The dispute between the appellant and the first respondent concerning the non-
payment by the first respondent to the appellant for bulk electricity supply is remitted to
the appellant and the first respondent for resolution, in terms of s 40(1) of the
Intergovernmental Relations Framework Regulation Act 13 of 2005.
(c)
In the event that the dispute is not resolved within four months of the date of this
order, the appellant may set down the counter-application for its determination.
(d)
Nothing in this order shall detract from the existing rights and obligations of the
appellant and the first respondent under the electricity supply agreement entered into
between them on 13 February 2006, or in terms of any other law.
(e)
There is no order as to costs.’
___________________
A SCHIPPERS
JUDGE OF APPEAL
34 Resilient Properties fn 9 para 95.
Plasket JA (Saldulker ADP and Smith AJA concurring)
[68] I agree with the judgment of my colleague Phatshoane AJA and disagree with the
judgment of my colleague Schippers JA. I highlight in brief three points that explain why I
take this view.
[69] The first point relates to the facts. The relief that has been granted in the majority
judgment, in respect of the counter-application, all relates to admitted liabilities on the part
of Letsemeng. It cannot, and does not, suggest that it is not liable to pay its monthly
electricity account to Eskom. It not only agreed to a structured means for repaying arrears,
in the various AODs and repayment plans, but prepared the documents. As was stated
in Eskom’s answering affidavit, ‘at all times, the repayment plan figures are prepared by
the municipality taking into account their own affordability and revenue collected from the
sale of electricity to customers’. In this way, Letsemeng ‘warranted’ that it could afford to
pay the amounts it had agreed to pay. The amounts to be paid, in other words, were of
its choosing. It also undertook to pay over to Eskom that portion of the equitable share
that related to electricity. Finally, as accepted by my colleague Schippers JA, it undertook
to pay Eskom R5 million advanced by the provincial treasury. There is no dispute between
Eskom and Letsemeng about Letsemeng’s liability to Eskom and how it would pay its
debt. There is thus no dispute that requires resolution by negotiation.
[70] The second point I wish to make relates to the law. I am not aware of any general
principle of the law of contract, or any other branch of the law for that matter, that absolves
a debtor from liability, if they are unable to pay. As Phatshoane AJA explained in her
judgment, at best for Letsemeng, its plea of poverty – perhaps, more accurately, of
prodigality – could, if generously viewed, have been intended as some sort of a tacit, but
inadequate, reliance on impossibility of performance. The evidence did not come close to
establishing the requirements of this defence. The fact that many other municipalities
display disdainful attitudes to their obligations does not help Letsemeng.
[71] Finally, I wish to say something of the standard of behaviour that the citizenry can
legitimately expect from organs of state. They, being bearers of public power sourced
ultimately in the Constitution, are expected and required to be role-models and to conduct
themselves in an exemplary manner in their dealings with others, including other organs
of state. In this case, Letsemeng has behaved disgracefully throughout. Its duplicity and
dishonesty has been brazen. If it had acted honestly and in good faith, it would have
reported its delinquency to the provincial executive as far back as 2017, and steps could
then have been taken by the latter to step into the administrative vacuum and repair the
damage at a relatively early stage. An honest, constitutionally respectful municipal
administration would have done the decent thing, and fallen on its sword.
________________________
C PLASKET
JUDGE OF APPEAL
Appearances:
For appellant:
S L Shangisa SC (with L Rakgwale)
Instructed by:
Phatshoane Henny Attorneys,
Bloemfontein.
For the first respondent:
N Snellenburg SC (with MC Louw)
Instructed by:
Bokwa Attorneys, Welkom.
Hill, McHardy & Herbst Inc,
Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
9 March 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgment of the Supreme Court of Appeal
Eskom Holdings SOC Limited v Letsemeng Local Municipality and Others (Case no 990/2020) [2022]
ZASCA 26 (9 March 2022)
Today the Supreme Court of Appeal (SCA) handed down a judgment upholding, with costs including
the costs of two counsel, an appeal against the decision of the Free State Division of the High Court of
South Africa, Bloemfontein (the high court).
Eskom Holdings SOC Limited (Eskom), the appellant, and Letsemeng Local Municipality (Letsemeng),
the respondent, were locked in a dispute over the non-payment by Letsemeng of its electricity supply
account. Based on Letsemeng’s recurrent failure to comply with its obligations, Eskom issued a final
notice to interrupt electricity supply. This precipitated the launching of an urgent application in the high
court by Letsemeng to interdict Eskom from implementing the interruption pending the review of that
decision and the determination of a dispute between the parties to be referred to the National Energy
Regulator of South Africa. Eskom filed a counter-application in which it sought, inter alia, to compel
Letsemeng to comply with its obligations in terms of the electricity supply agreement (ESA) that it had
concluded with Letsemeng. The high court granted Letsemeng the interim interdict but dismissed
Eskom’s counter-application.
On appeal to this Court, with leave of the high court, the primary issue was whether Eskom was entitled
to the relief sought in its counter-application.
In the counter-application Eskom sought several prayers, amongst others: to compel Letsemeng to
comply with the payment conditions set out in the ESA; a declarator that Letsemeng was in breach of
section 153(a) of the Constitution in that it had failed to structure and manage its administration,
budgeting and planning processes in order to give priority to inter alia, the basic needs of the community
including the payment of electricity to Eskom; it sought structural interdicts: directing Letsemeng to
deliver monthly notices to the high court and Eskom indicating compliance with its obligations under the
acknowledgement of debt (AOD) and repayment plan; that the Municipal Manager be ordered to ensure
compliance with the terms of the order; a declaratory that Letsemeng had a legal obligation, on a
monthly basis, to ring fence such portion, as determined in its electricity distribution licence, of its
electricity revenue collected from all electricity sales in terms of sec 27(i) of the Electricity Regulation
Act 4 of 2006; an order directing Letsemeng to pay directly to Eskom such portion of the equitable
share, as may be determined, as relates to electricity, within 24 hours of receipt of the share; and further
directing Letsemeng to pay the amount of R5 million to Eskom which National Treasury had made
available for payment to Eskom.
The SCA (in the majority judgement) held that Eskom was not entitled to an order declaring that
Letsemeng was in breach of s 153(a) of the Constitution because it had not made out a case for that
relief. It further held that Eskom sought vaguely drafted structural orders that would require affidavits
being filed with the high court regularly with no explanation why these orders were necessary and the
purpose they intended to serve. As to the ring-fencing of funds, the SCA held that it was not borne out
by the legislation.
With regard to prayers to compel Eskom to comply with the payment conditions set out in the ESA, the
SCA held that, these were aimed at securing payment from Letsemeng on the basis of its contractual
and statutory obligations. Letsemeng did not honour any of the AODs and the various payment
arrangements it made with Eskom. Furthermore, Letsemeng undertook to pay the amount of its
equitable share earmarked for electricity. R5 million had been advanced to it by treasury solely to pay
Eskom but it reneged. In the context of Letsemeng having applied to interdict Eskom from interrupting
the supply of electricity, Eskom had no suitable alternative remedy other than its counter-application for
the mandatory orders to enforce Letsemeng’s reciprocal obligations to pay for the electricity it receive.
Letsemeng’s defence that it not be ordered to pay what it agreed to pay because it was unable, due to
its financial weakness, was no defence. Held that, to the extent that this may amount to the tacit raising
of a defence of impossibility of performance, the position is clear: if a person promises to do something
that can be done, such as delivering a thing or paying a debt, but which that person cannot do due to
circumstances peculiar to themselves, they are nonetheless liable on the contract. The commercial
mayhem that would result, if the rule was otherwise, is not difficult to imagine. Contractual obligations
are enforced by courts irrespective of whether a defaulting party is able to pay or not. The focus is on
the rights of the innocent party, not the means of the defaulting party.
The SCA held that the high court erred in dismissing Eskom’s counter-application in its entirety.
Accordingly, the appeal was upheld and the order of the high court dismissing the appellant’s counter-
application was set aside and replaced with an order in terms of which Letsemeng was directed to pay
Eskom (a) all amounts, in respect of the electricity it received from Eskom, when such amounts are due
and payable as set out in the ESA and s 65(2) of the Local Government: Municipal Finance
Management Act 56 of 2003; (b) all arrear debts due and payable to Eskom, in accordance with the
terms of the AOD; (c) such portion of the equitable share that relates to electricity within 24 hours of
receipt of the share; (d) the amount of R 5 million which the national treasury made available to the
municipality for payment to Eskom; (e) costs, including the costs of two counsel.’
Plasket JA (in a separate concurring judgment) held that the relief granted related to admitted liabilities
on the part of Letsemeng which it had not suggested that it was not liable to pay. The repayment plan
figures were prepared by Letsemeng taking into account its own affordability and revenue collected
from the sale of electricity to customers. Therefore, Letsemeng ‘warranted’ that it could afford to pay
the amounts it had agreed to pay. Accordingly, there was no dispute between Eskom and Letsemeng
about its liability to Eskom and how it would pay its debt which required resolution by negotiation.
Schippers JA (in the dissenting judgment) held there was a dispute between the parties concerning the
manner in which Letsemeng could be enabled to settle its indebtedness to Eskom as envisaged in s
41(3) of the Constitution. Both parties were obliged to make every reasonable effort to resolve the
dispute in accordance with the procedures provided for in, amongst others, s 139 of the Constitution,
ss 40, 41 and 45 of the Intergovernmental Relations Framework Act 13 of 2005 (the IRFA) and ss 44
and 139 of the Municipal Finance Management Act 56 of 2003. Further held that there was a practical
difficulty in implementing the orders granted in that Letsemeng, like most municipalities, was in financial
crisis. Eskom was aware that Letsemeng did not have the means to settle its outstanding electricity
debt of some R41 million. It was therefore, unrealistic of Eskom to expect Letsemeng to comply with its
obligations under the AODs and the ESA, liquidate its indebtedness of R41 million, and pay a portion
of its equitable share relating to electricity to Eskom. Thus, the high court was correct in its observation
that the grant of the wide-ranging orders sought in the counter-application would not assist Eskom, if
Letsemeng could not pay. Consequently, the orders sought by Eskom in the counter application, save
for an order that Letsemeng be directed to pay the sum of R5 million which the Free State Provincial
Treasury made available for payment, were difficult to implement. The minority would have set aside
the order dismissing the counter-application and replaced it with an order, inter alia, remitting the dispute
between the parties, concerning the non-payment of the bulk electricity supply, to Letsemeng and
Eskom for resolution in terms of s 40(1) of the IRFA. In the event that the dispute was unresolved within
four months of the date of the order, Eskom would be entitled to set down the counter-application for
its determination.
~~~~ends~~~~
|
2782
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 560/2011
Reportable
In the matter between:
CHRISTELLE RAUBENHEIMER
Appellant
and
GERDA RAUBENHEIMER
First Respondent
STEPHANUS PETRUS RAUBENHEIMER
Second Respondent
JAN HENDRIK HAGEN
Third Respondent
MASTER OF THE HIGH COURT NORTH GAUTENG
Fourth Respondent
Neutral citation:
Raubenheimer v Raubenheimer (560/2011) [2012] ZASCA 97
(1 June 2012)
Coram:
Mpati P, Nugent, Cachalia, Leach and Wallis JJA
Heard:
11 May 2012
Delivered:
1 June 2012
Summary: Will – construction – bequest of immovable property subject to a
usufruct without identifying a beneficiary – properly construed the testator
intended to create a fideicommissum, the fideicommissary being identified
by necessary implication – failure to attach list of specific bequests referred to
in the will not rendering the will void for vagueness – the will intended by the
testator to be his final will and should be accepted by the Master under s 2(3)
of the Wills Act 7 of 1953 despite a failure to comply with statutory formalities.
___________________________________________________________________
O R D E R
___________________________________________________________________
On appeal from:
North Gauteng High Court, Pretoria (Preller J sitting as court of
first instance):
(1)
The appeal succeeds, with costs.
(2)
Paragraph 1 of the order of the court a quo is set aside and substituted with
the following:
‘1 (a) The application in convention is dismissed.
(b) The fourth respondent (the Master) is ordered to accept the will dated 30
March 2006, annexure ‘GR2’ to the founding affidavit in the application in
convention, as the will of the deceased for the purposes of the Administration of
Estates Act 66 of 1965.’
___________________________________________________________________
J U D G M E N T
__________________________________________________________________
LEACH JA (MPATI P, NUGENT, CACHALIA AND WALLIS JJA CONCURRING):
[1] It is a never-ending source of amazement that so many people rely on
untrained advisors when preparing their wills, one of the most important documents
they are ever likely to sign. This is by no means a recent phenomenon. Some 60
years ago, in Ex Parte Kock NO,1 a high court decried the number of instances in
which wills had to be rejected as invalid due to a lack of compliance with prescribed
formalities and the regularity with which the courts were being approached to
construe badly drafted wills, before urging intending testators ‘in their own interests
as well as in the interests of those whom they intend to benefit when they die . . . to
1 Ex Parte Kock NO 1952 (2) SA 502 (C) at 516E-H.
consult only persons who are suitably trained in the drafting and execution of wills
and other deeds containing testamentary dispositions’. Despite this, the courts
continue all too often to be called on to deal with disputed wills which are the product
of shoddy drafting or incompetent advice. This is another such case.
[2] On 28 March 2006, Dr S P Raubenheimer, a medical practitioner of Pretoria
(the testator), who was at the time married to the appellant and had two children
born of a previous marriage, signed a document dated 30 March 2006 which
purported to be a fresh will (a copy of the document in question being annexure GR2
in the papers). In it the, inter alia, replaced an earlier will he had executed in 2002
and nominated Jan Hendrik Hagen as the administrator of his deceased estate. This
document had been prepared for him by Mr Hagen, a Cape Town insurance broker
and investment advisor.
[3] The document GR2 bears the signatures of the testator and two persons who
allegedly witnessed the testator’s signature. However they had not in fact done so.
Hagen had been the testator’s insurance broker and financial advisor for some
years. In December 2005 the deceased asked Mr Hagen to prepare his will. After
various subsequent discussions between the two of them, Mr Hagen went to see the
testator at his consulting rooms in Pretoria on 30 March 2006, taking with him a draft
will for signature. The testator was extremely busy and kept him waiting until
approximately 7pm before seeing him. The testator then read through the draft and
indicated his approval. When Mr Hagen asked about a list of specific bequests which
the testator had undertaken to prepare to attach to the will, the testator replied that
he had simply not had enough time to prepare it but that he would do so in due
course and furnish it to Mr Hagen at some later stage.
[4] Section 2(1)(a)(i)-(iii) of the Wills Act 7 of 1953 prescribes that for a will to be
valid it must be signed by the testator in the presence of at least two competent
witnesses who attest and sign it in the presence of the testator and of each other.
Aware of this, Mr Hagen attempted to ensure that the testator complied with these
formalities and, when the testator indicated that he was happy with the draft and
wished to sign it, told him this had to be done in the presence of two witnesses. He
suggested they should go to a restaurant managed by the testator’s business
partner, which was conveniently situated in the same building, to do so. This the
testator refused to do, saying that he did not have the time and that, in any event, as
he and his business partner had recently become embroiled in a business dispute,
he did not want him or anyone else in the restaurant to act as a witness. Mr Hagen,
completely improperly, then suggested that the testator should sign the will and that
he would ‘attend to the witnessing thereof in my offices’. The testator duly proceeded
to sign the will which Mr Hagen then took back to Cape Town where, two days later,
he had two of his employees sign it as if they had witnessed the testator signing in
their presence.
[5] On the death of the testator, some three years after the events described
above, the Master of the North Gauteng High Court, oblivious at the time of the
circumstances under which the will had been signed and witnessed, accepted it as
being the testator’s last will and testament and, acting in terms of its provisions, duly
appointed Mr Hagen as executor of the deceased’s estate. However, the first and
second respondents, the testator’s two children (for convenience I shall refer to them
as ‘the respondents’ because Mr Hagen and the Master, both of whom were cited as
respondents in this court, have played no part in the appeal) had their reservations.
On 2 July 2009, their attorney sent Mr Hagen an e-mail requesting him to provide
certain information in regard to the will. This led to a slew of correspondence before,
on 11 February 2010, the respondents learned of the circumstances under which the
will had been signed.
[6] This led to the respondents instituting proceedings in the high court seeking
an order declaring, first, that the will was null and void by reason of a failure to
comply with the necessary statutory formalities and, second, that the deceased had
died intestate. The appellant opposed the relief sought on the basis that an order
should issue under s 2(3) of the Wills Act, directing the Master to accept GR2 as the
will of the testator for purposes of the Administration of Estates Act 66 of 1965. In
the alternative, the appellant sought an order that the testator’s earlier will of 2002
be accepted as the testator’s last will.
[7] The matter came before the high court which, on 31 March 2011, held that
GR2 was void for vagueness, and granted the respondents relief in the terms they
sought. Although not specifically dealt with in the judgment, the effect of the high
court's decision, albeit implied, was to dismiss the appellant's counter application;
including the appellant’s alternative contention that the 2002 will should be accepted
in the event of GR2 being found to be void. With leave of the high court the
appellant now appeals to this court.
[8] In seeking to support the high court’s decision, the respondents raised two
main contentions; first, that the appellant had failed to establish a case under s 2(3)
of the Wills Act ie that the testator had intended it to be his will, and, second, that
even if the testator had intended the document to be his will, it was void for
vagueness as held by the court a quo. This will of course involve a process of
interpretation to ascertain whether the testator’s testamentary intention can be
determined from the provisions of the document.
[9] Crucial to the debate on both these issues are clauses 2 and 3 of the will
which read as follows:
‘2.
I bequeath my estate to my spouse, CHRISTEL RAUBERHEIMER [the appellant]. She shall
have a usufruct over our residence in Pretoria until her death or remarriage.
See the attached list of specific bequests.
3.
In the event of my spouse dying before me or simultaneously with me or within 30 (thirty)
days of me, the bequest to her will lapse and I bequeath my estate to my children. The
inheritance of a child who dies before me shall devolve on his/her descendants by
representation or, upon having no descendants, then on my remaining children or their
descendants by representation.’2
2 This is my translation of the original Afrikaans which reads:
‘2.
Ek bemaak my boedel aan my eggenote, CHRISTEL RAUBENHEIMER. Sy sal vruggebruik hê op
ons woning te Pretoria tot afsterwe of hertroue.
Sien aangehegte lys van spesifieke bemakings.
3.
Indien my eggenote voor my of gelyktydig met my of binne 30 (dertig) dae na my sou sterf, dan verval
die bemaking aan haar en bemaak ek my boedel aan my kinders. Die erfenis van ‘n kind wat voor my
te sterwe kom sal oorgaan op sy/haar afstammelinge by representasie, staaksgewyse of by gebrek
[10] Turning first to the debate in respect of whether the document is to be taken
as the testator’s last will, under s 2(3) of the Wills Act3 a court asked to make an
order must first be satisfied that the testator who drafted or executed the relevant
document intended it to be his will.4 The respondents’ contention is that as the
testator failed to attach the list of specific bequests referred to in clause 2, it was
necessary to infer that he did not intend the document to be his will until such a list
was attached. Consequently, so the respondents argued, as no list was ever
attached, the document in the form it was signed was not intended by the testator to
be his final will, and the appellant had thus failed to establish an essential
requirement for the issue of an order under s 2(3).
[11] There is no merit in this argument. The testator had instructed Mr Hagen to
draw a will for him and had thereafter held several discussions with him as to what
he wanted to achieve in his will. It was pursuant to this that Mr Hagen drafted GR2
which the testator proceeded to sign after having read it and indicating that he was
satisfied as to its provisions. The document was headed ‘testament’ and was signed
by the testator, quite deliberately, on each of its three pages above the word
‘TESTATEUR’ (testator). Moreover he did so after Mr Hagen had told him that it
needed to be witnessed to comply with the statutory formalities for wills. The only
reason it was not properly witnessed was due to the testator’s hard-headedness in
refusing to do the necessary before his business partner with whom he had fallen
out and Hagen’s willingness to arrange to have two of his employees append their
signatures as if they had witnessed the testator’s signature.
aan afstammelinge, dan op my oorblywende kinders of hulle afstammelinge by representasie,
staaksgewyse.’
3 It reads: ‘If a court is satisfied that a document or the amendment of a document drafted or executed
by a person who has died since the drafting or execution thereof, was intended to be his will or an
amendment of his will, the court shall order the Master to accept that document, or that document as
amended, for the purposes of the Administration of Estates Act, 1965 (Act 66 of 1965), as a will,
although it does not comply with all the formalities for the execution or amendment of wills referred to
in subsection (1).’
4 See eg Van Wetten & another v Bosch & others 2004 (1) SA 348 (SCA) para 14 and De Reszke v
Maras & others 2006 (2) SA 277 (SCA) para 11.
[12] From this it is clear that the testator knew that there was no list of specific
bequests annexed to the will when he signed it. And although he stated that he
would prepare one in due course, his failure subsequently to attach such a list to the
document does not mean he did not intend it to be his will. All it means is that he did
not subsequently vary the terms of the document. Whether this was due to a failure
to take proper care of his affairs or a decision against making any such specific
bequests is neither here nor there.
[13] I accordingly have no difficulty in concluding that the testator intended GR2 to
be his will at the time he signed it. Indeed I have no doubt that if he had been asked
at any time thereafter whether he had a will, he would have replied in the affirmative,
having GR2 in mind in doing so.
[14] I turn to the second issue, namely, whether the provisions of clause 2
rendered the will void for vagueness. The respondents argued that the failure to
attach the list of specific bequests to the will, taken together with the testator’s failure
to identify the beneficiary upon whom the common home was to devolve (whom it
was argued was clearly not the appellant), resulted in it being impossible to identify
which of the testator's assets he had intended the appellant to inherit as beneficiary
of the remainder of his estate or to know upon whom the testator intended to bestow
ownership of the common home.
[15] The first of these difficulties seems to me to be met by what I've already said,
namely, that the failure to attach a list of specific bequests merely means that the
testator for some reason did not make any such bequests. It is therefore not a factor
which in any way renders vague the testator’s bequest of his estate to the appellant.
[16] The effect of the testator, after bequeathing his ‘estate’ (boedel) to the
appellant, proceeding in his next breath to extend to her what he referred to as a
‘usufruct’ over the matrimonial home until her death or remarriage, without
identifying the person in whom ownership of the home should vest, is more complex.
The appellant argued in the court a quo that the clause should be interpreted as
providing for a bequest of the common home to the respondents, subject to her
enjoying a usufruct until her death or remarriage. Indeed in her notice of appeal the
appellant contended that the court a quo had erred in not construing the will in that
way. However, in this court, represented by counsel who had not appeared for her
in the high court, the appellant changed her stance to contend that the clause could
not be so construed and that the failure to nominate a beneficiary in respect of the
common home resulted in it falling into the estate bequeathed to her, so that it
devolved upon her free of any restrictions as to her ownership.
[17] At the outset, it is necessary to consider whether the testator in fact intended
to create a usufruct over the common home. The word ‘usufruct’ is often loosely
used, and its use in a will does not necessarily mean that a testator appreciated its
legal significance. As is pointed out by the learned authors of Corbett et al The Law
of Succession in South Africa (2ed) at 369 -370, with reference to numerous
authorities:
‘Where the testator has clearly conferred only a life interest upon a beneficiary, the problem
may arise as to whether a usufructuary or a fiduciary interest was intended. This can be a
matter of some difficulty. The mere use by the testator of the terms ‘usufruct’ or
‘usufructuary’ is not conclusive: there are many instances where a life interest described in
the will as being a usufruct has been held to be in truth fiduciary in nature. Conversely, the
use of the terms ‘fideicommissum’ or ‘fiduciary’ does not necessarily provide the final
answer: in spite of this the life interest may be construed as being merely usufructuary.
While the terms ‘usufruct’ (or ‘usufructuary’) or ‘fideicommissum’ (or ‘fiduciary’), as the case
may be, would normally indicate prima facie the type of life interest intended by the testator,
this indication must yield to the intention to be gathered from the will as a whole. Testators
sometimes use terms such as these without a full appreciation of their legal signification and
here it is safer to have regard to the general scheme of the will than to the testator’s use of
legal terminology.‘
These comments are all the more appropriate where, as here, the will was drafted
by a person not trained in the law. Bearing this in mind, and having regard to certain
of the other provisions of the will, I turn to consider whether the testator in fact
intended to create a usufruct over the common home.
[18] Importantly, in both clauses 2 and 3 of the will, the testator made a bequest of
his ‘estate’ (boedel), the bequest in clause 3 being subject to that in clause 2 failing.
The dominant clause is clearly the bequest of the testator’s estate, by which an heir
is instituted. Consequently ‘its effect should not be modified nor its meaning strained’
unless a contrary intention is clearly indicated by other provisions in the will.5 There
are no such contrary intentions in the present case. Indeed as there was no specific
bequest of a ‘usufruct’ in clause 3 of the will, the bequest of the estate in that clause
clearly includes the matrimonial home, and there is no reason to interpret the ‘estate’
bequeathed in clause 2 any differently. As such a bequest is one of ownership of the
property, it is irreconcilable with the appellant acquiring no more that a usufructuary
interest over the matrimonial home. Consequently, whatever may have been
intended by the testator providing for a ‘usufruct’ over the matrimonial home, it was
not a usufruct in its true legal sense.
[19] This conclusion does not mean that the testator necessarily intended full and
unrestricted dominium in the common home to pass to the appellant. That the
contrary is the case is clear from his provision that she was to enjoy the property
only until her death or remarriage, implying that upon the occurrence of the first of
those events the property should pass to another. Accordingly, in my view, in clause
2 of the will the testator created a fideicommissum over the property without
expressly identifying the person upon whom it should devolve on the appellant’s
rights as fiduciary coming to an end.
[20] In Jewish Colonial Trust Ltd v Estate Nathan 1940 AD 163 at 180
Watermeyer JA, in dealing with a similar failure, said:
‘ . . . if the ownership of property is bequeathed to a beneficiary, then any curtailment of the
rights of ownership appearing in the will, such as a prohibition against alienation or a
conditional deprivation of the rights of enjoyment, is of no legal effect unless a third party is
indicated in whose favour such curtailment is to operate.’
The reason for this is that ‘(u)nless a testator indicates . . . some person who shall
be entitled to the subject-matter of the bequest if and when the event occurs, the
prohibition hangs in the air; there is no one to enforce it . . .’ 6
5 Ex parte Melle & others 1954 (2) SA 329 (A) at 334 applied in Schaumberg v Stark NO 1956 (4) SA
462 (A) at 468.
6 Per Van den Heever JA in Aronson v Estate Hart 1950 (1) SA 539 (A) at 552.
[21] By extending a ‘usufruct‘ over the common home until the appellant’s death or
remarriage, the testator obviously intended that she was not to alienate the property.
But in considering the effect of the testator’s failure to specifically nominate a
beneficiary to whom ownership of the common home was to pass after the
appellant, it should be remembered that, like any other testamentary provision, a
disposition to a beneficiary may be necessarily implied from the terms of the will. In
doing so, a court is guided by the same principles as those applied when implying
tacit terms into a contract7 – it applies the well-known ‘bystander test’ in the light of
the express terms of the will and the relevant surrounding circumstances and
considers whether it a term ‘so self-evident as to go without saying’.8 Although a
court must guard against making a will for a testator and thereby doing violence to
the concept of the testator determining the destiny of his or her estate, when a
beneficiary can be identified by this process it will not hesitate to ensure that effect is
given to the testator’s implied intention.
[22] Of course in determining a testator’s intent, the terms of the will as a whole
must be considered. It is clear from clauses 2 and 3 that the testator intended only
the appellant and, failing her, the respondents in equal shares or their children by
representation, to inherit from him. No other person is mentioned as a potential
beneficiary and, most significantly, in clause 3 the testator did not burden the
bequest of his estate to the respondents with what he incorrectly referred to as a
usufruct as he did the bequest to the appellant in clause 2. From this the inference is
irresistible that he intended ownership of the common home to pass to the
respondents without any limitation on their dominium in the event of their inheriting.
No reason presents itself for concluding that the testator could have intended a
person other than the respondents from ultimately acquiring the common home if the
appellant initially inherited the property but not if the respondents did so.
[23] In interpreting a will, a court must if at all possible give effect to the wishes to
the testator. The cardinal rule is that ‘no matter how clumsily worded a will might be,
a will should be so construed as to ascertain from the language used therein the true
7 Cf Wilkins NO v Voges 1994 (3) SA 130 (A) at 136H-137D.
intention of the testator in order that his wishes can be carried out’.9 In the present
case, in the light of what I have set out above, despite the poor wording of GR2, I am
satisfied that clause 2 creates a fideicommissum over the common home with the
appellant as the fiduciary until her death or remarriage whereupon the property is to
pass to the respondents or their children as prescribed in clause 3.
[24] To summarise my conclusions:
(a) The will GR2 was intended by the testator to be his will and should be accepted
as such by the Master under the Administration of Estates Act 66 of 1965.
(b) The testator’s failure to attach a list of specific bequests to GR2 does not render
it void for vagueness.
(c) The provisions of clause 2 of GR2 similarly do not render it void for vagueness.
(d) The court a quo therefore erred in concluding that GR2 was void for vagueness
and that the testator died intestate.
(e) Clause 2 of GR2 provides for the appellant to inherit the entire estate of the
testator subject to there being a fideicommissum over the common home to endure
until the appellant’s death or remarriage whereupon the property is to devolve upon
the respondents or their children.
.
[25] That brings me to consider the question of costs. The court a quo directed the
costs of the present parties to be paid out of the estate. The appellant did not seek
to appeal against that order which must stand. However, the appellant has
succeeded in this court as the effect of this judgment will be that she will inherit the
entire estate, subject of course to the fideicommissum over the common home. The
respondents have argued against this, and although they have to a limited extent
succeeded in obtaining a benefit from of the estate, it seems to me to be wrong in
principle that the estate should bear the costs of the appeal which, effectively, would
be paid by the successful appellant who has inherited the estate. In these
circumstances it is appropriate for the respondents to bear the costs of the appeal.
[26] The order of the court a quo must be set aside. Strictly speaking the appeal
was brought against paragraph 1 of the order, (paragraph 2 being the order for costs
9 Per Steyn J in Masters v Estate Cooper 1954 (1) SA 140 (C) at 143H-144A.
against which there is no appeal). In that regard it must be inferred that although no
mention was made of the counter application, the costs order granted by the court a
quo encompassed both the application in convention and the counter application.
[27] The following order is therefore made:
(1)
The appeal succeeds, with costs.
(2)
Paragraph 1 of the order of the court a quo is set aside and substituted with
the following:
‘1 (a) The application in convention is dismissed.
(b) The fourth respondent (the Master) is ordered to accept the will dated 30
March 2006, annexure ‘GR2’ to the founding affidavit in the application in
convention, as the will of the deceased for the purposes of the Administration of
Estates Act 66 of 1965.’
______________________
L E Leach
Judge of Appeal
APPEARANCES:
For Appellant:
L W de Koning SC
Instructed by:
Laubscher Attorneys, Pretoria
Schoeman Maree Incorporated,
Bloemfontein
For 1st & 2nd Respondent:
J J Botha
Instructed by:
Tim du Toit & Kie Attorneys, Lynnwood
Naudes Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 1 June 2012
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
Neutral citation: Raubenheimer v Raubenheimer (560/2011) [2012] ZASCA 97 (1 June
2012)
The appeal in this matter related to the interpretation of a will made by the appellant’s
husband prior to his death. The will had not been properly witnessed and contained a clause
that although the estate was bequeathed to the appellant she was to have a usufruct over the
matrimonial home in Pretoria until her death or remarriage. It also referred to a list of
specific bequests which was not attached thereto.
After the death of the testator, his two children born from a previous marriage contended that
this will was invalid as, firstly, it failed to comply with the relevant statutory provisions as to
its signature and, secondly, as it was void for vagueness. The appellant contended that the
will should be accepted as being the testator’s will under s 2(3) of the Wills Act 7 of 1953.
The matter came before the Gauteng High Court which found that the will was invalid and
that the testator had died intestate. On appeal, the Supreme Court of Appeal held that the will
had been intended by the testator to be his last will. The court also held that the will was not
void for vagueness and, on a proper construction, created a fideicommissum over the
common home to endure until the appellant’s death or remarriage whereupon the property is
to devolve upon the testator’s two children. The court therefore granted an order directing the
Master to accept the will as being the will of the deceased for the purposes of the
administration of Estates Act 66 of 1965.
---ends---
|
2701
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 194/11
Not reportable
In the matter between:
MINISTER OF SAFETY AND SECURITY First Appellant
JONATHAN DANIËLS Second Appellant
and
JOHANNES FRANCOIS SWART Respondent
Neutral citation:
Minister of Safety and Security & another v Swart
(194/11) [2012] ZASCA 16 (22 March 2012)
Coram:
Mthiyane DP, Brand, Cloete and Bosielo JJA and Ndita AJA
Heard:
05 March 2012
Delivered:
22 March 2012
Summary:
Unlawful arrest – s 40(1)(b) of the Criminal Procedure Act 51
of 1977– respondent arrested without a warrant – whether
the arresting officer had reasonable grounds for suspecting
the respondent of having committed an offence of having
driven a vehicle while under the influence of intoxicating
liquor – quantum – whether there is an basis to interfere
with the award made by the court below.
ORDER
On appeal from: Western Cape High Court, Cape Town (Blignault J and
Samela AJ sitting as court of appeal):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
BOSIELO JA (Mthiyane DP, Brand and Cloete JJA and Ndita AJA concurring)
[1] In the early hours of 27 May 2007, the respondent was arrested by the
second appellant without a warrant on a suspicion of driving a motor vehicle
on a public road whilst under the influence of intoxicating liquor. He was
thereafter detained at the De Doorns police station. The criminal charges
against him were withdrawn the next day after the tests revealed that his
blood alcohol level at the time of driving was below the permissible legal limit.
[2] Following this, the respondent issued summons against the appellants
in the Magistrates’ Court, Worcester for damages suffered as a result of the
unlawful arrest and detention. The magistrate dismissed his claim with costs.
However, the respondent appealed successfully to the Western Cape High
Court (Blignault J and Samela AJ) where he was awarded damages in the
amount of R50 000 plus interest and costs. The appellants are appealing to
this Court with its leave against the judgment of the court below.
[3] That facts which gave rise to this matter can be summarised as follows:
The second appellant, Mr Jonathan Daniëls, is a police constable stationed
stationed at De Doorns Police Station. Constable Sonja Nel is his colleague.
On 27 May 2007, whilst doing patrol duties in a police vehicle, they received a
radioed report of an accident in the Hex pass. Whilst on their way to the scene
of the alleged accident, they came upon the respondent who ran towards
them. Using a torch, he stopped them. The time was 03h45. The respondent
was a colleague. He asked them to help him as he had driven his vehicle off
the road. He asked if they could drive him home so that he could fetch his
other van and a rope in order to tow the damaged vehicle back home. The
second appellant explained to the respondent that they were on their way to
attend to an accident and that they would return to assist him. At this stage,
they had not seen his vehicle as it was dark. Whilst proceeding to the place
where the accident had allegedly occurred, the second appellant telephoned
the officer in the charge office, Inspector Anneke Joubert, and reported to her
that they had encountered the respondent who appeared to be under the
influence of alcohol.
[4] As they could not find the scene of accident nor the vehicle that they
were looking for, they returned to where they had met the respondent. Upon
their arrival at the scene, they saw the respondent’s van lying about 100 m
further into a ditch. According to the second appellant, it appeared as if the
respondent had either lost control of the vehicle or miscalculated a bend in the
road. He then approached the respondent and told him that he (the
respondent) knows what the procedure is when a person has caused an
accident whilst under the influence of alcohol. The second appellant then
advised the respondent of his rights and tried to arrest him. The respondent
resisted and protested that he was not driving the vehicle and further that as
could be seen the engine was not running. The respondent became
belligerent, used abusive language and refused to submit to the arrest. The
second appellant then telephoned the charge office and asked for assistance.
Two other police officers came to help, but to no avail. The respondent
ultimately gave in after his immediate senior Captain Mashishi had come to
the scene. He was then arrested on a suspicion of driving under the influence
of intoxicating liquor, whereafter he was taken to a doctor in Worcester for a
blood sample to be taken for forensic analysis.
[5] As I have already indicated the charge against the respondent was
withdrawn the following day as the result of his blood analysis showed that his
blood alcohol level was only 0.04 grams per 100 ml at the time of the incident.
He however insisted that the respondent reeked of alcohol when they met
him. He also conceded that he did not perform any tests to determine the
respondent’s state of sobriety.
[6] Constable Nel was on patrol duty with the second appellant on the
night in question. To a large extent her evidence is the same as that of the
second appellant. She was the driver of the police vehicle. After the
respondent had stopped them whilst en route to the scene of an accident, she
sensed a mild smell of alcohol when he spoke to them. She could not say
whether the respondent was drunk or not. She also confirmed that she knew
the respondent before the night in question. She conceded that it was dark so
much so that she could not even see the respondent’s eyes. As to the
condition of the road, she testified that there was a dangerous curve where
the respondent’s vehicle left the road.
[7] The evidence of Inspector Joubert was not of much value except that
she confirmed that she was in charge at the charge office that night. After she
received a report, which was radioed in from the second appellant, regarding
the allegation that the respondent’s vehicle had left the road and that he was
under the influence of alcohol, she instructed the second appellant to arrest
the respondent for driving under the influence of alcohol.
[8] The respondent testified as follows. He spent the better part of the
night (27 May 2007) with his friend, Mr Truter, at Truter’s home. Both are
police officers. He conceded that they drank some beers (no indication of the
exact quantity is given) at Truter’s home. The respondent’s ten year old son
was also present. Later on in the night the respondent decided to head home.
As he had been drinking he did not think it was safe for him to drive. He then
got one Eben, whom he had used in the past as his informer, to drive him
home. Whilst en route to his home, Eben lost control of the vehicle which
veered off the road. Eben fled the scene after the respondent threatened to hit
him. The road they traversed has a dangerous curve, no lights, was under
construction at the time and had no road markings. After the accident Eben
fled the scene. The respondent walked up to the main road to seek help. A
patrol vehicle driven by Nel, with the second appellant as her passenger,
pulled up after he had waved them down using his torch. He explained his
problem to them and they undertook to return and offer him assistance after
attending to another accident that had been reported. The respondent denied
that he had told them that he had driven his vehicle off the road. Upon their
return the two police officers never asked him what had happened. All that the
second appellant told him was that he should have known better than to drive
a vehicle whilst he was inebriated. The second appellant then tried to arrest
him but he resisted. A fierce struggle ensued until he was forced into the
police van by the second appellant, one Tokwe and Captain Mashishi.
[9] The respondent further testified that, same morning, he was taken to a
doctor where a blood sample was taken. He was thereafter detained in a
police cell. The respondent described the condition in the cell as inhumane
and atrocious eg the toilet was blocked and the smell was putrid. Whilst at the
charge office, where there were approximately five police officers, he was
taunted and ridiculed by someone asking: ‘Who is going to have the privilege
to lock up Blackie?’
[10] The following essential facts appear to be common cause:
(a) The respondent, the second appellant and Nel are all police officers, and
known to one another;
(b) all three of them were stationed at the same police station namely De
Doorns;
(c) the respondent was their senior;
(d) the relationship between the respondent and the second appellant was
stormy (stormagtig);
(e) on 27 May 2007 both the second appellant and Nel were on patrol duty;
(f) they were acting as police officers within the scope of their duties under the
first appellant;
(g) they encountered the respondent, whose vehicle had veered off the road
and fallen into a ditch;
(h) the road where the vehicle left the road was dark with no lights, has a
dangerous curve, was under construction and had no road markings;
(i) the respondent stopped them and requested assistance;
(j) both the second appellant and Nel smelt liquor on the respondent’s breath;
(k) the second appellant then telephoned Inspector Joubert who was in
charge at the charge office and reported to her that the respondent’s vehicle
had gone off the road and that he was under the influence of alcohol;
(l) subsequently, the second appellant tried to arrest the respondent who in
turn resisted;
(m) the respondent was only subdued and arrested with the help of one
Tokwe and Captain Mashishi;
(n) a blood sample was subsequently drawn from the respondent and sent for
analysis;
(o) the results were a blood alcohol level of 0,04 grams per 100 ml;
(p) the prosecutor issued a nolle prosequi certificate;
(q) the respondent was detained for four and a half hours in the police cells;
and
(r) the conditions in the cell were inhumane and horrid.
[11] The issues raised in this appeal are whether, based on the facts known
to the second appellant at the time when he observed the respondent at the
scene, it can be found that the respondent was the driver of the vehicle that
went of the road and whether his suspicion, that the respondent was at the
time under the influence of intoxicating liquor, was reasonable.
[12] Counsel for the appellants submitted that the circumstances under
which the respondent was arrested justified a reasonable suspicion, amongst
others, that he was the driver of the vehicle that had veered off the road. In
fact, counsel argued that this is what the respondent said to both the second
appellant and Nel when they enquired what had happened. Counsel argued
further that, in absence of any reasonable explanation from the respondent
regarding how his vehicle left the road and landed in a ditch, it was
reasonable for the second appellant to conclude that it was due to the
respondent’s drunken state. Therefore, the conclusion is that the second
appellant was justified in arresting the respondent as he harboured a
reasonable suspicion that the respondent drove the vehicle whilst he was
under the influence of alcohol.
[13] On the other hand, Mr Nortier for the respondent argued that the mere
fact that the respondent’s vehicle had veered off the road and that he smelt of
alcohol is not sufficient proof that he was under the influence of alcohol when
he drove the vehicle and further that the cause of the accident was as a result
of his intake of alcohol. Mr Nortier submitted that by failing to make proper
enquiries as to how the respondent’s vehicle had left the road, the court is left
with no evidence but mere doubt, suspicion and pure speculation. He further
argued that such an occurrence can be caused by a variety of factors other
than drunkenness. It is common cause in this case that the road on which the
vehicle in question was travelling was dark with no lights and has a dangerous
curve. In addition there were road constructions with no road markings to alert
road-users of any possible danger.
[14] Concerning the smell of alcohol, Mr Nortier submitted that the mere fact
that the respondent smelt of alcohol does not necessarily mean that his
mental faculties and ability to drive a vehicle was so seriously affected that he
was not fit to drive. He contended that because none of the two police officers
witnessed the respondent driving the vehicle they could not testify regarding
the manner in which the vehicle was driven. In addition he submitted that the
police officers should have made more enquiries to determine the
respondent’s level of drunkenness. He suggested that the police could have
asked him to stand on one leg, asked him to walk, spoken to him to determine
if his speech was slurred or they could have checked if his eyes were
bloodshot. In the absence of such further indications of drunkenness, Mr
Nortier argued that the mere evidence of the smell of alcohol alone is hardly
sufficient to sustain an inference of drunkenness.
[15] The respondent alleged that it was Eben who was driving his van when
it veered off the road. The second appellant denied that the respondent ever
mentioned Eben to him. However, on the other hand Nel testified that the
respondent’s son told her that it was his father who was driving. Nel confirmed
that the respondent told her about Eben. It should be clear that as the
respondent never said anything to the second appellant about Eben, he could
not have formed a suspicion that the respondent was lying about who drove
the vehicle in an attempt to avoid being arrested for drunken driving.
[16] Section 40(1)(b) of the Criminal Procedure Act 51 of 1977 provides
that:
‘40 Arrest by peace officer without warrant
(1) … A peace officer may without warrant arrest any person–
(b) whom he reasonably suspects of having committed an offence referred in
Schedule 1, other than the offence of escaping from lawful custody.’
[17] It should be clear from s 40(1)(b) that the following are the essential
jurisdictional facts which have to be present to justify an arrest without a
warrant:
(a) the arresting officer must be a peace officer;
(b) the arresting officer must entertain a suspicion;
(c) the suspicion must be that the suspect (the arrestee) committed an offence
referred to in Schedule 1; and
(d) the suspicion must be based on reasonable grounds.
See Duncan v Minister of Law & Order 1986 (2) SA 805 (A) at 818G-H;
Minister of Safety & Security v Sekhoto & another 2011 (1) SACR 315 (SCA)
para 6.
The real dispute in this case revolves around the question whether the
requirements of paragraph (d) above relating to the reasonableness of the
suspicion, have been met.
[18] Based on the facts of this case the key question that merits
consideration, is whether the mere smell of alcohol was sufficient to give rise
to a reasonable suspicion on part of the second appellant that the respondent
was under the influence of intoxicating liquor and that for that reason he could
not drive a vehicle.
[19] It is well-established that the onus rests on the arresting officer to prove
the lawfulness of the arrest. This is so because as Rabie CJ stated in Minister
of Law & Order & others v Hurley & another 1986 (3) SA 568 (A) at 589E-F:
‘An arrest constitutes an interference with the liberty of the individual concerned, and
it therefore seems to be fair and just to require that the person who arrested or
caused the arrest of another person should bear the onus of proving that his action
was justified in law.’
[20] It is furthermore trite that the reasonableness of the suspicion of any
arresting officer acting under s 40(1)(b) must be approached objectively. The
question is whether any reasonable person, confronted with the same set of
facts, would form a suspicion that a person has committed a Schedule 1
offence. M v Minister of Safety & Security 2009 (2) SACR 291 (GSJ).
[21] At the risk of repetition the only evidence on which the second
appellant decided to arrest the respondent, is the fact that he smelt of alcohol
and that his vehicle had left the road and landed in a ditch. There is no
evidence that the respondent was unsteady on his feet, that his speech was
slurred, that he could not walk in a straight line or that his eyes were
bloodshot. These are the well-known indications of a person who is under the
influence of alcohol.
[22] On the contrary, the respondent behaved like a person in full control of
his faculties. When he saw their vehicle he ran towards them and stopped
them. He used a torch light to flag them down. Furthermore, when the
respondent requested that they drive him to his home to fetch his other van,
he spoke in a friendly and coherent manner. All these actions indicated that
the respondent was in full control of his senses.
[23] To my mind to conclude that the respondent was under the influence of
alcohol based on the mere fact that he smelt lightly of alcohol, is more of a
quantum leap in logic. It follows in my view that the second appellant’s
suspicion was not based on reasonable grounds and therefore that the
respondent’s arrest and detention were unlawful.
[24] I now wish to deal with quantum. This matter has serious aggravating
features. The respondent is a police officer, a sergeant of some 16 years’
standing, with both the second appellant and Nel being his subordinates.
They were all stationed at the same police station. The manner in which he
was physically manhandled and thrown into the police van was truly
demeaning. This happened in front of his son and his commanding officer.
Whilst at the charge office, he was taunted and ridiculed in the presence of
junior officers. The fact that some police officers were asking who was going
to have the privilege of taking the respondent to the cells makes the whole
arrest and detention even more demeaning. Clearly his dignity and reputation
was gravely impaired. He spent four and a half hours in detention for no good
reason. I am unable to find any misdirection in the award made by the court
below which warrants any interference by this Court.
[25] In the circumstances the appeal is dismissed with costs.
____________
L O Bosielo
Judge of Appeal
APPEARANCES:
For Appellant:
A Schippers SC (with him S O’Brien)
Instructed by:
State Attorney, Cape Town
State Attorney, Bloemfontein
For Respondent:
LR Nortier
Instructed by:
Conradie Incorporated, Worcester
Phatshoane Henney Inc., Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
22 March 2012
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not form
part of the judgment of the Supreme Court of Appeal.
MINISTER OF SAFETY AND SECURITY & ANOTHER V SWART (194/11) [2012] ZASCA 016
(22 MARCH 2012)
The Supreme Court of Appeal (SCA) today dismissed an appeal by the Minister of Safety and
Security and a police officer in his employ (the second appellant) against an order of the Western
Cape High Court, Cape Town declaring the arrest and detention of Mr Swart (the respondent) to
have been unlawful and directing them to pay the respondent an amount of R50 000 plus interest
as damages.
The second appellant had arrested and detained the respondent without a warrant on suspicion of
driving a motor vehicle on a public road whilst under the influence of intoxicating liquor. The only
evidence relied upon by the second appellant in making the arrest was the fact that the respondent
smelt of alcohol and that his vehicle had left the road and landed in a ditch. The criminal charge
against the respondent was later withdrawn after medical evidence showed that his blood alcohol
level was below the permissible legal limit. He then instituted an action against the Minister and the
second appellant in a magistrates’ court claiming damages for the arrest and detention, arguing that
they were unlawful. The action was dismissed. He successfully appealed to the high court. The
Minister then appealed to the SCA against the order of the high court.
Before the SCA the key issue was whether the mere smell of alcohol was sufficient to give rise to a
reasonable suspicion on the part of the second appellant that the respondent was under the
influence of intoxicating liquor and for that reason he could not drive a vehicle. The SCA answered
the question in the negative. It held that the second appellant’s suspicion was not based on
reasonable grounds and therefore that the respondent’s arrest and detention were unlawful. The
SCA stated that the respondent had behaved like a person in full control of his faculties at the time
of his arrest. On the issue of the quantum of damages, the SCA, with reference to the aggravating
features accompanying the arrest and detention, held that it was unable to find any misdirection in
the award made by the high court warranting its interference.
|
2430
|
non-electoral
|
2013
|
IN THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
CASE NO: 911/2012
Reportable
In the matter between:
JAMES AZWINNDINI NEDZAMBA
Appellant
and
THE STATE
Respondent
Neutral Citation:
Nedzamba v S (911/2012) [2013] ZASCA 69 (27 May 2013).
Coram:
NAVSA, BRAND, TSHIQI & PETSE JJA, ZONDI AJA
Heard:
17 May 2013
Delivered:
27 May 2013
Summary:
Criminal law – rape – indictment containing no reference to
provisions of the Criminal Law (Sexual Offences and Related Matters)
Amendment Act 32 of 2007 – susceptible to amendment on appeal – no prejudice
– convictions and related sentences liable to be quashed and set aside on basis
of fundamental irregularities – cross-examination restricted or prevented –
leading questions on critical issues permitted – unjustified interventions by trial
judge – no care taken in relation to child witness – convictions and sentences set
aside.
______________________________________________________________________
ORDER
______________________________________________________________________
On appeal from: The Limpopo High Court, Thohoyandou (Hetisani J sitting as court of
first instance).
The following order is made:
1. The appeal is upheld.
2. The convictions and the sentences imposed by the High Court are quashed and set
aside.
______________________________________________________________________
JUDGMENT
______________________________________________________________________
NAVSA JA, (BRAND, TSHIQI & PETSE JJA, ZONDI AJA CONCURRING):
[1] The appellant, Mr James Azwinndini Nedzamba, was indicted in the Limpopo
High Court, Thohoyandou (Hetisani J) on two counts of rape. On 13 March 2009 he was
convicted on those counts and two life sentences, to run concurrently, were imposed.
The present appeal, with the leave of this court, is directed both against the convictions
and related sentences.
[2] In this case there were numerous mishaps, encompassing the investigation, the
prosecution, the trial and even the present appeal. The result, regrettably, is that there
was a negative impact with resultant injustice in relation to both the complainant and the
appellant.
[3] The State’s case, as set out in the indictment and the summary of substantial
facts, was that on 17 March 2008, at her home in Thohoyandou, the complainant, a
then 13-year old girl, was raped on two occasions by the appellant. It was alleged that
the appellant, a Zion Christian Church pastor, had imposed himself on the complainant
in the manner complained of under the pretext of performing church rituals.
[4] The complainant, her mother and her older brother testified in support of the
State’s case. The appellant’s defence was one of alibi and he testified that he had been
at work at the relevant time and thus could not have committed the said acts. He was
the only witness in his defence.
[5] At the end of a judgment with sparse reasoning, the court below concluded as
follows:
‘[T]he state must prove its case beyond any reasonable doubt. Secondly, the accused’ version
must appear to be reasonably true. In this instance the court does not believe that the accused
was telling the court the truth because he mentioned names of people, when asked where are
those people, he cannot trace them, he has forgotten this, he has forgotten that.
Therefore the court finds that the version of the accused is rejected and the version of the state
witnesses is accepted and the accused is found GUILTY AS CHARGED.’
[6] After conviction and sentence, an application for leave to appeal was
unsuccessful, hence an application to this court which, as stated above, was successful
and resulted in the present appeal. It appears that the appellant had, pending
finalisation of this appeal, been incarcerated for more than four years.
[7] In the court below, the appellant raised no objection to the charge sheet. The
heads of argument on his behalf in this Court relied primarily on the fact that the
indictment made no reference to the provision of the Criminal Law (Sexual Offences
and Related Matters) Amendment Act 32 of 2007 (the Act), which came into operation
on 16 December 2007. It was submitted that the appellant had been charged with the
common law offence of rape at a time when it had been abolished by the Act and that
consequently the convictions and related sentences ought to be set aside. Put simply, it
was contended that the appellant had been tried ‘on [the] non-existent common law
crime of rape’. There are other grounds of appeal which I intend to deal with in due
course.
[8] The State in its heads of argument, clearly without careful reflection, conceded
that the convictions and related sentences were liable to be set aside on the basis
referred to at the beginning of the preceding paragraph. In support of its concession the
State relied on the judgment of the Constitutional Court in S and another v Acting
Regional Magistrate, Boksburg and another 2011 (2) SACR 274 (CC). Before the
hearing a note was sent to the parties through the Registrar’s office, referring to
authorities and indicating that the parties would be required to address the court on the
correctness of the concession by the State.
[9] The ground on which the State and the appellant initially relied is fallacious.
Indeed, it is troubling that the State so readily made the concession referred to. In oral
argument before us, the State was constrained to admit that the concessions had been
made without proper thought concerning the ambit and the applicability of the
Constitutional Court judgment and the absurd consequences that would follow. Counsel
for the appellant rightly followed suit and agreed that reliance on that judgment was
misplaced.
[10] It is necessary, to avoid similar concessions and confusion which might arise in
the future, to carefully scrutinise the Constitutional Court’s judgment. It is especially
important to do so because of the objective of the Act, namely, to afford as much
protection as possible to victims of sexual violence. The Constitutional Court noted that
the Act expressly repealed the common law of rape, however it went on to say the
following:
‘[R]ape committed after the commencement of the Act is punishable under the Act and not
under the common law.’ 1
[11] In that case the Court was dealing with the question of whether the repeal of the
common law offence of rape was retrospective. More specifically, the Constitutional
Court had to deal with the interpretation and application of s 69 of the Act, which is a
transitional provision that reads as follows:
1 Para 4.
‘(1)
All criminal proceedings relating to the common law crimes referred to in section 68
(1)(b) which were instituted prior to the commencement of this Act and which are not concluded
before the commencement of this Act must be continued and concluded in all respects as if this
Act had not been passed.
(2)
An investigation or prosecution or other legal proceedings in respect of conduct which
would have constituted one of the common law crimes referred to in section 68 (1)(b) which was
initiated before the commencement of this Act may be concluded, instituted and continued as if
this Act had not been passed.
(3)
Despite the repeal or amendment of any provision of any law by this Act, such provision,
for purposes of the disposal of any investigation, prosecution or any criminal or legal
proceedings contemplated in subsection (1) or (2), remains in force as if such provision had not
been repealed or amended.’
[12] The Constitutional Court was dealing with an accused who had been charged
with rape alleged to have been committed before the repeal of the common law offence
of rape. At para 21 the following was stated:
‘Moreover, in the face of a presumption that common-law rape committed before the
commencement of the Act remained a crime capable of prosecution by the State, it is
inconceivable that s 69 could convey a contrary intention. The purpose is made manifest
throughout the statute, particularly in its long title, its preamble, and its objects. The Act
proclaims its purpose “to afford complainants of sexual offences the maximum and least
traumatising protection that the law can provide”, and “to introduce measures which seek to
enable the relevant organs of State to give full effect to the provisions of this Act”, by
“criminalising all forms of sexual abuse or exploitation”.’
[13] It is clear that the Court was addressing circumstances and chronology materially
different to the circumstances of the present case. That notwithstanding, the
Constitutional Court was sensitive to victims of sexual offences and was intent on
ensuring that they were afforded the full protection that the law provides. Significantly, at
para 22 the following is stated:
‘In the light of these objects stated within the four corners of the Act itself, it is impossible to
interpret the provisions to render any sexual offences incapable of prosecution. In New Clicks,
this court approved the rule laid down in Venter v R, that a court may depart from the clear
language of a statute where it –
“would lead to absurdity so glaring that it could never have been contemplated by the
legislature, or where it would lead to a result contrary to the intention of the legislature, as
shown by the context or by such other considerations as the Court is justified in taking into
account.”
In this case, given that the clear language does not lead to absurdity, there was no reason for
the High Court to depart from the plain meaning of s 69. Accordingly, s 69 is incapable of
disclosing a contrary purpose. The presumption against retrospectivity must therefore prevail.’
[14] Even more importantly, the Court, in conclusion, said the following:
‘[23]
Our Constitution sets its face firmly against all violence, and in particular sexual violence
against vulnerable children, women and men. Given this, and the Act’s emphasis on dignity,
protection against violence against the person, and in particular the protection of women and
children, it is inconceivable that the provision could exonerate and immunise from prosecution
acts that violated these interests. It follows that the High Court’s declaration of constitutional
invalidity cannot be confirmed, and that the accused person could and should have been
charged under the common law.’
[15] Returning to the facts of the present case a useful starting point is s 3 of The Act,
which reads as follows:
‘Any person (“A”) who unlawfully and intentionally commits an act of sexual penetration with a
complainant (“B”), without the consent of B, is guilty of the offence of rape.’
The common law defined rape as follows:
‘Rape consists in unlawful intentional sexual intercourse with a woman without her consent.’
[16] As can be seen, the Act preserved rape as an offence. It made the definition
gender neutral and sought to broaden the offence to include acts previously excluded.
Instead of being a limiting measure, the legislature intended greater protection to victims
of sexual misconduct.
[17] It is true that in the present case the indictment made no reference to s 3 of the
Act under which the appellant should rightly have been charged. However, it
undoubtedly asserted that the appellant was guilty of the offence of rape and the
summary of substantial facts set out the details. Is this deficiency fatal? The short
answer, for the reasons that follow, is no.
[18] Section 86 of the Criminal Procedure Act 51 of 1977 (the CPA) provides that,
where a charge is defective for the want of any essential averment therein, or where
there appears to be any variance between any averment in the charge and the evidence
adduced in relation thereto, or where it appears that words or particulars that should
have been inserted in the charge have been omitted therefrom, or where any words or
particulars that ought to have been omitted have been inserted, or where there is any
other error in the charge, a court may, at any time before judgment, if it considers that
the making of the relevant amendment will not prejudice the accused, order the charge,
whether it discloses an offence or not, to be amended insofar as is necessary.
[19] Section 88 of the CPA also allows latitude. It provides that a defect in a charge
may be cured by evidence.2 In Commentary on the Criminal Procedure Act,3 the learned
authors, with reference to S v Kuse 1990 (1) SACR 191 (E) at 196g-h, point out that the
2 Section 88 provides:
‘Where a charge is defective for the want of an averment which is an essential ingredient of the relevant offence,
the defect shall, unless brought to the notice of the court before judgment, be cured by evidence at the trial
proving the matter which should have been averred.’
3 E du Toit, F J de Jager, A Paizes, A St. Quintin Skeen, & S van der Merwe, Commentary on the Criminal Procedure
Act at 14‐29.
purpose of s 88 was to abolish the former principle that an appellant was entitled to rely
on the fact that a conviction based on a materially defective charge was bad even
though this point was not taken at the trial. They state that even when an essential
element of the offence is omitted it may automatically be cured by evidence. For present
purposes it is clearly not necessary to debate the question whether an amendment was
in fact just that, or whether it amounted to a substitution of charges.
[20] It is generally accepted that charge sheets or indictments may be amended on
appeal or review. Once again the test is whether the accused could not possibly be
prejudiced thereby. When application is made to amend a charge on appeal, the court
must be satisfied that the defence would have remained the same if the charge had
originally contained the necessary averments.4
[21] The question whether a charge sheet outlining a charge of rape without
reference to the Act was susceptible to amendment on appeal was addressed in S v
Motha 2012 (1) SACR 451 (KZP). The High Court permitted an amendment to the
charge sheet to include a reference to s 3 of the Act on the basis that there was no
resultant prejudice to the accused. In granting the amendment the High Court stated
that the test was whether the suggested amended charge differed from the existing one
to such an extent that it amounted to another charge, and that an additional
consideration is whether there was a possibility of prejudice to the accused. It answered
both questions in the negative.
[22] I commend the following part of the reasoning of the court in Motha, which
applies equally to the present case:
‘[13]
What becomes clear from the relevant parts of the Act is the following. First, it is not the
crime of rape which was abolished, it is the common law relating to the crime which was
4 Commentary on the Criminal Procedure Act, op cit, at 14‐24 and the authorities referred to.
repealed. This means that the crime of rape remains a crime, but has a different content. This
content, which was previously provided by the common law, is now provided by s 3 of the Act.
The content provided by s 3 includes that content previously provided by the common law,
namely the penetration of the genital organ of the complainant by the genital organ of the
accused. The balance of s 3 includes actions, now construed as rape, which, under the
common law, did not constitute rape.’
[23] In the present case the appellant had legal representation and his case was
conducted on the basis that he had been fully aware that he faced a charge of rape. He
was adamant in his defence that he had not committed the offence.
[24] It was accepted before us that allowing an amendment would not result in any
prejudice to the accused and that it was clear that his defence would have remained the
same. South Africans would rightly be aghast if the view initially taken by the state,
referred to earlier in this judgment, was to prevail. It would elevate form above
substance, would have grave consequences for victims of sexual abuse and would
bring the administration of justice into disrepute.
[25] I now turn to deal with the conduct of the trial in the court below, having regard to
fundamental irregularities tainting the trial, some of which were raised on behalf of the
appellant, as well as by the State.
[26] First, the complainant was 14-years old at the time of the trial. She was a child
witness with whom care should have been taken at the outset. No thought was given to
whether the child understood the nature and import of the oath. It was not determined at
the outset whether the child knew what it meant to speak the truth. No thought was
given to the desirability or otherwise of receiving the complainant’s evidence through an
intermediary, nor was any consideration given to any other means to protect the child
witness in a case involving a sexual offence. As to the manner in which these enquiries
are to be conducted, see the judgment of the Constitutional Court in Director of Public
Prosecutions, Transvaal v Minister of Justice and Constitutional Development, and
others 2009 (2) SACR 130 (CC). The purpose is to ensure that the evidence given is
reliable. To admit evidence of a child who does not understand what it means to tell the
truth undermines the accused’ right to a fair trial. The court below did not even begin to
address any of these concerns.
[27] Second and equally serious is the trial judge’s early, unjustifiable entry into the
arena. The complainant’s mother had testified about how the appellant had, on a prior
occasion, come to enquire about the purchase of a trailer from her brother, the
complainant’s uncle. Before the complainant’s mother was cross-examined the trial
judge said the following:
‘So you only knew him when he entered your home that day on the pretext that he was coming
to try to negotiate for the purchase of a trailer from your brother, Ishmael?’(My emphasis)
The witness answered in the affirmative. This unjustifiable attitude, indicating a
predisposition, was compounded by what the court below stated in refusing an
application for a discharge at the end of the State’s case in terms of s 174 of the CPA.
In reasoning that the appellant should be put on his defence the court said the following:
‘Therefore, the question is why would a Christian family, like the one who are the victims here, .
. . , want to incriminate you if it was not true.’
[28] Third, the trial judge had failed to intervene when he should have. This was
compounded by defence counsel not raising any objection. This occurred during a
critical juncture in the trial. Before she was cross-examined, the complainant testified
that the appellant had instructed her to lie down and that he positioned himself on top of
her. This was her evidence in respect of both charges. The high point of her evidence at
that stage was that ‘[h]e was just shaking on top of me’. When she was asked to clarify
what had occurred, she said:
‘He lied on top of me.’
She repeated this twice more. The prosecutor then put the following question to her:
‘[D]id he insert his penis into you?’
To this she replied in the affirmative. There was no objection by appellant’s counsel and
there was no intervention by the judge. The prosecutor then asked:
‘What happened thereafter?’
And without pause, asked further:
‘Did he ejaculate in you?’
To which she answered:
‘Then I was surprised to see things which are like saliva.’
A similar line of questioning was followed in respect of both counts of rape.
[29] Caution should have been the watchword. Time and care should have been
taken to explore precisely what had occurred and to determine what exactly the
complainant was saying the appellant had done to or with her. In this regard see S v
MM 2012 (2) SACR 18 (SCA) para 9. Far from exploring the complainant’s version of
what had occurred, the prosecutor suggested what had occurred by a series of leading
questions on elements critical to a conviction. The court below should have intervened
at a very early stage during this line of questioning. Regrettably, it failed to do so.
[30] Fourth, the court below wrongfully prevented or restricted cross-examination at
critical times. When the complainant was being cross-examined and the question arose
whether she had agreed to do as the appellant instructed, the trial judge intervened and
said the following:
‘Mr Mathobo, for a 13 year girl, a man coming, telling her he is going to perform rituals, when he
means raping her, why would she not agree, because he says, “I am going to perform rituals” of
their church. We know that the ZCC is the oldest African church in South Africa and it performs
these rituals. So there are some other people then who sometimes now abuse those rituals.
She only realised what he wanted to do when he unzipped his trousers. That is what she said.
Then she said, “my mother will quarrel with me”. He says, “No, I have already told your mother”.
Which means he had already told her mother and her mother had agreed because that was a
ritual.’
[31] Disturbingly, immediately thereafter, before the witness ended her testimony and
well before all the remaining evidence was tendered, the court below said the following:
‘So this is not a case of a person just agreeing because she wants to do it. She has been duped
or misled. She had been defrauded to believe that all those things, taking a towel and hat and
take your panty, up until that time when the man now started to have sex with her, then she
objected, then he said, “No, calm down, I have talked about this with your mother”.’
[32] When the complainant was being cross-examined about the presence of her
brother in the vicinity and why she did nothing to attract his attention, she stated that
she had been afraid. She denied that she had been intimidated. At that stage the trial
judge intervened and said the following:
‘You must not forget, before anything happened, it is said that the accused told, because the
accused came and [her brother] came after the accused has arrived. Accused was now busy
with his plan. He even told [her brother], “Go and sit there, I am coming next with the ritual.” Do
not ignore that.’
Almost immediately thereafter he said:
‘He told him and [her brother] went to wait for the ritual. Who would not like to get blessings from
God?’
Thereafter the trial judge once again prevented further cross-examination on this
aspect.
[33] Leaving aside questions of whether consent by someone so young is in any
event nullified and still leaves an accused liable to criminal sanction of some sort, what
is clear is that the appellant was denied the right to cross-examine fully. An accused
person has the fundamental right in term of s 35(3)(i) of the constitution to adduce and
challenge evidence. More than five decades ago this court considered whether the
disallowance of proper questions sought to be put to a witness by cross-examining
counsel is an irregularity. It said the following:
‘The first question to be considered was whether there had been an irregularity. The answer
could not be in doubt.’5
That was said in a civil matter. It is all the more relevant in a criminal prosecution.6 More
particularly since the improper prevention of cross-examination militates against an
accused’s fundamental rights. See S v Mgudu 2008 (1) SACR 71 (N) at 77g-h. The trial
in the court below was mismanaged from beginning to end.
[34] The irregularities referred to above, singularly or cumulatively are of such a
nature that they have resulted in justice not having been done. Put differently, the
appellant did not have a fair trial. In this regard see the Criminal Procedure Act supra at
31-28 and 31-29, and the authorities there cited. See also S v Moodie 1961 (4) SA 752
(A). The irregularities render the convictions and sentence liable to be set aside. The
consequence is that the appellant has already been in prison for more than four years
5 Distillers Korporasie (SA) BPK v Kotze 1956 (1) SA 357 (A) at 361G‐H.
6 See Du Toit et al (supra) at 22‐21 to 22‐22.
without a fair trial to finality. Equally, for the child complainant there has been no
closure. In this instance the administration of justice appears to have failed them both.
[35] One remaining aspect requires attention, namely, the manner in which the police
investigation and medical examination was conducted. It appears at least on the face of
it, from the complainant’s evidence, that there was material for DNA testing that was
likely to prove conclusive. There was no indication that a testing kit was used or
available. No explanation was proffered for the State’s failure to conduct such an
investigation. In S v Carolus 2008 (2) SACR 207 (SCA) para 32 the following was
stated:
‘There are disturbing features of this case that we are constrained to address. In addition to the
flagrant disregard of the rules relating to the identification of suspects, no crime kits were
available at the hospital to enable Dr Theron to take a sample for DNA analysis. It is imperative
in sexual assault cases, especially those involving children, that DNA tests be conducted. Such
tests cannot be performed if crime kits are not provided. The failure to provide such kits will no
doubt impact negatively on our criminal justice system. Fortunately in this matter such negative
outcome has been avoided by the brave and satisfactory evidence of A as corroborated by
other witnesses.’
Every effort should be made by the relevant authorities to ensure proper testing with
appropriate sensitivity.
[36] Because of the fundamental irregularities mentioned above, the following order is
made:
1. The appeal is upheld.
2. The convictions and the sentences imposed by the High Court are quashed and set
aside.
________________________
MS NAVSA
JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT:
M Madima
Instructed by:
Thohoyandou Justice Centre, Thohoyandou
Bloemfontein Justice Centre, Bloemfontein
FOR RESPONDENT:
A I S Poodhun
Instructed by
Director of Public Prosecutions, Thohoyandou
Director of Public Prosecutions, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
27 May 2013
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form
part of the judgment.
Nedzamba v S (911/2012) [2013] ZASCA 69 (27 May 2013)
The Supreme Court of Appeal (SCA) today upheld an appeal to set aside the
appellant’s convictions on two counts of rape and related sentences imposed
by the High Court in Thohoyandou. The appellant had been charged with the
rape of a 13-year old girl, it being alleged in the indictment that the appellant,
a Zion Christian Church pastor had acted in the manner complained of under
the pretext of performing church rituals.
In the High Court the appellant had denied the charges and had pleaded not
guilty. He was convicted and two life sentences were imposed. Leave to
appeal against the convictions and related sentences was granted by this
Court.
There had been no objection to the charge sheet in the High Court. In heads
of argument in this Court, the appellant’s primary challenge to the conviction
was that the indictment had made no reference to the Criminal Law (Sexual
Offences and Related Matters) Amendment Act 32 of 2007. It was submitted
that the appellant had been charged with the common law offence of rape at a
time when it had been abolished by the Act and that consequently the
convictions and related sentences ought to be set aside. Put simply, it was
contended that the appellant had been tried ‘on [the] non-existent common
law crime of rape’. There were also other grounds of appeal.
The State, in its heads of argument, conceded that the convictions and related
sentences were liable to be set aside on the primary basis relied on by the
appellant. Before the hearing of the appeal, this Court, through the Registrar’s
office, sent a note to the parties referring to authorities and indicating that the
parties would be required to address the court on the correctness of the
concession by the State.
In this Court, the parties agreed that the concession had been wrongly made.
The SCA thought it necessary to avoid similar concessions and confusion
which might arise in the future to set out detailed reasons indicating the fallacy
underlying the concession. It stated the following:
‘It is true that in the present case the indictment made no reference to s 3 of the Act
under which the appellant should rightly have been charged. However, it undoubtedly
asserted that the appellant was guilty of the offence of rape and the summary of
substantial facts set out the details. Is this deficiency fatal? The short answer, for the
reasons that follow, is no.’
The SCA stated that this was a case in which an amendment should be
allowed, even on appeal, because there was no resulting prejudice to the
appellant. It stated the following:
‘In the present case the appellant had legal representation and his case was
conducted on the basis that he had been fully aware that he faced a charge of rape.
He was adamant in his defence that he had not committed the offence.’
And went on to say:
‘It was accepted before us that allowing an amendment would not result in any
prejudice to the accused and that it was clear that his defence would have remained
the same. South Africans would rightly be aghast if the view initially taken by the
state, referred to earlier in this judgment, was to prevail. It would elevate form above
substance, would have grave consequences for victims of sexual abuse and would
bring the administration of justice into disrepute.’
Regrettably, the conduct of the trial was tainted by several fundamental
irregularities, compelling the SCA to set aside the convictions and related
sentences. First, no care was taken in relation to the taking of evidence from
the complainant, a child witness. Second, the trial court had evinced a
predisposition at an early stage of the trial, which was repeated. It had also
unjustifiably restricted or prevented cross-examination at critical times.
Leading questions by the prosecutor on critical issues were permitted without
any intervention by the court.
In dealing with the irregularities, the SCA said the following:
‘The irregularities referred to above, singularly or cumulatively are of such a nature
that they have resulted in justice not having been done. Put differently, the appellant
did not have a fair trial. . . . The irregularities render the convictions and sentence
liable to be set aside. The consequence is that the appellant has already been in
prison for more than four years without a fair trial to finality. Equally, for the child
complainant there has been no closure. In this instance the administration of justice
appears to have failed them both.’
The SCA criticised the police investigation of the case and referred to an
earlier judgement in which the following was stated:
‘There are disturbing features of this case that we are constrained to address.
In addition to the flagrant disregard of the rules relating to the identification of
suspects, no crime kits were available at the hospital to enable Dr Theron to
take a sample for DNA analysis. It is imperative in sexual assault cases,
especially those involving children, that DNA tests be conducted. Such tests
cannot be performed if crime kits are not provided. The failure to provide such
kits will no doubt impact negatively on our criminal justice system. Fortunately
in this matter such negative outcome has been avoided by the brave and
satisfactory evidence of A as corroborated by other witnesses.’
On this aspect it concluded as follows:
‘Every effort should be made by the relevant authorities to ensure proper testing with
appropriate sensitivity.’
Because of the irregularities, the convictions and related sentences were
quashed and set aside.
|
1396
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 590/2009
In the matter between:
THE MEMBER OF THE KWAZULU-NATAL
EXECUTIVE COUNCIL FOR LOCAL
GOVERNMENT, HOUSING AND
TRADITIONAL AFFAIRS
Appellant
and
AMAJUBA DISTRICT MUNICIPALITY
First Respondent
INKATHA FREEDOM PARTY
Second Respondent
AFRICAN NATIONAL CONGRESS Third Respondent
DEMOCRATIC ALLIANCE
Fourth Respondent
THE FEDERAL CONGRESS (FEDCON)
Fifth Respondent
ROYAL LOYAL PROGRESS PARTY
Sixth Respondent
THE ELECTORAL COMMISSION OF
SOUTH AFRICA
Seventh Respondent
Neutral citation: The Member of the KwaZulu-Natal Executive Council for
Local Government, Housing and Traditional Affairs v Amajuba District
Municipality (590/2009) [2010] ZASCA 111 (20 September 2010).
Coram:
Mpati P, Cloete, Heher, Ponnan and Leach JJA
Heard:
26 August 2010
Delivered:
20 September 2010
Summary: Local authorities – election of members to the executive
committee of a district municipality in terms of s 43(1) of the Local
Government: Municipal Structures Act 117 of 1998 – election to be decided by
way of a majority vote of the members of the municipal council.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: KwaZulu-Natal High Court, Pietermaritzburg (Hollis AJ
sitting as court of first instance):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
LEACH JA (Mpati P, Cloete, Heher, Ponnan JJA concurring):
[1] This appeal arises from a political squabble in the council of the first
respondent, the Amajuba District Municipality, a ‘district municipality’ as
defined in s 1 of the Local Government: Municipal Structures Act 117 of 1998
(‘the Act’) surrounding the removal of two councillors from its executive
committee and the council’s refusal to re-elect the same two councillors to the
executive committee to fill the vacancies caused by their removal. This led to
the MEC for Local Government, Housing and Traditional Affairs (at the time
Mr M Mabuyakhulu, the brother to one of the removed councillors) applying to
the High Court, Pietermaritzburg for a declaratory order which, if granted,
would oblige the council to accept the two councillors back onto the executive
committee. Any inference of nepotism on his part caused by his action has
been dissipated by the problem in this case not being unique to the first
respondent and his successors in office having persisted with the proceedings
in order to obtain guidance from the court. In any event, the application was
dismissed and, with the leave of the court a quo, the appellant (the current
MEC) appeals now to this court against that decision.
[2] Every municipality must have a council1 that is obliged, inter alia, to
strive to achieve the objectives detailed in s 152 of the Constitution, and to
review the needs of the community it serves, its priorities to meet those needs
and its mechanisms for doing so.2 There are 25 councillors in the first
respondent’s council, 15 appointed by local municipalities and ten elected by
voters. The councillors are members of different political parties, namely, the
second, third, fourth, fifth and sixth respondents in this appeal, although at all
material times, most were either members of the second respondent, the
Inkatha Freedom Party (‘the IFP’) or the African National Congress (‘the
ANC’), the third respondent. Every municipality must also have a chairperson,
called ‘the speaker’, elected from among the municipal councillors, either at
the council’s first sitting after an election or when necessary to fill a vacancy.3
[3] The first respondent operates under a ‘collective executive system’ as
envisaged by the Act and as mandated by the Determination of Types of
Municipality Act 7 of 2000 (KZN). This entails it having an executive
committee with various functions and powers.4 Section 43 of the Act further
provides:
‘(1)
If the council of a municipality establishes an executive committee, it must
elect a number of councillors necessary for effective and efficient government,
provided that no more than 20 per cent of the councillors or 10 councillors, whichever
is the least, are elected. An executive committee may not have less than three
members.
(2)
An executive committee must be composed in such a way that parties and
interests represented in the municipal council are represented in the executive
committee in substantially the same proportion they are represented in the council.
(3)
A municipal council may determine any alternative mechanism for the election
of an executive committee, provided it complies with section 160(8) of the
Constitution.’5
1 Section 18(1) of the Act.
2 Section 19 of the Act.
3 Section 36(1) and (2) of the Act.
4 Set out in s 44 of the Act.
5 Section 43(3) ensures compliance with s 160(8)(a) of the Constitution which provides that
members of a municipal council are entitled to participate in the proceedings its committees in
a manner that ‘allows parties and interests reflected within the Council to be fairly
represented’.
[4] The first respondent’s executive committee was established on 3 April
2006 at the municipal council’s inaugural meeting. To give effect to the
imperative contained in s 43(2) of the Act, it comprised five members: two
from the ANC, two from the IFP and one representing a minority party.
Councillors DB Mabuyakhulu and JCN Khumalo of the ANC were elected both
to the committee and as mayor and deputy-mayor,6 respectively, while
councillor AT Zwane, another ANC member, was elected speaker of the
council.7
[5] At the time of this meeting, and for some time thereafter, the ANC,
together with the support of a minority party with whom it formed a coalition,
held a majority in the council. However, in the fickleness of politics the
minority party later left the ANC in the lurch and allied itself to the IFP which,
with its support, then held a majority in the council. The majority promptly
called for a council meeting with the view of removing the ANC councillors
from the posts of mayor, deputy-mayor and speaker. Presumably in an
attempt to retain those posts in ANC hands, the speaker turned a deaf ear to
this request and, eventually, an application to compel the holding of a council
meeting was brought in the Pietermaritzburg High Court. In a vain attempt to
delay the inevitable, the executive committee opposed the application. It is
undisputed that councillors Mabuyakhulu and Khumalo (the mayor and his
deputy) were the guiding hands behind this opposition which was funded from
the municipality’s coffers. Unfortunately for them, the application succeeded, a
council meeting was held and, in due course, both they and the speaker were
removed from office and replaced.
[6] The council then proceeded to hold an investigation into the possible
waste of municipal funds by the council’s opposition to the application and, on
13 February 2008, acting under s 53(1) of the Act,8 it removed councillors
6 Section 48(1) of the Act requires the municipal council to elect a member of its executive
committee as the mayor and, if the MEC for local government of the province so approves,
another member of the executive committee as the deputy mayor.
7 Section 36 of the Act obliges every municipal council to have a chairperson, to be called ‘the
speaker’. It is not a requirement that the speaker be a member of the executive committee.
8 ‘A municipal council may, by resolution remove from office one or more or all of the
Mabuyakhulu and Khumalo from the executive committee. Although they
remained members of the council, they were neither disciplined nor
sanctioned (under item 14(2) of schedule 1 to the Local Government:
Municipal Systems Act 32 of 2000 steps may be taken against councillors
who breach the code of conduct which, inter alia, may result in their
suspension or removal from office – although the council may not suspend or
remove them: that may only be done by the MEC9). Moreover, no steps were
taken to recover the wasteful expenditure from them under the Municipal
Finance Management Act 56 of 2003.
[7] Section 53(3) of the Act provides for members of an executive
committee who are removed from office to be replaced by way of an election
‘subject to section 43’. The effect of this is that the ANC was entitled to have
two councillors elected to fill the vacancies created by the removal of
councillors Mabuyakhulu and Khumalo in order to reflect the proportional
representation of the parties in the council. Obdurately, the ANC caucus in the
council nominated councillors Mabuyakhulu and Khumalo once again for
election to fill those vacancies. The majority of the council refused to elect
them and the ANC councillors, in turn, refused to put up any other candidates
for election. This resulted in a state of deadlock but, as the three remaining
members of the executive committee constituted a quorum, the executive
committee continued about its work – albeit without ANC representation.
[8] Faced with this situation, the MEC adopted the position that the council
had enjoyed no right to refuse to approve whoever the ANC nominated to the
executive committee. When the council refused to back down the MEC,
relying upon s 139(1) of the Constitution which authorises a provincial
executive to intervene when a municipality ‘cannot or does not fulfil an
executive obligation in terms of the Constitution or legislation’, proposed a
resolution to the provincial executive council of KwaZulu-Natal that either an
administrator be appointed to run an election aimed at the installation of the
members of its executive committee. Prior notice of an intention to move a motion for the
removal of members must be given.’
9 Item 14(6) of schedule 1 to Act 32 of 2000.
ANC’s nominees as members of the executive committee of the first
respondent’s council or, alternatively, that the first respondent’s council be
dissolved and fresh elections held with the first respondent’s functions being
performed by the administrator until a new council was established.
[9] The MEC’s proposal was accepted by the provincial executive council
on 26 June 2008. Faced with this, the first respondent launched an application
in the Pietermaritzburg High Court challenging the provincial executive’s
power to intervene in its affairs. As a result, on 14 July 2008 a rule nisi
returnable on 15 August 2008 was issued calling upon the premier of the
province of KwaZulu-Natal and certain other parties to show cause why the
resolution of the executive council should not be declared invalid and why the
provincial executive should not be interdicted from intervening in the council’s
affairs as it had resolved to do.
[10] Section 139(2) of the Constitution provides that if a provincial executive
intervenes in a municipality’s affairs, it is to give written notice of the
intervention to the national minister responsible for local government affairs.
The national executive disapproved of the provincial executive’s intervention
which thus came to naught and the interdict was never argued to finality.
Presumably, the rule nisi lapsed with the effluxion of time.
[11] Notwithstanding this, the ANC councillors in the first respondent’s
council persisted in their refusal to nominate anyone except councillors
Mabuyakhulu and Khumalo to fill the two vacancies on the executive
committee. At a council meeting on 23 March 2009, a secret ballot was held in
respect of the seat on the executive committee reserved for a minority party
which was to be filled by a councillor from either the Democratic Alliance (the
fourth respondent) or the Federated Congress (the fifth respondent) who had
an equal entitlement to it. After this election had been held, the ANC was
again afforded the opportunity to nominate two of its councillors to sit on the
executive committee. Once more, an ANC councillor submitted the names of
councillors Mabuyakhulu and Khumalo, this time subject to a condition that
they be appointed with effect from 1 May 2008. Whether this condition vitiated
the validity of the nomination is not necessary to consider for purposes of this
judgment. What is of importance is that once the nomination had been made,
a councillor representing the Democratic Alliance stated that the council’s
resolution on the removal of those councillors from the executive committee
still stood and that, in those circumstances, the nomination was not
acceptable. Although it is not disputed that the majority of the full council
voted in favour of this view, it has never been contended by any party to these
proceedings that the ANC was not entitled to nominate the two councillors
concerned and, in truth, the events of this meeting amount to no more than a
refusal to elect those whom the ANC had nominated (as was correctly
accepted by counsel for the appellant).
[12] It was in these circumstances that the MEC again decided to intervene.
This he did on 7 April 2009 by launching the proceedings presently on appeal
by way of a notice of motion seeking, inter alia, the following relief:
‘2.1
THAT it be and is hereby declared that in terms of Section 43 of the Local
Government: Municipal Structures Act No. 117 of 1998 read with Section 160 of the
Constitution:-
2.1.1 each party or interest to be represented on the Executive Committee of a
Municipal Council is entitled to be represented pro rata to its representation in the
Municipal Council;
2.1.2 each party or interest aforesaid is entitled to choose and nominate any sitting
Municipal Councillor to be elected to the Executive Committee;
2.1.3 a Municipal Council is obliged to accept and elect those sitting Municipal
Councillors chosen and nominated by the party or interest as aforesaid.
2.2
THAT the refusal by the Municipal Council of First Respondent to accept the
two nominated candidates from Third Respondent for election to the Executive
Committee of First Respondent at its meeting held at Madadeni on Monday 23rd
March 2009 be and is hereby declared to be unlawful.
2.3
THAT Third Respondent is entitled to nominate for election any two sitting
Municipal Councillors of First Respondent of its choice to the two positions reserved
for Third Respondent on the Executive Committee and the Municipal Council is
thereupon obliged to elect them to the Executive Committee.’
[13] Paragraph 2.1.1 of the notice of motion is, effectively, a restatement of
the provisions of s 43(2) of the Act and relates to an issue about which there
has never been a dispute. In these circumstances declaratory relief in those
terms in unnecessary and was not sought by appellant’s counsel. Similarly,
the relief set out in paragraph 2.1.2 of the notice of motion is also
unnecessary as there has never been a dispute as to the entitlement of any
party or interest represented in the municipal council to nominate a councillor
for election to the executive committee. Paragraph 2.2, which was formulated
in the light of what occurred at the meeting of 23 March 2009, is also
unnecessary as essentially all that occurred at that meeting was a refusal to
elect. Counsel for the appellant therefore correctly confined his argument to
the relief set out in paragraphs 2.1.3 and 2.3 in the notice of motion which,
essentially, amounts to the same thing viz that the ANC was entitled to
nominate any two of its municipal councillors in the first respondent for the two
vacancies on the executive committee, including those councillors whose
removal had caused the vacancies in the first place, and that the council was
thereupon obliged to accept such persons onto that committee.
[14] In advancing this contention, the appellant placed particular emphasis
on s 160(8) of the Constitution which provides both that parties and interests
reflected within the municipal council are to be ‘fairly represented’10 and that
members of a municipal council ‘are entitled to participate in its proceedings
and those of its committees in a manner that . . . is consistent with
democracy’.11 As was stressed in Democratic Alliance & another v Masondo
NO & another,12 these provisions are designed to ensure that minority parties
can meaningfully participate in the deliberative processes of municipal
councils and its committees. This objective the legislature clearly sought to
achieve in s 43(2) of the Act by providing for proportional representation in the
executive committee of the parties and interests represented in the council.
10 Section 160(8)(a) of the Constitution.
11 Section 160(8)(b) of the Constitution.
12 2003 (2) SA 413 (CC) para [18].
[15] The appellant argued that s 43(1) of the Act, which requires a
municipal council to ‘elect’ councillors onto its executive committee, is to be
interpreted in the light of these constitutional values and that, in doing so,
democracy can only be given its full voice if the word ‘elect’ in that section is
not given the narrow sense of a decision taken by way of a majority vote, as
to do so could result in a majority of the council, in effect, deciding for a
minority party who was to represent it in the committee and denying it its
representative of choice. This, so the argument went, was anti-democratic
and led to unfair representation in the executive committee – and could, for
example, lead to a minority party’s most competent councillors being excluded
from participation in a council’s executive processes. Consequently, the word
‘elect’ should be interpreted widely to connote ‘select’ in the sense that the
council is obliged to accept the councillor put forward by a party entitled to
have a councillor in the executive committee. Accordingly, so the argument
continued, as the two councillors concerned had not been sanctioned by
removal from the municipal council, they were in the same position as all
other sitting councillors and were to be ‘elected’ in the wide sense if
nominated by the ANC for the two vacant posts.
[16] The immediate difficulty that I have with this argument is that it appears
to fly in the face of the Constitution itself, s 160(1)(c) of which provides for a
municipal council to ‘elect an executive committee’ subject to national
legislation (which in the present case is clearly the Act). All questions
concerning the passing of by-laws, the approval of budgets, the imposition of
rates and other taxes, levies and duties, and the raising of loans, are to be
determined by a decision taken by a municipal council with the supporting
vote of the majority of its members.13 Section 160(3)(c) goes on to provide
that al other questions before a municipal council – which includes the
election of an executive committee – are to be ‘decided by a majority of the
votes cast’. The appellant’s suggestion that the Act should be interpreted to
mean that a municipal council was obliged to accept a decision taken by
13 Section 160(2) as read with s 160(3)(a) of the Constitution.
another on who should be a member of its executive committee, is wholly
inconsistent with this constitutional requirement.
[17] Moreover, in my view, a requirement that the members of the executive
committee of a municipal council be elected by a majority of the members of
that council does not do violence to democracy or the underlying values of the
Constitution. An essential element of democracy is that effect be given to the
will of the majority. This was emphasised by the Constitutional Court in
Masondo. The issue in that case was whether mayoral committees
established under s 60 of the Act are ‘committees of municipal councils’ as
contemplated by s 160(8) of the Constitution. The majority concluded that
they were not whereas O’Regan J in a minority judgment concluded
otherwise. Writing for the majority, Langa DCJ stated that democratic and
accountable government for local communities14 ‘involves ensuring that the
will of the majority prevails and also that the views of the minority are
considered’15 – the latter being achieved by members of the executive
committee being ‘representative of minority parties and interests’.16 O’Regan J
expressed a similar view. Although differing from the majority in regard to its
applicability to mayoral committees, she observed that s 160(8) of the
Constitution entitled councillors in municipal councils to participate in the
proceedings of the council and its committees subject to parties and interests
being fairly represented therein and that the principle of fair representation
‘remains subject to democracy (which implies that the majority must always
be able to determine decisions)’.17 She continued:18
‘Moreover, s 160(8)(b) is clear that the principle of fair representation is always
subject to democracy and the will of the majority. Members of the mayoral committee
must therefore submit to that principle, as must all councillors. The principle
established by s 160(8) is a principle which requires inclusive deliberation prior to
decision-making to enrich the qualities of our democracy. It does not subvert the
principle of democracy itself’ (emphasis added).
14 The first objective of local government laid down by s 152 of the Constitution.
15 At para 17.
16 At para 31.
17 Para 61.
18 Para 78.
[18] Under s 151(2) of the Constitution, the executive authority of the
municipality vests in its council. The first respondent has a ‘collective
executive system’ as referred to in the Act and s 43(2) of the Act, which
mandates the proportional representation of the parties and interests in the
municipal council in the membership of its executive committee which
exercises the council’s executive authority. This advances the values of a
multi-party system of democratic government in accordance with one of the
founding values enshrined in s 1 of the Constitution. But it is the participation
of minority parties in the executive committee which does so, not the
participation of any particular individual. The selection of the persons to act on
that committee has been entrusted to the municipal council, and it is clear
from both the majority and minority judgments in Masondo that a system
whereby a majority vote of councillors is used to determine the members of a
municipal executive committee is in no way undemocratic. It allows a minority
party to put forward its candidates and its views to be heard and considered
as to their suitability to be elected. It also ensures that the will of the majority
shall prevail: and that is the hallmark of democracy. On the other hand, the
same cannot be said of the interpretation put forward by the appellant viz. that
the majority of a municipal council is obliged to accept the views of a minority
on a crucial issue such as the suitability of a person to be entrusted with the
conduct of the executive functions of a municipality.
[19] Another major difficulty I have with the appellant’s argument is that it
does violence to the language used by the legislature. While the ambit of
interpretation is to give effect to the object or purpose of the legislation under
consideration, in doing so the words used must be given their ordinary
grammatical meaning unless to do so would lead to an absurdity that the
legislature could not have contemplated. This court has previously observed
that ‘it is not the function of the court to do violence to the language of a
statute and impose its views on what the policy or object of the measure
should be’.19 And although a court must always be mindful of the values on
19 Per Schutz JA in Standard Bank Investment Corporation Ltd v Competition Commissioner
& others; Liberty Life Association of Africa Ltd v Competition Commissioner & others 2000 (2)
SA 797 (SCA) para 16.
which the Constitution is based and which it seeks to advance, if the language
in a statutory enactment ‘is ignored in favour of a general resort to “values”
the result is not interpretation but divination’.20
[20] The interpretation that the appellant seeks to place upon s 43(1)
cannot be reconciled with the ordinary grammatical meaning of the words
used by the legislature. It provides that ‘. . . if the council of a municipality
establishes an executive committee, it must elect a number of councillors
necessary for effective and efficient government’. Not only do the words ‘elect’
(used in the section) and ‘select’ (advanced by the appellant) both have as
their ordinary accepted meaning a connotation of choice (and in that regard
the appellant’s argument is but a play on words) but, most importantly, the
section vests the choice of members of the executive committee in the
municipal council and not in a party or interest represented in that council.
Furthermore, s 45 of the Act requires this election to take place at a meeting
of the council. The obligatory rubber stamping of an earlier decision taken by
a party as to who should represent it on the executive committee, as the
appellant argued should occur (for which the legislature could simply have
provided if that had been its intention), can hardly be construed as an election
by the council at a council meeting. The interpretation which the appellant
wishes to place on s 43(1) is more than just strained. It simply is not what the
words of the section, given their ordinary grammatical meaning, connote. A
court has no power to legislate, and it would require a rewriting of the section
to convey what, in the appellant’s view, the legislature ought to have provided.
[21] Significantly, appellant’s counsel conceded that at times there might
have to be an election in what he called the ‘narrow sense’, involving a
decision taken by a majority vote of members of the executive committee.
This would of course occur when, for example, two parties in a council had an
equal claim to an available seat on the committee (as indeed occurred on
23 March 2009 when the council voted on whether the fourth or fifth
respondent’s candidate should be elected to the committee, as already
20 Per Kentridge JA in S v Zuma and others 1995 (1) SA 642 (CC) para 18.
mentioned). It would also be necessary if a party nominated more candidates
than the number of seats to which it is entitled; and while that may be unlikely
to occur, it cannot be excluded. Other examples spring readily to mind. The
fact remains that in certain circumstances there clearly will have to be an
election of members of the executive council by way of a majority vote. The
legislature can hardly be presumed to have intended the word ‘elect’ in that
sense to apply only in certain circumstances and not in others, particularly
when it failed to specify in what circumstances there was to be an election or,
as argued by the appellant, a mere nomination of committee members.
[22] It is also not without significance that the legislature used the word
‘elect’ in the sense of a decision by a majority vote elsewhere in the Act. Thus
a municipal council is required by s 36 to elect its speaker and by s 48 to elect
its mayor and deputy by way of a majority vote in the manner set out in
schedule 3. It may reasonably be inferred that the legislature used the same
word in the same sense throughout the same enactment, particularly in
relation to similar matters. There is no reason to think that, in using the word
‘elect’ in relation to the election of members of the executive committee in
s 43(1), it intended it to bear another, wholly different meaning in relation to
the election of other municipal office bearers.
[23] Finally, that the ultimate choice of who should be on the executive
committee vests in the council, and not in a party or interest represented in
the council, is reinforced by s 53(1) of the Act which provides for the removal
of a member of the executive committee by way of council resolution after
notice of such a resolution has been given. This provides a clear indication
that the legislature intended the council to determine whether any particular
person should be on its executive committee. If a minority party could merely
override the majority of a municipal council by re-nominating a councillor
removed from the executive committee, not only would it have the absurd
result of negating the power extended to the council under s 53(1) of the Act
but it would nullify the council’s constitutional and democratic right to
determine who should be on that committee.
[24] In the light of all these considerations, it is clear that the council was
vested with the choice to determine who should be on its executive
committee, and that the members of that committee are to be appointed by
way of a majority vote. The word ‘elect’ in s 43(1) of the Act is to be ascribed
that meaning rather than that which the appellant puts forward. The court a
quo correctly determined the issue against the appellant, and the appeal must
fail.
[25] The appeal is dismissed with costs.
_________________
L E LEACH
JUDGE OF APPEAL
APPEARANCES
APPELLANTS:
A J Dickson SC; A A Gabriel
Instructed by PKX Attorneys, Pietermaritzburg
McIntyre and Van der Post, Bloemfontein
RESPONDENT:
P J Olsen SC
Instructed by De Jager Baqwa Maritz Inc
c/o Tatham Wilkes, Pietermaritzburg
Symington and De Kok, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date:
20 September 2010
Status: Immediate
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal
MEC OF KWAZULU-NATAL EXECUTIVE COUNCIL FOR LOCAL
GOVERNMENT, HOUSING AND TRADITIONAL AFFAIRS
V
AMAJUBA DISTRICT MUNICIPALITY & OTHERS
The Supreme Court of Appeal today dismissed an appeal by the MEC for Local
Government, Housing and Traditional Affairs (KwaZulu-Natal) against an order
dismissing an application he had brought in the High Court, Pietermaritzburg
seeking an order directing the council of the Amajuba District Municipality to
elect onto its executive committee two ANC councillors who had earlier been
removed by the council from that committee.
The case flows from a decision taken by the Amajuba District Municipality to
remove the two ANC councillors from its executive committee for having
incurred wasteful expenditure of public funds. This led to two vacancies on the
executive committee, both of which the ANC was entitled to have filled by ANC
councillors. However, the ANC caucus in the council nominated the same two
councillors whose removal had led to the vacancies in the first place, and the
council refused to elect them. This led to the MEC instituting legal proceedings
for an order declaring, inter alia, that the refusal by the Amajuba District
Municipality’s council to elect the two councillors was unlawful and that the
council was obliged to do so. The high court, Pietermaritzburg, dismissed this
application which led to the appeal before the Supreme Court of Appeal.
It was argued that s 43(1) of the Local Government: Municipal Structures Act
117 of 1998 which requires a municipal council to ‘elect’ councillors onto its
executive committee is not to be interpreted as meaning a decision taken by a
majority vote. Instead it was argued that as the ANC was entitled to have two of
its councillors on the executive committee, it could select any two of its sitting
councillors it chose and that the municipal council was obliged to accept them
onto the executive committee.
This argument was rejected, the Supreme Court of Appeal holding that s 43(1)
empowered the council by a majority vote to determine who was to be on its
executive committee, and that this process was in accordance with the
Constitution and not undemocratic. The appeal was therefore dismissed with
costs.
|
1264
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
REPORTABLE
CASE NO: 609/2007
In the matter between
ENRIQUE ABREY LENDOL MOCKE APPELLANT
and
THE STATE RESPONDENT
CORAM:
MTHIYANE, CLOETE JJA and MHLANTLA
AJA
HEARD:
27 MAY 2008
DELIVERED:
2 JUNE 2008
Summary: Accused convicted of murder by regional magistrate on evidence
of single witness – no reasons given nor credibility findings made by magistrate
on evidence of witnesses.
On appeal – this held to be misdirection entitling appellate court to interfere and
reassess evidence itself - Conviction and sentence set aside and replaced with one
of being accessory after fact to murder.
Sentence – two years of correctional supervision imposed.
Costs – State ordered to pay wasted costs occasioned by non-appearance of its
representative on attorney and client scale.
Neutral Citation: EAL Mocke v The State (609/2007) [2008] ZASCA
80 (2 June 2008).
MTHIYANE JA
MTHIYANE JA:
Introduction
[1] The appellant was convicted in the Bellville Regional Court on a
charge of murder and sentenced to seven years’ imprisonment. His appeal
to the Cape High Court with leave of the magistrate against both the
conviction and sentence failed. The appellant was however granted leave
by the court a quo to appeal to this court against both the conviction and
sentence.
[2] The charge arose from an incident in Ravensmead on Saturday 6
April 2002. On the day in question Ms Maureen Adams (‘the deceased’),
who lived and worked on the business premises of the appellant’s father,
Mr William John Mocke, was brutally killed. Her ‘common law’
husband, Mr Joseph Marshall, lived with her on the premises.
[3] The State alleged that it was the appellant who killed the deceased
by stabbing her with a knife or other sharp instrument and by inflicting
other acts of violence upon her. The State relied on the evidence of a
single witness, one Henry Daniels, a friend of the appellant, who, like
him, was 16 years old at the time of the incident. He testified that the
appellant had killed the deceased by grabbing her by her arm and
stabbing her several times around the neck with a shining object or a pair
of scissors. The appellant denied these allegations and averred that it was
Daniels who stabbed and killed the deceased.
[4] The magistrate rejected the appellant’s version and accepted the
evidence of Daniels without giving reasons. In a one page judgment he
did not embark on any analysis of the evidence and made no credibility
findings on the evidence of the witnesses.
The Principles
[5] The approach which should have been adopted by the magistrate in
dealing with the conflicting versions of the appellant and Daniels was
articulated by Joubert AJA in a judgment of this court in S v Guess1
‘The magistrate obviously misdirected himself in accepting Makapan’s evidence
without stating his reasons for believing him and without stating his reasons for
disbelieving the appellant and Miss Brown. The correct approach which the
magistrate should have adopted in weighing up the evidence of the State and that of
the defence appears from the dicta of the following two reported cases:
(1)
Per DE VILLIERS, J.P., in Schoonwinkel v. Swart’s Trustee, 1911 T.P.D. 397
at p. 401:
“This Court, as a Court of appeal, expects the court below not only to give its findings
on the facts, but also its reasons for those findings. It is not sufficient for a magistrate
to say, ‘I believed this witness, and I did not believe that witness’. The Court of
appeal expects the magistrate, when he finds that he cannot believe a witness, to state
his reasons why he does not believe him. If the reasons are, because of inherent
improbabilities, or because of contradictions in the evidence of the witness, or
because of his being contradicted by more trustworthy witnesses, the Court expects
the magistrate to say so. If the reason is the demeanour of the witness, the Court
expects the magistrate to say that; and particularly in the latter case the Court will not
lightly upset he magistrate’s finding on such a point”.
This dictum was intended for a civil case but it is equally applicable to a criminal
case.
(2)
Per LEON, J., in S v Singh, 1975 (1) S.A. 227 (N) at p. 228:
“Because this is not the first time that one has been faced on appeal with this kind of
situation, it would perhaps be wise to repeat once again how a court ought to approach
1 1976 (4) SA 715 (A) at 718E-719A.
a criminal case on fact where there is a conflict of fact between the evidence of the
State witnesses and that of an accused. It is quite impermissible to approach such a
case thus: because the court is satisfied as to the reliability and the creditably of the
State witnesses that, therefore, the defence witnesses, including the accused must be
rejected. The proper approach in a case such as this is for the court to apply its mind
not only to the merits and demerits of the State and defence witnesses but also to the
probabilities of the case. It is only after so applying its mind that a court would be
justified in reaching a conclusion as to whether the guilt of an accused has been
established beyond reasonable doubt. The best indication that a court has applied its
mind in the proper manner in the above-mentioned example is to be found in its
reasons for judgment including its reasons for the acceptance and rejection of the
respective witnesses.”
Makapan’s evidence should be treated with circumspection, since he left the appellant
because he had not been paid adequately. On the probabilities of the case it is by no
means unlikely that he nurtured a grievance against the appellant.’
[6] Daniels was not only a single witness whose testimony had to be
clear and satisfactory in every material respect but he was also implicated
by the appellant in the murder. The reasonable possibility of his
involvement in the murder is beyond question. In my view Daniels should
have been treated as an accomplice even though he was not warned in
terms of section 204 of the Criminal Procedure Act 51 of 1977 (‘the Act’)
at the trial. Support for this view is to be found in DT Zeffert, AP Paizes
and A St Q Skeen in The South African Law of Evidence,2 where the
learned authors say the following:
‘In some cases the term “quasi-accomplices” has been used to describe persons who
are not technically accomplices but appear to know a good deal about the offence and
have some purpose of their own to serve in giving evidence. The reasons for the
accomplice rule apply equally to such persons and similar circumspection ought
therefore to be shown in dealing with their evidence. The following are examples of
quasi-accomplices: fellow members of an illegal organization according to some
2 4 ed (2003) p 802.
decisions (but the Appellate Division in S v Sauls & Others refused to treat a witness,
who had played no part in the alleged crime, as an accomplice, merely because he was
a member of the same illegal prison organisation as the accused and, as such, under
suspicion); police informers, and persons borrowing money at usurious rates of
interest. There is some dispute over whether in such cases the cautionary rule applies
as a requisite of procedural law or whether caution is simply dictated by
commonsense; but the point is somewhat academic since, as we have seen, the
cautionary rule is itself no more than an admonition to use commonsense.’
[7] On the same theme Holmes JA expressed himself as follows in S v
Malinga:3
‘The Court a quo treated Mabaso as an accomplice and an informer. He was certainly
an informer. Whether in the circumstances he was de jure an accomplice I need not
decide, for the trial Court’s view that he was could only redound to the benefit of the
accused. Whatever the juristic niche into which he may be classified as a witness, his
evidence had two things in common with that of an accomplice. First, he had a
possible motive to benefit himself by false implication of others, for he was an
escaped indeterminate convict who had agreed to help the police to round up his
confederates in crime. Second, by reason of his participation in this crime he was in a
position in Court to deceive the unwary by a realistic account of it, his only fiction
being the deceptive substitution of the accused for the real culprits, or the addition of
one or more participants for good measure. Hence the prudence of applying to his
testimony the cautionary rule enunciated in R. v. Ncanana, 1948 (4) S.A. (A.D.) at pp.
405/6 and R. v. Gumede, 1949 (3) S.A. 749 (A.D.).’
I am in agreement with the principles set out above.
[8] In the court a quo Motala J, with Zondi J concurring, correctly
found that the magistrate had misdirected himself and that the court was
accordingly at large to reassess the evidence and determine for itself
whether on the evidence the guilt of the appellant had been proved
beyond reasonable doubt.
3 1963 (1) SA 692 (A) 693H–694A.
[9] There are two further instances of misdirection alluded to by the
court a quo. Firstly the magistrate described the cause of death as being
several stab wounds in the deceased’s chest area (‘verskeie steekwonde in
die borskasarea’) whereas the post mortem report records that the stab
wounds found on the deceased’s body were concentrated in the neck area
and did not cause her death. There it is recorded that the deceased died of
chest injuries – an obvious reference to the multiple fracture of the ribs.
Secondly, the magistrate noted that the appellant’s DNA profile could be
read into the results of the analysis of two cigarette stubs found at the
scene whereas the generic material found on one of the butts was
definitely not from the appellant and no generic material could be
retrieved from the other butt.
The Evidence
[10] Daniels told the court that he and the appellant were good friends.
On the day of the incident he was fetched by the appellant and the
appellant’s cousin, Mr Ashley Stephanus in a ‘bakkie’. They went to a
shebeen in 16th Avenue Ravensmead where they drank liquor until they
had no money left. The appellant suggested that they go to the business
premises of appellant’s father to make certain telephone calls to ask for
money for more beer. The three of them and two others went there. Upon
their arrival Daniels remained seated on the bakkie. The appellant jumped
over a fence which surrounded the premises and went to fetch the keys to
a gate and to the office in the building. All five of them entered the
building, but at some stage the other three went out again. Daniels
telephoned his mother and the appellant, his father. Daniels then went out
and joined the others on the bakkie. He then saw the appellant coming out
carrying a telefax machine. Daniels and the others objected to what the
appellant was doing. Daniels and appellant then returned to the building
leaving the telefax machine on the bakkie. Ashley, however, took it from
the bakkie and passed it over to Wayne who was already on the other side
of the fence to receive it.
[11] As the fax machine was being passed over the deceased appeared
and enquired what it was that was being passed over. She then threatened
to report to appellant’s father that he was bringing unknown persons to
the premises. She said she had seen the telefax machine being passed
over the fence and said she was going to report the matter to the
appellant’s elder brother, William. The appellant and Daniels pleaded
with her not to report the incident. She agreed on condition that they re-
plugged the telefax machine in its place. Daniels did so. The deceased
then noticed that a drill stand had been moved from its usual location. She
now resolved to report what was happening to William as things had then
got out of hand.
[12] While she was busy sweeping the floor Daniels says he saw the
appellant grabbing the deceased by her arm and stabbing her. The
appellant shouted at him to also stab the deceased but Daniels ran out and
went to sit outside on a box. By then their three companions had driven
away in the bakkie. The appellant remained inside for some time while
Daniels was seated outside. Marshall arrived and asked where the
deceased was but Daniels said he did not know. Marshall then went to the
building where the appellant told him that the deceased had gone to the
shops. A short while thereafter the appellant came out of the building and
he and Daniels then ran away. On the way, appellant told Daniels that he
had stabbed the deceased and did not have long to live. He showed
Daniels certain marks on his arm and claimed he had been scratched by
the deceased. Daniels noticed that the appellant’s trousers were blood-
stained.
[13] About a week later, the appellant told him that he had exchanged
his trousers with his cousin. He had with him a bag containing a blood-
soaked sweater which he later burnt in the presence of Daniels.
[14] Testifying in his defence the appellant told the court that he had
earlier that morning been drinking at Ashley’s home and not at the
shebeen in 16th Avenue as alleged by Daniels. His version on this point
was confirmed by Ashley. The appellant agreed with Daniels that he and
the others went to his father’s business premises to use the telephone. He
said Daniels phoned a few girl friends and he had phoned his father who
declined to provide any money. According to him it was Daniels who
suggested that power tools on the premises be taken to be pawned. The
appellant considered the drill stand to be too bulky and did not think that
it would be a good idea to remove it.
[15] Daniels then disconnected the telefax machine. Although he did
not think that it was a good idea he nevertheless agreed to go along with
the idea that it being removed and sold so that they could get money to
buy beer. The appellant confirmed Daniels’s version that the telefax
machine was returned after the deceased scolded them and threatened to
report the incident to the appellant’s brother, William. He also confirmed
that she agreed not to report the incident after the fax machine was
returned. He also agreed with Daniels that when the deceased noticed that
the drill stand had been removed from its place she resolved to report the
incident to the appellant’s father.
[16] It was then that Daniels told the appellant that he was going to stab
the deceased. The appellant thought that Daniels was joking. Daniels then
passed a pair of scissors to him, and armed himself with a broken spear.
Daniels later returned the pair of scissors. The appellant then heard a
sound, like a head hitting the ground and the sound of someone struggling
to speak. He went outside and saw Daniels sitting on top of the deceased.
He pulled Daniels off. Daniels then said “ek [i.e. appellant] moet iets vir
die bloed kry”. The appellant then removed his t-shirt and threw it to
Daniels who wiped his hands with it. He took his t-shirt back and felt the
deceased’s neck to see if she was still alive. He then went to the bathroom
and washed his hands. He threw water on his bloody footprints. He hid
his t-shirt in a disused toilet. He and Daniels then ran away. Along the
way, Daniels handed him a pair of scissors which he threw away. A
month or two later, he retrieved his t-shirt and he and Daniels burnt it.’
[17] The trial court was confronted with these two conflicting versions.
There is very little to choose between them. Neither was an impressive
witness. Both lied about the crucial aspects of the incident and both had
equal motive to kill the deceased and to distance themselves from the
incident.
Discussion
[18] The onus was on the State to prove the guilt of the appellant
beyond reasonable doubt. As already indicated it relied on Daniels who
was a single witness and whose evidence had to be treated with caution.
The court a quo found that he lied about the reason for going to the
premises. It also found that there were discrepancies between what he
said in court and his statement to the police. Daniels had intimate
knowledge of what had happened at the scene of crime and he, like the
appellant, was in danger of being reported to the appellant’s father. He
lied to Marshall as to the deceased’s whereabouts. Daniels admitted that
at one stage he had a broken spear in his hand. He claimed that he had it
when he was outside. There is to my mind more than a reasonable
possibility of his involvement in the murder. Before the deceased was
killed on his own admission he was carrying a broken spear; he can’t
explain why. He lied to the deceased’s husband, Marshall, when the latter
asked where his wife was. He fled from the scene together with the
appellant and offers no explanation for it.
[19] It seems to me that the court a quo unwittingly fell into the same
trap as the trial court of expressing a preference for a version that could
not bear scrutiny. Having come to the conclusion that the evidence of
Daniels had to be treated with a high degree of caution, the court a quo
went on to look for factors which it considered would lessen the risk of
relying on the evidence of Daniels. The factors the court found were the
appellant’s evidence relating to the t-shirt: the fact that he handed it over
to Daniels to wipe his hands, that it was blood-soaked, that he had wiped
off his footprints with it, that he hid the t-shirt and subsequently burned it
in the presence of Daniels, that before leaving the scene the appellant had
thrown water on his bloody footprints. All of the above factors were
considered to be irreconcilable with the appellant’s innocence.
[20] A further factor which the court a quo considered as providing
some guarantee that Daniels was telling the truth was confirmation by
Marshall that when he returned, Daniels was sitting outside while the
appellant remained inside the building.
[21] The court concluded that on all of the above factors, especially the
fact that the appellant’s t-shirt was soaked in blood, is that the appellant
was involved in the assault on the deceased, either alone or together with
Daniels. It dismissed appellant’s version that he had handed the t-shirt to
Daniels to wipe his hands with it as ‘absurd’. As contended by counsel
for the appellant this piece of evidence might be suspicious but to dismiss
it as absurd is taking the matter too far. The confirmation by Marshall that
Daniels was sitting outside at some stage does not take the matter any
further. In any event it is an aspect that is common cause. It will be
recalled that it was the appellant’s case that after the assault there was a
stage when Daniels went out. It is in any event conceivable that there
would have been blood on the appellant’s t-shirt if, as he says, he at some
stage had to pull Daniels off the deceased.
[22] The main focus of the court a quo was the evidence of Daniels and
the appellant.
[23] The finding of the court that Daniels was possibly involved must of
necessity imply a finding that his denial in the witness box of any
involvement was a blatant lie. Although the appellant appears from the
record not to have been a particularly impressive witness, he was not
shown to be a liar and his shortcomings do not in any way supplement the
deficiencies in the State case.
[24] It was conceded on the appellant’s behalf that on his own version
he had made himself guilty of being an accessory after the fact. That is
clear from the evidence relating to the burning of his t-shirt, the wiping of
the blood and that he lied to Marshall as to the whereabouts of the
deceased. In my view the concession was properly made. On all the
evidence the appellant should have been convicted of being an accessory
after the fact to murder.
Sentence
[25] I do not think that any purpose would be served by referring the
matter to the trial court for sentence. All the facts relevant to sentence are
before us. There is in addition a report of the probation officer who
recommended that in the circumstances of this case correctional
supervision in terms in terms of section 276(1)(h) of the Act would be a
more appropriate sentence. Counsel for the appellant supported this
recommendation. Counsel for the State also conceded that if we were
minded to substitute a conviction of being accessory after the fact to
murder, the sentence of correctional supervision proposed by the
probation officer would be appropriate.
[26] At the time of the incident the appellant was a school going lad
aged 16 years old and 20 years when sentence was handed down on 13
March 2006. At present he is 22 years old and his circumstances have
now changed. We were informed from the bar by his counsel that he
currently assists his father in his building contracting business. The
appellant is a first offender. As can be gleaned from the history of this
matter the case has been hanging over his head for some time.
[27] Although the appellant has been convicted of a lesser offence of
being an accessory after the fact to murder it is still a very serious matter.
The actions of the appellant were aimed at assisting the perpetrator to
avoid the consequences of his actions. But for his youth a term of
imprisonment would have been an appropriate sentence. There is no
doubt however that the case is deserving of stringent corrective measures
to bring home to the appellant seriousness of the offence he committed. It
also appears that liquour played a role in the incident. They came to his
father’s business premises in an attempt to get money to buy more beer.
The conditions applicable to a sentence of correctional supervision can be
tailored to take this into account.
Wasted Costs
[28] Before deciding on the appropriate order there is one further matter
I wish to deal with. This appeal was originally enrolled for hearing on 15
May 2008. There was no appearance for the State and we were totally in
the dark as to what had happened. It was the industrious effort of counsel
for the appellant, Mr Maartens, to whom this court is indebted, who
telephoned the office of the Director of Public Prosecutions in Cape
Town and established that that office was unaware that the matter was set
down for that date. This, despite the fact that the Notice of Set Down of
the appeal was forwarded by the Registrar of this court to that office by
registered post, and was signed for at the DPP’s office. The appeal was
then postponed to 27 May 2008 with an order directing the Registrar to
seek an explanation from the DPP’s office for the non-appearance of the
representative of the State at the appeal hearing. Some few days before
the postponed hearing a letter explaining how the debacle occurred and
tendering the necessary apology to the court was received. It also
contained an undertaking that certain measures have been put in place
and an assurance that a recurrence would be avoided. At the postponed
hearing the State was represented by Ms Raphels who offered the State’s
apology to the members of the court and repeated the explanation and
assurances given in the letter addressed to the court by the DPP. We
accept the apology.
[29] It must be stressed however that the appellant was put to
considerable expense as a result of the negligence of the State in failing to
ensure that it was represented at the hearing. Quite rightly counsel for the
appellant asked for an order directing the State to pay the wasted costs
occasioned by the non-continuation of the matter on 15 May 2008.
Counsel for the State could not oppose the application. I agree with
counsel for the appellant that this is a proper case for a suitable order for
costs against the State to compensate the appellant for the wasted costs
incurred as a result of the State’s non-appearance on 15 May 2008. Such
cost should in my view be taxed on the scale as between attorney and
client to minimise the prejudice to the appellant.
Order
[30] In the particular circumstances of this case I consider that an
appropriate sentence would be one of correctional supervision. In the
result the appeal is allowed to the extent set out below. I shall set out the
conditions of the correctional supervision order in Afrikaans, as that is the
appellant’s home language. The order of the court a quo is set aside and
replaced with the following:
‘1.
The appeal is allowed.
2.
The conviction of murder and the sentence imposed are set aside,
and the following substituted:
“Die beskuldigde word skuldig bevind aan begunstiging tot moord en
gevonnis tot twee jaar korrektiewe toesig in terme van artikel 276(1)(h)
van die Strafproseswet 51 van 1977 op die volgende voorwaardes:
1(a) Huisarres te Rangeweg 8, Matroosfontein, Elsiesrivier, Wes-Kaap
gedurende die tye soos deur die Kommissaris van Korrektiewe
Dienste bepaal vir die volle duur van korrektiewe toesig. Met dien
verstande dat die Kommissaris gemagtig word om die plek te
wysig en enige tydperk van huisarres op te skort of te verleng
onder die voorwaardes wat hy goedvind of, daarna, vir solank en
onder sodanige voorwaardes as wat hy mag goedvind, her in te stel.
(b)
Gemeenskapsdiens vir ‘n maksimum periode van 16 uur per maand
vir die duur van die vonnis.
Die diens sal bestaan uit skoonmaak en instandhouding van perseel
te SAPD Kuilsrivier onder toesig van die stasie kommissaris of sy
gevolgmagtige.
Met dien verstande dat die Kommissaris gemagtig word om:
Die aard van die diens en die plek waar dit gelewer word, te wysig
indien dit nodig is om die nakoming van die vonnis te bevorder.
Indien verdienstelik, hoogstens een derde van die tyd waarin
Gemeenskapsdiens verrig moet word, op te skort onder
voorwaardes wat hy goed vind.
Addisionele gemeenskapsdiens by te voeg ten einde nakoming van
die vonnis te bevorder, maar wat nie die oorspronklike hoeveelheid
ure oorskry nie.
(c)
Onderwerping aan behandelingsprogram(me)/rehabilitasieprogram
soos bepaal met re-assessering deur maatskaplike werker by
Gemkor kantoor.
(d)
Die plek waar, tye waartydens, duur en inhoud van sodanige
programme/toesigdiens sal deur die Kommissaris van Korrektiewe
Dienste bepaal word. Enige koste verbonde aan sodanige
programme/toesigdiens kan van die beskuldigde verhaal word.
(e)
Onderwerping aan monitering deur die Kommissaris van
Korrektiewe Dienste ten einde die oogmerke van hierdie vonnis te
verwesenlik.
2.
Die beskuldigde mag nie sonder toestemming van die Korrektiewe
Beampte die landdrosdistrik waar hy woon en werk verlaat nie.
3.
Die beskuldigde moet:
(a)
By die korrektiewe beampte aanmeld by Landdroshof Bellville,
kamer 311 binne 14 dae na afloop van verrigtinge in die hof.
(b)
Hom vir die volle duur van hierdie vonnis van die gebruik van
sterk drank of die gebruik van dwelmmiddels anders as op
voorskrif van’n mediese praktisyn weerhou.
(c)
Enige redelike opdragte betreffende die nakoming en administrasie
van hierdie vonnis wat die Kommissaris van Korrektiewe Dienste
uitreik, uitvoer.
(d)
Die Kommissaris van Korrektiewe Dienste vooraf in kennis stel
van enige verandering van woon- of werksadres.
(e)
Hom ook skuldig maak aan enige verdere misdaad nie.”’
3.
The State is ordered to pay to the appellant the wasted costs
occasioned by the non-appearance of its representative on 15 May
2008. Such costs are to be taxed by the taxing master of the Cape
High Court according to the attorney and client scale in civil cases
applicable in that court, and are to be paid within 30 days of the
taxing master placing his allocatur on the bill of costs.4
_________________________
KK MTHIYANE
JUDGE OF APPEAL
CONCUR:
CLOETE JA
MHLANTLA AJA
4 Cf ss 310A(6) and 311(2) of the Criminal Procedure Act 51 of 1977.
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
2 June 2008
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
EAL MOCKE v THE STATE (609/2007) [2008] ZASCA 80 (2 June
2008).
[1] The SCA today, 2 June 2008, upheld an appeal by the appellant,
Mr Enrique Abrey Lendol Mocke, against the conviction by the Bellville
Regional Court on a charge of murder and replaced it with a conviction of
being an accessory after the fact to murder. It sentenced the appellant,
who was 16 years old at the time of the incident on 6 April 2002 to 7
years imprisonment. The sentence imposed on the appellant, which was
confirmed by the Cape High Court was set aside by the SCA and replaced
with one of two years of correctional supervision, subject to certain
conditions.
[2] The murder arose from an incident in which one Ms Maureen
Adams of Ravensmead, was brutally killed. The State alleged that it was
the appellant who killed the deceased by stabbing her with a knife or
other sharp instrument and inflicted other acts of violence upon her. In his
defence the appellant testified that it was the witness, Mr Henry Daniels,
who committed the offence.
[3] The magistrate accepted the version of Daniels and rejected that of
the appellant, without giving reasons and without making any credibility
findings on the evidence of witnesses.
[4] The SCA, like the Cape High Court, found that the magistrate had
in this regard misdirected himself. Unlike the Cape High Court which
found that the evidence of Daniels could be relied on, the SCA took a
contrary view. It found that Daniels who was a single witness and had
also been implicated in the murder, had as much motive to kill the
deceased as the appellant. It also found that his evidence could not be
relied on as it was found to be untruthful in a number of material respects
and his evidence was not corroborated in any material respect.
[5] The court found however that on his own version the appellant had
made himself guilty of being an accessory after the fact to murder and
returned that verdict.
[6] The SCA also ordered the State to pay to the appellant, the wasted
costs occasioned by the non-appearance of the State’s representative on
15 May 2008 – a date on which the matter was initially enrolled for
hearing.
|
4172
|
non-electoral
|
2024
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case no: 859/2022
In the matter between:
SIYABONGA MTHANTI
APPELLANT
and
THE STATE
RESPONDENT
Neutral Citation:
Mthanti v The State (Case no 859/2022) [2024] ZASCA 15
(8 February 2024)
Coram:
DAMBUZA, HUGHES, and MATOJANE JJA and WINDELL and MALI
AJJA
Heard:
18 August 2023
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the Supreme Court of Appeal
website, and release to SAFLII. The date for hand down is deemed to be 8 February
2024 at 11h00.
Summary: Criminal law – sentence – appeal in terms of s 316B of the Criminal
Procedure Act 51 of 1977 (CPA) against sentences imposed – appellant convicted of
a series of offences including assault with intent to do grievous bodily harm, robbery
with aggravating circumstances and rape – whether there was duplication of
sentences – whether minimum prescribed sentences applicable under s 51(1) of the
Criminal Law Amendment Act 105 of 1997 (CLAA) applicable – whether the appellant
when committing rape had already been convicted of two or more offences of rape –
appellant not yet sentenced in respect of such convictions – involvement of grievous
bodily harm as provided in Part I (c) of Schedule 2 to the CLAA – whether there were
substantial and compelling circumstances to justify the imposition of lesser sentences
– no substantial and compelling circumstances found.
____________________________________________________________________
ORDER
____________________________________________________________________
On appeal from: KwaZulu-Natal Division of the High Court, Durban (Nkosi and Pillay
JJ and Reddi AJ sitting as court of appeal):
Save to the extent set out below the appeal is dismissed.
The order of the full court is set aside and replaced with the following:
‘2.1 Counts 1, 2, and 5 are taken together for purposes of sentence. The
accused is sentenced to 15 years’ imprisonment.
2.2 Counts 3 and 4 are taken together for purposes of sentence. The accused
is sentenced to life imprisonment.
2.3 In respect of count 6 the accused is sentenced to 15 years’ imprisonment.
2.4 All the sentences are to run concurrently.
2.5 All the sentences are antedated to 1 April 2015.’
____________________________________________________________________
JUDGMENT
____________________________________________________________________
Mali AJA (Dambuza, Hughes and Matojane JJA and Windell AJA concurring):
[1] The appellant, Mr Siyabonga Mthanti was convicted and sentenced by the
KwaZulu-Natal Division of the High Court, Pietermaritzburg, (the high court) on three
counts of robbery with aggravating circumstances, a count of assault with intent to
cause grievous bodily harm and two counts of rape. The sentences were imposed as
follows: (a) 15 years’ imprisonment for the three counts of robbery with aggravating
circumstances (counts 1, 2 and 5), (b) life imprisonment for the counts of assault with
intent to do grievous bodily harm and the first count of rape (counts 3 and 4), and (c)
life imprisonment on the second count of rape (count 6). His appeal to the full court of
the same division against the sentences imposed in respect of counts 2 to 6 was
dismissed. He now appeals, with the leave of this Court, against the dismissal of his
appeal by the full court.
[2] The appellant’s convictions and sentences relate to three incidents that
occurred between June 2014 and January 2015. In all three incidents the appellant
used the same method of enticing the victim to an isolated spot under false pretences
of employment offer. There he either threatened to or stabbed them with a knife, and
robbed and raped them.
[3] The first incident was preceded by interaction between the appellant and the
first complainant, on a social media site known as OLX, a site used by employment
advertisers and job seekers. There the appellant, pretending to be Siyabonga Ncula,
advertised a job. On 16 June 2014 the first complainant, following the appellant’s
instructions, took a taxi from her home in Newlands, eThekwini to meet the appellant
in Pietermaritzburg. The appellant led the first complainant to a secluded spot where
he robbed her of two cellular phones at knife point. He then instructed her to undress
whilst grabbing her, but she managed to wrestle free and run away. The conviction on
count 1 related to this event.
[4] The second incident occurred on 26 August 2014 when the appellant assaulted,
robbed and raped the second complainant. In the same manner as the first incident,
this incident too followed communication between the appellant (pretending to be a
Mrs Zuma) and the second complainant, on a social media known as Date Club. In
that interaction the appellant offered the second complainant a job as a domestic
worker. On the appellant’s instructions the second complainant arrived at Elandskop
Pietermaritzburg, having boarded a taxi from her home in Port Shepstone. The
appellant met her as arranged and led her to a spot where he stabbed her on the back
with a knife and robbed her of her money and a cellular phone. Having threatened to
stab her again he then ordered her to undress and he raped her.
[5] Thereafter the second complainant put on her clothes and asked him for
directions to Mrs Zuma’s house. On following the directions given to her by the
appellant the second complainant walked into a forest where, and after having walked
a very long distance she eventually reached an informal settlement where she was
taken to a police station. She used her rescuer’s cellular phone to call the phone
number that the appellant had given her as Mrs Zuma’s, only to discover that was, in
fact, the appellant’s phone number. The convictions on counts 2, 3 and 4 related to
this incident.
[6] The complainant in the third incident travelled from Mthwalume, Port Shepstone
to meet the appellant in Pietermaritzburg. On this occasion the appellant had
pretended to be a Mr Zikhali when he offered the third complainant a job as a
childminder. When the appellant came to meet the complainant, he was in the
company of someone referred to as Andile. The three of them walked along a footpath
to a spot where the appellant suddenly grabbed the complainant by the neck from
behind. He then took one of the complainant’s cellular phones and identity document
and ordered her to give her second cellular phone to Andile. Thereafter the appellant,
while pointing a knife at the complainant’s neck, proceeded to rape her in the presence
of his friend Andile, whilst she pleaded with him not to kill her. At some stage the
appellant invited Andile to also participate in the rape but the latter refused. Andile
gave the complainant’s cellular phone back to the appellant and walked away from the
scene. The convictions on counts 5 and 6 related to this incident.
[7] The approach of the high court in sentencing the appellant was rather unusual
when imposing sentence, the court took together all three counts of robbery with
aggravating circumstances from the three different incidents and sentenced the
appellant to a 15 year term of imprisonment. It then combined the counts of assault
with intention to cause grievous bodily harm and rape from the second incident for the
purpose of sentencing and imposed a sentence of life imprisonment. The court then
imposed a further life sentence in respect of the conviction of rape in the third incident.
[8] The general approach to sentencing is to determine an appropriate sentence
for each individual offence of which an accused is convicted. Of particular relevance
in this case is that although the perpetrator in the three incidents was the same, and
the offences were similar, the victims were three different individuals and the incidents
were unrelated. On the correct approach the sentences imposed had to account for
the aggravating and mitigating circumstances attendant in each offence committed.
The imposition of a single sentence in respect of the unrelated crimes (counts 1, 2 and
5) was inappropriate. Nevertheless, it redounded in the appellant’s favour, and there
is no counter-appeal in respect thereof. In addition, counts 3 and 4 were considered
together for the purpose of sentencing.
[9] In this appeal the appellant contends, first, that in respect of the second incident
there was duplication of convictions and therefore improper punishment. The
argument posits that even though the appellant was found guilty of three separate
offences (rape, robbery with aggravating circumstances and assault with the intent to
do grievous bodily harm), he had a single intent: he used the knife to subdue the
complainant with the intention of carrying out the robbery and rape of the complainant
(counts 1 and 3). Therefore, the conviction of assault with intention to cause grievous
bodily harm (count 2) resulted from an impermissible duplication of charges which led
to duplication of punishments. The second leg on which the appeal stands is that the
first rape did not involve the infliction of grievous bodily harm as provided in item (c) of
Part I in Schedule 2 of the Criminal Law Amendment Act 105 of 1997 (CLAA) read
with s 51(1) of that Act. Therefore, he should not have been sentenced to life
imprisonment in respect thereof. Thirdly, he contends that when he was sentenced for
the second rape in the third incident (count 6) he had not yet been convicted of two or
more incidents of rape as provided in the same law. The second rape therefore did not
attract the sentence of life imprisonment. Lastly, he contends that his personal
circumstances, when considered cumulatively, constitute substantial and compelling
circumstances that justify deviation from the minimum sentences prescribed in the
CLAA.
[10] The law pertaining to the duplication of punishment has been established in
many cases. In S v BM,1 this Court remarked that:
‘It has been a rule of practice in our criminal courts since at least 1887 that ‘where the accused
has committed only one offence in substance, it should not be split up and charged against
him in one and the same trial as several offences”. The test is whether, taking a common
sense view of matters in the light of fairness to the accused, a single offence or more than one
has been committed. The purpose of the rule is to prevent a duplication of convictions on what
is essentially a single offence and, consequently, the duplication of punishment.’ (Emphasis
added.).
1 S v BM [2013] ZASCA 160; 2014 (2) SACR 23 (SCA) para 3.
[11] Firstly, it is necessary to highlight that the appeal in this Court is not against the
convictions. Consequently, any contention advanced in order to impugn any of the
convictions is impermissible. Secondly, the high court took count 2 (assault to do
grievous bodily harm) and count 3 (rape) together for purposes of sentence. Thirdly,
the high court found that the rape in count 3 involved the infliction of grievous bodily
harm that attracted a life sentence.2 The result was one sentence of life imprisonment
in respect of both counts. Because the two offences were grouped together, this
approach did not result in the duplication of punishment.
[12] With regard to the second ground of appeal – that the injury sustained by the
complaint did not constitute grievous bodily harm, it is apposite to observe, first, that
there is no definition of grievous bodily harm in the CLAA. The courts have held that
while the injury should not be trivial or insignificant, it need not be necessarily life
threatening, dangerous or disabling. The relevant considerations in assessing whether
grievous bodily harm was inflicted include the nature of the injury sustained, the
seriousness of that injury, its position on the body, the object used in inflicting it, the
number of wounds sustained, and the results that flowed from the infliction.3 In
addition, the meaning of grievous bodily harm must be understood within the context
of its use in the Criminal Law (Sexual Offences and Related matters) Amendment Act
32 of 2007.
[13] Item (c) of Part I of Schedule 2 of the CLAA, which prescribes the minimum
sentence of life imprisonment for rape offences ‘involving the infliction of grievous
bodily harm’, must be understood within the context of the rampant levels of sexual
offences in this country. The purpose is to ensure that appropriate punishment is
imposed for violent conduct that is designed to induce submission to sexual
intercourse, given that rape, on its own, is a violent, degrading act. The analogy drawn
by the appellant between the infliction of harm in this case and the harm sustained by
the complainant in S v Nkomo,4 (Nkomo) is therefore inappropriate. In Nkomo the court
was concerned with injuries sustained by the complainant whilst trying to escape from
the appellant. In this case, however, it is common cause that the appellant stabbed
2 Item (c) of Part I of Schedule 2 of the CLAA.
3 S v Rabako [2007] ZAFSHC 47; 2010 SACR 310 (O).
4 S v Nkomo [2006] ZASCA 139; [2007] 3 All SA 596 (SCA); 2007 (2) SACR 198 (SCA) para 15.
the complainant with a knife to subdue her so that he could rape her. The stab wound
sustained by the second complainant was a 0,5 cm wide laceration. It was located at
the level of the T5 (the fifth thoracic vertebra), to the left of the vertebral column.5 The
depth could not be ascertained because the wound was sutured at the clinic before
the doctor who gave evidence in court examined the complainant.
[14] There was no suggestion on appeal that the high court was wrong in its
conclusion that the suturing of the wound meant that it was not superficial.
Consequently the finding that that the rape involved the infliction of grievous bodily
harm cannot be faulted. Thus, the appellant fell to be sentenced as provided in s 51(1)
read with Part 1 of Schedule 2 of the CLAA and the trial court did not misdirect itself
in imposing the minimum sentence of life imprisonment.
[15] With regard to the sentence of life imprisonment imposed for count 6, the high
court found that the offence attracted the minimum prescribed sentence under s 51(1),
Part I (a)(iii) of Schedule 2 of the CLAA because it was a second conviction of rape
committed by the appellant. The court erred in this regard.
[16] In S v Mahomotsa6 Mpati JA set out the correct interpretative approach to Part
I (a)(iii):
‘Here the accused had been arrested on the first count, appeared in court where he was
released in the custody of his grandmother, but within a period of just over two months he
committed a similar offence in almost a similar fashion. What must be remembered, however,
is that at the time of the second rape, the accused had not yet been convicted on the first
count. Again this is, of course, no excuse. But the Legislature has itself distinguished him from
persons who, having been convicted of two or more offences or rape but not yet sentenced,
commits yet another rape. If, for example, the accused in the first instance had not raped the
first complainant more than once and he then in the second instance raped the second
complainant only once while awaiting trial on the first count the prescribed sentence of life
imprisonment would not have come into reckoning.’
5 Dorland’s Illustrated Medical Dictionary 33 ed 2020 refers to the vertebrae as ‘any of the small irregular
bones of the vertebral column which comprises of seven cervical, twelve thoracic, and five lumbar
vertebra.’5 The T5 is the fifth thoracic vertebra closest to the skull.
6 S v Mahomotsa [2002] ZASCA 64; [2002] 3 All SA 534 (SCA); 2002 (2) SACR 435 (SCA) para 20.
[17] Section 51(1) of the CLAA provides that a regional court or a high court shall
sentence a person it has convicted of an offence referred to in Part I of Schedule 2 to
imprisonment for life. Part I (a) in Schedule 2 specifies the circumstances in which the
offence of rape will attract the sentence of life imprisonment. In terms of that provision
the sentence of life imprisonment becomes applicable where rape is committed ‘by a
person who has been convicted of two or more offences of rape or compelled rape,
but has not yet been sentenced in respect of such convictions’.
[18] It is apparent that the appellant was not yet convicted of rape in count 4.
Therefore, the imposition of life imprisonment was a misdirection. The State conceded
to the misdirection. This misdirection justifies interference by this Court, and we are
entitled to consider the sentence afresh. Part III of Schedule 2 of the CLAA provides
for a minimum sentence of 10 years’ imprisonment. Taking into account, amongst
other things, the appellant’s modus operandi and the impact of the rape as fully
discussed below, the sentence of 10 years’ imprisonment does not fit the crime in the
circumstances. Fifteen years’ imprisonment is the appropriate sentence under the
circumstances.
[19] The last issue is whether there were substantial and compelling circumstances
that justified deviation from the minimum prescribed sentences in this case. It is
apparent from the above description of the events that took place on the three
occasions that the aggravating circumstances present when committing the crimes by
far outweighed the mitigating factors. The high court was correct in considering that
the appellant’s criminal conduct was not ‘fleeting and impetuous’; that it was
‘calculated and callous’, and that there was no reason to deviate from the prescribed
minimum sentences.
[20] The only submission made on appeal was that the appellant‘s mother died
when he was 7 years old. The suggestion was that the appellant was troubled by the
fact that his mother died without revealing the identity of his father. But all of this was
considered by the high court. The court also considered in the appellant’s favour, his
personal circumstances - that he was gainfully employed at the time of his arrest for
the offences in question and supporting his two minor children. It considered that
although he lost his only biological parent early in his life, his uncle and aunt gave him
a ‘good and warm upbringing’ until he abandoned his post matric studies without telling
them’. The court considered that the appellant was a first offender.
[21] The appellant ruthlessly exploited the vulnerabilities of the most exposed
members of our society. He preyed on those most affected by the high levels of
unemployment in the country. He deceived women, causing them to leave the security
and comfort of their homes. He caused them to use their meagre financial resources
to travel to Pietermaritzburg. He robbed them of their scant belongings and then
humiliated the second and third complainants by raping them. In respect of the third
complainant the rape happened in the most degrading manner, in the presence of a
third person. He then left the complainants to their own devices in remote places at
night. This he did repeatedly, as the high court correctly found. In all three incidents
there was no basis for a departure from the prescribed minimum sentences.
[22] Accordingly I grant the following order:
Save to the extent set out below the appeal is dismissed.
The order of the full court is set aside and replaced with the following:
‘2.1 Counts 1, 2, and 5 are taken together for purposes of sentence. The
accused is sentenced to 15 years’ imprisonment.
2.2 Counts 3 and 4 are taken together for purposes of sentence. The accused
is sentenced to life imprisonment.
2.3 In respect of count 6 the accused is sentenced to 15 years’ imprisonment.
2.4 All the sentences are to run concurrently.
2.5 All the sentences are antedated to 1 April 2015.
_____________________________
N P MALI
ACTING JUDGE OF APPEAL
Appearances
For appellant:
M M Chithi (with T Khowa)
Instructed by:
Shoba Sandile Attorneys, Durban
Blair Attorneys, Bloemfontein
For respondent:
Elsa Smith
Instructed by:
The Director of Public Prosecutions, Pietermaritzburg
The Director of Public Prosecutions, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
8 February 2024
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Mthanti v The State (Case no 859/2022) [2024] ZASCA 15 (8 February 2024)
Today the Supreme Court of Appeal (SCA) handed down judgment dismissing an appeal against the
decision of the KwaZulu-Natal Division of the High Court, Durban (the high court) and replaced it with
the following orders: ‘2.1 Counts 1, 2, and 5 are taken together for purposes of sentence. The accused
is sentenced to 15 years’ imprisonment. 2.2 Counts 3 and 4 are taken together for purposes of sentence.
The accused is sentenced to life imprisonment. 2.3 In respect of count 6 the accused is sentenced to
15 years’ imprisonment. 2.4 All the sentences are to run concurrently. 2.5 All the sentences are
antedated to 1 April 2015.’
The appellant, Mr Siyabonga Mthanti was convicted and sentenced by the KwaZulu-Natal Division of
the High Court, Pietermaritzburg, (the high court) on three counts of robbery with aggravating
circumstances, a count of assault with intent to cause grievous bodily harm and two counts of rape. The
sentences were imposed as follows: (a) 15 years’ imprisonment for the three counts of robbery with
aggravating circumstances (counts 1, 2 and 5), (b) life imprisonment for the counts of assault with intent
to do grievous bodily harm and the first count of rape (counts 3 and 4), and (c) life imprisonment on the
second count of rape (count 6). His appeal to the full court of the same division against the sentences
imposed in respect of counts 2 to 6 was dismissed. He then appealed, with the leave of this Court,
against the dismissal of his appeal by the full court. The appellant’s convictions and sentences related
to three incidents that occurred between June 2014 and January 2015. In all three incidents the
appellant used the same method of enticing the victim to an isolated spot under false pretences of
employment offer. There he either threatened to or stabbed them with a knife, and robbed and raped
them.
In this appeal the appellant contended, first, that in respect of the second incident there was duplication
of convictions and therefore improper punishment. The argument posits that even though the appellant
was found guilty of three separate offences (rape, robbery with aggravating circumstances and assault
with the intent to do grievous bodily harm), he had a single intent: he used the knife to subdue the
complainant with the intention of carrying out the robbery and rape of the complainant (counts 1 and 3).
Therefore, the conviction of assault with intention to cause grievous bodily harm (count 2) resulted from
an impermissible duplication of charges which led to duplication of punishments. The second leg on
which the appeal stood was that the first rape did not involve the infliction of grievous bodily harm as
provided in item (c) of Part I in Schedule 2 of the Criminal Law Amendment Act 105 of 1997 (CLAA)
read with s 51(1) of that Act. Therefore, he should not have been sentenced to life imprisonment in
respect thereof. Thirdly, he contended that when he was sentenced for the second rape in the third
incident (count 6) he had not yet been convicted of two or more incidents of rape as provided in the
same law. The second rape therefore did not attract the sentence of life imprisonment. Lastly, he
contended that his personal circumstances, when considered cumulatively, constituted substantial and
compelling circumstances that justified deviation from the minimum sentences prescribed in the CLAA.
With regard to the first ground of appeal, the SCA agreed with the high court’s finding and held that
there was no duplication of punishment as contended by the appellant. It emphasised that the appeal
was not against conviction. It reasoned that the high court took count 2 (assault to do grievous bodily
harm) and count 3 (rape) together for purposes of sentence and found that the rape in count 3 involved
the infliction of grievous bodily harm which attracted a life sentence and therefore resulted in one
sentence of life imprisonment. With regard to the second ground of appeal, the SCA again agreed with
the high court’s finding that that the rape involved the infliction of grievous bodily harm as it was common
cause that the appellant stabbed the complainant with a knife to subdue her so that he could rape her.
The appellant fell to be sentenced as provided in s 51(1) read with Part 1 of Schedule 2 of the CLAA.
With regard to the third ground of appeal pertaining to the sentence of life imprisonment imposed for
count 6 under s 51(1), Part I (a)(iii) of Schedule 2 of the CLAA, the SCA found that the high court erred
in that regard. It held that section 51(1) of the CLAA provided that a regional court or a high court shall
sentence a person it had convicted of an offence referred to in Part I of Schedule 2 to imprisonment for
life. Part I (a) in Schedule 2 specified the circumstances in which the offence of rape would attract the
sentence of life imprisonment. In terms of that provision the sentence of life imprisonment became
applicable where rape was committed ‘by a person who had been convicted of two or more offences of
rape or compelled rape, but had not yet been sentenced in respect of such convictions’. The SCA held
that it was apparent that the appellant was not yet convicted of rape in count 4. Therefore, the imposition
of life imprisonment was a misdirection and held that an appropriate sentence under these
circumstances would be Fifteen years’ imprisonment. Relating to the last issue of whether there were
substantial and compelling circumstances that justified deviation from the minimum prescribed
sentences in this case, the SCA held that the aggravating circumstances present when committing the
crimes by far outweighed the mitigating factors and therefore, the high court was correct in its finding
that there was no reason to deviate from the prescribed minimum sentences. The SCA also found that
in all three incidents there was no basis for a departure from the prescribed minimum sentences and
as a result the appeal was dismissed, save for the reduction of sentence in count 6.
~~~~ends~~~~
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3225
|
non-electoral
|
2007
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case number: 627/06
In the matter between:
ADRIAAN ADAM VAN NIEKERK
First Appellant
ALETTA MAGDALENA VAN NIEKERK Second Appellant
and
MAX EDWARD FAVEL
First Respondent
CATHARINA PETRONELLA FAVEL Second Respondent
CORAM:
SCOTT, NAVSA, CLOETE JJA, HURT et KGOMO AJJA
HEARD:
17 SEPTEMBER 2007
DELIVERED:
27 SEPTEMBER 2007
Summary:
Alienation of Land Act 68 of 1981 – Notice in terms of s 19(2) to purchaser to remedy
breach – Interpretation of s 19(1)(c) – Seller required, under s 19(2)(c), to refer in the
notice to the remedies in s 19(1) he intends to invoke if breach not remedied – Such
reference may be in the alternative – Mere reference to clause in contract not adequate.
Neutral citation: This judgment may be referred to as Van Niekerk v Favel [2007] SCA 124 (RSA)
____________________________________________________________________
HURT AJA:
[1] During November 2000 the parties entered into a written contract in terms of
which the respondents sold immovable property to the appellants. The appellants
agreed to pay the purchase price in instalments and, since the property was a
residential one, the contract fell within the purview of the Alienation of Land Act, 68 of
1981 ('the Act'). On 18 January 2005, four years after the appellants had taken
occupation of the property, the respondents' attorney addressed a letter to them by
registered post, alleging that the appellants were in breach of various obligations under
the contract and demanding that the breaches be remedied within 30 days. On 22
February 2005 the respondents' attorney addressed a second letter to the appellants
declaring the contract cancelled and claiming forfeiture of the payments thus far made
by the appellants in terms of the contract. There followed (in June 2005) an application
in the Magistrates' Court, Vereeniging, for the eviction of the appellants from the
property. This the appellants opposed, but without success. The magistrate granted an
order for their eviction. An appeal was lodged to the Johannesburg High Court but this,
too, failed. While an appeal was pending from that court, this court heard, and delivered
judgment in, Merry Hill v Engelbrecht [2007] SCA 60 (RSA), which involved the
interpretation of s 19 of the Act. The judgment in Merry Hill (per Brand JA) dealt
particularly with the meaning and effect of s 19(2)(c) of the Act. Counsel in the course of
arguing the present appeal before us were agreed that, if the letter of 18 January failed
to meet with the requirements of s 19(2)(c), that would dispose of the appeal, and
argument was effectively limited to that issue.
[2] Subsecs 19(1) and (2) of the Act read as follows:
'19.
Limitation of right of seller to take action
(1) No seller is, by reason of any breach of contract on the part of the purchaser, entitled –
(a)
to enforce any provision of the contract for the acceleration of the payment of any
instalment of the purchase price or any other penalty stipulation in the contract;
(b)
to terminate the contract; or
(c)
to institute an action for damages,
unless he has by letter notified the purchaser of the breach of contract concerned and made demand to
the purchaser to rectify the breach of contract in question, and the purchaser has failed to comply with
such demand.
(2) A notice referred to in subsection (1) shall be handed to the purchaser or shall be sent to him
by registered post to his address referred to in section 23 and shall contain –
(a)
a description of the purchaser's alleged breach of contract;
(b)
a demand that the purchaser rectify the alleged breach within a stated period,
which, subject to the provisions of subsection (3),1 shall not be less than 30 days calculated from the date
on which the notice was handed to the purchaser or sent to him by registered post, as the case may be;
and
(c)
an indication of the steps the seller intends to take if the alleged breach of
contract is not rectified.'
[3] It will be convenient, before discussing the judgment in the court a quo,2 to deal
with the decision in Merry Hill. The seller in that case had sent a letter to the purchaser
in terms of s 19(2), the relevant portion of which read as follows:
' In accordance with clause 9.1 of the Deed of Sale we have been instructed by the Seller to demand from
you, as we hereby do, payment of the [arrear instalments in the] sum of R 22 534, 00 at our offices . . .
within 32 days of the date of this letter.
Should payment not be made as aforesaid then and in that event, the Seller shall be entitled to claim
immediate payment of the full balance of the purchase price and interest as due by you, as well as all
costs and collection commission; or alternatively shall be entitled to cancel this contract.'
[4] The contention on behalf of the purchaser was that this letter failed to pass
muster insofar as compliance with s 19 was concerned for two reasons. First, s 19(2)(c)
1 Which are not relevant to the issues in this matter.
2 Now reported as Van Niekerk v Favel 2006 (4) SA 548 (W).
peremptorily required the seller to state the precise contractual remedy which he
intended to invoke in the event of the purchaser failing to comply with the notice.
Secondly, the use of the word 'entitled' was inappropriate for the purpose of 'indicating'
to the purchaser what 'steps' would be taken in response to any non-compliance by him
with the notice. Brand JA, after referring to various earlier decisions3 concerning s 19,
came to the following conclusions:
(a)
Subsec (2)(c) should not be construed as affecting the seller's contractual right to
make his election whether to enforce the contract or terminate it only after the purchaser
has failed to respond adequately to the notice;
(b)
Accordingly it is open to the seller, in the notice contemplated in s 19, to list, in
the alternative, those of the steps referred to in s 19(1) he intends to take if the breach
is not remedied4;
(c)
The provisions of subsec 19(2)(c) are peremptory in the sense that a notice
complying with them is an essential prerequisite to a valid exercise of any of the
remedies referred to in subsec 19(1). However, insofar as the question of what
constitutes such compliance is concerned, the court is required to decide, in each case,
whether the notice complies 'substantially' with the requirements of the statute.5
[5] Applying these considerations to the facts before him, the learned Judge
concluded that listing of the alternative contractual options in clause 9 of the relevant
contract of sale (payment of the full balance of the purchase price or cancellation of the
contract) was sufficient compliance with s 19(2)(c). Insofar as the use of the words 'shall
be entitled' instead of 'intends' was concerned, Brand JA held that, on a sensible
interpretation of the letter, it clearly conveyed the message that, if the purchaser failed
to comply with the demand, he would be in jeopardy of one of the remedies, set out in
the letter, which were both remedies listed in s 19(1), being exercised by the seller. He
3 Including the judgment of Claassen J in the court a quo.
4 Para 21.
5 Para 23.
therefore held that the letter as drafted constituted substantial compliance with the
statute.
[6] In certain passages in his judgment, Brand JA expressed agreement with some
of the views expressed by Claassen J in the court a quo. However, in para 23, Brand JA
expressly disagreed with the suggestion by Claassen J6 that the provisions of s 19(2)(c)
should be treated as merely directory. Furthermore, in coming to the conclusion that a
seller is entitled to list his possible remedies in the alternative, Brand JA indicated that
he should not be understood to be endorsing everything said by Claassen J. It is
appropriate to consider two significant aspects of the reasoning of the learned judge in
the court a quo.
[7] The first relates to the general approach to the interpretation of the statute.
Claassen J purported to apply what has generally been described as a 'purposive
construction' in interpreting s 19 (2). Accepting that 'the overall intention of the
Legislature was to afford the purchaser reasonable protection', he took the view7 that a
comparison between s 19 and its precursor, s 13(1) of the Sale of Land in Instalments
Act, 72 of 1971, demonstrated that the Legislature intended to afford the seller 'a
measure of leniency'. Elaborating on this, he said8:
'The Legislature must have recognized that commerce and the flow of business could be hampered if
sellers found the statutory provisions regarding the enforcement of contractual rights too onerous.
Experience showed that obstructive purchasers were able to abuse the onerous communicative duties
imposed upon the sellers in the previous section 13(1) to the detriment of honest sellers seeking their
contractual dues. The overall intention to afford protection to purchasers is now balanced by an intention
not to overburden sellers. Hence the relaxation of the seller's communication duties as set out in
subsection 19 (2)(b) as referred to earlier. An interpretation of subsection 19(2)(c) which amounts to an
over-protectiveness in favour of the purchaser would, therefore, fall foul of this changed attitude evinced
6 In para 26 of the judgment of the court a quo.
7 Para 29 of the judgment of the court a quo.
8 Loc.cit.
by the Legislature. In line with this manifest intent, it would be wrong to interpret subsection 19 (2)(c) as
reintroducing onerous duties on the seller, only in a different guise.'
[8] This led him to apply a wide interpretation to s 19. Thus, he interpreted the word
'indication' in subsec (2)(c) as being 'in line with the meaning of "hint" or "suggestion"'9,
and concluded that
'. . . the Legislature intended to oblige the seller merely to inform the purchaser that he has elected to
act10 upon any failure by the purchaser to rectify the breach. He is in effect saying to the purchaser: "I
have elected not to abide your breach any longer. Should you fail to remedy it, I will take steps against
you. So beware!" In my view the Legislature requires a seller to warn the purchaser, not only that he is in
default, but that his continued default could lead to the seller taking certain steps. In order to protect the
purchaser against such consequences, the Legislature obliges the seller to indicate that he is serious
about acting upon the default. Such serious intent will be demonstrated by setting out some indication of
what his intentions are without specifying details.'
[9] The second aspect of the judgment in the court a quo concerns the type of
purchaser whom the Legislature intended to protect by the statute and, more
particularly, the capabilities of such purchaser to deal with the exigencies which might
arise in the event of alleged breaches by him of his contractual obligations. In this
regard, Claassen J said11:
'It must have been within the contemplation of the Legislature that purchasers of immovable property in
residential areas are sufficiently commercially sophisticated to read and understand written contracts of
sale. This intention of the Legislature is manifest from the provisions of section 5 of the Act which allow a
purchaser to choose the official language in which the contract is to be drawn up. It must have been
contemplated by the Legislature that a defaulting purchaser will understand the clauses dealing with the
consequences of any breach as he could read (them) in the language of his choice! A similar supposition
underpins the legislative requirement for letters of demand to be sent to defaulting purchasers. In order
for the protection to purchasers contemplated in section 19 to become effective, the Legislature assumed
that a purchaser is able to and will read and understand letters of demand.'
9 Para 30.
10 Emphasis in the original.
11 Para 31.
And later, in para 32,
'It is not for the seller to make it easy for the purchaser to decide whether the latter could get away with
his breach or not. If the purchaser is in breach, he should remedy it! Pacta servanda sunt -- contracts are
to be observed. A purchaser is presumed to know the law. This doctrine still holds good of a person
who, in a modern state, wherein many facets of the acts and omissions of legal subjects are controlled by
legal provisions, involves himself in a particular sphere, that he should keep himself informed of the legal
provisions which are applicable to that particular sphere.'
[10] I do not think that the reasoning in these passages is correct. As to the view that
the Act evinces an intention to ameliorate the burdens which it places on the seller
compared with those imposed by Act 72 of 1971, it is not without relevance to note that,
of the twenty-two sections in Chapter 2 of the Act, no less than eleven12 either impose
burdens on the seller or restrict the seller's ordinary contractual rights. So, in Chapter 3,
do ss 27, 28, 29 and 29A. On that basis alone, there seems to be little justification to
attribute, to the Legislature, the type of seller-oriented intention postulated by Claassen
J. But, of substantially more importance, is the fact that Claassen J's approach to the
contextual setting and interpretation of the Act is diametrically opposed to that of this
court in Merry Hill. In para 13 of the judgment in that case, Brand JA said:
'Let me start with a proposition which appears to be beyond contention, namely, that the purpose of
chapter 2 of the Act, which includes s 19, is to afford protection, in addition to what the contract may
provide, to a particular type of purchaser -- a purchaser who pays by instalments -- of a particular type of
land -- land used or intended to be used mainly for residential purposes. In this sense, Chapter 2, like its
predecessor, the Sale of Land on Instalments Act 72 of 1971, can be described as a typical piece of
consumer protection legislation . . .. The reason why the legislature thought this additional statutory
protection necessary is not difficult to perceive. It is because experience has shown this type of
purchaser, generally, to be the vulnerable, uninformed small buyer of residential property who is no match
for the large developer in a bargaining situation . . . .'
[11] Moreover, it was not on the basis of any perception that the Act reflected a more
lenient attitude toward the seller than did Act 72 of 1971, that Brand JA concluded that
12 Sections 2,5,6,7,9,10,12,13,16,19 and 24.
s 19 did not impose upon the seller a duty to make an election at the time of sending the
s 19(2) notice. On the contrary, he arrived at that interpretation by applying the well-
established presumption that legislation intends to alter the existing law only so far as
is necessary to achieve the objects of the Legislature. In para [14], following
immediately upon the passage quoted above from para [13], he said:
' In this light, the purpose of s 19 was clearly to afford additional protection to purchasers in this category
who, by reason of their default, are exposed to a claim by the seller of the kind contemplated in s 19(1).
By its very nature, the corollary of this additional protection must, however, involve the imposition of
limitations on the contractual rights of the seller. And, in accordance with the general approach to
statutory interpretation, legislative limitations on common-law contractual rights will be confined to those
that appear from the express wording or by necessary implication from the statutory provision concerned
. . . .'
These dicta are inconsistent with the approach outlined by Claassen J and the latter
must be taken to be incorrect.
[12] As indicated earlier, the resolution of the issue in this appeal depends upon the
meaning of s 19(2)(c) and, in particular, of the words 'an indication of the steps the
seller intends to take'. Before turning to that issue, it will be convenient to make a further
comment about the hypothetical 'average purchaser' to whom the Legislature may be
taken to have intended to afford protection by its enactment. Apart from being
'vulnerable' and possibly 'uninformed', I think that he should be considered unlikely to be
acquainted with the law, or to have an attorney at his beck and call. He would
presumably also be reluctant to incur the expense of retaining an attorney for the
purpose of obtaining advice concerning the contract, except perhaps at a later stage.
On this basis, there is plainly no room, in interpreting the subsection, for the application
of the general presumption that 'the purchaser must know the law' when it comes to
deciding precisely what the Legislature intended in the Act. What is of paramount
importance here is that the remedies mentioned in s 19(1), which the seller will become
entitled to exercise (always assuming that they are reserved to the seller in the contract)
if he complies with s 19, are all drastic remedies which will no doubt have serious
repercussions as far as the purchaser is concerned. Considering the attributes of the
'average purchaser', it becomes clear that what is intended is that the purchaser must
be put in a position where the extent of his jeopardy becomes clear to him by a reading
of the letter alone and without recourse either to the Act or the contract itself or to legal
advice. Thus the requirement that a purchaser be informed of the 'steps' open to the
seller if he fails to purge his default. Furthermore, the 'steps' to which s 19(2)(c) refers
are plainly one or more of the drastic steps listed in s 19(1) and not the remedies
reserved to the seller in the contract. Having said that I can now turn to the issue in this
appeal.
[13] The remedies reserved to the respondents in the event of default by the
appellants were set out in clause 26 of the contract of sale, which was to the following
effect:
'26.1
As die koper versuim om enige verpligting kragtens hierdie kontrak na te kom mag die verkoper:-
26.1.1 van die koper eis dat hy die saldo van die koopprys vroeër betaal (of) enige ander
verpligting vroeër nakom as wat die kontrak bepaal; of
26.1.2 die kontrak beëindig en eis dat die koper enige verpligting wat op datum van beëindiging
agterstallig was nakom, en dat die koper enige reg op herstel van wat hy reeds presteer het, verbeur; of
26.1.3 die kontrak beëindig en skadevergoeding eis, en die verkoper mag enige bedrag wat
deur die koper betaal is behou tot die bedrag skadevergoeding vasgestel is sodat die bedrae teen
mekaar verreken kan word; of
21.1.4 enige ander stappe neem wat hy regtens mag neem."
It will be noted that only the remedies in sub-clauses 1, 2 and 3 fall within the ambit of s
19(1).
[14] The relevant paragraph of the letter of 18 January 2005, read as follows:
'U word ingevolge paragraaf 26 van die ooreenkoms dertig (30) dae geleentheid gegee vanaf ontvangs
van hierdie kennisgewing om die versuime soos hierbo te herstel by gebreke waarvan kliënt sy keuse sal
uitoefen wat hy regtens mag hê. Die nodige bewyse van herstel kan direk aan kliënt of aan ons kantore
gelewer word binne die gemelde dertig (30) dae.'
The court a quo held that, since the letter made explicit reference to clause 26 of the
contract, the appellants could have been under no misconception as to its import.13 But
that is not the point. The notice required in terms of s 19(1) is necessary only when the
seller intends to enforce one or more of the remedies referred to in that section, ie
acceleration of the payment of any instalment, the enforcement of any penalty
stipulation, termination of the contract or payment of damages. If some other relief is
sought, eg payment of the outstanding arrears or performance of what otherwise might
be due under the contract, no notice in terms of s 19(1) is required. Section 19(2)(c)
must be construed in this light. The 'steps' referred to must accordingly be understood
as referring to one or more of the four remedies referred to in s 19(1). The respondents'
letter in this case is to be contrasted with the express reference, in the letter in Merry
Hill, to the contractual options (which were equivalent to two of the drastic remedies
referred to in s 19(1)) available to the seller in the event of the purchaser's default not
being purged. Here,14 the mere reference to a clause of the contract and the warning
that 'kliënt sy keuse sal uitoefen wat hy regtens mag hê' is quite consistent with an
intention on the part of the seller to do no more than sue for the outstanding instalments
or rates. It fails to achieve the very purpose of s 19(2)(c) which is to warn the purchaser
– not simply that the continuing breach will not be tolerated – but that the seller
proposes taking one or more of the drastic steps enumerated in s 19(1).
[16] It is no doubt true that an astute purchaser armed with a copy of the Act may
reason that the seller proposes taking one or other of the steps referred to in s 19(1)
because otherwise the notice would be unnecessary. But the whole purpose of s
13 Para 35. The learned judge said: 'In the present instance the letter of 18 January 2005 expressly
indicated the step which the respondents intended taking: they elected to invoke clause 26 of the contract
should the appellants fail to remedy their breach. In my view that was sufficient compliance with the
provisions of section 19(2)(c) within the parameters of the facts in this case.'
14 Indeed, it may be not without significance that clause 26.1.4 reserved the right to take 'any
other(unspecified) steps which may be available to the seller', presumably of a less drastic nature than
those in sub-clauses 1, 2 and 3. However, in view of the conclusion to which I have come, it is not
necessary to consider this aspect.
19(2)(c) is specifically to alert the purchaser to the serious of the consequences of his or
her breach and that must be made clear in the notice itself. If this were not the case s
19(2)(c) would serve no purpose.
[17] It follows that the letter of 18 January 2005 does not comply with the
requirements of s 19 and the appeal must succeed.
[16] The appeal is accordingly upheld with costs. The order of the court a quo is set
aside and the following order is substituted in its place:
'(1)
The appeal is upheld with costs.
(2)
The order of the magistrate is set aside and the following order is
substituted therefor:
"The application is dismissed with costs".'
N V HURT
ACTING JUDGE OF APPEAL
Concur:
SCOTT JA
NAVSA JA
CLOETE JA
KGOMO AJA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
Thursday, 27 September 2007
Status:
Immediate
The Supreme Court of Appeal today delivered judgment in the matter of Van
Niekerk v Favel concerning the interpretation and application of the provisions
of the Alienation of Land Act 68 of 1981. The Court held that, in terms of the
provisions of s 19 of the Act, a seller, who intends invoking the right to cancel
the contract, or to claim full and immediate payment of the balance of the
purchase price, or claim damages, or to exercise any other penalty stipulation
in the contract, is obliged to give the purchaser prior written notification (as
required by s 19(2)(c)) in which the seller makes specific reference to those
remedies which he intends enforcing if the breach is not remedied in time.
This notification is purely informative and forms no part of the judgment of the
Court.
-- end --
|
3497
|
non-electoral
|
2020
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 910/19
In the matter between:
GOBELA CONSULTING CC APPELLANT
and
MAKHADO MUNICIPALITY RESPONDENT
Neutral citation:
Gobela Consulting v Makhado Municipality (Case no 910/19)
[2020] ZASCA 180 ( 22 December 2020)
Coram:
WALLIS, MBHA, MOLEMELA and DLODLO JJA and POYO-DLWATI
AJA
Heard:
No oral hearing in terms of s 19(a) of the Superior Courts Act 10 of 2013.
Delivered:
This judgment was handed down electronically by circulation to the
parties' representatives via email, publication on the Supreme Court of
Appeal website and release to SAFLII. The date and time for hand-down
is deemed to be 10h00 on 22 December 2020.
Summary:
Contract awarded for the provision of services to organ of state – no
open tender followed – action brought to enforce impugned contract – collateral
challenge – whether court entitled to declare contract invalid and unlawful despite
organ of state not having launched counter-application to review and set aside that
contract.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Limpopo Division of the High Court, Polokwane (Mokgohloa, DJP,
sitting as court of first instance):
The appeal is dismissed with costs.
JUDGMENT
Molemela JA (Wallis, Mbha and Dlodlo JJA and Poyo-Dlwati AJA concurring)
[1] This appeal concerns a dispute arising from a contract concluded by the
municipal manager of Makhado municipality with a private company without the
necessary authorisation.
[2] The facts that gave rise to the litigation are largely common cause.1 On or about
22 February 2011, the appellant, Gobela Consulting CC (Gobela) submitted an
unsolicited proposal to the respondent, the Makhado Municipality (the municipality).
The proposal had the title, ‘Proposal to review and Develop the Anti-Corruption
Strategy and Capacity Building for Makhado Municipality.’
[3] By letter dated 5 May 2011, signed by the Municipal Manager, the municipality
accepted Gobela’s offer in the following terms:
‘Makhado Municipality hereby appoint[s] your company to conduct training on anti-corruption
and fraud for all officials and councillors. The programme will run from May to November 2011.
As the Municipality we will be conducting assessment after every training session and orders
will be issued every week after assessment has been done at an amount of R7 500 per person.
The Municipality is expected to have at least trained a total of 745 incumbents by the end of
November 2011 (Both Councillors and Officials). You are therefore requested to make contact
with our Municipality to start with training arrangements immediately.’
1 Although the transcript of the record of the proceedings at the court a quo does not incorporate the
oral evidence adduced on behalf of the appellant and is thus incomplete, the appellant’s version can be
gleaned from the pleadings, documentary evidence and the submissions of the parties in their heads
of argument. Neither party suggested that the absence of the evidence affected this Court's ability to
resolve the issues between them.
[4] On 6 May 2011, Gobela’s director, Mr Mavhandu, sent a letter of acceptance
to the municipality. According to Mr Mavhandu, he subsequently had a meeting with a
certain official of the municipality, Ms Ndou, who explained to him that the program
was to be rolled out in stages and that the trainees would be divided into four groups.
The respondent would provide the venue for the training.
[5] Mr Mavhandu testified that in preparation for Gobela’s performance in terms of
the agreement, Gobela drafted and printed manuals for training; drafted, printed and
prepared flyers in relation to the proposal; entered into service level agreements with
independent contractors to assist with training; and employed professionals and
support staff who would execute the project in accordance with the proposal. On the
date on which the training was scheduled to commence, Mr Mavhandu and facilitator’s
employed by Gobela to conduct the training arrived at the agreed venue, only to be
informed by an official of the municipality that the training could not proceed as there
were unresolved issues between the mayor and the African National Congress Youth
League (ANCYL). They were requested to wait until the problem was resolved. They
left the venue. When Gobela had, after some days, still not been invited to commence
the training, Mr Mavhandu released the facilitators.
[6] Gobela subsequently issued the municipality with an invoice dated 27 January
2012, for payment of an amount of R6 369 750, ostensibly being in respect of ‘training
on anti-corruption and fraud for all staff members and councillors.’ The invoice was
soon followed by the issuance of a letter of demand.
[7] The letter of demand evidently elicited an exchange of correspondence in terms
of which the municipality enquired about the basis for its alleged indebtedness to
Gobela. It appears from that correspondence that the municipality had, during August
2011, invited tenders for ‘Training on Anti-Corruption and Fraud.’ However, that tender
was subsequently withdrawn by the municipality, ostensibly on account of the fact that
there was no available budget for it, among other reasons. Of significance is that on
Gobela’s own version, the contract concluded between Gobela and the municipality
emanated from an unsolicited proposal made to the municipality outside its normal
bidding process and accepted by the erstwhile municipal manager without
authorisation.
[8] As the correspondence between the parties did not yield any payment, Gobela
subsequently issued a summons against the municipality, in terms of which an amount
of R5 131 470 was claimed from the municipality as damages for alleged breach of
contract. The particulars of claim included an assertion that ‘in breach of its obligations
in terms of the agreement embodied in the proposal and/or letter of appointment, [the
municipality] ha[d] . . . refused and/or neglected to allow [Gobela] to perform its
obligations in terms of the proposal.’
[9] The municipality filed a special plea disputing the municipal manager’s authority
to enter into the contract in question. In its plea, it denied liability on the basis that the
impugned agreement was in contravention of the Local Government Municipal
Finance Management Act 56 of 2003 (Municipal Finance Management Act) and the
municipality’s Supply Chain Management Policy, and therefore invalid and unlawful.
Although the municipality had pleaded that the Municipal Manager had no authority to
conclude the impugned contract with Gobela, it did not counter-apply for relief setting
aside Gobela’s appointment.
[10] The matter came before Mokgohloa DJP (the court a quo), who dismissed
Gobela’s claim with costs. The court a quo found that the appointment of Gobela to
review and develop the anti-corruption strategy for the municipality, albeit a good
initiative, was in breach of the applicable procurement prescripts which are designed
to ensure a transparent, cost effective and competitive tendering process as stipulated
in s 217 of the Constitution and the provisions of the Municipal Finance Management
Act. It accordingly dismissed Gobela’s claim on the basis that the contract that had
been concluded by the parties was invalid and unlawful. Aggrieved by that decision,
Gobela sought leave to appeal against the court a quo’s decision. This appeal is with
leave of the court a quo.
[11] There were no oral arguments presented before this Court, as both parties
agreed that the appeal could be dealt with on the basis of oral submissions as
contemplated in s 19(a) of the Superior Courts Act.2 The essence of Gobela’s heads
of argument was that even though it was conceded that the contract was invalid, the
appeal had to be allowed on the basis that the court a quo had erred by using its
finding that the municipality had not complied with procurement prescripts as a basis
to declare the contract invalid and unlawful and to dismiss Gobela’s claim, despite
there being no counter-application to review and set aside the impugned contract.
Relying on the majority judgment in MEC for Health, Eastern Cape and Another v
Kirland Investments (Pty) Ltd3 (Kirland), it was submitted that since the municipality
had not specifically applied for the impugned contract to be set aside, it was not open
to the court a quo to sanction the municipality’s collateral challenge to the validity of
the contract by declaring the parties’ contract invalid and unlawful. Thus, so the
argument went, the court a quo ought to have found in favour of Gobela.
[12] The crisp issue which this court has to decide is whether the court a quo was,
in the absence of a counter-application seeking the review and setting aside of the
contract concluded between Gobela and the municipality, entitled to find that the
contract in question was invalid and unlawful.
[13] Section 217 of the Constitution provides as follows:
‘When an organ of state in the national, provincial or local sphere of government, or any other
institution identified in national legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that
subsection from implementing a procurement policy providing for –
(a) categories of preference in allocation of contracts; and
(b) the protection and advancement of persons, or categories of persons, disadvantaged by
unfair discrimination.
(3) National legislation must prescribe a framework within which the policy referred to in
section (2) must be implemented.’
2 The respondent’s application for its late submission of the heads of argument to be condoned was not
opposed. Condonation was duly granted, as the requirements for the granting thereof had been met.
3 MEC for Health, Eastern Cape and Another v Kirland Investments (PTY) Ltd [2014] ZACC 6; 2014 (5)
BCLR 547 (CC); 2014 (3) SA 481 (CC).
[14] There are various statutes, such as the Municipal Finance Management Act,
subordinate legislation made under that Act, such as the Treasury Regulations, as well
as supply chain management policies4 that have to be applied by organs of state in
order to give effect to the constitutional injunction enunciated in s 217. All those
procurement prescripts serve a dual purpose: to prevent patronage and corruption, on
the one hand, and to promote fairness and impartiality, on the other.5
[15] Section 113 of the Municipal Finance Management Act provides that a
municipal entity is not obliged to consider an unsolicited bid received outside its normal
bidding process; it may do so only in accordance with a prescribed framework.
Regulation 2(3) of Municipal Supply Chain Management Policy Regulations6 provides
that no municipality or municipal entity may act otherwise than in accordance with its
supply chain management policy when procuring goods or services. Regulation 12 of
the same Regulations stipulates that subject to Regulation 11 (2), a competitive
bidding process must be followed for procurements above the transaction value of R
200 000 and in respect of long-term contracts (ie contracts with a duration period
exceeding one year). The municipality, as an organ of state, was duty-bound to
discharge all its duties and functions in accordance with those procurement prescripts.
[16] The transaction value in this matter was far above the R200 000 threshold.
Gobela’s own admission that its proposal was unsolicited loudly attested to the fact
that no public tendering process preceded Gobela’s appointment. The fact that the
municipality invited public tenders for the same service a mere three months after
precluding Gobela from commencing with the training suggests that the municipality
had no justification for deviating from the competitive bidding process contemplated in
Regulation 12 of the applicable Supply Management Policy when it accepted Gobela’s
proposal. No evidence was adduced to show otherwise. It therefore cannot be
gainsaid that the municipality’s acceptance of Gobela’s proposal flouted procurement
4 Section 112 of the Municipal Finance Management Act provides that each municipal entity must have
and implement a Supply Chain Management Policy that complies with the provisions of s 217 of the
Constitution.
5 Valor IT v Premier, North West Province and Others [2020] ZASCA 62; 2020 All SA 397 (SCA) para
40.
6 Municipal Supply Chain Management Regulations, GN 868 GG 40553, 30 May 2005.
prescripts and was plainly at variance with the principle of legality. Manifestly, the
Municipal Manager had no authority to do this.
[17] In Municipal Manager: Qaukeni Local Municipality and Another v FV General
Trading CC,7 this Court held that a public procurement contract concluded in breach
of the legal provisions designed to ensure a transparent, cost effective and competitive
tendering process is invalid. The contract concluded between the municipality and
Gobela was thus invalid from inception. The question is whether the court a quo was
entitled to find that that contract was unlawful and invalid notwithstanding that the
municipality had not, at any stage, challenged the validity thereof in court proceedings
and asked for it to be set aside. Expressed differently, the question is whether the
municipality could bring a collateral challenge8, relying on the invalidity of the
impugned contract, in proceedings brought to coerce its compliance with that contract.
[18] The law relating to collateral challenges was settled by the Constitutional Court
in Merafong City Local Municipality v AngloGold Ashanti Limited (Merafong). Having
surveyed the pre-constitutional case-law, the majority judgment found that South
African law has always allowed a degree of flexibility in reactive challenges to
administrative action. Having considered the impact of the Constitution on that body
of law, it re-asserted that the import of Oudekraal was that the government institution
cannot simply ignore an apparently binding ruling or decision on the basis that it was
patently unlawful, as that would undermine the rule of law; rather, it has to test the
validity of that decision in appropriate proceedings. The decision remains binding until
set aside. That court expressed some guidelines for assessing the competence of a
collateral challenge. With specific reference to Kirland, it stated as follows:
‘But it is important to note what Kirland did not do. It did not fossilise possibly unlawful – and
constitutionally invalid – administrative action as indefinitely effective. It expressly recognised
that the Oudekraal principle puts a provisional brake on determining invalidity. The brake is
7 Qaukeni Local Municipality and Another v FV General Trading CC, [2009] ZASCA 66; 2010(1) SA 356
(SCA) para 16.
8 In Merafong City Local Municipality v AngloGold Ashanti Limited (Merafong) [2016] ZACC 35; 2017
(2) BCLR 182 (CC); 2017 (2) SA 211 (CC) para 23, the Court described a collateral challenge as
follows:
‘Relying on the invalidity of an administrative act as a defence against its enforcement, while it has not
been set aside, has been dubbed a collateral challenge – “collateral” because it is raised in proceedings
that are not in themselves designed to impeach the validity of the act in question. While the object of
the proceedings is directed elsewhere, invalidity is raised as a defence to them.’
imposed for rule of law reasons and for good administration. It does not bring the process to
an irreversible halt. What it requires is that the allegedly unlawful action be challenged by the
right actor in the right proceedings. Until that happens, for rule of law reasons, the decision
stands.
Oudekraal and Kirland did not impose an absolute obligation on private citizens to take the
initiative to strike down invalid administrative decisions affecting them. Both decisions
recognised that there may be occasions where an administrative decision or ruling should be
treated as invalid even though no action has been taken to strike it down. Neither decision
expressly circumscribed the circumstances in which an administrative decision could be
attacked reactively as invalid. As important, they did not imply or entail that, unless they bring
court proceedings to challenge an administrative decision, public authorities are obliged to
accept it as valid. And neither imposed an absolute duty of proactivity on public authorities. It
all depends on the circumstances.
. . . .
Against this background, the question is whether, when AngloGold sought an order enforcing
the Minister’s decision, Merafong was entitled to react by raising the invalidity of her ruling as
a defence.
. . . .
A reactive challenge should be available where justice requires it to be. That will depend, in
each case, on the facts.’9 (Emphasis added.)
[19] Furthermore, in Department of Transport and Others v Tasima (Pty) Limited,10
the majority judgment observed that allowing state organs to challenge the lawfulness
of the exercise of public power by way of a reactive challenge, in appropriate
circumstances, was a logical and pragmatic consequence of the development of the
jurisprudence flowing from the Merafong judgment. The permissibility of a reactive
challenge to the lawfulness of the exercise of public power depends on a variety of
factors and it was logical and pragmatic to allow it in appropriate circumstances. The
question is whether allowing the municipality to raise a collateral challenge in the
circumstances of this case served justice.
9 Merafong fn 4 above para 43-45.
10 Department of Transport and Others v Tasima (PTY) Limited [2016] ZACC 39; 2017 (1) BCLR 1 (CC);
2017 (2) SA 622 (CC) para 140.
[20] The invalidity of Gobela’s proposal and subsequent appointment was
canvassed as follows in the municipality’s plea:
‘The defendant pleads that the request did not abide by the Municipal Finance Management
Act 2003 and the defendant’s Supply Chain Management Policy and such request is invalid
and unlawful.
…
‘The defendant pleads that the letter of appointment dated 5 May 2011 is invalid and unlawful.
In amplification of its plea the defendant pleads that its ex-employee acted outside his
delegated powers and authority in terms of the National Treasury’s regulations, Municipal
Finance Management Act and the supply chain management policy. The defendant denies
liability.’
[21] It is clear from the court a quo’s judgment that it took into account that despite
the absence of a frontal challenge in the form of a counter-application, the validity and
lawfulness of Gobela’s appointment were squarely raised in the pleadings. Another
important consideration in considering whether the court a quo was justified in
entertaining the municipality’s collateral challenge is that by not declaring the contract
invalid and unlawful, the untenable result would be that the court would be giving legal
sanction to the very result which s 217 of the Constitution and other all procurement-
related prescripts sought to prevent.11 Moreover, a finding in favour of Gobela would
have the equally untenable result that the municipality would essentially be paying for
a benefit it did not receive, notwithstanding the undisputed assertion that it had
budgetary constraints.
[22] Notably, despite the fact that the appointment letter pertinently stated that there
would be an assessment after finalisation of every phase and that Gobela had not
gone beyond the preparatory steps for its performance of its obligations in terms of the
contract, it impermissibly claimed the full contract fee. Allowing the claim would thus
be tantamount to enforcing an unperformed obligation. For all these reasons, I
conclude that justice required that the court a quo declare the impugned contract
invalid and unlawful despite the municipality not having counter-applied for it to be
11 Pottie v Kotze [1954] (3) SA 719 (A) at 726H-727A; ABSA Insurance Brokers (Pty) Ltd v Luttig and
Another NNO [1997] (4) SA 229 (SCA) at 239H-I.
reviewed and set aside. There is no question here of impermissible self-help. The
decision that the contract was unlawful and invalid was a decision by a court. It follows
that the appeal has to fail. As regards costs, there is no reason to depart from the
general rule that the costs must follow the result. The case was not of such complexity
as to warrant the employment of two counsel.
[23] In the result, the following order is made:
The appeal is dismissed with costs.
_____________________
M B MOLEMELA
JUDGE OF APPEAL
Appearances
For appellants:
N Ralikhuvhana
Instructed by:
Katlego Ralikhuvhana Attorneys, Johannesburg
Matsepes Attorneys, Bloemfontein
For respondent:
M S Mphahlele SC (with him T G Ramatsekisa)
Instructed by:
Wisani Baloyi Inc, Thohoyandou
Maduba Attorneys, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
Gobela Consulting v Makhado Municipality (Case no 910/19) [2020] ZASCA 180 (22 December
2020)
FROM
The Registrar, Supreme Court of Appeal
DATE
22 December 2020
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
_____________________________________________________________________________
Today the Supreme Court of Appeal (SCA) dismissed an appeal with costs from Limpopo Division
of the High Court, Polokwane (the high court).
The appeal concerned a dispute arising from a contract concluded by the municipal manager of
Makhado municipality (the municipality) with a private company (Gobela Consulting CC), without
following a competitive bidding process.
The facts that gave rise to the litigation were largely common cause. On or about 22 February 2011,
the appellant, Gobela Consulting CC (Gobela) submitted an unsolicited proposal to the respondent,
the municipality. The proposal was entitled ‘Proposal to review and Develop the Anti-Corruption
Strategy and Capacity Building for Makhado Municipality’. The proposal in question was accepted
by the municipal manager in writing on 5 May 2011. On 6 May 2011, the director of Gobela, Mr
Mavhandu, sent a letter accepting Gobela’s appointment. According to Mr Mavhandu, following
that appointment, Gobela started preparing for the training. It drafted and printed manuals for the
training; drafted, printed and prepared flyers in relation to the proposal; entered into service level
agreements with independent contractors to assist with training; and employed professionals and
support staff who would execute the project in accordance with the proposal. However, on the date
on which the training was scheduled to commence, Mr Mavhandu and his staff were informed by
an official of the municipality that the training could not proceed, as there were unresolved issues
pertaining to the contract. They were requested to wait until the problem was resolved. When
Gobela had, after some days, still not been invited to commence the training, Mr Mavhandu
released the facilitators who had been appointed to assist with the training. Gobela later issued a
letter of demand and a summons, claiming an amount of R5 113 470 as damages for breach of
contract. The municipality filed a special plea disputing the municipal manager’s authority to enter
into the contract in question. In its plea, it denied liability on the basis that the impugned agreement
was in contravention of the Local Government Municipal Finance Management Act 56 of 2003
(Municipal Finance Management Act) and the municipality’s Supply Chain Management Policy,
and therefore invalid and unlawful. Although the municipality had pleaded that the Municipal
Manager had no authority to conclude the impugned contract with Gobela, it did not counter-apply
for relief setting aside Gobela’s appointment.
The matter came before the high court, which found that the appointment of Gobela to review and
develop the anti-corruption strategy for the municipality, albeit a good initiative, was in breach of
the applicable procurement prescripts which are designed to ensure a transparent, cost effective
and competitive tendering process as stipulated in s 217 of the Constitution. The high court
dismissed Gobela’s claim with costs. Aggrieved by that decision, Gobela obtained leave of the high
court to appeal to the SCA.
Before the SCA, the only issue arising for determination was whether the high court was, in the
absence of a counter-application seeking the review and setting aside of the contract concluded
between Gobela and the municipality, entitled to find that the contract in question was invalid and
unlawful.
As a starting point, the SCA emphasised that s 217 of the Constitution and various statutes and
supply management policies enjoin organs of state that are contracting for goods and services to
do so in accordance with a system that is fair, equitable, transparent, cost effective and competitive.
The SCA pointed out that the municipality, as an organ of state, was duty-bound to discharge all
its duties and functions in accordance with applicable procurement prescripts. It observed that s
113 of the Municipal Finance Management Act provides that a municipal entity is not obliged to
consider an unsolicited bid received outside its normal bidding process; that Regulation 2(3) of
Municipal Supply Chain Management Policy Regulations forbids a municipality or municipal entity
from acting otherwise than in accordance with its supply chain management policy when procuring
goods or services and that Regulation 12 of the same Regulations provides that a competitive
bidding process must be followed for procurements above the transaction value of R 200 000. It
was common cause that in this matter, the transaction value was an amount of R5 131 470 and
thus far above the threshold stipulated in that regulation. The SCA pointed out that by Gobela’s
own admission, none of the applicable procurement prescripts had been complied with. The SCA
found that in so far as the municipality’s acceptance of Gobela’s proposal flouted procurement
prescripts, it was plainly at variance with the principle of legality. Manifestly, the Municipal Manager
had no authority to accept Gobela’s unsolicited proposal. It held that the contract concluded
between the municipality and Gobela was thus invalid from inception.
The SCA considered whether the high court was entitled to find that that contract was unlawful and
invalid notwithstanding that the municipality had not, at any stage, challenged the validity thereof
in court proceedings and asked for it to be set aside. The SCA held that by not declaring the contract
invalid and unlawful, the untenable result would be that the high court would be giving legal sanction
to the very result which s 217 of the Constitution and other all procurement-related prescripts
sought to prevent. The SCA remarked that although Gobela had not gone beyond the preparatory
steps for its performance of its obligations in terms of the impugned contract, it had impermissibly
claimed the full contract fee. It stated that allowing Gobela’s claim would yield the untenable result
that the municipality would have to pay for a benefit it did not receive despite its budgetary
constraint. The SCA concluded that justice required that the court a quo declare the impugned
contract invalid and unlawful despite the municipality not having counter-applied for it to be
reviewed and set aside. It held that there was no question of impermissible self-help, as the decision
that the contract was unlawful and invalid was a decision by a court.
The appeal was dismissed with costs.
|
3656
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 520/2020
In the matter between:
MUKURU AFRICA (PTY) LTD
APPELLANT
and
COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE
RESPONDENT
Neutral citation: Mukuru Africa (Pty) Ltd v Commissioner for the South African
Revenue Service (Case no 520/2020) [2021] ZASCA 116 (16
September 2021)
Coram:
PONNAN, MBHA, MATHOPO, MAKGOKA and HUGHES JJA
Heard:
30 August 2021
Delivered: This judgment was handed down electronically by circulation to the
parties’ representatives via email, publication on the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand-down is deemed to be
10:00 am on 16 September 2021.
Summary: Value-added tax (VAT) - apportionment of input VAT under s 17(1) of
the Value-Added Tax Act 89 of 1991.
__________________________________________________________________
ORDER
__________________________________________________________________
On appeal from: Tax Court of South Africa, Western Cape (Savage J, sitting with
assessors):
The appeal is dismissed with costs, including those consequent upon the
employment of two counsel.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
Ponnan JA (Mbha, Mathopo, Makgoka and Hughes JJA concurring)
[1] This appeal, against a judgment of the Tax Court of South Africa, Cape Town,
is concerned with the apportionment of input value-added tax (VAT) under s 17(1)
of the Value-Added Tax Act 89 of 1991 (the VAT Act).
[2] As it was put in Commissioner for the South African Revenue Service v
Tourvest Financial Services (Pty) Ltd):
‘. . . VAT incurred by a vendor: (a) wholly for the purpose of consumption, use or supply, in the
course of making taxable supplies may be deducted in full as input tax; (b) wholly for the purpose
of consumption, use or supply in the course of making exempt supplies, or for some other non-
taxable purpose, may not be deducted as input tax at all; and (c) on goods or services acquired
partly for the purpose of making taxable supplies and partly for the making of exempt supplies or
some other non-taxable purpose (i.e. mixed supplies) must be apportioned in accordance with
s 17(1), and is only input tax (and hence deductible) to the extent that it pertains to a taxable
supply.’1
[3] Section 17(1) (without its provisos) reads:
‘Where goods or services are acquired or imported by a vendor partly for consumption, use or
supply (hereinafter referred to as the intended use) in the course of making taxable supplies and
partly for another intended use, the extent to which any tax which has become payable in respect
of the supply to the vendor or the importation by the vendor, as the case may be, of such goods or
services. . . is input tax, shall be an amount which bears to the full amount of such tax or amount,
as the case may be, the same ratio (as determined by the Commissioner in accordance with a ruling
as contemplated in Chapter 7 of the Tax Administration Act or section 41B) as the intended use of
such goods or services in the course of making taxable supplies bears to the total intended use of
such goods or services. . . .’
[4] Proviso (iii) to s 17(1) (proviso (iii)), does, however, limit in certain
circumstances the extent to which the respondent, the Commissioner for the
South African Revenue Service (SARS or the Commissioner), may determine a ratio
with retrospective effect. It reads:
‘where a method for determining the ratio referred to in this subsection has been approved by the
Commissioner, that method may only be changed with effect from a future tax period, or from
such other date as the Commissioner may consider equitable and such other date must fall –
(aa) in the case of a vendor who is a taxpayer as defined in section 1 of the Income Tax Act, within
the year of assessment as defined in that Act; or
(bb) in the case of a vendor who is not a taxpayer as defined in section 1 of the Income Tax Act,
within the period of twelve months ending on the last day of February, or if such vendor draws up
annual financial statements in respect of a year ending other than on the last day of February,
within that year, during which the application for the aforementioned method was made by the
vendor.’
1 Commissioner for the South African Revenue Service v Tourvest Financial Services (Pty) Ltd [2021] ZASCA 61;
2021 (5) SA 86 (SCA) para 10.
[5] The appellant, Mukuru Africa (Pty) Limited (Mukuru), a registered vendor
under the VAT Act, commenced business on 1 February 2014. Mukuru provides
money-transfer and bureau de change services, as well as mobile phone credit. It
makes both taxable and exempt supplies for VAT purposes and also incurs
expenditure in acquiring goods and services for the purpose of use, consumption or
supply in the making of those supplies. The input VAT incurred by Mukuru
accordingly falls to be apportioned in terms of s 17(1) of the VAT Act (s 17(1)).
[6] On 20 February 2017, Mukuru applied to SARS for a ruling under s 41B of
the VAT Act.2 It requested approval for the use of a so-called ‘transaction count
(TC)’ ratio to apportion its mixed-purpose input VAT deductions for the tax periods
commencing 1 February 2014. On 24 July 2018, SARS approved the TC method for
use by Mukuru (the July 2018 ruling). It did so for the period commencing
1 March 2016, but not in respect of the earlier period from 1 March 2014 to
29 February 2016. SARS took the view that proviso (iii) precluded it from approving
the TC ratio for use in any period prior to 1 March 2016.
[7] Mukuru objected. SARS initially treated the objection as invalid and refused
to entertain or decide it. On 12 June 2019, Mukuru launched an application with the
Tax Court seeking, inter alia, an order compelling SARS to consider and decide the
2 Section 41B headed ‘VAT class ruling and VAT ruling’ provides:
‘(1) The Commissioner may issue a VAT class ruling or a VAT ruling and in applying the provisions of Chapter 7 of
the Tax Administration Act, a VAT class ruling or a VAT ruling must be dealt with as if it were a binding class ruling
or a binding private ruling, respectively: Provided that –
(a) the provisions of section 79(4)(f), (k), (6) and 81(1)(b) of the Tax Administration Act shall not apply to any VAT
class ruling or VAT ruling;
(b) an application for a VAT class ruling or a VAT ruling in terms of this section shall not be accepted by the
Commissioner if the application--
(i) is for an advance tax ruling that qualifies for acceptance in terms of Chapter 7 of the Tax Administration Act;
and
(ii) falls within a category of rulings prescribed by the Minister by regulation for which applications for rulings
in terms of this section may not be accepted.’
objection. Mukuru’s application succeeded before Binns-Ward J. Following upon
the order of Binns-Ward J, SARS considered and disallowed Mukuru’s objection.
Mukuru then appealed to the Tax Court.
[8] In accordance with the rules of the Tax Court, SARS filed its statement of
grounds of assessment in terms of rule 31 and Mukuru its statement of grounds of
appeal in terms of rule 32. The parties agreed that the matter could be determined on
the basis of: (i) the common cause facts in the rule 31 and rule 32 statements; (ii) the
facts that were common cause on the application papers before Binns-Ward J; and,
(iii) certain further additional admissions. It was thought unnecessary to lead viva
vice evidence. Both parties, accordingly, closed their respective cases and proceeded
to argument before the Tax Court.
[9] The Tax Court (per Savage J, sitting with assessors) dismissed Mukuru’s
appeal on 15 November 2019. The further appeal by Mukuru to this Court is with
the leave of the learned judge.
[10] The primary issue in the appeal is whether SARS (as it contends and the
Tax Court held) was precluded by proviso (iii) from granting approval for use of the
TC ratio by Mukuru in respect of the period 1 March 2014 to 29 February 2016.
[11] Section 17(1) of the VAT Act does not stipulate a ratio. That is to be
determined by way of a ruling from SARS as contemplated in Chapter 7 of the
Tax Administration Act 28 of 2011 (the TAA) or s 41B of the VAT Act. When
SARS issued the July 2018 ruling, there was already in existence a ruling as
envisaged in Chapter 7 of the TAA, namely Binding General Ruling 16 (BGR16).
BGR16, which determined a ratio for the purpose of s 17(1), was first issued by
SARS on 25 March 2013 (with effect from 1 April 2013) and re-issued on
30 March 2015 (with effect from 1 April 2015).
[12] The ratio fixed by BGR16 is described as the standard turnover-based method
(the STB method) of apportionment. The STB method, which is the default method
of apportionment, applies to all vendors who have not obtained an alternative ruling
from SARS.
[13] Relying on what was styled a ‘condition’ in BGR16, Mukuru argues that,
given the nature of its business, it was not ‘fair and reasonable’ for it to use BGR16.
Accordingly, so the argument went, BGR16 did not apply to it. The ‘condition’
reads:
‘1
The vendor may only use this method if it is fair and reasonable. Where the method is not
fair and reasonable or inappropriate, the vendor must apply to SARS to use an alternative method.’
Mukuru proceeds to argue that because BGR16 did not apply to it, the July 2018
ruling did not constitute a change to an existing apportionment method and therefore,
proviso (iii) does not preclude the retrospective operation of the July 2018 ruling.
[14] The 25 March 2013 iteration of BGR16, inter alia, provides:
‘1
Purpose
This BGR reproduces the statement in paragraph 8.4.3 of the Value-Added Tax Guide for Vendors
(VAT 404) under the heading “Formula: Turnover-based method of apportionment”, which
comprises a BGR under section 89 of the TA Act.
Background
The Guide, which is updated annually, sets out the apportionment method which must be used to
calculate the amount of VAT to be deducted as input tax in respect of the acquisition of goods or
services for a mixed purpose. This BGR updates references to section 76P of the Income Tax Act,
No. 58 of 1962 with references to the TA Act and incorporates subsequent amendments to sections
of the VAT Act.’
[15] The Value Added Tax Guide for Vendors (VAT 404) (the Guide) predates
BGR16 by ten days. Paragraph 8.4.3 of the Guide records in part:
‘The only approved method which may be used to apportion VAT incurred for mixed purposes
without specific prior written approval from the Commissioner, is the turnover-based method. This
method applies by default in the absence of a specific ruling obtained by the vendor to use another
method as there is usually a fairly good correlation between the turnover of a business and the
resources (or inputs) which are employed to produce that turnover.’
The ratio in BGR16 thus applies to all vendors to whom s 17 finds application and
who had not applied for and been granted an alternative ruling by the Commissioner.
Mukuru fell within that category, until such time as the Commissioner issued the
July 2018 ruling in its favour (and at its request), permitting the use of the TC
method.
[16] It is so that BGRI6 does indeed contain a section headed ‘Conditions’. Those
are however manifestly not conditions in the true sense. They do not relate to the
ratio referred to in s 17, but rather to the requirement to apply to SARS for an
alternative ruling in the event that the STB method operates unfairly and
unreasonably or is inappropriate. The condition, such as it is, cannot qualify s 17(1).
BGR16 does no more than fix the ratio, left to the Commissioner for determination
by s 17(1).
[17] In any event, it is not open to a vendor to simply ignore a SARS’ ruling or to
unilaterally apply its own method of apportionment. What is more, in terms of
BGR16, if the method prescribed is not fair and reasonable or appropriate, the vendor
must apply to SARS for a fair, reasonable and appropriate ruling. It does not provide,
as Mukuru appears to suggest, that from the commencement of its operations, no
approved apportionment method applied to it. Nor did it provide for Mukuru to
simply unilaterally assume its own apportionment; one not sanctioned by SARS. The
remedy for any unfairness and unreasonableness or inappropriateness is for a vendor
to apply to the SARS for an alternative method of apportionment, not to regard
BGR16 as pro non scripto.
[18] The purpose served by the requirement that a vendor must make an application
to the Commissioner, is to enable the latter to evaluate whether there is indeed any
unfairness, unreasonableness or inappropriateness and if so, to approve an
alternative method. Thus, even were it to be assumed in Mukuru’s favour that the
‘condition’ is a condition in the true sense, Mukuru did not, at the level of fact, claim
any unfairness, unreasonableness or inappropriateness.
[19] The legislature contemplates that the apportionment method for the purposes
of s 17 of the VAT Act must relate to a time in the future or, if it is to be retrospective,
for a period not exceeding the income tax year during which the application is made
for a change in the apportionment method. Properly understood therefore, Mukuru’s
application for the July 2018 ruling was an application to change from the STB
method to the TC method. Accordingly, when SARS approved the change of method
in response to Mukuru’s application, it had no power to do so, retrospectively, to a
date earlier than 1 March 2016. It follows that the Tax Court was correct in its
conclusion that:
‘. . . The STB method set out in BGR16 was the only ratio applicable to the appellant until its
private binding ruling had been issued in 2017 and proviso (iii) to section 17(1) expressly
precluded SARS from issuing a ruling that had effect from a date earlier than 1 March 2016.’3
3 Paragraph 17 of the judgment.
[20] In the result, the appeal must fail and it is accordingly dismissed with costs,
including those consequent upon the employment of two counsel.
_________________
V M Ponnan
Judge of Appeal
APPEARANCES
For appellant:
M W Janisch SC
Instructed by:
Dingley Marshall Lewin Inc, Cape Town
Phatshoane Henney Attorneys, Bloemfontein
For respondent:
A R Sholto-Douglas SC (with C Tsegarie)
Instructed by:
State Attorney, Cape Town
State Attorney, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
16 SEPTEMBER 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Mukuru Africa (Pty) Ltd v The Commissioner for the South African Revenue Services (Case
no 520/2020) [2021] ZASCA 116 (16 September 2021)
Today the Supreme Court of Appeal (SCA) dismissed an appeal, with costs, by Mukuru Africa (Pty)
Limited (Mukuru), against a judgment by the Tax Court of South Africa, Western Cape (the Tax Court).
The issue before the SCA was whether SARS was precluded by proviso (iii) to section 17(1) of the
Value-Added Tax Act 89 of 1991 (the VAT Act) from granting approval for use of a so-called ‘transaction
count’ (TC) ratio by Mukuru with retrospective effect for the period 1 March 2014 to 29 February 2016.
Mukuru a registered vendor under the VAT Act, commenced business on 1 February 2014. Mukuru
provides money-transfer and bureau de change services, as well as mobile phone credit. It makes both
taxable and exempt supplies for VAT purposes and also incurs expenditure in acquiring goods and
services for the purpose of use, consumption or supply in the making of those supplies. On 20 February
2017, Mukuru applied to SARS for a ruling under s 41B of the VAT Act. It requested approval for the
use of the TC ratio to apportion its mixed-purpose input VAT deductions for the tax periods commencing
1 February 2014. On 24 July 2018, SARS approved the TC method for use by Mukuru. It did so for the
period commencing 1 March 2016, but not in respect of the earlier period from 1 March 2014 to
29 February 2016. SARS took the view that proviso (iii) precluded it from approving the TC ratio for use
in any period prior to 1 March 2016.
Section 17(1) of the VAT Act does not stipulate a ratio. That is determined by way of a ruling from SARS
as contemplated in Chapter 7 of the Tax Administration Act 28 of 2011 (the TAA) or s 41B of the VAT
Act. When SARS issued the July 2018 ruling in favour of Mukuru, there was already in existence a
ruling as envisaged in Chapter 7 of the TAA, namely Binding General Ruling 16 (BGR16). BGR16,
which determined a ratio for the purpose of s 17(1) of the VAT Act, was first issued by SARS on 25
March 2013 (with effect from 1 April 2013) and re-issued on 30 March 2015 (with effect from 1 April
2015). The ratio fixed by BGR16 is described as the standard turnover-based method (the STB method)
of apportionment. The STB method, which is the default method of apportionment, applies to all vendors
who have not obtained an alternative ruling from SARS.
The SCA held that the legislature contemplates that the apportionment method for the purposes of s 17
of the VAT Act must relate to a time in the future or, if it is to be retrospective, for a period not exceeding
the income tax year during which application is made for a change in the apportionment method.
Properly understood therefore, Mukuru’s application for the July 2018 ruling was an application to
change from the STB method to the TC method. Accordingly, when SARS approved the change of
method in response to Mukuru’s application, it had no power to do so, retrospectively, to a date earlier
than 1 March 2016.
~~~~ends~~~~
|
3566
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 138/2020
In the matter between:
PHILLIPUS ARNOLD VENTER DU PLESSIS
APPELLANT
and
ROAD ACCIDENT FUND
RESPONDENT
Neutral citation:
Venter Du Plessis v RAF (138/2020) [2021] ZASCA 64 (26 May
2021)
Coram:
NAVSA, DAMBUZA and MOCUMIE JJA and POTTERILL and
EKSTEEN AJJA
Heard:
4 May 2021
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the Supreme Court of Appeal website,
and release to SAFLII. The time and date for hand down are deemed to be at 09h45
on 26 May 2021.
Summary:
Evidence–Onus of proof- whether the appellant failed to establish on a
balance of probabilities that the insured driver negligently caused the collision –
whether the trial court erred in not accepting the appellant’s version concerning the
point of impact – whether credibility findings ought to have been made against the
driver of the insured vehicle.
ORDER
On appeal from: Eastern Cape Division of the High Court, (Bloem J and Nhlangulela
DJP, concurring & Jaji J dissenting, sitting as a full court.)
The appeal is upheld with costs.
The order of the full court is set aside and substituted with the following:
‘(a)
The appeal is upheld with costs;
(b)
The order of the court below is set aside and substituted as follows:
“1.
The plaintiff’s claim succeeds;
1.1 The defendant is ordered to pay the plaintiff the sum of R 1 778 550;
1.2 The defendant is ordered to pay interest on the aforesaid amount at the
prescribed legal rate of interest from fourteen days after the date of this
order to date of payment.
1.3 The defendant is ordered to furnish the plaintiff with an undertaking in
terms of s 17(4) (a) of the Road Accident Fund Act, No. 56 of 1996 as
amended.
1.4 The defendant is ordered to pay the plaintiff’s taxed party and party
costs, including the costs of the photographs and the reasonable and
necessary qualifying fees and expenses of the following expert
witnesses if any:
1.4.1 Dr Olivier;
1.4.2 Ansie Van Zyl;
1.4.3 Dr Peter Whitehead; and
1.4.4 Actuary Willem Boshoff.
1.5 The defendant is ordered to pay interest on the plaintiff’s taxed party and
party costs at the prescribed legal rate of interest from the date of
allocatur to the date of payment.”’
JUDGMENT
Mocumie JA (Navsa, Dambuza JJA and Eksteen and Potterill AJJA concurring)
[1] At approximately 19h00 on 27 September 2014, a collision occurred close to
the intersection between Buffelsfontein and Glendore road, Port Elizabeth, between a
650cc Suzuki motorcycle driven by the appellant, Mr Phillipus Arnoldus Venter Du
Plessis, and a motor vehicle with registration number FHC 286 EC, driven by the
insured driver, Mr Shad Sampson. The appellant’s motor cycle was struck by the
insured driver’s vehicle, as a result of which he suffered severe bodily injuries, more
particularly; a fracture of the left tibia and a fracture of the left lateral malleolus. In his
claim against the Road Accident Fund (the RAF) the parties agreed on the quantum
of his damages at R1 778 550. In addition, the RAF agreed to furnish him with an
undertaking in terms of s 17 (4) (a) of the Road Accident Fund Act, in the event that
he succeeded on the merits, subject to any applicable apportionment of liability.
Accordingly, the only issue that the trial court had to decide was whether the collision
was caused by negligence on the part of the insured driver, and if so whether there
was contributory negligence on the part of the appellant. In the trial court, Goosen J,
concluded that ‘the collision was caused by the appellant’s negligence inasmuch as
he drove his motorcycle into the intersection; into the path of an oncoming vehicle
when it was unsafe and inopportune to do so’. The appellant appealed, with the leave
of the trial court, unsuccessfully to the full court (Bloem, J and Nhlangulela, DJP
concurring, Jaji, J dissenting). This appeal is with special leave of this Court.
[2] The collision occurred at the intersection of Buffelsfontein and Glendore roads.
It is a T-junction with Glendore road joining from the southern side of Buffelsfontein
road. Buffelsfontein road is a straight main road with a single carriageway that runs in
an east-west direction. Where the collision occurred, the two lanes in Buffelsfontein
road are separated by a solid barrier line and the road runs through a built up area. At
the intersection there is a stop sign for traffic from Glendore road, turning either left or
right into Buffelsfontein road. On the north of Buffelsfontein road, after one has turned
right from Glendore road, there is large lawn separated from Buffelsfontein by a gravel
filled verge. The lawn extends northwards to a road that runs parallel to Buffelsfontein
road. Immediately north of that road is the housing complex where the appellant lived.
Between the gravel verge and the grassed area there are short wooden poles
preventing access onto the lawn by cars. A short distance from the intersection after
one has turned right into Buffelsfontein road is a lamppost. Before one gets to the
lamppost there is a no parking sign. The appellant usually steers his bike through the
wooden posts to get to the housing complex, utilising a footpath.
[3] At the time of the collision it was already dark and visibility was not good, but,
the street lights were on. As it had been raining, the road surface was wet. So, too,
was the gravel part. The footpath was covered with water.
[4] As alluded to already, the appellant was returning home after meeting some
friends and travelling on Glendore road towards the stop street to join Buffelsfontein
road. His version, briefly, was as follows. He had enjoyed lunch with his friends until
around 16h00 on the other side of the city and was on his way home on his motorcycle.
At the intersection of Buffelsfontein and Glendore roads he stopped at the stop street,
looked around, saw no oncoming motor vehicle and turned right into Buffelsfontein
road. About 45 metres from the intersection, he pulled off to his left side on
Buffelsfontein road and stopped on the gravel verge; with his foot on the ground. His
intention was to take a short-cut across the gravel and grass between Buffelsfontein
road and his home. But that day it had been raining and there was water on the
footpath that he normally uses to reach his home a few meters away. Just as he put
his foot down on the gravel to attempt to gently manoeuvre away from the puddles
and through the wooden obstacles he was struck at the back of the motorcycle by the
insured vehicle.
[5] After the collision, his motorcycle was lying in the vicinity of the wooden
barricades alongside the road, to the north. In the trial court he used a sketch plan to
depict the point of impact, on the gravel verge, north of Buffelsfontein road. He also
testified with reference to photographs of the scene. As a result of the collision, he lost
consciousness and was taken to hospital where he recovered.
[6] The insured driver’s version of the collision was different. The essential parts of
his testimony are set out hereafter. He stated that he was driving along Buffelsfontein
road and approached the intersection in an easterly direction. As he approached the
intersection, he saw the lights of the motorcycle which ‘just went over the stop street’
and appeared in front of him. The motorcycle travelled across Buffelsfontein road into
his path. He applied brakes, but it was too late and he collided with the left side of his
motor vehicle against ‘the back of the motorcycle, on the left’. He depicted the point of
impact by making an asterisk on the photo placed before the court by the appellant to
be on the tarred surface of Buffelsfontein road. The two drivers were the only
witnesses who testified.
[7] The trial judge was conscious that there were mutually destructive versions. It
is to be noted that the trial court made no credibility findings, save, as appears from
the passage of the judgment referred to immediately hereafter, there is a suggestion,
without substantiation, that the appellant’s, and perhaps neither witness’ evidence was
impeached. He held as follows: ‘Neither the plaintiff nor the insured driver impressed
as outstanding witnesses. Their evidence is each subject to some criticism, inasmuch
as it was vague in certain respects. The fact that neither witness stood out as a
particularly impressive witness does not mean that either witness’s version is to be
rejected as not credible. Where a court is faced with a conflict in evidence by witnesses
[whose] credibility cannot be impeached, it will have regard to the inherent probabilities
and improbabilities in the versions in determining which version to accept’.
[8] The trial court went on to consider the probabilities. Its finding in this regard is set
out in para 21 of the judgment, which is set out hereafter as follows:
‘In my view, the plaintiff’s description of the point of impact and, in particular, that the
motorcycle was stationary and that his right foot was on the gravel at the point of impact is
highly improbable. It would suggest that he had already driven along Buffelsfontein road for
the distance of approximately 45m and that he had already driven his motorcycle off the
tarmac surface onto the gravel and brought it to a halt, prior to the insured driver braking
heavily to avoid the collision. It would suggest that the braking had caused the vehicle to veer
off the tar surface so that it could impact the motorcycle. Far more probable, in my view is the
version presented by the insured driver. His evidence was that the motorcycle had approached
the intersection at Glendore Road slowly but that it did not stop. Instead, it entered the
intersection directly in front of him into his path of travel at an angle across Buffelsfontein. He
applied brakes heavily but, due to the wet conditions, the vehicle skidded striking the
motorcycle.’
[9] The trial judge disagreed with the contention on behalf of the appellant that ‘the
point of impact as described by the [appellant] accords with the objective evidence,
namely that the motorcycle was struck from the rear and that it had fallen onto its right
side, which was damaged and that the motor cycle had come to rest on the gravel
verge’. Goosen J, in the trial court, held that the damage to the motor vehicle and the
position it came to rest after the collision and the damage to the insured driver’s motor
vehicle do not, with any force of probability point to the mechanism of collision as
described by the [appellant]’. He held furthermore, that ‘for the collision to have
occurred in that manner with the point of impact being on the gravel verge, it would
necessarily mean that the insured driver had either driven off the tar surface or that
the vehicle had skidded off the tar surface before impacting with the [motorcycle]’. On
that basis, he concluded that ‘the plaintiff’s description of the point of impact, and in
particular that the [motorcycle] was stationary and his right foot was on the gravel at
the point of impact is highly improbable. . .’
[10] The trial court concluded that ‘the collision was caused by the appellant’s
negligence inasmuch as he drove his motorcycle into the intersection; into the path of
an oncoming vehicle when it was unsafe and inopportune to do so’. On appeal, the
majority in the full court agreed with the trial judge.
[11] Before this Court, the main issue for determination is whether the trial court
erred in dealing with the two irreconcilable versions in the manner that it did. A court
of appeal is generally reluctant to disturb the factual findings of a trial court but will do
so where such findings are based on false premises or where relevant facts have been
ignored or where the conclusions are plainly wrong.1 Overemphasis of the advantages
which a trial court enjoys is to be avoided lest an appellant’s right of appeal ‘becomes
1 R v Dhlumayo and Another 1948 (2) SA 677 (A) at 705 was recently cited with approval in Beukes v Smith
[2019] ZASCZ 48 para 22, and Competition Commission of South Africa v Media 24 (Pty) Limited [2019] ZACC;
2019 (9) BCLR 1049 (CC); 2019 (5) SA 598 (CC) (3 July 2019) para 135 and ST v CT (1224/16) [2018] ZASCA
73; [2013] 3 All SA 408 (SCA); 2018 (5) SA 479 (SCA) (30 May 2018) para 12.
illusory’.2 ‘It is equally true that the findings of credibility cannot be judged in isolation
but require to be considered in the light of the proven facts and the probabilities of the
matter under consideration.’3
[12] Where, as in the present case, there are conflicting versions, this Court stated
in Stellenbosch Farmers’ Winery Group Ltd and Another v Martell & Cie SA and
Others4
‘[5]
The technique generally employed by courts in resolving factual disputes of this nature
may conveniently be summarised as follows. To come to a conclusion on the disputed issues
a court must make findings on (a) the credibility of the various factual witnesses; (b) their
reliability; and (c) the probabilities. As to (a), the court’s finding on the credibility of a particular
witness will depend on its impression about the veracity of the witness. That in turn will depend
on a variety of subsidiary factors, not necessarily in order of importance, such as (i) the
witness’s candour and demeanour in the witness-box, (ii) his bias, latent and blatant, (iii)
internal contradictions in his evidence, (iv) external contradictions with what was pleaded or
put on his behalf, or with established fact or with his own extra curial statements or actions,
(v) the probability or improbability of particular aspects of his version, (vi) the calibre and
cogency of his performance compared to that of other witnesses testifying about the same
incident or events. As to (b), a witness’s reliability will depend, apart from the factors
mentioned under (a)(ii), (iv) and (v) above, on (i) the opportunities he had to experience or
observe the event in question and (ii) the quality, integrity and independence of his recall
thereof. As to (c), this necessitates an analysis and evaluation of the probability or
improbability of each party’s version on each of the disputed issues. In the light of its
assessment of (a), (b) and (c) the court will then, as a final step, determine whether the party
burdened with the onus of proof has succeeded in discharging it. The hard case, which will
doubtless be the rare one, occurs when a court’s credibility findings compel it in one direction
and its evaluation of the general probabilities in another. The more convincing the former, the
less convincing will be the latter. But when all factors are equipoised probabilities prevail. . .’
[13] As is clear from the judgment of the trial court, despite the conflicting evidence
on the point of impact, the trial judge preferred the version of the insured driver but did
not employ the Stellenbosch Farmers’ Winery technique referred to above. To that
2 Protea Assurance Co. Ltd. v Casey 1970 (2) SA 643 (7) 648 D-E and Munster Estates (Pty) Ltd v Killarney Hills
(Pty) Ltd 1979 (1) SA 621 (A) 623H – 624A.
3 Santam Bpk v Biddulph [2004] ZASCA 11; [2004] 2 All SA 23 (SCA) (23 March 2004) para 5.
4 Stellenbosch Farmers’ Winery Group Ltd and Another v Martell & Cie SA and Others [2002] ZASCA 98 (6
September 2002) at 141 to 150E.
extent, the trial court erred. This Court is therefore duty bound to consider the evidence
afresh.5
[14] Applying the Stellenbosch Farmers’ Winery principles, first, the question of
credibility. In his evidence-in-chief the insured driver stated that he saw the appellant
stop at the crossroad, who then suddenly went across the road in front of him causing
him to apply brakes late, but he could not avoid the collision, which occurred on the
tarmac with the left hand-side of his vehicle striking the motorcycle at the back. This
is contrary to what was put to the appellant. It was put by counsel for the respondent
to the appellant that he had entered the intersection at an angle, without stopping at
the stop sign. This was also contrary to what the insured driver had said in his
statement to the respondent when he reported the collision. The following is the
relevant part of the statement:
‘I noticed the [motorcyclist] stop at the intersection waiting for oncoming vehicles.
When I was right opposite the intersection, the motorcyclist pulled off and collided with my
vehicle left front side. . . I did not know where the [appellant] was when [I applied] brakes.
I did not see the [appellant] but saw the brake lights, the back of the [motorcycle] . . . I was not
sure where the collision took place but was sure that his vehicle did not swerve from the tarred
road onto the gravel. . .’
(Emphasis added).
[15] These contradictions are material and clearly impact negatively on the insured
driver’s credibility and this ought to have redounded in favour of the appellant, as held
by Jaji J in the dissenting judgment.
[16] Yet another contradiction was elicited under cross examination.
‘Your evidence was that he, [the appellant], was in the middle of the road… If you don’t know
where he was you can say so.
I don’t know where he was…
In your own words when you braked it was too late.
It was too late, ja…
You saw his lights and you got a fright, is that correct
Ja. Yes…
5 See fn 1 above.
And that braking, when you got a fright, that hard braking caused your vehicle to skid…
…Yes…’
This is not only a contradiction but it favours the appellant, in that it supports his version
of events and leads one compellingly to the conclusion, on the insured driver’s own
version, that he was not keeping a proper lookout and explains how he suddenly came
upon the motorcycle without there being any time at all to take evasive action.
[17] The motorcycle was found after the collision, approximately 50 metres away
from the intersection, on the gravel. That is in line with the appellant’s version of
travelling some distance slowly into Buffelsfontein road, to identify the best route
through the barricades. In line with this stated purpose, one would have expected a
much reduced speed and that it would take a commensurate period of time travelling
eastwards to get to that point providing every opportunity for an oncoming motorist to
see him. It also militates against the version of the sudden driving across the
intersection into the path, at an angle, of the insured driver’s vehicle. Additionally, the
photographs of the damage to the motorcycles presented at trial favours the
appellant’s version in that it appears that it was struck from behind rather than on the
left-hand side. Thus, the objective evidence supports the appellant’s version of events.
[18] On the probabilities, if one accepts the insured driver’s version that his lights
were on then it would have been suicidal for the appellant to suddenly swerve in front
of him. That is not only improbable but at odds with the objective evidence set out
above.
[19] Counsel for the respondent came into this case at the eleventh hour because
of the administrative chaos that prevails at the respondent’s offices. Nonetheless, he
made a valiant attempt at persuading us to find that there was contributory negligence
on the part of the appellant, on the basis that he had entered the intersection when it
was unsafe to do so. For all the reasons set out above, the ineluctable conclusion is
that the collision was occasioned by the sole negligence of the insured driver. The trial
court and the full court holding otherwise, without considering the factors set out
above, courts erred. The appeal must succeed.
[20] In conclusion, it is necessary to record the following. The original attorney for
the respondent withdrew from the matter. A new firm of attorneys received instructions
sometime in late April 2021. A notice of substitution of attorneys and an application for
a postponement was filed on the morning of the hearing (4 May 2021). No heads of
argument had been filed. Counsel for the respondent, Mr Erasmus, as could be
expected of a senior officer of the court, rightly, on behalf of the respondent,
apologised for the manner in which the appeal had been conducted. He indicated that
he had briefed the night before (3 May 2021). Given that the record of proceedings in
the trial court and before the full court comprised only 1 volume, of which
approximately only approximately 70 pages constituted evidence counsel was willing
to take some time before the hearing before us commenced to acquaint himself with
the record and thereafter to present argument, which he did most ably, avoiding a
punitive costs order and an injustice to the appellant.
[21] In the result, the following order is made.
Order
1.
The appeal is upheld with costs.
The order of the full court is set aside and substituted with the following:
‘(a) The appeal is upheld with costs;
(b)
The order of the court below is set aside and substituted as follows:
“1
The plaintiff’s claim succeeds;
1.5
The defendant is ordered to pay the plaintiff the sum of R 1 778 550;
1.6
The defendant is ordered to pay interest on the aforesaid amount at the
prescribed legal rate of interest from fourteen days after the date of this
order to date of payment.
1.7
The defendant is ordered to furnish the plaintiff with an undertaking in
terms of s 17(4) (a) of the Road Accident Fund Act, No. 56 of 1996 as
amended.
1.8
The defendant is ordered to pay the plaintiff’s taxed party and party
costs, including the costs of the photographs and the reasonable and
necessary qualifying fees and expenses of the following expert
witnesses if any:
1.4.1 Dr Olivier;
1.4.2 Ansie Van Zyl;
1.4.3 Dr Peter Whitehead; and
1.4.4 Actuary Willem Boshoff.
1.5 The defendant is ordered to pay interest on the plaintiff’s taxed party and
party costs at the prescribed legal rate of interest from the date of
allocatur to the date of payment.”’
___________________
BC MOCUMIE
JUDGE OF APPEAL
Appearances
Counsel for Appellant
D Niekerk SC
Instructed by
Mc Williams & Elliot Inc
Webbers Attorneys, Bloemfontein, 9301
Counsel for Respondent
MC Erasmus SC and WTB Ridgard
Instructed by
Ramulifho Inc.
Lawrence Masiza Vorster Inc., Port Elizabeth, 6001
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
26 May 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Venter Du Plessis v RAF (138/2020) [2021] ZASCA 64(26 May 2021)
Today the Supreme Court of Appeal (SCA) handed down judgment wherein it upheld the appeal against
an order of the Eastern Cape Division of the High Court; and ordered the Road Accident Fund (RAF),
the respondent, to pay the costs incurred in the preparation, perusal and copying of the record on an
attorney and client scale.
The issues before the SCA were whether Mr Phillipus Arnoldus Venter Du Plessis (the appellant) failed
to establish on a balance of probabilities that the insured driver negligently caused the collision; whether
the trial court erred in not accepting the appellant’s evidence regarding the point of impact in dealing
with two irreconcilable versions on the point of impact and the general approach to adopt when dealing
with rear end collisions; taking into account the extra-curial statement made by the insured driver to
RAF.
The SCA held that the appellant proved, on a balance of probability, that the insured driver was
negligent in his conduct and that the RAF can therefore not escape liability; lamenting that the trial court
together with the full court, made no finding on the statement and nor did the two courts make any
reference to it or its impact on the evidence of the insured driver as a whole. SCA upheld the appeal
with costs.
|
1289
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case no: 103/09
THE STANDARD BANK OF SOUTH AFRICA
Appellant
and
THE MASTER OF THE HIGH COURT
First Respondent
(EASTERN CAPE DIVISION)
BASIL BRIAN NEL Second Respondent
MICHAEL LEO DE VILLIERS
Third Respondent
________________________________________________________________
Neutral citation:
Standard Bank v The Master of the High Court (103/09)
[2010] ZASCA 4 (19 February 2010)
CORAM:
Navsa, Ponnan, Maya, Snyders JJA and Griesel AJA
HEARD:
19 November 2009
DELIVERED:
19 February 2010
CORRECTED:
SUMMARY:
Liquidators
occupying
position
of
trust
towards
creditors and companies in liquidation ─ required to be independent and to
regard equally the interest of all creditors ─ expected to carry out their
duties without fear, favour or prejudice ─ standard not met ─ liquidators
removed and fees reduced.
________________________________________________________________
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
Eastern Cape High Court, Grahamstown (Liebenberg and
Plasket JJ sitting as court of first instance).
1.
The appeal is upheld.
2.
The second and third respondents are ordered to pay two thirds of
the appellant’s costs, such costs to include those consequent upon
the employment of two counsel, to be paid by the second and third
respondents in their personal capacities jointly and severally.
3.
The order of the court below is set aside and substituted as follows:
‘1.
The third and fourth respondents are removed as joint liquidators of
Intramed (Pty) Ltd (in liquidation).
2.
The decision of the Master not to disallow or reduce the remuneration of
the third and fourth respondents as joint liquidators of Intramed (Pty) Ltd (in
liquidation) is reviewed, set aside and replaced with an order in terms whereof
the remuneration of the second and third respondents is reduced by five per
cent.
3.
The third and fourth respondents are ordered to pay the costs of the
application including the costs consequent upon the employment of two counsel
where applicable, such costs to be paid by the third and fourth respondents in
their personal capacities jointly and severally.’
________________________________________________________________
JUDGMENT
________________________________________________________________
NAVSA JA (PONNAN, MAYA and SNYDERS JJA concurring)
Introduction
[1] In the winding-up of companies liquidators occupy a position of trust, not
only towards creditors but also the companies in liquidation whose assets vests
in them. Liquidators are required to act in the best interests of creditors. A
liquidator should be wholly independent, should regard equally the interests of all
creditors, and should carry out his or her duties without fear, favour or prejudice.1
The Issue
[2] The central question in this appeal is whether the second and third
respondents, Basil Brian Nel and Michael Leo De Villiers, in their capacity as joint
liquidators of Intramed (Pty) Ltd (in liquidation), discharged their duties in the
manner set out above and, if not, whether they should be removed as such.
Allied questions, include, whether (a) they should, in terms of s 394(7)(a) of the
Companies Act 61 of 1973 (the CA), be subject to the payment of a penalty,
being double that paid out of Intramed’s bank account other than for the sole
benefit of Intramed, and (b) whether, in terms of s 384(2) of the CA, they should
be subject to a reduction or disallowance of their fee. I shall, for the sake of
convenience, refer to the second and third respondents as Nel and De Villiers
respectively, to the appellant as Standard Bank and to Intramed (Pty) Ltd, both in
its pre- and post-liquidation state, as Intramed.
1 See in this regard, Bertelsman et al Mars: The Law of Insolvency 9 ed (2008) pp293-294 and
the authorities cited there.
The order of the Court below and leave to appeal
[3] Standard Bank is a registered commercial bank and a proved creditor of
Intramed. During April 2005 it launched an application in the Grahamstown High
Court for an order that Nel and De Villiers be removed as joint liquidators of
Intramed and sought extensive associated relief, including but not restricted to
that set out in the preceding paragraph. The application was refused with costs
(Liebenberg and Plasket JJ).2 The present appeal is before us with leave
granted, in part by the court below and in part by this court. The Master of the
High Court was cited as the first respondent but took no part in the litigation.
The biggest commercial collapse in South Africa’s history ─ the winding up of the
Macmed group and the appointment of liquidators.
[4] Before being placed in liquidation, Intramed was a wholly-owned
subsidiary of Macmed Healthcare Limited (Macmed). The latter conducted
business through a host of subsidiaries. By all accounts the Macmed group of
companies experienced exponential growth within a relatively short space of
time. In ‘modern’ language the group was a ‘high flyer’. During March 1999,
shortly before its demise, Macmed entered into an agreement with Aspen
Healthcare Holdings Limited, to acquire three of the businesses of South African
Druggists Ltd (an Aspen subsidiary), one of which was to be housed in Intramed.
The businesses were acquired and Intramed conducted a viable business. The
acquisition of the Intramed business, particularly how it was funded, and the
relationship between Macmed and Intramed, as will become apparent, were
central features in prior litigation as they are in the present case.
[5] Both Macmed and Intramed were wound-up because they were unable to
pay their debts. Macmed’s failure was, at that time, widely regarded as the
2 The judgment of the court below has been reported as Standard Bank of South Africa Ltd v The
Master of the High Court and others 2009 (5) SA 13.
biggest commercial collapse in the history of South Africa. The winding-up of
Macmed and its 45 subsidiaries and the associated litigation began slightly more
than a decade ago.
[6] Macmed was placed in provisional liquidation by the Pretoria High Court
on 15 October 1999 and a final liquidation order issued on 9 November 1999. In
the ensuing months Nel and five other persons were appointed first, as joint
provisional liquidators and then, as the final joint liquidators of Macmed.
[7] Intramed was provisionally liquidated on 29 November 1999 and finally on
16 February 2000. On 29 November 1999 the Master appointed De Villiers a
provisional liquidator of Intramed. On 3 December 1999 the Master appointed
Nel as a joint provisional liquidator along with De Villiers. On the 31 May 2000
Nel and De Villiers were appointed as joint final liquidators of Intramed.
[8] Nel was not only appointed a joint liquidator of Macmed and of Intramed
but of each of the other subsidiaries as well. It is safe to say that he was an
influential figure in the liquidation process.
[9] The liquidations of Macmed and Intramed have significant financial
importance. According to the first liquidation account Intramed has assets
exceeding R170 m. According to the amended fourth liquidation account it has
liabilities exceeding R230 m. Standard Bank is a judgment creditor of Intramed in
the amount of R107 728 463.64. Standard Bank is also a major creditor of
Macmed and a number of its other subsidiaries.
Standard Bank’s complaints
[10] Standard Bank contends that Nel and De Villiers, instead of viewing the
winding-up of Intramed as a distinct process, saw it as part of the winding-up of
the entire group and improperly deferred to Macmed and its creditors. Standard
Bank accuses Nel and De Villiers of both using, and failing to use, established
mechanisms for ensuring the proper administration of estates in liquidation. It
alleged that they acted in a manner favouring Macmed and prejudicing Intramed.
This, in the main, relates to the admission of a claim by Macmed in Intramed in
the amount of R325m.
[11] Standard bank also accuses Nel and De Villiers of misappropriating
Intramed’s funds. They are accused of improperly using Intramed’s monies to
pay costs which a court in prior litigation, in relation to an application to review
the Master’s decision to reduce their fees, had ordered them to pay personally.3
Standard Bank alleged that Nel and De Villiers had only repaid the monies with
interest, after this fact had been uncovered by Standard Bank, and after it
persisted in holding them to account.
[12] Furthermore, Standard Bank complains that a fee-sharing agreement
between the liquidators of Intramed and the liquidators of Macmed was such, as
to militate against a proper administration of Intramed’s insolvent estate.
Standard Bank asserts that Nel faced a conflict between his duty to Intramed and
his duty to Macmed and what ultimately became his personal interest in both.
[13] It is necessary at this stage to proceed to consider the material details of
Standard Bank’s case, and to examine the response by Nel and De Villiers.
The R325m claim
[14] The present litigation arose principally, because of the differing views
taken by Standard Bank on the one hand, and Nel and De Villiers on the other, in
relation to the claim of R325m by Macmed in Intramed. That dispute has
3 For the background and litigation history in relation to their fees see Nel and another NNO v The
Master (Absa Bank Ltd and others intervening) 2005 (1) SA 276 (SCA).
telescoped into one concerning the nature of the acquisition of the three
businesses from South African Druggists (SAD), described above.
[15] As stated, Macmed conducted its business through subsidiaries, including
Intramed. The acquisition of the three businesses was structured so as to obtain
maximum tax advantage for the group. This was done by way of more than
twenty interlinked and extremely complex agreements.
[16] It is common cause that the agreements, which do not form part of the
record of the proceedings, are extremely voluminous and complex and involved
many parties. The terms of the agreements were sought to be explained in a
letter dated 29 June 1999 from the company purportedly financing the
acquisition, namely, Peregrine Finance (Pty) Ltd (Peregrine) to Absa Corporate
Bank. I shall, for convenience, refer to the agreements as the Peregrine
structure. The following, in summary, is what is recorded in the letter:
(i)
The Macmed group is in the process of finalising the acquisition of certain
businesses from South African Druggists Ltd at an all in cost of approximately R400 m.
The businesses would be acquired directly by Macmed’s subsidiary companies,
including Intramed.
(ii)
The financing options were either inter-company or external funding. Peregrine proposed
a transaction in terms of which the purchasers, including Intramed, would obtain external
funding. The proposal entailed Peregrine providing the purchasers a loan with a ten-year
fixed interest rate. The loan entitled Peregrine to subscribe for ordinary shares in each of
the purchases, in the loan amount at maturity date.
(iii)
Peregrine would cede and assign all its rights and obligations in terms of the loan
agreements to Willridge Investments (Pty) Ltd (Willridge), a trader in financial instruments
and a subsidiary of Peregrine, for a purchase consideration of R401 m. At the inception
of the transaction Willridge would forward sell the ordinary shares arising on conversion
to investors, for delivery after ten years, for a consideration of R40 m, payable on
signature of the agreement. Macmed would be offered an investment opportunity in ten-
year fixed rate compulsory redeemable preference shares to be issued by Leoridge
Investments (Pty) Ltd, a subsidiary of Peregrine and a preference share investment
company. The preference shares would bear a market related dividend yield with
dividends payable semi-annually in arrears.
(iv)
Peregrine would advance conventional loan funding in the amount of R275m to Willridge
for a period of ten years. In terms of the loan agreement interest and capital would be
repayable in equal instalments over the term thereof.
(v)
Macmed would make a security deposit with Willridge in the amount of approximately
R160m for a period of ten years. In terms of the deposit, Macmed would be entitled, but
not obliged, to withdraw funds on a semi-annual basis in equal tranches over the
term thereof.
(vi)
Willridge would provide the purchasers with an additional loan facility in the amount of
approximately R75m in terms of which the capital would be drawn down semi-annually in
equal trances over a ten-year period. In terms of the additional loan facility, the interest
rate would be fixed at a market related rate and the interest and capital would be
repayable at maturity. The purpose of the additional loan facility is to provide purchasers
with ongoing working capital for the performance of its business operations over the term
ie ten years. The loan facility would be utilised in the production of income.
(ix)
Macmed would be granted a put option by Willridge to put the preference shares issued
by Leoridge to Willridge, in the event of a default by Leoridge.
(x)
Holdings would issue a guarantee to Macmed in respect of all of the Peregrine
companies’ obligations.
[17] It appears from this letter that what was envisaged, were loans by
Peregrine to each of the subsidiaries. It is equally clear from the letter that inter-
company funding was rejected as an option. Put simply, if the letter is to be
believed, it means that a loan by Macmed to the subsidiaries was not the chosen
or preferred option.
[18] That notwithstanding, on 10 May 2000, the liquidators of Macmed proved
a claim in Intramed of R325m on the basis that it was an amount owed by the
latter to the former in respect of the acquisition of the relevant business from
SAD. Nel and De Villiers were instrumental in the claim being admitted by the
Master. It is common cause that the purchase price of the business was in fact
R324 880 000. Thus, the claim of R325m lodged on behalf of Macmed was an
amount of R120 000 in excess of the actual price of the business so acquired.
[19] To properly appreciate and address the present dispute, flashbacks and
switching between different time periods are regrettably, intermittently necessary.
[20] The Peregrine structure took effect on 18 June 1999 when an amount of
R325m was advanced by Peregrine to Intramed. Peregrine, in turn, subscribed
for shares in Intramed at a subscription price in the amount of the purchase price.
The capital sum would be repayable on 18 June 2009 but would be set-off
against Peregrine’s obligation to pay the subscription price. On the same day that
it received the R325m from Peregrine, Intramed transferred that amount to
Macmed. It is common cause that before the money was advanced by Peregrine
to Intramed, Macmed provided the R325m to Willridge, a Peregrine subsidiary.
[21] Standard Bank adopts the position that, in supporting the claim Nel and
De Villiers ignored the Peregrine structure, the accounting records of both
Macmed and Intramed prior to the winding-up (which did not reflect a loan by the
former to the latter), and evidence at the enquiry in relation to the winding-up of
Macmed, where none of the witnesses confirmed the existence of the loan but
rather where uncertainty was expressed concerning it.
[22] It was alleged on behalf of Standard Bank that subsequent to the winding-
up of Intramed, and after the appointment of Nel and De Villiers as liquidators, an
entry was made in the accounting records of Intramed reflecting a loan of R325m
by Macmed to Intramed and that this could only have been done at their
instance. The auditors qualified their report by stating that they were unable to
verify the loan or confirm the amount owing to Macmed.
[23] It was pointed out that it is unusual for a claim of the size and nature of
Macmed’s claim to be admitted to proof without reference to supporting
documentation and/or evidence. On the other hand, one finds supporting
documentation that shows Intramed receiving R325m from Peregrine and then
transferring it back to Macmed.
[24] It was contended that the Peregrine structure had the effect that the R324
880 000 required for the acquisition of the Intramed business would never have
to be repaid by Intramed other than from the proceeds of its share issue.
[25] An interest payment on the loan was made by Intramed to Peregrine on
17 September 1999, in the sum of R30 908 760, ostensibly in terms of the
Peregrine structure. This is reflected in one of Intramed’s bank statements. This,
it is contended, is proof of the execution of the Peregrine structure in respect of
which Peregrine is the creditor and Intramed the debtor.
[26] Standard Bank pointed to the fact that a share certificate was issued to
Macmed on 18 June 1999 for 2000 shares in Leoridge Investments in respect of
which stamp duty of R500 000 was paid as yet another example of the execution
of the Peregrine structure.4 Nel and De Villiers responded that this was a small
price to pay to perpetuate a sham.
[27] Standard Bank refers to the fact that the Macmed parties had to pay
Peregrine an amount of R3 300 000 every six months for putting the Peregrine
structure in place. This assertion was, in effect, unchallenged. The first six-
monthly payments appear to have been made.
4 See para (iii) of the Peregrine letter referred to in para 16.
[28] It was contended that Macmed has no legitimate claim against Intramed
and that Nel and De Villiers supported the claim to Intramed’s detriment and for
their personal benefit.
[29] Nel and De Villiers adopted the attitude that the Peregrine structure was a
simulated transaction and that the true transaction was a R325m loan from
Macmed to Intramed. It was submitted on their behalf that if that were not so, it
would mean that Intramed would have received a business from SAD without
giving any value in return. They point to the fact that Macmed supplied R325m to
a Peregrine subsidiary, which amount was, in turn, provided by Peregrine to
Intramed. They contend that the R325m was then utilised by Macmed to pay
SAD for the business to be housed in Intramed. Their response in respect of the
accounting records will be dealt with in due course.
[30] It is necessary to record that during May 1999, before the liquidation of
Macmed, it took an opinion from one of the leading tax experts in South Africa,
concerning the legality (and tax effectiveness) of the Peregrine structure. The
opinion concluded that the Peregrine structure was not assailable by the South
African Revenue Services. No concern or reservation was expressed about its
genuineness.
[31] Mr Carel Braam Viljoen, who represented Peregrine at the time that the
Peregrine structure was put in place, testified during the enquiry into the affairs of
Macmed in terms of s 417 of the CA. He also testified in the course of a trial
between Intramed and Standard Bank. At no time did he state that the
transaction was a sham, nor was it ever put to him that it was a simulated
transaction. In an affidavit in the present case in support of Standard Bank’s case
Mr Viljoen states:
‘Had such a proposition been put to me I would have truthfully answered that it was not a
simulated transaction and that the agreements constituting the Peregrine structure correctly
reflected the intentions of the parties thereto.’
[32] Mr Hanson, a director of Macmed, who signed the Peregrine agreements,
both on behalf of Macmed and Intramed, testified at the Macmed enquiry that the
agreements were genuine. He provided an affidavit in support of Standard
Bank’s case and repeated that evidence. Nel’s response to Hanson is that he
was one of the Macmed directors who perpetrated a massive fraud on Macmed
and that he cannot be believed.
[33] During May 2000 the joint liquidators of Macmed sought an opinion from
two senior advocates on whether the Peregrine structure was a simulated
transaction and on the effect of liquidation on it. The following is stated in the
opinion:
‘The companies intended to achieve precisely that which the primary purpose of the financing
structure was aimed at. We found nothing in the contracts to suggest that the parties had a
disguised intention. In this case there is a complete correspondence between the “…truth of the
matter…” on the one hand and the writing on the other. Any attempt at the application of the
maxim “plus valet quod agitur quam quod simulate concipitur” to the facts of this case will be
fruitless. The Financial structure is not simulated.’
[34] This opinion was sought at the time that the Macmed claim was in the
process of being admitted to proof by the Macmed liquidators. Either the claim
preceded the opinion or was proved despite the opinion. It was at the very least
persisted in, despite the opinion.
[35] The following conclusion by counsel in respect of the effect of liquidation is
not unimportant:
‘We are of the opinion that the liquidators are unlikely to undo the effects of the set-off or to
recover any equity pursuant to any possible unwinding of the financial structure in any of the
companies in the Peregrine interests.’
[36] Not content with this opinion, the Macmed liquidators took another, from
two other counsel, which was supplied at the end of August 2000. Counsel
considered the prior opinion and concluded that the agreement was a simulated
transaction. The following is one of the listed bases for concluding that the
agreement was a sham:
‘Ex facie Intramed’s financial records, Macmed made a direct loan to it in an amount of R325
million’.
[37] Another listed reason for the second opinion reads as follows:
‘The R325 million apparently advanced by Macmed to Intramed for the acquisition of the business
was reduced by set-off on loan account’.
[38] It is necessary to record that the second opinion is equivocal about the
effect of the liquidation on the Peregrine structure.5 Importantly, the material part
of the last paragraph of the second opinion reads as follows:
‘In the premises we conclude that Consultant has a better prospect of pursuing the claims against
Intramed based on the direct loan reflected in the latter’s books of account.…’
All of this highlights that the book entries played a significant role in the
conclusion reached in the second opinion concerning the legality of the Peregrine
structure.
[39] The following extract of the evidence of Mr Viljoen (from the enquiry into
the affairs of Macmed), which was referred to in the second opinion obtained by
the liquidators of Macmed, reveals that the money that was supplied by
Peregrine to Macmed emanated from Macmed. However, Mr Viljoen continues to
explain the transaction as follows:
‘Its an alternative to the conventional loan funding. So, in other words, it’s a back-to-back
transaction. They invest in our preference shares, the security deposit and the forward sale of
shares. We then utilise that money that they have given us to give a loan to their subsidiary…’.
[40] This explanation appears to be in line with what is set out in paragraph (iii)
of the Peregrine letter, (para 16 above), which contemplates Macmed receiving a
dividend payable semi-annually.
5 This is dealt with under the heading THE EFFECT OF THE LIQUIDATION OF THE MACMED
GROUP UPON THE STRUCTURE in paras 56-62 of the second opinion.
[41] Possessed of two contradictory opinions, the liquidators of Macmed
obtained yet another legal opinion. The third opinion, which is approximately four
and a half pages long, refers to Mr Viljoen’s evidence, the material part of which
is set out above, and then agrees with the view expressed in the second opinion,
namely, that the Peregrine structure was a simulated transaction. The second
opinion records the following:
‘Consultants will obtain no benefit from regarding the structure as a simulated transaction,
cancelling the agreements constituting the structure or enforcing the agreements constituting the
structure.’
This motivation is significant.
[42] It is clear that Nel was instrumental in the decision by the liquidators of
Macmed to lodge a claim in Intramed. No opinion on the Peregrine agreement
was sought by Nel and De Villiers on behalf of Intramed. Standard Bank
contends that neither Nel nor De Villiers took into account the Intramed
perspective.
[43] Insofar as bookkeeping entries are concerned, what is set out hereafter is
important. Up until the end of October 1999, almost three and a half months after
the Peregrine structure took effect, neither the Macmed nor Intramed financial
records, including Intramed’s balance sheet, reflected a loan of R325m. Macmed,
it will be recalled, was placed under provisional liquidation on 10 October 1999
and final liquidation on 9 November 1999. It is therefore clear that, until then, no
loan to Intramed was reflected in its books of account.
[44] According to a chartered accountant, Mr Deon Millson, who was employed
by Deloitte & Touche at the time and who had been engaged by the financial
director of Intramed to examine the Macmed/Intramed inter-company accounts, it
appears that an entry reflecting the loan was first made in Intramed’s books of
account on 8 December 1999. This was after Intramed had been placed in
provisional liquidation and after De Villiers and Nel had been appointed joint
provisional liquidators and had taken charge of the books of account. According
to Nel, neither he nor De Villiers gave instructions to the auditors, Deloitte &
Touche, to pass entries to reflect the loan.
[45] The audited financial statements of Intramed for the nine months ending
28 November 1999 (the day before Intramed’s liquidation) disclose Macmed as a
creditor of Intramed in respect of the alleged loan of R325 m. These statements
bear the signature of Nel and De Villiers and are dated 15 January 2000 but
appear, from what is said both by the principal deponent on behalf of Standard
Bank and Nel, to have been signed a few weeks later. Deloitte & Touche
qualified these financial statements signed off by Nel and De Villiers as follows:
‘We were unable to confirm the amount owing to Macmed Healthcare Limited as at 28 November
1999 …’
[46] In a letter dated 10 December 1999 Deloitte & Touche state the following:
‘It appears that R325m was borrowed from Peregrine Finance to repay Macmed for the purchase
price of the Intramed business … Based on discussions with Braam Viljoen of Peregrine Finance
and Johan Muller of Macmed, it is our understanding that the Peregrine loan was part of a group
financing scheme which was automatically set-off on liquidation of Macmed. The full R325m
would therefore appear to be payable to Macmed by Intramed. This matter is yet to be resolved.
The R100m raised by the BoE bond has been offset against the R325m.’
Essentially, this is repeated in a letter dated 8 February 2000.
[47] In the review application referred to in para 11 above Mr Nel stated the
following in his founding affidavit:
‘20.12.1 The Intramed books of account were properly kept to reflect the trading assets and
transactions. However the books of account incorrectly reflected the acquisition of the Intramed
division and the funding thereof.
20.12.2 The books of account, as at the liquidation date, were correctly written up and adjusted
under the control of the liquidators to reflect the audited position of it at date of liquidation. This
audit was finalised during February 2000 under the control of the liquidators.’ (My emphasis.)
[48] In the present case, Nel, in his answering affidavit states the following:
‘299.3 It is the duty of liquidators to take control of all assets and business interests, including
the books and records at date of liquidation, which De Villiers and I did on our appointments.
299.4
Therefore, anything that happens after date of liquidation, happens under our control. I
admit that the books and records were brought up to date and audited on our instructions and
under our control.
299.5
It does not follow that we influenced the structure or content of the books and records of
Intramed and the audit thereof. We deny and take exception to the reference that we caused the
Intramed books to be “corrected”.’ (My emphasis.)
[49] For completeness it is necessary to record that Mr Pereira one of the joint
liquidators of Macmed in his affidavit filed in support of proof of Macmed’s claim
in Intramed stated that from evidence and documents at the enquiry, the joint
liquidators of Macmed established that on 18 June 1999 Macmed had lent and
advanced the sum of R325m to Intramed. There were no supporting documents
or evidence annexed to the affidavit. There was no reference to the Peregrine
structure at all. This fact was therefore not brought to the attention of the
presiding officer or the Master. Mr Pereira supplied a confirmatory affidavit from
an attorney who was advising both the joint liquidators of Intramed and of
Macmed.
The charge of misappropriation of Intramed funds
[50] During December 2001 Nel and De Villiers, purporting to act in their
capacity as joint liquidators of Intramed, launched an application in the
Grahamstown High Court, to review and set aside the Master’s ruling that they
were entitled to a total remuneration of only R3 250 000 in respect of the
winding-up of Intramed. They sought an order declaring that they were entitled to
the ‘tariff amount’ of remuneration in the amount of R21 049 941.74.6 Nel and De
Villiers did not seek the leave of the court to have the costs of the review
application paid out of Intramed’s funds. In that application five major South
African banks were intervening respondents, all of whom were substantial
6 This application has briefly been alluded to in para 11 above.
creditors of Macmed or Intramed. They all supported the Master’s ruling.
Standard Bank was one of the intervening respondents.
[51] On 31 October 2002 a full bench of the Grahamstown High Court
(Froneman J, Pillay AJ concurring), dismissed the application and ordered that
the costs be paid by Nel and De Villiers personally. By this time an amount of
R689 747.91 had been paid out of Intramed funds in respect of the review
application.
[52] Aggrieved by the decision of the full bench, Nel and De Villiers appealed
to this court. The appeal was dismissed on 1 April 2004. Van Heerden AJA said
the following:
‘[43] As I have indicated above, the appellants purported to bring their review application in their
capacity as the duly appointed joint liquidators of Intramed, contending that they were duly
authorised in such capacity to institute the review of proceedings. As correctly pointed out by the
Master in his answering affidavit, the appellants failed to annex any evidence which supported
this contention. The review proceedings were in fact proceedings which should obviously have
been brought by the appellants in their personal capacity and not in their capacity as joint
liquidators ─ the proceedings relate to their entitlement to remuneration and not to a matter falling
within the ambit of their role as liquidators of the Intramed estate. As contended by counsel for
both the Master and the intervening respondents, the appellants were simply seeking to secure a
higher fee for their services than that fixed by the Master. In so doing, they were acting in their
personal capacities and not in any sense in the interests of the creditors of the Intramed estate.
Indeed, the appellants were ─ and still are ─ acting against the interests of the creditors, solely
for their own benefit. This being so, there is no reason whatsoever why the costs of the review
application or of the appeal should be borne by the company in liquidation.’7 (My emphasis.)
[53] It is admitted by Nel and De Villiers that, before and pending the appeal to
this court against the decision of the Grahamstown High Court, Intramed’s funds
were used to pay the costs of the application to review the Master’s ruling. From
the time of the judgment of the full bench up until the time of the exchange of
heads of argument in this court a further amount of R114 761.59 was paid out of
7 Op cit fn 2.
the funds of Intramed in respect of the review application, bringing the total paid
from Intramed’s funds to R804 419.50.
[54] On 6 August 2003, pending the appeal to this court, the Master wrote to
Nel and De Villiers querying the payment of costs for which they were personally
liable out of Intramed’s funds. The Master asked why these costs were reflected
in the estate account and why estate funds were used to pay them.
[55] On 25 August 2003 De Villiers replied to the Master’s query. It is
necessary to quote the material parts of the letter:
‘1
Kindly return to me all vouchers in respect of legal costs and I will separate legal costs
pertaining to the Joint Liquidators’ remuneration review proceedings against the Master from
other legal costs. To the best of my recollection, no legal costs relating thereto incurred
subsequent to the judgment issued on 31 October 2002 have been paid ex the Joint Liquidator’s
banking account.
2.
Legal costs paid ex the Joint Liquidators banking account, which were ordered against
the Joint Liquidators personally, are in addition to the quantum of the Joint Liquidators’
remuneration the subject of appeal.
3.
Leave to appeal was granted on 5 December 2002.
4.
Should the Appellate Division rule against the Joint Liquidators in the appeal
proceedings, the Joint Liquidators will then be obliged to refund to the estate the costs of the
review proceedings.
5.
No legal costs relating to the review proceedings have been paid ex the Joint Liquidators’
banking account.’
[56] Standard Bank contended, with some justification, that Nel and De Villiers
appear in the letter to both admit and deny that costs were paid from the
Intramed funds under their joint control. Furthermore, so Standard Bank
submitted, words such as ‘to the best of my recollection’ are deliberately
obfuscatory. Given the liquidators’ obvious expertise in the field, coupled with
their duty in terms of s 393(1) of the CA to keep a cash book, one would,
according to Standard Bank, expect a more considered and precise response.
[57] On 10 May 2004, eight and a half months thereafter, and after the
judgment of this court, De Villiers wrote to the Master once again, this time more
emphatically. The relevant part of the letter reads as follows:
‘Legal costs paid ex the Joint Liquidators’ banking account were paid prior to the Judgment
issued on 31 October 2002.’
This we now know to be untrue.
[58] On 20 January 2005, seventeen months thereafter, De Villiers, in a letter
in response to a query by Standard Bank, wrote the following:
‘Legal costs relating to the review proceedings per the Fourth Liquidation and Distribution
Accounts, which were all incurred prior to 31 October 2002, were analysed and have been repaid
to the estate by the Joint Liquidators.’
We now also know that outstanding monies, including interest, were finally repaid
on 25 August 2005.
[59] When, at the outset, the Master challenged Nel and De Villiers’ authority
to bring the review application in Intramed’s name, they responded by stating that
they were acting in their official capacity as liquidators and consequently had
authority to do so. It is equally clear that they were not specifically authorised to
do so but purported to act in terms of the general authority of liquidators to litigate
on behalf of the estate being wound-up.
[60] Even after it became clear to everyone that repayments were due by Nel
and De Villiers it took approximately 16 months after the dismissal of the appeal
by this court before they repaid the total owing to the Intramed estate. According
to Nel and De Villiers, this was, inter alia, due to protracted correspondence with
PriceWaterhouseCoopers (PWC) in whose employ Nel had formerly been. There
appears to have been an arrangement between Nel and PWC in relation to the
fees earned from the Macmed liquidation. The further complication was the fee-
sharing arrangement between Macmed’s joint liquidators. It appears that they
had agreed to share both the fruits and the liabilities that might ensue from the
review application. Their contribution to the costs in the review application also
had to be recovered. These aspects will be dealt with further when the fee-
sharing arrangement is discussed later in this judgment.
[61] Perhaps, because of what is set out at the end of the preceding
paragraph and because of Standard Bank’s persistent efforts to extract every
cent, including interest due to the Intramed estate, the repayment took place in
drips and drabs over the period 7 June 2004 to 25 August 2005.
[62] The following is noteworthy. Standard Bank initially proved a claim in
Intramed at the first meeting of its creditors held in Port Elizabeth on 10 May
2000 in an amount of R107 728 463.64. Almost six months later, on 2 November
2000, Nel and De Villiers lodged a report with the Master in accordance with the
provisions of s 45 of the Insolvency Act, in terms whereof they requested him to
expunge the applicant’s claim. The challenge by the liquidators to the validity of
the claim, ironically, was based on a lack of authority, namely that the
agreements on which Standard Bank relied had not been executed in
accordance with the terms of Intramed’s articles of association and that those
who signed the agreements lacked authority. On 12 January 2001 the Master
expunged Standard Bank’s claim in Intramed. This led to litigation. Standard
Bank was successful in the trial that ensued ─ on 20 August 2004 the
Johannesburg High Court delivered judgment in its favour. This led to Standard
Bank being reinstated as a creditor. From 12 January 2001 to 20 August 2004
Standard Bank had lost its status as a proved creditor in Intramed and
consequently lost the right to vote at or call meetings of creditors. Costly and
protracted litigation also ensued between BoE bank and Nel and De Villiers,
acting in their capacities as liquidators of Intramed in relation to the expungment
of BoE’s claim of R100 m. Similarly, the question in that case was whether the
loan agreements and the underlying securities, in respect of which Intramed was
ostensibly a party, were duly authorised. BoE bank was successful in the Port
Elizabeth High Court and on appeal to this court.8
[63] Standard Bank submits that in dealing with the two claims referred to in
the preceding paragraph Nel and De Villiers were intent on careful scrutiny of
existing valid documents, because of the unstructured relationship between
Macmed and Intramed prior to liquidation, whereas they admitted Macmed’s
claim of R325m without any substantiating documents and in the face of
controverting evidence.
[64] In responding to Standard Bank’s objection to the fourth account, inter
alia, on the basis of what Standard Bank alleged was the misappropriation of
funds in relation to the review application, De Villiers in a letter dated 10 May
2004, wrote the following:
‘Before doing so I reiterate that Standard Corporate and Merchant Bank (SCMB) are not a proved
creditor in the above estate. You have disallowed their claim pursuant to the provisions of section
45(3) of the Insolvency Act and Regulation 3 of the Regulations framed under the Insolvency Act
… SCMB are consequently not a proved creditor and therefore do not have locus standi to lodge
objection to the account.’ 9
Here, instead of simply dealing with the merits of the objection, which involved an
important matter of principle, Nel and De Villiers dealt with Standard Bank’s locus
standi.
[65] Nel and De Villiers, in dealing with the charge that they had improperly
used Intramed’s funds in the review application, state that they believed that they
were acting on authority and furthermore that they had done so on legal advice
that they were entitled to bring the application in Intramed’s name.
[66] Nel states further, that the advice he received, subsequent to the
judgment of the full bench, was to the effect that since the whole of the judgment
8 See the judgment of this court in De Villiers and another NNO v BOE Bank Ltd 2004 (3) SA 1
(SCA).
9 This refers to the expungment of the claim described in para 62.
and cost order was on appeal to this court there was no reason to repay the
amount in respect of the review application at that stage.
[67] Revealingly, in dealing with the issues raised in the review application, Nel
states the following:
‘In bringing the review application, we were assisted and advised by Tabacks Attorneys and
senior and junior counsel. They advised us that the application ought to be brought in our official
capacity. We are not lawyers, and had no reason not to accept their advice. After the judgment in
the First Court had been delivered, we again sought advice. We separately obtained advice from
three eminent silks. The weight of advice, which we received, was that an appeal ought to be
lodged and that it had good prospects of success. It was implicit in the advice that it was not
wrong for us to have brought the review in our official capacities. Again, we had no reason not to
accept it. …’ 10 (My emphasis.)
[68] We were informed by counsel representing Nel and De Villiers that one of
‘the eminent silks’ had advised against the appeal. This must mean that they had
been advised by at least one eminent senior counsel that the prior and continuing
use of Intramed funds was improper.
[69] Notwithstanding that fact and what this court had said concerning the
review application as set out in para 52 above Nel states adamantly and
unrepentantly that Standard Bank and the intervening creditors were, ‘at all times
aware of the fact that De Villiers and I launched the application in our official
capacities’.
[70] In the present case Nel submitted that the Grahamstown High Court and
Macmed did not make a specific ruling in relation to the application being brought
in their official capacities, but merely held that the Master’s view in this regard
could be addressed by way of an appropriate cost order.
[71] Tellingly, Nel states the following in his answering affidavit:
10 In the reproduction of the quote I have omitted the names of the legal practitioners referred to.
‘De Villiers and I were led to believe that this was a landmark case and the outcome was in the
best interest of the insolvency profession, the Master and creditors and more particularly financial
institution creditors and therefore the costs would be costs in the liquidation.’
I shall deal with the implications of this statement in due course.
[72] Insofar as interest on the Intramed monies is concerned, the following
statement by Nel in his answering affidavit is significant:
‘I accept that the repayment could have been made sooner after the outcome of the appeal and it
is for this reason that De Villiers and I have decided to pay interest on the amount paid in respect
of the costs of the fees review, although we have not been called upon to do so by the Master.
Initially I was of the view that, as we had not been called to pay interest at the time by the Master,
no interest should be payable. However, this view has changed on the advice of our legal
advisors and interest has now also been repaid.’
[73] It is worth noting that despite the negative outcomes in the review litigation
and the criticisms of this court, Nel and De Villiers nonetheless, in resisting the
application for their removal in the court below, initially did so in the name of
Intramed. Thankfully they did not persist in doing so.
The fee-sharing arrangement
[74] It is necessary to deal briefly with this aspect of Standard Bank’s case.
According to Nel, the fee-sharing arrangement between himself and De Villiers in
regard to the Intramed estate was a 42.5/57.5 per cent split in favour of the latter,
who was responsible for the day-to-day administration of the Intramed estate. Nel
states that there was a fee-sharing arrangement between the joint liquidators of
Macmed and those of all of the 45 subsidiary companies. It is these fee-sharing
arrangements that Standard Bank contends were improper and predictably gave
rise to the conflict that Nel and De Villiers could and should have foreseen and
avoided.
[75] In its founding affidavit the bank articulated its concern about the
‘conclusion of fee-sharing or other financial arrangements with persons who are
not liquidators of Intramed but who are liquidators of Macmed, a proved creditor
of Intramed, but whose claim is disputed by the applicant’.
[76] At that stage the bank was not aware of the nature or terms of the fee-
sharing arrangements. It was uncertain about its very existence.
[77] For present purposes it is necessary to record in some detail what is said
by Nel at various places in his answering affidavit in relation to the fee-sharing
arrangement. First:
‘The joint liquidators of Macmed, because of their direct and indirect involvement in the
investigation, interrogation and administration of the Macmed Healthcare Ltd group entered into a
fee sharing agreement amongst them. This agreement took place in the first week of taking
control of Macmed and its group of subsidiary and associated companies. It did not include any
other joint liquidators appointed with anyone of them in any of the subsidiary liquidated
companies and therefore had no bearing on the carrying out of their duties as joint liquidators in
each of the liquidated companies in which they were appointed. The fee sharing agreement took
place before the liquidation of the subsidiary group companies, including Intramed.’
[78] At another juncture, the following is stated:
‘It is common practice in group estates for liquidators to agree to share fees. The association of
Insolvency Practitioners of SA, the professional body regulating the affairs of the insolvency
practitioners, recognises the sharing of fees amongst liquidators.’
Particulars about what is sanctioned by the Insolvency Practitioners of SA are not
provided.
[79] Later, the following appears, in relation to the review application:
‘166.1 De Villiers repaid 57,5% of the funds, because he would have received 57,5% of the fees
had the application to Court been successful.
166.2
PWC repaid 42,5% of the funds because PWC would have received 42,5% had the Court
application been successful.
166.3
PWC repaid the funds as a result of the relationship between myself and PWC as
explained herein above.
166.4
PWC had to recover the funds from the joint liquidators of Macmed because of the fact
that the said joint liquidators would have shared in the fees in the proportion of one sixth of 42,5%
each, had the application to Court been successful. This was done pursuant to the fees
agreement between the joint liquidators of Macmed as explained in the above paragraphs.’
[80] For reasons that will become apparent there is no need to deal with every
complaint by Standard Bank concerning the fee-sharing arrangement.
The rejection of a request for a meeting
[81] This complaint by Standard Bank relates to the admission of the claim of
R325m by Macmed in Intramed. On 14 October 2004 Standard Bank requested
that a meeting of creditors be convened by Nel and De Villiers with a view to
interrogating the validity of the claim. If the Macmed claim were to be discounted
then Standard bank would, in terms of the size of its claim of R107 728 463.64,
overwhelmingly have represented the greater part of the total value of all claims
proved against the estate. Even if the Macmed claim were taken into account the
Bank’s claim would exceed one-fourth in value of the total of the proved claims.
[82] On 27 October 2004 the request was rejected by Nel and De Villiers as
follows:
‘No purpose will be served by either debating the issue by way of correspondence or by calling a
meeting of the Intramed creditors.’
[83] In a letter to the Master dated 22 November 2004 Nel and De Villiers said
the following:
‘Standard Bank is of the view that the joint liquidators of Intramed should call a meeting of proved
creditors of Intramed to debate the issues raised in their letter dated 14 October 2004. The joint
liquidators of Intramed, in their letter dated 27 October 2004, advised Standard Bank that they are
of the view that no purpose will be served by calling a meeting of the Intramed creditors. We are
still of same view, not only that it will serve no purpose by calling a meeting of Intramed creditors,
but because, if we accept that Macmed, as proved creditor, can vote at the said meeting, that the
creditors in value will vote against the joint liquidators of Intramed bringing an application to set
aside the Macmed claim. In addition, the minority concurrent creditors, because of the complexity
of the Peregrine agreements, (26 agreements in all) would not understand nor interpret the legal
issues raised therein or as presented by Macmed and/or Standard Bank. The costs of such
expungement application would be prohibitive and would, as a result of the protracted Court case
without any clear indication of success, absorb most of the benefits which the concurrent
creditors may expect in the event the Macmed claim is not expunged by the Courts. There are
various other scenarios that would be introduced to the equation in the event of Macmed claim is
expunged one of which is the introduction of a new creditor Willridge (Peregrine) claim for an
amount of R325m.’
[84] With reference to s 41 of the Insolvency Act11 24 of 1936 (the IA), the
Court below held that Nel and De Villiers were mistaken in not recognising that
they were obliged to call the meeting at the request of a creditor representing
one-fourth of the of the value of all claims proved. The Court below held further,
that Nel and De Villiers were mistaken about Macmed being able to outvote
Standard Bank. Section 52(6) of the IA provides:
‘[A] creditor may not vote on the question as to whether steps should be taken to contest his
claim or preference.’
It went further, stating that the fact that the issue had been debated before was
no basis for refusing to convene a meeting to decide it. Finally, the Court below
was critical of the attitude adopted by Nel and De Villiers that the minority
concurrent creditors would not understand the complexities of the Peregrine
structure, stating that it was irrelevant to the decision whether to convene a
meeting or not.
[85] However, the Court below did not consider the failure to call a meeting a
sufficient basis for the removal of Nel and De Villiers. The court concluded that
Standard Bank’s complaint concerning the R325m claim was without foundation
as the two liquidators acted on legal advice as they did in respect of the use of
Intramed funds in the review application. Furthermore, the court below held that
no prejudice had been suffered by the estate as all the monies had been repaid.
11 Section 41 provides: ‘The trustee of an insolvent estate may at any time and shall, whenever
he is so required by the Master or by a creditor or creditors representing one-fourth of the value of
all claims proved against the estate, convene in the manner prescribed by subsection (3) of
section forty, a meeting of creditors (hereafter called a general meeting of creditors) for the
purpose of giving him directions concerning any matter relating to the administration of the estate
and shall state in such notice the matters to be dealt with at that meeting.’
However, the court below erred in stating (at para 7) that the capital amount
owing had been repaid by August 2004. It was in fact only repaid a year later.
The
court
below
concluded
that
the
fee-sharing
arrangement
was
unobjectionable. The present appeal is directed against all these conclusions.
Failure to prove an Intramed claim of R100m in Macmed
[86] This relates to three loans made by BoE bank to Intramed totalling
R100 m, which Intramed, in turn, lent Macmed. This complaint, as will become
evident, is inextricably linked to the disputed claim.
[87] As indicated in para 62 above, BoE bank initially proved its claim in the
amount referred to in Intramed but this claim was later expunged by the Master
at the instance of Nel and De Villiers. This led BoE to institute an action in the
Port Elizabeth High Court in which it succeeded in establishing its claim. Nel and
De Villiers appealed that decision but this court dismissed the appeal.12
[88] After the judgment of this court the result was that Intramed owed BoE
R100m while Macmed contended that it was owed R325m by Intramed. Nel and
De Villiers took the view that set-off applied and that Macmed’s claim in Intramed
stood to be reduced to R225m. This, of course, assumes the validity of the
Macmed claim. Consequently, Nel and De Villiers refused to prove Intramed’s
claim of R100m in the Macmed estate. Once again, the court below considered
that Nel and De Villiers, acting on legal advice, did not behave improperly.
Other material facts
[89] In dealing with Standard Bank’s complaint that the amount of R325m was
R120 000 more than the actual purchase price of the business which was
R324 880 000, Nel and De Villiers merely state that the amount was an
12 See note 6.
approximation and has been reduced to R225 m. This is a reference to the
R100m set-off referred to in the preceding paragraph. There is therefore, in
effect, no explanation for the excessive claim. The claim of R225m, it should be
added, even allowing for the set-off still exceeds what can legitimately be claimed
by approximately R120 000.
[90] In respect of the Macmed claim in Intramed it is necessary to record the
following. The Macmed claim was proved at the first meeting of creditors of
Intramed on 10 May 2000. It was reflected in the first and second account in
Intramed. These accounts were subsequently confirmed by the Master in 2001.
Pursuant thereto and on behalf of Intramed, Nel and De Villiers paid dividends of
R15 647 916.13 and R6 706 249.77 ─ a total of R22 354 165.90 ─ to Macmed. In
the court below, Standard Bank, wisely, did not seek to interfere with the
payment of these dividends under the first two accounts. The most recent
liquidation and distribution account in Intramed is the amended fourth account. It
was lodged with the Master by Nel and De Villiers in accordance with s 403 of
the CA and lay for inspection from 10 to 24 December 2000. It reflects an amount
of slightly less than R36m as part of the free residue account. These are monies
available for distribution to proved creditors. If, on proper examination of the
Macmed claim, it emerges to be invalid the destination of the free residue will
change significantly. It is that end which in part motivates the present litigation
exercise.
[91] In dealing with the review application in relation to their fees in the
winding-up of Intramed Nel and De Villiers are on record as stating that the
application was considered a landmark case by professional liquidators and that
they were supported in the application by their professional association.
Conclusions
[92] I shall deal first with the claim of R325m. Section 45 of the IA provides:
‘(1)
After a meeting of creditors the officer who presided thereat shall deliver to the trustee
every claim proved against the insolvent estate at that meeting and every document submitted in
support of the claim.
(2)
The trustee shall examine all available books and documents relating to the insolvent
estate for the purpose of ascertaining whether the estate in fact owes the claimant the amount
claimed.
(3)
If the trustee disputes a claim after it has been proved against the estate at a meeting of
creditors, he shall report the fact in writing to the Master and shall state in his report his reasons
for disputing the claim. Thereupon the Master may confirm the claim, or he may, after having
afforded the claimant an opportunity to substantiate his claim, reduce or disallow the claim, and if
he has done so, he shall forthwith notify the claimant in writing: Provided that such reduction or
disallowance shall not debar the claimant from establishing his claim by an action at law, but
subject to the provisions of section seventy-five.’13
[93] It is clear that once a claim is proved a liquidator is under an obligation to
examine all available books and documents. The mere admission of a claim does
not ratify it or make it res judicata.14 The importance of corroborating documents
is clear. The presiding officer is obliged to deliver every document in support of
the claim to the trustee. In the scheme of things, liquidators are required to
examine all available books and documents for corroboration or comparison. In
Estate Friedman v Katzeff 1924 WLD 298 the court, in dealing with a similar
section in the previous Insolvency Act 32 of 1916, said the following at 304:
‘In my view there can be no doubt that the word “shall” where used in sec. 43 of the Act is
peremptory and not directory, and it is therefore the duty of the Court to see that the provisions of
the Statute are complied with.’
The liquidator’s duties in this regard are therefore peremptory.
[94] In The Law of Insolvency Catherine Smith suggests that in addition to
books and documents ‘…clearly the trustee may also have regard to any
13 This section must be read with s 339 of the CA which provides:
‘In the winding-up of a company unable to pay its debts the provisions of the law relating to
insolvency shall, in so far as they are applicable, be applied mutatis mutandis in respect of any
matter not specially provided for by this Act.’
14 Bank of Lisbon and South Africa Ltd v The Master 1987 (1) SA 276 (A) at 287G.
evidence given by the insolvent and other witnesses’.15 This suggestion is apt. It
accords with the duties and obligations of a trustee referred to in para 1 above.
[95] In Estate Wilson v Estate Giddy, Giddy & White & Others 1937 AD 239 at
245 De Wet JA stated the following:
‘By virtue of section 43 of the Insolvency Act it is the duty of the trustee to examine every claim
proved against the estate and to satisfy himself that the estate is indebted to the creditor in the
amount of the claim. It seems to me that for this purpose the trustee is entitled to a clear and
unambiguous statement of the causa debiti and in this case the trustees were justified in
objecting to the contradictory statements in the proofs of debt.’
[96] In Commentary on the Companies Act16 the learned authors, under the
title Duty thoroughly to acquaint himself with the affairs of the company and to act
openly, state the following concerning a liquidator:
‘He owes a duty to the whole body of members and the whole body of creditors, and to the court,
to make himself thoroughly acquainted with the affairs of the company, and to suppress nothing
and conceal nothing, which has come to his knowledge in the course of the investigation, which is
material to ascertain the exact truth.’17
[97] Furthermore, a liquidator must act with care and diligence. In Commentary
on the Companies Act the learned authors state the following:
‘A liquidator must act with care and skill in the performance of his duties. He has a duty to
exercise particular professional skill, care and diligence in the performance of his duties, and will
incur liability if he fails to display that degree of care and skill which, by accepting office, he holds
himself out as possessing. Thus a high standard of care and diligence is required of a liquidator.
He must act reasonably in the circumstances. The test as to what is or is not reasonable in any
given circumstances is not whether the conclusion arrived at is reasonable, but is that of a
reasonable man “applying his mind to the conditions of affairs”, which means “considering the
matter as a reasonable man normally would and then deciding as a reasonable man normally
would decide”.
Relevant here is the fact that in cases of uncertainty or doubt, the liquidator has the opportunity of
safeguarding himself either by obtaining the directions of the Master or the court or by obtaining
15 Third edition 1998 at p 227.
16 M S Blackman, R D Jooste, G K Everlingham, M Larkin, C H Rademeyer, J L Yeats Vol 3 at
14─376.
17 Ex Parte Clifford Homes Construction (Pty) Ltd 1989 (4) SA 610 (W) at 614.
the directions of the creditors or members. Where, in such circumstances, the liquidator, for
example takes upon himself the burden of deciding on the validity of a claim, he also takes upon
himself the risk of its turning out that the payment constituted a misapplication of the funds under
his control.’18
[98] I have a deep sense of disquiet about the manner in which Nel and De
Villiers treated the claim of R325m. The parties were agreed that this court
cannot reach a definitive conclusion concerning the Peregrine structure and its
effect or its validity. Standard Bank submitted that the claim was not properly
assessed or interrogated.
[99] The evidence of Viljoen, the pre-liquidation accounting records of Macmed
and Intramed, the concerns expressed by Deloitte & Touche, the interest
payment of approximately R30m, the subscription for shares by Macmed and
Leoridge Investments, the stamp duties paid, the six monthly payments for
putting the Peregrine structure in place, of which R3 300 000 had already
apparently been paid, the subscription by Peregrine for shares in Intramed at a
subscription price equal to the purchase price, which meant that Peregrine
would, upon maturity date be an equity holder in Intramed, were all matters
deserving earnest consideration. It is clear that these issues were not given the
attention they deserved. Such consideration as given was perfunctory and
dismissive.
[100] In Commentary on the Companies Act the learned authors state the
following:
‘Where a group of companies is placed in liquidation, the conflicts of interest involved in acting as
the liquidator for more than one of those company may, in the circumstances, result in the court
refusing to appoint the liquidator of one of the companies as the liquidator of another or, where
that appointment has already been made, in removing him from office as liquidator of another or
other companies within the group.’19
18 Op cit 14─378.
19 Op cit 14─382.
[101] What is distressing is that Nel did not appreciate the conflict situation he
found himself in. As the liquidator of Macmed seeking to prove a contentious
claim in Intramed he was motivated by the interests of a creditor. As liquidator of
Intramed, together with De Villiers, he was obliged to consider the interests of the
debtor.
[102] In weighing up the genuineness of the claim of R325m the Intramed
perspective was improperly ignored. The conflict should have been recognised
and guidance sought on the position Nel and De Villiers found themselves in.
[103] The reliance by Nel and De Villiers on legal advice is too glib. Nel and De
Villiers informed the second and third opinions they received. The accounting
records, quite clearly, played an important role in the conclusions arrived at. Nel
is a chartered accountant and must, together with De Villiers, have been aware
of the importance of the qualification of the financial records of Intramed by
Deloitte & Touche. It was admitted that the financial statements were finalised
after Intramed and Macmed had been placed in liquidation, under the control of
Nel and De Villiers. It could not be otherwise. It does not appear from either the
second or third opinions that this fact was brought to the attention of counsel. Nor
does it appear that they were informed about the historical financial records up
until the end of November 1999.
[104] As rightly pointed out in the first opinion obtained by Nel and De Villiers, a
party alleging that the transaction was a simulated one bears the onus of proving
it.20 There is some force in Standard Bank’s contention that on the documentary
and other information available to Nel and De Villiers the scales were tipped the
other way.
[105] Furthermore, the opinion from the leading tax expert, which did not
interrogate the genuineness of the transaction, appears not to have received
20 See Zandberg v Van Zyl 1910 AD 302 at 314.
sufficient, or any, consideration. A further question arises: Why was a second
opinion sought by the Macmed liquidators, with Nel and De Villiers being the
driving force? In addition, it could rightly be asked, why, whilst in the process of
seeking the opinion or after obtaining it, they nonetheless persisted with the
claim. Despite the existence of the opinion, Nel and De Villiers as joint liquidators
of Intramed failed to dispute the claim. This was done in the face of controverting
documentary evidence and the qualification by Deloitte & Touche. This clearly
demonstrates the conflict that Nel found himself in and should have been more
attuned to.
[106] Whereas accountants are not required to have legal knowledge in general
they ought to know the importance of substantiating documents. So too, must
liquidators. The latter must at the very least have knowledge of the relevant legal
principles relating to their duties and functions. But, even if they did not in this
particular instance, their conduct was lacking in simple common sense and
devoid of logic to the extent that it is difficult to resist the conclusion that they
were improperly motivated.
[107] It is not insignificant that in the second and third opinions the prospect of
recovery from sources other than Intramed was rated as minimal. The third
opinion, which is four and a half pages long, built on the second. The reliance on
legal advice must be viewed against what is set out in the preceding paragraphs.
In my view, in respect of the claim of R325m, Nel and De Villiers did not comply
with their duties as liquidators in accordance with the standards referred to by the
authorities set out earlier in this judgment.
[108] Standard Bank’s complaint concerning the failure by Nel and De Villiers to
prove the Intramed claim of R100m in Macmed is subsumed by the complaint
concerning the R325m. If the latter claim is valid there might be justification for
set-off. But set-off only arises if the Macmed claim of R325m is valid.
[109] The failure to call the meeting of creditors relates to and impacts on the
claim of R325m. Standard Bank, having been ousted for a long time as a
participating creditor in the Intramed estate because of the expungment of its
claim, was intent on having the Macmed claim discussed and its validity debated.
The court below was correct in its conclusion concerning the decision by Nel and
De Villiers not to accede to the request for a meeting. It did not regard that fact
on its own as a basis for their removal as liquidators. In my view, the failure to
call the meeting has to be seen against the totality of the circumstances set out
above.
[110] I turn to deal with the charge of misappropriation of monies. It must be
stated at the outset that counsel on behalf of Nel and De Villiers was rightly
constrained to concede that, insofar as the use of monies for the review
application is concerned, their conduct was not beyond reproach. He submitted
that it should however be seen in context and that we should be cautious and
alive to the fact that we are now judging their conduct with the benefit of
hindsight.
[111] In 4(3) Lawsa para 236 Blackman states:
‘[A] liquidator stands in a ‘fiduciary relationship towards the company and its members and
creditors. As such, he occupies a position in some ways analogous to that of a trustee.’
[112] In Commentary on the Companies Act21 the following appears:
‘The liquidator stands in a fiduciary relationship to the company of which he is the liquidator, to
the body of its creditors as a whole, and to the body of its members as a whole.
As a fiduciary, the liquidator must at all times act openly and in good faith, and must exercise his
powers for the benefit of the company and the creditors as a whole, and not for his own benefit or
the benefit of a third party or for any other collateral purpose. He must act in the interests of the
company and all the creditors, both as individuals and as a group. He must not make a decision
which would prejudice one creditor and be of no advantage to any of the other creditors or to the
company.
21 Op cit at 14─380–14─381.
He may not act in any matter in which he has a personal interest or a duty which conflicts, or
which might possible conflict, with his duties as liquidator of the company.’
[113] It is self-evident that monies in the estate of the company being wound-up
cannot be put to private use by the liquidators. For a liquidator to act in that
fashion is the very antithesis of what should rightly be expected of a liquidator. It
is equally clear that litigation undertaken has to be in the best interest and for the
benefit of the company being wound-up.
[114] My first concern is the suggestion that the review application was seen as
a landmark case for the benefit of liquidators. The extract from Nel’s affidavit
referred to in para 71 above is instructive. It confuses or seeks to run together
the interests of the ‘insolvency profession’, the Master and creditors. Intramed’s
funds were not available for the personal benefit of Nel and De Villiers. Neither
could such monies be used to fund a test case for the liquidation industry
generally.
[115] Second, there was no specific authorisation by the creditors of Intramed in
relation to the review application and it faced opposition from the Master. As
stated by this court in relation to the review application: ‘[T]hey were acting in
their personal capacities and not in any sense in the interests of the Intramed
estate. Indeed, the appellants were ─ and still are ─ acting against the interests
of the creditors, solely for their own benefit’. 22
[116] Third, despite the judgment of the Grahamstown High Court in terms of
which Nel and De Villiers were ordered to pay the costs personally, they
nevertheless continued to use Intramed funds to pay their legal costs including
those of an appeal to this court. This was done despite the Master’s
protestations.
22 See para 52 and note 2.
[117] Fourth, despite the emphatic critical comments by this court concerning
their conduct, they failed to promptly repay the amounts they had used to fund
their personal litigation. Throughout, they demonstrated an obstinate resistance
to being held to account. At one stage, instead of dealing with Standard Bank’s
objection in principle, they sought rather to challenge its locus standi. It took
approximately 16 months after the decision of this court before all the monies
utilised were paid back.
[118] Having rightly made the concession that their conduct was not beyond
reproach counsel representing Nel and De Villiers was hard-pressed to justify or
explain their extreme tardiness in repaying the monies improperly utilised.
[119] Once again, the reliance on legal advice does not excuse the behaviour of
Nel and De Villiers. At the outset the warning lights ought to have flashed. Their
expertise and experience in matters financial ought to have made them
particularly aware that personal costs and motivations should be kept strictly
distinct from professional obligations and responsibilities and should not intrude
to contaminate the winding-up process. When two courts in succession
pronounced on their liability and responsibility they ought to have responded with
due promptitude and demonstrated appropriate contrition. The opposite
occurred. Even accepting that they had dispatched supporting vouchers to the
Master’s office the conclusion is inescapable that they demonstrated a reckless
disregard concerning the use of Intramed’s funds. Having undertaken to the
Master, when faced with his protests, to repay the legal costs if held personally
liable, one would have thought that they would have kept a separate record of
those payments, yet it appears that they did not. The question might rightly be
asked why they did not have recourse to books of account in which legal costs
would necessarily have been recorded.
[120] Months after they had been challenged on the issue they stated
unequivocally that the costs had been repaid. Years later, without the excuse of
absent vouchers, the matter remained unresolved. Had they been ordinary
litigants this would have been unacceptable. Given the high standards required
of liquidators in the winding-up of companies it is unconscionable and wholly
deplorable.
[121] We have not been supplied with the details of the policy of the Association
of Insolvency Practitioners of SA concerning fee-sharing arrangements. In his
affidavit Nel states that arrangements between liquidators, such as the one in
relation to the Macmed winding-up process, are common place.
[122] For reasons that are apparent it is not necessary to deal with every one of
Standard Bank’s complaints concerning the fee-sharing arrangements.
[123] In the present case I have a difficulty in understanding why the Macmed
liquidators had an interest in the application by Nel and De Villiers in reviewing
the Master’s ruling on their fees and why they were expected to and in fact did
contribute to the costs of that litigation. The Macmed liquidators appear to have
paid that contribution personally. That does not, however, excuse their
participation in Intramed’s affairs. The inflated fees of approximately R21m which
Nel and De Villiers consider themselves entitled to in relation to their winding-up
of Intramed would have had a serious impact on the estate. This was a matter on
which the views of the creditors ought to have been specifically sought and in
respect of which they ought to have had a say. The conflict inherent in the
situation described above was regrettably lost on Nel and De Villiers and on the
other joint liquidators of Macmed. It would be surprising if this kind of conduct
was sanctioned by their professional association.
[124] Standard Bank prays for the removal of Nel and De Villiers as liquidators
in Intramed. Section 379(2) of the Companies Act 61 of 1973 provides:
‘The Court may, on application by the Master or any interested person, remove a liquidator from
office if the Master fails to do so in any of the circumstances mentioned in subsection (1) or for
any other good cause.’
The relevant circumstances mentioned in subsec (1) are as follows:
‘(b)
that he has failed to perform satisfactorily any duty imposed upon him by this Act or to
comply with a lawful demand of the Master or a commissioner appointed by the Court under this
Act; or
…
(e)
that in his opinion the liquidator is no longer suitable to be the liquidator of the company
concerned.’
[125] In Hudson and others NNO v Wilkins NO and others 2003 (6) SA 234 (T)
(at para 13) the following appears:
‘[13]
A liquidator may be removed from office if there is sufficient suspicion of partiality or
conflict of interest, since a liquidator must be and appear to be independent and impartial. He or
she must be seen to be independent since his duties as liquidator may require him or her to
investigate. (See Re Giant Resources Ltd [1991] 1 Qd R 107 at 117; Re National Safety Council
of Australia (Vic Division) [1990] VR 29 ([1989] 15 ACLR 355 (SC Vic); City of Suburban Ltd v
Smith [1998] 28 ACSR 328 (FC of A) at 336.) A Court will exercise its discretion to remove a
liquidator if it appears that he or she, through some relationship, direct or indirect, with the
company or its management or any particular person concerned in its affairs, is in a position of
actual or apparent conflict of interest. In exercising that discretion Bowen LJ in Re Adam: Eyton
Ltd: Ex parte Charlesworth (1887) 36 Ch D 299 at 306 said:
“Of course fair play to the liquidator himself is not to be left out of sight, but the measure of course
is the substantial and real interest of liquidation.” ‘
[126] In Ma-Afrika Groepbelange (Pty) Ltd v Millman and Powell NNO 1997 (1)
SA 547 (C) at 561H-J the following is stated:
‘Good cause for the removal of a liquidator has also been held to have been shown where a
liquidator has not been independent. This was the ratio of the judgment in Re Sir John Moore
Gold Mining Co (1879) 12 ChD 325 (CA) at 332, where a liquidator was removed because his
“interests may conflict with his duty”. See also Re P Turner (Wilsden) Ltd (1986) 2 BCC 99, 567
(CA) at 99, 570 and Re London Flats Ltd [1969] 2 All ER 744 (Ch) at 752E-F, where it was held
that a liquidator should be “wholly independent” and that the removal of a liquidator should be “in
the interests of every one concerned in the liquidation.” ‘
[127] In 4(3) Lawsa under the titles Companies and Winding-up M S Blackman
at para 281 states the following:
‘The court will remove a liquidator if some unfitness, in the wide sense of that term, is shown in
the liquidator, whether it be from personal character or from his connection with other parties or
from circumstances in which he is involved. Thus, even though no bad faith was alleged, the
court removed a liquidator where he had become so engrossed in his own view that he was
unable to see the reasonableness of the proposals of those interested in the liquidation and threw
obstacles in their way; … where it was prima facie established that the liquidator and two
directors were liable to account to the company for certain sums and the liquidator refused to take
proceedings against the directors; …’
Further on, the following appears:
‘Although there may be no individual characteristic in itself sufficient on which to base a
conclusion that a liquidator is unfit, there may be a number of circumstances which combined
might force the court to that conclusion. Also, the court might take into account some unfitness on
the part of the liquidator together with what might be in the interests of those persons interested in
the liquidation. A relevant factor is also the costs that would be incurred if another liquidator has
to come in and complete the work that the present liquidator has already done. Thus, in the
circumstances, the court will be less likely to discharge a liquidator towards the end of the
winding-up, after he has become acquainted with the affairs of the company, than it would early in
the winding-up. Although each one of these considerations taken singly might not be sufficient to
justify the removal of the liquidator, taken together they might be.’
[128] It is clear that in respect of the claim of R325m Nel and De Villiers have
lost all objectivity and improperly preferred the Macmed claim without properly
interrogating and verifying it. The comments by Van Heerden AJA set out in para
52 above are apposite. It does not appear that in that case this court was made
aware of the fee-sharing arrangement which would have significantly ameliorated
the impact of the cost order on Nel and De Villiers personally.
[129] As stated above, counsel representing Nel and De Villiers, rightly
conceded that their behaviour in relation to the cost of the review application was
from the outset not beyond reproach. Chronologically, their behaviour in relation
to the use of Intramed’s funds became progressively worse. In addition they were
obstructive, evasive and unrepentant to the end.
[130] In relation to that aspect of the fee-sharing arrangement referred to above
Nel and De Villiers failed to appreciate the conflict in which they found
themselves and its effect on them.
[131] A precursor to the decision by the Grahamstown High Court on the
application to have Nel and De Villiers removed was a challenge by them to
Standard Bank’s locus standi. The challenge on that issue culminated in an
appeal to this court in which Standard Bank was successful. This court recorded
that Nel and De Villiers were not ‘litigation shy’.23
[132] It is a cause for concern that so much time has passed since the Macmed
group was placed in liquidation. We have been informed that much work in
relation to the Intramed estate has been done and is nearing completion. Against
that consideration is the fact that Nel and De Villiers have played a major part in
the delay by way of costly, protracted and unnecessary litigation. If the Macmed
claim is disregarded Standard Bank overwhelmingly represents the majority of
value of creditors in the Intramed estate. That it is willing to put up with a further
delay in the winding-up of the estate is not insignificant. The R325m claim is
clearly the remaining major issue and one in respect of which Nel and De Villiers
cannot bring objectivity to bear. The totality of circumstances set out above
compellingly leads to the conclusion that it is not in the best interests of the
liquidation that they continue to serve as joint liquidators of Intramed.
[133] Liquidators must realise that they perform important functions. The
Master, creditors and importantly courts rely on them. In the liquidation process
they are expected to act impeccably. The profession must be under no illusion
that courts, in appropriate circumstances, when called upon to do so will act to
ensure the integrity of the winding-up process.
23 Intramed (Pty) Ltd (in liquidation) v Standard Bank of South Africa Ltd 2008 (2) SA 466 (SCA)
at para 20.
[134] Standard Bank contends that in terms of s 384(2)24 of the CA, Nel and De
Villiers’ fee in the winding-up of Intramed should be disallowed or reduced.
Furthermore, Standard Bank submitted that Nel and De Villiers should be liable
to pay a penalty in terms of s 394(7)25 of the CA in an amount of R1 608 839,
being double the amount they used from Intramed funds to pay the costs of the
review application.
[135] Removal of a liquidator is an extreme step. It certainly impacts on his or
her reputation. It was submitted on behalf of Nel and De Villiers that we give
consideration to the fact that they are nearing the end of their careers. Moreover,
so it was submitted, they have expended effort and much hard work to the
benefit of Intramed and creditors by, for example, continuing to trade in Intramed
despite objections by BoE bank, which resulted in a significant increase in its
value, which ultimately redounded to the benefit of creditors.
[136] Bearing in mind what is set out in the preceding paragraph I am not of the
mind to impose a penalty in terms of s 394(7) of the CA. However, having regard
to the nature and gravity of the misconduct, considering the protracted, costly
and unnecessary litigation engaged in by Nel and De Villiers, and taking into
account what can rightly be demanded of liquidators, it is my view that they
should be deprived of 5 per cent of their fee. The Master was requested to
disallow or reduce their remuneration and refused to do so.
24 ‘The Master may reduce or increase such remuneration if in his opinion there is good cause for
doing so, and may disallow such remuneration either wholly or in part on account of any failure or
delay by the liquidator in the discharge of his duties.’
25 Section 394(7)(a) provides:
‘7) (a) Any liquidator who without lawful excuse, retains or knowingly permits his co-liquidator to
retain any sum of money exceeding forty rand belonging to the company concerned longer than
the earliest day after its receipt on which it was possible for him or his co-liquidator to pay the
money into the bank, or uses or knowingly permits his co-liquidator to use any assets of the
company except for its benefit, shall, in addition to any other penalty to which he may be liable,
be liable to pay to the company an amount not exceeding double the sum so retained or double
the value of the assets so used.
(b) The amount which the liquidator is so liable to pay, may be recovered by action in any
competent court at the instance of the co-liquidator, the Master or any creditor or contributory.’
[137] Finally, there is the question of the costs of Standard Bank. Counsel
representing the bank correctly accepted that the founding affidavit was prolix. It
made trawling through the record extremely difficult. It had the unhappy
consequence of a lengthy response. Oftentimes less is more. Recently both in
respect of the record and heads of argument legal representatives have acted to
the contrary. Mindful of the unnecessary time and resources expended in the
present case I am of the view that the bank should be deprived of a third of its
costs.
[138] The following order is made:
1.
The appeal is upheld.
2.
The second and third respondents are ordered to pay two thirds of
the appellant’s costs, such costs to include those consequent upon
the employment of two counsel, to be paid by the second and third
respondents in their personal capacities jointly and severally.
3.
The order of the court below is set aside and substituted as follows:
‘1.
The third and fourth respondents are removed as joint liquidators of
Intramed (Pty) Ltd (in liquidation).
2.
The decision of the Master not to disallow or reduce the remuneration of
the third and fourth respondents as joint liquidators of Intramed (Pty) Ltd (in
liquidation) is reviewed, set aside and replaced with an order in terms whereof
the remuneration of the second and third respondents is reduced by five per
cent.
3.
The third and fourth respondents are ordered to pay the costs of the
application including the costs consequent upon the employment of two counsel
where applicable, such costs to be paid by the third and fourth respondents in
their personal capacities jointly and severally.’
_________________
M S NAVSA
JUDGE OF APPEAL
GRIESEL AJA dissenting
[139] I have read the judgment of Navsa JA, but respectfully disagree with his
conclusion that the appeal should succeed. The relevant facts have been fully
summarised in my colleague’s judgment as well as in the judgment of the court
below. It is accordingly not necessary to repeat the factual background herein,
save to the extent necessary to explain my reasoning in respect of particular
aspects.
[140] With regard to the application for removal of the joint liquidators, which
forms the backbone of the present appeal, Standard Bank relies on five main
grounds. Before dealing seriatim with the individual grounds of complaint, I wish
to make some general remarks which, in my view, militate against the removal of
the liquidators at this stage of the winding-up process.
[141] First, my colleague rightly points out26 that removal of a liquidator is ‘an
extreme step’. From the authorities cited by him,27 it further appears that removal
of a liquidator is ‘a radical form of relief which will not be granted unless the Court
is satisfied that a proper case is made out therefor’.28 For the reasons set out
below, I am not persuaded that the bank has made out a proper case for such
radical relief.
[142] Second, a court will be less inclined to remove a liquidator at a late stage
in the winding-up process than it would be to replace him or her at an early
stage.29 In the present case, the liquidators were appointed more than ten years
ago. By the time Nel deposed to his answering affidavit in these proceedings, on
26 Para 135 above.
27 Paras 124–127 above.
28 Ma-Afrika Groepbelange (Pty) Ltd v Millman and Powell NNO, para 126 above, at 566B–E.
29 Ma-Afrika Groepbelange, loc cit; Hudson NNO v Wilkins NO, para 125 above, in para 18 of the
judgment.
30 August 2005, the process of winding up was at ‘a very advanced stage’. Thus
Nel stated:
‘Save for the dispute over the Macmed claims, the remaining steps are to prepare a final
liquidation and distribution account, report to the Master and pay out the remaining dividends. No
purpose would be served in replacing De Villiers and me now as liquidators, as the administration
of the Intramed estate is, for all practical purposes, almost complete. The appointment of other
liquidators would only result in incurring additional costs for the Intramed estate to the prejudice of
the other creditors.’
Since the aforesaid date the court below, during the first round of the current
proceedings, refused to expunge the Macmed claim,30 with the result that the
issue relating to that claim can no longer be said to be outstanding. It can be
accepted, therefore, that the process of winding up is by now – more than four
years later – virtually complete. To remove the liquidators at this very late stage
will, in my view, amount to a brutum fulmen.
[143] Third, a court must be satisfied that removal of the liquidator(s) will be to
the general advantage and benefit of all persons concerned or otherwise
interested in the winding-up of the company in liquidation.31 In the present
instance, 91 claims totalling R667 million (subsequently reduced to R567 million)
were proved against Intramed at the first meeting of creditors, back in May 2000.
As observed by Mr Nel, ‘(i)t is noteworthy that the applicant is not supported in
this application by any of the other proved creditors in Intramed . . .’ Not only is
the application not supported by any of the other creditors, but the bank has not
adduced any evidence – and accordingly has not discharged the onus of proving
– that removal of the joint liquidators will be to the general advantage and benefit
of all persons interested in the winding-up of Intramed.
30 Cf High Court judgment, para 31.
31 Ma-Afrika Groepbelange (Pty) Ltd v Millman and Powell NNO, para 126 above, at 566D.
[144] Fourth, in refusing to order removal of the liquidators, the court below
exercised a judicial discretion. Leaving aside the question whether this was a
‘narrow’ or a ‘wide’ discretion,32 I have not been persuaded that any grounds
exist which would entitle this court on appeal to interfere with the exercise of the
high court’s discretion.
[145] Finally, in terms of s 381 of the Companies Act, the Master has wide-
ranging powers of control over liquidators. The fact that the Master, who has not
been criticised for undue partiality towards the Intramed liquidators, has not seen
fit – with knowledge of Standard Bank’s complaints – to exercise any of his
powers in terms of s 381, is a factor entitled to considerable weight in considering
the present application.
[146] With that prelude, I now turn to deal with the merits of the individual
grounds for removal advanced on behalf of Standard Bank and do so in the
same sequence as did my colleague.
The Macmed claim
[147] Much time and paper was spent on the question of the validity of the
Macmed claim. Indeed, this was described by Standard Bank as one of the main
issues to be decided in the litigation and one of the prayers (para 1.6) contained
in the notice of motion was specifically aimed at expungement of the Macmed
claim as contained in the amended fourth liquidation and distribution account. As
mentioned earlier, Standard Bank’s claim in this regard was duly dismissed by
the court below during the first round,33 hence the court’s observation, during the
second round, that ‘(w)e do not have to consider the validity of the Macmed
claim’.34 Instead, the focus shifted to the question whether Nel and De Villiers
32 Cf Naylor v Jansen 2007 (1) SA 16 (SCA) para 14; Giddey NO v J C Barnard and Partners
2007 (5) SA 525 (CC) para 19.
33 High Court judgment para 31.
34 High Court judgment para 36.
acted inappropriately by not disputing the Macmed claim. But therein lies the rub
because, without a thorough examination of the validity of that claim (including
the intricate ‘Peregrine structure’ which underlies it), it is virtually impossible to
pass any judgment on the conduct of the liquidators in their treatment of the
claim. Yet this is precisely what Standard Bank’s complaint demands of the court:
as pointed out in its heads of argument, the bank’s central contention is a simple
one: ‘the proof of the Macmed claim ignores the Peregrine structure and in these
circumstances the Intramed liquidators (who knew the true and full facts) ought to
have recommended to the Master that he expunge it’.
[148] Without the benefit of full evidence – including cross-examination – on
this aspect, it is impossible to find, in my view, that the liquidators’ conduct in
relation to the Macmed claim fell short of the required standard and that it
justifies their removal. A careful reading of the evidence shows, in any event, that
the Intramed liquidators did not blithely accept the claim. Shortly after Macmed’s
claim was proved at the first meeting of creditors, during May 2000, Nel
forwarded a copy of the claim (together with certain other claims) to Intramed’s
attorney, Brooks, with the request, on behalf of Intramed: ‘Please review in terms
of the evidence given at the enquiry and opinions received’.
[149] A month or so later, in their report to the second meeting of creditors of
Intramed, Nel and De Villiers reported as follows:
‘The claims of the ultimate holding company Macmed Healthcare Limited and BOE Bank Limited
require investigation. There is an obvious duplication of approximately R100 million. Claims
proved at the first meeting of creditors should total approximately R567 million and not R667
million.’
[150] The record shows that Nel and De Villiers did indeed investigate the two
claims mentioned in the report and decided in due course not to challenge the
Macmed claim. This was done on the basis of legal advice received from their
attorney, Brooks, to the effect that the claim was in order. His advice, in turn, was
supported by counsel’s opinion obtained by the Macmed liquidators.
[151] The one aspect on which all parties agreed was that the Peregrine
structure was one of some complexity. In the judgment of the court below during
the first round, the court gave a brief summary of what the Peregrine structure
entailed, the correctness of which was apparently accepted by counsel on both
sides and was repeated in the second judgment.35 It was precisely because of
the complexity of the series of transactions comprising the Peregrine structure
that the Macmed liquidators found it necessary to seek counsel’s opinion.
Subsequently, a second and a third opinion was obtained. In this context, my
colleague poses the question: ‘Why was a second opinion sought by the
Macmed liquidators, with Nel and De Villiers being the driving force?’36 With
respect, the way I read the evidence, it was the Macmed liquidators, at the
behest of the bank creditors of Macmed, who obtained all three opinions. Nel
pointed out in this regard that, having obtained the first opinion, the Macmed
liquidators were instructed by the bank creditors of Macmed – including Standard
Bank – to obtain the second and third opinions from counsel:
‘The Macmed liquidators obtained the second Peregrine opinion late in August 2000 which
second opinion was also debated with the Macmed banks, including [Standard Bank].
. . . The Macmed liquidators were then instructed by the bank creditors to obtain a third opinion
relating to the Peregrine Structure which opinion the Macmed liquidators obtained in November
2000. The third opinion, after it had been obtained, was also debated with the Macmed banks at
an informal meeting of creditors. The Macmed banks instructed the Macmed liquidators not to
proceed with any action against Peregrine in regard to the Peregrine Structure and accepted the
effect of the unwinding of the Peregrine Structure and consequently the validity of the Macmed
claim against Intramed of R325 million.’
35 High Court judgment para 35.
36 Para 105 above.
[152] Both the second and third opinions reaffirmed the simulated nature of the
Peregrine structure. This construction was thereupon accepted, not only by the
liquidators of Macmed and the relevant creditors (including Standard Bank), but
also by Nel and De Villiers on behalf of Intramed. It was on this basis that the
Macmed claim was reflected in the successive liquidation and distribution
accounts of Intramed, all of which were in due course confirmed by the Master.
The first three accounts went unchallenged, whereas Standard Bank’s challenge
of the fourth account was unsuccessful, as noted earlier. In terms of s 407(4)(a)
of the Companies Act, Standard Bank had the opportunity to take the Master’s
decisions on review within fourteen days from the date on which the decisions
were made. This was not done. Moreover, pursuant to confirmation of the first
account, and on 9 March 2001, the liquidators paid a dividend of R15,6 million to
Macmed based on its claim of R225 million. Pursuant to confirmation of the
second account, and on or about 4 October 2001, the liquidators paid a further
dividend to Macmed in the amount of R6,7 million. Standard Bank did not apply
to have either the first or the second liquidation and distribution account re-
opened in terms of s 408. Instead, it launched various abortive attempts to have
the Macmed claim expunged: thus, at a general meeting of creditors of Macmed,
the bank attempted to persuade the creditors to abandon the Macmed claim
against Intramed. Not surprisingly, the bank failed to obtain any support for its
proposal. It then attempted to persuade Nel and De Villiers to convene a meeting
of the Intramed creditors to discuss expungement of the Macmed claim, but this
request was turned down. The bank did not pursue their efforts to convene a
meeting of Intramed creditors, but instead applied unsuccessfully to the court
below, in the first part of the present proceedings, to have the Macmed claim
expunged. Having been turned away at the front door, as it were, the bank now
comes to the back door, relying on the same facts and seeking a different – and
far more drastic – remedy. In my view, they should again be turned away.
[153] In the circumstances as outlined above, the Intramed liquidators were
fully entitled, in my view, to regard the said structure as a simulation which had
‘unwound’ upon the winding up of Macmed. As Nel summed up the position in his
answering affidavit: ‘We always believed the transaction to have unwound, as is
borne out by the subsequent conduct of all parties concerned’.
[154] Nel’s reliance on the subsequent conduct of the parties and their
understanding of the effect of the series of agreements finds support in the
judgment of this court in Aussenkehr Farms (Pty) Ltd v Trio Transport CC,37
where the question for decision was posed as follows:
‘Where the parties to a contract are agreed on its meaning, is it open to a third party to contend
for a different meaning even if that does accord with the apparent meaning of the written
document reflecting the agreement?’38
Lewis AJA answered the question as follows:
‘Where the parties dispute the meaning of a term then a court must necessarily look to the
wording of the provision itself to determine its correct construction. But where they agree on its
meaning, even though the provision appears objectively to reflect a different understanding, it
would be absurd to insist on binding them to a term upon which neither agrees only because of a
third party’s insistence on reliance on the apparent meaning of the provision.’39
[155] Applied to the facts of the present case, it appears from the evidence that
the parties to the Peregrine structure regarded the agreements to have
‘unwound’ upon liquidation of Macmed and its subsidiaries. This is borne out by
the fact that Peregrine never proved a claim against Intramed because, as Nel
put it, ‘(i)t clearly never was the intention that Peregrine would ever have a claim
against Intramed’. In these circumstances, it would indeed be ‘absurd’, as
suggested in Aussenkehr, supra, to disregard the understanding and attitude of
the parties and to look, instead, through a magnifying glass at the abstract
meaning to be gleaned from the battery of 21 agreements comprising the
37 2002 (4) SA 483 (SCA).
38 Para 23.
39 Para 25.
elaborate Peregrine structure in order to attribute a different meaning to those
agreements as the one accepted by the parties.
[156] In Caldeira v The Master40 the duties of a trustee (or liquidator) in terms
of s 45(3) of the Insolvency Act were stated as follows by Levinsohn J:
‘This section enjoins the trustee, if he disputes the claim, to report to the Master his reasons for
doing so. It seems to me that if a trustee disputes the claim he must have a reasonable belief
based on facts ascertained by him that the insolvent estate is not in fact indebted to the creditor
concerned. Mere suspicion about the claim would not be sufficient. This belief would, I think,
generally arise after the examination of the Company’s records and the conclusion derived from
the records that the indebtedness does not exist or has been extinguished. Of course, the facts
giving rise to the belief may not necessarily be derived from the company’s records, they could
arise, for example, from the records of an interrogation conducted at the meeting of creditors.’
[157] Having regard to this test and to the evidence of Nel and De Villiers, it is
clear to me that they did not have a reasonable belief that Intramed is not in fact
indebted to Macmed.
[158] However, as far as Nel and De Villiers are concerned, the matter did not
end there. As explained by Nel:
‘After we came under pressure from the applicant to expunge the Macmed claim we again
obtained advice. We were again advised that our approach was proper and appropriate and that
we ought not to succumb to the pressure being exerted by the applicant.’
[159] I do not regard it necessary to go into greater detail regarding either the
validity of the Macmed claim or the Peregrine structure. Suffice it to state that I
am unable to fault the liquidators for having decided, on legal advice, to disregard
as a simulation the convoluted series of transactions between Macmed, the
Peregrine Group and Intramed and to accept, instead, the simple commercial
40 1996 (1) SA 868 (N) at 874D–E, quoted with approval in the High Court judgment, para 37.
reality of the transaction as an inter-company loan from Macmed to Intramed in
an amount of R325 million. That amount was reduced by R100 million as a result
of recognition of BOE’s claim in that amount for which Intramed was held liable.41
[160] For these reasons, I am, with respect, unable to share my colleague’s
conclusion42 that in relation to the Macmed claim Nel and De Villiers did not
properly comply with their duties as liquidators; far less that their conduct justifies
the ultimate penalty of removal.
‘Misappropriation’ of Intramed’s funds
[161] With regard to this complaint, Standard Bank in its affidavits and in
argument before us persistently likened the liquidators’ position with that of an
attorney misappropriating trust money for his or her own purposes. Reliance was
placed in this context, by way of example, on Law Society of the Cape of Good
Hope v Budricks.43 In my opinion, however, this analogy is wholly inapposite. In
that case it was held that Budricks had ‘misappropriated trust money and
administered trust funds in a reckless and cavalier manner without any regard for
his duties as an attorney’.44 It was further found that Budricks had methodically
misappropriated large sums of money over a substantial period of time.45
[162] This differs totally from the present situation, where Nel and De Villiers
acted on responsible legal advice to the effect that the application for review of
the Master’s decision regarding their fees ought to be brought in their official
capacity as part of the administration of the estate. Nel explains:
‘In bringing the review application, we were assisted and advised by Tabacks Attorneys (Mr
Brooks) and senior and junior counsel (J Eksteen SC and P Daniels). They advised us that the
41 2004 (3) SA 1 (SCA).
42 Para 107 above.
43 2003 (2) SA 11 (SCA).
44 Para 7.
45 Para 11.
application ought to be brought in our official capacity. We are not lawyers, and had no reason
not to accept their advice. After the judgment in the First Court had been delivered, we again
sought advice. We separately obtained advice from three eminent silks (Slomowitz SC,
Terblanche SC and Trengove SC). The weight of advice, which we received, was that an appeal
ought to be lodged and that it had good prospects of success. It was implicit in the advice that it
was not wrong for us to have brought the review in our official capacities. Again, we had no
reason not to accept it.’
[163] With the benefit of hindsight, Nel added:
‘. . . (W)e respectfully point out that where our advice initially received from our attorneys and
counsel could have been wrong, such advice was sought and received on a bona fide basis by us
and whilst our advice has proved to have been wrong, we respectfully point out that such advice
could have been given reasonably in the light of the judgment in Collie NO v The Master 1972 (3)
SA 623 (A).’
[164] In response, Faul on behalf of Standard Bank stated that ‘no reasonable
lawyer could bona fide have given the advice to which Mr Nel testifies; and no
reasonable person could have accepted and acted upon it’. I find this an
astonishing proposition: not only did Nel and De Villiers choose to consult several
experienced and eminent legal practitioners; but two experienced and learned
judges in the court below did not uphold the bank’s criticism of the liquidators’
conduct in this regard.
[165] Be that as it may, the complaint regarding the alleged ‘misappropriation’
of Intramed’s funds has been fully dealt with and rejected by the court below.46 I
associate myself with its reasoning as well as the conclusion reached and do not
find it necessary to add anything further in that regard.
46 High Court judgment, paras 12–30.
The fee-sharing arrangement
[166] The essential features of the fee-sharing arrangement have been alluded
to above.47 It is important to note that it is only the fee-sharing arrangement
between the six Macmed liquidators that is being frowned upon by Standard
Bank. Its deponent, Faul, stated unequivocally in his replying affidavit that he has
no quibble with the fee-sharing between Nel and De Villiers in their capacities as
joint liquidators of Intramed, nor does he object to Nel’s fee-sharing arrangement
with his erstwhile employer, PriceWaterhouseCoopers. What he objects to is the
fee-sharing arrangement that prevails among the six Macmed liquidators, ie
‘cross-company fee-sharing’, as he calls it. It is clear, therefore, that this
particular complaint cannot support an application for De Villiers’ removal as he
was not a party to that arrangement.
[167] As for Nel, he answers this complaint in the passage quoted by my
colleague.48 Mr Brian Cooper, one of the other Macmed liquidators and a
practising attorney with 47 years experience of insolvency matters, testified to the
same effect, describing the fee-sharing arrangement as ‘a standard practice
amongst liquidators’ where a group of companies are being wound up.
[168] In these circumstances, I am unable to find, as contended for by
Standard Bank, that the fee-sharing agreement per se is improper to the extent
that it justifies the removal of a liquidator. Not only is the basis of the bank’s
complaint questionable; the bank’s attitude also appears to be highly selective: if
the bank is correct that Nel acted improperly by entering into the fee-sharing
arrangement with his co-liquidators in Macmed, then it must necessarily follow
that each of the other five Macmed liquidators is equally guilty of impropriety; yet
the bank has not sought the removal of any of those co-liquidators. Similarly, on
47 Paras 77–78 above.
48 Para 78 above.
the bank’s reasoning, Nel’s conduct is equally improper in each of the 45 other
Macmed subsidiaries in which he has been appointed as liquidator, where the
same fee-sharing arrangement prevails; yet his removal has not been sought in
any of those companies. The inference is irresistible that this complaint by the
bank, far from being a substantive ground for removal, is a mere makeweight in
an effort to bolster the bank’s case against Nel. This tends to lend credence to
Nel’s assertion that the bank ‘appears to be motivated by a personal vendetta
against the liquidators of Intramed’.
[169] With regard to the fourth and fifth complaints, namely the failure by the
liquidators to prove a claim for R100 million against Macmed and their failure to
convene a meeting of Intramed creditors at the request of the bank these
complaints, as rightly pointed out by Navsa JA,49 are intimately interlinked with
the validity of the Macmed claim. In the light of my conclusion regarding the
Macmed claim, it follows that these two grounds of complaint likewise cannot
sustain an application for removal of the liquidators.50
[170] To sum up, for the reasons set out above, I am of the view that the bank
has failed to make out a sufficient case for the removal of Nel and De Villiers as
liquidators of Intramed.
Reduction of the fees
[171] One of the further forms of relief claimed (and granted by my
colleague),51 was the claim for a reduction of the fees of the liquidators in terms
of s 384(2) of the Companies Act.
49 Paras 108–109 above.
50 See also the High Court judgment, paras 63–80.
51 Para 136 above.
[172] Again, I find myself in agreement with the high court’s reasoning
regarding this claim.52 I am accordingly of the view that this claim was likewise
rightly dismissed by the high court.
[173] In all the circumstances, I would have dismissed the appeal with costs,
including the costs of two counsel.
___________________
B M GRIESEL
Acting Judge of Appeal
PONNAN JA
[174] I have had the benefit of reading the judgments of my colleagues Navsa
and Griesel. At the outset I should perhaps state that I take a dimmer view of the
liquidators’ conduct than my learned colleagues. I accordingly am unable to
agree with the conclusion reached by Griesel AJA that the appeal ought to fail. In
my view, like Caesar’s wife, liquidators should be beyond reproach. In this case
their counsel conceded before us that their conduct was not. It ought to have
been, given the fiduciary position occupied by them. What remains therefore is to
determine whether they have conducted themselves such as to warrant their
removal from office. Navsa JA has concluded that they have and should be
removed as liquidators. I agree. The cumulative effect of the various factors
alluded to by Navsa JA, in my view, compel that conclusion. I nonetheless deem
it necessary, because my criticism of the conduct of the liquidators is more
strident, to write a separate judgment. In doing so I shall not cover terrain already
traversed by my learned colleagues, but shall restrict myself to a consideration of
those aspects that point irresistibly to the conclusion that the joint liquidators are
unsuitable to continue to occupy that office in the Intramed estate in liquidation.
52 High Court judgment paras 87–94.
[175] It is so that more than 10 years have elapsed since the liquidators were
first appointed. But that hardly counts in the liquidators favour. If anything that
protracted period redounds to their discredit. Much of the blame for the delay in
finalizing the process must be laid squarely at the door of the liquidators
themselves. After all they embarked upon litigation on a scale that I can only
describe as unprecedented for liquidators. I accept that the length of time is an
important consideration. As is the stage that the liquidation process has reached.
But that can hardly trump the necessity for a court to ensure that the standard of
performance of officers such as liquidators shall be as high as is practicably
possible. It may well be that the liquidation process has reached a fairly
advanced stage. But that no doubt is only on the supposition that the Macmed
claim of R325m is a good one. If that claim is revisitedthen the current liquidation
and distribution account may well become obsolete. In that event the liquidators’
removal from office, with the consequence that those who succeed them may in
due course consider afresh a fairly substantial claim in the estate in liquidation, in
and of itself, puts paid to the notion that their removal would amount to a brutum
fulmen. If on the other hand, after proper scrutiny the Macmed claim is allowed,
there ought to be no tangible disruption to the liquidation process by the
introduction of new liquidators – the new liquidators could simply continue from
where their predecessors left off. It would be unpalatable to countenance the
notion that liquidators who have made themselves guilty of serious misconduct
should not be removed from office simply because it is late in the liquidation
process.
[176] Standard Bank is a substantial creditor of Macmed and many of its
subsidiaries including Intramed. Very early in the administration of Intramed,
claims of inter alia R190m, R100m and R325m were proved against it by
Standard Bank, Boe Bank and Macmed, respectively. Shortly thereafter the
liquidators recommended to the Master that the claims by the banks should be
expunged. A far more charitable stance was adopted by the liquidators in respect
of the Macmed claim. After protracted and expensive litigation, the banks’ claims,
albeit in a lesser amount in the sum of R107m in the case of Standard Bank,
were restored. From the time of expungement until restoration of their claims, the
banks lost their status as proved creditors in Intramed. They thus lost their right
to vote at meetings of creditors. Standard Bank, not without some justification,
has formed the view that the liquidators have unreasonably become so
engrossed in their own view as to the validity of the Macmed claim in the
Intramed estate, that they are incapable of subjecting that claim to the scrutiny
that it reasonably requires. In those circumstances, so it contends, the only
remedy available to it is to seek the removal of the liquidators. It is so that they
are not supported by other creditors, but given the value of its claim in the
Intramed estate, that is of little moment. After all, s 379(2) of the CA entitles it to
approach the court for the removal of the liquidators.
[177] Section 45 of the IA casts a duty upon the liquidators to examine every
claim and to satisfy themselves that the estate is indeed indebted to the creditor.
Given the contradictory statements advanced in support of the claim, it would
appear that the liquidators failed in the discharge of that duty. It is thus, on the
view that I take of the matter, against the interests of the liquidation that they
remain in office. On behalf of the liquidators it was submitted that the debate as
to the validity of the Macmed claim is a difficult one, and turns in part on the
correct legal treatment of the Peregrine structure – which the parties were agreed
was a transaction of some complexity. That being so, one would expect a natural
reticence on the part of the liquidators to admit the Macmed claim as readily as
they have done. Somewhat surprisingly the liquidators have been far less vigilant
in their scrutiny of the Macmed claim than they were in respect of the Standard
Bank and BoE claims. In respect of the former they had greater cause for
scepticism. That lack of consistency evokes strong feelings of disquiet. It is so
that the threshold for the admission of claims at a meeting of creditors is
relatively low. All that is required is that prima facie proof of a claim should be
produced. That is understandable in the context of an insolvent estate. The claim
admitted to proof at the meeting of creditors is a provisional one. Only thereafter
does the liquidator acquire the duty set forth in s 45 of the IA to examine ‘all
available books and documents’ to ensure that the claim in fact exists.
[178] The claim for R325m (although in fact R 324 880 000) was proved by
Macmed as one for moneys lent and advanced. Nel admits that ‘there is no
reference to the Peregrine structure in the affidavit in support of the Macmed
claim’. In fact, Pereira, one of the joint liquidators of Macmed, who deposed to an
affidavit in support of its claim, stated:
‘On 18 June 1999 Macmed lent and advanced the sum of R325 million to Intramed to enable
Intramed to pay the purchase consideration of R325 million to Aspen for the Intramed division as
referred to above’.
That clearly contemplates a payment by Macmed to Intramed. Such a claim one
would imagine would be easy enough to formulate and equally simple to prove.
But that is not the case here. Nel in his answering affidavit states:
‘I admit that, as the books had not been completely written up to record all transactions as at date
of liquidation , the books of Intramed, prior to its winding up, do not disclose . . . the existence of
the loan of R325 million owing by Intramed to Macmed prior to liquidation on 29 November 1999.’
And yet in response to the criticism that they had not properly examined the
Macmed claim in terms of s 45 of the Act, Nel states:
‘As I have already explained we examined the claim and satisfied ourselves as to the validity of
Macmed’s claim and decided not to dispute the claim, particularly in that it agreed with the books
and records of Intramed as at date of liquidation i.e. 29 November 1999 as audited by Deloitte &
Touche. . . .’
[179] But as Navsa JA makes plain, up until the end of October 1999, some
three-and-a-half months after the Peregrine structure came into effect, the
financial records of neither Macmed nor Intramed reflected a loan of R325m. It
was only after the provisional liquidation of Intramed and the liquidators had
taken charge of Intramed’s books of account that an entry reflecting a loan was
made for the first time in Intramed’s books. In a note to the financial statement
the loan is described as a ‘long term loan that arose on the acquisition of the net
assets, trade marks and goodwill as at 1 March 1999. The loan is unsecured and
interest free. The terms of repayment have not been specified’. As is once again
evident from the judgment of Navsa JA, Deloitte and Touche stated that they
‘were unable to confirm the amount owing to Macmed as at 28 November 1999’.
In fact on 24 November 1999, Millison of Deloitte and Touche wrote in reference
to the Macmed loan: ‘this matter is yet to be resolved’. Dealing with the Deloitte
and Touche qualification, Nel states:
‘However, it appears that the only reason the auditors qualified their report is because of them not
receiving any supporting documentation i.e. the Peregrine Agreements, to confirm their
conclusion that there was a loan of R225 million owing to Macmed by Intramed’.
If that is indeed so, the obvious question that it prompts is: What information did
the auditors rely upon in concluding that there was in fact a loan owing by
Intramed to Macmed? Nel suggests in answer to that question:
‘This [the existence of the loan] appears to have been based on the information received during
their discussions with Viljoen and Muller, resulting in the entries they instructed Intramed to pass
in its books’.
[180] In sum therefore to once again borrow from Nel:
‘Deloitte & Touche’s interpretation of the information and discussions with Viljoen and Muller
resulted in the raising of a Macmed loan account in Intramed’s books in the amount of R325
million’.
If what Nel says is to be taken at face value, the auditors had not had sight of the
Peregrine Agreements. No other documents in support of the existence of a loan
are to be found in the record of some 1400 pages. It is unclear what other
information – none in the fairly voluminous record has been specified – had to be
interpreted. The high water mark therefore appears to be the rather speculative
hypothesis that discussions with Viljoen and Muller yielded sufficient proof in
support of the existence of a loan. Although details of those discussions have not
been divulged and whilst whatever was said did not appear to satisfactorily
resolve the issue for the auditors, particularly Millison, it somewhat surprisingly
appears to have persuaded the liquidators.
[181] To use, as the liquidators do, the ex post facto entry that had been
generated in the books of Intramed after its provisional liquidation and whilst the
books were already in their custody as proof of the existence of the loan is
nothing short of disingenuous. To say under oath as Nel does that they had
decided not to dispute the claim because it agreed with the books and records of
Intramed as at the date of liquidation may well be patently dishonest. But it may
not be necessary to go that far. That attitude is also difficult to reconcile with Nel
asserting:
‘It is surprising that [Standard Bank] would place reliance on the accounting records of Intramed
or Macmed or any of the companies in the Macmed group’.
And yet, it would seem, that is precisely what Nel himself purports to do.
[182] It, to my mind, is difficult to discern precisely why in the face of the
Peregrine Agreements, the liquidators have admitted the Macmed claim as
blithely as they did. The reason appears to be that the liquidators dispute the
validity of the Peregrine Agreement. In that regard Nel states:
‘The whole dispute between the parties relating to [the Peregrine] agreement stems from the fact
that the applicant, and more particularly the deponent to [Standard Bank’s] founding affidavit, . . .
persistently refuses to accept that the Peregrine Structure was a simulated transaction and that a
Court will give effect to the real intention, which differs from the simulated transaction and that,
even if the Peregrine Structure was not a simulated transaction, the whole structure unwound on
the default by either party which occurred with the liquidation of Macmed’.
Nel further states:
‘I deny that the Peregrine structure was fully implemented and confirm that it unwound on the
liquidation of Macmed on 15 October 1999. This is confirmed and accepted by Viljoen of
Peregrine, the liquidators of Macmed and De Villiers and myself in our capacity as liquidators of
Intramed. Proof of acceptance of the Macmed claim confirms this’.
It is difficult to reconcile those emphatic assertions with the evidence of Hanson,
a Macmed director, or Viljoen, who represented Peregrine at the time that the
Peregrine structure was put in place and that it was not a simulated transaction.
As is evident from the judgment of Navsa JA, both Hanson and Viljoen stated
under oath that the agreements were genuine. It needs be added that when
Viljoen testified at the Macmed enquiry, it was never put to him that the Peregrine
structure was a sham. Moreover, Nel’s statements disregard the legal opinions to
the contrary that the transaction was not simulated and that ‘the companies
intended to achieve precisely that which the primary purpose of the financing
structure was aimed at’. Whether the Peregrine structure was fully implemented
or unwound on the liquidation of Macmed are matters that the liquidators of
Macmed and Intramed could not possibly have personal knowledge about. That
being so, Nel must know that his confirmation of that state of affairs, without
divulging the source of his information, is of little value. It also stretches credulity
that Nel could invoke their acceptance of the Macmed claim as a factor in
support of the suggestion that the Peregrine agreement was not fully
implemented or unwound.
[183] Standard Bank contends that there is no evidence of payment of a loan by
Macmed to Intramed. Nel’s response is:
‘I admit that the amount of R325 million was received by Intramed on 18 June 1999 from Pregrine
Finance, a subsidiary of the Peregrine Group, which received the funds from Macmed and round-
tripped it back to Macmed through Intramed, in the course of the implementation of the Peregrine
Structure’.
This is reiterated by Nel when he states:
‘I admit that Intramed received R325 million from Peregrine Finance on 18 June 1999 and on the
same day transmitted the sum of R325 million to Macmed’.
But Nel himself later puts it somewhat differently, when he states:
‘There was no need for Intramed to finance the acquisition of its business from Macmed by way
of a loan from Peregrine Finance in terms of the Peregrine Structure. Macmed had already
acquired and funded the acquisitions and placed the business in Intramed with effect from 1
March 1999, culminating in an inter-company loan for R325 million.’
All of that being so, to simply characterise the Macmed claim as a loan - more so
a loan by it to Intramed - as the liquidators have done, is untenable, more
especially as Nel’s description is not only in itself contradictory but also at odds
with Pereira’s, particularly with reference to the date of the alleged loan. Nel
seeks to explain these apparent contradictions as follows:
‘The Peregrine structure was no more than a simulated transaction for tax efficiency purposes.
The loan of Macmed to Intramed of R 325 million arose on the acquisition of the Pharmacare
Intramed business and assets by Macmed and transferred to Intramed with effect from 1 March
1999. The flow of funds and the date, 18 June 1999, thereof do not indicate the date of
acquisition and corresponding debt. The intended transaction was the placing of the Intramed
business into Intramed (Pty) Ltd culminating in a loan of R325 million owing by Intramed to
Macmed at 1 March 1999’.
[184] Nel dismisses Standard Bank’s concerns in these terms:
‘[Standard Bank] completely disregards the true nature of the transaction and the real intention of
the parties thereto. It appears that [Standard Bank] has become bogged down by irrelevant detail
and that it cannot “see the wood for the trees”’.
Far from allaying Standard Banks’s fears, it regrettably is precisely that attitude
on the part of the liquidators that has contributed to the prevailing atmosphere of
distrust. On the one hand Nel is quite adamant in asserting that a valid loan was
advanced by Macmed to its subsidiary Intramed. On the other he states: ‘The
Macmed group during the years 1998 and 1999 was no more than “an empire of smoke and
mirrors”. . . ’.
In those circumstances, Standard Bank’s central contention is simple, namely
that, admitting the Macmed claim not only ignores the Peregrine Agreement, but
also the reality that the Macmed group was in fact an empire of smoke and
mirrors. Accordingly, so the contention proceeds, the Intramed liquidators, who
were alive to the true facts, ought to have recommended to the Master that he
expunge it.
[185] Like Navsa JA, I too am of the view that the reliance by the liquidators on
legal advice as a justification for their conduct is glib. At no stage, as Navsa JA
points out, was a legal opinion sought and obtained on behalf Intramed in respect
of the Macmed claim. Furthermore, it is not without significance that the attorney
concerned, after some 6 years of advising the liquidators to the group of
companies, withdrew as attorney in the matter because of a conflict of interest.
Why it took that long for the realization to dawn that it is wholly improper for an
attorney to dispense legal advice to both debtor and creditor in respect of the
same claim has not been explained. It can hardly be justified on the basis that
both the debtor and creditor were companies in liquidation from the same stable,
especially since the claim in question was from the outset a contentious one,
whose validity was in dispute. The withdrawal of the attorney because of a
conflict appears not to have provoked any anxiety in the liquidators about their
own position and the potential conflict that they found themselves in. Nor did it
prompt them to solicit an opinion on behalf of Intramed as to the validity of the
Macmed loan.
[186] As Navsa JA records, the parties were agreed that we cannot reach any
definitive conclusions about the Peregrine agreement or the effect of liquidation
on it. Nor is it necessary at this stage do to so. It suffices for present purposes to
record, as Navsa JA has done (para 99) that there is much in the evidence that
points to a genuine intent on the part of the parties to conclude a binding
agreement and a serious endeavour on their part to implement its terms. Indeed
as Navsa JA demonstrates all of the parties to the contract went some way in
implementing its terms. In those circumstances it hardly seems appropriate for
the liquidators ex post facto and in the absence of all of the parties to the contract
to adopt a contrary stance in respect of its enforceability. It follows that the
assertion of a loan by Macmed is deserving of scrupulous interrogation by the
liquidators. That, the liquidators have steadfastly refused to do. In that, they have
failed in their duty. I have set out what Nel himself says about the Macmed claim
in greater detail than is absolutely necessary because it illustrates, I daresay, that
on the face of it the Macmed claim appears to be a dubious one. On the view that
I take of the matter, a reasonable liquidator in the diligent discharge of his duty
would have subjected that claim to a more thoroughgoing and searching scrutiny.
Moreover, they would not simply have ignored or disregarded the many contrary
indicators alluded to by Navsa JA. Instead the stance adopted by the liquidators
manifests a closed mindset in relation to that claim and a desire either wittingly or
unwittingly to advance the interests of Macmed at the expense of Intramed. All of
those factors, in my view, may well in the ordinary course be sufficient to
disqualify a liquidator from continuing to act as such. But here, there is an
additional factor, a telling one – namely the alleged misappropriation - one that at
the same time tips the scales against the liquidators and disabuses my mind of
the personal anguish and reticence that it has suffered in supporting so drastic a
step as their removal from office.
[187] It can hardly be in dispute that a liquidator must hold the funds under his
trusteeship separately from his own, preserve those funds with a degree of
diligence beyond that which he applies to his own funds and above all else never
use funds under his trusteeship for his own personal purposes. The liquidators
repeatedly deny that the use of Intramed’s funds to pay for the fee review
application amounts to misappropriation. Their failure, even after the criticism of
their conduct by this court, to acknowledge their wrongdoing and to show
appropriate contrition for their conduct is in and of itself a matter for grave
concern.
[188] When the fee review application was launched during December 2001 the
liquidators did not seek the leave of the court to have the costs paid out of
Intramed’s funds. They merely sought an order that the Master pay the costs if
he opposed the application. The Master contended from the outset that they
were not entitled to approach the court nomine officio but ought to have done so
in their personal capacities. On 31 October 2002 the high court dismissed the fee
review application and ordered the liquidators to pay the costs, including those of
intervention by 5 banks, personally. By then an amount of R689 747.91 had been
paid out of Intramed’s funds. From then until the exchange of heads of argument
in the SCA, a further R114 761.59 of Intramed’s funds were utilized. The total
thus stood at R804 419.50. The Master, after perusal of the first draft of the
fourth liquidation and distribution lodged during August 2003, enquired why the
liquidators were ‘of the opinion that these costs should be reflected in the estate
account and secondly why were estate funds used to pay these items’. In
response De Villiers sought return of ‘all vouchers in respect of legal costs’ to
‘separate the costs pertaining to the fees review application from other legal
costs’. He added that to the best of his recollection no legal costs relating to the
fee review application had been paid out of Intramed’s bank account subsequent
to the judgment of the high court. That as we well know was untrue. Some eight
and a half months later and presumably after sufficient time had elapsed for him
to have ascertained what the true position was, that assertion was repeated in a
further letter to the Master. Responding to the allegation that De Villiers had
misled the Master, Nel suggests that: ‘This did not purport to be an exhaustive answer to
the Master’s query. . . ’.
That response, in my view, is disingenuous and lacking in candour.
[189] Section 393 (1) of the Companies Act provides:
‘Immediately after his appointment a liquidator shall open a book or other record wherein he shall
enter from time to time a statement of all moneys, goods, books, accounts and other documents
received by him on behalf of the company’.
Had the liquidators complied with the obligation imposed upon them by the
section, it would not have been necessary for them to have sought and obtained
return of the vouchers from the Master in order to answer the Master’s query or
to resort to the qualifier ‘to the best of his recollection’. Moreover, it would seem
that the vouchers were sought for the limited purpose of identifying and
separating the liquidator’s personal costs from Intramed’s legal costs. That, as
well, only in respect of the 4th Liquidation and Distribution Account. Tellingly,
Standard Bank later ascertained that further costs had been included in earlier
liquidation and distribution accounts. Of this, Nel states:
‘At the time, it did not occur to De Villiers or I that some of the review costs might already have
been expensed in earlier accounts. … After [Standard Bank] made that allegation, De Villiers
uplifted all the vouchers in respect of legal costs in the 2nd and 3rd Accounts from the Master, in
order to investigate the matter. His investigation showed that legal costs relating to the review
application had been expensed in the 2nd Account to the extent of R43,822.49 and in the 3rd
Account to the extent of R232,424.13’.
[190] The judgment of the SCA was handed down on 1 April 2004. The SCA
held that the application should obviously have been brought by the liquidators in
their personal capacity and not in their capacity as joint liquidators. Of the SCA
judgment, Nel states: ‘We accept that the Supreme Court of Appeal determined that the
application for review ought not to have been brought in that manner, and that we ought to bear
the costs personally. We have, to the best of our ability, investigated, reconciled and audited all of
the legal costs pertaining not only to the review proceedings, but also to our challenges to the
Master with which everything started. We have repaid all of the review legal costs to the estate,
including interest’.
Once again one is confronted by a qualifier. In this instance it is ‘to the best of
our ability’. Elsewhere Nel states:
‘The reconciliation has been prepared by De Villiers and audited by me and we verily believe it to
be correct in all respects. We believe that each and every cent that was paid by Intramed has
been repaid with interest. Should it, however, appear that we missed any amount (which we
seriously doubt) we shall immediately attend to the repayment of such amount together with
interest thereon at the applicable rate. We never intended to act to the detriment of the estate and
we still do not intend to do so’.
Here too, the language employed is deliberately coy and cagey. Thus they
‘believe’ the reconciliation to be correct in all respects. Similarly, they ‘believe’
that every single cent has been repaid. Not content with those hollow assertions,
they add, should it ‘appear’ – to whom is not disclosed (is it expected that
someone else should perform a further auditing function) - that they ‘missed’ any
amount, and then for good measure a further qualifier ‘which we seriously doubt’
is added. Syntactically, it is as if they have suddenly chosen to talk in tongues.
Plainly, such obfuscatory language is not what a court is entitled to expect from
experienced chartered accountants, auditors and liquidators such as these.
[191] In response to the allegation that there was an inordinate delay in effecting
repayment, Nel says:
‘The sum of R507,492.02 was duly refunded in June and August 2004 … I deny that this
constituted an unreasonable delay. We first had to consider and obtain advice on the effect of the
judgment, and then to make the appropriate arrangements for the repayment of the review legal
costs. In my case that required obtaining the money from PWC and arranging with the other
Macmed liquidators for repayment of their contributions to the review legal costs. . . . ’
That as we well know is simply untrue. Repayment in fact occurred at irregular
intervals and in varying amounts over the period 7 June 2004 to 25 August 2005.
In all some 16 months were to elapse from the date of dismissal of the appeal by
this court, before the full amount was repaid. Thus by the time the application,
the subject of the present appeal, was launched in the court below an amount of
R43 822.49 remained outstanding. The final payment was only effected on 25
August 2005, three days before the liquidators delivered their answering
affidavits in the matter. Standard Bank suggests that such conduct is manifestly
cynical and calculated, as it enabled the liquidators to proclaim in their answering
affidavit that all moneys had been repaid. It is difficult not to agree with that
submission.
[192] Notwithstanding the fact that the liability to repay was the joint and several
obligation of the two of them, Nel endeavours to explain the delay in effecting
repayment promptly thus:
‘In fact, the Macmed Joint liquidators had a group fee sharing agreement, and they in turn,
agreed to share my review legal cost in the same proportion as the fee sharing agreement. The
collection of these pro rata costs (for me) from the Macmed Joint liquidators caused the delay and
PWC on receipt of these payments, immediately paid the funds to Intramed’.
It is unclear to me why any private fee sharing arrangement can be invoked as
justification for the delay. Simply put, the liquidators who were held by this court
to be personally liable for those costs, had an obligation to promptly repay it to
Intramed. If they had a right of recourse in terms of some private treaty to others,
and there was some delay in recovering, that delay ought to have been for their
account and not that of Intramed. Instead, they conducted themselves as if their
own obligation to Intramed extended no further than the repayment of their share
in terms of their private fee sharing agreement.
[193] Nel illustrates alarmingly poor judgment and introspection when he states:
‘Intramed, as a result of interest being paid on the review costs paid by Intramed, has suffered no
loss and therefore any allegation of tardiness is irrelevant’.
Later, Nel states:
‘We are . . . criticized for our initial failure to pay interest when we refunded the review legal costs
to Intramed. Shortly after the decision of the Supreme Court of Appeal, I considered the issue of
payment of interest and formed the view that we ought to pay the interest when called upon to do
so by the Master, which the master has not done to date. . . . However, we took advice, firstly
from Brooks, and then from counsel. After we were advised that interest ought to be paid, we set
about determining the appropriate amount. We have paid the review legal costs and the interest
thereon. I deny that we acted improperly in this regard’.
First, it reflects poorly on Nel that he believed that their obligation to pay interest
only arose if called upon by the Master to do so. They had used Intramed’s funds
to advance their personal interest as this court had already emphatically told
them. In those circumstances there ought to have been no doubt that the highest
degree of promptitude was required in restoring Intramed to the position it would
have been in, but for the ill advised use of its funds. The unauthorized use of
Intramed’s funds, once frowned upon by this court, demanded nothing less.
Sheer embarrassment ought to have compelled return of Intramed’s funds
together with interest, not a demand from the Master. Further, Nel’s statement is
revealing for what it does not divulge. It does not tell us when the advice was
obtained and more importantly when in relation to that advice the interest was
paid to Intramed. Attorney Brooks in his affidavit, states:
‘. . . I advised the Intramed liquidators that they should repay to the Intramed estate all the costs,
and interest thereon . . . I cannot recall the exact date on which I advised the Intramed liquidators.
I am advised that the Intramed liquidators, within a reasonable time, repaid the costs and interest
to the Intramed estate’.
What the reconciliation statement does show, however, is that interest was not
paid until after the launch of the present application in the high court, suggesting
that Brooks may have been misled by his clients as to when payment was
effected by them.
[194] None of this merited the consideration of the high court. The high court put
it thus (paragraphs 28 and 29 of its judgment):
‘The Supreme Court of Appeal handed down its judgment on 1 April 2004. The capital was
refunded in June and August of that year. Apart from the delay occasioned by identifying what
had to be repaid, the delay was also occasioned by Nel and de Villiers taking legal advice, by the
time it took Nel to collect contributions from the Macmed liquidators as part of the fee sharing
agreement and because of the time taken to rectify certain mistakes that had been made. The
bank attempts to make much of this delay but, once Nel and de Villiers had committed
themselves to pay interest, there was no prejudice caused to Intramed by a delay of a few
months. . . .’
With the greatest respect to the high court, it appears to have been uncritical in
its acceptance of the version advanced by the liquidators. It is unclear what legal
advice was sought after the SCA judgment or why that would necessarily have
contributed to the delay. What is clear is that the liquidators acted for the most
part in flagrant disregard of the judgment of this court. I have already dealt with
the liquidators awaiting contributions from the Macmed liquidators and why that
ought not to avail them. I, unlike the high court, would hesitate to characterize
their conduct as a commitment to pay interest. As I have sought to show, initially,
and for some time thereafter, they demonstrated a marked reticence to pay
interest. The real and substantive criticism of the high court judgment though is
its finding that ‘the capital was refunded in June and August’ 2004. That with
respect to the high court is wrong in fact. The same can be said of its conclusion
that no prejudice was caused to Intramed ‘by a delay of a few months’. These
findings are plainly unsustainable. It follows therefore that the high court ought to
have reached a contrary conclusion to that reached by it on this aspect of the
case.
[195] Ultimately, even Nel was constrained to concede: ‘De Villiers and I
acknowledge that certain overlapping and technically incorrect charging has taken place.
However, in the context of the group, I believe this is acceptable’.
That damning concession, which did not even merit mention in the judgment of
the high court, illustrates that they failed in the discharge of a most rudimentary
function for liquidators, namely the keeping of proper books of account. Given the
obligation imposed upon them to do so, that dereliction should not be
countenanced.
[196] Nel asserts:
‘I deny that De Villiers and I placed our own interests above those of Intramed and point out that
we acted on legal advice at all times.’
The refrain on the part of the liquidators, namely that they acted on legal advice,
does not avail them in respect of their conduct in relation to repayment of
Intramed’s funds. After the judgment of this court, there is simply no evidence of
them having acted on legal advice in taking all of 16 months to repay those
moneys. Nor, given the authority of this court, could I imagine, that such advice
would have been given. If anything, properly analysed, the evidence suggests
that in taking as long as they did in effecting payment of all of the capital plus
interest, they may actually have acted contrary to legal advice.
[197] It follows, in my view, that the appeal must succeed and I accordingly
concur in the order proposed by Navsa JA.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant:
J Suttner SC
R Hutton SC
Instructed by
Werksmans Sandton
Symington & De Kok Bloemfontein
For Respondent:
C E Watt-Pringle SC
G Girdwood
Instructed by
Deneys Reitz Johannesburg
Matsepes Attorneys Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
19 February 2010
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal
On 19 February 2010 the Supreme Court of Appeal handed down judgment in The
Standard Bank of South Africa v The Master of the High Court and others in terms of
which it upheld an appeal against a decision of the Grahamstown High Court, which
had refused to remove the second and third respondents, Basil Brian Nel and
Michael Leo De Villiers as joint liquidators of Intramed (Pty) Ltd (in liquidation) and
furthermore had refused to overturn the Master’s decision not to reduce their
remuneration as liquidators.
Intramed, it will be recalled, was a wholly-owned subsidiary of Macmed Healthcare
Limited (Macmed). The commercial collapse of the Macmed group of companies
was widely regarded as the biggest commercial collapse in the history of South
Africa. The winding up of Macmed and its 45 subsidiaries began slightly more than a
decade ago. On 31 May 2000 Nel and De Villiers were appointed as joint final
liquidators of Intramed. Nel was not only appointed a joint liquidator of Macmed and
of Intramed but of each of the other subsidiaries as well. He was an influential figure
in the liquidation process.
The liquidations of Macmed and Intramed have significant financial importance.
According to the first liquidation account Intramed has assets exceeding R170 m.
According to the amended fourth liquidation account it has liabilities exceeding R230
m. Standard Bank is a judgment creditor of Intramed in the amount of R107 728
463.64. Standard Bank is also a major creditor of Macmed and a number of its other
subsidiaries.
Standard Bank contended that Nel and De Villiers, instead of viewing the winding-up
of Intramed as a distinct process, saw it as part of the winding-up of the entire group
and improperly deferred to Macmed and its creditors. Standard Bank accused Nel
and De Villiers of both using, and failing to use, established mechanisms for
ensuring the proper administration of estates in liquidation. It alleged that they acted
in a manner favouring Macmed and prejudicing Intramed. This, in the main, relates
to the admission of a claim by Macmed in Intramed in the amount of R325m.
Standard bank also accused Nel and De Villiers of misappropriating Intramed’s
funds. They were accused of improperly using Intramed’s monies to pay costs which
a court in prior litigation, in relation to an application to review the Master’s decision
to reduce their fees, had ordered them to pay personally. Standard Bank alleged that
Nel and De Villiers had only repaid the monies with interest, after this fact had been
uncovered by Standard Bank, and after it persisted in holding them to account.
The SCA considered the voluminous case record and concluded that Standard
Bank’s complaints were in the main justified. It noted that in the winding-up of
companies liquidators occupy a position of trust, not only towards creditors but also
the companies in liquidation whose assets vests in them. Liquidators are required to
act in the best interests of creditors. A liquidator should be wholly independent,
should regard equally the interests of all creditors, and should carry out his or her
duties without fear, favour or prejudice. The majority of the court (Navsa, Ponnan,
Maya and Snyders JJA) held that the liquidators had acted in a manner falling short
of this standard and that they should be removed as liquidators. The SCA rejected
as too glib the reliance by Nel and De Villiers on legal advice. It noted with
disapproval that they had ignored prior criticisms by this court and found that they
had demonstrated ‘an obstinate resistance’ to being held to account.
The SCA considered that so much time had passed since the Macmed group had
been placed under liquidation and that the liquidation process was nearing
completion. It took into account that Nel and De Villiers played a major part in the
delay by way of costly protracted and unnecessary litigation but decided
nevertheless to take the extreme step of removing them as liquidators. This court
said the following:
‘Liquidators must realise that they perform important functions. The Master, creditors and importantly
courts rely on them. In the liquidation process they are expected to act impeccably. The profession
must be under no illusion that courts, in appropriate circumstances, when called upon to do so will act
to ensure the integrity of the winding-up process.’
The SCA concluded that Nel and De Villiers’ fees should be reduced by five per
cent.
In a dissenting judgment Griesel AJA took the view that Standard Bank had failed to
make out a sufficient case for the removal of Nel and De Villiers as liquidators of
Intramed or for the reduction of the fees of liquidators. In the view of Griesel AJA the
appeal should have been dismissed with costs.
In a separate concurring judgment Ponnan JA stated that he took an even dimmer
view of the liquidators’ conduct but agreed that they should be removed and that
their fees should be reduced by five per cent.
Because Standard Bank’s papers filed of record were held to be unnecessary prolix
and burdensome Nel and De Villiers were ordered to pay only two thirds of Standard
Bank’s costs, including the costs attendant upon the employment of two counsel.
|
2445
|
non-electoral
|
2013
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 680/12
Reportable
In the matter between:
COMPETITION COMMISSION OF SOUTH AFRICA APPELLANT
and
ARCERLORMITTAL SOUTH AFRICA LIMITED
FIRST RESPONDENT
CAPE GATE (PTY) LTD SECOND RESPONDENT
SCAW SOUTH AFRICA (PTY) LTD THIRD RESPONDENT
SOUTH AFRICAN IRON AND STEEL INSTITUTE FOURTH RESPONDENT
Neutral citation:
Competition Commission of SA v Arcerlormittal SA Ltd (680/12)
[2013] ZASCA 84 (31 May 2013)
Coram:
Brand, Nugent, Cachalia, Pillay JJA and Mbha AJA
Heard:
21 May 2013
Delivered:
31 May 2013
Summary:
Litigation privilege – requirements – purpose of document
claimed to be privileged not to be ascertained by reference to its author, but by
reference to the person under whose authority it was procured – waiver of
privilege – party disclosing privileged document in pleading – implied waiver –
litigant’s access to Competition Commission record under Commission rule 15
– confidential information – disclosure.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Competition Appeal Court (Davis JP, Mailula and Dambuza JJA
concurring sitting as court of appeal):
‘1.
The appeal by the Commission is dismissed and the cross-appeals by AMSA
and Cape Gate are upheld. In each case the Commission is to pay the costs
of AMSA and Cape Gate, including the costs of two counsel.
2.
No order is made regarding the costs incurred by Scaw on appeal.
3.
The order of the Competition Appeal Court is replaced with the following
order:
(i)
The appeal by AMSA and Cape Gate is upheld and the order of the tribunal is
set aside;
(ii)
The Commission is ordered to provide to AMSA the documents listed as items
3–42 in para 14 of the judgment of the Competition Appeal Court;
(iii)
The Commission is ordered to provide the leniency application and marker
application to AMSA, and to provide the leniency application to Cape Gate,
subject to the finding by the tribunal on Scaw’s claim to confidentiality in form
CC7 dated 9 July 2008. That claim to confidentiality is remitted to the tribunal
for determination and the making of an appropriate order regarding access to
the information;
(iv)
The Commission is ordered to provide to AMSA its record of information
collected during its investigation, subject to any claims to privilege made by
the Commission in relation to any of the information, and to any claims that it
is restricted information, including confidential information. Should any such
claims be made they are to be submitted to and determined by the tribunal;
(v)
The Commission is to pay AMSA’s and Cape Gate’s costs in the appeal and
its costs in the proceedings before the tribunal, including the costs of two
counsel where employed;
(vi)
No order is made regarding the costs of Scaw.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
CACHALIA
JA
(BRAND,
NUGENT,
PILLAY
JJA
AND
MBHA
AJA
CONCURRING):
[1] This is an appeal by the Competition Commission (the Commission) and two
cross-appeals by the first and second respondents, ArcelorMittal South Africa
Limited and Cape Gate (Pty) Limited, that arise from proceedings before the
Competition Appeal Court (CAC). It is convenient to refer to these respondents as
AMSA and Cape Gate. And where, in the judgment, reference is made to the
‘respondents’ this refers to AMSA and Cape Gate collectively.
[2] The nature and status of the appeals needs some explanation and to do that
requires an account of how the dispute that is before us arose.
[3] There is a dispute between the Commission and the respondents over the
latters’ entitlement to the production of documents from the Commission. They
require the documents, they say, to properly consider their written responses to a
complaint that the Commission has lodged against them with the Competition
Tribunal (the tribunal). The Commission alleges they have engaged in prohibited
practices as part of a steel cartel in contravention of the Competition Act 89 of 1998
(the Act). It refuses to hand over the documents, saying they are privileged and also
contain ‘restricted information’ under the Commission’s rules.1
[4] Scaw South Africa (Pty) Ltd (Scaw), the third respondent, which admits to
being part of the alleged cartel, gave the documents to the Commission. It did so to
avoid prosecution by taking advantage of the Commission’s Corporate Leniency
1 Rule 14 of the Rules for the Conduct of Proceedings in the Competition Commission, Proclamation
No. 12, GG 22025, 1 February 2001.
Policy (‘the CLP’).2 The rationale of the policy was recently explained in Agri Wire
(Pty) Ltd & another v Commissioner of the Competition Commission & others3 as
follows:
‘[T]he CLP has been developed to encourage participants to break ranks and disclose
information that enables the Commission to tackle cartel behaviour. This information is
furnished “in return for immunity from prosecution”, the latter being the term used in the
policy for a reference to the Tribunal and adjudication on a complaint of cartel activity, in
which an administrative penalty is sought. Clause 3.1 says that the CLP outlines the process
through which “the Commission will grant a self-confessing cartel member . . . immunity for
its participation in cartel activity”. That immunity is granted in return for full disclosure and full
co-operation in pursuing the other cartel members before the Tribunal.’
[5] Unable to obtain the documents from the Commission, AMSA and Cape Gate
separately applied to the tribunal for an order directing the Commission to produce
them. The Commission opposed the applications, alleging both that the documents
were privileged and that they constituted restricted information. Scaw was a party to
the proceedings, alleging that it had a claim to have the documents kept confidential.
Save for ordering limited disclosure of certain documents, the tribunal dismissed
both applications.
[6] Both respondents then appealed to the CAC against the order of the tribunal.
The Commission opposed the respondents’ appeals. Scaw was again a party to the
appeals. The CAC made no order on the appeals by the respondents, considering it
unnecessary to decide the issues upon which the tribunal had pronounced. Instead
it upheld Scaw’s contention that the documents were protected from disclosure by a
claim it had made to confidentiality in terms of s 44(1)(a) of the Act. The position, so
it reasoned, was thus governed by the provisions of the Act4 concerning access to
information over which confidentiality had been claimed – a matter for the tribunal,
rather than the CAC. In view of its decision to refuse access on other grounds, the
tribunal had had no reason to consider that contention by Scaw. The CAC therefore
remitted the matter to the tribunal to determine Scaw’s confidentiality claim.
2 Corporate Leniency Policy, GN 628, GG 31064, 23 May 2008.
3 Agri Wire (Pty) Ltd & another v Commissioner of the Competition Commission & others [2012] 4 All
SA 365 (SCA) para 6.
4 Under s 45 of the Act.
[7] The order of the CAC – or rather, its failure to rule upon the order made by the
tribunal, which is what was before it on appeal – has created a dilemma for all the
parties. Had the appeal against the order of the tribunal been dismissed then the
documents would have been protected from disclosure, and the question whether
they were subject to a confidentiality claim by Scaw would have had no practical
effect (which is what the tribunal concluded, hence it did not deal with that claim). It
was only if the CAC had upheld the appeal against the order of the tribunal that it
would have been necessary for the matter to be remitted to the tribunal to rule on
Scaw’s confidentiality claim.
[8] As it is, by failing to either confirm or set aside the tribunal’s order, the parties
are back to square one. When the tribunal is called upon to consider the
confidentiality issue, which has been referred back for its ruling, the Commission will
again be entitled to invoke the same defences to disclosure, which have already
been upheld by the tribunal. It is in an effort to avoid that occurring that the matter is
now before us. Strictly, an appeal lies against an order of a court. Absent an order of
the CAC on the appeal that was before it there was nothing to appeal against. What
has brought the matter before us is that the parties need a decision on the issues
that were before the tribunal, without which they have reached a stalemate. I think it
is clear that they cannot be left in that position, and we ought to accede to their
unanimous request to resolve these issues, notwithstanding that strictly there was
nothing to appeal.
[9] The dispute has its genesis in an investigation by the Commission against
alleged prohibited practices in the steel industry that began more than five years
ago.5 The Commission commenced the investigation by initiating two complaints in
terms of s 49B of the Act: one on 21 April 2008 and the other on 5 June 2008.
AMSA, Cape Gate, Scaw and the South African and Iron and Steel Institute were
among the companies being investigated. The Institute is cited as the fourth
respondent but it plays no part in these proceedings.
5 This Court has drawn the following dates from the judgment of the tribunal, noting that there are
some immaterial discrepancies between those listed by the CAC and the dates submitted to the court
in the affidavits.
[10] On 19 June 2008 the Commission conducted searches at the premises of
various companies as part of the investigation. Following the search, and after
learning that no other company had applied for leniency under the CLP, Scaw took
the opportunity to do so.
[11] In applying for leniency Scaw first applied for what is known as a ‘marker’,
which allows the applicant to claim priority ahead of other cartel members who may
also apply for leniency. The Commission’s policy allows leniency only to the first
successful applicant. On 2 July 2008, after the marker application was submitted, the
Commission requested further specific information from Scaw. A week later, on
9 July, Scaw submitted its leniency application, and on 17 July the Commission
granted Scaw conditional immunity from prosecution. Thereafter, Scaw handed over
numerous further documents to the Commission, at the Commission’s behest, and
attended several consultations with the Commission concerning the complaints.
[12] In consequence of the information received from Scaw, including the
information in the leniency application, and from its own investigations, the
Commission determined that the respondents had engaged in prohibited practices in
contravention of ss 4(1)(b)(i) and 4(1)(b)(ii) of the Act.
[13] On 1 September 2009 the Commission referred a complaint regarding the
alleged prohibited practices to the tribunal for adjudication.6 It alleged that the
respondents were party to ‘agreements’, as defined in the Act, to fix prices, trading
conditions and to divide markets between themselves. In addition to seeking
declaratory and interdictory relief against the respondents, excluding Scaw, which
had been granted conditional immunity, the Commission sought the imposition of an
administrative penalty of 10 per cent of each respondent’s annual turnover in South
Africa, including their exports, for the preceding year.
[14] Shortly after the Commission delivered its founding affidavit (‘the referral
affidavit’) Cape Gate and AMSA sought the production of documents from the
6 Pursuant to the provisions of s 50(1) read with s 51(2) of the Act and the Competition Tribunal rule
15(2), published in Proclamation No. 12, GG 22025, 1 February 2001.
Commission. The Commission provided some documents to AMSA, but refused to
hand over the rest.
[15] In December 2009 the respondents applied to the tribunal for access to the
documents. Cape Gate sought access only to Scaw’s leniency application document,
the annexures and all supporting documents that were submitted in support of the
application (‘the leniency application’). For this purpose it relied on rule 35(12) of the
Uniform Rules of Court, which the tribunal applies. The rule permits any party, after
delivering a notice to any other party in whose pleadings or affidavit there is
reference to a document, to inspect and copy the document.
[16] AMSA sought access to a much broader set of documents than Cape Gate
did. First, it wanted all the documents the Commission generated during its
investigation of the complaint. Put simply it sought the ‘Commission record’
pertaining to the complaint. It contends that Commission rule 15(1), which gives a
right to ‘any person’ – not only to a person being investigated for a prohibited
practice – to inspect or copy any Commission record, permits this. Second, AMSA
also relied on rule 35(12) for discovery of an extensive set of documents described in
a table attached to the Notice of Motion.7 This included the leniency application, the
marker application and other documents to which reference was made in the referral
affidavit. The other documents include letters, faxes, e-mails and all other forms of
correspondence, notes, tape recordings, photographs, electronic data, website and
other publications, as well as minutes of meetings.
[17] The tribunal granted AMSA ‘limited discovery’ of three documents, which were
referred to in the referral affidavit, but for the rest dismissed both applications. The
Commission was ordered to provide copies of only those documents that were
specifically referred to: an e-mail dated 25 September 2003 and the minutes of
export monitoring subcommittee meetings held on 5 April 2005 and 15 November
2005.
7 It relied also on Uniform rule 35(14), but this was misplaced as the rule applies only to actions.
[18] Before the CAC, AMSA no longer persevered with its application for the full
list of documents in respect of which it sought discovery, but it persisted for access
to a truncated list set out in a table in para 14 in the CAC’s judgment. These
documents, other than the leniency application, are no longer in issue, the
Commission having accepted before us that they are disclosable under rule 35(12).
In summary, therefore, AMSA and Cape Gate seek access to the leniency
application and AMSA also seeks access to the Commission record.
[19] The Commission’s stance has remained consistent throughout proceedings
before the tribunal and the CAC, and has not altered before this court; it claims that it
is entitled to withhold the documents from the respondents. In respect of the leniency
application, it claims this entitlement for two reasons: first, because the leniency
application is protected by litigation privilege and, secondly, because it is claimed as
restricted information in terms of Commission rule 14(1)(e),8 which gives it a
discretion to withhold it under s 37(1)(b) of the Promotion of Access to Information
Act 2 of 2000 (PAIA). Concerning AMSA’s claim to disclosure of the Commission
record, the Commission’s submission in this court was that rule 15 finds no
application once litigation commenced. I turn to consider the Commission’s claim
that the leniency application is protected from disclosure by litigation privilege.
Litigation Privilege
[20] Litigation privilege is one of two components of legal professional privilege,
the other being the privilege that attaches to communications between a client and
his attorney for the purpose of obtaining and giving legal advice. Litigation privilege,
with which we are concerned in this case, protects communications between a
litigant or his legal advisor and third parties, if such communications are made for the
purpose of pending or contemplated litigation. It applies typically to witness
statements prepared at a litigant’s instance for this purpose. The privilege belongs to
the litigant, not the witness, and may be waived only by the litigant.
[21] Litigation privilege has two established requirements: The first is that the
document must have been obtained or brought into existence for the purpose of a
8 See para 47 below.
litigant’s submission to a legal advisor for legal advice; and second that litigation was
pending or contemplated as likely at the time.9
[22] There is some uncertainty as to whether documents prepared for litigation
must have submission to legal advisers as it sole purpose, substantial purpose,
definite purpose or dominant purpose. A suggestion that the document must have
been prepared substantially for that purpose was rejected as having been based on
a misreading of earlier authority.10 In Sweiden and King v Zim Israel Navigation11
Booysen J said it suffices if it is a definite purpose, whether there are other purposes
or not. He considered that the weighty authority of the House of Lords in the seminal
case of Waugh v British Railways Board,12 which adopted the dominant purpose test,
did not accord with our practice.13 The dominant purpose test has since been applied
in Canadian14 and Australian courts.15 And the parties appear to adopt it in their
submissions.
[23] It is, however, not always apparent what the definite or dominant purpose is.
In Waugh, where the two purposes of a document carried equal weight, the court
found that no dominant purpose attached to the document and it was therefore not
protected by litigation privilege.16 But the courts have also looked at these separate
or dual purposes as part of a single overarching purpose related to litigation. So
where, in Re Highgrade Traders Ltd,17 insurers had commissioned reports to
9 D T Zeffertt and A P Paizes The South African Law of Evidence 2 ed (2009) at 674, 688. The
formulation in Zeffertt and Paizes drawn from the cases there cited does not include the phrase
‘brought into existence’ in the first requirement for litigation privilege. The phrase is used in United
Tobacco Companies (South) Ltd v International Tobacco Co of SA Ltd 1953 (1) SA 66 (T) at 70A.
This phrase is also used in: C Tapper Cross & Tapper on Evidence 12 ed (2010) at 454. Tapper also
points out that English courts require a definite prospect of litigation in contemplation by the client,
and not a mere vague anticipation of it. But that it was not necessary for the likelihood to exceed 50
per cent. (at 453-454). In General Accident Fire and Life Assurance Corporation Ltd. v Goldberg 1912
TPD 494 at 594 Mason J used the phrase ‘likely or probable’. As the words ‘likely’ and ‘probable’ are
synonymous I consider that their use together is redundant.
10 Zeffert and Paizes (above) at 680.
11 Sweiden and King v Zim Israel Navigation 1986 (1) SA 515 (D) at 519.
12 Waugh v British Railways Board [1979] 2 All ER 1169.
13 D T Zeffertt and A P Paizes The South African Law of Evidence 2 ed at 680.
14 Blank v Canada (Minister of Justice) [2006] 2 SCR 319 (SCC) para 60.
15 Mitsubishi Electric Australia (Pty) Ltd v Victorian Work Cover Authority (2002) 4 VR 332.
16 Waugh (above) at 1173C and 1174B-C.; See also Axa Seguros S A de C V v Allianz Insurance plc
[2011] EWHC 268 (England and Wales High Court (Commercial Court)) para 13..
17 Re Highgrade Traders Ltd [1984] BCLC 151 (CA).
establish the cause of a fire that had destroyed an insured’s business the Court of
Appeal was not prepared to find separate purposes. Instead it said the following:
‘What then is the purpose of these reports? The learned judge [a quo] found duality of
purpose because, he said, the Insurers wanted not only to obtain the advice of solicitors, but
also wanted to ascertain the cause of the fire. Now, for my part, I find these two quite
inseparable.’18
[24] Here the parties differ over the purpose for which the leniency application was
brought into existence, let alone its definite or dominant purpose. It is therefore not
necessary in this case for us to consider whether Sweiden was correctly decided,
and if so, whether our common law should be developed to accord with
developments in other jurisdictions. I shall leave the question open.
[25] The Commission contends that consistent with the purpose of the CLP, it
obtained the application for the purpose of prosecuting the steel cartelists and
seeking advice from its legal advisors on the contemplated litigation. AMSA’s
submission is that the document was created not for that purpose, but for Scaw to be
given immunity against prosecution in exchange for the information. And the fact that
the Commission may have considered it useful in litigation after having received it
cannot alter the fact that it was not created for this purpose. The Commission
therefore could not claim the privilege. In short, AMSA submits that it is the purpose
of the creator of the document, at the moment of its creation, that is material to the
test for the document’s purpose.
[26] Cape Gate adds a gloss to this submission. It contends that the document
was prepared at Scaw’s instance, and not that of the Commission’s or its legal
advisors’. On Cape Gate’s argument, in order to fall within the protection of the rule,
the leniency application had to have originated in answer to inquiries made by the
Commission or its lawyers; in other words, the Commission can only claim privilege
over information it actively sought with a view to its litigation, not information that
comes into its hands for any other purpose. The facts, say Cape Gate, do not
support the claim for privilege on this basis.
18 At 25E.
[27] In my view the flaw in the respondents’ approach is that they incorrectly focus
on Scaw’s motive in composing the leniency application to determine the purpose –
whether definite or dominant – instead of focusing on the Commission’s reason for
obtaining or procuring it. The purpose of the document is not to be ascertained by
reference to its author, either at the time at which the document was prepared or at
the time it is handed over to the litigant or the litigant’s legal representative. Instead,
the purpose of the document is to be determined by reference to ‘the person or
authority under whose direction, whether particular or general, it was produced or
brought into existence’.19 In that case it is the intention of the person who procured
the document, and not the author’s intention, that is relevant for ascertaining the
document’s purpose.20 The author need not even have known of possible litigation
when the document was prepared.21
[28] The inquiry into whether litigation privilege attaches to the leniency application
is fact-bound. In this case that inquiry must focus on the facts set out in the
Commission’s answering affidavits in response to the respondents’ discovery
applications. The Commission says that the CLP is founded upon an expectation of
litigation. The commencement of discussions with a leniency applicant is always with
a view to instituting prosecutions against cartelists. And the grant of immunity flows
from the process. Put simply the grant of immunity, to secure the cooperation of a
cartelist, is inseparable from the litigation process itself. This much is clear from the
tribunal’s characterization of the purpose of the CLP in the Pioneer Foods case:22
‘[38]
The very purpose of the CLP . . . is for firms who have been part of a cartel to come
forward with the carrot of immunity offered in return for information and co-operation. But
that is not an end in itself. The information obtained from immunity applicants under the CLP
is intended for the purpose of litigation against the remaining firms alleged to be part of the
cartel. The informants furnish the Commission with the information which forms the basis of
its decision to refer a complaint. The extract from the CLP that we cited above clearly obliges
19 This formulation was first expounded by Barwick CJ in Grant v Downs (1976) 135 CLR 674 at 677,
and approved in Waugh V British Railways Board [1979] 2 All ER 1169 at 1174, 1178, 1183, [1980]
AC 521 at 533, 537, 543-544.
20 Guinness Peat Properties Ltd & others v Fitzroy Robinson Partnership (a firm) [1987] 2 All ER 716
at 723.
21 C Tapper Cross & Tapper on Evidence 12 ed at 454.
22 Pioneer Foods (Pty) Ltd v Competition Commission in re: Competition Commission v Tiger Brands
Ltd t/a Albany & another; Competition Commission v Pioneer Foods (Pty) Ltd t/a Sasko & another
[2009] 1 CPLR 239 (CT).
applicants to cooperate with the Commission “until the Commission’s investigations are
finalized and the subsequent proceedings in the Tribunal are completed”.
[39] That in the process an ancillary outcome, the award of indemnity is afforded, does
not detract from the fact that the Commission’s central object is to use the information to
conduct litigation in the Tribunal against such members of the alleged cartel as contest
proceedings. Thus the inescapable conclusion is that inherent in this process is the
contemplation of litigation.’
[29] It emerges from the Commission’s affidavits that it contemplated litigation as a
result of its investigation into the steel industry. Scaw became aware of the
investigation and applied to the Commission for a marker, which was granted. The
Commission then requested Scaw to file a leniency application, which contained
certain specific information. Scaw did so on 9 July 2008. Of importance in this regard
is that the Commission pertinently says that the leniency application was prepared
for its use, even though it would be of a benefit to Scaw. And it was made clear to
Scaw from the outset of its engagement with the Commission that the information
contained in the leniency application was required so that a complaint could be
initiated against the respondents. Moreover, the Commission’s in-house and external
legal advisors were involved throughout this process, including providing advice on
the leniency application.
[30] There is no reason to doubt that explanation. Moreover, our courts have held
that, subject to certain limited exceptions, ‘the statements in the affidavits of
documents are conclusive with regard to the documents that are . . . in the
possession . . . of a party giving the discovery . . . as to the grounds stated in support
of a claim of privilege from production for inspection’.23 A court will therefore not
lightly go behind averments in an affidavit to the effect that the likelihood of litigation
was contemplated when the document was procured.24
[31] I therefore consider that the circumstances under which Scaw created the
document and the Commission obtained it are inseparable. The document came into
existence at the instance of the Commission for the purpose of prosecuting firms
23 United Tobacco Companies (South) Ltd v International Tobacco Co of SA Ltd 1953 (1) SA 66 (T) at
70H, quoting from Halsbury, the Hailsham edition, Vol. 10, para 445.
24 Ibid 72.
alleged to be part of a cartel. And the fact that there was, in the process, to borrow
from the tribunal’s phraseology in the Pioneer Food’s case, ‘an ancillary outcome of
indemnity’ does not detract from this purpose. Furthermore, the accepted facts
support the Commission’s averment that litigation was likely when the document was
procured, that its lawyers were involved in the process – including advising on the
leniency application, and that the purpose for the preparation of the leniency
application was to support the envisaged litigation. The leniency application was, in
substance, Scaw’s witness statement in the contemplated litigation. The document
was therefore privileged in the hands of the Commission.
[32] In the light of this finding the question that arises is whether the Commission
waived its privilege by referring to the leniency application in the referral affidavit, as
the respondents’ contend it did. Under rule 35(12) a document becomes disclosable
if reference is made to it in a pleading. The tribunal dismissed this contention
somewhat cursorily: waiver, it said, is not lightly inferred and the ‘oblique references’
to the leniency application in the referral affidavit are not sufficient to constitute a
waiver. The CAC did not consider the point.
[33] Waiver may be express, implied or imputed. It is implied if the person who
claims the privilege discloses the contents of a document, or relies upon it in its
pleadings or during court proceedings. It would be implied too if only part of the
document is disclosed or relied upon. For a waiver to be implied the test is objective,
meaning that it must be judged by its outward manifestations; in other words from
the perspective of how a reasonable person would view it.25 It follows that privilege
may be lost, as the English courts have held, even if the disclosure was inadvertent
or made in error.26 Imputed waiver occurs when fairness requires the court to
conclude that privilege was abandoned.27 The respondents contend that in this case
the loss of privilege is implied or to be imputed to the Commission. The Commission
submits that the bare references to the leniency application in the referral affidavit
did not amount to a waiver of privilege.
25 Road Accident Fund v Mothupi 2000 (4) SA 38 (SCA) para 16.
26 Guinness Peat Properties Ltd & others v Fitzroy Robinson Partnership (a firm) [1987] 2 All ER 716
at 729.
27 S v Tandwa 2008 (1) SACR 613 (SCA) paras 18-19.
[34] I appreciate that a bare reference to a document in a pleading, without more,
may be insufficient to constitute a waiver, whereas the disclosure of its full contents
may constitute a waiver. Where the line is drawn between these extremes is a
question of degree, which calls for a value judgment by the court. When that line is
crossed the privilege attached to the whole document, and not just the part of the
document that was referred to, is waived. The reason is that courts are loath to order
disclosure of only part of a document because its meaning may be distorted. But it
must also be so that it does not inevitably follow that because part of document is
disclosed, privilege is lost in respect of the whole document. This would be so where
a document consists of severable parts and is capable of severance.28 I turn to the
facts here.
[35] The Commission referred to the leniency application in its referral affidavit in
these terms:
‘8.7
. . . Scaw applied for leniency in terms of the Commission’s CLP for price fixing and
market allocation in relation to rebar, wire rod, sections (including rounds, squares
angles and profiles).
8.8
Scaw confirmed in the application for leniency that there has been a long standing
culture of cooperation amongst the steel mills regarding the prices to be charged,
and discounts to be offered, for their steel products such as rebar, wire rod, sections
(including rounds and squares, angels and profiles). The cooperation extended to
arrangements on market division.
8.9
In addition to information submitted by Scaw in its leniency application, the
Commission conducted its own investigations which largely confirmed the allegations
made by Scaw and provided further evidence of anticompetitive practices in
contravention of section 4(1)(b) of the Act – involving both price fixing and market
division.
8.10
It is as a consequence of information contained in the Scaw application for leniency
and that obtained from the Commission’s investigations that this referral is made.’
[36] These paragraphs, in my view, amount to much more than a bare or oblique
reference to the leniency application. The allegation in para 8.8 that a long standing
culture of cooperation was ‘confirmed in the application for leniency’ makes it clear
28 A Keane The Modern Law of Evidence 3 ed (1994) at 486.
that the application contained a full recital of facts that supported that conclusion.
Whether the application indeed contained those facts is a matter that the
respondents will be called upon to respond to in their answering affidavits. It is
precisely to enable it to do so that rule 35(12) requires documents referred to in
pleadings to be disclosed.29
[37] The Commission must be taken to be aware of the rule and the circumstances
under which the privilege that attaches to a document may be lost or waived. It must
be borne in mind that a complaint referral requires no more than a concise statement
of the grounds of the complaint and the material facts or point of law relied on.30 The
referral is in the form of an affidavit and it may contain evidence that is intended to
be led in the proceedings. The tribunal may adopt a more flexible approach to
pleadings than is the practice in the high court.31 This means that the Commission is
under no obligation to refer to any documents and was under no obligation to refer to
the leniency application; it needed to set out only the material facts that supported
the allegation of collusive conduct against the respondents. Objectively viewed,
therefore, the Commission’s reference to the leniency application in the referral
affidavit is consistent with an implied waiver of the privilege, and I so hold.
[38] Once it is accepted that the Commission waived its privilege to the leniency
application, it follows that any entitlement of the Commission to claim the information
as restricted information under rule 14(1)(e) was similarly waived.
[39] What remains is Scaw’s claim of confidentiality concerning the information
that was part of the leniency application. Cape Gate contests the claim. As I
understand its submission, Cape Gate contends that once Scaw and the
Commission agreed that the information provided was discoverable for use in
proceedings before the tribunal in terms of s 11.1.3.3,32 Scaw no longer had any
29 Unilever v Polagric (Pty) Ltd 2001 (2) SA 329 (C) at 336G-J.
30 Tribunal rule 15(2).
31 M Brassey, J Cambell, R Legh, C Simkins, D Unterhalter & J Wilson Competition Law 1 ed (2002)
at 308-309.
32 Clause 11.1.3.3 of the CLP says: ‘The Commission shall maintain confidentiality on all information,
evidence and documents given to it throughout the process. Use of documents and information
obtained from the applicant at the Tribunal in terms of the Act shall not amount to the breach of
confidentiality.’
reasonable expectation that the information provided would be treated as
confidential in litigation proceedings. And so, it submits, Scaw cannot claim any of
the documents provided to the Commission as confidential information.
[40] Before I consider this submission, it bears mentioning that the Act carefully
regulates ‘confidential information’ to protect the confidential commercial interests of
complainants and informants.33 It has an important underlying public purpose:
Absent guarantees that their confidential information will be protected from
disclosure to third parties, firms submitting information to the Commission as
informants may be reluctant to do so. Were this to be the case, the Commission
would be severely hampered in its ability to investigate breaches of the Act.
[41] In my view Cape Gate’s submission conflates the two senses in which the
term confidentiality is dealt with in the CLP: The first concerns the confidentiality of
the CLP process, and the second relates to the confidentiality of an informant’s
information. The process is undertaken under a confidentiality agreement as
envisaged in the CLP.34 Under the agreement, the leniency applicant agrees to
submit information in exchange for immunity. The Commission, for its part, agrees to
undertake the process on a confidential basis and to treat all the information
submitted by the leniency applicant as confidential,35 whether or not the information
is in fact ‘confidential information’ in terms of the Act. If the applicant applies for
leniency, the parties will enter into a written agreement in terms of which the
applicant is granted conditional immunity.36 And once the Commission decides to
use the information at the tribunal, clause 11.1.3.3 says this shall not constitute a
‘breach of confidentiality’. Properly construed, therefore, all information submitted by
the applicant must be treated in confidence by the Commission until it decides to use
the information before the tribunal, in which case only information specifically
claimed to be ‘confidential information’ must be dealt with in terms of the Act.
33 See the definition of ‘confidential information’ in s 1 of the Act. See also M Brassey, J Cambell, R
Legh, C Simkins, D Unterhalter & J Wilson Competition Law 1 ed at 303.
34 Section 11.1.3.3 of the CLP. See also Currie & Klaaren The Promotion of Access to Information Act
Commentary at 8.63.
35 See clause 8.2, which says: ‘A firm that chooses to disclose its identity or any relevant information
at this stage does so at its own risk because it would not be protected by the CLP at this stage.
However, the Commission will protect information submitted by applicants and treat it with utmost
confidentiality.’
36 Clause 11.1.3.2.
[42] The relevant sections are s 44(1)(a), which provides for the right of informants
to claim confidentiality for information submitted to the Commission, and s 45, for the
manner and form under which a person seeking access to such information may
apply to the tribunal for disclosure. Once an informant submits information claimed to
be confidential in the prescribed manner, explaining why the information is
confidential, the Commission is bound by the claim until the tribunal rules to the
contrary.37 This means that ‘confidential information’ so described must fall within the
ambit of the Act, which defines it to mean ‘trade, business or industrial information
that belongs to a firm, has a particular economic value, and is not generally available
or known by others’.38 It is therefore necessary for an informant who submits
information, which he claims to be confidential, to the Commission to describe the
nature of the information with sufficient precision in order to support any subsequent
claim that it should not be published or disclosed to anyone else.39
[43] The CAC, I think, correctly held that until the respondents apply through the
legislatively prescribed procedure under s 45(1) for access to the information, and
the tribunal determines whether or not the information is confidential, the documents
remain confidential. I do, however, have doubts as to whether Scaw’s claim to
confidentiality falls within the terms of the section. In its written statement in the
prescribed form40 explaining why the information is confidential, and under a column
requiring an applicant to describe the ‘nature of the economic value of the
information’, Scaw made no attempt to bring any of the information within the ambit
of the definition. It merely stated, formulaically, and in respective of each of four
categories of information claimed to be confidential, that it is ‘[i]nformation belonging
to a private entity which is strictly private and confidential and made in pursuance of
corporate leniency and which is clearly not in the public domain and which could
cause irreparable harm if it becomes available to competitors or other third parties’.
What Scaw describes here are the consequences of the information being disclosed,
not the nature and economic value of the information. Scaw’s mere assertion, in the
prescribed form, that the information is confidential, does not make it so.
37 Sections 44(1)(b) and 44(2).
38 Section 1 of the Act.
39 Cf R Whish Competition Law 6 ed (2008) at 391.
40 Form C 77.
[44] But it was submitted on behalf of Scaw, and I accept the submission, that the
tribunal is the proper forum in which a claim to confidentiality under the section, both
in its form and its substance, is to be tested. The CAC therefore correctly remitted
this question to the tribunal, and Cape Gate’s submission to the contrary falls to be
dismissed.
AMSA’s Rule 15 application
[45] As mentioned earlier, AMSA also seeks access to the Commission record
(apart from the leniency application) under Commission rule 15(1) read with rule 14.
Rule 15(1) allows ‘any person’ to have access to ‘any Commission record’, provided
it is not ‘restricted information’ contemplated in rule 14(1). The Commission opposes
this.
[46] The Commission suggested in argument that AMSA is not entitled to invoke
rule 15 to obtain access to the record as the rule is aimed at providing access to
information to the public, and not to a litigant. If it is correct that a member of the
public may gain access to the Commission record under rule 15, subject to any
restrictions under rule 14, and this must be so on a plain reading of the rule, it would
be absurd to prevent a litigant from being given access. This would mean, for
example, that access could be denied to the Chief Executive Officer of AMSA, but
not to her relatives or friends, who are members of the public. It follows that AMSA is
entitled to the Commission record subject to any claims of privilege or any restriction
under rule 14.
[47] The tribunal accepted that when analysing the right exercised by AMSA in
terms of rule 15(1) it must do so from the vantage of this being a general right
available to all, and not a litigant’s right. On this basis it found that the documents
sought by AMSA constituted restricted information in terms of rule 14(1)(e) read with
s 37(1)(b) of PAIA. (Section 37(1)(b) allows a public body such as the Commission to
restrict access to its record in the public interest if the disclosure of the information
could reasonably be expected to prejudice the future supply of similar information, or
information from the same source.)41 The tribunal thus dismissed AMSA’s application
for the documents to be disclosed in terms of rule 15(1).
[48] Rule 14(1) provides for five categories of restricted information: confidential
information;42 information concerning the identity of a complainant;43 information
concerning the conduct attached to a complaint until a referral or notice of non-
referral is issued;44 the Commission’s work product;45 and finally any document to
which the Commission is ‘required or entitled to restrict access in terms the
Promotion of Access to Information Act, 2000 (Act No. 2 of 2000)’ (PAIA),46 which is
in issue here.
[49] There is no dispute that once the complaint had been referred to the tribunal
for adjudication, any restriction under rule 14(1)(c)47 fell away because access to the
record could no longer be restricted on this ground. The tribunal, however, held that
the Commission was entitled to withhold access to the record because disclosure
would reasonably compromise the future supply of similar information or information
from the same source. The tribunal thus held that the information could be withheld
from AMSA at the Commission’s discretion because of its ‘inherent nature’.48 As I
have already held that the information forming part of the leniency application must
be disclosed, the question whether information from the same source – ie the
leniency applicant – may be withheld falls away. The Commission may therefore not
withhold this part of the record on this ground.
[50] I accept though that the record may also contain similar information pertaining
to the investigation that may emanate from sources other than the leniency
applicant, which the Commission may well be entitled to restrict; indeed it may be
obliged to restrict this information in the public interest if it reasonably believes that
disclosure would prejudice the future supply of such information. But it does not
41 Section 37(1)(b)(i) and (ii) of PAIA.
42 Rule 14(1)(a).
43 Rule 14(1)(b).
44 Rule 14(1)(c).
45 Rule 14(1)(d).
46 Rule 14(1)(e).
47 See n 45 above.
48 At para 18.
follow that all information in the record may be withheld even if it does not fall into
this category, or any other category, contemplated in rule 14. If the Commission
seeks to prevent AMSA from gaining access to the record, it cannot do so generally
but is required to identify specific documents or categories of documents to which it
may wish to restrict access. In this regard AMSA has made it clear that it does not
seek access to documents that may legitimately be claimed to be part of the
Commission’s work product as contemplated by rule 14(1)(d). Consequently AMSA’s
claim to the record succeeds, subject to any claim that specific documents are
privileged, restricted or confidential.
[51] To conclude, I hold that the leniency application was privileged, but that the
Commission waived its privilege by referring to it in the referral affidavit, as it did to
the claim that the application was restricted under rule 14(1)(e). The leniency
application must therefore be disclosed to the respondents subject to the tribunal
determining Scaw’s claim of confidentiality in terms of s 45(1) of the Act. In respect
of AMSA’s application for disclosure of the Commission record, this too is upheld,
subject to any claim that the record or any part of it may be restricted under rule 14,
or on the grounds of privilege, or any other ground that provides a recognised
defence to the disclosure of information. Those claims are to be adjudicated by the
tribunal, if any such claims arise.
[52] The following order is made:
‘1.
The appeal by the Commission is dismissed and the cross-appeals by AMSA
and Cape Gate are upheld. In each case the Commission is to pay the costs
of AMSA and Cape Gate, including the costs of two counsel.
2.
No order is made regarding the costs incurred by Scaw on appeal.
3.
The order of the Competition Appeal Court is replaced with the following
order:
(i)
The appeal by AMSA and Cape Gate is upheld and the order of the tribunal is
set aside;
(ii)
The Commission is ordered to provide to AMSA the documents listed as items
3–42 in para 14 of the judgment of the Competition Appeal Court;
(iii)
The Commission is ordered to provide the leniency application and marker
application to AMSA, and to provide the leniency application to Cape Gate,
subject to the finding by the tribunal on Scaw’s claim to confidentiality in form
CC7 dated 9 July 2008. That claim to confidentiality is remitted to the tribunal
for determination and the making of an appropriate order regarding access to
the information;
(iv)
The Commission is ordered to provide to AMSA its record of information
collected during its investigation, subject to any claims to privilege made by
the Commission in relation to any of the information, and to any claims that it
is restricted information, including confidential information. Should any such
claims be made they are to be submitted to and determined by the tribunal;
(v)
The Commission is to pay AMSA’s and Cape Gate’s costs in the appeal and
its costs in the proceedings before the tribunal, including the costs of two
counsel where employed;
(vi)
No order is made regarding the costs of Scaw.’
_________________
A CACHALIA
JUDGE OF APPEAL
APPEARANCES
For Appellant:
N H Maenetje SC (with him N Jele)
Instructed by:
DTI Campus, Block C, Sunnyside
N W Phalatsi & Partners, Bloemfontein
For First Respondent:
M van der Nest SC (with him D Turner)
Instructed by:
Bell Dewar Inc, Sandton
Honey & Partners, Bloemfontein
For Second Respondent: J Campbell SC (with him A Gotz)
Instructed by:
Bowman Gilfillan Inc, Sandton
Matsepe’s Inc, Bloemfontein
For Third Respondent:
D Unterhaulter SC (with him K Hofmeyr)
Instructed by:
Nortons Inc, Sandton
McIntyre & Van der Post, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
31 May 2013
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
COMPETITION COMMISSION OF SA
V
ARCERLORMITTAL SA LTD
The Supreme Court of Appeal (SCA) today dismissed an appeal by the
Competition Commission, and upheld a cross-appeal by ArcerlorMittal (Pty)
Limited and Cape Gate (Pty) Ltd against an order of the Competition Appeal Court
(CAC). It ordered the Commission to make available documents sought by Mittal
and Cape Gate from the Commission to enable them to answer to allegations that
they engaged in prohibited practices in contravention of the Competition Act 89 of
1998 as part of a steel cartel. One of the firms that admitted to being part of the
cartel, Scaw South Africa (Pty) Ltd, applied for leniency and was given conditional
immunity from prosecution on condition that it cooperated fully with the
Commission in prosecuting the other cartel members. The Commission used this
information to lodge a complaint against Mittal and Cape Gate with the Competition
Tribunal relating to their alleged anti-competitive practices. It is Scaw’s leniency
application to the Commission, and the documents that were part of the
application, which Mittal and Cape Gate sought disclosure of, that became the
main point in dispute.
The Commission had resisted disclosure of the documents on the grounds that
they are privileged, because they had been prepared for the purpose of litigation
and also that they could be restricted under the Commission’s rules. The Tribunal
had upheld the Commission’s opposition to the disclosure of the documents. The
Commission then appealed to the CAC.
The CAC however considered it unnecessary to decide the two issues, but
nevertheless ordered the Commission to disclose the documents subject to any
claim by Scaw that the documents were confidential – an issue it remitted to the
Tribunal for determination.
The CAC’s omission to rule on the two issues created a dilemma for all the parties.
Because when the matter again came before the Tribunal, the Commission would
once again be entitled to resist disclosure of the documents on the two grounds.
So, all the parties appealed to the SCA to decide the outstanding questions.
The SCA ruled that the Commission was entitled to claim privilege over the
documents because they had been prepared for the purpose of litigation. But that
the Commission had waived the privilege, as they did in respect of any right it had
to restrict the documents, by making reference to the documents in its complaint
against Mittal and Cape Gate. The SCA consequently ruled that the documents are
to be disclosed subject to any claim by Scaw that the documents were confidential,
which was a matter for the Tribunal to decide. The SCA accordingly referred the
matter back to the Tribunal for decision on this question.
|
2749
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 495/11
TECMED AFRICA (PTY) LTD
Appellant
and
THE MINISTER OF HEALTH
First Respondent
CANCARE (PTY) LTD
Second Respondent
Neutral citation:
Tecmed Africa v The Minister of Health
(495/11) [2012] ZASCA 64 (21 May 2012)
BENCH:
NAVSA, PONNAN and SNYDERS JJA and
BORUCHOWITZ and NDITA AJJA
HEARD:
3 MAY 2012
DELIVERED:
21 MAY 2012
CORRECTED:
SUMMARY:
Appeal – s 21A(1) of the Supreme Court Act – power of court
to dismiss appeal where judgment or order sought would have
no practical effect or result.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
North Gauteng High Court, Pretoria (Southwood J (Ledwaba J and
Hiemstra AJ concurring) sitting as court of appeal):
1.
The appeal is dismissed.
2.
The appellant is to pay all costs in relation to the appeal incurred after 14
February 2012, such costs to include those consequent upon the employment of
two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
PONNAN JA (NAVSA and SNYDERS JJA and BORUCHOWITZ and NDITA AJJA
concurring):
[1] On 3 May 2012 this appeal was heard and dismissed in terms of s 21A(1) of the
Supreme Court Act 59 of 1959. The following order issued:
‘1.
The appeal is dismissed.
2.
The appellant is to pay all costs in relation to the appeal incurred after 14
February 2012, such costs to include those consequent upon the employment of two
counsel.’
It was intimated when so ordering that reasons would follow. These are the reasons.
[2] Section 21A(1) of the Supreme Court Act 59 of 1959 provides:
'When at the hearing of any civil appeal to the Appellate Division or any Provincial or Local
Division of the Supreme Court the issues are of such a nature that the judgment or order sought
will have no practical effect or result, the appeal may be dismissed on this ground alone.'
The primary question therefore, to which I now turn, is whether the judgment or order
sought in this appeal will have any practical effect or result. It arises against the
backdrop of the following facts.
[3] The appellant, Tecmed Africa (Pty) Ltd (Tecmed), carries on business at
Midrand, Gauteng, inter alia, as the importer and distributor of medical equipment.
During 2005 Tecmed imported a second hand Varian Clinac 2100 C linear accelerator
with serial number 791 (the machine) into the country. Thereafter Tecmed stored the
machine until the second half of 2007 when it, purportedly acting in terms of an agency
agreement with the manufacturer of the machine, Varian Medical Systems International,
a Swiss-based company, refurbished the machine. In so doing and consistent with the
practice in the industry, Tecmed brought about a change in the model number of the
machine to that of a Clinac 2000 CR, thereby indicating that it was now a refurbished
model.
[4] The first respondent, the Minister of Health (the Minister), acting in terms s 2 of
the Hazardous Substances Act No 15 of 1973 (the Act) had declared linear
accelerators, such as the machine in question, which is used in the treatment of cancer,
to be a Group III hazardous substance. By virtue of that classification no person is
entitled in terms of the Act, to sell, let, use operate or apply the machine (s 3(1)(b)) or
install or keep installed the machine on any premises (s 3(1)(c)) unless such person has
been issued with a licence by the Director-General: National Health and Population
Development (the DG) under s 4.
[5] After having refurbished the machine and pursuant to an agreement of sale with
the second respondent, Cancare (Pty) Ltd (Cancare), which carries on business as the
Durban Oncology Centre, Tecmed delivered the machine to the latter. On 20 November
2007 Cancare applied for a licence in terms of s 4 to use the machine as a therapeutic
device in the treatment of cancer. In the licence application form Cancare described the
machine as a Clinac 2100 with serial number 7071 manufactured in 2007. On 11
December 2007 and apparently on the mistaken understanding, based on the licence
application form, that the machine was new, the DG issued a licence for the installation
of the machine at the Durban Oncology Centre.
[6] On 10 March 2008 Mr Karel Johannes Smit, a Deputy-Director in the Department
of Health stationed at its radiation control unit, visited Cancare’s premises to conduct an
acceptance inspection. During the inspection Mr Smit discovered that the machine was
not new. After making enquiries Mr Smit ascertained that the machine was in fact a
2100 C model with the serial number 791 and had been manufactured in 1995. Mr Smit
then contacted Ms Hester Burger of Cancare and informed her that a licence would not
be issued to them for the use of the machine. The next day he despatched an e-mail to
her in which he explained that as Tecmed was only licensed to import new Clinac 2100
C machines, the machine in question had been illegally imported into the country by the
former. Accordingly, so he asserted, the Department of Health would require that the
machine be exported or sold as scrap.
[7] During March 2008 a fresh licence application was submitted on behalf of
Cancare for the use of the machine. In a letter in support of that application Tecmed
apologised for the fact that the earlier application had contained incorrect information.
Tecmed alleged that in importing the machine it had acted in accordance with the
conditions attaching to its licence and that the machine had accordingly not been
imported illegally. In the new application Cancare described the machine as a ‘Clinac
2000 CR (refurbished)’; manufactured in ‘1995/ Refurbished 2008’; with unit serial
number ‘791’. Neither Tecmed nor Cancare saw fit to explain how it came to pass that
the earlier application had incorrectly described the machine.
[8] On 18 March Smit despatched an e-mail to Tecmed which was headed:
‘NOTICE OF EMBARGO ON THE IMPORTATION OF VARIAN LINEAR ACCELERATORS IN
THE TERMS OF THE HAZARDOUS SUBSTANCES ACT, (ACT 15 OF 1973), WITH
IMMEDIATE EFFECT.’
The notice read:
‘Notice is hereby given that an embargo has been placed on the licences listed below for the
importation of Varian Linear Accelerators, with immediate effect:
. . .
This action has been taken for the following reasons:
1.
On the 5th December 2007 we received an application for the installation of a new Varian
Clinac 2100 (year of manufacture 2007 and that the unit will be supplied by TECMED) at
Durban Oncology.
2.
TECMED is currently licensed to import new Clinac 2100’s.
3.
During an acceptance inspection by KG Smit on 10 March 2008 at Durban Oncology
Centre, it was established that this is a pre-owned Varian Clinac 2100 unit (date of
manufacture 1994 or early 1995, serial no. 791) that was imported and rebuild by
TECMED in SA (this was confirmed by Mr. Begeré on 11/03/2008 in my office at Louville
Place, Belville).
4.
TECMED has therefore illegally imported the pre-owned Clinac 2100 and provided false
information on form RC003-1.
The Department of Health will only consider withdrawing the embargo if:
1.
TECMED export the Varian Clinac 2100 C (serial no. 791) installed at Durban Oncology
Centre, or
2.
Dismantle the above-mentioned unit.
Please note that under an embargo, you may not import or install any Group III Hazardous
Substances listed on the above-mentioned licences. The term sell in the Hazardous Substances
Act, 1973 (Act 15 of 1973) is defined to include offer, advertise, keep, display, transmit, consign,
convey or deliver for sale, or exchange, or dispose of to any person in any manner, whether for
a consideration or otherwise, or manufacture or import for use (for own use, in the Republic; and
“selling” and “sale” have a corresponding meaning.’
[9] On 5 May 2008 Tecmed lodged an appeal with the Minister against Smit’s
decision to place an embargo on its licences. Its primary legal contention was that Smit
in doing so had acted ultra vires. It accordingly sought the lifting of the embargo. That
appeal was dismissed by the Minister on 23 May 2008.
[10] Two applications by Tecmed to the North Gauteng High Court – each by way of
urgency – followed. The first, on 2 June 2008 sought an order reviewing and setting
aside the Minister’s decision to dismiss its appeal (the embargo application). The
second, on 15 July 2008, sought the review and setting aside of the DG’s refusal to
issue Cancare (who was cited in that application as the second respondent) with a
licence to use, operate or apply the machine and for an order directing the former to
issue a licence as contemplated in s 4(1) to Cancare (the licence application).
[11] Both applications came to be heard by RD Claassen J. In respect of the embargo
application Claassen J held –
‘The Applicant’s contention regarding this issue was that the DG was not in law entitled to issue
the embargo in respect of licences. He could only do so in respect of objects, etc. If he wanted
to stop the importation or selling of machines he had to give notice in terms of Section 7 with 20
days’ notice. He did none of this. The embargo was thus illegal. The DG realised this himself
eventually when a proper notice was given in respect of certain licences as referred to already,
and he withdrew the abovementioned embargo.
In respect of the appeal to the Minister the same issues were raised by Applicant but the appeal
was still refused by the Minister. This clearly shows that the embargo application must at least
to that extend succeed.’
And in respect of the licence application the learned Judge reasoned:
‘. . . reading the provisions of the Act, the relevant conditions and the importation documents all
together, it is clear that the relevant unit was not imported illegally as alleged by the DG and the
Minister. It is therefore clear that the imposition of the embargo (already dealt with) and the
refusal to grant a licence for the installation and use thereof at Cancare was unlawful, it being
the main reason to refuse the licence.
Another ground for refusing the licence is that Applicant is only allowed to import new and
refurbished machines. . . . The Respondent’s attitude is that Applicant needs to be licensed as a
manufacturer to do so. However, when one reads the definition of sell and/or manufacture and
the dictionary meaning of refurbished, it is clear that as it stands, the licence to sell includes
manufacture (the nouns and verbs have corresponding meanings in terms of the definitions
section). It is difficult to see how the restrictive meaning proposed by the Respondents fit into
those definitions. This point can therefore not succeed.’
Both applications accordingly succeeded with costs before Claassen J.
[12] The Minister sought and obtained leave to appeal to the full court against the
whole of Claassen J’s judgment. In heads of argument which had been filed shortly
before the hearing of the appeal on behalf of the Minister, she abandoned the appeal
against the judgment and order in the embargo application but appeared to persist in
the contention that the abandonment of that appeal did not affect the question of costs.
The full court (per Southwood J (Ledwaba J and Hiemstra AJ concurring)) dealt with
that aspect thus:
‘At the hearing the appellant’s counsel confirmed that their clients abandoned the appeal in the
embargo application and tendered the costs of the appeal insofar as it related to that
application. He also confirmed that the imposition of the embargo was clearly unlawful and that
the application should not have been opposed. Tecmed is obviously entitled to the costs of that
part of the appeal. However Tecmed’s counsel asked for a costs order on the scale as between
attorney and client because of the lateness of the abandonment. As I understood their argument
a special costs order is justified because of the vexatious manner in which the appellants
conducted this appeal.
Despite lifting the embargo on 5 August 2008 – which rendered the issues in the embargo
application academic – the Minister persisted in seeking to overturn the judgment and order in
the embargo application. The Minister obtained leave to appeal against that judgment and
order, prepared a record which included all the affidavits filed in the embargo application and
forced Tecmed to prepare for an appeal involving both applications. In these circumstances the
Minister’s conduct caused Tecmed to go to unnecessary trouble and expense and for that
reason can be characterised as vexatious. That justifies a costs order on the scale as between
attorney and client. . .’
The Minister was accordingly ordered to pay the costs of the embargo appeal on the
scale as between attorney and client, such costs to include those consequent upon the
employment of two counsel.
[13] Insofar as the Minister’s appeal against the conclusion reached by Claassen J in
the licence application is concerned, the full court held:
‘The learned judge in the court a quo considered these documents and concluded that they
show that the machine was imported into South Africa on 7 October 2005, i.e. before the licence
was issued on 11 October 2005, and consequently that the new licence conditions did not
apply. Neither side has sought to attack this finding which is obviously crucial to the outcome of
this appeal.
. . .
If the machine arrived in South Africa on 6 or 7 October 2005 Tecmed could not rely on the
conditions in the 2005 licence. Tecmed’s counsel conceded this to be the case. That
conclusion, strictly speaking, is decisive of this appeal but Tecmed’s counsel contended that the
licence issued to Tecmed on 21 June 2001 permitted the importation of the machine. They
sought to adopt the reasoning of the court a quo where, after considering the conditions of the
licence issued in June 2001, the court a quo found that the relevant condition was “somewhat
ambiguous” but it did permit the sale (as defined) of refurbished units, whether old or new.
As already mentioned the relevant condition of the licence clearly permits the sale of a new unit
but expressly prohibits the sale of used units that have not been refurbished. Since the
extended meaning of “sale” includes importation for use in the Republic, the importation of the
machine (a used unit which had not been refurbished) was prohibited. The importation of the
machine was therefore illegal. For the same reason so was its refurbishment. Tecmed’s counsel
conceded that this was so.’
The full court accordingly concluded:
‘Tecmed’s attack on Smit’s decision to refuse to grant a licence to Cancare should not have
succeeded and the appeal must be upheld with costs. The costs of the appeal and the ancillary
costs orders will now be considered.’
The appeal in that matter accordingly succeeded, with Tecmed being ordered to pay
one half of the Minister’s costs on appeal, such costs to include those consequent upon
the employment of two counsel. In that regard Claassen J’s order was set aside and in
its stead was substituted an order dismissing the licence application with costs.
[14] The present appeal against that conclusion is with the special leave of this court.
In essence Tecmed attacks the conclusion reached by the full court that the machine
was imported into South Africa on 7 October 2005 and the consequent finding that the
relevant conditions attaching to its 2005 licence therefore did not find application to its
importation. As interesting a debate as those issues are likely to generate, they hardly
need detain us. For, it is at a preliminary hurdle – namely, whether the appeal and any
order made thereon would, within the meaning of s 21A, have any practical effect or
result – that the appeal must fail. It is to that issue, which was considered by us at the
outset of the hearing of the appeal that I now turn.
[15] On 14 February 2012 a notice was served and filed in which it was contended on
behalf of the Minister that the appeal would have no practical effect or result. In an
affidavit filed on behalf of the Minister in support of that contention the relevant assistant
State Attorney stated:
‘3.
This affidavit is made to bring to the attention of this Honourable Court that the relief
sought by the Appellant will have no practical effect or result. I say so for the following
reasons:
3.1
On 16 March 2011 the Appellant and Tecmed (Pty) Ltd instituted action
proceedings against the Respondent and 3 others. A copy of the summons
issued are annexed hereto marked “TM1”;
3.2
In paragraph 24 of its particulars of claim the Appellant avers that it secured a
new machine for installation at the Durban Oncology (Cancare). The new
machine replaced the machine which is a subject matter in this appeal.
3.3
On the other hand the relief that the Appellant sought is the review and setting
aside of the decision of the Respondent refusing Cancare to use the machine
supplied to it by Tecmed;
3.4
As a result of the foregoing and in view of the fact that the Appellant has now
supplied Cancare with a new machine the relief that it seeks has no practical
effect. If the appellant is successful the respondent cannot be directed to allow
Cancare to use the machine which is the subject matter of this appeal.
4.
It is submitted that this Honourable Court should dismiss the appeal on this ground
alone.’
The response it elicited from Tecmed was, inter alia:
’10.1
First, Tecmed has suffered damages of almost R15, 000,000 (fifteen million rand). A
summons has been issued against the Minister in which Tecmed is seeking to recover
its loss in the North Gauteng High Court, under case number: 16980/11. Tecmed is
confident that, at a trial, it will be able to establish mala fides on the part of the Minister’s
representative and, indeed, the administrative functionaries implicated. That evidence is,
however, yet to be led. But what is critical is that Tecmed be afforded its constitutionally
entrenched right to have its civil claim for damages adjudicated by a Court.
10.2 A threshold requirement, in order for the civil claim to succeed, is that the administrative
action implicated is unlawful. At this juncture the Full Bench has ruled that it was not
unlawful. A statement is therefore required, from this Court, to the effect that the
administrative decision was indeed unlawful. Therein lies the importance of this matter
being dealt with by the above Court on appeal. If it is not dealt with, there can be no civil
claim for damages and Tecmed will be prejudiced to the extent of approximately R15,
000,000 (fifteen million rand). A ruling by the Supreme Court of Appeal in this regard is
of massive importance to Tecmed.
10.3
Secondly, and of great significance, it is a criminal offence to import a Group III
hazardous substance without a licence. As things currently stand, Tecmed have been
found to have behaved criminally. This is inaccurate and Tecmed ought to have an
opportunity to “set the record straight”, from a reputational and commercial perspective.
Further argument and authority in this regard will be presented at the hearing of this
matter.
10.4
Thirdly, Netcare, a large hospital group, are reluctant to do business with Tecmed on
account of the fact that it perceives Tecmed to be a company that illegally imports
medical equipment. Netcare have already indicated their unwillingness to be placed at
risk of the kind to which Cancare was exposed. Tecmed has lost business as a result of
this perception and it will continue to lose business until that perception is corrected.
Therein lies another practical benefit of this appeal.
10.5
Fourthly, as a result of the perception created in relation to the legality or otherwise of
the importation of the machine, Tecmed has been forced to enter into a settlement
agreement with Cancare, in the amount of R4 000 000.00 (four million Rand) and in so
doing took cession of Cancare’s claim for the damages sustained as a result of the
unlawful administrative action. This was done without any acknowledgement of
wrongdoing and with a view to salvaging the damaged relationship with Netcare and in
an effort to repair the reputation of Tecmed.’
[16] Before us counsel was constrained to concede that securing a licence for the use
of the machine by Cancare at the Durban Oncology Centre had indeed become
academic. That notwithstanding, so he urged upon us, the appeal should nonetheless
be entertained. His argument, consistent with the approach adopted in the affidavit filed
on behalf of Tecmed on this aspect of the case, amounted to this: the approach and
reasoning of the full court to the disputed factual issues on the papers would stand and
were it not to be set aside by this court, would serve as an insurmountable obstacle in
due course to the successful prosecution of its envisaged civil claim against the
Minister. In my view for the reasons that follow counsel’s submission lacks merit.
[17] First, appeals do not lie against the reasons for judgment but against the
substantive order of a lower court. Thus whether or not a court of appeal agrees with a
lower court’s reasoning would be of no consequence if the result would remain the
same (Western Johannesburg Rent Board v Ursula Mansions (Pty) Ltd 1948 (3) SA 353
(A) at 354). Second, counsel’s argument must be evaluated with reference to the
principles that govern the defence of res iudicata in general and issue estoppel in
particular. In Prinsloo NO v Goldex 15 (243/11) [2012] ZASCA 28 (28 March 2012)
Brand JA (paras 23 -26) put it thus:
‘In our common law the requirements for res iudicata are threefold: (a) same parties, (b)
same cause of action, (c) same relief. The recognition of what has become known as issue
estoppel did not dispense with this threefold requirement. But our courts have come to realise
that rigid adherence to the requirements referred to in (b) and (c) may result in defeating the
whole purpose of res iudicata. That purpose, so it has been stated, is to prevent the repetition of
law suits between the same parties, the harassment of a defendant by a multiplicity of actions
and the possibility of conflicting decisions by different courts on the same issue (see eg Evins v
Shield Insurance Co Ltd 1980 (2) SA 815 (A) at 835G). Issue estoppel therefore allows a court
to dispense with the two requirements of same cause of action and same relief, where the same
issue has been finally decided in previous litigation between the same parties.
At the same time, however, our courts have realised that relaxation of the strict
requirements of res iudicata in issue estoppel situations creates the potential of causing inequity
and unfairness that would not arise upon application of all three requirements. . . .
Hence, our courts have been at pains to point out the potential inequity of the application
of issue estoppel in particular circumstances. But the circumstances in which issue estoppel
may conceivably arise are so varied that its application cannot be governed by fixed principles
or even by guidelines. All this court could therefore do was to repeatedly sound the warning that
the application of issue estoppel should be considered on a case-by-case basis and that
deviation from the threefold requirements of res iudicata should not be allowed when it is likely
to give rise to potentially unfair consequences in the subsequent proceedings (see eg
Kommissaris van Binnelandse Inkomste v Absa Bank Bpk 1995 (1) SA 653 (A) at 676B-E;
Smith v Porritt supra 2008 (6) SA 303 (SCA) para 10). That, I believe, is also consistent with the
guarantee of a fair hearing in s 34 of our Constitution.’
Applying those principles here, it does not appear to me that the matter or questions
that are likely to arise in the contemplated civil litigation have indeed been finally
adjudicated upon by the full court in this matter. After all the expression res iudicata
literally means that the matter has already been decided. I say ‘likely to arise’ because
the picture that Tecmed has endeavoured to paint is far from complete. On such
information as we do have though it would appear that the relief sought to be claimed in
the contemplated civil action may well be different to that which forms the subject matter
of the present appeal. What does appear to be clear enough though is that in the claim
sought to be prosecuted arising from the Cancare cession, the same person
requirement can hardly be satisfied. Moreover, the assertion that ‘Tecmed have been
found to have behaved criminally’ is entirely devoid of any substance. No such finding
was made by the full court. Nor could such a finding have been made by that forum.
The same holds true for Tecmed’s complaint of reputational harm.
[18] Third, we do not know what stage has been reached in the pending civil case or
precisely what is in dispute between the parties on the pleadings in that matter. What
we are being asked to do therefore is to engage in speculation and conjecture. That we
should be slow to do. In Coin Security Group (Pty) Ltd v SA National Union for Security
Officers & others 2001 (2) SA 872 (SCA) para 9, Plewman JA quoted with approval
from the speech of Lord Bridge of Harwich in the case of Ainsbury v Millington [1987] 1
All ER 929 (HL), which concluded at 930g:
‘It has always been a fundamental feature of our judicial system that the Courts decide disputes
between the parties before them; they do not pronounce on abstract questions of law when
there is no dispute to be resolved.’
In a similar vein, in Western Cape Education Department v George 1998 (3) SA 77
(SCA) at 84E, Howie JA stated:
'Finally, it is desirable that any judgment of this Court be the product of thorough consideration
of, inter alia, forensically tested argument from both sides on questions that are necessary for
the decision of the case.’
And in Radio Pretoria v Chairman, Independent Communications Authority of South
Africa 2005 (1) SA 47 (SCA) (para 41), Navsa JA said:
'Courts of appeal often have to deal with congested court rolls. They do not give advice
gratuitously. They decide real disputes and do not speculate or theorise (see the Coin Security
case, supra, at paragraph [7] (875A-D)). Furthermore, statutory enactments are to be applied to
or interpreted against particular facts and disputes and not in isolation.'
[19] Fourth, in effect what Tecmed seeks is legal advice from this court. But as Innes
CJ observed in Geldenhuys & Neethling v Beuthin 1918 AD 426 at 441:
'After all, Courts of Law exist for the settlement of concrete controversies and actual
infringements of rights, not to pronounce upon abstract questions, or to advise upon differing
contentions, however important.'
In National Coalition for Gay and Lesbian Equality & others v Minister of Home Affairs &
others 2000 (2) SA 1 (CC) para 21 footnote 18, the Constitutional Court echoed what
the learned Chief Justice had stated over eight decades earlier when it said:
'A case is moot and therefore not justifiable if it no longer presents an existing or live
controversy which should exist if the Court is to avoid giving advisory opinions on abstract
propositions of law.'
[20] Finally, courts should and ought not to decide issues of academic interest only.
That much is trite. In Radio Pretoria this Court expressed its concern about the
proliferation of appeals that had no prospect of being heard on the merits as the order
sought would have no practical effect. It referred to Rand Water Board v Rotek
Industries (Pty) Ltd 2003 (4) SA 58 (SCA) para 26 where the following was said:
'The present case is a good example of this Court's experience in the recent past, including
unreported cases, that there is a growing misperception that there has been a relaxation or
dilution of the fundamental principle . . . that Courts will not make determinations that will have
no practical effect.'
[21] The cumulative effect of all of the factors that I have alluded to is that no practical
effect or result can be achieved in this case. And for those reasons the appeal was
dismissed in terms of s 21A(1) of the Supreme Court Act 59 of 1959.
[22] That leaves costs: As long ago as 14 October 2008 Tecmed wrote to the
Directorate Radiation Control:
‘. . . At the outset, we record that the events as recorded below were done so in an endeavour
to mitigate the damages that Netcare and Tecmed continue to suffer as a result of the unlawful
conduct perpetuated by Eljo Smit.
In your above letter, we have attended and hereby attend to Mr Smit’s requirements set forth in
paragraphs 2a. and 2b.
In particular, we hereby declare that:
1.
the Varian Clinac 2000CR (2100C), serial no. 791, has been removed from Durban
Oncology and it has been warehoused at Schenker (S.A.) (Pty) Ltd. In confirmation
of this, we annex hereto a letter by Schenker, the content of which is self
explanatory; and
2.
the Varian Clinac 2000 CR (2100C), serial no. 791 and the Varian Clinac 2000CR
(23 EX), serial number 300, will be sold as spares.
We reiterate, we have done the above without us being under any legal obligation to do so. We
have done so in order to assist Netcare and to maintain the relationship between Netcare and
Tecmed (to the extent possible), which Mr Smit is successfully and arbitrarily eroding.’
That letter had been despatched before the matter had even come to be argued before
Claassen J. And yet neither the parties nor the two courts below appeared to appreciate
that it had rendered the licence application moot. It was only somewhat belatedly by
notice served on Tecmed on 14 February 2012 that the Minister raised for the first time
the point that the appeal will have no practical effect or result. By then the appeal had
reached a fairly advanced stage. Until then neither was an unwilling participant. It was
thus deemed appropriate that each party should bear its own costs until 14 February
2012 and that Techmed be ordered to pay the Minister’s costs of appeal, inclusive of
those of two counsel, beyond that date.
________________
V PONNAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant:
JJ Brett SC
K Hopkins
Instructed by:
Chindlers Attorney
Johannesburg
Webbers
Bloemfontein
For Respondent:
VS Notshe SC
N Makhubele
Instructed by:
The State Attorney
Pretoria
The State Attorney
Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
21 May 2012
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
Tecmed Africa v The Minister of Health
(495/11) [2012] ZASCA 64 (21 May 2012)
Media Statement
On 3 May 2012 the Supreme Court of Appeal (SCA) dismissed an appeal by Tecmed Africa (Pty) Ltd
(Tecmed) in terms of s 21A(1) of the Supreme Court Act 59 of 1959 and ordered it to pay all costs in
relation to the appeal incurred after 14 February 2012. Today the SCA handed down reasons for that
order.
The facts and history of this matter can be summarised as follows: During 2005 Tecmed, an importer
and distributor of medical equipment, imported a second hand Varian Clinac 2100 C linear accelerator
into the country, which it then stored until 2007. In 2007 it refurbished the machine and consistent with
the practice in the industry it brought about a change in the model number of the machine indicating
that the machine had in fact been refurbished. Linear accelerators have been classified as a Group III
hazardous substance by the Minister of Health which meant that no person was entitled to sell, let,
use or operate such a machine or install such a machine unless such person had been issued with a
licence. Cancare (Pty) Ltd (Cancare), which carries on business as the Durban Oncology Centre,
purchased the machine from Tecmed and applied for a licence to install and operate the machine. In
its licence application form the machine was incorrectly described as a new machine. On the strength
of that description the licence was approved. When it subsequently emerged that the machine was in
fact a refurbished one, The Deputy-Director in the Department of Health informed Cancare that a
licence would not be issued as, so he asserted, Tecmed was only licensed to import new machines
and as the machine in question had been imported illegally, the Department now required that the
machine be exported or sold as scrap.
A new application was submitted on behalf of Cancare, which correctly described the machine. On
the same day the Deputy-Director despatched a notice in terms of the Hazardous Substance Act 15
of 1973 to Tecmed, which placed an embargo on its licences to import varian linear accelerators.
Tecmed lodged an appeal with the Minister against this decision primarily on the grounds that the
Deputy-Director had acted ultra vires. The Minister dismissed the appeal. Tecmed then applied to
the North Gauteng High Court seeking an order reviewing and setting aside the Minister's decision to
dismiss the appeal (embargo application). And in a separate application it sought the review and
setting aside of the DG's refusal to issue Cancare with a licence.
Claassen J, dealing with both embargo and licence applications, upheld Tecmed's contention that the
DG was not in law entitled to issue the embargo. The application against the refusal to grant the
licence also succeeded. The Minister obtained leave to appeal to the full court against this judgment,
but in heads of argument filed on her behalf she abandoned the appeal against the judgment and
order in the embargo application but persisted in the contention that the abandonment of that appeal
did not affect the question of costs.
The full court, on this aspect, reasoned that as the Minister had persisted in the appeal, despite lifting
the embargo and had caused Tecmed to go to unnecessary trouble and expense in preparing for the
appeal, the Minister's conduct had to be characterised as vexatious. The Minister was ordered to pay
the costs of the embargo appeal on the scale as between attorney and client. Regarding the licence
appeal the full court held that the importation of the machine was illegal and upheld the appeal with
Tecmed being ordered to pay one half of the Minister's costs on appeal.
On 14 February 2012 a notice was served and filed in which it was contended on behalf of the
Minister that the appeal would have no practical effect or result. In an affidavit filed on behalf of the
Minister in support of that contention the relevant assistant State Attorney stated that in summons that
had been issued by Tecmed against the Minister the former had averred that it had secured a new
machine for installation at the Durban Oncology Centre. The new machine replaced the machine
which is a subject matter in this appeal.
Against that backdrop the primary question therefore before the SCA was whether the judgment
sought in the appeal would have any practical effect or result. Counsel for Tecmed had to concede
that securing a licence for the use of the machine had become academic, yet he still argued that the
appeal should be entertained because if the full court's findings on the disputed facts were to stand, it
could serve as an obstacle to the successful prosecution of its envisaged civil claim against the
Minister. The SCA reiterated that appeals do not lie against the reasons for judgment but against the
substantive order of a lower court. Tecmed’s argument had to be tested against the principles
governing the defence of res iudicata in general and issue estoppel in particular. Applying those
principles, the SCA concluded that it does not appear that matter or questions likely to arise in the
contemplated civil litigation had indeed been fully adjudicated upon by the full court. The SCA
reiterated that it would not engage in speculation or conjecture nor give legal advice to a litigant. It
accordingly dismissed the appeal in terms of s 21A(1) of the Supreme Court Act.
On the question of costs, the SCA referred to a letter despatched by Tecmed on 14 February 2012 in
which it indicated that the machine in question had already been removed by it from the Durban
Oncology Centre and will be sold as spares. As that was even before the matter had been argued
before Claassen J, it ought to have rendered the licence application moot. As the effect of that letter
appeared to have been lost on the parties as also both courts below and as both parties had willingly
proceeded with the appeal, the SCA deemed it appropriate that each party should bear its own costs
until 14 February 2012, the date on which the Minister filed a notice to the effect that the appeal would
have no practical effect. The SCA accordingly ordered the Minister to pay Tecmed’s costs of appeal
beyond that date.
--- ends ---
|
2895
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case no: 451/12
In the matter between:
PRICEWATERHOUSECOOPERS INC
First Appellant
HOEK & WIEHAHN
Second Appellant
WIEHAHN MEYERNEL
Third Appellant
PRICE WATERHOUSE MEYERNEL
Fourth Appellant
PRICE WATERHOUSE
Fifth Appellant
and
NATIONAL POTATO CO-OPERATIVE LTD First Respondent
IMF (AUSTRALIA) LTD
Second Respondent
Neutral citation: PriceWaterhouseCoopers Inc & others v National
Potato Co-operative Ltd & another (451/12) [2015]
ZASCA 2 (4 March 2015)
Coram:
WALLIS JA and FOURIE and KOEN AJJA.
Heard:
9 to 13 February 2015
Delivered: 4 March 2015
Summary: Auditor – relationship with client contractual – duties –
whether audit conducted negligently – damages – causation.
Opinion evidence – when admissible – need to establish facts on which
expert‟s opinion is based – hearsay – qualifications of expert witness –
duties of expert witness – independence – not to act as advocate for party
calling expert.
Causation – need for causal link between loss and contents of auditor‟s
reports – losses arising from trading – not recoverable from the auditor.
Prescription – s 12(3) of the Prescription Act 68 of 1969 – knowledge of
facts giving rise to claim – acquisition of knowledge by the exercise of
reasonable care – corporate entity – knowledge of directors to be
attributed to entity – no special rule of attribution when claim arising
from auditor‟s alleged failure to report properly to members of entity.
Conduct of trial – objections to hearsay evidence to be dealt with
expeditiously – proper approach to the leading of expert evidence – need
for judge to prevent proceedings from becoming unduly prolonged.
ORDER
On appeal from: North Gauteng High Court (Botha J sitting as court of
first instance):
The appeals by the second to fifth appellants, and the appeals by the
first appellant against paragraph 1 of the order of 14 March 2012 and the
orders referred to in paragraphs 5, 6 and 7 of this order, are upheld with
costs, such costs to include the costs consequent upon the employment of
two counsel.
The judgments of the court below and the orders granted on 24
January 2011, 14 December 2011 and paragraphs 1, 6, 7 and 9 of the order
of 14 March 2012 are set aside and replaced by the following:
„The first plaintiff‟s claim is dismissed with costs, such costs to be paid
jointly and severally by the first and second plaintiffs, the one paying the
other to be absolved, and to include the costs of two counsel and the
qualifying expenses of Mr Wixley.‟
The cross-appeal is dismissed with costs, such costs to include the
costs consequent upon the employment of two counsel.
The costs orders in paragraphs 1 and 3 are to be paid by the
respondents jointly and severally, the one paying the other to be absolved.
The last sentence of paragraph 2 of the order of 28 July 2011 is set
aside and replaced by the following:
„Die tweede tot vyfde verweerders moet die koste van opposisie betaal.‟
Paragraph 8 of the order of 18 November 2011 is set aside and
replaced by the following:
„Die tweede tot vyfde verweerders moet die koste van opposisie betaal.‟
Paragraph 2 of the order dated 27 April 2011 is set aside and
replaced by the following:
„Die eisers word gesamentlik en afsonderlik gelas om die koste van die
aansoek te betaal.‟
JUDGMENT
Wallis JA (Fourie and Koen AJJA concurring)
[1] Four firms (the second to fifth appellants, to which I will refer
collectively as PWC) acted as auditors of the first respondent, the National
Potato Co-operative Ltd (NPC) from 1984 to 1997. Whether they
breached their contractual obligations as auditors, thereby causing NPC to
suffer damages, is the issue in this appeal. NPC alleged that the annual
financial statements of NPC, throughout that period, failed to make
adequate provisions for bad and doubtful debts that had arisen through on-
going reckless mismanagement of its affairs in regard to the extension of
credit to its members.1 They said that PWC should have identified this
reckless mismanagement in the course of the audits and either insisted on
changes to the financial statements to reflect the true position, or disclosed
the under-provisions in their auditors‟ reports. If they had done so, NPC
alleged that remedial measures would have been instituted. Instead NPC
was obliged to write off substantial sums as bad debts causing it to suffer
loss, which it sought to recover from PWC. Botha J upheld its claims and
judgment was entered against the four different firms of auditors in
varying amounts totalling R62 884 905,45. Interest was ordered to run on
that amount at a rate of 15,5 per cent per annum from 15 December 2000
and a number of costs orders were made in NPC‟s favour. The main
appeal lies against the judgment holding PWC liable in damages and
1 NPC‟s heads of argument said that the evaluation of the recoverability of debts and making appropriate
provision for bad debts „het altyd aan die hart van die saak gelê‟.
against the quantum of the damages. It is brought with the leave of the
trial court, although the judge limited the grounds for that appeal by
excluding issues that PWC wished to raise, such as prescription. This
court removed those limitations after argument and in addition it granted
leave to appeal against certain costs orders granted by the trial court.2
[2] The core issue set out above, simply stated as it is, engaged the high
court in a hearing on the merits of the claim for 264 days and a further
hearing on quantum for 31 days. In addition we were informed that the
hearing was due to continue on 121 additional days but was, for one or
other reason, stood down. Two judgments were produced on the merits
running to nearly 1100 pages. Over and above those judgments there was
a separate hearing on costs and a separate judgment on that issue. A
number of interlocutory applications were dealt with separately, both
before the trial commenced and during it. The case has already engaged
the attention of this court on four prior occasions, once on the propriety of
NPC receiving funding from an outside source in order to pursue this
litigation,3 twice on issues relating to the provision of security4 and, as
already mentioned, most recently on the scope of this appeal. We are now
confronted with a record that has been abbreviated when viewed against
the size of the trial bundle, but is still some 85 000 pages long. The heads
of argument, together with the core bundles presented by the parties and
the bundles of authorities, add another 5 000 pages. This material was
provided to us on computers loaded with appropriate software to enable us
to work with it. The court has been specially constituted to hear the appeal
2 PriceWaterhouseCoopers Inc and Others v National Potato Co-Operative Ltd and Another 2013
ZASCA 123.
3 Price Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd 2004 (6) SA 66 (SCA).
4 Aartappel Koöperasie Bpk v Price Waterhouse Coopers [2007] ZASCA 166; Price Waterhouse v Van
Vollenhoven NO and Another [2009] ZASCA 166.
without disrupting the ordinary work of the SCA and to that end sat in the
week prior to the commencement of the court term.5
[3] It is appropriate at the outset for us to express our gratitude to the
attorneys and counsel for the efforts they have made to enable the appeal
to be disposed of with reasonable expedition. However, it is also
appropriate to echo a recent comment by Lord Toulson,6 that the case
assumed a complexity that we do not think was necessary, as a result of
the manner in which it was conducted, and, in consequence, the trial court,
for which we have sympathy, was led into a forest relatively impenetrable
to light. I will deal with these matters at a later stage when addressing the
issue of costs.
History of the litigation
[4] Summons was issued on 16 November 1999. The initial particulars
of claim were struck out on exception and fresh particulars were delivered
in December 2000. These ran to 450 pages and referred to 304 files
containing more than 100 000 pages of documents. The trial commenced
before Hartzenberg J in 2002, but, during the course of the cross-
examination of the first witness, he granted an amendment to the plea
raising the funding issue. This was eventually resolved in NPC‟s favour in
June 2004. The trial was then set to resume in October 2005 and two pre-
trial meetings were held with Hartzenberg J on 9 June 2005 and 19 July
2005 at which an agreement was made to separate the merits and the
assessment of any damages payable to NPC. Hartzenberg J recused
5 Our task and that of the trial judge was fortunately not as onerous as that of the Canadian judge dealing
with a similar claim in Widdrington (Estate of) c. Wightman, 2011 QCCS 1788 (CanLII) described by
her as „the longest running judicial saga in the legal history of Quebec and Canada‟.
6 Manchester Ship Canal Co Ltd and another v United Utilities Water plc [2014] UKSC 40; [2014] 4 All
ER 40 (SC) para 25.
himself, at the instance of NPC, before the trial recommenced and it then
proceeded before Botha J on 4 October 2005. Shortly before the
commencement of the hearing before Botha J, the particulars of claim
were substantially amended to abandon certain claims and amend others.
[5] On 24 January 2011 Botha J delivered his judgment on the merits.
The first part of 943 pages contained his synopsis of the evidence led
before him. The second part, a mere 123 pages, set out his reasons. He
made an order upholding two claims arising from the writing off of bad
debts and declaring the four firms of auditors liable to compensate NPC
for damages represented by the amounts written off by NPC in respect of a
number of specified debtors. The other claims by NPC were dismissed.
One of those is the subject of a cross-appeal by NPC. The appellants‟
initial attempt to appeal against the declaratory order immediately after it
was handed down and before the quantum was assessed was set aside as
an irregular step. That decision and the concomitant costs order are
challenged as a subsidiary issue in the appeal.
[6] In a judgment delivered on 14 December 2011 Botha J quantified
the liability of PWC in terms of the declaratory order. He dealt with the
costs of the action and various interlocutory applications in a separate
judgment delivered on 14 March 2012. PWC seeks to overturn the
declaratory order and the consequential award of damages and asks for the
dismissal of the claim with costs on the attorney and client scale.
[7] There are in addition several subsidiary appeals. The first relates to
the limited order for costs made in favour of PriceWaterhouseCoopers Inc,
the first appellant (PWC Inc), which was not the auditor at any of the
relevant times and against which no award of damages was made. The
judge confined his order for costs in its favour to costs up to the earliest
time when it could have taken exception to the claims against it, without
defining when that time was. PWC Inc says that it could not except to the
claim against it, as it was based on factual allegations that were never
proved. Accordingly it seeks its costs of the trial.
[8] The declaratory judgment annexed a schedule of the bad debts
written off for which the court held the auditors to be liable in damages.
After judgment NPC applied for two amendments to the claim, which
were granted over the opposition of PWC and PWC Inc. The grant of
those orders involved a significant enhancement of the award of damages,
and forms the subject of the appeal against quantum if the main appeal
fails. There are separate appeals in relation to the two costs orders arising
from those amendments. The appeals against the subsidiary costs orders
are dealt with in the judgment of Koen AJA. Lastly there is a general
appeal by PWC against the overall costs order made by the trial judge.
The parties
[9] NPC was an agricultural co-operative constituted in terms of the
Co-operatives Act 91 of 1981 (the Act) and active among potato farmers.
It was originally established in 1963 under the name Transvaal Potato Co-
operative Ltd (TPC). During the period from 1983 to 1997, which is when
the breaches of contract allegedly occurred, it twice merged with other co-
operatives but, other than resulting in the change of its name to NPC in
1989, on each occasion the merged entity continued to operate in the same
form. It was not suggested that the mergers had any bearing on the issues
in this case. In 2000, whilst retaining its identity, it effectively merged
with Northern Transvaal Co-operative Ltd, which has conducted NPC‟s
business operations on an agency basis since then. By that time the bulk of
its membership had left. It has not been a going concern since 1997. In
substance it exists solely for the purpose of pursuing this claim. It is
convenient to refer to it throughout as NPC notwithstanding the fact that it
was operating under a different name at the earliest stage of the period in
dispute.
[10] The second respondent, IMF (Australia) Ltd (IMF), is a listed
company in Australia that carries on business as a litigation funder and
since 28 January 2009 has provided NPC with funding to pursue this
litigation. It did so on the basis that, if the litigation succeeded it would be
fully reimbursed for its costs and paid a management fee for its services in
regard to the conduct of the litigation. In addition it would receive a
proportion, exceeding fifty five per cent, of the gross proceeds of the
litigation. Potentially, depending upon the gross amount recovered, it
could be the sole beneficiary of a judgment in favour of NPC. Counsel for
NPC and IMF informed us that this would very likely be the case. It was
joined as a party at the instance of the auditors with a view to obtaining a
costs order against it if its defence to the claim succeeded.7
[11] PWC Inc is a firm of auditors as were the other four appellants. It is
the only firm that still exists, and indeed the only one that existed when
this litigation commenced. The firm of Hoek & Wiehahn, the second
appellant, were the auditors of NPC between 1983 and 1987. In 1988, as a
result of a merger or amalgamation, Wiehahn Meyernel, the third
appellant was established and became NPC‟s auditors. That continued
until 1991 when Price Waterhouse Meyernel, the fourth appellant, came
into being. Finally, in 1995, Price Waterhouse, the fifth appellant, was
7 Price Waterhouse Coopers Inc and Others v IMF (Australia) Ltd and Another 2013 (6) SA 216 (GNP).
formed and took over the task of auditor for NPC until 1997 when it
resigned. Throughout this entire period Mr Odendaal, who was the
principal witness for the appellants, was involved in the audit of NPC,
initially under the supervision of others, but for most of the period as the
principal auditor.
[12] It may strike the reader as odd that an entity such as NPC should
remain in existence solely for the purpose of conducting litigation, a major
beneficiary of which is intended to be a party unconnected with the
dispute and unconnected, so far as the court can discern, with this country.
Indeed it is wholly unclear who, other than IMF, stands to gain from the
litigation that has taken up so much court time over so protracted a period.
It is debatable whether that is a desirable state of affairs. It is one thing to
enable an impecunious litigant to obtain legal relief to which that litigant
is entitled.8 It is another matter altogether to have a situation where an
outsider to a dispute, motivated solely by considerations of profit, may be
the sole beneficiary of a judgment. That is something that may have to
engage this court on another occasion. Litigation exists for the proper
settlement of disputes in society in the interests of the parties to those
disputes. It comes at a social cost. It is undesirable that outsiders driven
purely by commercial motives should be able to take over these disputes
for their own benefit. When that occurs it is difficult to see how the
constitutional guarantee of access to courts is engaged.9 It may perhaps be
necessary at some future date to consider the precise ambit of our earlier
8 Price Waterhouse Coopers Inc and Others v National Potato Co-Operative Ltd 2004 (6) SA 66 (SCA)
para 27; Thusi v Minister of Home Affairs & 71 Other Cases 2011 (2) SA 561 (KZP) paras 105-110.
When this issue was dealt with by this court the funding arrangements were domestic and limited,
involved members of the co-operative and were unrelated to IMF and its different interests.
9 Section 34 of the Constitution of the Republic of South Africa 1996.
decision in this regard and to what extent it permits a departure from the
previous law in relation to champerty.
[13] Another apparent incongruity is that the auditors concerned, that is
PWC, as opposed to PWC Inc, no longer exist and have not done so since
a date prior to the commencement of this litigation. In the result the
judgment granted by the trial court lies against entities that have not
existed at any time during the course of protracted litigation. The
explanation lies in the principle that, notwithstanding its dissolution, a
partnership – and each of the four firms was a partnership – is said to
continue in existence, notwithstanding its dissolution, for the purposes of
any claims against the partnership.10 In terms of rule 14(2) of the Uniform
Rules it may be sued in its own name11 and after judgment has been
obtained, if the judgment is not satisfied, the courts may be approached for
an order identifying the partners at the relevant times and declaring the
judgment to lie against the partners.12 PWC does not appear to have been
handicapped in its opposition to this action by the fact that the firms did
not exist.
[14] PWC Inc was never the auditor of NPC. It was joined in the action
on the basis of an allegation that it came into existence as the result of an
amalgamation involving the fifth appellant, Price Waterhouse, and that it
had taken over the assets of Price Waterhouse and assumed liability for the
debts and liabilities of its predecessor. A similar allegation was made in
relation to each of the firms constituting PWC, but that allegation was not
10 Essakow v Gundelfinger and Another 1928 TPD 308 at 312; Goldberg and Another v Di Meo 1960 (3)
SA 136 (N) at 149H.
11 Spie Batignolles Société Anonyme v Van Niekerk: In re Van Niekerk v SA Yster en Staal Industriële
Korporasie Bpk en Andere 1980 (2) SA 441 (NC).
12 M Rauff (Pty) Ltd v Pietersburg Coal Agency 1974 (1) SA 811 (T) at 812E.
proved and it was accepted that PWC Inc bore no liability to NPC for any
of its claims. Although not said expressly in the judgment on the merits it
was implicit in it that the claim against PWC Inc was dismissed. Its
involvement in this appeal relates only to costs.
The pleaded claim
[15] The particulars of claim were lengthy, repetitive and burdened by
masses of documents. The following can be distilled from them. NPC‟s
claim was based on the contract, or contracts, that it alleged it concluded
with PWC for the performance of audit services. PWC was appointed
annually at its annual general meeting as the auditor of NPC in terms of
s 145 of the Act and this appointment was accepted, giving rise to a
contract between NPC and PWC for the rendering of audit services by the
latter to the former. Arising from this it pleaded that PWC owed to NPC
various duties in relation to the performance of the audit and that PWC
breached these duties in various ways. As is often the case the pleaded
duties went further than could be sustained by either evidence or
argument. In this court, however, it was common cause among all the
expert witnesses that PWC owed NPC the following duties.
[16] PWC was in the first instance obliged to perform those functions
imposed upon an auditor by the provisions of ss 153 and 154 of the Act. It
was obliged to perform these duties with proper skill and care and without
negligence in accordance with the standards of the auditing profession.13
The standards of the auditing profession were to be derived from the
provisions of the Public Accountants and Auditors Act 80 of 1991 (the
Auditors Act) and the standards issued from time to time by the profession
13 Thoroughbred Breeders’ Association v Price Waterhouse 2001 (4) SA 551 (SCA) paras 18-21.
in the form of generally accepted auditing standards (GAAS). Which of
those standards were relevant and how they should have been applied in a
particular case might properly be the subject of expert evidence and such
evidence was led at the trial. Its impact will be assessed at a later stage.
The documents embodying these standards at the relevant times were
placed before the trial court.
[17] NPC alleged that during the entire period there were material
irregularities in the management, control and administration of credit. It
attributed this to the members of the credit department and the executives
granting credit in conflict with the statute of NPC, the credit policy
determined from time to time by the board and the provisions of the
drought aid scheme. The staff in the credit department and executive
employees were said to have behaved recklessly, irregularly and
dishonestly in granting credit to members:
who were technically insolvent;
in excess of authorised credit limits;
without obtaining sufficient security;
where the creditworthiness of the member was questionable;
where the member‟s credit history revealed that they were not
accounting to NPC for the proceeds of their crops, or were evading the
statutory pledge.
It was alleged that this conduct was concealed from the board and the
members by various stratagems. In particular it was said that the extent
and escalation in bad debts, that would otherwise have revealed the
increased risk to which NPC was exposed as a result of this misconduct,
was misrepresented to the board. This prevented the board and the
members from taking remedial steps to resolve the issue of
mismanagement. NPC characterised this as the reckless mismanagement
of credit.
[18] The consequence of this reckless credit mismanagement was said to
be that NPC suffered substantial damages by way of the writing off of bad
debts. These had not been reflected in the annual financial statements,
which therefore disclosed a misleading picture of the financial position of
NPC. This persisted from 30 September 1984, covering the financial year
prior to that date, until 28 February 1997. The complaint in each year was
essentially the same, namely, that the provision for doubtful debts
reflected in the annual financial statements, which was R300 000 in every
year, save for 1996/7, was too low to provide an accurate picture of the
potential bad debts of NPC.14 If proper provision had been made in each
year for doubtful debts, far larger amounts would have had to be shown
and, had this been done, NPC would have shown a loss rather than a profit
in virtually every year. Certainly the accounts would have reflected the
financial position of NPC as being parlous if not actually insolvent.
Notwithstanding this, PWC either certified the annual financial statements
as being a fair reflection of the financial state of affairs of NPC as required
by s 154(2) of the Act (1992 to 1995), or qualified its certification (1983
to 1991 and again in 1997) in a way that was said to have diverted
attention away from the true underlying problem, of reckless
mismanagement of the grant of credit and the recovery of debts from
members.
14 In the light of the evidence of the experts the focus shifted in the course of the trial from the standard
annual provision to a comparison between the amounts written off as bad debts, together with that
provision, and the amounts that NPC contended should have been provided for potential bad debts.
[19] NPC alleged that if PWC had properly discharged its duties as
auditor it would have identified the wholesale reckless mismanagement of
credit. A far higher proportion of the debts reflected in NPC‟s books
would have been regarded as doubtful and treated as such in the annual
financial statements. This would have resulted in the profit figure being
restated to reflect the greater write-offs required in respect of the provision
for bad and doubtful debts. If the directors were not prepared to alter the
annual financial statements accordingly (and it was assumed in the
pleadings that they would not have done so) then PWC should have
qualified them, spelling out in detail their deficiencies and highlighting
what were said to be misstatements in the directors‟ reports. In every year,
so it was alleged, PWC should have refused to certify the annual financial
statements as a true and fair reflection of the financial affairs of NPC. In
not doing so it was in breach of its contractual obligations.
[20] The pleadings took a curious turn when it came to the issue of
damages. One would have expected that after the lengthy recitation of
PWC‟s duties; the mismanagement of NPC‟s affairs; the defects in its
annual financial statements and the alleged breaches by PWC of its
contractual obligations, there would have been allegations setting out the
respects in which NPC was said to have suffered losses in consequence of
the alleged contractual breaches. Instead there was a single paragraph
reading as follows:15
15 The pleadings, as with most of the documents and the bulk of the evidence, were in Afrikaans, so that
the passage quoted is my translation. In the original the paragraph read as follows:
„Al NAK se skade voormeld vloei natuurlik uit PWC se kontrakbreuk en is skade wat normaalweg te
wagte sou wees en wat regtens geag word om binne die kontemplasie van die partye te gewees het as die
waarskynlike gevolge van die kontrakbreuk. Alternatiewelik, was dit, ten tye van die sluiting van elk
van die jaarlikse kontrakte, binne die kontemplasie van die partye, soos verteenwoordig, of behoort dit
redelikerwys binne die kontemplasie van die partye soos voormeld te gewees het, dat al die skade
voormeld, alternatiewelik al die tipe skade voormeld, waarskynlik sou volg uit „n verbreking van die
kontrak. Alternatiewelik was dit ten tye van die sluiting van elk van die jaarlikse kontrakte, sodanig
„All NPC‟s aforementioned damages flow naturally from PWC‟s breach of contract
and are damages that are normally to be anticipated, and are in law to be regarded as,
within the contemplation of the parties as the probable consequences of a breach of
contract. Alternatively, it was at the time of concluding each of the annual contracts
within the contemplation of the parties, as represented, or ought reasonably to have
been within the contemplation of the parties as aforesaid, that all the damages as
aforesaid, alternatively all the type of damages aforesaid, probably would follow from
a breach of contract. Alternatively it was at the time of concluding each of the annual
contracts so within the actual contemplation of the parties as aforesaid, that the
contract in each case was in truth concluded on that basis.‟
[21] In the following paragraphs it was explained that, notwithstanding
anything in the particulars of claim, the damages claimed by NPC were
confined to various heads. Of those only two remain relevant, the others
having been rejected by the trial court. The first consisted of losses arising
from bad debts written off. These were divided into two components,
namely bad debts written off before 28 February 1998 and bad debts that
had not yet been written off by that date, but fell to be written off later.
The latter were assessed as having been bad on that date, but, when the
pleadings were amended in 2011, allowance was made for amounts that
had in fact been recovered by that date and for any amounts that the
attorney attending to collections expected still to recover, less the costs of
collection which included an insurance premium. The second head, which
is the subject of the cross-appeal, related to the losses that NPC alleged it
had suffered because it had not recovered these amounts from debtors and
hence had not had these amounts available to it for further investment or
to discharge liabilities. This amount was calculated at the rate of interest
binne die werklike kontemplasie van die partye soos voormeld, dat die kontrak in elke geval as‟t ware
op daardie basis gesluit is.‟
that the Land Bank had, during the relevant period, charged NPC on loans
made to it.
[22] In summary, NPC sought to recover from its auditors, amounts it
claimed to have written off as bad debts or that it would have to write off
as bad at some future stage. There was no allegation that the auditors were
in any way involved in granting credit to the debtors concerned. Nor did
they have any responsibility for the collection of debts. The bad debts
arose because NPC, acting through its own staff and management,
extended credit to debtors who either were not creditworthy when the
debts were incurred or had become unable to repay them by the time the
action commenced. No allegations were made connecting the auditors to
the granting of credit to these debtors or to the inability to recover these
amounts from them.
[23] This was an undoubted deficiency in the pleadings and it could
possibly have been a ground for a further exception. No legally relevant
connection was alleged to exist between the allegations of breach of
contract and the amounts that NPC wished to recover from PWC by way
of damages. But no exception was lodged. The basis upon which the case
was conducted emerged from the opening address delivered in October
2005 when the hearing commenced before Botha J. NPC argued that had
PWC performed its contractual obligations properly either the directors, or
failing them the members of NPC, would have been aware of the gross
deficiencies in the implementation of the credit policy and the reckless
mismanagement of the grant and recovery of credit, and would have taken
steps to recover debts and put an end to the irregularities. Instead it was
alleged that the mismanagement was allowed to flourish. Had it been
checked, then in relation to each bad debt making up the overall claim for
damages, either credit would not have been granted to these debtors or the
debts would have been recovered.
[24] The plea added little of moment to the definition of the dispute. It
placed in issue virtually every material allegation in the particulars of
claim. That included a denial that any contracts had been concluded
between NPC and the firms making up PWC; a denial that those firms
owed any duty to NPC beyond those set out in ss 153 and 154 of the Act;
a denial that there had been reckless mismanagement of credit in the
activities of NPC; a denial that PWC had in any respect breached any
obligations that it owed to NPC; a denial, if it had, that NPC had suffered
any loss as a result and a denial of all aspects of the quantum of the claim.
In addition PWC pleaded that any claim against its constituent firms had
prescribed and that the additional claims imported by NPC after the
declaratory order was granted had been waived when the amendment of
the particulars of claim occurred in 2005 prior to the resumption of the
trial.
The issues
[25] From the foregoing the following issues arise in this appeal:
(a)
Was the relationship between NPC and PWC contractual?
(b)
If so, what were the obligations assumed by PWC thereunder?
(c)
Did officials of NPC recklessly mismanage credit as alleged?
(d)
Did PWC breach any of its contractual obligations?
(e)
If so, did those breaches cause NPC to suffer any loss?
(f)
What was the proper basis for determining the amount of that loss?
(g)
Did the recoverable loss include the claim for interest that was the
subject of the cross-appeal?
(h)
Had the whole, or any part, of the claim prescribed before the
institution of this action?
(i)
What costs order should have been made in relation to the main
trial?
(j)
What costs orders should have been made in relation to the
subsidiary issues?
Before turning to deal with these questions it is desirable to sketch some
of the relevant background and history.
NPC’s business
[26] NPC operated on co-operative principles, to assist farmers who
grew potatoes in obtaining seed potatoes, packaging, fertiliser, insecticides
and other items necessary for the cultivation of potatoes. It also had
facilities for testing and certifying the quality of seed potatoes, a limited
cold storage facility for seed potatoes, and field officers to provide advice
to farmers. Whilst initially based at Bethal in what is now Mpumalanga,
its activities eventually extended to all the major potato growing areas of
South Africa. Unlike many other agricultural co-operatives it did not store
or market its members‟ products or, in general, engage in other business
activities. This was due to the nature of potatoes as an agricultural
commodity that was not centrally marketed or subject to any form of price
control, but would be sold by farmers through the fresh produce markets
in major centres and informally from their farms, with prices being
determined by supply and demand. It was also a market that producers
might enter on an opportunistic basis when prices were high and offered
the opportunity for a quick profit, but this had the effect of depressing
those high prices because of over-supply.
[27] NPC did not itself keep stocks of the items required by its members
but purchased them on their behalf and on-sold them. In the case of seed
potatoes it would purchase them from its own members and then sell them
to other members. The debts incurred by members through these activities
were referred to as production credits. In order to finance its business NPC
borrowed money on favourable terms from the Land and Agricultural
Bank of South Africa (the Land Bank). Its profitability was dependent
upon any mark-up it charged to its members on the supply of production
materials and the difference between the rate of interest that it charged its
members and the rate of interest that it was being charged by the Land
Bank. That did not make for substantial profits especially as the Land
Bank asked co-operatives to limit to one per cent the margin they charged
on loans funded by the Land Bank.
[28] NPC was dependent upon the Land Bank in order to remain in
business. Without the financial support it received from that source it
could not have continued its activities. Its liability to the Land Bank was
by far its largest liability. Conversely the principal asset of NPC was the
debts owed to it by members to whom it had granted production credits.
These debts were the security for the Land Bank‟s claims. NPC had not
built up reserves of capital to cushion it against any significant downturn
in its financial fortunes. Accordingly if it failed in any significant degree
to collect what was owing to it by its members it faced closure.
[29] The financial challenges facing NPC were exacerbated by
protracted droughts during the 1980s, which made it difficult for its
members to grow the crops necessary to enable them to repay the
production credits they had received from NPC. Whilst these sometimes
led to shortages in the market place and hence higher prices, the higher
prices were insufficient to compensate for the loss of production. Drought
caused widespread problems in the agricultural sector and the government
of the day put in place various schemes designed to assist farmers who
were struggling to remain in business as a result of the drought. Many
members of the NPC participated in these drought aid schemes, which in
practice involved the Land Bank granting extended repayment terms in
respect of certain farmers‟ debts against the security of a government
guarantee („die staatswaarborg‟).
[30] There were also problems in obtaining security for members‟
indebtedness to NPC. The best form of security in the form of a mortgage
bond over the member‟s farm was rarely available. Usually farms would
be mortgaged to the Land Bank or some other financial institution.
Potatoes were not the principal crop of most members of NPC and the
majority were also members of other larger co-operatives, in particular the
grain co-operatives. Although this allowed for some measure of cross-
subsidisation, so that in years where the potato crop was poor the grain
harvest might be good and vice versa, when both crops were poor this
aggravated the problem of repayment of debts. Because of their greater
financial muscle these larger co-operatives were often able to obtain
security of better quality and ranking ahead of any that NPC could obtain.
In addition they usually marketed their members‟ produce so that they had
the advantage of receiving the proceeds directly. If NPC wished to obtain
direct payment of the proceeds of selling potatoes they had to obtain a
written authority from the member, addressed to the market agents used by
the farmer to market the potatoes, authorising the agent to pay the
proceeds of sales directly to NPC. In addition NPC would obtain notarial
bonds over movables as security, but in the nature of things, if it had to
rely upon such a bond, it rarely proved adequate to cover the entire
indebtedness.
[31] The principal security held by NPC was the statutory pledge over its
members‟ crops, in terms of s 173(1)(c) of the Act. But the pledge had its
limitations. It applied to potatoes held by the member at the time the debt
arose or any potatoes produced or acquired in the period of 18 months
thereafter. It was not therefore a long-term form of security. Furthermore,
as there was no obligation on farmers to deliver their potato crops to NPC
or its nominated agents, it was relatively easy to circumvent. The evidence
showed that the efforts by NPC to enforce this security were limited and
sporadic and it frequently agreed to waive the pledge or made fresh
advances to members from the proceeds of their crops, in effect, creating
carry-over debts („oorlaatskulde‟).
[32] The uncomfortable financial position of NPC was reflected in its
annual financial statements for the year after the introduction of the first
drought aid scheme. This was the year ended 30 September 1983 and
these statements were not attacked in these proceedings. They showed that
the total capital of NPC was a little over R2.5 million. Its fixed assets were
a little less than R2 million and its current assets slightly less than R14
million. Of that figure, debtors represented nearly R13 million, which was
nearly double the figure for the previous year. The amount owing to the
Land Bank was nearly R10 million. The surplus for the year was
R340 000 on a turnover of over R20 million and that was determined after
writing off bad debts of R430 000, an increase from the previous year of
165 per cent.
[33] The board of directors were clearly aware of this situation and
aware also that NPC was heavily dependent upon its debtors meeting their
obligations for its financial health. That was made clear to them by the
auditor – not at that stage Mr Odendaal – who told the directors at the
meeting when they approved the annual financial statements that special
attention needed to be given to debtors. He is recorded in the minutes as
saying that bad debts had their origin in the decision to grant credit and
that it was therefore necessary to ensure that information available at that
time should be considered carefully and that staff should be properly
trained in these matters. This caused the board to resolve that immediate
attention be given to the credit policy. At the same time it would have
been under pressure to provide financial support to its members at the very
time that the members were facing great financial constraints and were
most likely to default on their obligations to NPC. Accordingly, satisfying
the purpose for which it was established and simultaneously implementing
stringent credit policies was a source of tension if not outright conflict.
[34] The members of NPC were also made aware of the dangerous
financial situation in which it found itself. In the directors‟ report forming
part of the annual financial statements for that year their attention was
drawn to the effects of the drought and the massive increase in NPC‟s
debtors. According to the report, if the government had not put forward its
drought aid scheme „your Co-operative as well as its producers would
have been in a serious financial disposition (sic)‟. Although there had been
an increase in membership this was not caused by farmers entering the
potato business but reflected „producers‟ need for financing of crops‟. That
was also reflected in the increase in turnover during the year.
[35] That is how matters stood at the financial year end in 1983 and it
remained unaltered during the period under consideration. The allegation
that the annual financial statements did not reflect the true financial
position of NPC from 1984 to 1997 renders it necessary to consider the
picture painted by those statements and other documents in those years. To
avoid undue prolixity and simplify reading the detailed analysis is
contained in the appendix to this judgment. In what follows the
conclusions drawn from it are summarised. In doing so I will highlight the
problems that existed; the concerns raised by the Land Bank and the
auditors; the knowledge of the directors of the financial situation; the steps
taken by the directors to address the problems that existed; and the
information given to members about that situation.
Summary of the position from 1984 to 1997
[36] From October 1983, and the beginning of the 1984 financial year, to
November 1997, and the finalisation of the financial statements for the
year ended 28 February 1997 the financial statements reflected that NPC
was financially insecure. It lacked capital resources to withstand any
vicissitudes in trading conditions. Its operations extended throughout the
country, but were controlled centrally from Bethal, so that it was heavily
dependent on the field officers and credit officers in the regions for the
implementation of credit policies. The business of the provision of
production materials to its members was conducted almost entirely on
credit and was dependent upon Land Bank financing. The Land Bank
repeatedly expressed concern over its practices in regard to the grant of
credit and the recovery of amounts owing to it, especially by the exercise
of its statutory pledge. Withdrawal of Land Bank support or any
significant diminution thereof would have been catastrophic. When it
demanded repayment of debts and reduced its willingness to provide credit
in 1997 this rapidly led to the effective demise of NPC‟s business.
[37] From 1983 to 1992 there were persistent droughts that eventually
affected all areas of agriculture in South Africa and the government
intervened by establishing the series of drought aid schemes referred to in
para 29. These schemes were administered by the Land Bank, which was
already responsible for much agricultural credit in the country. Its ability
from 1983 until 1992 to extend credit to co-operatives under these
schemes was itself dependent on the state guarantee. If that were
withdrawn, large amounts would have become due to the Land Bank and
would have had to be recovered from farmers, who ex hypothesi had been
enduring difficult times. On a broader front there was always a risk of the
government withdrawing its support from agriculture, particularly in the
uncertain political climate through the late 1980s and early 1990s. The
Land Bank itself, if not satisfied that a co-operative was implementing the
drought aid scheme properly could refuse to pay claims under the scheme
and it could always withdraw, limit or impose onerous conditions on the
cash credit account of the NPC.
[38] The NPC had a persistent problem with bad debts. In every year a
relatively small increase in bad debts written off would have tipped the
balance sheet into negative territory and reflected that the NPC was
trading unprofitably and potentially in insolvent circumstances. Mr
Odendaal and the members from time to time of the board of directors
knew this. So did the members of NPC because it was apparent from the
annual financial statements and (insofar as members attended such
meetings) the reports made by Mr Odendaal at annual general meetings.
The adoption of more and more stringent credit policies did nothing to
alleviate this but nonetheless the board consistently reported that the credit
policy was being implemented stringently. This was never queried,
notwithstanding the fact that these policies seemed to make no difference
to the on-going increases in and concerns about the bad debts.
[39] Despite these difficulties the NPC expanded its operations and its
turnover increased virtually every year, sometimes by very large amounts.
For example between 1986 and 1987 it increased from R29.5 million to
R48.5 million and again the following year to R71 million, where it
remained for a year before increasing to R102 million in 1990. Over the
same period debtors increased from R27 million to R70 million and the
indebtedness to the Land Bank by an equivalent amount from R22 million
to R65 million. Over R7 million had been written off as bad debts during
this period and the extent of drought aid debt was consistently close to 50
per cent of all debtors.
[40] In 1992 NPC was saved from closure by the receipt of R28.5
million from the government when the drought aid scheme and the
corresponding state guarantee were terminated. The opportunity was taken
to write off large amounts of debt. However, nothing thereafter changed in
NPC‟s business operations. Its turnover increased from 1992 to 1996 from
R123 to R142 million, but its debtors increased over the same period from
R66 million to R111 million, that is, by the same amount. In 1997 the
Land Bank reduced its support substantially and imposed conditions on
continuing to provide credit. As a result the business largely collapsed.
Massive amounts were written off as bad debts resulting in a loss of R34
million in 1997. According to the directors‟ report in 1999, its turnover
fell from R119 million in 1997, to R 83.4 million in 1998 and R53.6
million in 1999. It was utterly dependent on the Land Bank‟s support if it
was to remain a going concern. When the Land Bank commenced action
against it that was the straw that broke the camel‟s back. Membership was
falling fast from a peak of 906 to 572 and then a little over 100. In 2000 it
effectively merged with Northern Transvaal Co-operative Ltd, and ceased
trading.
[41] In 1997 PWC resigned as auditors. They concluded for various
reasons that they could not express an audit opinion on the financial
statements for the year ended 28 February 1997 and withheld an opinion.
Mr Collett, who played a key role in this litigation, had come on the scene
and was conducting an investigation that led to the present claim being
made against the auditors. By May 1998 Mr Collett was recorded as
informing the directors that he was confident that the claim against the
auditors would succeed.
[42] The directors who held office from time to time throughout this
period were well aware of all these matters. As experienced farmers
themselves, engaged in growing potatoes and in some instances serving on
other agricultural committees and bodies, they were in a good position to
judge the state of the agricultural industry, particularly as it related to
potatoes. They would have known about the impact of weather conditions,
such as drought, rain and snow, on crops; whether pests and disease were
affecting crops; the costs of farming potatoes at any particular time; the
prices being obtained in fresh produce markets at various times; and, in
general, the state of the potato growing industry. Furthermore, as the
directors were elected to represent the different regions in which potatoes
were being farmed, each director could be expected to have particular
knowledge of farming conditions in the area he (and they were all men)
represented, as well as a degree of personal knowledge of the potato
farmers in his areas,16 which would encompass the nature and extent of
their farming activities, the problems they were encountering and whether
they were „good‟ or „bad‟ farmers. Lastly, while they might not have had
advanced education in financial matters, a number of them were
successfully operating large farming businesses and could have been
expected to have a reasonable understanding of financial matters and
financial statements. The suggestion that they were simple farmers easily
duped by management does not hold water.
[43] The members too would have been generally aware of the matters
described in paras 26 to 34 and 36 to 42 above. These were all matters that
were communicated to them in the annual financial statements of NPC.
There were other communications to them in the form of a newsletter, the
NAKBLAD, and one must accept that as farmers they would have paid
attention to the information available through public media and the like. It
is against that general background that I turn to the specific dispute in the
present case.
The dispute
[44] Although the pleadings (and at times the judgment of the trial court)
suggest that it was PWC‟s responsibility to determine the proper level of
provisions for bad debts and the amounts to be written off each year as bad
debts, and that the annual provisions they made were inadequate, that was
plainly incorrect and it was not pursued before us. The case was based on
the contention that the reason for the high level of bad debts was
mismanagement of the function of granting credit and recovery of debts
16 At any given time there were usually no more than 400 or 500 active farming members of NPC so that
the number of individual farmers in a given area would not be great and they would tend to be known to
one another.
by the officials of NPC, who were acting recklessly or dishonestly and
irregularly, through deliberate breaches of the statute of NPC and its credit
policy,17 and that this was either known to Mr Odendaal or should have
become apparent to him had he undertaken a proper audit. The nature and
extent of this reckless mismanagement was concealed from the directors
and members and PWC‟s reports facilitated this. The reports did not
disclose the reckless mismanagement of credit, and the amounts written
off as bad debts, as well as the standard annual provision for bad debts,
were not a reasonable reflection of the financial position of NPC in respect
of these items.
[45] NPC contended that, had PWC complied with their contractual
obligations, they would have known the full extent of the reckless
mismanagement of credit and would have insisted that the financial
statements be amended to reflect a more realistic position. Alternatively,
they should have qualified their reports by saying that in their view there
was reckless mismanagement of credit; that the write-offs and provision
were substantially inadequate; and, drawn attention to the consequences
for the financial statements of their views being given effect. Had they
done so it was argued that from the commencement of the period under
consideration, the reckless mismanagement of credit and the consequent
parlous financial circumstances of NPC would have emerged and this
would have caused the board, or failing it, the members to take steps to
17 Para 1.10 of the heads of argument said: „Eiser se saak is dat hy wesenlike skade gely het as gevolg
van roekelose kredietbestuur en/of wanbestuur.‟ (Plaintiff‟s case is that it has suffered material loss as a
result of reckless credit management and/or mismanagement.) In the pleadings, under the general
heading of material irregularities in the management, control and administration of members and/or
debtors‟ accounts, it was specifically alleged that this was due to the fact that: „The credit department
and/or the personnel of the credit department and/or executive management, provided credit and/or
proceeded with the provision of credit to members and/or debtors in a reckless and/or irregular and/or
dishonest manner in circumstances where it was clear, or should have been clear, from the information
available to them and/or the NPC‟s records in relation to such members, that such transactions were of
such high risk that it would necessarily or probably lead to damage to NPC.‟ (My translation.)
remedy the position. Instead the situation was allowed to deteriorate until
matters came to a head in 1997. It was contended that the alleged breaches
of contract by PWC had led to NPC providing credit to farmers who were
not creditworthy and in due course having to write these debts off as
irrecoverable. The amounts so written off, in respect eventually of 46
farmers, constituted the damages for which it said that PWC was liable.
[46] PWC‟s stance was that the audits were all conducted properly and
that the approach by NPC has the effect of making the auditors the
insurers of the viability of the business. They accepted that from time to
time it was appropriate for the auditor‟s report to be qualified, but said that
the qualifications included from 1985 to 1991 and again in 1997 were
appropriately phrased to convey to NPC and its members the nature and
extent of the problems facing the co-operative and from then on it was for
them to determine what should be done to address the situation. They
disputed the allegations of reckless mismanagement and, to the extent that
the grant of credit in any particular instance was inappropriate or unwise,
they said that this was no more than the consequence of a poor decision
taken in the conduct of NPC‟s business, and therefore that responsibility
rested ultimately with the directors. If the business was run badly and this
could be characterised as mismanagement they said that it was for
management and the directors to identify and deal with the problem.
[47] It is important to note that NPC founded its attack on the audits on
the proposition that there was overwhelming evidence of material
mismanagement of credit that could be attributed to recklessness or
dishonesty on the part of the responsible officials. I will refer to this as
reckless mismanagement to distinguish it from a situation where the
business was not well run; or where there was poor decision-making in
regard to the grant of credit; or where inadequate steps were taken to
recover outstanding debts, all of which could possibly be described as
mismanagement, but arising for other reasons, such as incompetence,
carelessness or inefficiency. The alleged reckless mismanagement broadly
encompassed credit being granted contrary to the provisions of the statute
of NPC and the credit policy laid down from time to time by the board and
the failure to enforce strictly the statutory pledge against debtors. It
included the irregular inclusion of some debtors under the drought aid
scheme; the unlawful advance of loans to subsidiaries; the failure to obtain
proper security; manipulation and renewing of debts so that they appeared
to have arisen more recently than was in truth the case; the incorrect
levying of interest and ultimately the under provision for bad debts. This is
the way in which the case was expressed in the pleadings and it was
reiterated in the heads of argument in this court.
[48] NPC‟s case was not that the affairs of the co-operative were run
badly or unwisely, and that the failure of PWC to demand that higher
provisions for bad debts be made in the annual financial statements, or to
qualify their audit reports, was the cause of their loss. No doubt that was
because it would have raised intractable problems of causation. Holding
the auditors liable for that kind of mismanagement would effectively make
them the underwriters of the NPC‟s business failures, a risk that they did
not agree to run when they undertook the audit. It follows that if the cause
of NPC‟s problems was that it was a poorly run business, with a mixture
of over generous granting of credit and a less than zealous approach to the
recovery of payment from debtors, exacerbated by adverse farming
conditions and inadequate prices, this could not be laid at the door of
PWC.
[49] NPC pinned its colours firmly to the mast of reckless
mismanagement of credit by the responsible officials and the failure by
PWC to discover or disclose this and its consequences in its audit reports.
At a minimum NPC ascribed that failure to negligence in the performance
of the audit. However, in the court below and in its heads of argument, as
well as from time to time its oral argument in this court, NPC suggested
that Mr Odendaal‟s reports were either deliberately dishonest and
misleading or that he allowed himself to become a pawn of management
so that his reports were a mere smokescreen for their misconduct. I turn
then to outline the evidence led by the parties in support of their respective
cases.
The evidence
[50] A massive number of documents were placed before the court on
the basis that they were what they purported to be, but the correctness of
their contents was not admitted. In the course of the trial much use was
made of many of these and other documents. However, some potentially
important documents were no longer available, such as the audit working
papers for the period prior to 1990 and those for 1991. In addition Mr
Collett said that when he and his team were undertaking their investigation
there were files of bad debtors that were not available, which raises the
possibility that the files furnished by the NPC were incomplete. That is
reinforced by the fact that Mr Odendaal‟s notes in some of the audit files
refer to balance sheets in respect of debtors, when Mr Collett‟s team found
none. It suggested that documents might have gone astray and that the
files might be incomplete.
[51] NPC presented its case largely through the evidence of Mr Collett.
He had conducted the investigation into the affairs of NPC after the
departure of the chief executive, Mr Boonzaaier, in 1997 and prepared the
report that formed the basis for the action against PWC. He gave evidence
as an expert on the basis of his report and the files of documents prepared
in the course of his investigation. Messrs Marais, Greyling and De Jager,
who were previously employed by NPC, gave some supporting evidence
of a factual nature. Mrs van der Merwe explained how the files for each
debtor whose debt formed part of the claim were assembled from files
obtained from NPC and Mr van Schalkwyk dealt with interest rates
charged by the Land Bank from time to time. Dr Wentzel was a qualified
accountant who had spent his working life working in the Noord-
Westelike Koöperatiewe Landboumaatskapy, and he testified in regard to
the working operations of co-operatives, the drought aid scheme and
certain accounting issues in relation to co-operatives.
[52] Mr Hopkins and Professor Wainer gave expert evidence on
accounting issues. They were well qualified to do so. Mr Hopkins was a
former professor of accountancy at the University of Cape Town and had
then had a successful career in business with various companies. Professor
Wainer had extensive academic experience as well as substantial
involvement in practice with a leading firm of accountants and auditors, of
which he had eventually become chief executive, and subsequently as
senior partner of another firm. He has also served on various professional
bodies, particularly those responsible for setting standards. At the end of
the day, however, all of this was merely supplementary to the evidence of
Mr Collett upon which the entire case for NPC depended. The evidence of
both Professor Wainer and Mr Hopkins was premised upon there having
been reckless mismanagement of the affairs of NPC, and that, in turn,
depended upon Mr Collett‟s evidence.
[53] It is no surprise therefore that PWC attacked Mr Collett‟s evidence
on two grounds. The first, raised at an early stage of his evidence, was that
the opinions he was expressing were based upon facts of which there was
no proof and that, insofar as he was being used to place those facts before
the court, his evidence was inadmissible hearsay. In turn, as there was no
proof of the facts on which his opinions were based, those opinions were
irrelevant and inadmissible. The second, raised in argument rather than in
the course of his evidence, was that he was not in truth an expert and was
accordingly unqualified to express the opinions that lay at the heart of his
evidence regarding the existence of reckless mismanagement and the
adequacy of the audit undertaken by Mr Odendaal.
[54] PWC led only two witnesses. Their primary witness was Mr
Odendaal, who testified both as to what he had done in the course of
conducting the audits over this period and as an expert witness as to the
standards required of an auditor in the performance of an audit. In addition
they called Mr Tom Wixley, a senior and experienced accountant and
auditor, who had a 41 year career with one of the largest accounting firms
in the world, of which he ultimately became the local chairman, as well as
a member of the international council of that firm. He also had extensive
experience serving on professional bodies especially those responsible for
setting professional standards. Like Professor Wainer he has on many
occasions given evidence as an expert witness in relation to accounting
matters.
[55] NPC launched a ferocious attack on Mr Odendaal‟s evidence, both
in regard to its substance and in regard to his honesty and reliability. He
was described in the submissions to this court as a shocking witness whose
evidence was studded with contradictions. NPC argued that his evidence
was evasive and that he repeatedly avoided answering questions or simply
refused to do so. Although the trial court had heard and rejected a similar
attack on his credibility, NPC persisted in contending in this court that Mr
Odendaal‟s evidence should be rejected as untruthful. It submitted that,
although an appeal court is reluctant to overturn a finding of credibility
made by a trial court, based on that court‟s impression of the witness,18 the
trial court had erred in not adopting the approach to his evidence laid
down by this court in Martell.19
[56] The principal evidential dispute appeared therefore to be a conflict
between Mr Collett and Mr Odendaal, the former criticising and the latter
defending the quality of the audits undertaken by the latter. The dispute
between them lay at the heart of the central issues whether PWC breached
its contractual obligations during this period and, if so, whether that
occasioned loss to NPC, recoverable by way of an award of damages.
However, before reaching those issues, it is necessary to address the
anterior questions of the nature of PWC‟s relationship with NPC as a
result of its appointment as its statutory auditor; the obligations that rested
on PWC as a result of that appointment; and whether the evidence
established that there was indeed reckless mismanagement of credit by
NPC‟s officials and concealment of that mismanagement. It is to those
issues that I now turn.
Legal basis for the auditor’s appointment
[57] PWC‟s argument under this head was that the appointment of an
auditor was a requirement of the Act (s 143(1)) and had to be undertaken
18 Union Spinning Mills (Pty) Ltd v Paltex Dye House (Pty) Ltd 2002 (4) SA 408 (SCA) para 24.
19 Stellenbosch Farmers' Winery Group Ltd and Another v Martell et Cie and Others 2003 (1) SA 11
(SCA) para 5.
by the members of NPC at the annual general meeting (s 145(1)). The co-
operative was obliged to pay the auditor the agreed fee for rendering the
audit services (s 155(1)). Accordingly the decision by the annual general
meeting was the sole source of the auditor‟s appointment as such and was
not in any way dependent upon a contractual relationship existing between
the auditor and the co-operative. They submitted that the Act provided a
comprehensive code covering the appointment and duties of the auditor
(ss 152 -154). In those circumstances it was contended that the source of
the auditor's appointment in this case was statutory and not contractual.
Furthermore PWC contended that there was no evidence of any contract in
the particular circumstances of this case that would alter that situation.
[58] The argument is one with potentially far-reaching consequences, as
it would apply with equal force to the appointment of auditors by
companies, something that has been a feature of legislation governing
companies for many years both in this country and elsewhere. Yet no
authority was cited for the proposition and my own researches have not
revealed that it has occurred to any lawyer to argue a similar point in this
or any other jurisdiction. Whilst novelty alone is not a ground for rejecting
a legal point the fact that over a protracted period an otherwise obvious
contention does not appear to have been raised anywhere is a ground for
suspecting that it may not be sound.
[59] In my judgment the point is not sound. The fallacy lies in
approaching the matter solely from the perspective of what must occur at
the annual general meeting of the co-operative or company and not from
what must necessarily precede it. The decision at the annual general
meeting to appoint a particular person or firm as auditor must necessarily
be preceded by the board of directors (or, if there is opposition to their
proposal, the opposing faction in relation to their own nominee)
approaching a firm of auditors and asking whether they are willing to
accept the appointment. Auditors like PWC are firms that offer specialist
auditing services in return for remuneration. They are under no obligation
to accept an appointment as auditor and will only do so if the terms of
appointment offered to them are sufficiently attractive and acceptable. A
proposal to appoint them as auditor will always follow upon agreement
having been reached upon these matters. Only then will it be proposed to
the members at the annual general meeting that they should agree to make
the appointment.
[60] It does not seem to me to matter in those circumstances whether
one analyses the legal position on the basis that the co-operative or
company making the appointment offers to appoint the auditor on the
terms agreed, such appointment to be finalised by the approval of the
members at the annual general meeting, and the auditor accepts that offer,
or as an offer by the auditor to accept an appointment on agreed terms
accepted by the co-operative or company by way of the resolution of
members at the annual general meeting. The only apparent difference
between those two analyses might be as to the precise moment when the
contract comes into existence. The relationship in either event is
contractual. It is noteworthy that this is the view of it taken by the auditing
profession in its published auditing standards (Audit statement 211). It is
also the consistent view of legal writers dealing with the relationship
between an auditor and the enterprise being audited.20
20 HS Cilliers and ML Benade and others Cilliers and Benade Corporate Law (3 ed) para 23.36, p 409;
Halsbury‟s Laws of England, (5 ed) Vol 15, paras 916 and 918; John L Powell QC and Roger Stewart
QC Jackson and Powell on Professional Liability (7 ed) 1-014 and 17-020.
[61] For those reasons I hold that the relationship between the various
iterations of PWC as auditor of NPC from time to time and NPC was
contractual. Bearing in mind the provisions of s 145(3) of the Act, which
in this respect paralleled the provisions of s 270(2) of the Companies Act
61 of 1973, which was in force at the time, this was not a single
continuing relationship such as that created by a contract of employment.
Under the Act each annual appointment of an auditor gave rise to a
separate contract. That has an important bearing on not only the issue of
prescription, but also the issues of negligence and causation. This is
especially so because there were four different firms that contracted with
NPC during the years in question. A breach of contract by the one cannot
therefore be „carried over‟ or attributed to another. There is no question of
a continuing breach of contract. As the authors of Jackson and Powell21
point out:
„The fact that auditors have negligently performed their duties in one year does not by
itself establish that the absence of a report about the same matter in the next year is
negligent. Where what is complained of is an omission to note a particular point the
circumstances giving rise to that omission in the year in question need to be examined.‟
[62] The entire case was conducted without this important point being
raised or canvassed. NPC‟s approach was that there was a continuing
breach of contract by a single entity compendiously described as PWC.
That was erroneous. If there were breaches of contract by any of the four
firms so described they were independent breaches occurring in different
years and having different consequences. It was necessary to identify the
consequences flowing from each such breach. As the case lay in contract,
not delict, there was no question of joint wrongdoing and no basis for
21 Op cit para 17-020.
judgment to be entered jointly against different firms as happened when
the issue of quantum was addressed. Cases of true joint liability in contract
are most likely to arise in circumstances where the parties being held
liable are parties to the same contract and the claim arises out of the same
breach, but for some or other reason they are not jointly and severally
liable.22 The present was a situation where the possibility existed of saying
that the different firms were separately and independently liable for the
same or similar loss,23 but the case was not pursued on that footing.
PWC’s contractual obligations
[63] The role of the auditor has been the subject of numerous judgments,
none more lucid than that of Bingham LJ in Caparo v Dickman,24 where
he said:
„At the heart of this case lies the role of the statutory auditor. That role is, I think,
without close analogy. Its peculiar characteristics derive from the nature of the public
limited liability company. The members, or shareholders, of the company are its
owners. But they are too numerous, and in most cases too unskilled, to undertake the
day-to-day management of that which they own. So responsibility for day-to-day
management of the company is delegated to directors. The shareholders, despite their
overall powers of control, are in most companies for most of the time investors and
little more. But it would, of course, be unsatisfactory and open to abuse if the
shareholders received no report on the financial stewardship of their investment save
from those to whom the stewardship had been entrusted. So provision is made for the
company in general meeting to appoint an auditor … whose duty is to investigate and
form an opinion on the adequacy of the company's accounting records and returns, and
the correspondence between the company's accounting records and returns and its
accounts … The auditor has then to report to the company's members (among other
22 RH Christie and GB Bradfield Christie’s The Law of Contract in South Africa (6 ed) 262-263.
23 Van Immerzeel & Pohl v Samancor Ltd 2001 (2) SA 90 (SCA) paras 76 and 77.
24 Caparo Industries plc v Dickman & others [1989] 1 All ER 798 (CA) at 804a-e. Cited with approval
by Nugent J in Powertech Industries Limited v Mayberry & another 1996 (2) SA 742 (W) at 746A-E.
See also Lipschitz & another NNO v Wolpert & Abrahams 1977 (2) SA 732 (A) at 740-C-E.
things) whether in his opinion the company's accounts give a true and fair view of the
company's financial position … In carrying out his investigation and in forming his
opinion the auditor necessarily works very closely with the directors and officers of the
company. He receives his remuneration from the company. He naturally, and rightly,
regards the company as his client. But he is employed by the company to exercise his
professional skill and judgment for the purpose of giving the shareholders an
independent report on the reliability of the company‟s accounts and thus on their
investment.‟
Save that the members of NPC were not investors, but became members in
order to facilitate and further their own farming interests, I think that this
correctly states the function that PWC was obliged to fulfil for NPC.
[64] The auditors‟ obligation was to express an opinion on the financial
statements prepared by management, an expression that encompasses both
the board of directors and the officials acting under their direction. Under
the Act the responsibility for managing the affairs of NPC, covering both
the conduct of the business and the adoption of appropriate accounting
practices in accordance with GAAP, lay with the board of directors. They
were also responsible for preparing the financial statements on which
PWC expressed an opinion. PWC were not an adviser and it was not part
of their audit function to advise on the manner in which NPC should have
conducted its business or whether it was being run in a prudent fashion.25
They were, however, obliged to conduct the audit in a reasonably skilled
manner and without negligence.26 If in the course of the conduct of the
audit they discovered matters concerning the manner in which the business
was being conducted that might materially affect the accuracy of the
25 In re London & General Bank (No 2) [1895] 2 Ch D 673 at 682. Halsbury‟s Laws of England, (5 ed)
Vol 15, para 929.
26 Thoroughbred Breeders, supra, fn 13. Proof of negligence is a pre-requisite to liability. See s 26(5)(a)
of Public Accountants‟ and Auditors‟ Act 51 of 1951; s 20(9)(a) of Public Accountants‟ and Auditors‟
Act 80 of 1991.
financial statements it was part of their audit responsibility to investigate
and report it to the appropriate level of management. Depending on the
outcome of their investigations they might have required the financial
statements to be amended or have qualified or withheld their report to
members.
[65] The primary source of a statutory auditor‟s rights and obligations
under its contract with its client is the statute. In this case, although NPC
sought in its pleaded case to burden PWC with obligations going beyond
its statutory duties, it led no evidence to support that approach. It
contended that PWC was obliged to audit its accounting records; to
investigate its system of internal controls and report on it; to evaluate its
accounting policies and report on them; and to comply with unspecified
provisions of NPC‟s statutes. An endeavour was made to sub-divide the
audit function into separate compartments, but that was inappropriate. It
overlooked that the function of the auditor under the Act was a global one,
namely to audit and evaluate the financial statements of NPC and to
determine and report whether they fairly reflected its financial affairs and
the result of its activities (s 145(2)). In the course of that they would need
to examine many of the matters identified in the particulars of claim, but it
is necessary to keep in mind that their task was a global one.
[66] The relevant provisions of s 153 of the Act provided that the auditor
was obliged to:
„(a)
examine the co-operative's annual financial statements …
(b)
satisfy himself that proper accounting records in accordance with the
requirements of this Act have been kept by the co-operative and that proper returns,
adequate for the purposes of his audit, have been received from branches and depots
not visited by him;
(c)-(e) …
(f)
obtain all the information and explanations which to the best of his knowledge
and belief are necessary for the purpose of carrying out his duties;
(g)
satisfy himself that the co-operative's annual financial statements are in
agreement with its accounting records;
(h)
examine the accounting records of the co-operative and carry out such tests in
respect of such records and such other auditing procedures as he may consider
necessary in order to satisfy himself that the annual financial statements fairly reflect
the financial state of the affairs of the co-operative and the results of its operations in
conformity with generally accepted accounting practice applied on a basis consistent
with that of the preceding year;
(i)
satisfy himself that statements made by the directors in their report do not
conflict with a fair interpretation or distort the meaning of the annual financial
statements and the company notes …‟
[67] Having conducted an audit in accordance with those provisions
PWC was then obliged to render its report to the members of NPC. If
satisfied that the annual financial statements fairly reflected its financial
state of affairs and the result of its trading activities it would report
accordingly. If unable to do so, or only able to do so with qualifications,
PWC was obliged to report to that effect and to set forth the facts and
circumstances that prevented it from giving a report. or an unqualified
report, as the case might be (s 154(3)).27 Whether PWC properly
discharged its obligations in this regard was central to the dispute in this
case.
[68] The audit standards dealt with the nature of the qualifications that an
auditor could attach to their report, and to when such qualifications were
justified and when an audit report should be declined or an adverse report
27 This section was amended in 1993, but the amendment did not effect any material change to the
auditor‟s obligations.
given. Audit standard AU 321 in GAAS set out the following position
from 1982 until 1990, during which PWC consistently issued qualified
audit reports. An unqualified audit report was one that expressed the view
that the financial statements fairly represented the financial position of the
audited entity and the result of its activities. The need to qualify a report
could arise either from uncertainty about matters that prevented the auditor
from expressing an unqualified opinion, or disagreement between the
auditor and management as to the presentation of matters in the financial
statements. If the uncertainty related to a material matter then the auditor
could report that „subject to‟ the relevant matter the financial statements
fairly reflected the financial position. However, if the uncertainty was
fundamental, because, for example, it would affect the solvency of the
enterprise or its status as a going concern, then the auditor was obliged to
disclaim an opinion, that is, to report that they were unable to form a view
on whether the financial statements fairly reflected the entity‟s financial
position and activities.
[69] Where the problem was a disagreement between the auditor and
management on the proper presentation of matters in the financial
statements, and the disagreement was material, but not fundamental, the
auditor was required by the audit standard to express the opinion that,
„except for‟ the area of disagreement, the financial statements fairly
reflected the financial position and the activities of the enterprise. If the
disagreement was fundamental the auditor was obliged to express the
opinion that the financial statements did not fairly reflect the enterprise‟s
financial position and activities.
[70] In its original form AU 321 said that the explanatory paragraph in
which an auditor set out the reasons for qualifying should include „a brief
résumé of the reasons for the qualification, the implications thereof for the
financial statements and where possible the amounts involved‟. Sufficient
information had to be given to enable the reader to understand clearly the
reason for the qualification. This had to be construed in the light of the
requirement in s 154(3) of the Act that obliged the auditor to set forth the
facts and circumstances preventing them from giving a report or an
unqualified report. The statute demanded a full statement of matters giving
rise to that situation and the auditing standard could not detract from that.
It is important to note that compliance with the provisions of GAAS, while
possibly a necessary condition for an auditor not to be held in breach of
contract, may not be a sufficient condition therefor, if the GAAS standard
is less stringent than a statutory obligation. Similarly, such compliance
goes some way towards showing that the auditor was not negligent, but is
not necessarily decisive.28
[71] In 1991 AU 321 was revised to exclude the possibility of a „subject
to‟ opinion being expressed in the case of material uncertainty. The
circumstances that hitherto had attracted that kind of qualification would
now require an „except for‟ qualification or a disclaimer of opinion. If the
auditor disclaimed an opinion they had to set out the reasons therefor. This
is what Mr Odendaal did in 1991, although the grounds for his disclaimer
were challenged. The revised standard contained the same provision in
regard to the explanation for a qualified opinion or a disclaimer, save that
it added that all material matters about which the auditor had reservations
should be mentioned. The audit standard made it clear that, as with many
other aspects of an audit, it was a matter for the professional judgment of
the auditor to determine whether something was material.
28 Kripps v Touche Ross & Co., 1998 CanLII 3905 (BC SC); 56 BCLR (3d) 160 paras 69 to 73.
[72] Apart from the issues surrounding the auditor‟s duties in relation to
the report made to members at the end of the audit, ultimately there was
little controversy over their obligations in terms of the audit standards.
They were required to approach the audit from an independent and slightly
sceptical standpoint29 recognising that there are many reasons why
financial statements may be materially misstated. The audit had to be
planned so that areas of material risk would be identified and suitable
audit evidence obtained to enable the auditor to express an opinion on the
financial statements. Such evidence could either come from testing the
internal controls of the enterprise, or from other sources, referred to as
substantive evidence. If the audit revealed areas of potential risk the
auditor was obliged to investigate sufficiently to satisfy themselves that
they did not result in misstatements in the financial statements, or to
ascertain the extent to which they did and affected fair presentation of the
enterprise‟s financial position and report accordingly. In the latter case this
could result in the financial statements being redrawn or in a qualified
report.
[73] On the central question of the audit of debtors all the experts agreed
that the auditor‟s task was to assess whether management‟s view of the
extent to which the debts were likely to be recoverable and to result in a
cash flow to the enterprise was reasonable.30 It was accepted that this was
29 The auditor is not however required to be suspicious as opposed to being reasonably careful in the
conduct of the audit. In re Kingston Cotton Mill Company (No 2) [1896] 2 Ch D 279 at 284. In the
words of Lord Denning the auditor must come to the task with „an inquiring mind … suspecting that
someone may have made a mistake somewhere and that a check must be made to ensure that there has
been none.‟ Fomento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd and Others [1958] 1 All ER 11
(HL) at 22b-d; Tonkwane Sawmill Co Ltd v Filmalter 1975 (2) SA 453 (W) at 455H-I.
30 The alleged failure by auditors to make a proper report on bad debts recurs regularly in claims against
auditors based on their allegedly negligent conduct of an audit. See, for example, In re London &
General Bank (No 2), supra; Scarborough Harbour Commissioners v Robinson, Coulson. Kirkby & Co
a matter of judgment based on the audit evidence available to the auditor.
A dispute over this issue raged between the experts with the NPC‟s
experts, Professor Wainer and Mr Hopkins, being strongly critical of the
approach adopted by Mr Odendaal, and Mr Wixley saying that his
approach was acceptable. In addition Mr Odendaal, as was to be expected,
defended his approach. I will revert to this in dealing with the allegations
of breach of contract.
[74] The only other significant point to note at this stage is that
throughout the relevant period there was no published audit standard
dealing with audit assessments of the recoverability and value of debtors.
SAAS 540 dealing with the audit of accounting estimates was only
published in January 1997. It provided, somewhat unhelpfully, that the
auditor should obtain sufficient appropriate audit evidence regarding
accounting estimates and whether they were reasonable. The auditor could
either obtain such evidence by reviewing and testing the process used by
management to develop the estimate, or by using an independent estimate,
or by reviewing subsequent events confirming (or presumably not
confirming) the estimate. It said that in evaluating the data and process
used by management the auditor should test whether the data was
accurate, complete and relevant and had been analysed appropriately. A
comparison of previous estimates with actual experience would enable the
auditor to determine whether the estimates were reliable. Where available,
events after year end tending to reflect on the reliability of such estimates
might provide helpful audit evidence. The auditor could only demand a
1934, Acct. L. R.; Berg Sons & Co Ltd v Mervyn Hampton Adams and others [1993] BCLC 1045 (QBD
(Comm Crt)); Alexander and others v Cambridge Credit Corporation Ltd and another (1987) 9 NSWLR
310 (CA); Kripps v Touche Ross & Co., 1998 CanLII 3905 (BC SC); 56 BCLR (3d) 160; Widdrington
(Estate of) c. Wightman, 2011 QCCS 1788 (CanLII).
revision of the estimate by management if the difference between
management‟s estimate and that of the auditor was unreasonable. If
management was unwilling to revise its estimate the difference should, in
terms of this standard, be treated as a misstatement and might lead to the
qualification of the auditor‟s report.
[75] Two other points warrant brief mention. The first is that, apart from
the duty to report to members on the financial statements, the auditor had a
duty to report to the appropriate levels of management about weaknesses
discovered in internal controls and accounting systems. A number of Mr
Odendaal‟s audit reports, which were addressed to senior management and
the board, highlighted failures to adhere strictly to the requirements of the
credit policy and to other weaknesses in the internal systems of NPC. For
the purpose of NPC‟s complaints, however, these were only relevant to the
extent that it was contended that their contents revealed that the auditor
should have undertaken further investigations or incorporated reference to
the contents of these reports in the auditor‟s report in the annual financial
statements. Second, it was accepted that the auditor should maintain
records in the form of audit working papers of the work undertaken,
containing details of the audit evidence obtained in the course of the audit
and the investigations undertaken in the procurement of that evidence. Mr
Odendaal‟s notes on many of the central issues were criticised as being
cryptic – an apt description – and it was argued that they showed that he
had not undertaken the work he claimed to have done in the course of the
audit. This becomes relevant when considering his evidence.
Was there reckless mismanagement of credit at NPC?
[76] NPC‟s case, as described in para 47 above, was that there was
reckless mismanagement by its officials in the grant of credit and the
recovery of debts and that such reckless mismanagement had led to
material under-provisions in respect of doubtful debts. The trial court
found this to be established, albeit in somewhat broad and general terms.
Its conclusions were expressed as follows:
„If there is one overwhelming impression left by the evidence it is that there was
mismanagement at NPC …
The mismanagement primarily took two forms: the injudicious or irregular grant of
credit and the ineffective collection of debts, primarily in company with a failure to
enforce the pledge.‟31 (My translation)
It is by no means clear what the judge intended to convey by this. It was
not NPC‟s case that its affairs had been mismanaged in the limited sense
of having been badly run and unwise business decisions having been
taken. Its case was that the employees responsible for the grant of credit
and the recovery of debts had acted recklessly or dishonestly or
deliberately in breach of policies binding upon them and then concealed
their own misconduct. However, there is no such finding in the judgment
of the trial court and that notion seems inconsistent with the judge having
held that the directors of NPC had full knowledge of the mismanagement.
[77] NPC‟s case on this issue rested on the documents that were placed
before the court, primarily in the form of debtors‟ files prepared by Mr
Collett and his team of investigators, and on Mr Collett‟s evidence and, in
particular, the conclusions he drew and the opinions he expressed on those
documents. That renders it appropriate at this stage of the judgment to deal
with the objections raised by PWC to the use made of those documents
31 „As daar een indruk is wat die getuienis oorweldigend laat, is dit dat daar wanbestuur by die NAK
was…
Die wanbestuur het hoofsaaklik twee vorme aangeneem: onoordeelkundige en/of onreëlmatige krediet
verlening en ondoeltreffende invordering van skuld, meestal gepaard met ʼn versuim om die pandreg af
te dwing.‟
and to Mr Collett‟s standing as an expert witness. I will deal with them
separately under the general, but not necessarily comprehensive, headings
of „hearsay‟ and „expert evidence‟ and then revert to the issue of reckless
mismanagement.
Hearsay
[78] Both when the trial initially commenced before Hartzenberg J with
the evidence of Mr van Rensburg and again when it re-commenced before
Botha J with the evidence of Mr Collett, counsel then appearing for PWC
recorded an objection to either witness giving evidence that amounted to
hearsay. On both occasions, however, he indicated that, rather than
seeking a ruling whenever hearsay evidence was led, or perhaps a general
ruling, he would wait until the end of the witness‟ evidence to deal finally
with the objection. That was (and still is) a common practice in trials and
finds some limited sanction in the provisions of s 3(3) of the Law of
Evidence Amendment Act 45 of 1988. Where the scope of the evidence is
limited and its admissibility may be contestable, to admit it provisionally
may be a convenient way for the trial to proceed. However, in a case of the
scope and magnitude of this one it was disastrous because, as Lord Tomlin
said in 193532 in regard to the evidence of expert witnesses on the meaning
of a patent specification:
„In the first place time is wasted and money spent on what is not legitimate. In the
second place there accumulates a mass of material which far from assisting the Judge
renders his task the more difficult, because he has to sift the grain from an unnecessary
amount of chaff.
32 British Celanese Ltd v Courtaulds Ltd (1935) 52 RPC 171 (HL) quoted with approval in Gentiruco
AG v Firestone (SA) (Pty) Ltd 1972 (1) SA 589 (A) at 617F - 618C and KPMG Chartered Accountants
(SA) v Securefin Ltd 2009 (4) SA 399 (SCA) para 40. See also Van Aardt v Galway 2012 (2) SA 312
(SCA) para 10.
In my opinion the trial Courts should make strenuous efforts to put a check upon an
undesirable and growing practice.‟
[79] It was apparent from the outset of Mr Collett‟s evidence that,
insofar as he spoke of facts concerning the affairs of NPC, he was entirely
dependent upon the documents he had looked at and assembled into the
extensive trial bundles. He was led in chief from his two summaries of
expert evidence. These showed that the source of his knowledge of the
facts was the documents, not least because of the copious references to
those documents in those summaries. When PWC‟s counsel objected that
this was hearsay, NPC‟s counsel responded that much of Mr Collett‟s
evidence would be hearsay.33 He added that, unless supported by other
admissible evidence or an application had been made to admit it in terms
of s 3 of the Law of Evidence Amendment Act 45 of 1988 it should be
ignored. No such application was ever made or foreshadowed. Nor was it
argued that the documents were proof of their contents and admissible in
terms of s 34 of the Civil Proceedings and Evidence Act 25 of 1965. Nor
did the evidence of Messrs Marais and Greyling take the matter any
further.
[80] In my view, notwithstanding the stance of PWC‟s counsel, the trial
court should have intervened once it became apparent, as it must have
done within a couple of days of Mr Collett commencing giving evidence,
that it was overwhelmingly based upon hearsay. The basic principle is
that, while a party may in general call its witnesses in any order it likes, it
is the usual practice for expert witnesses to be called after witnesses of
fact, where they are to be called upon to express opinions on the facts dealt
33 „…weens die aard van die ondersoek sal ons uit die aard van die saak heelwat getuienis aanbied wat in
die kategorie sal val van hoorsê getuienis. Dis onvermydelik.‟
with by such witnesses.34 While the conduct of the trial is usually a matter
for the parties to determine as they present their cases,35 I have no doubt
that, in the exercise of a judge‟s power to control trial proceedings, the
judge may intervene to ensure that they are conducted in a manner that
avoids delay and the unwarranted escalation of costs. Two courses of
action were open to the judge. The first would have been to require NPC
to identify the hearsay evidence that it wished to have admitted and make
application for its admission on any available ground, and then to make a
ruling on its admissibility. Such a ruling could always have been revisited
at a later stage of the trial if necessary. The second, insofar as it was
indicated that witnesses would be called to substantiate the hearsay
evidence, was to require that Mr Collett‟s evidence stand down until such
evidence had been led and was properly before the court. That would have
been an appropriate and permissible course for the judge to adopt. Instead
Mr Collett was allowed to continue unchecked.
[81] The next stage at which this issue could have been addressed was
when Mr Collett finished giving evidence and before he was cross-
examined. Instead he was cross-examined on the very evidence that was
said to be inadmissible. The third time it should have been dealt with was
at the close of NPC‟s case,36 but the court was not asked to make a ruling.
Then at the end of the trial, after some 160 days had been spent on this
evidence, it was submitted that it was all inadmissible hearsay. By then of
course it was impossible to sort the wheat of admissible evidence from the
chaff of inadmissible hearsay.
34 Tristram Hodgkinson Expert Evidence: Law and Practice 106-7.
35 Fischer and another v Ramahlele and others 2014 (4) SA 614 (SCA) paras 13 and 14.
36 Giesecke & Devrient Southern Africa (Pty) Ltd v Minister of Safety and Security 2012 (2) SA 137
(SCA) para 24.
[82] The judge was correct to say that the expert accounting witnesses
could properly express an opinion on the appropriateness of Mr
Odendaal‟s audit work where that was based solely on documents. That
was permissible, because they were „walking in Mr Odendaal‟s shoes‟. In
other words to the extent that they looked at the same documents as Mr
Odendaal and expressed views as to the audit consequences flowing from
those documents, all that was necessary was that the documents be
identified as those on the basis of which Mr Odendaal had conducted his
audit. Of course, to the extent that Mr Odendaal said that he relied for his
audit on material not emerging from those documents, that would affect
the validity of those opinions, but it would not render the documents
inadmissible for that limited purpose. However, when used, as Mr Collett
did, for other purposes such as those described in the following
paragraphs, that was impermissible.
[83] Over and above his opinions on auditing questions, Mr Collett
described in detail the business of NPC, the terms of its statutes and the
history of its mergers with other co-operatives. He told the court what role
the directors played in its operations, what the credit policy was and how it
fell to be applied. He said how the production accounts were conducted
and, as counsel for NPC put it in oral argument before us, described „every
facet of its business‟.37 Lastly, he dealt with what had occurred with each
of fifty debtors in the conduct of their accounts with NPC over the entire
period.
37 „Elke faset van sy bedryf‟.
[84] These were plainly matters of which Mr Collett had no personal
knowledge and this evidence should have come from the directors and
employees of NPC, who were familiar with them. His knowledge was
gleaned entirely from the documents he had read and the interpretation he
put on those documents. Thus one finds him at one stage reading into the
record an extract from a minute of a directors‟ meeting and telling the
court that he was not sure what one sentence meant, but that a later
sentence meant that the directors had taken a particular decision. He said
that the directors had played a non-executive role and that their only
engagement with NPC‟s management was at the directors‟ meetings held
three times a year. He explained that debtors had been given credit without
authority merely because he was unable to find a credit application form in
the debtor‟s file and could not find a resolution of directors authorising the
extension of credit. No-one responsible for granting credit gave evidence
as to the circumstances in which it was extended or how it could have
been extended without authority.
[85] The overall extent of the hearsay evidence introduced by Mr Collett
is apparent from a consideration of the various headings to different
sections of his first expert summary. These started (I translate) with „The
business of the TPC and the foundation of the NPC (1983 to 1988)‟. They
continued with „The merger between TPC and Markpro that brought the
NPC into existence‟; „The NPC from 1988 to 1993‟; „The merger of NPC
and Peko (Co-operative) Ltd on 31 December 1993 to bring the NPC
(after merger) into existence‟; „The NPC after merger (1993-1998)‟ and
„The nature of NPC‟s business‟. This demonstrated unequivocally that the
suggestion made to us in argument, that Mr Collett was only dealing with
the operations of NPC‟s business in 1997 and 1998 when he was directly
involved in its affairs, was unfounded. The summary, which was closely
followed in evidence, dealt with the potato harvest from 1985 to 1997 for
NPC members and nationally, as well as the prices prevailing in markets
around the country, apparently derived from NPC records and information
from the Potato Board. This formed the basis for various calculations
made by Mr Collett largely for the purpose of comparing conditions in the
potato industry with those in regard to mealies.
[86] After an excursus by Mr Collett into the provisions of the Act and
the statute of NPC, which involved him in expressing opinions on legal
issues, he then dealt extensively with the credit policy of NPC, analysing
which of its provisions were of the greatest importance. After expressing
an opinion on the importance of this to the risk undertaken by NPC in
giving credit to members, he passed on to an analysis of non-compliance
with the credit policy. Later he was to deal with the system of internal
controls. He also dealt with the drought aid scheme, before explaining in
some detail the basis upon which the government withdrew the state
guarantee. Other factual matters dealt with in his evidence were the terms
of the loans advanced by the Land Bank to NPC; the manner in which
NPC charged interest on debts; and the operations of the subsidiaries. This
summary is by no means comprehensive.
[87] It was submitted that many of these apparent problems were
overcome in the light of other evidence at the trial and that NPC had little
option but to follow this course, particularly in relation to the history of
the debtors. That proposition can be disposed of summarily. Mr Pieterse, a
director from 1987 and the chair of the board from 1996 attended much of
the trial and was available to deal with these matters. There was no
indication that employees working in the credit department and the
different regions could not have been called to explain why credit was
given in the case of the farmers whose bad debts made up the claim and
what was done to recover those debts, or why the statutory pledge was
relaxed or not enforced. The decision to conduct the case by leading the
evidence of Mr Collett on the history and the relevant facts was seriously
and obviously flawed and it should not have been permitted.
[88] The argument on admissibility was advanced on the footing that Mr
Collett‟s evidence fell into five components. First, insofar as he relied on
the contents of minutes of meetings, Mr van Rensburg testified that the
minutes of directors‟ meetings and meetings of the credit committee were
an accurate reflection of what occurred at those meetings. That meant, so
it was argued, that what was recorded in those minutes could be taken as
factually correct. However, that went further than Mr van Rensburg‟s
evidence. The agreement between the parties prior to the trial commencing
was that documents were what they purported to be and could be used
without producing the originals. Mr van Rensburg‟s evidence was that the
minutes were accurate. However, that meant no more than that the minutes
reflected what had transpired at the meetings and excluded the possibility
that matters other than those shown in the minutes had been the subject of
discussion. It was not a basis for asserting the factual correctness of
statements in regard, for example, to debtors and their accounts.
[89] Second, it was argued that the contents of the debtors‟ files could be
accepted as proof of the facts contained therein, and that Mr Collett‟s
evidence and conclusions about the credit histories of those debtors was
correct. This submission was advanced on the following basis. Mr Collett
prepared the files and the summaries used in court from files furnished to
him by NPC. PWC were invited before the trial to co-operate to arrive at
an agreed summary of their contents but declined to do so. However,
during the course of the trial they allocated a team of auditors to audit Mr
Collett‟s work at a cost of R6.5 million and, to assist them in doing so,
leave was sought and granted for Mr Collett to be cross-examined by more
than one advocate. Yet at the end of this exercise no real challenge was
raised to Mr Collett‟ evidence in regard to these files.38 Furthermore when
the trial reached the quantum stage the parties were able to reach
agreement on the bulk of the amounts written off as bad debts to be
included in computing the amount of the judgment. Accordingly, so the
argument ran, there was no dispute about the contents and accuracy of the
debtors‟ files and they were admissible as proof of their contents.
[90] This is an attractive argument to a court confronted by the mass of
documents such as that in this case, especially when many of those were
brought into existence in order to record factual matters. However, on
reflection, I do not think that it is sound. The evidence went no further
than saying that Mr Collett had been placed in possession of debtors‟ files
held by NPC and had analysed their contents on the footing, firstly, that
they were complete insofar as the documents were concerned and,
secondly, that a mere reading of their contents would furnish an accurate
history of each debtor‟s dealings with NPC. At that level it was factual
evidence but of no relevance unless the underlying premises were well
founded.39 However, there was no evidence to establish either of them. Mr
Collett said that there were debtors whose records could not be found and
so were excluded from his investigation. It could not therefore be accepted
that the files were complete especially bearing in mind that they extended
38 Reliance was placed on S v Boesak 2000 (3) SA 381 (SCA) at 393I-398F. However, the circumstances
of that case were markedly different from this one. There the evidential issue was whether the signature
on one letter was that of the accused. Here the issue was whether the files prepared by Mr Collett
contained a complete history of the dealings between NPC and the debtors.
39 In the heads of argument it was said that some of his evidence in regard to credit mismanagement was
hearsay, but it rested on the correctness of the debtor accounts and other unspecified evidential material.
over a lengthy period during which documents could easily have been lost
or destroyed, either deliberately, because they were no longer regarded as
necessary, or inadvertently. As to the second in a relatively small co-
operative dealing with farmers throughout the country employing field
officers and credit officers in the different regions one would have
expected many interactions between the members and NPC to have
occurred telephonically, or during visits to the farm by officials or by the
farmers to NPC‟s offices. Such interactions would by and large have been
informal and one would not expect them to be recorded in the way in
which professional people, such as, doctors and lawyers conventionally
record matters. There were records of farm visits and other dealings
between field officers and credit officers and individual farmers, but it
does not appear from Mr Collett‟s evidence that he had any regard to
them. In fact, consistent with his belief that there was reckless or dishonest
management of credit, he treated them as entirely self-serving.
[91] Once the underlying premises were absent the debtors‟ files were of
limited relevance. They contained documents in the possession of NPC
that embodied records of some, but not necessarily all, of their dealings
with their debtors. As such they might properly have been used for certain
purposes in the course of the trial, but they could not be used for the
purpose for which Mr Collett used them, namely to provide a supposedly
complete and accurate history of each debtor‟s dealings with NPC. At
most they reflected some aspects of those dealings, but no more. That in
turn impacts upon the conclusions drawn from them, which I will deal
with under the heading of „expert evidence‟.
[92] Thirdly, it was argued that Mr Collett‟s evidence was admissible in
regard to the circumstances of his appointment, investigation and
methodology as well as events in which he was actively engaged such as
the merger with Northern Transvaal Co-operative Ltd and the litigation
with the Land Bank. That was clearly correct and I do not understand it to
have been disputed. However that evidence was not relevant in regard to
any issue in the case.
[93] Fourthly and fifthly, it was said that Mr Collett‟s analyses of the
debtors‟ files was admissible as merely collating that which the judges
would otherwise have to do for themselves. This encompassed the absence
of application forms and verification of assets and liabilities in the files
and that security had not been registered, all of which it was said was not
hearsay. Similarly it was said that his summary of the credit history and
the depiction thereof was objectively ascertainable by reference to the files
themselves so that his conclusions merely placed this material in a more
understandable and usable form. However, that was, like the general
evidence concerning the debtors‟ files, dependent on the underlying
premise of completeness that was never established.
[94] In summary, the evidence given by Mr Collett concerning matters in
which he was involved was not hearsay and, where relevant, was
admissible. His evidence concerning the history and business of NPC was
all hearsay and inadmissible. The documents on which he and others relied
in expressing opinions about the quality of Mr Odendaal‟s audit work
were admissible for that purpose, but the validity of those opinions
depended upon whether these documents were the only ones upon which
Mr Odendaal‟s audit was based, or independently justified those opinions
irrespective of any additional material relied on by Mr Odendaal. The
other documents on which Mr Collett relied for his credit history of the
debtors and for his opinions in regard to reckless mismanagement of credit
were not admissible as proof of the underlying facts in relation to those
debtors. They may have been admissible for other purposes, such as the
cross-examination of Mr Odendaal, or as forming the foundation for the
auditing experts to express their opinions, but that did not affect their
admissibility for the purpose for which Mr Collett‟s evidence was
tendered.
[95] The broad contention, that all of Mr Collett‟s evidence should be
disregarded as hearsay, cannot therefore succeed. In the light of the course
that the trial took in regard to his evidence it is not feasible at this stage to
separate that which was admissible from that which was not, or to separate
inadmissible hearsay evidence from opinions and conclusions derived by
him from that evidence. Instead, in considering the factual issues relating
particularly to whether there was reckless mismanagement of credit,
breaches of contract and causation it will be borne in mind that in many
respects NPC‟s case rests upon inadmissible evidence.
Expert evidence
[96] Whilst not all opinion evidence is expert evidence the evidence of
Mr Collett was tendered on the basis that he was an expert witness and
qualified to express opinions in regard to the alleged deficiencies of Mr
Odendaal‟s audit; the proper management of NPC; the respects in which it
was subject to reckless mismanagement of credit; the losses suffered as a
result and the reasons why PWC should be held liable for those losses. It
is necessary therefore, in considering his evidence relative to the question
of reckless mismanagement of credit, to consider when a witness may give
evidence as an expert and what constraints operate in relation to such
evidence. Mr Collett‟s evidence can then be measured against those
standards.
[97] Opinion evidence is admissible „when the Court can receive
“appreciable help” from that witness on the particular issue‟. 40 That will
be when:
„… by reason of their special knowledge and skill, they are better qualified to draw
inferences than the trier of fact. There are some subjects upon which the court is
usually quite incapable of forming an opinion unassisted, and others upon which it
could come to some sort of independent conclusion, but the help of an expert would be
useful.‟41
As to the nature of an expert‟s opinion, in the same case, Wessels JA
said:42
„… an expert's opinion represents his reasoned conclusion based on certain facts or
data, which are either common cause, or established by his own evidence or that of
some other competent witness. Except possibly where it is not controverted, an expert's
bald statement of his opinion is not of any real assistance. Proper evaluation of the
opinion can only be undertaken if the process of reasoning which led to the conclusion,
including the premises from which the reasoning proceeds, are disclosed by the
expert.‟
[98] Courts in this and other jurisdictions have experienced problems
with expert witnesses, sometimes unflatteringly described as „hired guns‟.
In The Ikarian Reefer43 Cresswell J set out certain duties that an expert
witness should observe when giving evidence. Pertinent to the evidence of
Mr Collett in this case are the following:
40 Gentiruco AG v Firestone SA (Pty) Ltd 1972 (1) SA 589 (AD) at 616H. This statement it derived from
Wigmore on Principles of Evidence (3 ed) Vol VII para 1923.
41 Coopers (South Africa) (Pty) Ltd v Deutsche Gesellschaft für Schädlingsbekämpfung MBH 1976 (3)
SA 352 (A) at 370G-H.
42 At 371F-H.
43 National Justice Compania Naviera SA v Prudential Assurance Co Ltd ('The Ikarian Reefer') [1993] 2
Lloyd's Rep 68 [QB (Com Ct)] at 81 – 82. Approved in Pasquale Della Gatta, MV; MV Filippo Lembo;
Imperial Marine Co v Deiulemar Compagnia Di Navigazione Spa 2012 (1) SA 58 (SCA) para 27, fn 12
and Schneider NO and Another v AA and Another 2010 (5) SA 203 (WCC) at 211E-I.
„The duties and responsibilities of expert witnesses in civil cases include the following:
1. Expert evidence presented to the Court should be and should be seen to be the
independent product of the expert uninfluenced as to form or content by the exigencies
of litigation …
2. An expert witness should provide independent assistance to the Court by way of
objective unbiased opinion in relation to matters within his expertise … An expert
witness in the High Court should never assume the role of advocate.
3. An expert witness should state the facts or assumptions on which his opinion is
based. He should not omit to consider material facts which detract from his concluded
opinion.
.
.
.
4. An expert witness should make it clear when a particular question or issue falls
outside his expertise.‟
These principles echo the point made by Diemont JA in Stock44 that:
„An expert … must be made to understand that he is there to assist the Court. If he is to
be helpful he must be neutral. The evidence of such a witness is of little value where
he, or she, is partisan and consistently asserts the cause of the party who calls him. I
may add that when it comes to assessing the credibility of such a witness, this Court
can test his reasoning and is accordingly to that extent in as good a position as the trial
Court was.‟
[99] Lastly when dealing with the approach to an expert witness I have
found helpful the following passage from the judgment of Justice Marie
St-Pierre in Widdrington:45
„Legal principles and tools to assess credibility and reliability
[326] “Before any weight can be given to an expert’s opinion, the facts upon which
the opinion is based must be found to exist”
44 Stock v Stock 1981 (3) SA 1280 (A) at 1296 E-G. See also Jacobs and Another v Transnet Ltd t/a
Metrorail and Another 2015 (1) SA 139 (SCA) para 15.
45 Supra, fn 5. The judgment is one for the clarity of which I can only express admiration. It was upheld
on appeal on all major issues. Wightman v. Widdrington (Succession de) 2013 QCCA 1187 (CanLII). An
application for leave to appeal to the Supreme Court of Canada was dismissed. Elliot C. Wightman, et al.
v. Estate of Peter N. Widdrington, 2014 CanLII 341 (SCC).
[327] “As long as there is some admissible evidence on which the expert’s testimony
is based it cannot be ignored; but it follows that the more an expert relies on facts not
in evidence, the weight given to his opinion will diminish”.
[328] An opinion based on facts not in evidence has no value for the Court.
[329] With respect to its probative value, the testimony of an expert is considered in
the same manner as the testimony of an ordinary witness. The Court is not bound by
the expert witness‟s opinion.
[330] An expert witness‟s objectivity and the credibility of his opinions may be called
into question, namely, where he or she:
•
accepts to perform his or her mandate in a restricted manner;
•
presents a product influenced as to form or content by the exigencies of litigation;
•
shows a lack of independence or a bias;
•
has an interest in the outcome of the litigation, either because of a relationship
with the party that retained his or her services or otherwise;
•
advocates the position of the party that retained his or her services; or
•
selectively examines only the evidence that supports his or her conclusions or
accepts to examine only the evidence provided by the party that retained his or her
services.‟
[100] Mr Collett‟s evidence did not measure up to these standards. His
area of expertise was said to be that of a qualified chartered accountant
and auditor. The primary thrust of his evidence was to explain how an
auditor should have gone about the audit of NPC‟s financial statements in
the years in question and to criticise the audits undertaken by Mr
Odendaal. His only qualification to give expert evidence of this nature
arose from the fact that he held the degrees B Comm (1979) and Hons B
Compt (1981) and had passed his board examinations and qualified as a
chartered accountant in 1983. His only practical experience had been
acquired while he was in training. He gave no evidence to suggest that he
had kept abreast of developments in the profession since he had left it
fourteen years prior to commencing his investigation and 22 years prior to
his giving evidence. He had never been responsible for an audit and had
only once had some involvement in the audit of an agricultural co-
operative. On leaving the accounting profession he had worked for a bank
and been an adviser on the preparation of claims under a government
export incentive scheme. Before turning his hand to „forensic audits‟ he
had been involved with a group of companies that apparently operated
bottle stores. At every possible level his qualifications to express opinions
on matters relating to an audit pales into insignificance when measured
against that of Professor Wainer, Mr Hopkins, Mr Wixley and Mr
Odendaal. The issues on which he was called to give evidence were not
straightforward and concerned the judgment of an experienced auditor. He
was in no position on the basis of either qualification or experience to
express opinions on those matters and he should not have been permitted
to do so.
[101] But Mr Collett‟s evidence went far beyond that of an expert witness
in auditing matters. He professed to have been someone with experience in
forensic and auditing investigations. Reference to his curriculum vitae
showed that this was a field into which he ventured in the very year that he
commenced the investigation into the affairs of NPC. Indeed the manner
in which he set out his areas of alleged expertise in his expert summary
suggested to the reader that the experience he claimed arose largely from
his involvement in this case. Counsel rightly submitted that it was an
unusual situation where the expertise claimed by the witness arose from
the very matters in regard to which he was giving evidence.
[102] Mr Collett expressed strong views on how the business of NPC
should have been run and concluded that its affairs were characterised by
reckless credit mismanagement. He lacked any apparent qualification or
experience to express these views. Unlike Dr Wentzel, for example, he did
not come to the witness stand with many years of experience in the
management of an agricultural co-operative. This lack of qualification did
not deter him, as shown by the following examination of his principal
reasons for concluding that something more than conditions in the
agricultural sector and a shortage of capital were to blame for NPC‟s dire
financial position.
[103] An important aspect of Mr Collett‟s thinking emerged early on in
his expert summary when he made a comparison between the NPC and
seven grain co-operatives dealing with mealies, in order to ascertain the
tendencies and norms generally applicable in the agricultural industry in
relation to the drought aid scheme, bad debts and provisions for bad debts.
From the financial statements of the grain co-operatives and some industry
figures obtained from another source he reached the conclusion that during
the period under review the potato industry was more stable than the
mealie industry and had done better than the mealie industry. He then
undertook a comparison between the bad debt percentage of NPC and
those of the grain co-operatives, from which he concluded that the
members of NPC had generally generated sufficient funds from their crops
to discharge their indebtedness to NPC and that the level of bad debts at
NPC was abnormal and outside the norms for comparable co-operatives.
This could not, so he said, be explained or justified by circumstances in
the agricultural sector or poor potato harvests or any relatively greater
risks attaching to the potato industry. Upon this conclusion he built his
contention that the explanation was to be found elsewhere in reckless
mismanagement of credit by the credit department, its personnel and
executive management. He repeated all this in his evidence in chief.
[104] The fundamental problem with this entire analysis was that, to use a
homely expression, he was not comparing apples and apples, or, in its
converse form applicable to this case, he was comparing potatoes and
mealies, without any basis for doing so. From the evidence there are
significant differences between the two. Five of the seven co-operatives he
used for his comparison were far larger than NPC both in membership and
in the extent of their business operations. Many members of NPC grew
potatoes on a supplementary and subordinate basis to their growing
mealies and were members of grain co-operatives, which they regarded as
their principal co-operative. This would have affected at least some of
their purchases. In the board minutes of 22 May 1992 there is reference to
other co-operatives having financed their members‟ ventures into growing
potatoes. The other co-operatives dealt with crops in addition to mealies,
supplied equipment to their members that NPC did not supply and had
additional sources of revenue, such as income from storage fees, which
were not available to NPC. The marketing channels of the two were
wholly different, with the grain co-operatives controlling the marketing of
their members‟ crops, while NPC had little control over their members‟
marketing of potatoes. Enforcement of the statutory pledge was far easier
for the grain co-operatives than for NPC. In addition during the period
until 1992 the marketing of the produce of grain co-operatives was
controlled under the Marketing Act of 1936. Another difference is that
there was no evidence that it is possible, if mealie prices are high, for
farmers to grow crops of mealies on an opportunistic basis, whilst there
was evidence that this occurred with potatoes. A large portion of the
mealie crop is sold to millers who produce staple food items such as
mealie meal and mealie rice and provide a stable market. The only similar
outlet for potatoes mentioned in the papers is the production of potato
chips.
[105] It was incumbent on NPC to lay a proper factual basis for this
comparison but it did not do so. It was well aware that this evidence would
be challenged, because PWC delivered an expert summary for Professor
Blignaut challenging the comparison. Undeterred by his lack of
comparable qualifications and experience to those of Professor Blignaut, a
further expert summary was delivered in respect of Mr Collett in which he
criticised in sarcastic tones the views of Professor Blignaut.46 He then
gave this evidence and sought to defend it in cross-examination.
[106] Mr Collett‟s attempts to defend this comparison under cross-
examination showed him to be an unsatisfactory witness. He avoided
answering questions, gave answers that were unresponsive and failed to
deal with the substance of the challenge that his comparison was invalid
and the conclusions drawn from it unjustified. The first and obvious
reason for this was that he was testifying to matters far outside his area of
expertise. This lack of expertise was highlighted at a later stage of his
cross-examination when he was unwilling to deal with an auditing
textbook directed at the factors to be taken into account in auditing an
agricultural enterprise that said, contrary to his opinion, that the auditor
had to take into account in the audit of debtors the likely realisation of
standing crops. The reason given, that this was an American textbook and
46 The summary contains expressions such as „it is difficult to comprehend‟ and „despite the concession
that‟ and „it is unclear‟ (I translate). The professor‟s statement that the comparison was impossible
(„onmoontlik‟) is throughout contained in inverted commas to convey incredulity that he should express
such an opinion. He purports to place Professor Blignaut‟s views in the correct perspective and said that
he has no underlying basis for his opinions.
their standards might be different, was risible. Equally risible was his
contention, after reluctantly conceding that the crop in the ground should
be taken into account in assessing a debtor‟s likely ability to pay, that this
would only be the case if harvesting the crop had commenced.
[107] The other key factor in Mr Collett‟s conclusion that there was
something wrong in the credit department of NPC, arose from his rejecting
the notion that its capital reserves were inadequate. This in turn flowed
from his view of the true nature of NPC‟s business. The evidence in that
regard was clear and is summarised in para 26. It showed that NPC had
very little by way of a capital buffer to protect itself when faced with
adverse trading circumstances of which the increase in bad debts was the
most important. The need to build up its capital resources had been a
constant theme throughout the period in reports by the Land Bank, the
auditor and the directors at annual general meetings. While additional
shares had been issued from time to time these were not paid-up but
merely represented claims upon members at some future date. If the
members were not discharging their indebtedness to NPC it is difficult to
see how they could have met any such calls. In any event, apart from
circumstances in the agricultural sector, another reason for NPC being
unable to withstand the continued accumulation of bad debts was its poor
capital position and its dependence on loan capital.
[108] Mr Collett was dismissive of the notion that the poor capital
position of NPC had contributed to its financial woes. Although the
Registrar of Co-operatives recommended that a capital base of 30 per cent
of fixed capital from members and own resources and no more than 70 per
cent loan capital should be the goal, he did not agree. His view was that
NPC‟s business was essentially that of a financial institution providing
credit to its members that they would otherwise have had to obtain from
sources such as commercial banks. To that end he compared NPC‟s capital
ratio with those of two financial institutions, namely, Nedcor Bank and
Standard Bank, two of the largest banks in South Africa, and found it to be
adequate. He said that the Land Bank and other banks had less than 8 per
cent own capital and asked why the NPC needed more. Furthermore he
suggested that NPC‟s approach to credit control should follow the lines of
these commercial banks and similar financial institutions.
[109] These views were challenged in cross-examination. It was suggested
to Mr Collett that the Registrar of Co-operatives, with the expertise
available to him, would better appreciate the capital requirements of co-
operatives. His response was to say that a number of co-operatives did not
meet the Registrar‟s standard. Elsewhere he said that he could never
discover the basis for this norm. That was hardly to the point.
Notwithstanding the views of the Registrar, supported by the board and
the auditor, he did not see any reason to strengthen NPC‟s capital base. It
was put to him that the modus operandi of NPC was that it purchased its
members‟ production requirements from suppliers, thereby incurring a
liability to those suppliers, which it discharged, and then sold those items
to its members who, as a result, became indebted to NPC, but he
demurred. His attitude was that the members of NPC purchased their own
production requirements from suppliers and financed the purchases
through loans from NPC. That was simply incorrect. The comparison with
two large banks was unjustified.
[110] Throughout his evidence Mr Collett persisted with his contention
that NPC could be properly compared with the grain co-operatives
notwithstanding all the evidence to the contrary. He steadfastly supported
his comparison between NPC and commercial banks. He was adamant that
his investigation had uncovered serious mismanagement of the credit
department of the NPC, characterised by him as reckless and even
dishonest. Yet he produced no evidence identifying any individual as
having been guilty of such conduct. He was happy to tar the entire credit
department and executive management with this brush, without
identifying a single case where either the grant of credit, or the failure to
recover an amount owing to NPC, was the result of recklessness or
dishonesty. His approach was simply that everything was irregular,
reckless or dishonest. He even went so far as to level allegations of tax
fraud against Mr Odendaal in the face of evidence that the tax returns in
regard to bad debts written off were in accordance with specific
discussions with the revenue authorities.
[111] The trial judge identified many of these weaknesses in Mr Collett‟s
evidence without linking them specifically to his standing and reliability
as an expert witness. He noted that Mr Collett was reluctant to accept that
climatic circumstances might have contributed to NPC‟s problems. As the
judge correctly pointed out, had that not been a factor the experienced
farmers making up the board and membership of NPC would not have
accepted it as an explanation. He said that Mr Collett was reluctant to
blame the directors for the problems or to accept that they had knowledge
of the problems, but correctly held that the directors were fully aware of
the situation. He accurately described Mr Collett as pedantic, rigid and
dogmatic. He would brook no departure from the literal application of the
credit policy, NPC‟s statute and the provisions of the Act. This led him to
say that the loans by NPC to its subsidiaries were evidence of reckless
mismanagement because the statutory formalities had not been observed,
when the loans were reflected in the financial statements and both the
Land Bank and members were fully aware and approved of them.
[112] The trial judge also criticised Mr Collett for his lack of
understanding of the business of NPC and his suggestion in a business
plan that it should phase out the extension of credit and concentrate its
efforts on the production of paper bags for potatoes. He had preconceived
notions of how interest should be charged on outstanding accounts. His
advice to the Northern Transvaal Co-operative diverged from his stance in
regard to NPC. As a witness he contradicted himself and sought to avoid
answering hypothetical questions. When he made concessions he did so
reluctantly. All of this I endorse.
[113] This analysis exposed fundamental flaws in Mr Collett‟s approach
and undermined his qualification to testify as an expert and the reliability
of his evidence. When the standards enunciated by Justice Cresswell, and
the approach suggested by Justice St-Pierre, are applied to his evidence, it
is immediately apparent that it did not satisfy the tests for admissibility as
expert opinion evidence. First, he laid no foundation for being regarded as
an expert, save his qualifications as an accountant who had not been in
practice for many years and had limited practical experience. Second, his
opinions were based largely upon the hearsay evidence he had culled from
various documents and were not founded on proven facts. Third, his
evidence, fairly viewed, was nothing more than that of an advocate
advancing the case of his client the NPC. Fourth, it was not objective but
was directed at justifying the conclusions he had formed. He was
unwilling to defer to the experience of those with far greater expertise in
the matters under consideration than he. Fifth, it must be borne in mind
that he not only undertook the original investigation leading to the claim,
but was intimately involved in the gathering of evidence and the pleaded
formulation of the claim. He was also involved in the claim by and against
the Land Bank and its resolution as well as being the moving spirit in the
merger with Northern Transvaal Co-operative Ltd. In the result the clear
impression and conclusion is that he was not truly independent of his
client from whom his firm had undoubtedly earned very large sums of
money.
[114] In summary therefore I conclude that Mr Collett was not an expert
in any of the various areas in which he gave evidence, namely,
accountancy standards, the proper conduct of an audit, the agricultural
economy or the proper conduct of the business of an agricultural co-
operative and in particular the administration of credit. Even had he any
expertise in these areas, qualifying him to give opinion evidence as an
expert:
his opinions were expressed without any factual basis having been
established by way of admissible evidence;
he gave evidence in areas where he lacked expertise and not only did
not identify them but pretended to an expertise he lacked;
he was the person who devised the claim (as the judge said it was „sy
maaksel‟) and was for that and the other reasons set out in para 113 not
truly independent;
he effectively became the advocate for the claim‟s merits;
he disregarded or discounted any facts inconsistent with his own
theories and conclusions;
the presentation of his evidence was not only influenced by the
exigencies of litigation, but directed the entire course of the litigation.
For all those reasons Mr Collett‟s evidence is of little or no value in this
case and no finding adverse to PWC could or should have been based
thereon.
Was reckless mismanagement nonetheless proved to have occurred?
[115] The judge‟s finding, referred to in para 76, that there was
mismanagement of the credit department of NPC, cannot be supported, if
by that he meant reckless mismanagement of credit. In my view all that
the judge intended to find was that there had been mismanagement of the
affairs of NPC in the respects he indicated, but without a finding of
recklessness. His criticisms of Mr Collett‟s evidence as well as his
favourable view of Messrs Marais and Greyling suggest that he would
have rejected any such notion had it been made clear to him that this was
the basis of NPC‟s case. He said of Mr Marais that if he was typical of the
quality and calibre of NPC‟s personnel it was a pity that NPC could not
overcome its difficulties. Mr Greyling likewise made a favourable
impression on him.
[116] This highlighted the inexplicable failure of NPC to call a single
witness to testify to the factual matters that were the subject of much of
Mr Collett‟s evidence. Mr Pieterse, a director of NPC from 1987 and its
chairman from 1995, as well as a member of its credit committee from
inception, was available to give evidence but did not do so. We
accordingly have no direct evidence of what the board did about the
implementation of the credit policy and the grant and recovery of credit.
Although the entire credit department was described as having been
reckless or dishonest there was no suggestion that any individual had been
disciplined for such conduct. Apart from generalities no individual was
pointed out as having been responsible for reckless or dishonest conduct.
None of the officials who worked with Mr Odendaal during the course of
the audits were called to support the contention that the audits were merely
a smokescreen, in which he simply endorsed the views of management
without demur or investigation and that there were in reality no audits
worthy of the name.
[117] The expert evidence of Professor Wainer and Mr Hopkins, both of
whom were instructed to express their opinions on Mr Odendaal‟s audits
on the hypothesis that there had been reckless mismanagement of credit at
NPC, was contaminated by that assumption. It also renders it problematic
to rely on their evidence for the purpose of identifying the
mismanagement they had been told to assume was present.
[118] The shortcomings in the evidence were debated with counsel who
responded by saying that if we ourselves examined the files Mr Collett had
prepared, we would draw the same inferences as he had done. For this
purpose it was suggested that we did not need to rely on any expertise
claimed by Mr Collett and should simply treat his evidence as a helpful
way in which to reduce a vast amount of factual material to manageable
proportions. I doubt very much whether that is a permissible approach for
the court to take, but a brief survey of the various respects in which it was
said that there was reckless mismanagement does not to my mind support
Mr Collett‟s conclusions.
[119] Nine grounds were advanced in the particulars of claim for saying
that reckless mismanagement had occurred, but in the heads of argument
reliance was only placed on six. Two of these were that in many of the
debtors‟ files Mr Collett‟s investigation team had not found either
applications for credit or current balance sheets for the applicants and that
no verification of assets and liabilities of debtors was undertaken. It was
said that the absence of these documents meant that the risk of granting
credit was raised and this warranted further investigation by the auditors
when they audited the financial statements. There are two problems with
this. The first is that there was no evidence that the documents available to
Mr Collett were complete and his evidence was that there were missing
files and that his access to documents was often restricted. The fact that
Mrs van der Merwe from his investigating team testified that the files they
prepared included all the documents they received from NPC was of no
assistance in the absence of evidence from within NPC that the files were
complete and no documents had been lost, disposed of or destroyed during
this period of fourteen years. In some instances Mr Collett said that no
balance sheets were provided, for example, with Mr T G van Zyl, when
Mr Odendaal‟s notes showed that he had seen balance sheets. The second
problem is, that in the absence of any evidence about the circumstances in
which credit was granted to these individuals or the reasons therefor, it is
impossible to say that the presence or absence of credit application forms
and balance sheets would either have altered the decision to grant credit or
had any bearing on the risk undertaken by NPC. If Mr Collett‟s
investigation had extended to all the debtors‟ files instead of the 120 that
he started with and narrowed down over time, it might well have been
discovered that the same situation in regard to credit applications and
balance sheets prevailed in regard to the grant of credit to people who
were entirely creditworthy. That would have tended to refute the
conclusion that he drew from their absence in certain cases.
[120] It was argued that credit was granted without authorisation. This
was based on the fact that the so-called „green book‟, recording decisions
of the credit committee on credit limits, and the computer records showing
the extent of credit granted did not coincide. However, Mr Greyling, who
dealt with this in his evidence, said expressly that Mr van Vuuren had the
ability by using a password (and presumably therefore the authority) to
alter the credit limits reflected on the system. Mr Greyling was at pains to
say that he was not able to say that the grant of additional credit over and
above that reflected in the green book was unauthorised. That disposed of
this point.
[121] The next ground for contending that there was reckless
mismanagement of credit was that debtors were enrolled in the drought aid
scheme although they did not qualify therefor. In evidence it emerged that
the Land Bank investigated every claim made under the scheme to see
whether the claim was justified and that every claim had been paid so that
there were none outstanding. The final review of claims by the Land Bank
had taken place in 1993 and all the claims submitted were paid.
Accordingly the state institutions concerned with the implementation of
the scheme satisfied themselves that the claims submitted under it were
valid. In those circumstances this ground was without substance. That it
was persisted in, and indeed that it was used as the basis for including in
the particulars of claim and pursuing until the stage of judgment a claim
for over R11 million, suggested that Mr Collett‟s approach to the problems
he allegedly discovered through his investigations was directed at devising
claims rather than undertaking an independent investigation.
[122] The last two grounds pursued in argument were linked. They were
the alleged failure to obtain adequate security from debtors and the failure
to enforce the statutory pledge strictly, contrary so it was said, to the credit
policy laid down by the board. The argument ignored the fact that
obtaining such security was extremely difficult as pointed out above, in
paras 30 and 31. It also assumed that the strict enforcement of the statutory
pledge was feasible in practical terms. However, the evidence of Mr
Marais suggested otherwise. The members were under no obligation to
market their potatoes through the agents appointed by NPC and many did
not do so. That immediately caused problems in enforcing the pledge.
Second, the pledge was of limited duration so it could not be used to cover
carry-over debt. Third, there was evidence that in a number of cases NPC
agreed to release part of the proceeds of a member‟s crops to the member
notwithstanding that they had not discharged their entire indebtedness to
NPC. There was no evidence of why this was done in any particular case
and, in the absence of such evidence, one cannot conclude that the reasons
for doing so were anything other than straightforward business decisions
at the time.
[123] NPC‟s counsel rightly said that the only question in this regard
was whether the writing off of bad debts was, on the probabilities, the
result of reckless credit mismanagement or the result of ordinary trading
and legitimate decisions by NPC‟s directors and management. It was for
NPC to show that it was the former and for that purpose it relied on the
evidence, both factual and opinion, of Mr Collett. Once that evidence is
rejected, as in my view it must be, it follows that NPC failed to prove that
there was reckless mismanagement of credit. On that ground alone its
claim should have failed and this appeal must succeed. However, that
would follow even if the mismanagement on which NPC relied involved
no recklessness or irregularity or dishonesty, but arose from a flawed
business approach and an unduly lenient approach to the grant of credit
and the recovery of debts. Assuming that PWC nonetheless breached it
contractual obligations in the performance of the annual audits and that
this was due to negligence on its part, the damages claimed by NPC were
not in my view caused by their negligence.
Causation
[124] For the purposes of this portion of the judgment I will assume
against PWC that it did indeed breach its contractual obligations in regard
to the assessment of the value to be ascribed to debtors in the annual
financial statements from year to year and that this was due to negligence
on the part of the audit team lead by Mr Odendaal. Were I convinced that
this was not the case I would have said so, but it seems to me that some at
least of the criticisms by Professor Wainer and Mr Hopkins, when viewed
in the light of the at times somewhat cautious support given to Mr
Odendaal by Mr Wixley, were warranted.
[125] Mr Odendaal‟s approach to the assessment of the recoverability of
debtors was to review a list of suggested write-offs prepared by
management in the light of each debtor‟s file in discussion with the
regional field officer or credit officer. In the course of this process he
would identify additional debtors or amounts that in his view should also
have been treated as bad or potentially irrecoverable, and the overall figure
included in the accounts would then be resolved between him and
management. From 1984 until 1990 he nonetheless reported that he could
not express a view on the recoverability of the debts and that his audit was
subject to that qualification. In 1991 he withheld any audit opinion on the
grounds that he was unable to express a view on the recoverability of
debtors or the continued availability of finance.
[126] I think there is force in the criticism that Mr Odendaal should have
been more concerned at the annual escalation in both debtors and bad
debts, as well as the fact that from 1984 to 1990 such a high proportion of
debts fell under the drought aid scheme. That warranted a closer
examination of the credit history of the debtors, something that Mr
Odendaal said that he did not undertake. It appears that where a debtor had
furnished security he was inclined to accept that security at face value.
That was not a safe approach particularly with notarial bonds. The judge
correctly said that his approach of taking the likely harvest at year end into
account as the primary source of recovery of debts made sense. However,
the records, in the form of his audit working papers, do not suggest that he
made in-depth enquiries in that regard beyond the estimates furnished to
him by the officials. Whilst those were generally 85 per cent accurate
according to Mr Marais, there is no indication in the case of major
troublesome debtors that he enquired further about such estimates or drew
any conclusions from the failure of those debtors to reduce their
indebtedness from year to year. His disregard of events, such as the
remittal to debtors of part of the proceeds of their harvests, after the end of
the financial year but prior to the completion of the audit, on the grounds
that this was irrelevant in the light of the matching principle, made little
sense when he was aware that this was a regular feature of NPC‟s business
and its extent across the board could have been estimated from past
history.
[127] Mr Odendaal was undoubtedly aware that the credit policy laid
down by the board was not strictly adhered to and that the board did not
always sanction departures from it. There is merit in the trial judge‟s
criticism that he appeared to try and distance himself from any
responsibility for the way in which credit was granted. This ignored the
fact that it was for him to report on whether the financial statements, in
which debtors played a key role, reflected a fair picture of NPC‟s finances.
If credit was being granted too leniently then this could impact on the
recoverability of debtors and the matters on which his opinion was sought.
He was also aware that the statutory pledge was not well enforced. Both of
these had great potential significance for the recoverability of debts and
there is substance in the criticism that he should have investigated them
further.
[128] I also think that the brief reasons given by Mr Odendaal for
qualifying his reports from 1984 to 1991 did not meet the statutory
standard of setting forth the facts and circumstances that prevented him
from giving an unqualified report. The terms of those qualifications have
been set out elsewhere. They were elliptic, expressed as a broad generality
(„current economic circumstances in the agricultural industry‟) and lacking
the detail one expects when facts and circumstances have to be set out.
They certainly did not convey to anyone that he had reservations about the
ability of NPC to recover debts under the drought aid scheme or about the
continued availability of Land Bank finance, although those reasons
featured prominently in his notes and his evidence. That was clearly
important in view of the extent of those debtors and the heavy dependence
on the Land Bank for finance.
[129] One other issue was the manner in which NPC dealt with bad debts.
These were written off against a suspense account and then a sum would
be written back in each year as recoveries. As early as 1990 the Land Bank
had objected to this mode of accounting and despite attempts by NPC to
justify it insisted that it should be changed and that a proper provision
should be made in the accounts for bad debts. Not only did NPC not act
upon this instruction from the Land Bank, but Mr Odendaal was happy to
allow it to continue. I do not agree with Mr Wixley when he says that this
was acceptable because it was a fairly widespread practice at the time in a
number of companies and could be regarded as permissible in terms of
what he referred to as „little GAAP‟. It was not a satisfactory mode of
reflecting the position in regard to provisions for bad debts and the writing
off of bad debts and Mr Odendaal should, in my view, have raised a clear
objection to it.
[130] Accepting for present purposes that these and possibly other
shortcomings in the audit amounted to breaches of contract and were the
result of negligence, the issue of causation of loss looms large. The loss
that NPC sought to recover from PWC was the amounts written off in
respect ultimately of 46 debtors. In order to lay that at the door of PWC it
was necessary to show that had PWC‟s reports in the financial statements
been qualified in far greater detail so as to highlight the problems NPC
was experiencing with bad debts, or it had gone to the extent of
withholding an audit opinion, steps would have been taken by the
members in general meeting to ensure that the problems were resolved and
that either credit would not have been extended to those debtors, or it
would have been recovered. This is always the first step in any enquiry
into causation.47
[131] The judge thought that it was obvious that the members would have
done something about the problems, had they received proper reports from
PWC, and that it was unnecessary for there to be any evidence on the
point.48 The heads of argument on behalf of NPC also adopted this
47 International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680 (A) at 700E-I. I do not think that
anything said in Lee v Minister for Correctional Services 2013 (2) SA 144 (CC) paras 40 to 50 detracts
from this approach in this case.
48 „Na my mening is dit nie nodig om getuienis aan te bied oor iets wat by wyse van ʼn voor die hand
liggende afleiding aanvaar kan word.‟
approach saying that steps would have been taken immediately to set
things to rights, either by the members or the Land Bank or the Registrar
of Co-operatives. It was said that it should be assumed that the members
would have acted in a responsible fashion.
[132] I am unconvinced that this is correct. The evidence does not
suggest, much less establish on a balance of probabilities, that more
strident warnings from the auditor about NPC‟s vulnerability to bad debts,
and expressly that the credit policy was not being stringently applied and
the statutory pledge was not being enforced, would have had any impact
upon the members of NPC. The possibilities postulated in the particulars
of claim were the taking of disciplinary steps against responsible
employees including possibly dismissal and the appointment of new
management and officials or additional staff in conjunction with further
instructions from the board in relation to compliance with the credit
policy. Yet there is no evidence that any of these steps were taken in 1997
when matters came to a head. Why then would it have happened at an
earlier stage? It is true that attorneys were instructed in conjunction with
Mr Collett‟s enquiry to pursue debtors, but the result seems to have been
insolvencies on a large scale rather than recovery of debts. And this was
accompanied by the resignation of members and the effective collapse of
NPC‟s business over the following three years.
[133] For seven years from 1984 to 1991 the members of NPC were told
every year that the auditors were unable to express any opinion on the
recoverability of the debtors that constituted the major asset and the
principal source of income for NPC, as well as the security for its
indebtedness to the Land Bank. Every year the amounts written off as bad
debts mounted significantly. In addition they received regular warnings
from the directors regarding the need to control debtors and recover what
was owing to NPC. Those who attended annual general meetings – and
only a handful did in person and a slightly greater number by proxy – were
given further warnings by both the auditor and on occasions
representatives of the Land Bank. In 1983 they had been told that but for
the intervention of state aid NPC would have been in a serious financial
disposition (sic). In 1993 they were told that the payment received on the
withdrawal of the state guarantee was a godsend without which NPC
could not have survived. They would have seen that bad debts written off
in that year were over R11 million. They would also have seen that the
provision for bad debts remained static.
[134] Yet, notwithstanding the constant drumbeat of bad news about
NPC‟s poor financial position and its hand to mouth approach to running
its affairs, there is not the slightest jot or tittle of evidence that any
member at any stage expressed concern or disquiet at the position or asked
any questions or reacted in any way to what they were being told. Neither
Mr Pieterse, nor any other board member, came to give evidence about
their own conduct during this period and what they did to address and
resolve the situation. Nor did he or anyone else explain what steps were
taken in 1997 and why those were unsuccessful or why other steps taken
at an earlier stage would have resolved the problem. No-one gave
evidence to the effect that the form and tenor of the financial statements
and the audit reports led them to believe that all was well and could safely
be left to continue.
[135] There may be cases where it can be said with confidence that if a
particular breach of contract or wrongful act had not occurred it would be
obvious what would have resulted. One is entitled, in looking at causation,
to use some common sense.49 But whether the obvious would have
occurred must be measured against the objective facts confronting the
court. A recent example of a situation where the apparently obvious had to
give way to other facts is provided by Newcastle International Airport Ltd
v Eversheds LLP.50 There the plaintiff engaged the defendant, a well-
known firm of solicitors, to prepare new service contracts for the directors
of the company. They did so on the instruction of one of the directors and
the contracts contained provisions for the payment of a substantial bonus
to the directors if they were able successfully to negotiate a refinancing
arrangement for the company. The court held that the solicitors were under
an obligation to the company when presenting the draft contracts to the
remuneration committee to provide the chair with a user friendly
memorandum explaining in clear language the terms and effect of the
contract. They were negligent in not doing so and the company brought an
action against the solicitors for damages represented by the amount of the
bonuses the two directors had received.
[136] In dealing with causation Rimer LJ said that had the solicitors
prepared such a memorandum, the obvious answer to whether the chair of
the remuneration committee would have read and acted upon it was „of
course‟, especially as the chair was described by the judge as being
„capable, experienced, worldly and intelligent‟ with a „long and impressive
track record of work in the field of corporate finance‟. But, in the light of
the evidence given by her, the court concluded that her antipathy to
lawyers and contracts; her preference for the broad picture rather than
detail; her practice of „skimming‟ documents and ignoring attachments;
49 Lee, supra, para 49.
50 Newcastle International Airport Ltd v Eversheds LLP [2013] EWCA Civ 1514; [2014] 2 All ER 728
(CA). paras 86 to 100.
and the fact that she consciously delegated the issues surrounding the
contracts to the directors concerned, led to the conclusion that she would
not have read any memorandum had the solicitors prepared one, or, if she
had read it, she would not have understood it, and that the contracts would
have been signed in any event.
[137] In this case, however obvious it may have seemed to the judge that a
more alarmist report from the auditors would have provoked not only a
reaction, but also the taking of effective remedial steps by the members, I
am unable to share his view in the light of the facts summarised above.
The members were not – contrary to Mr Collett‟s evidence – interested in
NPC as an investment that would generate a return. They were concerned
with its ability to harness their collective purchasing power to extract
reasonable prices from suppliers of their needs in relation to production
material, and its ability to assist them by allowing them credit on their
purchases. They may well have thought, especially in the 1980s, that the
government, via the Land Bank, would be unwilling to withdraw support
from the agricultural sector and therefore NPC. It did not serve their
interests to restrict the basis upon which NPC made credit available to
them and they would no doubt have supported a flexible or even
benevolent approach to the grant of credit and the recovery of payment. It
would also not have served their interests to have the statutory pledge
strictly enforced, which in many instances would have meant that they
received no return on their potato crops.
[138] I am fortified in this view by the fact that the reports that were made
by the auditors, when read in the light of the financial statements, did not
attract any reaction from members. The 1991 and 1992 financial years
provide the clearest possible example of this. An amount of R1.3 million
was written off as bad debts in 1991, but the directors‟ report said that
potentially another R5.2 million might be irrecoverable. This did not
attract any response from members. Then in 1992, when NPC received the
sum of R28.5 million from government the accounts showed R11.5
million being written off against bad debts, although it was explained that
this was in effect some R18 million. This too attracted no response from
members. For my part I am unable against that background to see that it
was obvious that the members would have taken effective remedial steps
if the auditors had reported differently. If those simple facts did not cause
disquiet, or even panic, I fail to see what would.
[139] We cannot ignore what did happen when the auditors withheld an
opinion, on the grounds that the uncertainties surrounding NPC‟s finances
and its ability to continue as a going concern precluded them from
expressing an opinion. In effect the business collapsed. It is difficult to see
how an equally adverse audit opinion at an earlier stage would not have
had a similar result. But one cannot build a claim for damages against the
auditor on the basis that, if they had done their job properly, the business
would have gone into liquidation at an earlier date and therefore the
auditors must be held liable for all debts incurred after that date. Such a
claim was rejected in Galoo51 on the grounds that any negligence by the
auditor had merely given rise to the opportunity for the business to suffer
loss in the future and not to the loss caused by its continuing to trade. The
losses claimed by NPC in this case are losses that flowed from the conduct
of its business in the ordinary course and such losses do not ordinarily
flow from statements in the accounts of the company, but from its trading
51 Galoo Ltd (in liquidation) and others v Bright Graeme Murray (a firm) and another [1995] 1 All ER
16 (CA).
activities. Whether it suffers a loss from those activities will depend upon
the prudence of its trading decisions, market conditions and the like.52
[140] There was one other insuperable hurdle for NPC to surmount if it
was to show that it had suffered any loss flowing from deficiencies in
PWC‟s reports to members. It formulated its claim on the basis of 46 debts
that were written off at various times between 1990 and 1998, according
to its schedule of damages. In order to substantiate that claim it needed to
prove that if PWC had reported differently either these debts would not
have been incurred or they would have been repaid. It was quite unable to
do this as emerged at an early stage of Mr Collett‟s cross-examination. He
was asked if, in his opinion, that would have been the result, and he
answered that both were possible. It was put to him that at one pole was a
situation where none of the farmers received credit and at the other was a
situation where they all received credit and all repaid it. In between those
poles there were an enormous variety of possibilities. This he accepted.
When it was put to him that it was mere guesswork as to what would have
happened, he answered:
„Wel dit sou die een of die ander moes wees of gedeeltelik die een of die ander.‟
(Well it would have been the one or the other or partly the one or the other.‟)
Further cross-examination elicited the response that only an in in-depth
audit of each individual farmer would have revealed what would have
happened had the auditors reported differently. The answer lay somewhere
in the uncertain terrain between the two extremes. What could not be said
was that NPC would not have suffered any of these losses. Where it gave
52 Galoo, op cit, 29e-g. See also Alexander and others v Cambridge Credit Corporation Ltd and another
(1987) 9 NSWLR 310 at 359C-E.
credit either the whole debt or a great deal of the debt or some of the debt
could probably have been recovered .53
[141] This evidence alone should have spelled the death knell of NPC‟s
case. That conclusion was reinforced by an examination of some of the
debtors‟ files, which indicated that some matters simply could not be laid
at the door of the auditors. In the case of the largest of all, Mr Coleman,
who eventually owed over R7 million, a meeting was held with the vice-
chairman of NPC, Mr van Rensburg, in June 1995 to discuss his situation.
He already owed some R2 million and Mr Marais‟ note of the meeting
recorded that the NPC found itself in a bind, where it either had to
withdraw and try to recover what he owed, or continue and extend further
credit.54 The decision was made, unwisely as it transpired, to make
available a further R3 million in credit. It was, however, supported by
various estimates of the likely proceeds of his crop that suggested that it
would suffice to discharge all or most of his debts.
[142] Other similar situations emerge from the documents. The debt of
Junior Boerdery was incurred entirely in the period after PWC ceased to
be NPC‟s auditors. Yet, even with Mr Collett‟s input, NPC was unable to
prevent the loan being made. That is hardly surprising. From the time it
first became a member of NPC in 1991 Junior Boerdery had been an
impeccable debtor. Going back in time to 29 August 1990, at a directors‟
meeting on that day the board approved an extension of time for payment
of Tonkin Uitval Boerdery‟s (Tonkin) debt of some R573 264. At the
same time it approved an increase in its credit limit to R1 085 000. Two
53 „… kon die hele skuld of ʼn groot deel of ʼn gedeelte daarvan dalk verhaal gewees het.‟
54 „NAK is in ʼn knyptang (moet ons uitklim of moet ons aangaan ?)‟
years later in 1992 Tonkin was liquidated owing NPC nearly R1.3 million.
But in the meantime it had made payments exceeding R3 million to NPC
and at all times its crop estimates and actual income from those crops
exceeded its indebtedness to NPC. The decisions to afford it additional
credit may in retrospect have been unwise, but they were decisions in the
ordinary course of business and Mr Odendaal lacked any proper basis for
disagreeing with management on their impact on NPC‟s business.
[143] These instances not only reinforce the point that it was impossible to
say what would have happened with these debtors had the auditors
reported differently at different times, but they demonstrate that there were
other intervening factors involved including conscious decisions by the
board to extend credit to members whose financial circumstances were
poor. Four of the major debtors included in NPC‟s claim, namely, Messrs
Ferreira, Bekker, Coleman and Van Vuuren, representing in all more than
one quarter of the amount for which judgment was given, were considered
and discussed at board meetings. The credit committee discussed the
position of Messrs Saaiman and Wilson and the two Van der Walts, all of
whom were ultimately large debtors, whose debts were written off. Yet,
despite the allegation that the board was misled in regard to the position of
debtors, no member of the board was called to substantiate this.
[144] It follows that even had NPC pursued its claim on a narrower basis,
alleging merely that the administration of credit by its credit department
had been inept and that a proper audit would have revealed this, it would
not justify the claims that it advanced in this action. On that ground also
the appeal has to be upheld.
Prescription
[145] Summons in this case was issued on 16 November 1999. By 15
November 1996 all of the claims, bar possibly any that arose in relation to
the 1996/1997 financial year, had arisen. The question is therefore whether
by that date NPC had knowledge of the identity of the debtor and of the
facts from which the claim arose or could by the exercise of reasonable
care have acquired that knowledge. (Section 12(3) of the Prescription Act
68 of 1969). In a line of cases commencing with Drennan Maud &
Partners v Pennington Town Board55 this court has consistently held that
all that is required is knowledge of the minimum facts required to institute
action. It is unnecessary for the claimant to be aware of the legal
consequences of those facts. Where the claimant does not have actual
knowledge of those facts, but could by the exercise of reasonable care
have acquired that knowledge, that is equivalent to actual knowledge.
[146] The issue in this case relates to the identity of the persons whose
knowledge is relevant to the commencement of prescription. The trial
court held that, as the responsibility of the auditors was to report to the
members of NPC, it was their knowledge that was relevant and it held that
they did not have knowledge of facts giving rise to a claim against PWC,
nor could they have acquired them by the exercise of reasonable care.
[147] I am not sure that I share the judge‟s view on the knowledge or
ability to acquire it of the members of NPC. As recorded earlier there were
55 Drennan Maud & Partners v Pennington Town Board 1998 (3) 200 (SCA) at 209F-G. The line
continues through Van Staden v Fourie 1989 (3) SA 200 (A) at 216B – F; Nedcor Bank Bpk v Regering
van die Republiek van Suid-Afrika 2001 (1) SA 987 (SCA) ([2001] 1 All SA 107) paras 11 – 13; Yellow
Star Properties 1020 (Pty) Ltd v MEC, Department of Development Planning and Local Government,
Gauteng 2009 (3) SA 577 (SCA) ([2009] 3 All SA 475) para 37; and Claasen v Bester 2012 (2) SA 404
(SCA) paras 10 – 16 to Macleod v Kweyiya 2013 (6) SA 1 (SCA) para 9.
many warnings given to them about the potential problems with bad debts
and, had they responded to this information by insisting that the board
make diligent enquiries into the situation, they would have discovered all
the information known to the board. But, be that as it may, it is
unnecessary for me to take this any further because it was not in my
opinion their actual knowledge or the knowledge that they could have
acquired by the exercise of reasonable care that mattered, but the
knowledge of the board members.
[148] When one is concerned with the knowledge of a corporate entity
such as NPC it is necessary to identify the natural persons whose
knowledge is to be taken to be the knowledge of the corporate entity. This
is a search for what Lord Hoffmann56 referred to as the rules of attribution
by which courts determine:
„Whose act (or knowledge, or state of mind) was for this purpose intended to count as
the act etc of the company?‟
[149] The present claim is one by NPC, not by its members. Indeed, one
of the reasons that it has been held that shareholders of a company do not
have a claim for damages against the auditors for damages arising from
negligent audit reports is that the company has such a claim and is taken to
pursue it in the interests of its members.57 But that cannot mean that in the
context of a claim by the corporate entity against its auditors it is the
knowledge of the shareholders or, as in this case, the members, that is
relevant for the purposes of the commencement of the running of
prescription. When prescription is raised against a corporate entity the
56 Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 (PC) at
507F. Cited with approval in Northview Shopping Centre (Pty) Ltd v Revelas Properties Jhb CC and
Another 2010 (3) SA 630 (SCA) para 20.
57 Caparo Industries plc v Dickman and others [1990] 1 All ER 568 (HL) at 580 d-f.
ordinary rule of attribution of knowledge to the company of the
knowledge of natural persons of the facts giving rise to the claim, is
satisfied if the members of the board of directors have that knowledge, or
could acquire it if they took reasonable care. It is unnecessary for the
purposes of this case to consider whether the knowledge of other persons
within the entity would also be attributed to it for the purposes of
prescription. It suffices that the directors had knowledge of the facts
giving rise to the claim, or could have acquired such knowledge by taking
reasonable care. It was pointed out to counsel for NPC that he was in
effect urging us to formulate a special rule of attribution of knowledge for
the purposes of prescription and applicable only to claims against auditors
arising from deficiencies in their reports to members. Understandably he
made no submissions in support of such a rule.
[150] On that factual question there is a clear finding by the trial court
that the directors had that knowledge. It was in my view justified on the
evidence, but even if they did not have actual knowledge they could have
acquired it by the exercise of reasonable care. The directors knew of all
the problems relating to bad debts and the shortage of capital other than
loan capital. They laid down the credit policy, and either knew that it was
not being implemented as strictly as their reports to members suggested, or
could, by taking reasonable care, have ascertained the true position. They
were regularly told who the major problem debtors were and they could
readily have investigated and unearthed the true position in relation to
these debtors, if in fact they did not do so. All of this would have enabled
them to assess whether the financial statements in regard to debtors
painted a fair picture and if they did not, enabled NPC to proceed against
the auditors for any loss it had suffered as a result of their defective audits.
[151] In those circumstances the plea of prescription should have
succeeded in relation to the claims against the second, third and fourth
appellants and at least in part against the fifth appellant. As their appeal in
any event succeeds on the other grounds set out in this judgment it is
unnecessary to explore the extent to which the plea should have been
upheld in relation to the fifth appellant.
Costs
[152] The appeals of all the second to fifth appellants (PWC) against the
judgments in terms of which they were declared to be liable to compensate
NPC for damages and the judgment in which that liability was quantified
must succeed. That success carries with it an order of costs including the
costs of two counsel. Concomitantly NPC‟s cross-appeal against the
quantum of the damages awarded to it must be dismissed with costs,
including the costs of two counsel. Before the issue of the practice
directive in regard to the set-down and hearing of this appeal, PWC
brought an application for the separation of the issues relating to hearsay
evidence and prescription. In the practice directive that application was
adjourned on the basis that it would be dealt with in the course of the
appeal. It attracted no argument, written or oral. Accordingly we make no
order in respect of the costs of that application.
[153] PWC Inc has a separate appeal against the limited order for costs
granted in its favour by the trial court. The justification for that order was
that it should have taken exception to the claim. That was fallacious as its
potential liability arose from the factual allegation that it had assumed
liability for the debts of the earlier partnerships constituting PWC. Its
appeal must therefore succeed. However, as the trial and appeal were
conducted by PWC and PWC Inc through the same attorneys and counsel
using the same witnesses, it seems to me that it would be appropriate to
order that the respondents bear the appellants‟ costs of the trial and the
appeal jointly and severally the one paying the other to be absolved,
without distinguishing between the costs of PWC Inc and those of PWC.
[154] Not content with an order for costs in their favour, PWC and PWC
Inc urged us to make an order for costs on the attorney and client scale
against the respondents on the basis of the treatment of Mr Odendaal, both
in regard to the allegations of dishonesty that peppered both his cross-
examination and the submissions made in both the trial court and this
court concerning his integrity and reliability as a witness, and in regard to
the allegations of tax fraud levelled against him. As to the cross-
examination it was in my view hostile and aggressive, with constant and
frequently misplaced statements that Mr Odendaal was not answering the
question and liberally speckled with comments by counsel about the
quality of Mr Odendaal‟s answers. On many aspects the cross-examiner
quibbled over matters of fine detail to little purpose. But, as the judge
noted in his judgment, Mr Odendaal was not always a responsive witness
and he allowed himself to become irritated with questions. There were
undoubtedly weaknesses in his recollection of matters – hardly surprising
after the passage of many years – but some of the shortcomings in his
evidence were borne of a desire to defend himself and his work at all
costs, even when not supported by his own audit notes. Whilst the cross-
examiner‟s approach and manner of cross-examination and his attitude
towards Mr Odendaal are to be deprecated and verged on the abusive, that
does not in my view justify an order for attorney and client costs,
especially as the beneficiaries of that order would be the appellants and
not Mr Odendaal.
[155] The allegations of tax fraud were more serious, as one would expect
when that type of allegation is levelled against a person whose work must
frequently bear the scrutiny of the revenue authorities. However, I think
that Mr Odendaal‟s standing and stature as an accountant and auditor will
be more than adequately vindicated by saying that in my view there was
no substance in those allegations and that Mr Odendaal was entitled to
take umbrage, as he did, when they were levelled against him. It does not
call for a special order of costs in favour of the appellants.
[156] It is desirable that at this point I deal with one other matter in regard
to which Mr Odendaal‟s credibility was subjected to attack. Indeed, in this
court, it became the cornerstone for the argument about his credibility.
That was a note made by Mr Wixley in the course of a conference he had
with Mr Odendaal for the purpose of informing himself of matters relevant
to his own expert testimony. The note dealt with Mr Odendaal‟s approach
to the assessment of the amounts to be written off as bad debts and to the
assessment of the value and recoverability of the debtors‟ book. It
recorded that his methodology was to look at the state of the current crop,
the strength of the individual debtor‟s balance sheet and security. Doubtful
debtors were marked and discussed and the note recorded that, unless
further information was obtained, Mr Odendaal would „insist‟ on the
debtor being written off. Then follows the sentence on which the attack on
his credibility depended. It read:
„In some years the co-op could not afford the full write-off & in those years the audit
report was qualified.‟
[157] After this note was disclosed, in the course of the cross-examination
of Mr Wixley, it was put to Mr Wixley that it showed that Mr Odendaal
colluded with management to present false accounts to members and made
a false report to members. Mr Wixley made some concessions in that
regard, but said in re-examination that he could not be sure that his note
was entirely accurate or that he had correctly understood and recorded Mr
Odendaal‟s point. When his cross-examination was finished, an
application was made to recall Mr Odendaal to deal with the note‟s
contents. That application was opposed by NPC and refused. I have no
doubt that NPC was wrong to oppose it and that the judge erred in refusing
to permit Mr Odendaal to be recalled to testify and be cross-examined in
relation to it. It was apparent that counsel for NPC intended to make use of
the note for the purpose of impugning Mr Odendaal‟s credibility and the
result of the judge‟s order was that it was used for that purpose without Mr
Odendaal having been afforded any opportunity to defend himself. The
note was succinct and in my view did not necessarily bear the meaning
attributed to it by counsel. But it is not for this court at this stage of the
matter to speculate about the circumstances in which Mr Wixley came to
make a note in those terms, or whether he misunderstood Mr Odendaal. It
suffices to say that in my view the attacks upon Mr Odendaal‟s credibility
and personal integrity based on the contents of this note were unwarranted
in circumstances where he was denied an opportunity to defend himself.
[158] Earlier in this judgment I said that I would comment on the conduct
of the trial and how it assumed the proportions that it did. Much of the
blame must be laid at the doors of those responsible for the presentation of
the case. There was no justification for it to have been conducted on the
basis of Mr Collett being the principal witness, instead of following the
obvious course of calling the witnesses of fact from NPC who could have
described the manner in which it conducted business over the years in
question and given first-hand evidence concerning its problems. Calling
Mr Collett instead of those with personal knowledge gives rise to the
suspicion that had those witnesses been called their evidence would not
have supported his conclusions.
[159] I have already dealt with the fact that much of Mr Collett‟s evidence
was hearsay and how that should have been dealt with to forestall a
situation where the bulk of the evidence had been presented on an
inadmissible basis impossible to remedy at the later stages of the trial. The
same is true of that part of his evidence that was presented as the opinion
evidence of an expert witness. It is impossible to discern why his expertise
was not challenged at a very early stage of the case on the grounds that he
was not an expert in the fields in which he claimed expertise, namely
accountancy and auditing. Nor was he an expert in the matters on which
he intended to give evidence such as the agricultural industry; the nature
of NPC‟s business; and the proper way in which to operate the credit
function of an agricultural co-operative. In respect of these he was not an
expert at all. Had such a challenge been advanced on the basis of what was
contained in his expert summary and some evidence in respect of his
credentials as an expert witness, it should have been upheld. It may be that
counsel judged that raising these objections would not have led to a
favourable ruling from the trial judge, but it is unfortunate that we cannot
know that because the issue was not raised directly. All that I can say is
that if these objections had been timeously raised and upheld, as they
ought to have been, it is unlikely that this litigation would have become
the marathon that it did.
[160] One other factor that must be mentioned as a cause of the
inordinate length of this litigation is the manner in which the principal
witnesses were led and cross-examined. Invariably the experts were led by
taking them through their expert summaries and related documents in
inordinate, dreary and unnecessary detail. All of the accountants trawled
through the provisions of GAAS even though the text had been agreed,
and was both readily understandable and available for the judge to read. It
turned out, hardly surprisingly, that they were all reading the same text
and understood it in much the same way. That was unnecessary and is not
the purpose of expert evidence. There was a complete failure on both sides
to recognise that:
„The expert may be tendered for cross-examination upon his report alone, without
additional oral examination, or after only limited questioning:
“as a general rule the report of an expert witness can be read as his evidence in chief,
subject only to supplementary questions necessary for explanation or amplification of
the report.”‟58
[161] Lastly not only was the evidence in chief quite unnecessarily prolix,
but in general the same was true of the cross-examination. I exempt from
this comment the cross-examination of leading counsel who originally
appeared for PWC and PWC Inc. When he commenced his cross-
examination Mr Collett‟s evidence stretched over some 6 800 pages of
transcript and had canvassed something in excess of 100 000 documents.
Measured against that his cross-examination from the outset was to the
point and exposed many of Mr Collett‟s weaknesses as a witness. But as to
the balance far too much time was spent examining him on documents
about which he had no personal knowledge. The cross-examination of Mr
Odendaal has already been commented on and I highlight the point the
judge made that, in many respects, it was simply quibbling over detail of
little relevance and seeking to advance hopeless arguments. The cross-
examination of all the experts also tended towards nit-picking examination
58 Hodgkinson, supra, 109-110 citing Sheen J in The Capitaine Le Goff [1981] 1 Lloyd‟s Rep 322
(QB(Adm Ct)) at 325.
of relatively minor points, instead of focussing on the central issues. This
contributed greatly to the duration of the trial. It did little to clarify issues
and led as I said in paragraph 3 to a situation where it was very difficult to
discern the wood for the trees. It is incumbent upon judges seized with the
task of hearing cases of this potential magnitude to exercise control over
the conduct of proceedings, by taking the kind of steps indicated in this
judgment, to prevent them from assuming unmanageable proportions, to
the detriment and cost of the parties and society, by consuming scarce
judicial resources.
Result
[162] I make the following order, incorporating the orders flowing from
my brother Koen AJA‟s judgment dealing with the ancillary costs orders.
The order is as follows:
The appeals by the second to fifth appellants and the appeal by the
first appellant against paragraph 1 of the order of 14 March 2012 and the
orders referred to in paragraphs 5, 6 and 7 of this order, are upheld with
costs, such costs to include the costs consequent upon the employment of
two counsel.
The judgments of the court below and the orders granted on 24
January 2011, 14 December 2011 and paragraphs 1, 6, 7 and 9 of the order
of 14 March 2012 are set aside and replaced by the following:
„The first plaintiff‟s claim is dismissed with costs, such costs to be paid
jointly and severally by the first and second plaintiffs, the one paying the
other to be absolved, and to include the costs of two counsel and the
qualifying expenses of Mr Wixley.‟
The cross-appeal is dismissed with costs, such costs to include the
costs consequent upon the employment of two counsel.
The costs orders in paragraphs 1 and 3 are to be paid by the
respondents jointly and severally, the one paying the other to be absolved.
The last sentence of paragraph 2 of the order of 28 July 2011 is set
aside and replaced by the following:
„Die tweede tot vyfde verweerders moet die koste van opposisie betaal.‟
Paragraph 8 of the order of 18 November 2011 is set aside and
replaced by the following:
„Die tweede tot vyfde verweerders moet die koste van opposisie betaal.‟
Paragraph 2 of the order dated 27 April 2011 is set aside and
replaced by the following:
„Die eisers word gesamentlik en afsonderlik gelas om die koste van die
aansoek te betaal.‟
M J D WALLIS
JUDGE OF APPEAL
Koen AJA (Wallis JA and Fourie AJA concurring)
[163] This judgment, as foreshadowed in paragraph [8] of the main
judgment of Wallis JA, deals with the two costs orders59 granted in respect
of the amendments to NPC‟s particulars of claim following the initial
judgment, and the costs order made in respect of the appellants‟ abortive
application for leave to appeal.60 The same terminology as in the main
judgment is adopted.
59 Respectively the third and fourth appeals.
60 The fifth appeal.
[164] The two costs orders relating to the amendment of NPC‟s claim can
conveniently be dealt with together. Although chronologically they
followed after the abortive application for leave to appeal, I deal with them
first, in the sequence that they appear as appeals.
[165] The initial declaratory judgment determined the liability of PWC
with reference to a schedule annexed thereto. Following that judgment
NPC applied to amend its claim and the quantum thereof. Despite
opposition, the court on two separate occasions allowed NPC to amend its
particulars of claim, giving rise to the two costs orders forming the subject
of these two appeals. The first order was granted on 28 July 2011.
Paragraph 2 thereof directed that NPC pay the costs of the amendments
then sought on an unopposed basis, including the costs of two counsel
where applicable. The appellants (PWC and PWC Inc) were directed to
pay the costs of opposition to that application, such costs to include the
costs of three counsel. The second order was granted on 18 November
2011. It directed that the same appellants pay the costs of opposition to the
application, such costs to include the costs of three advocates. The trial
court granted the second to fifth appellants leave to appeal against these
orders and this court granted PWC Inc leave to appeal against them.
[166] Whether the amendments to the particulars of claim should have
been granted, has now been rendered largely academic in the light of the
conclusion reached on the main appeal. It remains relevant, however, to
determine whether this court should interfere with the costs orders that
were granted. It is therefore necessary to consider the merits of the
applications for amendment.
[167] During the presentation of NPC‟s evidence in the first stage of the
trial it emerged that NPC had not accounted for amounts it had recovered
or could recover in respect of its alleged damages. Accordingly, after the
last witness for NPC had testified, but before closing its case, the NPC‟s
leading counsel applied from the bar for further issues to be separated for
determination during the second stage of the trial. That application was
successful resulting in the following ruling in terms of rule 33(4):
„1.1 The plaintiffs will be entitled to adduce evidence of the amounts recovered from
debtors and subsidiaries whose debts have been written off, and the reasonableness of
such recoveries, in the second round or stage of the trial, provided that this will not
detract from the defendants‟ right to apply for absolution from the instance at the close
of the plaintiffs‟ case at the end of the first round or stage of the trial on any basis other
than that the amount recovered from debtors and subsidiaries, or the reasonableness
thereof, were not proved.
1.2 The plaintiffs will be entitled to adduce evidence of the cash credit interest rates
levied by the Land Bank after 6 July 1995 in the second round or stage of the trial,
provided that this will not detract from the defendants‟ right to apply for absolution
from the instance at the close of the plaintiffs‟ case at the end of the first round or stage
of the trial on any basis other than that the cash credit interest rates levied by the Land
Bank after 6 July 1995 were not proved.‟ (My translation)
[168] NPC contended that the amendments sought reflected its revised
claim, calculated in accordance with the ruling in terms of rule 33(4). In its
amended form the amount claimed in respect of bad debts was
R56 951 978.62 after taking into account amounts recovered in respect of
debts previously written off. The schedule itemising how this amount was
calculated reflected gross amounts recovered, as well as legal costs,
insurance and finally net recoveries. The legal costs were incurred in
recovering or endeavouring to recover amounts from debtors, whether or
not successfully. The insurance was in respect of life insurance on the
lives of debtors. NPC maintained that in having to account for what could
reasonably be recovered from debtors, the net amount of the recovery,
after deducting all costs and charges incurred in respect of such recoveries,
had to be taken into account and not simply the gross amount recovered
without regard to any legal costs. Accounting for the cost of the insurance
was considered to be part of the quantification of damages, which stood
over for determination at the second stage of the trial. The schedule also
reflected that an amount of R54 052 224.76 was claimed in respect of the
Land Bank interest component of its claim.
[169] PWC argued that the trial court was functus officio after the initial
judgment was delivered and that NPC by these amendments was seeking
to claim amounts outside PWC‟s liability as determined by the initial
judgment. It accordingly contended that the amendments and the costs
orders against it should not have been granted.
[170] The amendments mainly sought to introduce adjustments to the net
recoveries made from debtors of NPC and the Land Bank interest claim.
In some instances the adjustment to what was previously written off
resulted in an increased liability, for example where the legal costs
incurred in respect of a particular recovery from a debtor exceeded the
amount recovered from that debtor, or where the costs of insurance
exceeded the net recovery. But when this was pointed out in argument it
was accepted that it was impermissible to increase the claim on that basis.
[171] I am not persuaded that the trial court erred in concluding that these
accounting differences were simply part of the quantification of damages,
a matter it had to determine during the second stage of the trial in respect
of the debtors of NPC whose debts had been written off. The contractual
measure of damages sought to be recovered required that the net financial
position of NPC allegedly caused by PWC‟s breach would have to be
determined, and that required that the net amounts recovered from debtors
had to be taken into account. But in any event, to the extent that there
might have been any reservations as to whether the amounts claimed
pursuant to the amendments fell within the parameters of the initial
judgment, convenience dictated that the amendments be granted and if
objectionable, PWC could raise its objections in the course of the hearing
on quantum. The court could then during the quantification stage of the
trial determine whether what was claimed properly fell within or beyond
the scope of the initial judgment.
[172] The amendments were correctly granted. They were not, however,
of such complexity and importance to the respondents as to justify an
award of the costs of three counsel. In my view the employment of only
one counsel was justified. The appeals against these costs orders succeed
to the extent that they are limited to the costs of one counsel as set out in
paragraphs 5 and 6 of our order at the end of the main judgment.
[173] I turn next to the appeal61 against the costs order granted against
PWC Inc and PWC on 27 April 2011, when its application for leave to
appeal against the initial judgment was set aside as an irregular step.
Paragraph 2 of that order directed that the appellants pay the costs of the
application, including the costs consequent upon the employment of three
counsel. The appellants appeal against the whole of that costs order, with
the leave of this court, seeking a variation thereof by deleting it in its
entirety and replacing it with an order granting them the costs of that
application.
61 This was the fifth appeal.
[174] It is not in dispute that the application for leave to appeal complied
with the requirements of rule 49. It was nevertheless set aside as an
irregular step on the basis that the parties had agreed that there would be
no appeal until the entire action had been finalised. Rule 30 dealing with
irregular proceedings applies only to irregularities of form and not to
matters of substance.62 A notice of application for leave to appeal, in
compliance with the rules of court, however, cannot be an irregular step or
proceeding simply because of some alleged agreement between the parties
not to pursue an appeal until the action is finally completed before the trial
court.
[175] Even if there was such an agreement, the notice of application for
leave to appeal was not irregular, but had to be considered on its merits. A
court is not bound by any such agreement between the parties. The
declaratory order contained in the initial judgment was a „judgment or
order‟ in terms of s 20(1) of the Supreme Court Act 59 of 1959, which
then applied to appeals, and was susceptible to immediate appeal with the
leave of the court. The agreement of the parties could not detract from
that, although it was plainly relevant to the judge‟s consideration of
whether it was appropriate in the interests of justice to permit an appeal at
that stage. There might have been very sound reasons, in the best interests
of the administration of justice, which would have persuaded the court to
grant leave to appeal in respect of its judgment even though the parties had
agreed otherwise. If the trial court had concluded that there were no such
reasons and that the agreement between the parties should prevail, the
62 Singh v Vorkel 1947 (3) SA 400 (C) at 406; Odendaal v De Jager 1961 (4) SA 307 (O) at 310F-G.
application should have been dismissed for that reason and not on the
basis that the notice of application was an irregular step or proceeding.
[176] In any event, it seems clear that whatever agreement the parties had
reached at the outset, by the time the application for leave to appeal was
pursued, that agreement no longer applied. The agreement reached at the
commencement of the trial, following an exchange of correspondence, is
recorded in the signed minute of the meeting before Hartzenberg J. It
recorded that:
„1.1
The parties confirm the agreement that the trial will be conducted in stages. The
merits, (that is all the issues in dispute excluding any calculation of any damages to
which the plaintiff may be entitled) will be adjudicated first and after findings have
been made in this regard (including findings on the basis on which the quantum of the
plaintiff must be calculated, if applicable) the trial shall be adjourned to afford the
parties‟ experts the opportunity to endeavour to agree the quantum in accordance with
the findings made by the court on the merits.
1.2
Plaintiff is of the view that the appropriate time to address this issue would be
after the findings have been made. (My translation)
[177] This minute made no reference to there being no appeal until the
end of the trial. It did, however, give effect to a proposal previously
suggested by PWC‟s attorneys in their letter of 11 July 2005 which
recorded that:
„Our clients are agreed that, provided they are not prejudiced in any way, they will not
– should the case go against them – apply for leave to appeal until the quantification
has been undertaken in accordance with the suggestions made above. We underscore
that this agreement applies only if our suggestions are accepted. In the event of any
other configuration, we would have to take instructions afresh.‟
[178] The trial however took a different turn to that contemplated in the
aforesaid correspondence, when the judge separated the further issues after
the last witness for the NPC testified. The judge reasoned that the
agreement reached between the parties was an „unqualified‟ agreement
that the trial would be addressed in two phases and that there would not be
an appeal in the interim. I am unable to agree with that conclusion. The
agreement, such as it was, provided that PWC would not pursue an appeal
until the action was complete, so long as it was „not prejudiced‟ and on the
underlying basis of a certain factual „configuration‟. The agreement must
be viewed, as PWC argued, „within the context of the matrix of facts that
pertained at the time‟.
[179] At the stage PWC‟s attorney‟s letter was written, „everything‟, that
is all issues, was supposed to have been addressed in the first phase and
only the calculation of the quantum would occur during the second phase
in accordance with directions to be made by the court during the first
phase. The rule 33(4) ruling introduced a different „configuration‟. Not
allowing an appeal at the time when such leave was sought was potentially
prejudicial to PWC and PWC Inc.
[180] It was competent for the court to issue the order it did in terms of
rule 33(4). The effect of that order was that considerably more evidentiary
issues were left to be dealt with in the second phase of the trial than were
contemplated when the agreement to finalise the trial without an interim
appeal was concluded. Accordingly, insofar as it may be relevant, the
agreement not to pursue an appeal before at the end of the trial no longer
applied and there was nothing to preclude PWC from applying for leave to
appeal.
[181] The judge erred in dismissing the application for leave to appeal as
an irregular proceeding and awarding costs, including the costs of three
counsel against PWC Inc and PWC. The correct fate of the application
now only has relevance as regards the costs order. The court did not
address the question whether leave to appeal was appropriate at that time.
It set aside the application as an irregular proceeding on erroneous
grounds. The application in terms of rule 30 should not have succeeded
and should have been dismissed. It follows that the costs order should
have been in favour of the appellants. The argument as to whether the
notice of appeal constituted an irregular proceeding was, however, not of
such complexity as to warrant the employment of two counsel.
Accordingly, only the costs of one counsel should be allowed.
[182] In the result the appeal on this issue succeeds and an order in terms
of paragraph 7 of the order in the main judgment must be made.
________________
P A KOEN
ACTING JUDGE OF APPEAL
APPENDIX
The years from 1984 to 1990
[1] Early in 1984 the Land Bank raised with NPC concerns about its
credit and debt recovery policies. In a letter dated 12 April 1984, the
managing director of the Land Bank pointed out that NPC had extended
additional credit of nearly R11 million during the previous year, but only
recovered R5 million. He said that this raised concern with the Land Bank
(„wek kommer by die Bank‟) and that it was in NPC‟s best interests to
review its policies on the granting of credit and debt recovery.
Representatives of the bank met with the board of directors and the then
principal auditor, Mr Hugo, on 28 June 1984 to stress these points. They
were blunt in their assessment of affairs. They said that NPC granted
credit too freely, that it was not effectively exercising its statutory pledge
and that the collection of debts was inadequate. They stressed that the
collection of debts must be carefully followed up and that a proper credit
policy had to be implemented. NPC‟s participation in the 1984 drought aid
scheme was dependent upon the formulation of a credit policy approved
and monitored by the bank.
[2] In July 1984 the Land Bank established an emergency assistance
scheme for farmers who had been hard hit by drought, backed by a
government guarantee given to the Land Bank. One element of the scheme
was the postponement of the obligation of members of co-operatives to
repay their production credits to their co-operative. Many farmers had
arrear debts („oorlaatskulde‟) in respect of the 1984 crop. These would be
consolidated with debts owing under the 1983 drought assistance scheme
and the repayment period would be extended for up to six years, on the
basis that the farmers would repay as much as possible each year. These
debts would carry a subsidised rate of interest for two years, after which
the position would be reviewed. In the meantime the co-operatives would
continue to finance new production credits for the 1984/85 season. The
nett effect of this was that the farmers would incur additional debts, it
being the underlying premise of the scheme that with good harvests in
future years they would be able to pay their debts.
[3] The entire scheme was to be monitored by the Land Bank. It
stressed that the extension of credit by co-operatives would have to follow
careful policies in determining how much credit to give. This was,
however, subject to an overriding intention to assist farmers who should
still be assisted („in dié gees word daar dus van koöperasies verwag om
die boer te help wat nog gehelp te word‟). Follow-up letters addressed by
the bank to the chair of the board of directors of NPC stressed the need to
follow credit policies and warned that the bank would not authorise
payments unless its requirements were satisfied.
[4] Against this background PWC conducted the audit for the year
ended 30 September 1984. Mr Odendaal was by now involved in the audit
although it was still under the overall control of Messrs Hugo and Naudé.
In a letter addressed by the latter to the chair of the board of directors he
complained that computer problems had caused difficulties in conducting
the audit. That had made the audit of debtors difficult because of the
absence of debtors‟ trial balances and the inability to reconcile the control
accounts. This was embodied in the auditor‟s report in the annual financial
statements. That referred to gaps in internal controls and the fact that there
was an un-reconciled debit balance in the debtors‟ account.
[5] The directors‟ report for that year said that there had been a far
larger harvest than in previous years, but a substantial drop in prices had
accompanied this, frequently to below production costs. On a marginally
higher turnover debtors had increased from R12.7 million to R20 million
and borrowings from the Land Bank from R9.9 million to R16.6 million,
of which drought relief accounted for over R12 million. Bad debts
increased from R432 058 to R509 333. The drought relief scheme stood at
60 per cent of debtors. The directors‟ report understandably said that the
board and the Land Bank were deeply disturbed by this situation. An
appeal was made to members to comply strictly with the credit policy,
although the board noted that strict compliance would inconvenience
many farmers.
[6] In September 1985 the board noted that 15 per cent of accounts
encompassing 31 per cent of outstanding debts were in arrears. At the
same meeting it approved the grant of further production credits of over
R900 000 to farmers whose arrears collectively amounted to over
R750 000. None of those farmers were among the bad debtors that later
formed the subject of NPC‟s claim.
[7] In each of the years from 1985 to 1990 PWC qualified the annual
financial statements. They said that they had been prepared on a going
concern basis, but that as a result of current economic circumstances in the
agricultural industry it was not possible for the auditors to form a view on
the recoverability of the total indebtedness of members.63 In argument in
both this court and below NPC launched a fierce attack on this
qualification and that is dealt with in the body of the main judgment.
63 „Die finansiële jaarstate is opgestel op ʼn lopendesaak begrip, maar dit is as gevolg van die huidige
ekonomiese omstandighede in die landboubedryf nie moontlik om ʼn mening te vorm oor die
verhaalbaarheid van die totale ledeskulde nie.‟
[8] The annual financial statements for 1985 and, in particular, the
directors‟ report painted a gloomy picture. It was said that a crisis stared
NPC and its members in the face and that the debtors‟ position did not
make for a favourable picture. Although harvests had improved prices
were low and, on average, below production costs. For the first time
farmers were finding themselves unable to repay their production credits
from the proceeds of other crops. When prices were high opportunistic
producers entered the market depressing prices. Drought aid now
represented 70 per cent of debtors. Progress was not being made in
collecting outstanding debts, notwithstanding the employment of a
financial manager with responsibility for granting credit and collection of
outstanding debts. The board said that without assistance from the state
NPC could not continue to assist members who were struggling. A
summary of the debtors over the previous four years showed that they had
virtually quadrupled whilst turnover had changed little. Between 1984 and
1985 debtors not entitled to drought assistance increased by nearly 50 per
cent to over R12 million. Whilst the bad debt provision remained static at
R300 000, write-offs of bad debts had increased to just short of
R1 million, nearly doubling in one year. Once these were taken into
account the operating surplus became an operating loss.
[9] In 1986 the new financial manager produced a report for the board
that stressed the deteriorating financial position and the urgent need for
NPC to build up its capital reserves. That would require significant further
capital inputs from members or other sources. If this could not be obtained
the financial position of NPC would deteriorate. At its meeting on 15
August 1986 the board took note of the high risks attendant upon debtors
and resolved to adopt a conservative view and write off doubtful debts „as
far as possible‟ („sover as moontlik‟). The heart of the problem remained
that, even though there had been a 30 per cent increase in turnover,
production credit debtors had only declined by 2 per cent. The collection
of debts owing under the drought aid scheme remained a problem. A new
issue arose of farmers seeking assistance to stave off other creditors,
particularly creditors under hire purchase agreements, and funds being
released to them in order that they could harvest their crops. In addition a
number of insolvencies were occurring among members and this was
emphasised at the annual general meeting. The 1986 directors‟ report said
that the board remained deeply concerned about both the financial position
of members and the continued existence of NPC. The level of debtors
under both the drought aid scheme and production credits increased by
R4 million on an increased turnover of R9 million. Recoveries in respect
of bad debts previously written off remained minimal.
[10] Little change was reflected in the 1987 accounts. The level of
debtors increased by a further R6 million on an increased turnover of
R18 million. The indebtedness to the Land Bank grew correspondingly.
Bad debts written off exceeded R1 million and when taken into account
meant that a trading surplus became a deficit. In addition the category of
„sundry debtors‟ increased markedly from a nominal amount to over
R2 million. The board said it remained optimistic about the future of the
industry provided that greater co-ordination in planting and greater price
stability could be achieved. However, it continued to say that the general
state of debtors was unsatisfactory and that it remained concerned at the
financial position of a number of members of NPC.
[11] Although the board received a report from the financial manager in
February 1988 that both the liquidity and solvency position of NPC was
under pressure, it resolved not to impose a levy on members. This
notwithstanding that the report pointed out that profitability was minimal;
that the level of debt per share was increasing, especially if the debtor
suspense account was brought into the reckoning; that NPC was overly
dependent on Land Bank financing; and that if urgent corrective measures
were not taken the result would be catastrophic. At the annual general
meeting on 24 and 26 February 1988, the chair reported on the level of
bad debts written off and said that rising debt levels were due to price
increases in production inputs. He expressed concern at the increasing debt
burden. Mr Odendaal, from PWC, said he was concerned at the fact that
the ratio between members‟ funds and total funds had deteriorated and
stressed that this ratio needed to be improved.
[12] 1988 saw a continuing increase in membership, presumably in part
as a result of a merger with the Markpro Co-operative that led to the
change in name to NPC, and a corresponding increase in the level of
debtors. By February 1988 it was anticipated that rising input prices would
place further pressure on members‟ ability to repay debt. After the merger
the financial year end changed from 30 September to 31 December. There
was, however, no change in the problems facing NPC of which the
obtaining of fresh capital remained critical. Production increased both
among members and new entrants to the market resulting in lower prices.
The directors reported in the 1988 annual financial statements that as a
result it was anticipated that members would find it difficult to meet their
obligations. In comparison with the full year to 30 September 1987, the
ten months to 31 December 1988 showed an increase in turnover from
R48.6 million to R71 million, an increase in debtors from R33 million to
R50 million and an increase in indebtedness to the Land Bank from
R28 million to nearly R47 million. Bad debts of R1.3 million were written
off in addition to the R880 000 in bad debts written off in the five months
between 30 September 1987 and 28 February 1988.
[13] The audit report provided to the board by Mr Odendaal in respect
of that period highlighted that credit limits were regularly exceeded and
production inputs were sometimes supplied to members who were not
creditworthy. Debtors‟ balances were not reconciled with ledger accounts
on a regular basis with a consequent loss of interest to NPC. Credit was
given for seed without the approval of the credit committee. Undertakings
were given to deal with this.
[14] In May 1989, after a visit by its officials to NPC, the managing
director of the Land Bank wrote to the chief executive in strong terms. He
pointed out that NPC was heavily dependent on external financing and the
result was that exposure to the risk of non-payment to the tune of some
R43 million lay with the bank and the state. The increase in debtors over
the previous 28 months had been financed almost entirely with external
finance, giving rise to a substantial obligation in respect of interest. It was
therefore of fundamental importance to improve NPC‟s capital position
and place limits on the extension of credit. The bank‟s concluded that the
situation in regard to the debts of members was disturbing. If nothing were
done to address the problems it said it would be obliged to make further
extensions of credit dependent upon compliance with stringent conditions.
This letter was placed before the board. At that meeting the board gave an
instruction to management to take steps to recover arrear amounts and to
implement the credit policy strictly. At a later meeting it resolved not to
impose a levy on purchases, but to raise the capital contributions of
members over a period of three years.
[15] The Land Bank continued to express unhappiness at the financial
situation of NPC. It pointed out that in the period of 27 months to 31
December 1998 credit extended by NPC exceeded recoveries by
R13 million. In addition there had been an astronomical increase in
provisions for bad debts („astronomiese toename in voorsiening vir slegte
skulde‟). This prompted the initiation (but not necessarily the
implementation in practice) of further and more stringent credit
requirements and the Land Bank was advised accordingly. The bank was
assured that the board and management shared its concerns about the
financial position.
[16] Despite the Land Bank‟s intervention, the instructions from the
board to officials and the auditors expressing concern in their audit report
for 1989 about non-compliance with credit control measures, the 1989
annual financial statements showed that the position continued to
deteriorate. Debtors increased by a further R15 million from the end of the
previous year. In its report to management on the audit PWC described the
overall increase over three years as enormous („ʼn geweldige toename‟).
They advised that four steps had to be taken to remedy the situation. These
were: stricter application of the credit policy; prior determination of credit
limits and the maintenance of arrears within those limits; timely action to
recover arrears; and obtaining security for new and existing debts. For the
first time the amounts owing by NPC to the Land Bank exceeded the
amounts owing to NPC by members.
[17] Not surprisingly the Land Bank continued to be concerned about the
financial situation at NPC. A further visit by officials in April 1990 led to
a letter being written by the chief executive of the Land Bank to NPC. An
accompanying letter addressed to the chair of the board said that aspects of
the letter demanded the urgent attention of the board. It asked for a
meeting with him and his management committee. The accompanying
letter highlighted the peculiar accounting treatment of bad debts, which
involved an amount of over R5 million being written off as bad and being
transferred to a suspense account, from which nearly R4 million was then
written back as recoveries of bad debts. The letter asked that a proper
assessment of bad debts be made, and that the R300 000 figure in the
annual financial statements be revised to a more realistic level acceptable
to the bank. The bank expressed doubt that sufficient collection of debts
would occur within a foreseeable period to prevent the debtors‟ book
aging, that is, the average period for which the debts had been outstanding
increasing. There was a threat, if this was not addressed, that the bank
would review the basis upon which it was financing members‟ production
credits and that this could cause NPC a cash flow problem. In addition the
bank queried the basis upon NPC had invested in a company that
manufactured bags for potatoes.
[18] At the annual general meeting of NPC in May 1990 (attended by
only 13 members in person and 46 by proxy, a mere 5 per cent of the
membership) the chair told those present that the Registrar of Co-
operatives, the Land Bank, the auditors, the board and management were
all worried about the poor ratio between own and borrowed capital.
However the biggest worry remained the high percentage of overdue
accounts. An explanation of the treatment of doubtful debtors was
furnished to the Land Bank, but was not accepted, which meant that those
debts were no longer regarded as providing security for the money owing
to the Land Bank. The Land Bank was clear that the position in regard to
doubtful and bad debts was unacceptable. After a meeting with members
of the board it expressed the view that of the R40 million in unrecovered
debts a large portion could be regarded as irrecoverable („ʼn groot gedeelte
van hierdie bedrag as oninvorderbaar beskou te word‟). It also warned that
the indiscriminate granting of credit, with all its attendant risks linked to
the recovery of debts, could land NPC in a financial crisis and stressed the
need for a stringent application of the credit policy.
[19] The affairs of NPC then attracted the attention of the Registrar of
Co-operatives, who sent inspectors to examine its affairs. Their concern
was the rapidly deteriorating financial position of NPC over the previous
five years in relation to debtors and capital. The report stressed the same
points as had the Land Bank, management, the auditors and the board,
namely that NPC needed to generate surpluses in order to improve its
capital position and make it less dependent on borrowing and it needed to
operate a stringent credit policy. The board discussed both this report and
the letters received from the Land Bank and the credit policy was revised.
[20] It emerges clearly from this that the board was well aware of the
financial problems facing NPC. It understood what was necessary in order
to resolve those problems. It adopted a strategic policy and a credit policy
to address the problems relating to both the grant of credit and the
recovery of debts. That was hampered by the fact that members were
responsible for their own marketing through market agents and it was
difficult to secure that the agents paid the proceeds of the sales to NPC. A
new form, the so-called K-form, was introduced to improve this.
Instructions were given to field agents in regard to the implementation of
the revised credit policy. At a meeting in July 1990 the Land Bank‟s
representatives said that these were steps that should have been taken
many years before. The reaction of management was that it was apparent
that the Land Bank viewed the position with debtors in a very serious light
and there was a risk that it would take steps against NPC. In December
1990, however, there was some relief because of the extension of the
drought relief scheme.
[21] The financial position of NPC remained dire. Members were
advised that the credit policy would be strictly implemented. In ten years
debtors had increased from R2.6 million to R67 million. Accounts handed
over for collection stood at R8.6 million and provisions for bad debts at
R7.3 million. A list of these bad debts was tabled at the board meeting on
28 February 1991. However, although these were the provisions in the
books of NPC, in its annual financial statements for 1990 the bad debt
provision remained the same at R300 000 and an amount of close to R1.7
million was written off as uncollectable. PWC continued to report that
they were unable to express an opinion on the recoverability of the
members‟ debts. There was no mention of the fact that the internal records
of NPC reflected a far higher figure in respect of doubtful debts.
The years from 1991 to 1996
[22] Some relief came in 1991 as a result of an extension of the drought
aid scheme and a good year from a production and price point of view.
But by the end of that year the Land Bank indicated that it now required a
twenty per cent margin on the financing of production credits. The grant
of credit remained problematic, with the bank complaining that in some
instances NPC was granting credit to members, when other co-operatives
of which those members were also members had refused to do so. It also
expressed concern at the departure of a senior staff member, but was
reassured that new and competent staff had been appointed in their place.
[23] When the audit for that year was being done PWC prepared a
schedule of debtors that reflected doubtful debts as over R19.5 million. Of
those, over R8.5 million had already been handed over for collection. This
appears to have been done in about December 1991. Thereafter these
figures were revised downwards until a figure of around R1.3 million
appeared in the financial statements together with a statement in the
directors‟ report that a further amount of R5.2 million „may be
irrecoverable‟. Regrettably, however, the difference between the original
schedule and the figures in the financial statements and the intervening
documents showing the progressive reduction of the bad debt provision
was not canvassed with Mr Odendaal, so that care must be taken not to
attach too much weight to them. What they do show is that at this stage
there was considerable scope for thinking that the debtors were overstated
in the balance sheet and the provision for bad debts and bad debts written
off may have been insufficient.
[24] At a meeting of the board prior to the annual general meeting Mr
Odendaal, by then in charge of the audit, expressed his concern over the
recoverability of debtors. However, this was not carried through to the
annual financial statements themselves. The provision for doubtful debts
remained unchanged at R300 000 and the debts written off as bad were
smaller than the previous year at a little over R1.3 million. The auditors‟
report read:
„As mentioned in section 6 and section 7 of the directors‟ report, there is uncertainty
about the general recoverability of debtors and the ability of the co-operative to obtain
further financing.
Because of the significance of the uncertainties referred to in the preceding paragraph,
we do not express an opinion on the annual financial statements for the year ended 31
December 1991.‟
Notwithstanding the concerns that might have arisen from the matters
dealt with in the preceding paragraph, Professor Wainer regarded this
qualification as adequate. He added that no-one could obtain any
assurance form the auditor in that event because the auditor had
specifically withheld any such assurance.
[25] The directors‟ report said that the debts written off were mainly
more than three years old. Various reasons were given for their having
become irrecoverable. It then added that there was a further amount of
R5 222 000 „that may be irrecoverable‟. A description was given of
measures taken to improve debt collection and credit control and the report
finished on the optimistic note that „taking into account these positive
factors‟ the board believed that future bad debts could be limited to a level
that NPC could absorb. Notwithstanding this optimism and the repeated
emphasis on the stringent application of the credit policy, the audit report
to management said that security for debts was frequently insufficient,
drought scheme payments were in many instances in arrear and credit
regulations were not always complied with. At the annual general
meetings held in various centres, attended by 47 members in all, the
chairman reported that there were difficulties with Land Bank financing
and that it would be necessary to enforce the credit policy strictly. It was
plain that in 1991 NPC was in dire financial straits and unless something
changed dramatically it was unlikely to survive.
[26] In 1992 the government took steps to provide further drought aid
assistance to farmers while at the same time aiming to remove the state
guarantee from the system and restore and promote market-oriented
financing to agriculture. It is apparent from the government announcement
of this revised policy that carry-over debt of farmers enjoying drought
relief assistance had reached alarming proportions. What had started in
1983 as a guarantee of R800 million had reached the stage where carry-
over debt owed by farmers in respect of production credit had reached
R2.4 billion and covered virtually all food producing areas in South
Africa. In order to extricate itself from this situation the government
proposed to distribute to the various affected co-operatives an amount of
R2.4 billion, after which the government guarantee would be withdrawn.
[27] The precise mechanism within which this revised scheme would
work was at first unclear. In the meantime the minutes of directors‟
meetings during 1992 continued to reflect concern over NPC‟s finances. It
was agreed that a deposit would be sought on purchases and fresh capital
would be sought in order to provide the Land Bank with a guarantee. A
revised credit policy was adopted and a credit committee was established
consisting of Mr Dürr, the chairman of NPC, Mr Pieterse, who succeeded
him as chairman, and one other. They were to decide whether credit
should be granted in difficult cases. According to a letter addressed by the
chief executive to the Land Bank, current debtors amounted to nearly
R38 million and drought relief debtors to R43 million. Apart from the
problems with debtors a subsidiary company that made potato pockets was
losing money. At a directors‟ meeting in November 1992 there was
continuing concern over the level of debtors and the ability of NPC to
make recoveries. It was recorded that the provision for bad debts in the
books of NPC stood at R4.4 million, which was less than the R5.2 million
of the previous year. This amount appeared to reflect those debts that had
been handed over for collection. It is apparent that the internal figures
being used by management for the purpose of reporting to the board
reflected bad debt provisions at a level considerably higher than the annual
financial statements.
[28] When the fund to remove the state guarantee was distributed NPC
received an amount of R28.5 million. That discharged the state from any
further liability in respect of the drought aid scheme and this fact was
minuted by the board at its meeting on 5 December 1992. The board then
instructed management „in conjunction with the auditors‟ to assess in what
way this amount could be reflected in the annual financial statements to
influence the balance sheet in the most favourable possible light.64 It was
common cause in argument that but for this payment NPC would have
been insolvent and would have ceased operations very rapidly.
[29] Instead the financial position improved markedly as a result of this
cash injection and the auditor‟s report to the annual financial statements
for 1992 was unqualified. It said that in the opinion of the auditors the
financial statements fairly represented the financial position of NPC. The
directors‟ report said that in view of the assistance measures announced by
the government that removed the government guarantee, it was not
possible to compare the debtors‟ position with that in previous years.
Debts totalling R11.5 million were written off, the bulk of them against
the drought assistance accounts, the explanation being that the government
no longer guaranteed these debts. However, the income statement showed
a different picture. In the income statement R 18.35 million was written
off of which R6.885 million was used against the state guarantee
allotment, this being, according to the notes to the financial statements, „an
appropriate share‟ of bad debts to write off. The effect was to leave an
amount of R21.5 million, which was used to create a contingency reserve,
64 „Die Raad gee opdrag dat in oorleg met die ouditeure ʼn scenario uitwerk word om vas te stel op watter
wyse die R28.5 miljoen aangewend kan word om die balansstaat verhoudinge die gunstigste te kan
beïnvloed.‟
so that the capital of NPC on the balance sheet tripled from R7 million to
R21 million. However, while the drought aid indebtedness of members
was reduced from R35 million to R23.5 million and the liabilities to the
Land Bank fell by R34 million, total debtors declined by only R18 million.
In the result the net cash position of NPC did not improve at all
notwithstanding the injection of over R28 million from government. One
subsidiary became dormant and the other two made losses.
[30] In its report to the annual general meetings the board described the
receipt of this money as a godsend from the state. However, it did not
resolve NPC‟s financial problems. The indebtedness of members to NPC
arising under the drought aid scheme still stood at over R23 million and no
longer had the backing of a government guarantee. Capital formation
remained a problem and the board was faced with a dilemma in that
members wanted the co-operative both to make a profit and to assist them
by adopting a sympathetic approach to requests for credit. The internal
reports during 1993 revealed that the same problems continued to plague
NPC. The cash flow position improved slightly in August 1993 with the
negotiation of a cash credit facility („kaskredietrekening‟ or „KKR‟) for
the following year through the Land Bank. The facility also covered some
existing debts but was subject to stringent conditions. Concerns continued
to be expressed over the basis for the extension of credit and where the
amount involved exceeded R500 000 it required board approval if the
applicant‟s debt levels exceeded sixty per cent. When Mr Odendaal made
a presentation of the annual financial statements to the board he yet again
stressed the need to control costs, to recover debts and to deal with the
high provisions for bad debts.
[31] Minutes show that the credit committee and the board were both
being required to consider particular cases where debtors were seriously
problematic. Thus at the directors‟ meeting in February 1994, prior to the
annual general meeting, the cases of Messrs P L Ferreira, P J Bekker, R
Coleman and T G van Zyl received attention. All four were among those
in respect of whom judgment was granted in favour of NPC. In excess of
R18.5 million, or more than one quarter of the judgment, was eventually
written off in respect of these four. Mr Ferreira was already unable to pay
his debts and his creditors were trying to work out a rescue plan, while Mr
Bekker was seeking a moratorium from his creditors. Mr Coleman was
given extended credit and time to pay his existing debts. Mr van Zyl‟s
situation was left over for discussion at a later stage.
[32] The board approved the 1993 annual financial statements at a
meeting on 10 March 1994. In doing so it noted that without the positive
impact of the government‟s assistance NPC would not have been able to
survive. Bad debts amounting to R2.8 million were written off in terms of
an agreed schedule. Five of the debtors on the list making up the claim
appear on this schedule, but save for one of them, only in respect of trivial
amounts. The one exception was Tonkin Uitval Boerdery, in respect of
which two amounts totalling R1 297 822.97 were written off. In addition
there appear to have been amounts handed over for collection. One
particular member whose situation was considered was Mr T G van Zyl,
who it will be recalled, had been discussed at an earlier meeting. It was
decided to postpone recovery of his debt of some R1.2 million and to
extend additional production credit of R218 000 to him.
[33] The annual financial statements for 1993 were once again
unqualified. The one operating subsidiary made a small profit and the
other a large loss. A further R5.8 million was written off as bad debts.
Whilst debts under the drought aid scheme fell again this was more than
offset by a substantial increase in ordinary debts from production credits,
which increased from R 37 million to R 52 million. Whilst a small profit
was generated on an increased turnover this was entirely dependent on the
additional debts proving to be collectable.
[34] In 1994 the established pattern continued, although the new chief
executive, Mr Boonzaaier, in a memorandum dated 14 March 1994 urged
the board not to concentrate solely on credit control and the recovery of
debt, but also to explore other ways of increasing profits. However, the
continuing problems of bad debts and control of credit continued to be the
focus of attention. At the annual general meetings they were described as a
great source of concern („ʼn groot bron tot kommer‟) although the
chairman said that with the help of a strong credit policy they were well
under control („goed onder beheer is‟). In June a new and strengthened
credit policy was adopted and there were particular concerns over the
indebtedness of Mr P L Ferreira and Mr H J Saaiman. The latter‟s
indebtedness, included in the judgment against the fourth respondent, was
nearly R5 million. The credit manager addressed a notice to all agents and
credit officials in the strongest terms saying that the situation in regard to
orders for seeds and pockets was so unacceptable that unless an official
order number was obtained these would be regarded as unauthorised
credit. An internal audit function was established and its reports revealed
that the internal audit team was picking up many of the irregularities later
identified by Mr Collett, when he conducted the exhaustive investigation
into NPC‟s financial affairs between June 1997 and August 1998 that
formed the basis for the present action. Mr Collett was the principal
witness for NPC.
[35] In August 1994 the Land Bank chimed in with its own concerns
over the indiscriminate grant of credit, the high level of debtors and the
need to implement the credit policy strictly. It also expressed concern over
the continued viability of the subsidiary manufacturing potato pockets.
The letter was sent to both the chief executive and the chairman of the
board and it asked that it be placed before the board urgently. The
chairman sent a reply a month later and thereafter the Land Bank sent
officials on a follow-up visit, which resulted in a further letter on 26
January 1995. The Land Bank did not take a positive view of matters. It
complained that credit was being given when it had been resolved not to
extend further credit, as well as to people to whom banks and other co-
operatives were refusing to extend credit. Members were either not
remitting the entire proceeds of their crops to NPC, or NPC was paying
some proceeds to members who still owed it money. The bank insisted
that every three months the board had to examine a list of credit sales to
all members who were in arrear, with a full explanation, and give
instructions in respect of them. It threatened to refuse to finance
transactions not concluded strictly in accordance with the credit policy.
[36] On 8 March 1995 the senior management of NPC sent a remarkable
document to the auditors as a management declaration. In it they claimed
that the financial records of NPC were in order and that provision had
been made for any decline in value of existing assets. In regard to debtors
they said that all the claims were bona fide, not subject to discounts and
collectable within agreed credit periods. They added that the reserve for
unforeseen losses, such as those for bad debts were sufficient. To my
surprise I have been unable to find any reference to this in the evidence of
any of the witnesses, although the accuracy of its contents is, to say the
least, debatable. On 17 March 1995 the auditors wrote to the chief
executive saying that they had found certain weaknesses in the internal
management system of NPC. The first item was the credit policy,
including obtaining security, and the second was the debtors, and various
irregularities were identified. A more general report was furnished to the
directors.
[37] The annual financial statements for 1994 presented a relatively calm
picture. Debtors had not increased substantially and nor had the
indebtedness to the Land Bank. Bad debts of R4.7 million were written
off. That meant that in the three years up to then a total of R22 million had
been written off as bad debts. The amount owing on the drought aid
scheme continued to decline and now represented only R8.5 million out of
a total debtors book of nearly R72.5 million. Neither the auditor‟s report
nor the directors‟ report made any special mention of the position in
regard to debtors. However, shortly after those accounts had been
approved an internal audit report was produced that showed that there was
an alarming lack of proper control over the grant of credit. It analysed the
605 members and non-members with approved credit limits and revealed
that there was no record of a credit application or approval in 53.5 per cent
of cases; 75 per cent were overdue; although only R43 million of credit
had been applied for, R109 million, including supplementary credit, had
been approved and R77 million had been used.
[38] The 1995 annual financial statements, adopted in March 1996, were
the last ones audited by PWC before the falling out with NPC that led to
its resignation as auditors. The auditor‟s report certified that the annual
financial statements were a reasonable reflection of NPC‟s financial
circumstances. The directors‟ report was upbeat, describing the year as
outstanding („uitstekend‟). There had been a 34 per cent increase in
turnover and profit had increased, although it remained small in relation to
turnover – a little over one per cent. Debtors increased from R72 million
to R95 million, while bad debts written off fell to R2.9 million. The
indebtedness to the Land Bank increased by more than a third from
R48 million to R69 million. In the result the increased turnover was
virtually entirely financed by loans from the Land Bank. The only slight
cloud on an otherwise sunny horizon was the statement in the chief
executive‟s report that the rapid growth in business had placed the group‟s
financial structure under pressure. The concern raised by this was shared
by the Land Bank.
1996 and 1997
[39] The position changed rapidly after the annual general meeting for
1995 held in March 1996. By June 1996 the chief executive reported to the
directors that a substantial loss for the current year had already been
incurred as opposed to the budgeted profit. The loss was attributed to
higher than budgeted write-offs in respect of bad debts. The financial
manager reported to the board that member debtors had increased by
R37.6 million as against the previous year and by R17.8 million since
January 1996. He said that recoveries were below budget and it was
unlikely that the position would improve. Most troubling of all he said that
NPC‟s own resources for finance were exhausted and its external lines of
credit had been taken up to their maximum.65 NPC was outside the Land
Bank‟s permissible criteria for the provision of loan finance and the bank
was expressing its concern over the situation. It would have to be asked
65 „Tans is NAK se eie finansiering uitgeput en die bronne van buite finansiering is tot die maksimum
benut.‟
for an extension of time in respect of the cash credit account and it was
unlikely to approve NPC‟s request for finance for the forthcoming year.
[40] From that date on the NPC‟s financial position deteriorated rapidly.
Two of the long-standing troublesome accounts, those of Mr Coleman and
Mr van Zyl, were in a desperate condition and in respect of each a further
provision for bad debts of R2 million was made. At the following
directors‟ meeting on 19 September 1996 a loss for the year of
R3.9 million as against a budgeted profit of R2.9 million was reported.
This was caused by a higher provision for bad debts of R5.2 million and
weaker than expected trading profits. The Land Bank was unwilling to
extend further credit as reported to the directors in October and the loss for
the year had increased to R5.3 million. There were on-going discussions
with the Land Bank and the situation was said to have been complicated
by poor weather conditions, such as winds, excessive rain and snow, and
low prices, which was going to lead to deferred debt in three regions of
R24 million. Financiers were sympathetic but the cold figures were
against NPC.66 This was evidenced by the Land Bank‟s response to a
request for further financial assistance, which was to say that it would
await the outcome of the remedial measures taken by NPC. At the
directors‟ meeting on 27 February 1997 it was recorded that NPC faced a
serious financing problem and a detailed business plan was prepared to
address its problems. Shortly thereafter the chief executive, Mr
Boonzaaier, resigned, after the Land Bank indicated that, as a condition of
giving further financial assistance, he should be dismissed.
66 „Die feit dat dit ʼn moelike jaar was met een geweldige voorsiening vir slegte skuld word met empatie
na geluister, maar die koue syfers gaan die deurslag gee. Ons kredietwaardigheid gaan vir die volgende
twee jaar onder hierdie feite gebuk gaan.‟
[41] When PWC undertook its interim audit in December 1996 and
January 1997, it expressed a concern over the future viability of NPC as a
going concern in the absence of future financing, and said that a comment
in that regard would probably have to be included in the auditor‟s report in
the annual financial statements. NPC had changed its financial year end to
the end of February so that the annual financial statements covered a
fourteen month period. The draft was considered by the management
committee at its meeting on 30 April 1997, where it was recorded that the
only qualification would be that the continuation of trading activities was
dependent on obtaining sufficient finance.
[42] The reaction of the board was to postpone the adoption and
signature of the annual financial statements. There was apparently some
hope that post-balance sheet events, such as the disposal of loss-making
subsidiaries, would improve the financial picture. In June 1997, Mr
Collett, of Collett, Du Toit & Associates (Pty) Ltd, was appointed to
investigate alleged financial irregularities, principally on the part of Mr
Boonzaaier. In August a technical panel of PWC met to consider the
annual financial statements and concluded that there was uncertainty
regarding NPC‟s status as a going concern and that an audit opinion
should be disclaimed on that basis.
[43] After this meeting Mr Odendaal wrote to the chairman of the board
on 28 August 1997. The letter paints a dismal picture of NPC‟s finances.
The one subsidiary had made further losses and others had been closed.
NPC was dependent upon the Land Bank for finance, which had been
granted until December 1998 on conditions. At the date of the annual
financial statements it had exceeded its permissible limit and had to make
arrangements to reduce the debt. A number of factors were identified as
having led to uncertainty at the date of the accounts. These included the
position with subsidiaries; the need for finance in order to continue its
activities; the need for the continued support of the Land Bank; and, the
availability of reserves.
[44] The letter concluded as follows:
„In consequence of these uncertainties the co-operative‟s directors decided to postpone
consideration of the group‟s financial statements with a view to seeing whether the
uncertainties on 28 February 1997 could be resolved by taking into account post-
balance sheet events. Post-balance sheet trading results had contributed further to the
uncertainty.
Taking into account the post-balance sheet trading results of the group, as well as the
ability of the co-operative to comply with the conditions imposed by the Land and
Agricultural Bank of South Africa for the grant of future finance, we are unable to
form an opinion over the going concern basis for the accounts.
This uncertainty is regarded as fundamental because of the substantial effect on the
financial statements if the going concern basis is inapplicable. Generally accepted
accounting practice requires that in those circumstances an opinion should not be
expressed.‟(My translation.)
[45] This report was tabled at a management meeting that resolved that
the paragraph about no audit opinion being expressed should be better
worded („beter bewoord moet word‟). In September 1997 the board of
NPC resolved not to produce group financial statements and in a letter
dated 20 September 1997 asked the auditors to review their audit report.
The view was expressed that the existing opinion in respect of the group
would not apply to NPC as an independent entity and that on its own
NPC‟s future as a going concern was reasonably certain for the
foreseeable future. Concern was expressed that the withholding of an audit
opinion would cause problems with creditors, members and other clients,
and the potato industry as a whole. It would of itself have implications for
the continued existence of NPC.
[46] After this meeting the directors received a preliminary report from
Mr Collett, which they then incorporated in the directors‟ report in the
annual financial statements. This resulted in further changes to the
auditor‟s report. They pointed out that they had not been afforded the
opportunity to audit Mr Collett‟s report and that its contents, if correct,
would require certain specific and potentially important changes to be
made to the annual financial statements. Their particular concern arose
from the suggestion that the provision for doubtful debts of R11.2 million
was probably inadequate. The auditors pointed out that the financial
statements had been prepared on a going concern basis that was dependent
on the ability to generate finance as well as continued support from the
Land Bank. In the circumstances they said that they were not in a position
to express a view on the annual financial statements. In a formal response
to the letter of 20 September 1997 PWC highlighted the fact that, if the
existing provision for bad debts were inadequate, it would require the
restatement of the accounts and that as matters stood the directors‟ report
and the financial statements were inconsistent. Any restatement of the
financial statements would reflect a worse financial position and together
with other uncertainties placed a question mark over NPC‟s ability to
continue as a going concern.
[47] Pursuant to these concerns PWC disclaimed an audit opinion on the
annual financial statements of NPC for the year ended 28 February 1997.
It explained that it did so in the first instance because of the inclusion in
the directors‟ report of Mr Collett‟s interim report containing information
that, if true, would require important changes to the financial statements.
The investigation was incomplete and PWC had not had an opportunity to
audit its contents. Secondly, PWC said that the financial statements had
been prepared on a going concern basis and this was dependent on the
availability of finance for future business and the realisation of assets and
the payment of liabilities occuring in the ordinary course. The financial
statements contained no indication of the value of assets and the
classification of liabilities that would be necessary if it was not possible
for NPC to continue as a going concern. Finally the ability of NPC to
continue as a going concern depended on various factors of which the
most important was the maintenance of the existing level of financial
support and NPC‟s ability to procure such support in the future by
complying with the Land Bank‟s requirements. Accordingly PWC
withheld an opinion on the financial statements.
[48] The annual general meeting of NPC for the year to February 1997
took place on 5 November 1997. At it the members resolved to pursue the
investigation by Mr Collett over the opposition of two previous chairmen,
Mr Durr and Mr Holtzhausen, as well as the opposition of Mr Odendaal.
PWC resigned as auditors and confirmed their resignation formally in a
letter on 11 November 1997. Thereafter NPC limped on with the
assistance of the Land Bank, which in June 1998 gave it a five year
extension of time to repay existing loans. But by 2000, after the
commencement of the present action, it was clear that it was trading in
insolvent circumstances. In February 2000, as a result of Mr Collett‟s
intervention, a relationship was forged with the Northern Transvaal Co-
operative Ltd, which was approved by members. In substance, although
NPC continued to exist, the operations of the two co-operatives were
merged, with operational and administrative management and control
resting with the Northern Transvaal Co-operative Ltd. That initially
included the management of the litigation against PWC but that is now in
the hands of IMF in terms of its agreement with NPC.
Appearances
For appellant:
F G Barrie SC (with him H C Bothma)
Instructed by:
Norton Rose Fulbright, Johannesburg;
Matsepes, Bloemfontein
For respondent:
M C Maritz SC (with him G W Alberts SC and N C
Maritz)
Instructed by:
Kirkcaldy Pereira Inc, Pretoria;
E G Cooper Majiedt, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
4 March 2015
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment of the Supreme Court of Appeal.
PriceWaterhouseCoopers Inc & others v National Potato Co-operative Ltd & another (451/12)
[2014] ZASCA 2 (4 March 2015)
The SCA today delivered judgment in the above appeal emanating from the North Gauteng High
Court, Pretoria. The high court was engaged in hearing the matter for 295 court days, over a period of
more than five years, while the SCA had to deal with it on four previous occasions. This has resulted
in an appeal record of some 85 000 pages. The SCA sat for 5 days hearing argument in the appeal.
The second to fifth appellants, who were the auditors of the National Potato Co-operative Ltd (NPC)
during the period 1984 to 1997, were sued by the latter for the payment of damages allegedly caused
by their breaches of contract in negligently performing the audits. The high court upheld the claim in
part and granted judgment against the second to fifth appellants in amounts totalling R62 884 905.45,
together with interest thereon at the rate of 15,5 per cent per annum calculated from 15 December
2000. Costs orders were also made in favour of the respondents. The litigation had been funded by
an Australian litigation funder, which stood to be the primary, and possibly the only, beneficiary of the
action. [Judgment, paras 9-12].
The appeal was upheld on three grounds. First, the court held that NPC had not proved that the
financial difficulties that NPC suffered were occasioned by reckless mismanagement of its affairs, an
allegation that was fundamental to the success of its claims. Second it held that NPC had not shown
that it suffered any loss for which the appellants were liable. Lastly it held that the claims were in large
measure prescribed. The appeal accordingly succeeded and the judgment and orders of the high
court were set aside, together with costs orders in favour of the appellants.
In the course of its judgment the SCA held that the relationship between NPC and its auditors was
contractual and set out the duties owed by the auditors to their client. It also dealt with issues of
hearsay evidence and the importance of expert witnesses being independent and impartial.
The SCA judgment stressed the need for careful judicial control of litigation to prevent it assuming
unmanageable proportions.
--- ends ---
|
1394
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 641/09
In the matter between:
HOLCIM (SOUTH AFRICA) (PTY) LTD
Appellant
and
PRUDENT INVESTORS (PTY) LTD
1st Respondent
LOUIS HENDRIK MEYER
2nd Respondent
TOMMIESRUS (PTY) LTD
3rd Respondent
Neutral citation: Holcim v Prudent Investors (641/09) [2010] ZASCA 109 (17
September 2010)
Coram:
MPATI P, CLOETE, HEHER, CACHALIA AND TSHIQI JJA
Heard:
1 September 2010
Delivered:
17 September 2010
Updated:
Summary:
Mining and Minerals – Mineral and Petroleum Resources Development Act
28 of 2002 – Schedule II Transitional Arrangements – whether necessary for
obtaining an ‘old order mining right’ that holder of the mineral rights and
mining licence conducted its operations on all properties covered by rights
and licence on the day before the Act took effect.
___________________________________________________________________________________
_
ORDER
On appeal from: North West High Court (Mafikeng) (Landman J sitting as court of first
instance):
1.
The appeal succeeds with costs including the costs of two counsel.
2.1
Paragraphs 1 and 3 of the order of the court a quo are set aside.
2.2
Paragraph 1 is replaced by an order in the following terms:
‘1.1
The first and second respondents are:-
1.1.1 directed forthwith to grant the applicant access to Portions 10, 12, 14 and 20, the
Remaining Extent of Portion 6, and the Remaining Extent of the farm Bethlehem 75, registration
division IO, district Lichtenburg, North-West Province for the purpose of performing prospecting
and/or mining activities as contemplated in the definition of “mine” in the Minerals Act 50 of 1991;
1.1.2 interdicted from refusing or preventing the applicant and its contractors access to the
properties for the purpose of prospecting and/or mining and from conducting such activities
thereon.
1.2
Failing compliance by first and/or second respondents with paragraph 1.1 of this order, the
sheriff is hereby authorised and directed to take all such steps as may be necessary to enable the
applicant to gain access to the properties.’
2.3
Paragraph 3 is replaced by an order in the following terms:
‘3.
The respondents are ordered jointly and severally to pay the costs of the application.’
_______________________________________________________________________
JUDGMENT
_____________________________________________________________________
HEHER JA (MPATI P, CLOETE, CACHALIA AND TSHIQI JJA concurring):
[1] The central issue in this appeal is whether the Transitional Arrangements contained
in Schedule II to the Mineral and Petroleum Resources Development Act 28 of 2002 (‘the
Act’) provide security of tenure to the holder of a mining licence which, immediately, before
the Act took effect, was conducting authorised mining operations on land covered by the
licence even though the operations had not been extended to all cadastral units so
covered and might not be so extended in the immediate future.
[2] In May 2008 the appellant applied to the High Court (Bophuthatswana Provincial
Division) for an order in the following terms:
‘1.
It is declared that:─
1.1
the applicant is the holder of an old order mining right as contemplated in Schedule II of the
Mineral and Petroleum Resources Development Act 28 of 2002 in respect of limestone and clay,
on the farms Dudfield 35, registration division IP; Hibernia 52, registration division IP; Kalkfontein
77, registration division IO; and Bethlehem 75, registration division IO [“the applicant’s old order
mining right”], by virtue of-
1.1.1 Mining Licence 3/1997 which the applicant holds in respect of the properties; and
1.1.2 the rights which the applicant holds under Notarial Deed of Cession of Mineral Rights K
4272/2000 RM;
1.2
the applicant’s old order mining right entitles it to access Portions 10, 12, 14, 20, the
remaining extent of Portion 6 and the remaining extent of the farm Bethlehem 75, registration
division IO, in the magisterial district of Lichtenburg, North-West Province (“the properties”);
2.
The first and second respondents are:-
2.1
directed forthwith to grant access to the properties to the applicant for the purpose of
performing prospecting and/or mining activities as contemplated in the definition of “mine” in the
Minerals Act 50 of 1991;
2.2
interdicted from refusing or preventing the applicant and its contractors access to the
properties for the purpose of prospecting and/or mining and from conducting such activities
thereon;
3.
Failing compliance by first and/or second respondents with paragraph 2 of this order
forthwith, the sheriff is hereby authorized and directed to take all such steps as may be necessary
forthwith to enable the applicant to gain access to the properties.’
The applicant sought attorney and client costs against the two respondents but did not
persist in that claim on appeal.
[3] The court a quo (Landman J) concluded that the Transitional Arrangements do not
provide such security of tenure in the appellant’s circumstances. The learned judge said:
‘But even if mining, in a very broad sense, is carried on [on] some land and nothing is carried on or
in respect of other land, covered by the licence, then it is difficult to conclude, even on a liberal
interpretation, that mining operations are being conducted on the other land. It may be, if there is a
systematic plan which would immanently1 involve the properties, that this could be said to be
mining
1 It is not clear to me what the learned judge intended, whether ’immanent’ in the sense of ‘inherent’ or
‘imminent’ in the sense of ‘impending’.
operations in respect of that land. But this is not the case here. Where the land has been left, as it
were, to lie fallow or kept in reserve, then it cannot reasonably [be] said that mining operations or
mining is being conducted in respect of that land. A business approach which may be prudent and
farsighted must nevertheless give way if it is contrary to the objects of [the Act] and Schedule II.’2
The learned judge granted leave to appeal to this Court.
[4] Before us counsel for the respondents supported the conclusion of the learned
judge. However they sought to justify it by reliance on an argument not developed in the
judgment. I shall address the substance of their submission later in this judgment.
[5] The appellant established a limestone quarry on the farm Dudfield in the
Lichtenberg district in 1950 to supply limestone to the then Roodepoort Cement Kilns. In
1965 the first cement kiln was commissioned at Dudfield, followed by a second in 1972
and a third in 1977. Since then the appellant’s Dudfield operations have been producing
about 20 per cent of the total cement market requirements of the country.
[6] On 9 September 1997 the appellant obtained Mining Licence ML3/1997 in terms of
s 9(1) of the Minerals Act 50 of 1991 to mine the limestone resources on the contiguous
farms Dudfield 35IP, Kalkfontein 77IO, Bethlehem 75IO and Hibernia 52IO. The licence
was issued for an indefinite period, until the minerals could no longer be mined
economically. The operations under this licence are known as the ‘Dudfield operation’.
[7] The farms that comprise the area of the mining licence consist of various
subdivisions owned by several different persons. The first respondent is the owner of
Portions 10, 12 and 14 and the Remaining Extent of the farm Bethlehem. The second
respondent owns the Remaining Extent of Portion 6 and Portion 20 of the same farm.
[8] Since 1968 the appellant has held the right to mine limestone in respect of the
whole of Bethlehem farm. During that year the appellant3 entered into Notarial Mineral
Lease 496/1968 RM with African and European Investment Company Limited in respect of
2 The approach of the learned judge, if correct, gives rise to apparent practical problems of where and how to
draw the line in any given case. Because of the conclusion I have reached it will be unnecessary to answer
that question.
3 Then known as Anglo-Alpha Cement Limited.
the farm Bethlehem 75IO, 5484.2146 morgen in extent, which was registered on 29
September 1968. During or about 2000 the appellant4 took cession of the rights to
‘limestone, calcareous minerals, and all other minerals used in the manufacture of cement’
in, on and under the farm Bethlehem 75IO, measuring 4697.4053 hectares, in terms of
Notarial Deed of Cession of Mineral Rights K4272/2000 RM.
[9] Immediately before the commencement of the Act, which was on 1 May 2004, the
appellant conducted mining operations on the land to which Mining Licence ML3/1997
applies, but that mining had not yet reached the respondents’ properties.
[10] The current life of the mineral resource, excluding that part situated on the first and
second respondents’ properties, is 49 years. Should the appellant commission a further
kiln (Dudfield Kiln 4), as it proposes to do, mining capacity will have to increase by an
additional 170 million tons of limestone over a 60 year period, assuming that the mining of
feedstock for the currently operating Kilns 2 and 3 continues. The appellant is, therefore,
considering mining into the respondents’ properties and, to that end, wishes to delimit the
resource of limestone and other minerals used in the manufacture of cement present on
the respondents’ properties. The respondents, however, have refused the appellant
access to the properties to commence prospecting and mining on them.
[11] The respondents justify their refusal on the ground that no mining operations were
being conducted on their properties immediately before the date on which the Act took
effect. Thus, so the submission continues, the appellant was not possessed of an ‘old
order mining right’ as defined in Item 1 of Schedule II to the Act but, instead, the rights
which I have identified above constituted an ‘unused old order right’. Because an unused
old order right continued in force for a maximum period of one year from the date on which
the Act took effect5 and the appellants did not exercise their exclusive right to apply for a
prospecting or mining right in terms of the Act within that period6 their unused old order
right ceased to exist.7
4 By now known as Alpha (Pty) Ltd.
5 Item 8(1) of Schedule II.
6 Item 8(2).
[12] The correctness of the respondents’ submission, and, indeed, of the reasoning of
the court a quo,8 depends upon an interpretation of the rights possessed by the appellant
and a determination of the proper scope of the security of tenure which the Transitional
Arrangements provided for in Schedule II afford to the holder of mining rights that were in
force and in use on 30 April 2004.
[13] An ‘old order mining right’ is defined in Item 1 of Schedule II as:
‘any mining lease, consent to mine, permission to mine, claim licence, mining authorisation or right
listed in Table 2 to this Schedule in force immediately before the date on which this Act took effect
and in respect of which mining operations are being conducted’.
[14] In so far as the appellant is concerned, the old order mining right that it claims has
three components, which derive from the definition and Table 2. These are:
1.
The mining authorisation in terms of s 9(1) of the Minerals Act.9
2.
The underlying common law rights (ie the common law mineral right10 or its consent
to mine together with the common law mineral right11).
3.
The fact (if such be the case) that it was conducting mining operations in respect of
the said authorisation and the underlying common law mineral rights.
[15] In this regard I agree with counsel for the appellant that the definition of ‘old order
mining right’ embraces the ‘package’ of the relevant common law rights together with the
mining authorisation. There is no serious dispute as to the appellant’s satisfaction of the
first two components. As I have indicated previously the real issue relates to the third, and
more particularly whether it was necessary that the appellant be conducting mining
operations on all properties (ie registered cadastral units) covered by the mining licence on
the date immediately preceding the operative date of the Act.
[16] At this stage it will be convenient to outline the justification for the order of the court
a quo which was put forward by the respondents’ counsel. I trust that I do not undervalue
his argument in the summary which follows:
7 Item 8(4).
8 See para 2 above.
9 See para 9 above.
10 See para 8 above.
(i)
An ‘old order mining right is defined in Item 1 of the Transitional Arrangements
contained in Schedule II12 by reference to specific rights that are listed in Table 2.
(ii)
Table 2 (‘old order mining rights’) contains six categories. Category 1 is ‘The
common law mineral right, together with a mining authorisation obtained in connection
therewith in terms of section 9(1) of the Minerals Act’. It is this old order right that the
appellant possessed when the Act came into effect in so far as it had been conducting
mining operations on properties other than those of the respondents on the preceding day.
(iii)
Category 1 identifies two rights: the common law mineral right and a concomitant
mining authorisation (such as a mining licence). Each right has a specific content.
(iv)
In so far as the appellant relied on Category 1 rights it had to establish that they
survived the repeal of the Minerals Act. That it could only do if each right was an ‘old order
mining right’ as defined. The appellant had therefore to prove that immediately before the
Act came into effect it was conducting mining operations ‘in respect of’ both its mineral
rights and its rights under the licence.
(v)
The rights under a mining licence may attach to one or more registered units of land
or may, as they do in this case, adhere to a defined area not expressly delimited by
cadastral boundaries of any unit or units. But a separated mineral right is a right which
always derives from a specific registered unit of land (as a subtraction from the rights of
ownership of that land), as each such right also does in this instance. If the appellant was
exercising such a right, that right did not extend beyond the borders of the unit to which it
related.
(vi)
It follows that the appellant could only claim an ‘old order mining right’, in the form of
a preserved right to minerals, to the extent that it was, on the effective date, conducting
mining operations on each registered unit to which a mineral right attached. Since it was
common cause that the appellant had never conducted mining operations on the
respondents’ properties, the mineral rights in respect of those properties did not qualify as
‘old order mining rights’ but fell instead into the definition of ‘unused old order rights’.13 As
they had not been the subject of a timeous (or, indeed, any) application for a mining right
under Item 8(2), the mineral rights over the appellant’s properties had, by reason of Item
11 Ibid.
12 See para 13 above.
13 ‘”[U]nused old order right” means any right, entitlement, permit or licence listed in Table 3 to this Schedule
in respect of which no prospecting or mining was being conducted immediately before this Act took effect.’:
Item 1 of Schedule II.
8(4), ceased to exist. Absent preservation of the mineral rights, the rights under the
mining licence retained no enforceable content. The appellant, therefore, possessed no
right capable of sustaining the relief claimed by it in the court a quo.
[17] In my view the line of reasoning followed by counsel for the respondents is
fallacious. Before explaining why I have reached that conclusion it would be fair, I think, to
address first the rationale for the judgment a quo.
[18] Central to the reasoning of the court a quo was what it saw as a requirement viz
that mining operations were being conducted on the critical date in respect of the land to
which the licence relates. But that emphasis does not accord with the plain words of the
definition: the operations must be conducted in respect of the authorisation and the rights
attaching to it. It is therefore necessary to examine the terms of the relevant licence in
order to determine whether mining operations were being conducted in respect of that
licence at the relevant time.
[19] The court a quo found that the subject matter being preserved in the definition of
‘old order mining right’ is ‘primarily the land’. I agree with the submission of the appellant’s
counsel that this finding does not take into account the structure of the Act and the reason
for the creation of the concept of old order rights in the context of the Transitional
Arrangements.
[20] Under the new Act the previous system of common law mineral rights14 as
14 And derivative rights such as prospecting contracts and mineral leases.
controlled through a system of statutory authorisations to prospect or mine under the
Minerals Act 50 of 1991,15 was completely superseded by a new administrative system
whereby-
(a)
the common law mineral rights were replaced by similar rights granted by the
Minister of Mineral Resources; and
(b)
the statutory authorisations such as mining licences or prospecting permits were
fused into the prospecting or mining right thus granted.
[21] Thus the new composite mining right contains what was previously held separately
by means of the mining licence and common law mineral right. The new mining right is
similar to the common law mineral right inasmuch as it is also a limited real right that
confers upon the holder the right to enter on to the land, to search for minerals, and, if
found, to mine and dispose of them for the account of the holder.16
[22] As under the Minerals Act, where the holder of a common law mineral right could
not mine without first obtaining a mining licence, so mining is prohibited by the terms of s
5(4) of the Act unless a mining right has been obtained pursuant to its provisions.
[23] The new system and the old system of common law mineral rights are mutually
exclusive:
(1)
In terms of s 3 of the Act, South Africa’s mineral and petroleum resources belong to
the nation and the State is their custodian.17
(2)
As custodian, the State, acting through the Minister, may grant inter alia prospecting
and mining rights.18
(3)
As mentioned mining is prohibited without first obtaining a mining right.19
(4)
In so far as the common law is inconsistent with the Act the Act prevails.20
[24] All these considerations together with the repeal of the 1991 Act resulted in the
destruction of common law mineral rights and the administrative controls which previously
15 See ss 6 and 9 of that Act.
16 See ss 5(1), (2) and (3)(a) to (c).
17 Preamble to the Act and s 3.
18 Section 3(2).
19 Section 5(4).
20 Section 4(2).
regulated the acquisition and utilisation of rights.
[25] As Hartzenberg J pointed out in Agri South Africa v Minister of Minerals and Energy;
Van Rooyen v Minister of Minerals and Energy,21 it is evident that there is, in the main
body of the Act, no acknowledgment of any pre-existing mineral rights or their holders. In
so far as such mineral rights had not been exploited by the time of the commencement of
the Act, they simply disappeared into thin air. With reference to secs 2 to 5 of the Act, the
learned judge noted that an interpretation in terms of the dictates of s 4 indicates clearly
that the only way to acquire new rights is to obtain them from the State, through the
Minister. But for the Transitional Arrangements which give certain rights to the holders of
‘old order rights’, the effect of the Act would have been to extinguish all those rights and to
render existing mining operations unlawful. As Ebrahim J (Cillie J concurring) put it in De
Beers Consolidated Mines Ltd v Regional Manager, Mineral Regulation Free State Region:
Department of Minerals and Energy and Another,22 ‘The only relevance of previous mineral
rights is that they constitute an element of the transitional arrangements in [the Act]’.
[26] Transitional arrangements were thus necessary to prevent the stultification and total
disruption of an important sector of the economy until such time as existing mining
operations could be regulated in terms of the new Act. This was done by continuing the
existing rights with respect to such operations in the form of transitional rights called ‘old
order rights’ and affording the holder of such rights the opportunity to comply with the Act.
But there is no indication in the text of the Act or Schedule II of an intention to limit the
continuation of such rights to the very land on which the operations are being conducted.
Rather the focus in the Transitional Arrangements is the seamless continuation of existing
mining operations which are tested not according to the physical scale of the operations on
the relevant date but by the scope of the licence pursuant to which the operations are
being conducted. As will be seen, such an approach accords with the practicalities of
planning and undertaking mining operations.
[27] Section 4(1) of the Act requires that when interpreting a provision in it, any
reasonable interpretation which is consistent with the objects of the Act must be preferred
over any other interpretation which is inconsistent with those objects.
21 2010 (1) SA 104 (GNP) 109-110, para 11.
22 (1590/2007) [2008] ZAFSHC 40 (15 May 2008).
[28] Item 2 provides that the objects of the Schedule are to-
‘(a)
ensure that security of tenure is protected in respect of prospecting, exploration, mining and
production operations which are being undertaken;
(b)
give the holder of an old order right, and an OP26 right23 an opportunity to comply with this
Act; and
(c)
promote equitable access to the nation’s mineral and petroleum resources.’
[29] I agree with appellant’s counsel that the mining operations contemplated in Item 2
are continuing mining operations not limited to that part of the mineral resource being
mined at the date when the Act took effect, but extending also to future mining operations
aimed at the exploitation of the whole of the resource which is the subject of the mining
licence. At any one stage a resource will, for a variety of practical reasons, only be mined
on a certain part or parts of the licence area with a view to systematically moving through
the reserve over the life of the mine, usually a long-term undertaking. Continuing mining
operations are not restricted by the cadastral boundaries of the registered units that form
part of the area to which the mining licence applies, nor by separate mineral rights in
respect of such units. It is a matter of common knowledge that the mineral resources which
justify mining operations often extend over many properties covered by a single mining
licence, only some of which will be worked at any particular time, according to the
constraints of the market, the rise and fall in the demand for the mineral and the viability of
its extraction. Flexibility in conducting operations is important: an example from the cement
industry (for which the minerals at issue here are destined) is the mothballing of kilns for
long periods when demand from the building industry stagnates. Thus inactivity on one
portion of land subject to mining rights is no certain indicator that mining operations are not
taking place or have ceased to be conducted pursuant to the common licence.
[30] In this regard the court a quo quoted, in the context of counsel’s argument, a
passage from OM Dale et al, South African Mineral and Petroleum Law, Issue 6, Sch II-12.
The extract is as follows:
‘The unifying effect of the requirement in Table 2 of holding a mining authorization.
A mining authorization is one of the components of each of the categories in Table 2. This has the
23 The mining lease granted to Mossgas (Pty) Ltd.
effect that the area in respect of which the mining authorization has been issued is “unified”. The
fact that more than one of the underlying rights could be covered by the same mining authorization
has the effect that various underlying rights are “grouped together” under one mining authorization.
The result is that if mining operations are being conducted on the area of any of those underlying
rights, that would satisfy the requirements of the conducting of mining operations for the whole of
the area covered by the mining authorization. The contrary interpretation, i.e. that mining
operations must be conducted on the area of each separate underlying right, even if covered by
one mining authorization, would, it is submitted, lead to an absurdity when it is considered that
there are for example thousands of claims held under numerous claim licences which are being
mined conjointly and constitute a mining operation and yet clearly not every single claim will be
being worked simultaneously. The interpretation suggested above to be correct would also, it is
submitted, be a reasonable interpretation which, for purposes [of] section 4, is consistent with the
object of the MPRDA in section 2(g) and item 2(a) of Schedule 11 to provide for security of tenure
of mining operations. A single mining operation is often covered by one mining authorization,
underlying which could well be several or numerous rights. If it were a requirement that mining
operations are being conducted on each right, this would jeopardise the security of tenure of the
mining operations considered in their totality.’
I agree with the views expressed by the learned authors but do not consider that the
learned judge accorded the weight to them that they merited.
[31] Furthermore, as counsel point out, mining operations have, by law, to take place in
terms of an optimal progressive mining plan and/or work programme. This was required by
the Minerals Act.24 The same plan and/or programme remains applicable during the
transitional period25 until it is eventually substituted by the mining work programme
required by the Act26 once the old order mining right is converted into a mining right under
the main body of the Act. Once again it is well-known that in many instances the mining
work programme extended over many properties covered by a single mining licence.
[32] In the light of all these considerations the conclusion that the holder of a mining
licence must have been conducting mining operations in respect of each and every
property that is the subject of a mining licence issued under the Minerals Act 1991 in order
to obtain an ‘old order’ mining right is inconsistent with the security of tenure which is an
object of the Transitional Arrangements. Moreover the interpretation favoured by the court
24 Act 50 of 1991, s 9(5), regulation 33, and Form 2 para 7 issued in terms of regulation 34.
25 See item 7(2)(e) of Schedule II.
a quo would, because of the arbitrary nature of excision of portions of the area to which
a mining licence was previously applicable, on many occasions lead to consequences in
conflict with the objects set out in s 2 of the Act: the sterilization of bodies of land
unworkable otherwise than in conjunction with excised portions, and the waste of
expenditure and resources in relation to mining developments which can no longer be
economically pursued – it is a fact that the cost of infrastructure laid down in the early
stages of such developments is recovered over the whole life of a planned project.
Consequences of this sort are inimical to the promotion of economic growth and mineral
development in the Republic (s 2(e) of the Act) and unlikely to conduce to the development
of the nation’s mineral resources in an orderly manner (s 2(h)).
[33] Nor, in my view, is the interpretation favoured by the trial court necessary in order to
promote any of the objects listed in s 2 of the Act or those in Item 2 of the Schedule.
Indeed the learned judge did not find that it would have that effect.
[34] It follows that literal, contextual and purposive interpretations of the Transitional
Arrangements all lead to a common conclusion viz that the creation of an old order right
depends not upon use of any particular portion of land to which a mining licence relates
but rather upon whether mining operations were being conducted according to the terms of
the licence on the relevant date.
[35] The licence granted to Alpha Limited authorised, under and subject to the
provisions of the Minerals Act 1991, the right to mine for limestone and clay on the farms
Dudfield 35IP, Kalkfontein 77ID, Bethlehem 75IO and Hibernia 52IP as indicated on an
attached sketch plan No ML 3/1997. It provided that, ‘Unless this licence is suspended,
cancelled or abandoned or lapses it shall be valid until the mineral the mining of which is
hereby authorised can no longer be mined economically by the holder of the land
concerned.’ The sketch plan, although said to represent certain portions of the named
farms, reflects merely a single irregularly shaped block of land without indication of the
names or limits of any of the farms concerned, thus bearing out the practical reality to
which I have earlier referred viz that the land covered by the licence has been treated in it
26 Section 23(1)(a) of the Act read with regulations 10(1)(f) and 11.
as a single indivisible unit in which cadastral boundaries are irrelevant to the right
conferred by it. In so far as the creation of an ‘old order right’ depended upon the conduct
of operations ‘in respect of’ Mining Licence No ML 3/1997, it is plain that operations taking
place on any part of the land identified by the sketch plan could properly be regarded as
being carried on in respect of the rights conferred by the licence. There is no reason
whatsoever in its terms to regard inactivity on any one or more of the farms as a ground for
the severability of such farm or farms from the land on which the operations were actually
being conducted.27 It is hardly necessary to mention (and I do so merely because of the
finding to the contrary in the judgment) that the appellant’s mining right under the licence
over the land owned by the respondents was not an ‘unused old order right’ within the
meaning of item 1 of Schedule II. In this latter regard it may be noted that the definition
does not contemplate that such an ‘unused’ right can be constituted in relation to part of
the geographical area that is the subject of a licence. This is consistent with the
interpretation of such a licence as an authorisation over the whole of the land which it
covers possessing the ‘unifying effect’ to which Dale et al refer.
[36] I am now able to turn to a consideration of counsel’s submission as I have set it out
in paragraph 16 above.
[37] As I have been at pains to emphasise, a common law mineral right is not preserved
under the new statutory dispensation. It is not of itself an ‘old order right’ which can be
converted under Item 7 of Schedule II. It survives only as a right underlying a mining
authorisation. Nor can such a right properly be said to be a right ‘in respect of which mining
operations are being conducted’. Under the Minerals Act 1991 (and previous to that Act) it
was the mining authorisation which conferred practical value on the mineral rights by
authorising the exercise of those rights. In order to qualify under the definition of ‘old order
mining right’ both the mineral right and the mining licence must have been in force
immediately before the date on which the Act took effect, but it is the mining licence and
not the mineral right ‘in respect of which’ operations are conducted.
[38] The interpretation placed on the definition by the respondents’ counsel could hardly
27 Any more, indeed than it makes sense to divorce a part of a cadastral unit on which operations have
commenced from the, as yet, unexploited part of the same unit.
reflect the intention of the legislature since that construction gives rise to absurd
consequences. Take the present case (which is not untypical in a mining context). Mining
is, according to the terms of the licence, authorised over land which includes portions of a
number of registered units. Mining operations were being conducted on the effective date
but the mineral rights had not been exercised over all the units. According to the
respondents’ interpretation, in order to secure its operations after that date the appellant
had (a) to convert its old order mining rights in terms of Item 7 (ie its rights over units
where it was conducting operations), and (b) to apply for the processing of its unused old
order rights in terms of Item 8 (ie its rights over units where it was not conducting
operations). But the two procedures are materially different and so are the consequences.
Compliance with Item 7 is reasonably straight forward, implementing as it does a
conversion of rights; once there is compliance the Minister must convert the rights. Item 8
by contrast requires a new application (albeit with the benefit of an exclusive right in favour
of the holder of an unused old order right for a period of one year); the applicant must
satisfy the extensive demands of ss 22 and 23 of the Act, in many respects novel; success
is by no means a matter of course. In addition there must certainly be a contrast between
the time taken up by Item 7 and 8 applications – it is easy to envisage a long drawn out
process in respect of the latter.
[39] Moreover the interpretation favoured by the respondents may conceivably lead to
the refusal of licences in respect of pockets of land the exploitation of which is necessary
for the continued feasibility of mining. If rights in respect of those areas are granted to one
or more third parties the consequence may be a patchwork of rights in the hands of
owners with different and competing interests. Such fragmentation is unlikely to promote
efficiency or economic viability. Crucial reserves may remain unexploited for reasons of
impracticability or lack of resources.
[40] In a nutshell, if the respondents’ construction of an ‘old order mining right’ were to
be adopted, a miner in the position of the appellant might well find operations, planned but
not executed before the commencement of the Act, held up by red tape and, perhaps,
eventually thrown into disarray by systemic delay or a refusal to grant an Item 8
application. The economic and practical viability of continued mining operations could
thereby be placed at risk. That consequence is absurd because it flies in the face of two of
the three stated objects of Schedule II ((a) and (b)), without contributing anything to the
third ((c)).
[41] In addition to this initial absurdity, all the same practical and commercial objections
apply to the consequences of the respondents’ interpretation as those I have discussed in
relation to the finding of the court a quo.
[42] For these reasons I hold that an interpretation of ‘old order mining right’ which
depends on the conducting of mining operations on each of the respective registered units
of land to which mineral rights attach is contrary to the terms of the Transitional
Arrangements and inimical to its objects. By contrast, an interpretation which depends on
the terms of the mining authorisation that is relied on satisfies both the word and spirit of
the Arrangements.
[43] In conclusion, therefore, even though mining activities were not yet taking place on
or in relation to the subdivisions owned by the first and second respondents immediately
before the Act took effect, their properties formed part of the ongoing mining project on the
area with respect to which the appellant was entitled to conduct mining operations, and
these properties cannot be separated from those areas on which operations were
physically being conducted. The appellant’s old order mining right consequently included
the properties of the first and second respondents and the respondents were bound to
grant access to the appellant in order to enable it to exercise its mining right (including a
right to prospect).
[44] Counsel for the appellants asked, in the event of the appeal succeeding, that the
order in his client’s favour be limited to the relief set out in paragraphs 2 and 3 of the notice
of motion together with an order for party and party costs.
[45] In the result the following order is made:
1.
The appeal succeeds with costs including the costs of two counsel.
2.1
Paragraphs 1 and 3 of the order of the court a quo are set aside.
2.2
Paragraph 1 is replaced by an order in the following terms:
‘1.1
The first and second respondents are:-
1.1.1 directed forthwith to grant the applicant access to Portions 10, 12, 14 and 20, the
Remaining Extent of Portion 6, and the Remaining Extent of the farm Bethlehem 75, registration
division IO, district Lichtenburg, North-West Province for the purpose of performing prospecting
and/or mining activities as contemplated in the definition of “mine” in the Minerals Act 50 of 1991;
1.1.2 interdicted from refusing or preventing the applicant and its contractors access to the
properties for the purpose of prospecting and/or mining and from conducting such activities
thereon.
1.2
Failing compliance by first and/or second respondents with paragraph 1.1 of this order, the
sheriff is hereby authorised and directed to take all such steps as may be necessary to enable the
applicant to gain access to the properties.’
2.3
Paragraph 3 is replaced by an order in the following terms:
‘3.
The respondents are ordered jointly and severally to pay the costs of the application.’
____________________
J A Heher
Judge of Appeal
APPEARANCES
APPELLANT:
G L Grobler SC with him J L Gildenhuys
Instructed by Deneys Reitz Attorneys, Sandton;
Webbers, Bloemfontein
RESPONDENTS:
H B Marais SC with him H P van Nieuwenhuizen
Instructed by Bosman & Bosman Attorneys, Lichtenburg;
Symington & De Kok, Bloemfontein
|
Supreme Court of Appeal of South Africa
MEDIA STATEMENT
From:
The Registrar, Supreme Court of Appeal
Date:
17 September 2010
Status:
Immediate
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal.
The respondents in the appeal of Holcim v Prudent Investors (SCA no 641/09)
had successfully contended in the Bophuthatswana High Court that the
cement manufacturer had lost its mineral rights (and hence its mining licence)
when the Mineral and Petroleum Resources Development Act 2002 took
effect because, on the day preceding the effective date, Holcim was not
conducting mining operations in respect of its mineral and mining rights over
their properties, although it was doing so on other properties covered by its
mining licence.
The SCA upheld the appeal. It decided that the requirements for the creation
of an ‘old order mining right’ were satisfied by the conduct of mining
operations on any part of the land covered by the mining licence on the day
preceding the commencement of the Act albeit that mining had not begun on
one or more of the properties in respect of which the mineral rights were held.
It therefore ordered the respondent to give Holcim access to their properties in
order to prospect and mine for limestone and clay.
--ends--
|
3953
|
non-electoral
|
2023
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 429/2022
In the matter between:
SIMON MAILA
APPELLANT
and
THE STATE
RESPONDENT
Neutral citation: Maila v The State (429/2022) [2023] ZASCA 3 (23 January 2023)
Coram:
MOCUMIE, CARELSE and MOTHLE JJA and MJALI and SALIE AJJA
Heard:
14 November 2022
Delivered: 23 January 2023
Summary: Criminal law and procedure – evidence of a single child witness in a rape
case – the double cautionary rule – contradictory evidence – admission of a warning
statement obtained illegally – alibi defence – motive as a defence – sentence –
whether there are substantial and compelling circumstances justifying a lesser
sentence than life imprisonment.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Limpopo Division of the High Court, Polokwane (Phatudi J and
Ndlokovane AJ, sitting as court of appeal):
The appeal against the conviction and sentence is dismissed.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Mocumie JA (Carelse and Mothle JJA and Mjali and Salie AJJA concurring):
[1] Rape remains under-reported nationally, but there may be no rapes more
hidden than those committed within families.1 Sexual violence victims ‘often
experience a profound sense of shame, stigma and violation’.2 These factors are
compounded by attempts from family members of the victim or the perpetrator to
influence the victims not to file charges or, if charges have been filed, to withdraw the
case so that the families can resolve the problem amicably. Often the perpetrator
offers to pay the medical costs for the victim’s medical treatment, including
psychological treatment, and even maintenance of the family in cases of indigent
families.
[2] This appeal concerns the rape of a 9-year-old girl, who was raped in 2010, in
her home, which she shared with her uncle (the appellant), his young son, her mother,
her grandmother and her aunt. The rape occurred during the day when her mother,
grandmother and aunt were not at home.
[3] The appellant was convicted by the Regional Court in the Regional Division of
Limpopo, Lenyenye of the rape of his 9-year-old niece and sentenced to life
imprisonment. In terms of s 309(1) of the Criminal Procedure Act 51 of 1977 (the CPA),
1 See news24 article, https://www.news24.com/health24/news/public-health/rape-within-families-
remains-under-reported-20150821-2.
2 UNODC Handbook for the Judiciary on Effective Justice Responses to Gender-based Violence
against Women and Girls at 25.
read with s 10 and s 43(2) of the Judicial Matters Amendment Act 42 of 2013 (JMA
Act of 2013), once the regional court imposed the sentence of life imprisonment, the
appellant was entitled to an automatic right of appeal to the full bench of the high court.
The full bench of the Limpopo Division of the High Court, Polokwane (per Phatudi J
and Ndlokovane AJ) dismissed the appeal on both conviction and sentence. The
appeal before us (in respect of both the conviction and sentence) is against the
judgment of the full bench, with special leave of this Court.
[4] Both the trial court and full bench found that the appellant raped the
complainant. Counsel for the appellant contended that the State did not prove its case
beyond reasonable doubt; that the trial court misdirected itself materially by admitting
a self-incriminating warning statement, which was purportedly made by the appellant
before a police officer of the rank of a warrant officer; that the appellant was allegedly
assaulted by the police and the complainant’s mother to make that statement; and,
furthermore, that the trial court did not take into account the discrepancies in the
evidence of the complainant and also disregarded the alibi defence raised by the
appellant.
[5] The issues for determination before this Court are whether the appellant was
properly convicted on the evidence of a single witness; and whether the trial court
correctly admitted the warning statement – which was illegally obtained – and in which
he incriminated himself.
Background Facts
[6] The facts of this case are briefly as follows. On 6 December 2010, the
complainant was home with her cousin, Shaun, the appellant’s young son (a year older
than her). Both her mother and grandmother were not at home. Her mother had gone
to another village to deliver documents. Her grandmother was working in the field. The
appellant arrived home from another village. Upon his arrival, the appellant sent Shaun
to fetch a newspaper for him from Mmakwena, Limpopo. In Shaun’s absence, the
appellant raped the complainant twice. There were secretions or discharge from her
vagina. Her vagina was ‘torn’, as she put it. She was treated by a medical doctor some
four-to-six days after the rape.
[7] The complainant gave a detailed description of the sexual assault. She stated
that once Shaun had left, the appellant called her to sit next to him on a sofa in the
lounge where he had found her and Shaun earlier on. Thereafter, the appellant went
to his bedroom when he called her to join him. Once inside his bedroom, the appellant
instructed her to undress. Initially the complainant said that she undressed herself, but
later on said that she refused to undress (a discrepancy which she was challenged on
during cross-examination). The appellant removed her skirt and panty. Thereafter, he
threw the complainant onto the bed and penetrated her the first time. He withdrew his
penis. At that stage, she saw secretions or a discharge coming out of her vagina. He
then penetrated her for the second time. Every time the appellant penetrated the
complainant, she experienced pain. She pushed the appellant off her and ran to her
grandmother’s bedroom, where she put her clothes back on. When she exited the
house, she met Shaun.
[8] It was common cause that the complainant did not report the rape to anyone
on the day in question, including Shaun, who she met shortly after the incident. Four-
to-six days later, her grandmother observed that the complainant was walking with
discomfort, and advised her mother to inspect her vagina. Upon this inspection, the
mother noticed that her vagina was ‘torn’ and she had some secretions or discharge,
which (it is common knowledge) was indicative of an infection of some sort. When her
mother asked her what had happened to her vagina, she told her that the appellant
had raped her. The mother cried.
[9] The complainant testified that the reason that she did not report the incident to
anyone on the same day of the rape, or immediately thereafter, was because the
appellant had threatened to beat her up if she did so. Pertinently, the complainant’s
version (on the rape) was not challenged or disputed. The only material question put
to her was that someone will be called to tell the court that she hurt herself or was hurt
(presumably on her vagina) when she was playing with other children.
[10] To support the complainant’s evidence, the State led the evidence of the
complainant’s mother. Corroborating the complainant, her mother testified that the
complainant reported to her that she was raped by the appellant when she was not at
home and on the day when she had gone to deliver documents at another village.
Further testifying that the complainant’s vagina was ‘torn’ and she found a discharge
in it. Nothing too significant transpired during cross-examination, save for the fact that
prior to this incident, she and the appellant got along like brother and sister. But since
this incident, they no longer got along. She (the complainant’s mother) agreed, adding
that it was because of what the appellant had done to her daughter that the relationship
soured.
[11] The appellant’s defence was one of an alibi. In his evidence-in-chief, he stated
that on 6 December 2010 he was at home, but denied that he raped the complainant.
Furthermore, the appellant said that the first time that he heard about the allegations
of rape against him was when he appeared in court. This is simply not true, as it was
common cause that when he was arrested on 15 December 2010, he was informed of
the charge against him. He stated that he was severely assaulted by the complainant’s
mother and the police when he was arrested for the rape of the complainant. The
police kicked him several times with booted feet, at the scene of the crime and at the
police station. In cross-examination, he denied that he raped the complainant. He
seemed to suggest that it was someone else, but did not say who or why he said so.
He maintained that the complainant falsely implicated him, because she was
influenced by her mother and grandmother. This, according to him, was motivated by
the bad blood between the parties.
[12] It is the appellant’s version that the acrimony between him and his sister was
because he did not want her boyfriend, who was unemployed, to live with them. He
supported his entire family. He proffered no explanation as to why his version – that
he had been assaulted by the police and his sister, and that there was bad blood
between him and his sister – was not put to them during cross-examination. He
conceded that he did not do so. And that he did not inform his legal representative
about this version. He had no explanation for his silence in the face of such damning
evidence against him, save to state that he did not know how court processes work
and was not aware that he could inform his legal representative during the trial. Yet, it
is on record that his legal representative approached him from time to time and there
were breaks in between the proceedings, during which he could have informed his
legal representative that he did not agree with the statements put to the witnesses or
informed the legal representative of what else to put to the witnesses, which the
witnesses had (according to him) omitted to mention in their evidence-in-chief.
[13] Contradicting himself, the appellant stated during cross-examination that: ‘I
have already explained that on 6 December 2010 when this thing happened I was
home’. He also called a witness, who testified that on 7 December 2010 the appellant
was at work. The two interacted until they knocked off duty.
[14] In this Court, counsel for the appellant submitted that this was a typographical
error for which the transcribers were to blame. Instead, the record should reflect the
following: ‘I have already stated that on 6 December 2010 when this thing happened I
was not home’. (Emphasis added.)
[15] The fallacy in this submission is that, when an appeal record is prepared, it is
the responsibility of the appellant and his legal representative(s) to go through it
thoroughly to ensure that the record is correct and to set out the grounds of appeal
relied upon. None of the grounds of appeal refer to this alleged ‘typo’ in the judgment.
Nonetheless, this argument was never raised during the hearing before the full bench.
In any event, the complainant’s evidence that on 6 December the appellant was at
home when he raped her was not challenged during cross-examination.
[16] The full bench accepted the findings of the trial court. The full bench, like the
trial court, admitted the warning statement that the appellant purportedly made to the
police, in which he admitted that he raped the complainant. At the outset of the appeal
hearing in this Court, counsel for the State, correctly, conceded that the statement was
illegally obtained – that the trial court as well as the full bench were wrong to admit the
statement as evidence. On the strength of this concession made on behalf of the State,
that should be the end of the inquiry.
Ad Conviction
[17] The evidence in this case was based on the evidence of a single witness, the
complainant. Apart from being a single witness to the act of rape, the complainant was
a girl child, aged 9 years at the time of the incident. For many years, the evidence of
a child witness, particularly as a single witness, was treated with caution. This was
because cases prior to the advent of the Constitution (which provides in s 9 for equality
of all before the law) stated inter alia that a child witness could be manipulated to
falsely implicate a particular person as the perpetrator (thereby substituting the
accused person for the real perpetrator). To ensure that the evidence of a child witness
can be relied upon as provided in s 208 of the CPA,3 this Court stated in Woji v Santam
Insurance Co Ltd,4 that a court must be satisfied that their evidence is trustworthy. It
noted factors which courts must take into account to come to the conclusion that the
evidence is trustworthy, without creating a closed list. In this regard, the court held:
‘Trustworthiness . . . depends on factors such as the child’s power of observation, his power
of recollection, and his power of narration on the specific matter to be testified. . . . His capacity
of observation will depend on whether he appears “intelligent enough to observe”. Whether
he has the capacity of recollection will depend again on whether he has sufficient years of
discretion “to remember what occurs” while the capacity of narration or communication raises
the question whether the child has the “capacity to understand the questions put, and to frame
and express intelligent answers.”’ (Emphasis added.)
[18] This Court has, since Woji, cautioned against what is now commonly known as
the double cautionary rule.5 It has stated that the double cautionary rule should not be
used to disadvantage a child witness on that basis alone. The evidence of a child
witness must be considered as a whole, taking into account all the evidence. This
means that, at the end of the case, the single child witness’s evidence, tested through
(in most cases, rigorous) cross-examination, should be ‘trustworthy’. This is dependent
on whether the child witness could narrate their story and communicate appropriately,
could answer questions posed and then frame and express intelligent answers.
Furthermore, the child witness’s evidence must not have changed dramatically, the
essence of their allegations should still stand. Once this is the case, a court is bound
to accept the evidence as satisfactory in all respects; having considered it against that
of an accused person. ‘Satisfactory in all respects’ should not mean the evidence line-
by-line. But, in the overall scheme of things, accepting the discrepancies that may
3 Section 208 of the CPA provides: ‘An accused may be convicted of any offence on the single evidence
of any competent witness’.
4 Woji v Santam Insurance Co Ltd 1981 (1) SA 1020 (A) at 1028B-D. Note the caution courts are advised
to take note of when they consider the reliability of a child witness in rape cases: Woji by M Bekink
‘Defeating the anomaly of the cautionary rule and children’s testimony – S v Haupt 2018 (1) SACR 12
(GP).
5 See Vilakazi v S [2016] ZASCA 103; 2016 (2) SACR 365 (SCA) and cases cited therein.
have crept in, the evidence can be relied upon to decide upon the guilt of an accused
person. What this Court in S v Hadebe6 calls the necessity to step back a pace (after
a detailed and critical examination of each and every component in the body of
evidence), lest one may fail to see the wood for the trees.7 This position has been
crystallised by the Legislature in s 60 of the Criminal Law (Sexual Offences and
Related Matters) Amendment Act 32 of 2007, which provides that:
‘Notwithstanding any other law, a court may not treat the evidence of a complainant in criminal
proceedings involving the alleged commission of a sexual offence pending before that court,
with caution, on account of the nature of the offence.’
[19] As indicated, in his defence the appellant raised an alibi that he was at work
when the complainant was raped. However, this was not put to the witnesses. Nor was
it stated in his plea explanation, as the plea tendered on his behalf by his counsel was
that of a bare denial.
[20] It is trite that an accused person is entitled to raise any defence, including that
of an alibi – that at the time of the commission of the crime, they were not at the scene
of the crime but somewhere else. They can also lead evidence of a witness(es) to
corroborate them on their whereabouts at the critical time. Nevertheless, it is trite that
an accused person who raises the defence is under no duty (as opposed to that of the
State) to prove his defence. If the defence is reasonably possibly true, they are entitled
to be discharged and found not guilty.8
[21] The only responsibility an accused person bears with regards to their alibi
defence is to raise the defence at the earliest opportunity. The reason is simple: to
give the police and the prosecution the opportunity to investigate the defence and bring
it to the attention of the court. In appropriate cases, in practice, the prosecution can
even withdraw the charge should the alibi defence, after investigations, prove to be
solid.
6 S v Hadebe and Others 1998 (1) SACR 422 (SCA).
7 Ibid at 426F-H.
8 Tshiki v S [2020] ZASCA 92 (SCA) with cases cited therein.
[22] The alibi defence has received the attention of our courts, in particular that of
the Constitutional Court in Thebus v S,9 where it is stated:
‘. . . [A] failure to disclose an alibi timeously has consequences in the evaluation of the
evidence as a whole [and] is consistent with the views expressed by Tindall JA in R
v Mashelele. After stating that an adverse inference of guilt cannot be drawn from the failure
to disclose an alibi timeously, Tindall JA goes on to say:
“But where the presiding Judge merely tells the jury that, as the accused did not disclose his
explanation or the alibi at the preparatory examination, the prosecution has not had an
opportunity of testing its truth and that therefore it may fairly be said that the defence relied on
has not the same weight or the same persuasive force as it would have had if it had been
disclosed before and had not been met by evidence specially directed towards destroying the
particular defence, this does not constitute a misdirection.”’10 (Emphasis added.)
[23] Having said that, and taking into consideration the concession by the State,
undoubtedly, the admission of the warning statement by both courts was a material
misdirection which would (ordinarily) have vitiated these proceedings, as it was not in
the interests of justice or public interest for the warning statement to have been
admitted. This means that the evidence of the State should have been considered
without the warning statement.
[24] Without this evidence, the question that must be determined is whether the
evidence of a single witness (in this case, a 9-year-old girl child) was satisfactory in all
material respects. At the same time, whether or not the appellant’s version was
reasonably probably true.
[25] Applying the Woji principles to this case, I find that the evidence of the
complainant is trustworthy and, thus, (supported by aliunde evidence of the mother
and medical doctor) satisfactory beyond reasonable doubt. Despite her young age,
the complainant’s evidence was consistent and clear. She was able to respond to
statements put to her and questions posed by the defence with certainty and clarity;
intelligently and without difficulty. The cross-examination of the complainant was
rigorous and to some extent unnecessary. Where she did not understand the question,
9 Thebus and Another v S [2003] ZACC 12; 2003 (6) SA 505 (CC); 2003 (10) BCLR 1100 (CC).
10 Ibid para 63.
the question was repeated and she responded appropriately. During cross-
examination, the complainant broke down in tears but she composed herself and
remained adamant that the appellant was her rapist.
[26] The complainant was consistent to the extent that her evidence was supported
by independent medical evidence set out in the J88 form as well as the report she
made to her mother. The medical doctor who examined the complainant noted that
there was penetration of the hymen. The appellant on his own (although not admitting
that it was him) agreed that the complainant was raped and could not have fabricated
a story of having being raped. The version that was put to the complainant that she
hurt herself or was hurt (presumably) when she was playing with other children, was
abandoned in the light of the complainant’s clear evidence. She was observed by
elderly people that she was walking with discomfort. The mother noted her vagina
‘torn’ and the medical doctor confirmed it. The complainant had an infection as a result
of the act of penetration and she was given medication to treat the infection. The
complainant only reported the rape to her mother when her mother examined her and
asked her what had ‘torn’ her vagina. The complainant’s mother and grandmother did
not threaten her.
[27] As Milton states,11 reluctance on the part of rape survivors, or some of them, to
report the rape at the first opportunity is a firmly recognised fact. It is also generally
accepted that with young children the reluctance is compounded. The complainant
testified that the appellant threatened to beat her if she told anyone about the rape.
She was not challenged with another version or shown to be lying through cross-
examination. The explanation she gave was spontaneous and ‘has a ring of truth’ to
it.
[28] As I indicated, after rigorous cross-examination, the complainant’s evidence
remained unshaken except for the two discrepancies mentioned above. It is evident
that she did not report the rape on the same day, but it cannot be said that she was
motivated to do so later by her mother and grandmother. A first report statement refers
11 J R Milton South African Criminal Law and Procedure Vol II 3 ed at 461.
to the statement by a person to whom the victim of rape first reported the incident.12
Authors and experts in the field of psychology and criminology state that ‘[e]ach victim
reacts differently after a violent act. [They] may try to dismiss or ignore what happened
and even normalise it by having contact with the perpetrator in the future. [They] may
only decide to report once [they are] supported by a family member or when a friend
confirms that this behaviour is indeed wrong. If the perpetrator is considered as a
trustful person, victims may take years to link their situation to violence and recognise
it as such. Sexual violence victims often experience a profound sense of shame,
stigma and violation’.13 What is important is that the first report is made at the first
opportunity available to the victim of sexual violence. In most cases, when they feel
safe to do so, or they do not fear reprisals. Failure of the complainant to report an
alleged rape as soon as possible cannot be ‘the benchmark for determining whether
or not a woman has been raped’.14
[29] This Court, in Vilakazi v S,15 stated:
‘. . . [O]ur courts have not considered the lack of evidence of a voluntary complaint (also
referred to as a “first report”) to be fatal to a charge of rape. In this regard, Milton, in South
African Criminal Law and Procedure, says:
“It is not mandatory that there should be evidence that the woman has complained that she
has been raped. However, if she has, such [a] complaint is admitted in evidence to show
consistency and to negative a defence of consent, but not as proof of their contents nor to
corroborate the complainant. But it is not essential that consent should be in issue; the
complainant may, for instance, be a girl of under 12 years of age.
The purpose of admitting evidence of a complaint is that it serves to rebut any suspicion that
the woman has lied about being raped. The corollary is, of course, that should a woman not
complain, or not complain timeously, the conclusion may be drawn that she is lying in her
evidence that she was raped. The conclusion may well be unfair to the victim, since women
may hesitate to complain of rape for reasons of shame, embarrassment or fear.”’ (Emphasis
added.)
12 See D T Zeffertt & A P Paizes The South African law of evidence 2 ed (2009) at 971.
13 UNODC Handbook for the Judiciary on Effective Justice Responses to Gender-based Violence
against Women and Girls, at 25.
14 See Monageng v S [2008] ZASCA 129; [2009] 1 All SA 237 (SCA) para 24.
15 Vilakazi v S [2016] ZASCA 103; 2016 (2) SACR 365 (SCA) para 15.
[30] On its own, the complainant’s evidence was satisfactory in all material respects.
I am in agreement with the trial court that the discrepancies in her evidence on the two
aspects relied upon are not a material misdirection. Whether the appellant undressed
her or she undressed herself and whether, after the rape, she ran to her grandmother’s
bedroom or outside the house or her room are irrelevant and immaterial to whether
she was indeed raped, when and by whom.
[31] I, therefore, undoubtedly find that the trial court was correct to accept the
evidence of the complainant as satisfactory in all material respects. And, thus, the
appellant was properly convicted on the evidence of a single witness.
[32] Coming to the appellant’s version. It is trite that the proper approach to evidence
is to look at the evidence holistically to determine whether the guilt of the accused has
been proven beyond reasonable doubt.16 This approach was reaffirmed by this Court
in Tshiki v S17 as follows:
‘In a criminal trial, a court’s approach in assessing evidence is to weigh up all the elements
that point towards the guilt of the accused against all that which is indicative of their innocence
taking proper account of inherent strengths and weaknesses, probabilities and improbabilities
on both sides and having done so, to decide whether the balance weighs so heavily in favour
of the State as to exclude any reasonable doubt about the accused’s guilt.’18
[33] There are improbabilities in the appellant’s version in general and, in particular,
his alibi. The version put to the complainant was stated as follows: ‘if someone can tell
you that the reason for you not walking properly is that you injured yourself while
playing with other kids, what will you say?’. In reply, the complainant said: ‘I say that’s
not true’. It was further put to the complainant that she was falsely implicating the
appellant, because of some ill feeling between him and his sister (the complainant’s
mother) and her grandmother. The complainant denied that. Moreover, this motive
was not even put to her mother or the social worker, who compiled the victim impact
statement (VIS) in respect of the complainant, during cross-examination. There is no
evidence that there was any other person at their home, other than the appellant and
16 S v Van der Meyden 1999 (1) SACR 447 (W) at 448.
17 Tshiki v S [2020] ZASCA 92 (SCA).
18 Ibid para 23.
his son, Shaun, who was not present when the rape occurred. Crucially, the appellant
did not disclose the alibi timeously for the police and the prosecution to follow it up in
the three years before the trial commenced. Nor was this alibi taken up with any vigour
by the defence during cross-examination of the mother and the social worker. The
defence witness called could hardly corroborate him. Suffice to state that the appellant
was indeed at work on 7 December 2010, although, he could not remember if it was a
Monday or Tuesday.
[34] To bolster his alibi, the appellant took issue with the date on which the
complainant alleged he had raped her as reflected in the J88 form: 7 December
instead of 6 December as she alleged. It is correct that the medical doctor noted 7
December as reported to him. However, there is no evidence as to who provided the
doctor with that information: the complainant or the police or the mother or whoever
took her for medical examination. This ignores the fact that on the same J88 form the
police noted that the incident occurred on 6 December 2010.
[35] Furthermore, the plea tendered on behalf of the appellant was one of a bare
denial; not an alibi. It was pertinently put to the complainant that she hurt herself
(presumably on her vagina) when she was playing with other children. It was never
put to her or any of the witnesses that the incident that the complainant is alleged to
have hurt herself when she was playing, did not occur on 6 December but 7 December.
The only reasonable inference to draw is that the alibi is a made-up story. Additionally,
that the appellant built his defence as the case proceeded to dovetail the evidence of
the complainant in an attempt to take advantage of her young age and any confusion
which may emerge and lead to contradictions, if viewed in isolation.
[36] The improbability of this alibi further lies in the following. The appellant was
legally represented by an attorney from 30 December 2010. From 31 January 2013
until the end of the trial, he was represented by an advocate, on a brief by a firm of
attorneys. The charge sheet, annexure A Case No RN 102/2010 alleged that ‘on or
about 06.12.2010’. When the charge was put to the appellant, on 1 March 2013, the
State alleged that the rape took place on 6 December 2010. When the complainant
was called to testify, she was asked to tell the court what happened on 6 December
2010. From the commencement of the trial, there was no objection from the defence
on the date and day given by the complainant in her evidence-in-chief and on her
statement to the police. The only challenge raised with the complainant concerned the
discrepancy on the date mentioned in her statement and the J88 form. The
complainant responded by sticking to her version that it was on a Monday when the
incident happened, it was the day her mother had gone to another village to deliver
documents, which, according to the record, was 6 December 2010.
[37] The defence witness that was called to testify in this regard was not very
impressive. Besides stating that on 7 December the appellant was at work, there was
no substantiation. When he was cross-examined on the simple issue of what day it
was on which the appellant was at work, he could hardly remember whether it was a
Monday or a Tuesday. Having regard hereto, the trial court was correct to reject the
appellant’s version.
[38] This Court warned in Thebus19 that a court cannot attach much weight to an
alibi that is raised later; in this case, three years later. This is because such an alibi is
prone to fabrication, as evidenced in this case.
[39] As a result, the evidence, when viewed in its totality and excluding the warning
statement of the appellant, proves the appellant’s guilt beyond reasonable doubt and,
accordingly, the trial court rightly convicted the appellant as charged. Consequently,
the appeal against the conviction must fail.
Ad Sentence
[40] I now turn to the question of sentence. The trial court imposed the prescribed
minimum sentence of life imprisonment. It is common cause that the provisions of s 51
of the Criminal Law Amendment Act 105 of 1997 (Act 105 of 1997) are applicable.
Section 51 of Act 105 of 1997 provides:
‘51.
Discretionary minimum sentences for certain serious offences –
(1)
Notwithstanding any other law, but subject to subsections (3) and (6), a regional court
or a High Court shall sentence a person it has convicted of an offence referred to in Part I of
Schedule 2 to imprisonment for life.
19 Thebus and Another v S [2003] ZACC 12; 2003 (6) SA 505 (CC); 2003 (10) BCLR 1100 (CC) para
65.
. . .
(3)
(a) If any court referred to in subsection (1) or (2) is satisfied that substantial and
compelling circumstances exist which justify the imposition of a lesser sentence than the
sentence prescribed in those subsections, it shall enter those circumstances on the record of
the proceedings and must thereupon impose such lesser sentence. . .’
[41] Part I of Schedule 2 of Act 105 of 1997 provides for offences including inter alia:
‘Rape as contemplated in section 3 of the Criminal Law (Sexual Offences and Related Matters)
Amendment Act, 2007 –
(a)
. . .
(b)
where the victim –
(i) is a person under the age of 18 years;
. . .
(iv) is or was in a domestic relationship, as defined in section 1 of the Domestic
Violence Act, 1998, with the accused.’20
[42] This case, accordingly, falls squarely within s 51(1) read with Part I of Schedule
2 of Act 105 of 1997, as the trial court correctly found.
[43] It is trite that sentencing or punishment is pre-eminently a matter of discretion
of the trial court. A court exercising appellate jurisdiction cannot, in the absence of a
material misdirection by the trial court, approach the question of sentence as if it were
the trial court and then substitute the sentence arrived at by it simply because it prefers
it. To do so would be to usurp the sentencing discretion of the trial court.
[44] Where, however, a material misdirection by the trial court vitiates its exercise
of that discretion, an appellate court is of course entitled to consider the question of
sentence afresh. In doing so, it assesses sentence as if it were a court of first instance
and the sentence imposed by the trial court has no relevance.
[45] Nevertheless, even in the absence of a material misdirection, an appellate court
may yet be justified in interfering with the sentence imposed by the trial court. It may
20 In terms of the Domestic Violence Act 116 of 1998, ‘domestic relationship’ means ‘a relationship
between a complainant and a respondent in any of the following ways: . . . (d) they are family members
related by consanguinity, affinity or adoption; . . . (f) they share or recently shared the same residence’.
do so when the disparity between the sentence of the trial court and the sentence
which the appellate court would have imposed had it been the trial court is so marked
that it can properly be described as 'shocking', 'startling' or 'disturbingly
inappropriate’.21
[46] The sentence imposed by the regional court is one that is prescribed by the
legislature – that of life imprisonment – as it found that the appellant raped the
complainant more than once and the complainant was under the age of 18 years.
When setting out minimum sentencing for certain offences, ‘the Legislature aimed at
ensuring a severe, standardised, and consistent response from the courts to the
commission of such crimes unless there were, and could be seen to be, truly
convincing reasons for a different response’.22 (Emphasis added.)
[47] Counsel for the appellant submitted that the trial court did not take into account
the appellant’s personal circumstances. It also, according to counsel, did not take into
account that this was not one of the ‘brutal cases’, as the complainant was not
physically injured. Counsel was taken to task during the exchange with the members
of the bench on this submission, but he could not take the argument further. Correctly
so, because apart from this minimising the traumatic effects of rape on any victim and
more so a child, it is well documented that ‘irrespective of the presence of physical
injuries or lack thereof, rape always causes its victims severe harm’.23
[48] The Legislature has specifically amended the Criminal Law Amendment Act to
provide categorically that the fact that a complainant was not injured during a rape
cannot be considered as compelling or substantial. In terms of s 51(3)(aA) of Act 105
of 1997, which came into operation in December 2007:
‘When imposing a sentence in respect of the offence of rape the following shall not constitute
substantial and compelling circumstances justifying the imposition of a lesser sentence:
….
(ii)
an apparent lack of physical injury to the complainant;
….
21 S v Malgas 2001 (1) SACR 469 (SCA) para 12.
22 Ibid para 8.
23 Amanda Spies ‘Perpetuating Harm: Sentencing of Rape Offenders Under South African Law’ (2016)
(2) SALJ 389 at 399.
(iv)
any relationship between the accused person and the complainant prior to the offence
being committed.’
[49] In its judgment on sentence, the trial court took into account two reports: a victim
impact statement (the VIS) in respect of the complainant to reflect her voice in
proceedings that affect her directly; and a pre-sentence report in respect of the
appellant. The State led the evidence of the social worker who compiled the VIS after
interviewing the complainant, the appellant and their family members.24 She stated
that the appellant did not use a condom during the rape. As a result, the complainant
suffered an infection which was not medically treated until she was examined some
days later. That is why she walked with discomfort.
[50] Furthermore, the social worker stated that the rape had impacted negatively on
the complainant to the extent that her school performance dropped. She was afraid of
the appellant and feared to be left alone with him. She was withdrawn. As a result of
counselling, the complainant was able to talk to the appellant and even asked him to
buy her sweets. Both the complainant and her mother were deeply hurt, emotionally
scarred, confused and felt a sense of hopelessness as a result of the rape. She finds
it difficult to trust people. They were relieved only when the appellant was arrested and
held in custody. Family members were taken through counselling to deal with this
incident. It is not clear if this therapy is still ongoing.
[51] It must be noted that even without a psychological assessment, from reported
cases of rape based on literature and evidence of experts in court, rape has a
devastating impact on anyone, let alone a child. Although the complainant seemed to
be coping better at school, individuals are impacted differently. The experts have noted
certain features common in all rape cases: post-traumatic stress disorder (PTSD),
including flashbacks, nightmares, severe anxiety, and uncontrollable thoughts.
Depression, including prolonged sadness, feelings of hopelessness, unexplained
crying, weight loss or gain, loss of energy or interest in activities previously enjoyed.
24 The prosecutor did well to request and obtain a Victim Impact Statement. A victim has its own interests
which must be reflected to give them a voice in their own proceedings.
Suicidal thoughts or attempts. Dissociation, including not being able to focus on work
or on schoolwork, as well as not feeling present in everyday situations.25
[52] The trial court had regard to the basic triad of sentencing and also warned itself
to balance the various interests.26 It took into account the appellant’s personal
circumstances. He was a first offender. He was gainfully employed. He had three
children of his own. The children lived with their respective mothers, except for one,
whose mother had passed on, but was staying with relatives and not with the appellant.
It clearly took into account the best interests of the appellant’s children with reference
to sentencing an accused person who has minor children,27 taking into account that
the children have relatives and that the Department of Social Development can be
approached to provide for the children under social grants and such facilities available
to children in need of care.
[53] The trial court noted the following as aggravating circumstances: the appellant
was the complainant’s maternal uncle and in a position of trust – who is ‘supposed to
protect and love’ the complainant and not abuse her. The trial court did not note
specifically that the appellant took advantage of the presumably long absence of the
mother and grandmother (as alluded to earlier on)28 to abuse the complainant. A factor
ordinarily present in rapes committed within families or by those close to the families
to commit these violent crimes, knowing well that the victims are left on their own at
particular times of the day or on certain days.
[54] The regional court took into account the seriousness of the offence and the
prevalence of rape in the Napuno Magistrate’s Court District (four cases on the court
roll on 23 August 2013, when sentence was imposed).
25 See footnote 1 above.
26 The basic triad: the seriousness of the offence, the offender’s personal circumstances and the
interests of society, and, lately, a fourth element distinct from the three: the interests of the victim of the
offence.
27 As guided by the Constitutional Court in S v M [2007] ZACC 18; 2008 (3) SA 232 (CC); 2007 (12)
BCLR 1312 (CC) paras 28-36.
28 Paragraphs 2 and 10 above: The mother had gone to another village to deliver documents. The
grandmother was working in the field.
[55] All these factors, in the view of the regional court, were not compelling and
substantial enough to justify a lesser sentence.
[56] Having considered the reasons for sentence, taking into account the now well
documented and known psychological impact of victims of rape, especially children,
the regional magistrate did not commit any misdirection in imposing the prescribed
sentence. Counsel could not point to any. Had the trial court found otherwise, it would
have been to deviate for no sound reasons.29
[57] Rape of women and children is rampant in South Africa. It has reached alarming
proportions despite the heavy sentences which courts impose. South Africa has one
of the highest rape statistics in the world, even higher than some countries at war. The
country’s annual police crime statistics confirms this: in 2019/2020, there were 42 289
rapes reported as well as 7 749 sexual assaults. This translates into about 115 rapes
per day.30
[58] The appellant infringed the right to dignity and the right to bodily and
psychological integrity of the complainant, which any democratic society (such as
South Africa) which espouses these rights, including gender equality, should not
countenance for the future of its children, their safety and physical and mental health.
In S v Jansen,31 the court stated it thus:
‘Rape of a child is an appalling and perverse abuse of male power. It strikes a blow at the very
core of our claim to be a civilised society. . . . The community is entitled to demand that those
who perform such perverse acts of terror be adequately punished and that the punishment
reflect the societal censure. It is utterly terrifying that we live in a society where children cannot
play in the streets in any safety; where children are unable to grow up in the kind of climate
which they should be able to demand in any decent society, namely in freedom and without
fear. In short, our children must be able to develop their lives in an atmosphere which behoves
any society which aspires to be an open and democratic one based on freedom, dignity and
equality, the very touchstones of our Constitution.’
29 S v Matyityi [2010] ZASCA 127; 2011 (1) SACR 40 (SCA); [2010] 2 All SA 424 (SCA).
30 Amada Gouws ‘Rape is endemic in South Africa. Why the ANC government keeps missing the mark’
9 August 2022, Mail & Gaurdian, https://mg.co.za/opinion/2022-08-09-rape-is-endemic-in-south-africa-
why-the-anc-government-keeps-missing-the-mark/.
31 S v Jansen 1999 (2) SACR 368 (C) at 378G-379B.
[59] Taking into account Jansen, Malgas, Matyityi, Vilakazi and a plethora of
judgments which follow thereafter as well as regional and international protocols which
bind South Africa to respond effectively to gender-based violence, courts should not
shy away from imposing the ultimate sentence in appropriate circumstances, such as
in this case. With the onslaught of rape on children, destroying their lives forever, it
cannot be ‘business as usual’. Courts should, through consistent sentencing of
offenders who commit gender-based violence against women and children, not retreat
when duty calls to impose appropriate sentences, including prescribed minimum
sentences. Reasons such as lack of physical injury, the inability of the perpetrator to
control his sexual urges, the complainant (a child) was spared some of the horrors
associated with oral rape, which amount to the acceptance of the real rape myth, the
accused was drunk and fell asleep after the rape, the complainant accepted gifts (in
this case, sweets) are an affront to what the victims of gender-based violence, in
particular rape, endure short and long term. And perpetuate the abuse of women and
children by courts. When the Legislature has dealt some of the misogynistic myths a
blow, courts should not be seen to resuscitate them by deviating from the prescribed
sentences based on personal preferences of what is substantial and compelling and
what is not. This will curb, if not ultimately eradicate, gender-based violence against
women and children and promote what Thomas Stoddard calls ‘culture shifting
change’.32
[60] The message must be clear and consistent that this onslaught will not be
countenanced in any democratic society which prides itself with values of respect for
the dignity and life of others, especially the most vulnerable in society: children. For
these reasons, this Court is not at liberty to replace the sentence that the trial court
imposed. For an uncle, who is the position of trust just as a father, to rape his own
niece is unconscionable and deserves no other censure than that imposed by the trial
court: life imprisonment. The sentence is not disproportionate to the serious offence
that the appellant committed on a 9-year-old child, his niece. The sentence is, thus,
justified in the circumstances.
32 Thomas B Stoddard ‘Bleeding heart: Reflections on using the law to make social change’ (1997) 72
New York University LR 967 at 971.
[61] It would be remiss of me if I do not raise a concern that I had in this appeal,
although not pertinent to the disposal of the appeal. The clear discrepancy between
the J88 form and the statements of the witnesses as well as their evidence-in-chief
was just swept under the carpet. Linked to that, on one hand, the responsibility of the
prosecutor(s) to address the defect, and, on the other hand, the responsibility of the
court(s) to address the same when assessing evidence. Where there is a clear
discrepancy between the dates mentioned in the charge sheet or indictment, the J88
form (as in this case) and the evidence relied upon by the State, the prosecutor(s)
must address the defect at the relevant stages of the trial. Sections 86, 88 and 270 of
the CPA make provision for this anomaly. This gives the defence the opportunity to
address the anomaly adequately. And the trial court to include it in its assessment of
the evidence to come to the conclusion of whether the accused person is guilty or not.
The test is always the prejudice that the accused may suffer in his defence.
[62] In the result, the following order is granted:
The appeal against the conviction and sentence is dismissed.
____________________
B C MOCUMIE
JUDGE OF APPEAL
Appearances
For the appellant:
L M Manzini
Instructed by:
Legal Aid South Africa, Polokwane
Legal Aid South Africa, Bloemfontein
For the respondent:
A R Sithada
Instructed by:
Director of Public Prosecutions, Polokwane
Director of Public Prosecutions, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
23 January 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Maila v The State (429/2022) [2023] ZASCA 3 (23 January 2023)
Today, the Supreme Court of Appeal (SCA) dismissed an appeal from the Limpopo Division
of the High Court, Polokwane, sitting as a full bench (the high court), which had dismissed an
appeal against the conviction and sentence of the appellant, Mr Simon Maila. The appellant
was convicted of the rape of his 9-year-old niece and sentenced to life imprisonment by the
Regional Court in the Regional Division of Limpopo, Lenyenye (the regional court).
The facts of the case were briefly as follows. On 6 December 2010, the complainant, a 9-year-
old girl, was raped in her home, which she shared, inter alia, with her uncle (the appellant), her
mother and her grandmother. The rape occurred during the day when both her mother and
grandmother were not at home. In their absence, the appellant raped the complainant twice.
The issues for determination by the SCA were whether the appellant was properly convicted
on the evidence of a single witness; and whether the trial court correctly admitted the warning
statement – which was illegally obtained – and in which he incriminated himself.
The SCA found that, taking into consideration the concession by the State, undoubtedly, the
admission of the warning statement by both the regional and high courts was a material
misdirection. This meant that the evidence of the State should have been considered without
the warning statement.
On the conviction, the SCA found that the regional court was correct to accept the evidence of
the complainant as satisfactory in all material respects. And that the discrepancies in the
complainant’s evidence on the two aspects relied upon were irrelevant and immaterial to
whether she was indeed raped, when and by whom. Thus, the appellant was properly convicted
on the evidence of a single witness.
With regard to the appellant’s version, the SCA found that there were improbabilities in the
appellant’s version in general and, in particular, his alibi. As a result, the evidence, when
viewed in its totality and excluding the warning statement of the appellant, proved the
appellant’s guilt beyond reasonable doubt. Consequently, the appeal against the conviction had
to fail.
On the sentence, the SCA found that the regional magistrate did not commit any misdirection
in imposing the prescribed sentence of life imprisonment. The regional court had regard to the
basic triad of sentencing; it noted the following as aggravating circumstances: the appellant
was the complainant’s maternal uncle and in a position of trust – who is ‘supposed to protect
and love’ the complainant and not abuse her; and it took into account the seriousness of the
offence and the prevalence of rape in the region. The SCA agreed that there were no compelling
and substantial circumstances to justify a lesser sentence.
Notably, the SCA remarked on the deplorable rape statistics in South Africa. And, accordingly,
communicated that courts should, through consistent sentencing of offenders who commit
gender-based violence against women and children, not retreat when duty calls to impose
appropriate sentences, including prescribed minimum sentences, in appropriate circumstances,
such as in this case.
In the result, the SCA dismissed the appeal against both the conviction and sentence.
~~~~ends~~~~
|
2352
|
non-electoral
|
2009
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No: 48/2009
PIETER ANDRIES PIENAAR 1st Appellant
MELVIN DOUGLAS CLASSEN 2nd Appellant
CLASSENS HOME IMPROVEMENTS CC 3rd Appellant
and
RUSSELL JAMES BROWN 1st Respondent
JOHN SLOEP 2nd Respondent
DON NOEL DANIEL LAMBERTS 3rd Respondent
VEN PROJECTS CC 4th Respondent
Neutral citation: Pienaar v Brown (48/2009)[2009] ZASCA 165 (1
December 2009)
Coram:
Mthiyane, Nugent, Maya JJA, Tshiqi and Wallis AJJA
Heard:
9 November 2009
Delivered:
1 December 2009
Summary:
Claim for damages against property owner, building
contractor and his sub-contractor ─ based on negligence ─
principles applied ─ whether failure to comply with
statutory obligation under s 4(1) read with s 7 of National
Building Regulations and Building Standards Act 103 of
1977 is evidence of negligence.
___________________________________________________________
ORDER
On appeal from: Cape of Good Hope Provincial Division (Ndita J
sitting as court of first instance).
1.
The appeals are allowed.
2.
The first and second respondents are ordered to pay the appellants’
costs.
3.
The order of the court below is set aside and replaced with the
following:
‘1.
The first and second plaintiffs’ claims against the first, second and
third defendants are dismissed.
2.
The first and second plaintiffs are ordered to pay the costs of the
first, second and third defendants, jointly and severally the one paying the
other to be absolved.
3.
The fourth and fifth defendants are found to be liable jointly and
severally the one paying the other to be absolved, for whatever damages
the first and second plaintiffs might prove for injuries sustained by them
as a result of the collapse of the balcony on 25 April 2004.
4.
The fourth and fifth defendants are ordered to pay the plaintiffs’
costs of suit, jointly and severally the one paying the other to be absolved,
including the qualifying expenses of the plaintiffs’ expert witness, Mr U
Rivera and the costs of the application for absolution from the instance.’
___________________________________________________________
JUDGMENT
MTHIYANE JA (Maya JA, Tshiqi and Wallis AJJA concurring):
[1] On 25 April 2004 the first and second respondents, Mr Russell
James Brown and Mr Joseph Sloep (the plaintiffs) were injured when a
balcony on which they were standing at the house of the first appellant,
Mr Pieter Andries Pienaar, in Green Point, Cape Town collapsed. The
plaintiffs were guests at the house of the first appellant, Mr Pieter Andries
Pienaar, in Green Point, Cape Town, at a function to celebrate the
birthday of Pienaar’s life partner, Mr de Bruin. During the course of the
afternoon a car alarm went off and a number of guests including the
plaintiffs and De Bruin went out onto the balcony to see what was
happening. As they did so the balcony collapsed outwards as the screws
fixing it to the wall at the upper level pulled out of the wall and it ‘folded’
downwards until its outer edge was resting on the tiling below. The
guests on the balcony fell forward and the plaintiffs were fairly seriously
injured as a result.
[2] The plaintiffs instituted action for damages in the Cape High Court
citing as defendants Pienaar, as the owner of the property at which the
balcony collapsed; the second appellant, Mr Melvin Douglas Classen who
had been employed as the main contractor and the third appellant, a close
corporation through which Classen conducted his business; the third
respondent, Mr Don Noel Daniel Lamberts, who designed, manufactured
and installed the balcony, and his corporate entity, Ven Projects CC, the
fourth respondent who designed, manufactured and installed the balcony.
The third respondent, Mr Don Noel Daniel Lamberts, was the individual
who physically performed the work. The claim was based on their alleged
negligence in the design, construction and installation of the balcony. For
the sake of convenience the first, second and third appellants will be
referred to by their respective names and, depending on the context,
collectively as ‘the defendants’. References to Classen and Lamberts refer
also to their respective close corporations.
[3] On 23 November 2002 Pienaar, the owner of the property had
approached Classen, the builder, to provide a quote for amongst other
things, the balcony in question. On about 27 November 2002 Classen’s
corporate entity, Cape Home Improvements CC (as the third appellant
was then known), had provided separate quotes to Pienaar in respect of
various parts of the work proposed, which included a quote for the
construction and installation of a steel-framed balcony.
[4] It is common cause that Classen said to Pienaar that he did not
possess any expertise or ability to design, construct and install a steel
balcony as requested, and that an individual who possessed the necessary
expertise should be requested to carry out part of the work. Classen’s part
of the work on the balcony was limited to the laying of the meranti floor
on the steel work after it had been manufactured and installed. Classen
accordingly contacted Lamberts and requested him to provide a quote for
the proposed work.
[5] Lamberts, after taking the necessary measurements, provided a
quote for the balcony (R6500) to Classen and a general quote was
supplied by Classen to Pienaar which included the work he (Classen) was
to perform (R10944), namely the laying of meranti timber flooring after
the balcony had been manufactured and installed.
[6] Lamberts then designed, constructed and installed the balcony off
Pienaar’s main lounge on the top floor. It was a half-moon shaped steel
framed structure, approximately 3 metres long and over 1.5 metres wide
at its apex. It was largely a cantilevered construction, meaning that it was
fastened to the wall of the house without material support from below.
Holes were drilled in the wall surrounding the door reveal at parts where
the base of the balcony and the top frame abutted the wall, and the holes
were plugged with plastic plugs. The balcony was then attached to the
wall by means of coach screws 110 mm long. Allowing for the thickness
of the steel being 38 mm these penetrated the wall to a depth of some 70
mm. Apart from the screws a brace, referred to as a knee brace, was
attached underneath the balcony, near the apex of the half-moon and ran
at an acute angle to a point on the wall no more that 1 metre below the
level of the balcony. In the original design Lamberts had intended that the
balcony would be supported on its outer edge by two steel posts or pillars
but when the time came for these to be installed Pienaar objected to them
and they were not installed and instead they were adapted to form the
knee brace.
[7] No plans or approvals were sought from or granted by the local
authority as required by s 4(1) of the National Building Regulations and
Building Standards Act 103 of 1977. The sub-section provides that no
person shall without the prior approval in writing of the local authority
erect any building in respect of which plans and specifications are to be
drawn and submitted in terms of the Act. The approval by a local
authority is provided for in s 7 of the Act. It is not disputed that the
defendants were in breach of this statutory provision.
[8] At the trial the case proceeded on the question of liability only. The
court determined that for purposes of liability three issues fell to be
determined. The first was the question of negligence in respect of
Pienaar, Classen and Lamberts and their corporate entities, and quantum
stood over for later determination. The remaining two issues turned on
whether Lamberts was a sub-contractor or an independent contractor, and
whether he had been employed by Pienaar. It is now conceded that he
was Classen’s sub-contractor and the latter issues have, accordingly fallen
away leaving only the question of negligence to be determined. At the
conclusion of the trial the court found all the defendants to have been
negligent and thus liable to the plaintiffs jointly and severally, the one
paying the others to be absolved. Pienaar and Classen were granted leave
to appeal to this court. Lamberts and his corporate entity have not
appealed the decision.
[9] Pienaar’s negligence was found to have arisen firstly from his
failure to comply with the statutory requirements [s 4(1) read with s 7 of
the National Building Standards Act]. Secondly, it was held that he had
‘caused the balcony to be constructed without regard to its structural
integrity, by insisting that vertical support posts should not be used’ when
having regard to the fourth defendant’s [Lamberts’] evidence.
[10] Classen was found to have been negligent on several grounds. The
court held that:
*
he should have known that council approval was necessary before a structure
such as a balcony could be installed;
*
he had a duty ‘to investigate and advise’ Pienaar;
*
he should have foreseen the risk of danger in consequence of the work he
employed the contractor [Lamberts] to perform without council approval;
*
he was in a position to take steps to guard against the danger and he did not
take the steps in question;
*
he ought to have appointed an engineer or a structural technician;
*
he agreed ‘to change the design of the balcony and installation without virtual
supports;
*
he is liable [therefore] for the negligent conduct of his sub-contractor
(Lamberts).
[11] In Langley Fox Building Partnership (Pty) Ltd v De Valence,1 a
case in which an independent contractor was employed to perform the
work, the test for liability of the employer of the independent contractor
as it applies to cases such as the present matter, was enunciated by
Goldstone AJA as follows:
‘[T]here are three broad questions which must be asked, viz:
(1)
would a reasonable man have foreseen the risk of danger in consequence of
the work he employed the contractor to perform? If so,
(2)
would a reasonable man have taken steps to guard against the danger? If so,
(3)
were such steps duly taken in the case in question? (See also Chartaprops
16 (Pty) Ltd v Silberman.2) This emphasises the point that the liability in
these cases is personal not vicarious, and that it is not a question of the
liability of the employer being passed to the independent contractor and
thence to any sub-contractor, but a question of the respective individual
liability of each of them. As Goldstone AJA pointed out that where the
answer to the first two questions is in the affirmative does a ‘legal duty
arise, the failure to comply with which can form the basis of liability.’
1 1991 (1) SA 1 (A) at 12H-J.
2 2009 (1) SA 265 (SCA) at para 42, [2008] ZASCA 115.
[12] It bears mention that in order to satisfy requirement (3) a party is
required to take no more than reasonable steps to guard against harm to
the public. Whether or not such threshold has been achieved depends
upon a consideration of all the facts and circumstances of the case. The
fact that the harm which was foreseeable did eventually occur would not
mean that the steps taken were necessarily unreasonable. Ultimately the
enquiry involves a value judgment (See Chartaprops at para 48; Pretoria
City Council v De Jager.)3
[13] Turning to the facts of this case, it is convenient to consider the
question of Pienaar and Classen’s possible negligence vis-à-vis the
plaintiffs separately. As to Pienaar the court below found him to be
negligent on two grounds. First, he was said to be negligent in failing to
comply with the statutory requirements to submit plans in respect of the
balcony, in circumstances where a reasonable person in his position
would have made enquiries before commencing with the installation of
the balcony. Secondly, it was found that he had caused the balcony to be
constructed without regard to its structural integrity, by insisting that
vertical supports not be used in its construction. In argument it was
sought to contend that he had also failed to take adequate steps to ensure
that a competent contractor was employed, but this case was not pleaded
and it is not supported by the evidence. It can therefore be disregarded.
[14] There can be no question that as a general proposition any person
(Pienaar included) who causes a two metre high balcony to be erected at
his home would foresee the risk of harm to a person stepping onto it if it
was not properly secured. As such he would have been expected to take
reasonable steps to avoid harm to such a person who might be injured in
3 1997 (2) SA 46 (A) at 55H-I.
the event of the structure collapsing. The real question before us is what
steps should have been taken and whether Pienaar took those steps to
avoid the risk of harm to the plaintiffs in terms of requirement (3) of the
Langley Fox test as set out in paragraph 11 above.
[15] As already indicated Pienaar did not submit any plans for the
balcony in question as he had done previously when he did alterations
and additions to his house in 2002. He did not make enquires from his
builder, Classen, as to whether plans were required for undertaking this
type of work. Consequently the question that arises is whether this failure
rendered Pienaar liable in damages arising from the collapse of the
balcony. In the way the case has been pleaded it does not appear that the
plaintiffs are relying on the breach per se as creating liability or providing
them with a right to claim damages. How one goes about determining
whether the statute provides for such a right of action was alluded to by
Cameron JA in Olitzki Property Holdings v State Tender Board 2001 (3)
SA 1247 (SCA) at para 12 where he said:
‘Where the legal duty the plaintiff invokes derives from breach of a statutory
provision, the jurisprudence of this Court has developed a supple test. The focal
question remains one of statutory interpretation, since the statute may on a proper
construction by implication itself confer a right of action, or alternatively provide the
basis for inferring that a legal duty exists at common law. The process in either case
requires a consideration of the statute as a whole, its objects and provisions, the
circumstances in which it was enacted, and the kind of mischief it was designed to
prevent.’
[16] On a proper reading of the Act there is nothing to suggest that a
failure to comply with its requirement would necessarily lead to liability.
On the facts of this case what makes it particularly problematic is that on
the available expert evidence it is not the failure to submit plans that
caused the balcony to collapse, but the manner in which it was fixed to
the wall. It is unnecessary to consider whether in other circumstances a
failure to submit plans for approval may ground a claim for damages. In
this case it cannot do so because there is no causal link between that
failure and the collapse of the balcony.
[17] As to the second ground of negligence advanced against Pienaar
and accepted by the court below, namely, that he caused the balcony to be
constructed without regard to its structural integrity, by insisting that the
vertical supports not be used in its construction, here again the point
breaks down in the light of the evidence presented in court. There was no
evidence that the vertical posts would have prevented the balcony from
collapsing when it pulled out of the wall from its fixings. Nor was this
proposition supported by Mr Ugo Giuseppe Rivera, a Structural Engineer
who testified as an expert witness at the trial. All that he was prepared to
say in that regard was that the posts ‘would have reduced the tension
force on the fixings which, in the end were the cause of failure.’ Even if it
is assumed however that pillars would have helped there is no evidence
that Pienaar had reason to think that their exclusion could be a source of
danger. Cantilevered balconies are a sufficiently common feature of
houses for a lay-person like Pienaar to believe ─ and correctly so ─ that a
suitably qualified person will erect it safely.
[18] It seems to me that Pienaar took all reasonable steps to ensure that
a proper balcony was designed, erected and installed. He contracted
Classen, a builder of some 20 years standing, whom he (and his life
partner De Bruin) believed had the necessary ability, integrity and
expertise to undertake the work. Classen came with the necessary
credentials, as being on the Absa Panel of Contractors, a group of
contractors shortlisted by a major bank to do alterations and additions for
their clients. Pienaar had no reason to think that Classen or his corporate
entity would not perform the work in a professional or workmanlike
manner or would fail to appoint a similarly qualified person as a sub-
contractor.
[19] Pienaar could not do the work himself as he had no expertise to do
so. It cannot be said that he acted unreasonably. I consider him to have
complied with the third leg of the Langley Fox test and he is accordingly
not liable to the plaintiffs for the damages claimed.
[20] Turning to Classen, it must be borne in mind that from the outset
he disavowed any skill or expertise in the design, manufacture or
installation of a steel balcony. His mandate was limited to finding a
contractor who had the necessary expertise in that field. And so no
mandate was given to Classen to manufacture or erect the steel balcony.
The person who was to perform the work, Lamberts, was introduced to
Pienaar and De Bruin and on occasion they interacted with him directly.
Having regard to the evidence as a whole it is clear that the balcony
collapsed as a result of the negligent manner in which Lamberts fixed it
to the wall. At the last minute he used coach screws instead of the
intended rawl bolts and positioned them incorrectly.
[21] The first question is whether Classen can be held vicariously liable
for the negligence of Lamberts. The answer is no. As pointed out in
Langley Fox, the general rule of our law is that an employer is not
responsible for the negligence or the wrongdoing of an independent
contractor employed by him. (See Langley Fox at 8A-B.) I consider that
on the facts of this case Classen falls in the category of the aforesaid
employer and was not responsible for the negligence of Lamberts.
[22] This second question is whether any personal fault can be
attributed to Classen. The absence of vicarious liability does not mean
that there cannot be situations in which an employer, or principle
contractor, may be liable because of their own negligence. In the present
matter Classen would not escape liability if there was evidence
implicating him in negligence. In the present matter there is no such
evidence.
[23] It is true that he too is implicated in the failure to submit plans and
is perhaps more culpable than Pienaar. But for the reasons given in
relation to Pienaar this is not causally linked to the collapse of the
balcony and is therefore irrelevant.
[24] There was some suggestion that when he arrived at the scene
during the installation of the balcony he too asked Lamberts to remove
the vertical support posts by saying he should do what the client wishes.
As already indicated the vertical posts were not shown or alleged to be a
factor in the collapse of the balcony. I have already alluded to the fact
that Rivera was not even asked any questions about it. Of greater
importance is that Classen had no reason to believe that Lamberts had
fixed the balcony to the wall in an inadequate fashion.
[25] Classen had no means to prevent the collapse of the balcony. His
evidence was that when he arrived at the scene the balcony was already
installed. There is evidence that the head of the coach screws used to fix
it in place were the same in appearance as those of rawl bolts. That being
so, he had no means of telling that inadequate fastenings were used. Nor
had he any knowledge that they were wrongly positioned because they
had been inserted into plaster instead of brick. In my view no negligence
was proved against Classen and he should not have been found liable.
[26] In the result the following orders are made:
1.
The appeals are allowed.
2.
The first and second respondents are ordered to pay the appellants’
costs.
3.
The order of the court below is set aside and replaced with the
following:
‘1.
The first and second plaintiffs’ claims against the first, second and
third defendants are dismissed.
2.
The first and second plaintiffs are ordered to pay the costs of the
first, second and third defendants, jointly and severally the one paying the
other to be absolved.
3.
The fourth and fifth defendants are found to be liable jointly and
severally the one paying the other to be absolved for whatever damages
the first and second plaintiffs might prove for injuries sustained by them
as a result of the collapse of the balcony on 25 April 2004.
4.
The fourth and fifth defendants are ordered to pay the plaintiffs’
costs of suit, jointly and severally the one paying the other to be absolved,
including the qualifying expenses of the plaintiffs expert witness Mr U
Rivera and the costs of the application for absolution from the instance.’
____________________________
KK MTHIYANE
JUDGE OF APPEAL
NUGENT JA (concurring)
[27] Cases like this one bring to mind the game known as ‘pass the
parcel’. They arise when the responsibility for performing a task is passed
from hand to hand until ultimately it reaches the person or persons who
actually do the work, whether as employees or as independent
contractors. The question that can arise in such cases is who (if anyone)
bears liability (I am referring to direct liability and not liability that might
arise vicariously) if the performance (or failure to perform) the task
causes foreseeable harm to a third party? Unless one is to say that liability
always falls only upon the person or persons at the end of the line who
actually did the work it follows that somewhere along the line there might
be a party whose legal responsibility is not discharged by assigning the
work to someone else but only by ensuring that the work is properly
done. That is not a matter of jurisprudence but a matter of logic.
[28] That occurred in Chartaprops 16 (Pty) Ltd v Silberman.4 The task
of maintaining the cleanliness of the floors of a shopping mall was
assigned by the owner to a cleaning contractor who in turn assigned it to
employees who did the cleaning. The effect of the decision in that case
was that responsibility for the consequences of failing to maintain the
cleanliness of the floors passed from the owner to the contractor but there
it stopped. (Whether or not the cleaners were also vulnerable to liability
on one basis or another was not considered). Notwithstanding that an
ordinarily adequate system had been put in place the system was not
adhered to by one or other of the cleaners and on that basis the trial court
4 2009 (1) SA 265 (SCA).
found (this court confined itself to endorsing that finding5) that because
the employees ‘failed to take reasonable steps to detect and remove [the
hazard]’ the system was ‘not sufficiently adequate to detect and remove
spillages with reasonable promptitude’. Although not expressed in terms I
think it is evident that the court considered that a reasonable contractor
was required not merely to put in place an adequate system but also to
ensure that the work was indeed done.
[29] This case once again involves three parties. The owner (Mr
Pienaar) assigned work to a contractor (Mr Classen) who assigned it to a
sub-contractor (Mr Lamberts). All three knew (or at least ought to have
known) that harm could be caused to third parties if the work was not
properly done. The question before us is whether they (or either of them)
are liable for such harm when it occurred.
[30] The legal test to be applied when answering that question, as
pointed out by my colleague, is that set out in Langley Fox (which repeats
in substance the traditional test for negligence articulated in Kruger v
Coetzee6) and for present purposes we need concern ourselves only with
the third leg of that test.
[31] I agree with my colleague that no more could reasonably be
expected of Mr Pienaar, who had no expertise in the field, than to pass the
work on to an experienced building contractor, in the expectation that he
would pass it on to a person whom he considered to be an expert. As for
Mr Classen it was argued on behalf of the respondents – much along the
lines of the finding in relation to the contractor in Chartaprops – that his
5 Para 4.
6 1996 (2) SA 428 (A) at 430E-H.
responsibility did not stop with passing the work on to Mr Lamberts but
he was called upon also to ensure that it was properly done. Mr Classen
also had no expertise in this particular field and once more I do not think
that could reasonably be expected of a building contractor in that
position.
[32] Thus I agree with my colleague that neither Mr Pienaar nor Mr
Classen were shown to have been negligent and I concur in the order he
proposes.
______________________
RW NUGENT
JUDGE OF APPEAL
Appearances:
For 1st Appellant:
AG Sawma
Instructed by:
Shakenovksy-Nysschen c/o Fairbridges
Attorneys Cape Town
Lovius Block Attorneys Bloemfontein
For 2nd & 3rd Appellants:
JC Butler SC
Instructed by:
Everinghams Attorneys Cape Town
Webbers Attorneys Bloemfontein
For 1st & 2nd Respondents:
PA Corbett
Instructed by:
Malcolm Lyons & Brivik Inc Cape Town
Matsepes Inc Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
1 December 2009
STATUS:
Immediate
PA Pienaar v RJ Brown (48/2009)[2009] ZASCA 165 (1 December 2009)
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal
The SCA today allowed appeals by a property owner, a building contractor and his
sub-contractor who were sued for damages in the Cape High Court, arising out of
injuries which Mr Russell Brown and Mr John Sloep of Netherlands sustained when
they were injured at the home of Mr Pieter Pienaar in Green Point, Cape Town on 25
April 2004, when the steel balcony on which they were standing collapsed.
They had attended a birthday party at the home of Mr Pienaar. While the guests,
including Mr Brown and Mr Sloep were gathered in the lounge on the top floor a car
alarm went off. Some of the guests (amongst whom were Brown and Sloep) went to
see what was happening. As they stepped or stood on the balcony it collapsed. Brown
and Sloep were seriously injured. Their claims for damages had succeeded in the
Cape High Court.
On appeal the SCA found that the house owner (Pienaar), the builder (Classen, of
Classen’s Home Improvements) had no reason to think that the sub-contractor, Mr
Lamberts of Ven Projects CC who was an expert in steel works, would not do the
work in an efficient and workmanlike manner. It was found that the claimants, Brown
and Sloep, had been injured as a result of the negligent conduct of the sub-contractor,
Mr Lamberts and his corporate entity, Ven Projects CC.
It was found that the balcony had not been properly fixed to the wall but had been
attached to it by couch screws instead of rawl bolts.
The sub-contractor Lamberts and his company had not appealed the decision in which
they were found by the high court to be liable for the damages suffered by Mr Brown
and Mr Sloep.
|
4160
|
electoral
|
2024
|
IN THE ELECTORAL COURT OF SOUTH AFRICA
HELD AT BLOEMFONTEIN
Reportable
Case number: 008/2023 EC
In the matter between:
ARISE AFRIKA ARISE (AAAR)
APPLICANT
and
ELECTORAL COMMISSION OF SOUTH AFRICA
RESPONDENT
Neutral Citation:
Arise Afrika Arise (AAAR) v Electoral Commission of South Africa
(008/2023 EC) [2024] ZAEC 01 (16 January 2024)
Coram:
ZONDI JA, MODIBA J and SHONGWE AJ and PROFESSOR NTLAMA-
MAKHANYA (Additional member)
Heard:
08 November 2023
Delivered:
This judgment was handed down electronically by circulation to the parties’
representatives by email, publication on the Supreme Court of Appeal website and
release to SAFLII. The date and time for hand-down is deemed to be 11h00 on 16 January
2024
Summary: Application for registration of political party in terms of s 15 of the Electoral
Commission Act 51 of 1996 (the Act) – Electoral Commission rejected application on the
grounds that the applicant’s name resembles that of another registered party in terms of
s 16 and the signatures of registered voters submitted by the applicant do not meet the
threshold set by regulation 3 of the Regulations of the Act – Chief Electoral Officer has
no discretion to condone non-compliance with s 15 requirements.
______________________________________________________________________
ORDER
______________________________________________________________________
The application is dismissed with costs.
______________________________________________________________________
JUDGMENT
______________________________________________________________________
Zondi JA (Modiba J and Shongwe AJ and Professor Ntlama-Makhanya (Additional
member) concurring):
[1] On 15 August 2023 the applicant brought an application to this Court seeking the
following relief:
(a) to review and set aside the respondent’s decision of 2 August 2023 in terms of which
the respondent, the Independent Electoral Commission (Commission), dismissed the
applicant’s appeal against the decision of the Deputy Chief Electoral Officer to refuse to
register the applicant as a political party in terms of s 15 of the Electoral Commission Act
51 of 1996 (the Act);
(b) to condone the delay in bringing the review application; and
(c) additional declaratory relief.
[2] Two issues arise for determination in this matter. The first is whether the delay
should be overlooked, and the other is whether the respondent’s refusal to register the
applicant is unlawful and irrational.
[3] The applicant, Arise Afrika Arise with an abbreviated name ‘AAAR’, brought this
application in terms of s 20(1)(a) and (b) of the Act which gives this Court powers to review
any decision of the respondent. The founding affidavit filed in support of the relief sought
in the notice of motion was deposed to by Mr Ben Suping Mothupi who describes himself
as the founder, leader and president of Arise Afrika Arise. The application is late. It should
have been brought within 3 days after 2 August 2023 in terms of rule 6 of the Rules of
this Court. Hence Arise Afrika Arise has filed an application for condonation of the late
filing of the review application.
[4] Arise Afrika Arise alleges that the delay was caused, first, by a lack of clarity in the
respondent’s reasons to dismiss its appeal. It states that the respondent did not explain
why it contended that the signatures furnished were fraudulent. Hence on 4 August 2023,
Arise Afrika Arise requested the respondent to furnish it with full reasons for the decision.
In a letter dated 7 August 2023, the respondent informed Arise Afrika Arise that it had no
further reasons to furnish because it provided detailed reasons in the appeal decision.
[5] Secondly, Arise Afrika Arise blames the delay on the administrative challenges it
experienced in preparing this application. Arise Afrika Arise alleges that after receiving
the respondent’s letter of 7 August 2023, it had to gather the necessary information and
documents required for the preparation of the review application from its members who
were not immediately available. As regards the merits, Arise Afrika Arise denies that its
name resembles that of Arise South Africa or that the signatures on its deed of foundation
were fraudulent. It accordingly submits that its review application has good prospects of
success.
[6] The question is whether on these facts, the delay in bringing this application should
be condoned. The Constitution Court has made it clear that the test to be applied in
condonation applications is the interests of justice. In Glenister v President of the Republic
of South Africa and Others,1 the Constitutional Court described the test as follows:
‘The test for determining whether condonation should be granted is the interests of justice. Factors
that are relevant to this determination include, but are not limited to, the nature of the relief sought,
the extent and cause of the delay, the effect of the delay on the administration of justice and other
litigants, the reasonableness of the explanation for the delay or defect, the nature and cause of
any other defect in respect of which condonation is sought, the importance of the issue to be
decided in the intended appeal and the prospects of success.’
1 Glenister v President of the Republic of South Africa and Others [2011] ZACC 6; 2011 (3) SA 347 (CC);
2011 (7) BCLR 651 (CC) para 41.
[7] The interests of justice test require due consideration of all relevant factors. In
Mulaudzi v Old Mutual Life Assurance Company (South Africa) Limited and Others,
National Director of Public Prosecutions and Another v Mulaudzi,2 this Court set out the
factors that should be taken into account when considering an application for
condonation:
‘What calls for an explanation is not only the delay in the timeous prosecution of the appeal, but
also the delay in seeking condonation. An appellant should, whenever he realises that he has not
complied with a rule of this court, apply for condonation without delay. A full, detailed and accurate
account of the causes of the delay and their effects must be furnished so as to enable the Court
to understand clearly the reasons and to assess the responsibility. Factors which usually weigh
with this court in considering an application for condonation include the degree of non-compliance,
the explanation therefor, the importance of the case, a respondent’s interest in the finality of the
judgment of the court below, the convenience of this court and the avoidance of unnecessary
delay in the administration of justice.’
[8] Section 20(1)(a) of the Act does not stipulate the time within which the review
applications should be brought. It merely requires that any such review must be
conducted on an urgent basis and disposed of as expeditiously as possible. The time
within which the review must be brought is stipulated in rule 6 of the Rules of this Court.
As already stated, this rule requires the review application to be submitted to the
Secretary of this Court within three days after the decision was made. Applied to the facts
of this case, it means that the applicant should have brought the review application by no
later than 7 August 2023. The application is therefore seven days late, which cannot be
considered as excessive.
[9] What concerns me is the explanation for the delay. It is lacking in substance and
is not satisfactory. There was nothing unclear about the respondent’s decision to reject
the appeal. The respondent had provided, in the appeal decision, full reasons for
dismissing Arise Afrika Arise’s appeal. As to the second reason for the delay, Arise Afrika
2 Mulaudzi v Old Mutual Life Assurance Company (South Africa) Limited and Others, National Director of
Public Prosecutions and Another v Mulaudzi [2017] ZASCA 88; [2017] 3 All SA 520 (SCA); 2017 (6) SA 90
(SCA) para 26.
Arise does not explain why it could not launch the review proceedings based on the
material that it had at hand and why further information was necessary for it to bring the
review application.
[10] Notwithstanding Arise Afrika Arise’s failure to give full explanation for the delay, I
would, in the interests of justice, grant condonation. It would not be in the interests of
justice to refuse condonation in circumstances where the delay, though not fully
explained, is short and the right sought to be asserted is a political right to which every
citizen of this country is entitled under the Constitution. This right encompasses the right
to form a political party, to campaign for a political party or cause and to participate in the
activities of a political party. The respondent has not been prejudiced by the delay. In any
event, Arise Afrika Arise’s members would be more prejudiced than the respondent if
condonation were to be refused.
[11] What weighs heavily in favour of granting condonation is that the delay was of
short duration – it is about seven days – and the importance of the constitutional issues
sought to be asserted. The citizens have the right to freedom of association and the right
to form a political party and to right to campaign for a political party or cause.3 These
fundamental rights must be protected, and the voters should not be punished because of
the ineptitude of the leaders of their political parties.
[12] After all these preliminaries, the attention can now be directed to the merits of the
review. A convenient starting point is to outline the legislative framework against which
the matter must be considered. Sections 15 and 16 are located in Chapter 4 of the Act
which deals with registration of parties. Section 15 provides as follows:
‘(1) The chief electoral officer shall, upon application by a party in the prescribed manner and
form, accompanied by the items mentioned in subsection (3), register such party in accordance
with this Chapter in respect of –
(a) the entire Republic;
(b) a particular province; or
3 As contained in ss 18 and 19 of the Constitution of the Republic of South Africa, 1996.
(c) a particular district or metropolitan municipality,
Provided that a party registered for a –
(i) particular province may under such registration only participate in elections for that
provincial legislature and for all the municipal councils in that province;
(ii) metropolitan municipality may under such registration only participate in elections
for that metro council; or
(iii) district municipality may under such registration only participate in elections for
that district council and for the local council falling within the area of that district
municipality.
(2) The form shall, inter alia, make provision for the following:
(a) the name of the party;
(b) the distinguishing mark or symbol of the party in colour; and
(c) the abbreviation, if any, of the name of the party consisting of not more than eight
letters.
(3) The application shall be accompanied by –
(a) that party’s deed of foundation which has been adopted at a meeting of, and has been
signed by the prescribed number of persons who are qualified voters;
(b) the prescribed amount, if any; and
(d) that party’s constitution.
(4) The party’s deed of foundation shall contain the prescribed particulars.
(4A) A party applying for registration in terms of subsection (1) must publish the prescribed notice
of the application in –
(a) the Gazette, in the case of an application referred to in subsection (1)(a);
(b) the relevant provincial Gazette, in the case of an application referred to in subsection
(1)(b); or
(c) the relevant provincial Gazette or a newspaper circulating in the municipal area
concerned, in the case of an application referred to in section (1)(c).
(4B) Any person may object to an application contemplated in subsection (1) in the prescribed
manner and form within 14 days after the publication of the prescribed notice of the application.
(5) After a party has been registered the chief electoral officer shall issue that party with a
registration certificate in the prescribed form and publish the prescribed particulars of such
registration in the Gazette.
(6) Every registered party not represented in a legislative body shall annually renew its registration
in the prescribed manner and at the prescribed time.
(7) A party that is registered for a particular local municipality on the date on which the Electoral
Laws Amendment Act, 2021, comes into operation, must be deemed to be registered in respect
of the district municipality within whose jurisdictional area that local municipality is situated.’
[13] It is significant to note that in terms of s 15, the Chief Electoral Officer is obliged to
register a party whose application complies with all the requirements set out in that
section. This is apparent from the language of s 15. Section 15(1) uses the term ‘shall’
which in the context of this section means ‘must’. The term ‘shall’ should be construed as
peremptory rather than directory. One of the requirements stipulated in s 15(3) is that ‘the
application must be accompanied by the party’s deed of foundation which has been
adopted at a meeting of and has been signed by the prescribed number of persons who
are qualified voters’. The requisite number is 1000 qualified voters. The Chief Electoral
Officer must reject an application which does not meet this threshold. He or she does not
have authority to condone non-compliance. The section does not afford him or her
discretion.4
[14] The circumstances in which a registration application may be refused are
specifically set out in s 16(1). In terms of this section, the Chief Electoral Officer may not
register a party if ‘a proposed, abbreviated name…in the application resembles the name,
abbreviated name…of any other registered party to such an extent that it may deceive or
confuse voters’.5 The use of the term ‘may’ indicates that the Chief Electoral Officer has
a discretion. The term ‘may’ as used in this section was not intended to empower the
Chief Electoral Officer to refuse the application on the grounds other than those specified
in the section; the intention was merely to give the Chief Electoral Officer a discretion and
not make it obligatory to refuse the application. Obviously, he or she must exercise that
discretion judiciously by considering all the factors that are relevant to the decision.6 The
second observation to make is that the Chief Electoral Officer exercises his or her powers
independently of the existence of any objection to the name proposed. The existence of
4 See Minister of Environmental Affairs and Tourism and Others v Phambili Fisheries (Pty) Ltd and Another
[2003] ZASCA 46; [2003] 2 All SA 616; see also Minister of Environmental Affairs and Tourism v Du Toit
and Others [2003] ZASCA 77 [2003] 4 All SA 1 para 31.
5 Section 16(1)(b) of the Electoral Commission Act 51 of 1996.
6 Action SA v The Electoral Commission of South Africa [2022] ZAEC 2 para 31.
an objection is not a jurisdictional requirement for the exercise of his or her discretion.
There is no suggestion by Arise Afrika Arise that, in rejecting its application, the Chief
Electoral Officer grossly misdirected himself. It follows that the application should fail.
[15] Section 16(2)(a) and (b) provides for the right of appeal to the Commission:
‘(a) An applicant who is aggrieved by a decision of the chief electoral officer not to register that
party may, within 30 days after the party has been notified of the decision, appeal against the
decision to the Commission in the prescribed manner.
(b) Any person who objected to an application in terms of section 15(4B) and who is aggrieved
by a decision of the chief electoral officer to register that party may, within 30 days after publication
of the notice referred to in section 15(5), appeal against the decision to the Commission in the
prescribed manner.’
[16] The powers of the Commission on appeal are set out in s16(4) as follows:
‘In considering such an appeal against the refusal to register a party in terms of subsection (1) (a)
the Commission-
(a) shall take into account the fact that the party which is associated with the name, abbreviated
name, distinguishing mark or symbol, as the case may be, for the longest period, should prima
facie be entitled thereto;
(b) may, for the purposes of paragraph (a)—
(i) afford the parties concerned an opportunity to offer such proof, including oral evidence
or sworn or affirmed statements by any person which, in the opinion of the Commission,
could be of assistance in the expeditious determination of the matter; and
(ii) administer an oath or affirmation to any person appearing to testify orally before it.
[Sub-s. (4) amended by s. 29 of Act No. 34 of 2003.]’
[17] Back to the narrative. On or about 23 May 2023, Arise Afrika Arise applied for
registration as a political party in terms of s 15 of the Act. The application was considered
by the Deputy Chief Electoral Officer: Electoral Operations. On 22 June 2022, he rejected
the application on two grounds, first, that the signatures of the registered voters on the
deed of foundation showed patterns of discrepancies which, in his view, indicated that the
signatures were made by a person or persons other than the voter in contravention of
regulation 3(1)(a)(i) of the Regulations for the Registration of Political Parties, 2004,
promulgated under the Act. This regulation requires that the deed of foundation of a party
seeking national registration – such as Arise Afrika Arise – must be signed by 1000
registered voters. Secondly, the Deputy Chief Electoral Officer found, in terms of s 16,
that the name ‘Arise Afrika Arise’ was almost similar to that of an existing party namely
Arise South Africa and that it was likely to confuse or deceive the voters.
[18] Aggrieved by the rejection decision, Arise Afrika Arise lodged an appeal with the
respondent. It contended that the Deputy Chief Electoral Officer erred in finding that its
name resembles that of another registered party and that it was likely to confuse or
deceive the voters. Notably, in its grounds of appeal, Arise Afrika Arise did not challenge
the respondent’s finding that the signatures of registered voters on the deed of foundation
were fraudulent and that the names of some of the registered voters on the deed of
foundation were duplicated. In the circumstances, that finding still stands.
[19] Arise Afrika Arise contended that the decision to reject its registration application
on the basis that its proposed name was similar to that of Arise South Africa was unfair
and inconsistent with the respondent’s previous actions in registering the other political
parties with similar names. Arise Afrika Arise accused the respondent of being
inconsistent in the manner in which it applied the regulations regulating the registration of
political parties. It alleged that the respondent had caused parties such as Aboriginal
Khoisan – A.K.S, which it said shares a striking similarity with the name Aboriginal
Kingdom Alliance – AKA; African Born Freedom Fighters – ABFF, which is similar to that
of Economic Freedom Fighters – EFF and African Economic Freedom – AEF to be
registered. Arise Afrika Arise averred that the respondent’s decision to refuse its
registration demonstrated glaring acts of corruption, mala fides, and abuse of power.
[20] On 2 August 2023, the respondent dismissed Arise Afrika Arise’s appeal and
confirmed the Deputy Chief Electoral Officer’s decision (appeal decision). It reasoned that
the registration of the name ‘Arise Afrika Arise’ was likely to deceive or confuse voters in
circumstances where there is ‘an increasing phenomenon of registered parties’. It
correctly found that as Arise Afrika Arise had not challenged the finding that its application
for registration failed to comply with regulation 3, which also formed the basis of the
Deputy Chief Electoral Officer’s decision, there was no basis to interfere with the decision.
[21] As stated in para 1 above, Arise Afrika Arise, still not satisfied with the respondent’s
appeal decision, brought this application on 15 August 2023 seeking the review and
setting aside of the respondent’s decision. Arise Afrika Arise anchors its review on the
Promotion of Administrative Justice Act 3 of 2000 (PAJA). The review is based on the
following grounds:
(a) the decision to reject its registration on both grounds advanced by the respondent is
irrational and lacks any basis in law as there are no similarities between its name and that
of Arise South Africa and there is no evidence of voter confusion;
(b) the decision was made without affording Arise Afrika Arise an opportunity to be heard,
nor was it provided any explanation for the decision;
(c) the respondent failed to adhere to its own guidelines and procedures relating to raising
of objections and no party had objected to its name;
(d) the respondent’s decision to reject its registration violated its constitutional rights; and
(e) Arise Afrika Arise was unfairly treated.
[22] Arise Afrika Arise submitted that the respondent’s refusal to register it as a political
party is arbitrary, unreasonable and unlawful and amounts to a failure to exercise its
powers in accordance with the principles of administrative justice. It denies that the name
Arise Afrika Arise (AAAR) is substantially similar to that of Arise South Africa (ASA). In
support of the denial, Mr Mothupi, the deponent to the founding affidavit, pointed to the
fact that there was a clear distinction between the names Arise Afrika Arise and Arise
South Africa in terms of linguistic elements and distinct identifiers. He maintained that
Arise Afrika Arise is focused on uplifting Africa, whereas Arise South Africa’s focus is on
the upliftment of South Africa specifically. He argued that voters are intelligent and have
the capacity to differentiate between political parties based on their unique names,
ideologies, and policy platforms. He argued that the respondent failed to provide evidence
that the voters would be confused. Mr Mothupi accordingly submitted that there was no
basis for the respondent to reject Arise Afrika Arise’s application in circumstances
especially where neither Arise South Africa nor any other political party had objected to
its application.
[23] In argument before us, counsel for the respondent submitted that Arise Afrika Arise
had not made out a case for the relief it seeks and urged this Court to dismiss the
application. He argued that it was not open to Arise Afrika Arise to challenge, in these
proceedings, the respondent’s finding that it failed to comply with regulation 3 when such
finding was not challenged on appeal for the respondent to consider. In the alternative, it
was submitted by counsel that the signatures of the registered voters on the deed of
foundation submitted by the applicant are plainly different from the voters’ actual
signatures that they provided the respondent when they registered to vote. He pointed to
the similarities of the signatures and the names of some of the voters appearing twice in
the list but having different signatures and the voters coming from over 150 municipalities
but yet they all signed a pre-printed list. In addition, it was submitted on behalf of the
respondent, that the respondent was correct to conclude that the name ‘Arise Afrika Arise’
is too similar to Arise South Africa that it may cause confusion or deceive voters.
[24] At the hearing it became clear that Arise Afrika Arise should not have brought this
application. This much was conceded by Arise Afrika Arise’s representative. I have two
fundamental problems with Arise Afrika Arise. First, Arise Afrika Arise sought to attack
the decision by impermissibly advancing a new ground which was not raised in an appeal
before the respondent. Secondly, it had no response to the finding that the signatures of
registered voters on the deed of foundation were fraudulent. When Mr Mothupi realized
the magnitude of shortcomings in Arise Afrika Arise’s application, he capitulated and
sought leave to withdraw it conceding that the decision to bring the application was ill-
advised. The respondent strongly objected to the request, contending that Arise Afrika
Arise should have withdrawn its application before the hearing as it was clear from the
outset that its claims were unfounded. This Court upheld the respondent’s objection, more
so since Arise Afrika Arise has made allegations of fraud against the respondent. The
respondent is entitled to a finding whether or not these allegations have any foundation.
[25] The question is whether the decision of the respondent was irrational and/or
unreasonable or unlawful. Reasonableness and rationality as grounds of review are dealt
with in a number of overlapping instances in PAJA. Specifically, s 6(2)(e)(iv) of PAJA
provides that administrative action is reviewable if the action was taken ‘arbitrarily or
capriciously’. Similarly, s 6(2)(f)(ii) provides that administrative action is reviewable where
the action is not rationally connected to the purpose for which it is taken, the purpose of
the empowering provision, the information before the administrator or the reasons given
for it by the administrator. In addition, s 6(2)(h) provides that administrative action is
reviewable where the decision ‘is so unreasonable that no reasonable person could have
so exercised he power or performed the function’.
[26] The respondent was exercising public powers when it made the impugned
decision. It derives its powers from ss 15 and 16 of the Act. These sections give the
respondent powers to consider and grant or refuse registration applications under certain
circumstances. It is trite that all exercises of public power are subject to the rule of law
and more specifically the doctrine of legality.7 In Fedsure Life Assurance Ltd and Others
v Greater Johannesburg Transitional Metropolitan Council and Others,8 the Constitutional
Court confirmed that every sphere is constrained by the principle that no exercise of
power or performance of a function may be beyond that extended in law. In President of
the Republic of South Africa and Others v South African Rugby Football Union and
Others,9 the Constitutional Court expanded upon this explanation, giving content to the
doctrine of legality. In Pharmaceutical Manufacturers Association of South Africa and
Another: In re Ex Parte President of the Republic of South Africa and Others,10 the
Constitutional Court held that the doctrine of legality means that the exercise of public
power cannot be arbitrary.
7 AAA Investments (Proprietary) Limited v Micro Finance Regulatory Council and Another [2006] ZACC 9;
2006 (11) BCLR 1255 (CC); 2007 (1) SA 343 (CC) para 29.
8 Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and
Others [1998] ZACC 17; 1999 (1) SA 374; 1998 (12) BCLR 1458 para 57-59.
9 President of the Republic of South Africa and Others v South African Rugby Football Union and Others
[1999] ZACC 11; 2000 (1) SA 1; 1999 (10) BCLR 1059 para 148.
10 Pharmaceutical Manufacturers Association of South Africa and Another: In re Ex Parte President of the
Republic of South Africa and Others [2000] ZACC 1; 2000 (2) SA 674; 2000 (3) BCLR 241 para 85.
[27] I cannot find fault with the respondent’s conclusion that the name Arise Afrika Arise
so resembles that of Arise South Africa to such an extent that it may deceive or confuse
voters as contemplated in s 16(1)(b) of the Act. The purpose of this section was
considered by this Court in Cape Party v Electoral Commission and Another 11 in an
appeal brought by the Cape Party against the decision of the Electoral Commission
upholding the decision of the Chief Electoral Officer to dismiss Cape Party’s objection to
the application for the registration of ‘COPE’ as the abbreviated name of the Congress of
the People. Cape Party contended that the abbreviated name ‘COPE’ resembles its name
in contravention of s 16(1)(b) of the Act.
[28] This Court held that the section was enacted for the protection of the voting public
and not so much, if at all, for the protection of the parties.12 It is apparent from the
language of the section that primarily, the section was intended to protect the voters –
both partisan voters and undecided voters – from being deceived or confused by the use
by one party of the name, abbreviated name, distinguishing mark or symbol which
resembles that of another registered party. What is prohibited is the use of the offending
name in relation to activities concerning the elections, be it the use on the ballot paper or
campaigning material. The prohibition does not extend to the use unrelated to election
activities.
[29] On a comparison of the two names, it can properly be said that there is a
reasonable likelihood of confusion if both are to be used together on the ballot paper. The
emphasis in both names is on the two words ‘Arise’ and ‘Afrika’. An undecided voter may
cast his or her vote for Arise Afrika Arise when in fact his or her intention is to vote for
Arise South Africa or may put his or her mark next to Arise South Africa when his or her
intention is to cast his or her vote for Arise Afrika Arise. The respondent was therefore
entitled to refuse to register it.
11 Cape Party v Electoral Commission and Another [2009] ZAEC 1.
12 Ibid at 9.
[30] Arise Afrika Arise has no answer to the Deputy Chief Electoral Officer and the
respondent’s finding that the signatures of the registered voters on its deed of foundation
were fraudulent. Section 15(3)(a) requires an application to include ‘that party’s deed of
foundation which has been adopted at a meeting of and has been signed by the
prescribed number of persons who are qualified voters’. Regulation 3 requires that the
deed of foundation must be signed by 1000 registered voters. The signatures provided
by Arise Afrika Arise were not signatures of registered voters. For instance, several voters
were repeated twice, but with two different signatures. It is clear from the evidence that
Arise Afrika Arise could not have met the threshold of 1000 qualified voters. The
respondent was therefore justified in rejecting the application which does not comply with
the Act.
[31] As regards costs, it is correct that in general cost orders are not imposed upon a
losing party in electoral matters unless such party’s conduct has been vexatious, frivolous
or abusive of the court processes. In this matter, Arise Afrika Arise abused the court
processes. It failed to comply with the requirements of the Act in relation to registration
and when the respondent rejected its application it resorted to personal attacks on the
respondent and accused it of fraud and corruption. Findings of fraud are not easily made.
Allegations of fraud must be proved. Arise Afrika Arise bore the onerous onus to prove
fraud on the part of the respondent.
[32] This is particularly so because there is a presumption that the respondent, as a
state organ, would have complied with all procedural requirements and other formalities
before rejecting Arise Afrika Arise application.13 It failed to show that its application for
registration ought to have been accepted as it met all the requirements of the Act, and
that the respondent rejected it because of some ulterior motives. Arise Afrika Arise must
therefore pay costs of the application.
Order
[33] I therefore make the following order:
13 R v Hotz 1959 (1) SA 795 (T) at 799.
The application is dismissed with costs.
___________________________
D H ZONDI
CHAIRPERSON OF THE ELECTORAL COURT
Appearances
For the applicant:
B S Mothupi (in person)
For the respondent:
M Tsele
Moeti Kanyane Attorneys, Centurion
|
THE ELECTORAL COURT OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN ELECTORAL COURT OF SOUTH AFRICA
From:
The Registrar, Electoral Court
Date:
16 January 2024
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Arise Afrika Arise (AAAR) v Electoral Commission of South Africa (008/2023 EC) [2024] ZAEC 01 (16
January 2024)
Today the Electoral Court (EC) dismissed an application with costs.
The applicant, Arise Afrika Arise (abbreviated AAAR), brought an application to the EC seeking the
following relief: (a) to review and set aside the respondent’s decision of 2 August 2023 in terms of which
the respondent, the Independent Electoral Commission (Commission), dismissed the applicant’s appeal
against the decision of the Deputy Chief Electoral Officer to refuse to register the applicant as a political
party in terms of s 15 of the Electoral Commission Act 51 of 1996 (the Act); (b) to condone the delay in
bringing the review application; and (c) additional declaratory relief.
The applicant, brought the application in terms of s 20(1)(a) and (b) of the Act which gives the EC
powers to review any decision of the respondent, the Commission. The application was late and should
have been brought within 3 days after 2 August 2023, hence Arise Afrika Arise filed an application for
condonation of the late filing of the review application.
Regarding the merits, on or about 23 May 2023, Arise Afrika Arise applied for registration as a political
party in terms of s 15 of the Act. The application was considered by the Deputy Chief Electoral Officer:
Electoral Operations. On 22 June 2022, he rejected the application on two grounds, first, that the
signatures of the registered voters on the deed of foundation showed patterns of discrepancies which,
in his view, indicated that the signatures were made by a person or persons other than the voter in
contravention of regulation 3(1)(a)(i) of the Regulations for the Registration of Political Parties, 2004,
promulgated under the Act. This regulation requires that the deed of foundation of a party seeking
national registration – such as Arise Afrika Arise – must be signed by 1000 registered voters. Secondly,
the Deputy Chief Electoral Officer found, in terms of s 16, that the name ‘Arise Afrika Arise’ was almost
similar to that of an existing party namely Arise South Africa (ASA) and that it was likely to confuse or
deceive the voters.
Aggrieved by the rejection decision, Arise Afrika Arise lodged an appeal with the respondent,
contending that the Deputy Chief Electoral Officer erred in finding that its name resembles that of
another registered party and that it was likely to confuse or deceive the voters. In its grounds of appeal,
Arise Afrika Arise did not challenge the respondent’s finding that the signatures of registered voters on
the deed of foundation were fraudulent and that the names of some of the registered voters on the deed
of foundation were duplicated. Arise Afrika Arise contended that the decision to reject its registration
application on the basis that its proposed name was similar to that of ASA was unfair and inconsistent
with the respondent’s previous actions in registering the other political parties with similar names. The
applicant accused the respondent of being inconsistent in the manner in which it applied the regulations
regulating the registration of political parties, averring that the respondent’s decision to refuse its
registration demonstrated glaring acts of corruption, mala fides, and abuse of power. On 2 August 2023,
the respondent dismissed Arise Afrika Arise’s appeal and confirmed the Deputy Chief Electoral Officer’s
decision (appeal decision). It reasoned that the registration of the name ‘Arise Afrika Arise’ was likely
to deceive or confuse voters in circumstances where there is ‘an increasing phenomenon of registered
parties’.
Still not satisfied with the respondent’s appeal decision, the applicant brought the present application
on 15 August 2023 seeking the review and setting aside of the respondent’s decision. Arise Afrika Arise
anchors its review on the Promotion of Administrative Justice Act 3 of 2000 (PAJA). It submitted that
the respondent’s refusal to register it as a political party is arbitrary, unreasonable and unlawful and
amounts to a failure to exercise its powers in accordance with the principles of administrative justice. It
denied that the name Arise Afrika Arise was substantially similar to that of ASA.
Before the EC, two issues arise for determination, namely whether the delay in instituting the review
application should be overlooked, and the other is whether the respondent’s refusal to register the
applicant is unlawful and irrational.
In answering the first issue, the EC held that notwithstanding Arise Afrika Arise’s failure to give full
explanation for the delay, the interests of justice warrant that the EC grant condonation and that it would
not be in the interests of justice to refuse condonation in circumstances where the delay, though not
fully explained, is short and the right sought to be asserted is a political right to which every citizen of
this country is entitled under the Constitution. Additionally, on this point, the EC held that the respondent
has not been prejudiced by the delay and that the applicant’s members would be more prejudiced than
the respondent if condonation were to be refused.
On the issue of the refusal to register the applicant, the EC was of the view that on a comparison of the
two names, it can properly be said that there is a reasonable likelihood of confusion if both are to be
used together on the ballot paper as the emphasis in both names is on the two words ‘Arise’ and ‘Afrika’.
Consequently, an undecided voter may cast their vote for Arise Afrika Arise when in fact their intention
was to vote for Arise South Africa or may put their mark next to Arise South Africa when their intention
was to cast their vote for Arise Afrika Arise. On this point, the EC held that the respondent was therefore
entitled to refuse to register it.
On the point of the signatures, the EC held that the signatures provided by Arise Afrika Arise were not
signatures of registered voters, stating that several voters were repeated twice, but with two different
signatures. It held that it was clear from the evidence that Arise Afrika Arise could not have met the
threshold of 1000 qualified voters and that the respondent was therefore justified in rejecting the
application which does not comply with the Act.
In the result, the EC dismissed the application with costs.
--------oOo--------
|
2228
|
non-electoral
|
2009
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No: 116/08
SILOUETTE INVESTMENTS LIMITED
Appellant
and
VIRGIN HOTELS GROUP LIMITED
Respondent
Neutral citation:
SILOUETTE INVESTMENTS LTD v VIRGIN HOTELS
GROUP LTD (116/08) [2009] ZASCA 40 (31 MARCH
2009)
Coram:
FARLAM, NAVSA, MTHIYANE, MLAMBO et
CACHALIA JJA
Heard:
17 FEBRUARY 2009
Delivered:
31 MARCH 2009
Summary:
Extinctive Prescription – whether debtor 'outside the
Republic' in terms of s 13(1)(b) of Prescription Act 68 of
1969 – whether interruption of prescription effected by
service of summons lapsed in terms of s 15(2) of the Act
when summons amended so as to substitute new
plaintiff, after which summons re-amended so as to re-
introduce original plaintiff.
______________________________________________________________
ORDER
On appeal from:
High Court Johannesburg (Joffe J sitting as a court of first
instance).
The appeal is dismissed with costs, including those occasioned by the
employment of two counsel.
JUDGMENT
FARLAM JA (NAVSA, MTHIYANE, MLAMBO et CACHALIA JJA
concurring)
INTRODUCTION
[1] This is an appeal from a judgment of Joffe J, sitting in the
Johannesburg High Court, in which he upheld a special plea of prescription
raised by the respondent, Virgin Hotels Group Limited, against a claim for
R561 308-41 brought against it by the appellant, Silouette Investments
Limited.
FACTS
[2] In 2001, the appellant, together with its co-plaintiff, Ajubatis Properties
(Pty) Ltd, instituted action against the respondent for amounts owing under a
written agreement for the sale of shares in a company, Investment Facility
Company Forty (Pty) Ltd. Separate amounts were claimed by the appellant
and Ajubatis Properties (Pty) Ltd.
[3] On 16 November 2004 the appellant and its co-plaintiff gave notice of
their intention to amend the particulars of claim by (a) substituting one John
Brook Dyer as the plaintiff and (b) alleging that Mr Dyer during 2003 had
acquired, by cession, their claims against the respondent. The amendments
sought were effected on 15 April 2005.
[4] The respondent pleaded to the amended particulars of claim. One of
the defences raised in the plea was that in terms of the sale agreement the
sellers, ie, the appellant and its erstwhile co-plaintiff, were not entitled to cede
any of their rights.
[5] This defence led to a further amendment to the particulars of claim in
terms of which the appellant was substituted for Mr Dyer as the plaintiff in the
action and the appellant claimed its share of the amount outstanding (its claim
for which it had purported to cede to Mr Dyer). Notice of this amendment was
given in October 2006 and the amendment was effected on 10 November
2006.
[6] The respondent then pleaded to the re-amended particulars of claim,
raising a special plea of prescription as well as pleading defences on the
merits (with which it is unnecessary to deal in this judgment).
[7] The special plea of prescription was based on s 11(d) of the
Prescription Act 68 of 1969. The averments pleaded in support thereof may
be summarised as follows:
(a)
the debt was due on or before 30 September 2001;
(b)
during April 2006 the appellant and its co-plaintiff were replaced by Mr
Dyer as the plaintiff;
(c)
during November 2006 Mr Dyer was replaced by the appellant as the
plaintiff;
(d)
the question as to whether the appellant's claim has prescribed must
be determined by reference to the amendment which most recently
made it a party to the proceedings, ie, the amendment effected on 10
November 2006.
[8] At the commencement of the trial Joffe J ruled mero motu, in terms of
rule 33(4), that the special plea be determined before any other issues.
[9] After argument, the learned judge gave judgment upholding the special
plea. Before his judgment is summarised it will be convenient if the relevant
provisions of Act 68 of 1969 are set out.
RELEVANT STATUTORY PROVISIONS
[10] Section 11(d) provides that the period of prescription in respect of a
debt such as the one presently under consideration shall be three years.
[11] Section 12(1) provides that subject to subsections (2) and (3), which
are not relevant in this case, prescription shall commence to run as soon as
the debt is due.
[12] Section 13 deals with circumstances in which completion of
prescription is delayed. Subsection (1) provides as follows:
'(1)
If─
(a)
the creditor is a minor or is insane or is a person under curatorship or is prevented by
superior force including any law or any order of court from interrupting the running of
prescription as contemplated in section 15(1); or
(b)
the debtor is outside the Republic; or
(c)
the creditor and debtor are married to each other; or
(d)
the creditor and debtor are partners and the debt is a debt which arose out of the
partnership relationship; or
(e)
the creditor is a juristic person and the debtor is a member of the governing body of
such juristic person; or
(f)
the debt is the object of a dispute subjected to arbitration; or
(g)
the debt is the object of a claim filed against the estate of a debtor who is deceased
or against the insolvent estate of the debtor or against a company in liquidation or
against an applicant under the Agricultural Credit Act, 1966; or
(h)
the creditor or the debtor is deceased and an executor of the estate in question has
not yet been appointed; and
(i)
the relevant period of prescription would, but for the provisions of this subsection, be
completed before or on, or within one year after, the day on which the relevant
impediment referred to in paragraph (a), (b), (c), (d), (e), (f), (g) or (h) has ceased to
exist,
the period of prescription shall not be completed before a year has elapsed after the day
referred to in paragraph (i).'
[13] Section 15, as far as is material, provides as follows:
'(1)
The running of prescription shall, subject to the provisions of subsection (2), be
interrupted by the service on the debtor of any process whereby the creditor claims payment
of the debt.
(2)
Unless the debtor acknowledges liability, the interruption of prescription in terms of
subsection (1) shall lapse, and the running of prescription shall not be deemed to have been
interrupted, if the creditor does not successfully prosecute his claim under the process in
question to final judgment or if he does so prosecute his claim but abandons the judgment or
the judgment is set aside.
. . .
(6)
For the purposes of this section, "process" includes a petition, a notice of motion, a
rule nisi, a pleading in reconvention, a third party notice referred to in any rule of court, and
any document whereby legal proceedings are commenced.'
JUDGMENT OF THE COURT A QUO
[14] The only point considered by the learned judge in the court a quo
related to the question as to whether the service of the original summons in
this matter, in terms of which the appellant together with Ajubatis Properties
(Pty) Ltd claimed monies from the respondent, interrupted prescription. In his
view it did not because, as he put it, they 'did not prosecute their claim until
final judgment.' When the amendment introducing Mr Dyer as the plaintiff was
effected, he held, the appellant and Ajubatis Properties (Pty) Ltd
'fell out the proceedings. Furthermore in terms of s 15(2) of the act, the summons issued by
them did not have the effect of interrupting prescription.'
GROUNDS OF APPEAL
[15] In its application for leave to appeal (which Joffe J granted) the
appellant sought leave to appeal on the ground that the proceedings which
were commenced by way of summons at the instance of the appellant and
Ajubatis Properties (Pty) Ltd were not terminated by the substitution of Mr
Dyer as the plaintiff and that the re-introduction of the appellant as the plaintiff
in the place of Mr Dyer did not constitute a fresh action which commenced
only after the debt allegedly owing by the respondent to the appellant had
prescribed.
[16] In the heads of argument filed on behalf of the appellant by counsel
(who had not appeared in the High Court) the judgment of the court a quo was
attacked on two grounds: the ground on which leave was granted and a new
ground to the effect that the prescription of the appellant's claim had been
interrupted, in terms of s 13(1)(b) of the Act, because at all material times the
respondent had been outside the Republic. This submission was based on
the fact that the respondent is a foreign company, incorporated and registered
in the United Kingdom, with its chosen domicilium citandi et executandi at an
address in London. The appellant applied at the hearing of the appeal for
leave to file a replication to the respondent's special plea in which this ground
was specifically pleaded. The respondent not having opposed the application,
the application was granted.
[17] The appellant's replication reads as follows:
'1.At all times material hereto:
1.1.
The defendant's citation has been as pleaded in the particulars of claim, namely, the
defendant has been incorporated and registered in accordance with the Laws of
England and Wales under registration number 2857671, and with its chosen
domicilium citandi et executandi at 120 Campden Hill Road, London, V87AR, United
Kingdom.
1.2.
The defendant has accordingly been outside the Republic, as contemplated by
section 13(1)(b) of the Prescription Act, 68 of 1969 ("the Act").
2.
At no stage has the above impediment ceased to exist, for the purposes of section
13(1)(i) of the Act.
3.
In the premises, any period of prescription relied upon by the defendant has not been
completed.
WHEREFORE the plaintiff prays that the defendant's special plea be dismissed with costs.'
SUBMISSIONS ON BEHALF OF THE APPELLANT
[18] In argument before this court counsel for the appellant contended that
the court a quo erred in two respects. Its first error was the result, so it was
contended, of its failure to have regard to the fact that the respondent debtor
is a British company and accordingly that s 13(1)(b) of the Act applied so as to
delay the completion of the period of prescription. It was contended further
that the respondent, being a peregrine company, was ex facie the admitted
facts on the pleadings at all relevant times absent from the Republic. It was
pointed out that the respondent is not an external company with its
memorandum registered in this country as was the case in Dithaba Platinum
(Pty) Ltd v Erconovaal Ltd 1985 (4) SA 615 (T).
[19] Counsel also contended that the fact that the respondent was
amenable to the jurisdiction of the South African court, either by owning
property in this country or by consenting to the jurisdiction of the High Court,
does not detract from the fact that the respondent remained absent from the
Republic: in support of this submission counsel referred to Grinaker
Mechanicals (Pty) Ltd v Societé Francaise Industriale et D'Equipment 1976
(4) SA 98(C), esp at 102A-H.
[20] Since the respondent has at all material times been absent from the
Republic, the argument proceeded, and the respondent itself led no evidence
nor suggested that that was not the case, the running of prescription could not
be completed before one year had elapsed after the respondent ceased to be
absent from the Republic – 'if that were ever to occur.' It was accordingly
submitted that as the relevant impediment never ceased the period of
prescription provided in s 13 has never been completed.
[21] The court a quo's second error, according to the argument of counsel
for the appellant, consisted in holding that s 15(2) of the Act applied. Counsel
submitted that it was not in dispute on the common cause facts that by the
institution of the original proceedings in 2001 the running of prescription in
respect of the claim against the respondent was interrupted. They contended
that, despite the substitution of Mr Dyer as the plaintiff in 2005 and the
subsequent re-substitution of the appellant in 2006 as the plaintiff in respect of
part of the original claim, 'the process that commenced with the institution of
action [in 2001] is in substance the same process that was being conducted at
the instance of the appellant when the matter came before Joffe J' and
'section 15(2) of the . . . Act could have had no application.'
[22] They went on to submit that the significance of the phrase 'the process
in question' is apparent if regard is had to the memorandum on the draft bill
prepared for the South African Law Commission by the late Professor JC de
Wet in which the mischief at which s 15(2) is directed is set out. The
memorandum in question is published in JC de Wet: Opuscula Miscellanea:
Regsgeleerde Lesings en Adviese (1979) at pp 77 et seq. In the passage on
which counsel relied (at p 128) Professor De Wet said that the service of a
summons ought
'sy stuitende werking te verloor indien die skuldeiser die proses nie aan die gang hou nie,
anders kan dit gebeur dat die skuldeiser telkens deur dagvaarding die loop van verjaring stuit
en daardeur die toestand van onsekerheid verleng. Indien my voorstel aanvaar word sal die
diening van dagvaarding sy stuitende werking verloor indien die skuldeiser die dagvaarding
intrek, aliter Djaperides v Federal Insurance Corporation of SA Ltd 1955 (2) SA 396 (W) of the
hof die gedaagde van die instansie absolveer, aliter Pistorius & Kie v Steyn 1958 (3) SA 440
(T).'
[23] Counsel argued that the appellant had acted diligently in instituting the
proceedings in 2001, that the substitution of Mr Dyer as plaintiff and its
resubstitution did not evince a subjective intention on the part of the appellant,
which at all times remained the creditor, to release the respondent from the
debt owed and that 'the same proceedings (as that expression is generally
used) were still in esse before Joffe J.' Although there had been a substitution
of plaintiff the same debt had throughout been pursued by way of the same
litigation. The appellant, they submitted, had continued to prosecute its claim
'under the process in question' (viz the summons issued in 2001) and there
had accordingly been no lapsing of the interruption of prescription.
SUBMISSIONS ON BEHALF OF THE RESPONDENT
[24] Counsel for the respondent submitted that on a proper construction of
s 13(1)(b) of the Act the respondent was not 'outside the Republic'. It was
pointed out that the original summons in this matter was served in South
Africa on the respondent in the following circumstances:
(a)
the respondent agreed to accept service care of its South African
attorneys; and
(b)
the shareholders' agreement on which the appellant's cause of action
is based provided that the parties thereto submitted themselves to the
non-exclusive jurisdiction of the Johannesburg High Court for the
purposes of any proceedings arising out of or in connection with the
agreement.
[25] Pointing to the fact that the absence of a debtor from the Republic is
described in s 13(1)(i) as an 'impediment', they submitted that at no stage was
the registration of the respondent as a foreign company an impediment to the
service of summons in South Africa.
[26] They contended further that the argument raised by the appellant
leads, as they put it, to the 'absurd conclusion' that despite the respondent's
having consented to be sued in South Africa, the appellant's claim against the
respondent will never prescribe because the respondent will always be absent
from the Republic.
[27] With regard to the contention raised by the appellant's counsel based
on s 15(2) of the Act counsel for the respondent submitted that the appellant
did not prosecute its claim under the original summons to final judgment and
accordingly the interruption of prosecution by that process lapsed.
[28] Referring to the fact that the amendment of October 2006, in which
notice was given that the appellant was to be substituted for Mr Dyer as the
plaintiff, qualifies as process under s 15(6) (see Mias de Klerk Boerdery
(Edms) Bpk v Cole 1986 (2) SA 284 (N) at 287I-288B), counsel for the
respondent submitted that this is the process whereby it now claims the debt
and under which, if it were to obtain judgment in its favour, it would
successfully prosecute its claim to final judgment. Without the October 2006
notice of amendment the appellant could not have claimed payment of the
debt.
[29] Counsel for the respondent contended further that if their argument on
this point were to be upheld this would not be at variance with the mischief s
15(2) was designed to prevent. This was because the appellant had not kept
its original process going.
[30] It followed, so they submitted, that the second point raised by the
appellant also had to be rejected.
DISCUSSION
(i)
Was the respondent 'outside the Republic' in terms of s 13(1)(b)?
[31] As appears from s 13 read as a whole the fact that a debtor is outside
the Republic (as a result of which the completion of prescription is delayed) is
regarded by the legislature as an 'impediment'. The various impediments
listed in s 13(1) are circumstances which, as Professor M M Loubser puts it in
his work Extinctive Prescription at p 117, 'have in common some legal or
practical problem which makes it difficult or undesirable for a creditor to
institute proceedings for the enforcement of his claim against the debtor.' See
also ABP 4x4 Motor Dealers (Pty) Ltd v IGI Insurance Co Ltd 1999 (3) SA 924
(SCA) at 930I-931A, where it was said that '(t)he word impediment . . . covers
a wide spectrum of situations ranging from those in which it would not be
possible in law for the creditor to sue to those in which it might be difficult or
awkward, but not impossible, to sue.' Where, as in the present case, the
debtor has not only consented to the jurisdiction of the South African Court
but also agreed to accept service of process care of its South African
attorneys1 there is no circumstance which gives rise to a problem which
creates a difficult or undesirable situation for a creditor seeking to institute
legal proceedings against the debtor in this country. Is it likely that Parliament
would have intended the completion of prescription to be delayed in those
circumstances? The only purpose that it would serve would be to prevent
prescription from ever being completed against the respondent, which as the
respondent's counsel submitted, would lead to an absurd conclusion. It
1 On the face of the original summons the following appears after the name and address of
the respondent: 'who has agreed to accept service care of its attorneys, Bowman Gilfillan
Incorporated, 9th Floor, Twin Towers West, Sandton City, Sandton, Johannesburg.'
certainly would not advance the evident purpose of the provision, which is to
assist a creditor which has a legal or practical problem in relation to the
institution of legal proceedings in South Africa against its debtor.
[32] I think that to interpret the phrase 'outside the Republic' as covering a
case where, although the debtor itself is physically outside the Republic, it has
consented to the jurisdiction of the South African courts in respect of a claim
and has a representative here whom it has authorised to receive service on its
behalf of any process in which the claim in question is sought to be enforced
would give a meaning to the provision under consideration which Parliament
could never have intended.
[33] The first South African statute which provided for the completion of
prescription to be delayed while the debtor was 'absent from the Colony' was
s 6 of the Prescription Amendment Act 6 of 1861 (Cape), which was based on
s 19 of the Act for the Amendment of the Law and the better Advancement of
Justice, 4&5 Anne, c 16, passed by the English Parliament in 1705. Similar
legislation to the Cape act was passed in Natal (s 10 of Law 14 of 1861), the
Orange Free State (s 6 of Chapter XXIII of the Law Book) and the Transvaal
(s 11(2) of Act 26 of 1908). The pre-Union statutes were repealed by the
Prescription Act 18 of 1943, which provided in s 7(1)(c) for the suspension of
prescription 'during the absence of the debtor from the Union for a period
exceeding six months' and in s 10 that '(w)hen the debtor is absent from the
Union extinctive prescription shall not begin to run until the date of his return'
(which was interpreted as meaning the date when the debor ceased to be
absent: see Grinaker's case, supra, at 100C to 102A, and the authorities there
referred to).
[34] The provision in the statute from Queen Anne's reign on which s 6 of
the Cape Act of 1861 was based was also copied, with various forms of
wording, in the various states of the United States of America, where
suspending or stopping the running of a statute of limitations is called 'tolling'
('it is analogous to a clock stopping then restarting', 51 American
Jurisprudence 2d, para 169). A very informative annotation headed 'Absence
as Tolling Statute of Limitations' is to be found in 55 American Law Reports 3d
at p 1158 et seq. It is an annotation on Byrne v Ogle (1971 Alaska) 55 ALR 3d
1151, a decision of the Supreme Court of Alaska. The annotation collects and
discusses
American
cases
considering
whether
and
under
what
circumstances a provision 'tolling' the statute of limitations while a party is
outside the jurisdiction applies where, notwithstanding such absence, the
party remains amenable to service of process which subjects him to the
personal jurisdiction of the state.2 As is to be expected, the American courts
have not spoken with one voice on the topic, nor have the statutory provisions
considered been uniformly drafted. Many of the cases discussed have turned
on the particular wording of the statutes under consideration. In others,
however, general considerations apart from the construction of particular
tolling provisions have been discussed and these cases raise points which
have relevance in the present context. In particular at pp 1186-1187 Kenneth
J Rampino, the author of the annotation, refers to a series of cases, the latest
of which was Byrne v Ogle, supra, in which it was held that the purpose of the
statute of limitations, that of eliminating stale claims, would be contravened if
the running of the period were suspended during mere physical absence of a
party who remained subject to personal jurisdiction by some form of
substituted process.
[35] The present case is, of course, stronger than the American cases to
which I have referred because here it was possible for the appellant to serve
the original summons served on the respondent not by substituted service but
by service on its own attorneys who were authorised to receive service on its
behalf.
[36] As I have said the appellant's counsel relied strongly on the decision in
Grinaker Mechanicals Ltd, supra, which was cited as authority for the
proposition that
'(t)here is nothing in the wording of sec 10 [of the 1943 Prescription Act] to justify the
2 After their attention had been drawn to the American authorities on the point, counsel on
both sides submitted supplementary heads of argument dealing therewith, for which I wish to
express my gratitude.
conclusion that the Legislature intended to confer the benefit of prescription upon a debtor
who, despite his continued absence from the Republic, became amenable to be sued in
respect of his debt in a Republican Court. If that was the intention of the Legislature it
certainly has not been made apparent in the terms of sec 10.'
[37] The debtor in Grinaker's case was a company incorporated according
to the laws of France and carrying on business in Paris. At all relevant times it
was physically absent from the Republic. In an action brought against it for
moneys due under a contract for work and labour it filed a special plea that
the plaintiff's claim had prescribed as the cause of action arose prior to 1
October 1968 and the summons was served on 4 December 1974, although it
had been issued on 13 January 1969. In response to a request for particulars
by the plaintiff the defendant stated that it was a peregrinus and had never
been present in the Republic of South Africa. The plaintiff took exception to
the plea on the ground that as the defendant had at all material times been
absent from the Republic within the meaning of s 10 of the 1943 Prescription
Act the period of extinctive prescription had not begun to run against the
plaintiff.
[38] The defendant then sought to amend its special plea by inserting an
averment to the effect that on 18 December 1968 and by order of the Cape
Provincial Division the plaintiff attached property of the defendant ad
fundandam jurisdiction, from which date the plaintiff's right of action against
the defendant became enforceable in the Cape Provincial Division.
[39] The application to amend the special plea was refused and the
exception taken to it was upheld on the basis that the insertion of the
averment summarised above would not save it from being excipiable. The
reason for this conclusion is set out in the passage cited above.
[40] It is thus clear that the amenability to the court's jurisdiction which was
held not to lead to the conclusion that the debtor was no longer 'absent' was
based on the attachment ad fundandam jurisdictionem of its property. As is
well known, an attachment of a debtor's property to found jurisdiction does not
render the debtor personally liable to the court's jurisdiction. A judgment
obtained on the strength thereof only binds the property attached and has no
extra-territorial force and obligation: Jamieson v Sabingo 2002 (4) SA 49
(SCA) at 58G-H. On the other hand a judgment founded on voluntary
submission to jurisdiction by a debtor would bind the debtor personally and
would be internationally enforceable: ibid at 58H. The amenability to
jurisdiction discussed in the Grinaker case only concerned jurisdiction based
on an attachment to found jurisdiction. Other considerations may well apply
where the amenability to jurisdiction arises from a voluntary submission to the
jurisdiction by the debtor. Indeed it has been decided in the United States 'by
the great weight of authority' that the suspension of the running of the statute
of limitations is not prevented by the fact that the absent defendant had
property in the state which might have been subject to attachment before the
expiration of the period of limitation, without the necessity of personal service
on the defendant: see Annotation at 119 ALR 331 at 337 et seq.
[41] It is not necessary, however, in this case to decide whether amenability
to jurisdiction over the debtor personally in circumstances where a judgment
can be given which can be enforced against him internationally will lead to the
conclusion that he is not to be regarded as 'outside the Republic' for the
purposes of s 13(1)(b) of the Act. I say that because I am satisfied that the
combined effect of the submission by the respondent to the court's jurisdiction
and the authorisation to its attorneys to accept service of the summons clearly
leads to the conclusion, for the reasons I have stated, that it would go beyond
the purpose of s 13(1)(b) if it were held that the respondent in this matter,
despite what it had done to remove any difficulty or awkwardness which the
appellant might otherwise have encountered in an attempt to institute
proceedings against it to claim the debt allegedly owing in this matter, was
'outside the Republic'. It follows that the first contention advanced by the
appellant's counsel must fail.
(ii)
Does s 15(2) apply?
[42] In regard to the second point raised by counsel for the appellant I
agree with the argument of counsel for the respondent that if the appellant
were to obtain final judgment in its favour in this matter, the process under
which it would obtain such judgment would be the notice of amendment of
November 2006. It follows that s 15(2) of the Act applied and the interruption
of prescription brought about by service of the original summons lapsed. In
the circumstances the second point raised by the appellant's counsel must
also fail.
ORDER
[43] The following order is made:
The appeal is dismissed with costs, including those occasioned by the
employment of two counsel.
…………….
IG FARLAM
APPEARANCES:
FOR APPELLANT:
J J GAUNTLETT SC
J C BUTLER SC
Instructed by
Routledge Modise in Association with Eversheds
Johannesburg
McIntyre & Van der Post Bloemfontein
FOR RESPONDENT:
A F BHAM SC
W PYE
Instructed by
Bowman Gilfillan Inc Johannesburg
Lovius-Block Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM:
The Registrar, Supreme Court of Appeal
DATE:
31 MARCH 2009
STATUS:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
The Supreme Court of Appeal today dismissed an appeal brought by Silouette
Investments Ltd against a judgment delivered by Mr Justice Joffe, sitting in the
Johannesburg High Court, in which he upheld a special plea of prescription raised
against it by the respondent, Virgin Hotels Group Ltd.
The Supreme Court of Appeal rejected two arguments advanced by the appellant's
counsel that their client's claim had not prescribed. The first argument was based on
the fact that Virgin Hotels Group Ltd was an English Company and was accordingly
outside the Republic with the result that the completion of prescription against it was
delayed.
The Supreme Court of Appeal held that the respondent could not be regarded as being
outside the Republic for the purposes of the Prescription Act because it had submitted
to the jurisdiction of the Johannesburg High Court and had agreed that the summons
in the case could be served on its Johannesburg attorneys.
The appellant's counsel had also argued that the running of prescription had been
interrupted by the service of the original summons in the case in 2001 in which it had
figured as a co-plaintiff. Subsequently the summons had been amended and it and its
co-plaintiff had been replaced by a Mr Dyer, but thereafter it had come back into the
case as plaintiff when the summons was re-amended.
The Supreme Court of Appeal agreed with Mr Justice Joffe that the interruption of
prescription effected by the service of the original summons had lapsed when it was
amended and Mr Dyer had become the plaintiff.
|
3287
|
non-electoral
|
2006
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Reportable
Case no: 63/05
In the matter between:
LINDERT HANEKOM
Appellant
and
BUILDERS MARKET KLERKSDORP
(PTY) LTD
1st Respondent
C HARDING N O
2nd
Respondent
PETRUS JACOBUS MARYN VAN STADEN N O
3rd
Respondent
ABSA BANK LTD T/A BANKFIN
4TH
Respondent
THE MASTER OF THE HIGH COURT, PRETORIA 5TH
Respondent
______________________________________________________________
Coram
:
SCOTT, ZULMAN et BRAND JJA
Date of hearing
:
15 FEBRUARY 2006
Date of delivery
:
2 MARCH 2006
Summary: Interpretation of s 52 of the Close Corporations Act 69 of 1984
where the corporation has only one member
Neutral citation: This judgment may be referred to as Hanekom v
Builders Market Klerksdorp (Pty) Ltd [2006] SCA 2 (RSA)
______________________________________________________________
JUDGMENT
______________________________________________________________
SCOTT JA/…
SCOTT JA:
[1] The issue in this appeal is the proper interpretation of s 52 of the Close
Corporations Act 69 of 1984 (‘the Act’) in circumstances where a close
corporation has only one member.
[2] The facts are largely common cause. The appellant was at all material
times the sole member of RTMC Marketing CC (‘the CC’). He was also the
sole shareholder and director of LSL Konstruksie (Pty) Ltd. The latter became
indebted to the first respondent in respect of goods sold and delivered. The
CC stood surety for the debt. The deed of suretyship was signed by the
appellant on behalf of the CC. The appellant also signed a suretyship in
favour of the first respondent in his personal capacity. On the strength of
these suretyships the first respondent afforded further credit to LSL
Konstruksie which failed to discharge its debt and was placed in liquidation.
Some time in 2001 the first respondent, relying on the suretyship executed on
behalf of the CC, applied for the CC’s liquidation. The application was not
opposed. Subsequently, at a creditors meeting held before a magistrate on 29
October 2002, an attorney acting on behalf of the appellant objected to the
first respondent’s claim on the ground that the suretyship executed on behalf
of the CC was invalid for want of compliance with s 52 of the Act. The
objection was upheld and the claim was rejected. However, on 4 November
2003 the ruling of the magistrate was set aside on review at the instance of
the first respondent and the latter’s claim against the CC in liquidation was
admitted. The liquidators of the CC (the second and third respondents in this
appeal) thereafter arranged for an asset of the CC, a mobile concrete mixer,
to be sold by public auction on 17 February 2004. On 10 February 2004 the
appellant sought an urgent order in the High Court, Pretoria, for a stay of the
sale. Claasen J granted the stay on condition that an application be brought
within 10 days for an order declaring the suretyship to be invalid. That
application was launched on 26 February 2004. The relief claimed was an
order declaring the suretyship to be invalid for non-compliance with s 52 of the
Act and for the consequential rescission of the liquidation order against the
CC, subject to certain conditions. The matter was heard by de Vos J who
dismissed the application with costs. (Hanekom v Builders Market Klerksdorp
(Pty) Ltd and others 2006(1) SA 423 (T)) The appeal is with the leave of the
court a quo.
[3] The relevant provisions of s 52 read as follows:
‘(1) A corporation shall not, directly or indirectly, make a loan –
(a)
to any of its members;
(b) to any other corporation in which one or more of its members together hold more than
a 50 per cent interest;
or
(c)
to any company or other juristic person (except a corporation) controlled by one or
more members of the corporation,
and shall not provide any security to any person in connection with any obligation of any such
member, or other corporation, company or other juristic person.
(2) The provisions of subsection (1) shall not apply in respect of the making of any
particular loan or the provision of any particular security with the express previously obtained
consent in writing of all the members of a corporation.
(3)
Any member of a corporation who authorizes or permits or is a party to the
making of any loan or the provision of any security contrary to any provision of this section –
(a)
shall be liable to indemnify the corporation and any other person who had no actual
knowledge of the contravention against any loss directly resulting from the invalidity of such
loan or security; and
(b)
shall be guilty of an offence.
. . . .’
The appellant’s contention is that the suretyship executed on behalf of the CC
purported to secure a debt of a company which he controlled (LSL
Konstruksie) and is invalid for the reason that when he executed it he did not
have ‘the previously obtained consent in writing of all the members of the
corporation’ as contemplated in s 52(2). In other words, he, as the sole
member of the CC, had not previously consented in writing to the suretyship
which he himself executed.
[4] At the outset it is necessary to make certain general observations
regarding s 52. The first is that although ss (1) provides for a general
prohibition and ss (2) an exemption from that prohibition, the object of s 52,
read as a whole,
is undoubtedly to protect non-consenting members, ie to prevent a member
from using the resources of a close corporation for his or her own benefit to
the detriment of other members. The section seeks to achieve this by
requiring not only that the other members consent to the loan or security but
also that they do so in writing so as to provide written proof of that consent.
Secondly, the consent that is contemplated is not consent on behalf of the
close corporation in question but consent of the members in their personal
capacities as members of that corporation. In this regard it is noteworthy that s
54 provides that any member is an agent of the corporation and subject to
certain exceptions able to bind the corporation. Thirdly, although not expressly
stated in s 52, it is clear from ss 3 that any loan or security falling within ss 1
and not exempted in terms of ss 2 is void and not capable of ratification. See
Neugarten and others v Standard Bank of SA Ltd 1989 (1) SA 797 (A) at
808F in relation to s 226 of the Companies Act 61 of 1973. (Section 226(4) of
the Companies Act corresponds to s 52 (3) of the Close Corporations Act.) In
addition, s 52(3) not only renders the member who authorises an invalid loan
or security liable to an innocent third party for loss but also makes him guilty of
an offence. The penalty provided for in s 82(1)(a) is a fine not exceeding
R2000 or imprisonment not exceeding 2 years or both fine and imprisonment.
[5] It is apparent from what has been said above that where a close
corporation has only one member the section really serves no purpose. This is
most certainly so in the case of a loan agreement signed by the member or a
suretyship which in terms of s 6 of Act 50 of 1956 is required to be in writing
and signed by or on behalf of the surety. Where there is only one member, not
only are there no other members who require protection but the member
signing the suretyship on behalf of the close corporation is notionally
incapable of doing so unless he had previously in his personal capacity given
himself permission to do so.
[6] Counsel for the appellant referred to the unambiguous language of s
52(2) and argued that there was nothing in the section to indicate that it did
not apply to the case of a sole member of a corporation and that upon an
ordinary reading of its provisions it was clear that in the absence of ‘the
express previously obtained consent in writing’ of that sole member a
suretyship securing the debt of a company controlled by him would not be
exempted from the prohibition contained in s 52(1).
[7] The question that arises is whether a court would be justified in
departing from the clear and unambiguous meaning of the section to avoid
what the respondent categorised as a manifest absurdity. The circumstances
in which a court will do so were stated by Innes CJ in Venter v Rex 1907 TS
910 at 914-915 to be –
‘when to give the plain words of the statute their ordinary meaning would lead to absurdity so
glaring that it could never have been contemplated by the legislature, or where it would lead
to a result contrary to the intention of the legislature, as shown by the context or by such other
considerations as the Court is justified in taking into account . . . .’
This approach has since been consistently followed. Over the years courts
have repeatedly warned of the dangers of departing too readily from the
ordinary meaning of the words of the statute and have stressed that the
absurdity must be ‘utterly glaring’ or the true intention quite clear and not
merely a matter of surmise or probability. On the other hand, as accepted in
Venter v Rex, ambiguity in the provision in question is not a requirement for
departure from its literal meaning. It has also been accepted that to avoid the
absurdity or give effect to the true intention of the legislature it is permissible
not only to cut down or restrict the language used but also so expand it. See
eg the comments of Corbett J in S v Burger 1963 (4) SA 304 (C) at 308A-
309B (cited with approval by Friedman J in De Villiers v Kinsale Properties
Share Block Ltd 1986 (2) SA 592 (D) at 594G-595E).
[8] I have no doubt that to give effect to the unambiguous language of s
52(2) where the close corporation has only one member in circumstances
such as the
present leads to an absurdity. Nothing can possibly be achieved by requiring
the sole member of a close corporation before signing a suretyship on behalf
of the corporation and in his personal capacity to give himself permission in
writing to do so. As I have said, his signature on the suretyship demonstrates
unequivocally his consent. Yet, on a literal interpretation of the section, the
consequences of the absence of a prior written consent are not only that the
suretyship in favour of the creditor is invalid, but also that the sole member is
both personally liable and guilty of an offence. In passing, I mention that the
appellant’s personal liability for any loss would be cold comfort for the first
respondent who already holds a suretyship executed by the appellant in his
personal capacity. The object of the section, as previously indicated, is to
protect non-consenting members. In circumstances such as the present, a
literal interpretation does not achieve that object; it does no more than provide
a sole member of a corporation with a defence which could never have been
intended by the legislature.
[9] The conclusion to which I therefore come is that when construing s
52(2) in the context of a sole member of a close corporation who has signed a
loan agreement or a suretyship on behalf of a corporation, the words
‘previously obtained’ must be disregarded. It is true that the loan agreement or
suretyship would not refer to the member’s consent as such. But that consent
would be apparent on a proper construction of the agreement or suretyship.
Neither document could exist without such consent.
[10] It follows that in my view the suretyship is valid and the appeal must
fail.
[11] The appeal is dismissed with costs.
__________
D G SCOTT
JUDGE
OF
THE
SUPREME
COURT OF APPEAL
CONCUR:
ZULMAN JA
BRAND
JA
|
SUPREME COURT OF APPEAL OF
SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
LINDERT HANEKOM AND BUILDERS MARKET KLERKSDORP
(PTY) LTD AND OTHERS CASE NO 63/05
From :
The Registrar, Supreme Court of Appeal
Date:
2 March 2006
Status:
Immediate
Please note that the media summary is for the benefit of the
media and does not form part of the judgment of the Supreme
Court of Appeal
The Supreme Court of Appeal today dismissed the appeal of Mr
Lindert Hanekom who had sought to have a suretyship signed by
him on behalf of a close corporation declared invalid in terms of s
52 of the Close Corporations Act. The section provides that if a
member of a CC signs a suretyship on behalf of that CC to secure
the debt of a company which he controls the suretyship will be
invalid in the absence of the ‘express previously obtained consent
in writing of all the other members of the CC’. Mr Hanekom was
the only member of the CC and he relied on the fact that he had
not previously given himself consent in writing before signing the
suretyship. The SCA held that although on a literal reading of the
section such previous consent in writing would be required, it was
appropriate to disregard the requirement of a previous consent in
writing in order to avoid an absurdity. The court pointed out that it
was notionally impossible for a member to sign a suretyship
without having previously given himself permission to do so.
--- end
|
3457
|
non-electoral
|
2020
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 1050/2019
GP Case no: 34523/2017
In the matter between:
AFRIBUSINESS NPC
Appellant
and
THE MINISTER OF FINANCE
Respondent
Neutral citation:
Afribusiness NPC v The Minister of Finance (Case no
1050/2019) [2020] ZASCA 140 (2 November 2020)
Coram:
PONNAN, ZONDI and DAMBUZA JJA and EKSTEEN and GOOSEN
AJJA
Heard:
8 September 2020
Delivered:
This judgment was handed down electronically by circulation to the
parties’ legal representatives by email, publication on the Supreme
Court of Appeal website and release to SAFLII. The date and time
for hand-down is deemed to be 10h00 on 2 November 2020.
Summary: Exercise of power by Minister under s 5 of the Preferential
Procurement Policy Framework Act 5 of 2000 to make Preferential Procurement
Regulations 2017 – Minister exceeding powers - Regulations declared invalid and
set aside – order of declaration of invalidity suspended for 12 months.
ORDER
On appeal from: Gauteng Division of the High Court, Pretoria (Francis J) sitting
as court of first instance:
The appeal is upheld with costs.
The order of the court a quo is set aside and is replaced with the following
order:
‘(a)
The application succeeds with costs.
(b)
It is declared that the Preferential Procurement Regulations, 2017 are
inconsistent with the Preferential Procurement Policy Framework Act 5 of
2000 and are invalid.
(c)
The declaration of invalidity referred to in para (b) above is suspended for
a period of 12 months from the date of this order.’
________________________________________________________________
JUDGMENT
________________________________________________________________
Zondi JA (Ponnan and Dambuza JJA and Eksteen and Goosen AJJA
concurring)
Introduction
[1] This matter concerns the validity of the Preferential Procurement
Regulations, 2017 (the 2017 Regulations) promulgated by the respondent, the
Minister of Finance (the Minister) on 20 January 2017 under s 5 of the
Preferential Procurement Policy Framework Act 5 of 2000 (the Framework Act).
The appellant, Afribusiness NPC (Afribusiness), who unsuccessfully challenged
the regulations before the Gauteng Division of the High Court, Pretoria (high court),
appeals with the leave of this court.
Background
[2] The background facts are briefly the following. On 14 June 2016, the
Minister acting in terms of s 5(2) of the Framework Act published Draft
Procurement Regulations, 2016 for public comment. The closing date for
submission of comments was 15 July 2016.The Draft Regulations were intended,
upon their adoption and promulgation, to replace the Preferential Procurement
Policy Regulations of 2011 (the 2011 Regulations).
[3] According to the report of the Preferential Procurement Review Task Team,
a body that was convened by the National Treasury, through the Office of the Chief
Procurement Officer, one of the reasons for undertaking a review of the public
sector Preferential Procurement System was that the 2011 Regulations were not
in compliance with the Framework Act to the extent that ‘the Regulations attempted
to restrict the framework for preferential procurement policies to Black Economic
Empowerment (BEE) credentials to the exclusion of other goals contemplated in
the Framework Act, causing the 2011 Regulations’ alignment to the Broad-Based
Black Economic Empowerment Act’s Scorecard to be unlawful’.
[4] On 23 August 2016, after the time for comment on the Draft Regulations
had elapsed, Afribusiness, a non-profit organisation representing about 10 500
members in the business community, addressed a letter to the Minister expressing
its concern that the period of 30 days allowed by the Minister for comments, was
inadequate and requested that the period be extended by a further period of
between 60 and 90 days. On 29 August 2016, the National Treasury informed
Afribusiness that the Minister was considering an extension and that Afribusiness
would be advised once the Minister had taken a decision. On 12 September 2016
the National Treasury advised Afribusiness that the Minister had, by Notice
published in the Government Gazette of 2 September 2016, extended the date for
comments to 23 September 2016. It would seem that up until 12 September 2016
Afribusiness was not aware that the date had been extended and that it could
submit comments. On 15 September 2016 Afribusiness submitted its comments
on the Draft Regulations to the Minister. In its submissions, it reiterated that an
extension of 60 to 90 days would have sufficed to ensure meaningful
public participation considering that some of its members, who would have wished
to comment, did not have sufficient time to do so.
[5] On 20 January 2017 the Minister, in terms of s 5 of the Framework Act
adopted the 2017 Regulations and caused them to be published in the
Government Gazette. Aggrieved by the Minister’s decision, Afribusiness, on 19
May 2017 brought an application in the high court in which it sought, inter alia, the
following relief:
‘1.
That the promulgation and adoption of the Preferential Procurement Regulations,
2017 by the Respondent is reviewed and set aside;
2.
That the adoption of the Preferential Procurement Regulations, 2017 be declared
invalid;
3.
The Respondent be ordered to pay the costs of the application.’
[6] It was stated in the founding affidavit in support of the application that:
‘4.2
The application is instituted on the basis that Respondent acted ultra vires of the
powers conferred upon him by the Preferential Procurement Policy Framework Act, No 5
of 2000, read with Section 217 of the Constitution. Furthermore it is submitted that
Respondent failed to provide sufficient opportunity for reasonable and meaningful public
participation, with reference to the notice and comment procedure implemented by the
Respondent, regarding the finalisation of the Regulations, with the consequence that the
Regulations are not rationally connected to relevant information which was not taken into
account by the Respondent. Furthermore it is contended that the Regulations adopted are
so unreasonable that no reasonable person could have so exercised the power to
promulgate same, and the Regulations were adopted arbitrarily and capriciously.
4.3
It is consequently contended that the promulgation and adoption of the Regulations
by Respondent should be reviewed and set aside upon the grounds mentioned in Section
6(2)(a)(i), Section 6(2)(b), Section 6(2)(c), Section 6(2)(d), Section 6(2)(e)(i), Section
6(2)(e)(vi), Section 6(2)(f)(i) and(ii) and Section 6(2)(h) of the Promotion of Administrative
Justice Act, No 3 of 2000 (“PAJA”).’
[7] The Minister opposed the application, principally on the following grounds:
he denied that his decision to promulgate the 2017 Regulations is an administrative
action that is reviewable under the Promotion of Administrative Justice Act 3 of
2000 (PAJA). He contended therefore that the application had to be dismissed. As
regards the merits, the Minister contended, first, that the application of pre-
qualification criteria in terms of the 2017 Regulations, is discretionary and will not
apply in every case. The discretion created, he maintained, falls to be exercised
by the relevant organ of state in the light of all relevant circumstances, which was
congruent with, and intra vires, the provisions of the Framework Act; second, that
the procedure he followed in promulgating the 2017 Regulations not only met, but
in fact exceeded the requirements of PAJA; third, that the Socio-Economic Impact
Assessment System (SEIAS) guidelines are just that, and compliance with them,
is not a legal prerequisite to the validity of the 2017 Regulations; and fourth, that
the categories of preference under the 2017 Regulations are based on sound
constitutional principles, are not irrational, unreasonable, or unfair.
[8] The Minister’s contentions were upheld by Francis J and on 28 November
2018 he dismissed the application with costs, including the costs of two counsel.
The application for leave that was subsequently brought by Afribusiness was
similarly dismissed.
Application by the Amicus to be admitted and to lead further evidence
[9] Subsequent to the proceedings in the high court, the South African Property
Owners’ Association NPC (SAPOA), a non-profit company whose mission is to
represent, protect and advance its members’ commercial property interests within
the property industry, applied to this Court to be admitted as amicus curiae.
SAPOA alleged that its interest in this appeal is ensuring a competitive bidding
process in the property sector and, in particular, properties supplied to organs of
state. SAPOA adopted the position that the appeal ought to succeed.
[10] Whilst Afribusiness consented to SAPOA’s admission, the Minister did not.
It was thus necessary for SAPOA to seek admission by way of an application in
terms of rule 16(4). SAPOA also sought leave to make oral submissions and to
adduce further evidence on appeal. For these reasons the presiding judge in
consultation with the remaining members of the Court permitted SAPOA to deliver
written argument and to make oral submissions at the hearing of the appeal
encompassing both whether it should be admitted as an amicus curiae and the
merits.
[11] The contentions advanced on behalf of SAPOA were clearly new and of
assistance to the Court in dealing with the merits of the appeal. As the submissions
from the amicus undoubtedly assisted the court in its deliberations, the application
for admission had to succeed. The same cannot be said about SAPOA’s
application for leave to lead further evidence. The evidence consisted of what it
termed ‘practical examples’. In terms of s 19(b) of the Superior Court Act 10 of
2013, this Court is empowered to receive further evidence on appeal. The general
principle is that an appellate Court does not decide an appeal according to new
circumstances that came into existence after the judgment appealed against.1 But
there may be exceptional circumstances where it might be able to take cognisance
of subsequent events. The power to admit evidence on appeal should be exercised
sparingly.
[12] In terms of rule 16(8) an amicus curiae is ordinarily ‘limited to the record on
appeal and may not add thereto. . .’. In Minister of Justice and Constitutional
Development and Others v Southern Africa Litigation Centre and Others [2016]
ZASCA 17; 2016 (3) SA 317 (SCA) this Court held at para 29:
‘An amicus is not entitled to submit further evidence to the Court but is confined to the
record. That is expressly provided in rule 16(8). It is unnecessary to consider whether
there are exceptional circumstances in which the Court hearing the appeal may relax that
1 Weber-Stephen Products Co v Alrite Engineering (Pty) Ltd and Others 1992 (2) SA 489 (A) at
507D-E.
rule. In making submissions the amicus is not permitted to traverse ground already
covered by other parties, but is confined to making submissions on the new contentions
that it wishes to place before the Court. In that regard it is apposite to point out that adding
additional references, whether to case law or to academic writings, on the matters
canvassed in the heads of argument of the litigants, does not amount to advancing new
contentions. That obviously does not exclude placing material before the Court to
demonstrate that a point of controversy between the parties has been settled by way of
an authoritative judgment. It would only be if there had, for example, been an authoritative
decision placing a legal issue thought to be controversial beyond dispute that an amicus
may include that in its argument. Otherwise it is confined to its new and different
contentions and these must be clearly stated.’ (Footnotes omitted.)
[13] It would be prejudicial to the Minister for evidence relating to ‘practical
examples’ to be admitted without the Minister having had the opportunity to
respond to such evidence. The new factual material is not common cause or
otherwise incontrovertible. It follows therefore that the application to lead further
evidence must fail.
Preliminary Issues
[14] Although some argument was initially advanced as to whether this is a
PAJA or legality review, it ultimately came to be accepted that nothing turns on the
point. The argument proceeded on the basis that whether or not the Minister
exceeded his powers in promulgating the regulations was indeed subject to review.
As this court observed in Minister of Home Affairs and Another v Public Protector
of the Republic of South Africa: ‘No procedural differences arise and the grounds
of review that apply in respect of both pathways to review derive ultimately from
the same source – the common law – although, in the PAJA, those grounds have
been codified.’2
2 Minister of Home Affairs and Another v Public Protector of the Republic of South Africa [2018]
ZASCA 15; [2018] 2 All SA 311 (SCA); 2018 (3) SA 380 (SCA) para 38.
[15] Before analysing the provisions of the impugned regulations it is necessary
to address first Afribusiness’ contention that the regulations are invalid on the
ground that they were enacted in a procedurally unfair manner, or that the Minister,
before adopting them, had failed to comply with the Socio-Economic Impact
Assessment System Guidelines (SEIAS Guidelines). Neither point need detain us.
Although by no means persuaded, I shall assume (without deciding) in the
Minister’s favour that sufficient time had been provided for comments on the Draft
Regulations. I am also willing to assume in the Minister’s favour that his failure to
comply with SEIAS Guidelines did not render the 2017 Regulations unlawful.
Legal Framework
[16] Section 5 of the Framework Act empowers the Minister to make regulations.
It provides as follows:
‘(1)
The Minister may make regulations regarding any matter that may be necessary
or expedient to prescribe in order to achieve the objects of this Act.
(2)
Draft regulation must be published for public comment in the Government Gazette
and every Provincial Gazette before promulgation.’
According to its Preamble, the Framework Act was enacted to give effect to
s 217(3) of the Constitution by providing a framework for the implementation of the
procurement policy contemplated in s 217(2) of the Constitution; and to provide for
matters connected therewith. And, ‘preferential procurement policy’ is defined in
the Framework Act to mean ‘a procurement policy contemplated in s 217(2) of the
Constitution’.
[17] Section 217 of the Constitution reads:
‘(1)
When an organ of state in the national, provincial or local sphere of government,
or any other institution identified in national legislation, contracts for goods or services, it
must do so in accordance with a system which is fair, equitable, transparent, competitive
and cost-effective.
(2)
Subsection (1) does not prevent the organs of state or institutions referred to in
that subsection from implementing a procurement policy providing for─
(a)
categories of preference in the allocation of contracts; and
(b)
the protection or advancement of persons, or categories of persons,
disadvantaged by unfair discrimination.
(3)
National legislation must prescribe a framework within which the policy referred to
in subsection (2) must be implemented.’
[18] The national legislation contemplated in s 217(3) is the Framework Act.
Section 1 of the Framework Act defines ‘acceptable tender’ to mean ‘any tender
which, in all respects, complies with the specifications and conditions of tender as
set out in the tender documents’.3 In terms of s 2:
‘(1) An organ of state must determine its preferential procurement policy and implement it
within the following framework:
(a)
A preference point system must be followed;
(b)
(i)
for contracts with a Rand value a prescribed amount a maximum of 10
points may be allocated for specific goals as contemplated in paragraph (d) provided that
the lowest acceptable tender scores 90 points for price;
(ii)
for contracts with a Rand value equal to or below a prescribed amount a maximum
of 20 points may be allocated for specific goals as contemplated in paragraph (d) provided
that the lowest acceptable tender scores 80 points for price;
(c)
any other acceptable tenders which are higher in price must score fewer points,
on a pro rata basis, calculated on their tender prices in relation to the lowest acceptable
tender, in accordance with a prescribed formula;
(d)
the specific goals may include─
(i)
contracting with persons, or categories of persons, historically disadvantaged by
unfair discrimination on the basis of race, gender or disability;
(ii)
implementing the programmes of the Reconstruction and Development
Programme as published in Government Gazette No. 16085 dated 23 November 1994;
(e)
any specific goal for which a point may be awarded, must be clearly specified in
the invitation to submit a tender;
3 In Chairperson: Standing Tender Committee and Others v JFE Sapela Electronics (Pty) Ltd and
Others [2005] 4 All SA 487 (SCA) Scott JA said (para 14):
‘The definition of “acceptable tender” in the Preferential Act must be construed against the
background of the system envisaged by section 217(1) of the Constitution, namely one which is
“fair, equitable, transparent, competitive and cost-effective”. In other words, whether “the tender in
all respects complies with the specifications and conditions set out in the contract documents” must
be judged against these values.’
(f)
the contract must be awarded to the tenderer who scores the highest points, unless
objective criteria in addition to those contemplated in paragraphs (d) and (e) justify the
award to another tenderer; and
(g)
any contract awarded on account of false information furnished by the tenderer in
order to secure preference in terms of this Act, may be cancelled at the sole discretion of
the organ of state without prejudice to any other remedies the organ of state may have.
(2)
Any goals contemplated in subsection (1) (e) must be measurable, quantifiable
and monitored for compliance.’
[19] The attack is directed at regulations 3(b), 4, 9 and 10 of the 2017
Regulations. Regulation 3(b) reads:
‘An organ of state must-
. . .
determine whether pre-qualification criteria are applicable to the tender as envisaged in
regulation 4;’
Regulation 4(1), which deals with pre-qualification criteria for preferential
procurement, provides:
‘(1)
If an organ of state decides to apply pre-qualifying criteria to advance certain
designated groups, that organ of state must advertise the tender with a specific tendering
condition that only one or more of the following tenderers may respond-
(a)
a tenderer having a stipulated minimum B-BBEE status level of contributor;
(b)
an EME or QSE;
(c)
a tenderer subcontracting a minimum of 30% to-
(i)
an EME or QSE which is at least 51% owned by black people;
(ii)
an EME or QSE which is at least 51% owned by black people who are youth;
(iii)
an EME or QSE which is at least 51% owned by black people who are women;
(iv)
an EME or QSE which is at least 51% owned by black people with disabilities;
(v)
an EME or QSE which is 51% owned by black people living in rural or
underdeveloped areas or townships;
(vi)
a cooperative which is at least 51% owned by black people;
(vii)
an EME or QSE which is at least 51% owned by black people who are military
veterans;
(viii)
and EME or QSE.’
In terms of Regulation 4(2), ‘[a] tender that fails to meet any pre-qualifying criteria
stipulated in the tender documents is an unacceptable tender.’
[20] Regulation 9 deals with Subcontracting. It provides:
‘(1)
If feasible to subcontract for a contract above R30 million, an organ of state must
apply subcontracting to advance designated groups.
(2)
If an organ of state applies subcontracting as contemplated in subregulation (1),
the organ of state must advertise the tender with a specific tendering condition that the
successful tenderer must subcontract a minimum of 30% of the value of the contract to-
(a)
an EME or QSE;
(b)
an EME or QSE which is at least 51% owned by black people;
(c)
an EME or QSE which is at least 51% owned by black people who are youth;
(d)
an EME or QSE which is at least 51% owned by black people who are women;
(e)
an EME or QSE which is at least 51% owned by black people with disabilities;
(f)
an EME or QSE which is at least 51% owned by black people living in rural or
underdeveloped areas or townships;
(g)
a cooperative which is at least 51% owned by black people;
(h)
an EME or QSE which is at least 51% owned by black people who are military
veterans; or
(i)
more than one of the categories referred to in paragraphs (a) to (h).
(3)
The organ of state must make available the list of all suppliers registered on a
database approved by the National Treasury to provide the required goods or services in
respect of the applicable designated groups mentioned in subregulation (2) from which
the tenderer must select a supplier.’
[21] Regulation 10, which deals with criteria for breaking a deadlock in scoring,
provides:
‘(1)
If two or more tenderers score an equal total number of points, the contract must
be awarded to the tenderer that scored the highest points for B-BBEE.
(2)
If functionality is part of the evaluation process and two or more tenderers score
equal total points and equal preference points for B-BBEE, the contract must be awarded
to the tenderer that scored the highest points for functionality.
(3)
If two or more tenderers score equal total points in all respects, the award must be
decided by the drawing of lots.’
[22] ‘Designated Group’ is defined in Regulation 1 as:
‘(a)
black designated groups;
(b)
black people;
(c)
woman;
(d)
people with disabilities; or
(e)
small enterprises as defined in Section 1 of the National Small Enterprise, 1996
(Act No 102 of 1996)’
Approach by the High Court
[23] The high court held that the 2017 Regulations are lawful and rational on
the basis that ‘they follow a preference point system, as required by s 2(1)(a) of
the PPPFA. They permit the application of the 80/20 and 90/10 split for contract
value that is contemplated in s 2(1)(b) of the PPPFA. They do not interfere with the
requirement that tenders with a higher price must be given pro rata lower scores
in terms of s 2(1)(c) of the PPPFA. They permit tenders to be awarded tenderers
who do not score the highest points in the circumstances permitted under s 2(1)(f)
of the PPPFA. They do not interfere with the application of s 2(1)(g) of the PPPFA
. . . [They] do not elevate race to a pre-qualification . . . ’
Submissions on behalf of Afribusiness
[24] Afribusiness argued that the 2017 Regulations, in particular Regulations 4
and 9 provide respectively, for pre-qualification criteria, which must be applied
before determining the award of a tender on the preference point system. It
contended that the purpose of pre-qualifying and sub-contracting criteria is to
prefer ‘designated groups’ above other tenderers. According to Afribusiness, the
2017 Regulations put the cart before the horse by providing that the tenderers who
qualify to tender, may first be determined according to, inter alia, race, gender and
disability, and only thereafter in terms of the preference points system. It argued
that s 2 of the Framework Act does not allow for qualifying criteria, which may
disqualify a potential tenderer from tendering for State contracts.
[25] Counsel for Afribusiness submitted that, upon a proper interpretation of s
2(1), the high court’s criticism that Afribusiness places undue emphasis on s
2(1)(b) of the Framework Act, is unwarranted. He argued that as envisaged in s
217(2) of the Constitution, provision is made for the protection and advancement
of persons, or categories of persons, disadvantaged by unfair discrimination, by
allowing for specific goals to be taken into account as part of the preference point
system, the points to be allocated for such specific goals to be limited to 10 points
for higher value contracts, and 20 points for lower value contracts. In terms of s
2(1)(d) of the Framework Act the specific goals may include contracting with
persons or categories of persons, historically disadvantaged by unfair
discrimination on the basis of race, gender or disability. Persons disadvantaged on
the basis of race, gender and disability can therefore, in terms of the Framework
Act be preferred, by scoring respectively 10 or 20 additional points before price is
taken into account.
[26] Counsel maintained that it was clear from s 2(1)(f) of the Framework Act
that contracts must be awarded to tenderers who score the highest points unless
objective criteria in addition to those contemplated in paras (d) and (e) justify the
award to another tenderer. Section 2(1)(f), he submitted, is cast in peremptory
terms which therefore means that the first step in determining to whom the contract
must be awarded is to determine which tenderer has scored the highest points on
the basis of points for price and for special goals, including historic unfair
discrimination on the basis of race, gender and disability. The next step is to
determine whether there are objective criteria, in addition to those contemplated in
paragraphs (d) and (e), necessarily implying objective criteria over and above
historic discrimination on grounds of race, gender or disability.
[27] In support of this proposition counsel referred to Mosene Road Construction
v King Civil Engineering Contractors,4 in which Harms DP concluded:
‘The award of Government tenders is governed by Section 217(1) of the Constitution . . .
National legislation must prescribe the framework for the implementation of any
preferential policy (s 217(3)). This is done by the Preferential Procurement Policy
Framework Act 5 of 2000. It provides that Organs of State must determine their preferential
procurement policy based on a points system. The importance of a points system is that
contracts must be awarded to the tenderer who scores the highest points unless objective
criteria justify the award to another tenderer (s 2(1)(f)).’
[28] In Grinaker LTA Ltd v Tender Board (Mpumalanga)5 De Villiers J remarked:
‘Paragraph (f), in my view, contemplates objective criteria over and above those
contemplated in paragraphs (d) and (e) . . . To put it differently, the legislature did not
intend that criteria contemplated in paragraphs (d) and (e), should be taken into account
twice, firstly in determining what score was achieved out of 10 in respect of the criteria
contemplated in these paragraphs, and, secondly, in taking into account those self-same
criteria to determine whether objective criteria justified the award of the contract to another
tenderer than the one who had scored the highest points.
. . .
In any event, as indicated, the HDI factors referred to are not objective criteria, as
contemplated in Section 2(1)(f) of the Procurement Act.’
[29] Afribusiness thus argued that it is clear from jurisprudence on the
Framework Act that s 2 posits a two-stage enquiry: The first step is to determine
which tenderer scored the highest points in terms of the 90/10 or 80/20 points
system; the next stage is to determine whether objective criteria exist, in addition
to those referred in ss 2 (1)(d) and (e), which justify the award of a tender to a
lower scoring tenderer.6 It was accordingly submitted that the legislature, through
the Framework Act, seems to have afforded a very limited discretion to organs of
4 Mosene Road Construction v King Civil Engineering Contractors [2010] ZASCA 13; 2010 (4) SA
359 SCA para 2.
5 Grinaker LTA Ltd v Tender Board (Mpumalanga) [2002] 3 All SA 336 T para 60 and 62.
6 Rainbow Civils CC v Minister of Transport and Public Works, Western Cape [2013] ZAWCH 3
para 111.
state with regard to the award of a contract to a bidder who does not score the
highest points.
Submissions on behalf of the Amicus
[30] SAPOA submitted that the pre-qualification criteria provided for in
regulation 4 of the 2017 Regulations are contrary to the objective of competitive
bidding and inconsistent with s 217 of the Constitution. It argued that the blanket
‘permission’ to apply pre-qualification criteria, in terms of regulation 4, without
creating a framework for that criteria, lends itself to abuse and the manipulation of
tenders to the detriment of potential bidders.
[31] SAPOA further submitted that the 2017 Regulations are not rationally
connected to, first, the purpose for which they are promulgated; second, the
purpose of the empowering legislation, the Framework Act as read with s 217 of
the Constitution, and the B-BBEE Act, which has one of its objectives as
‘increasing the extent to which black women own and manage existing and new
enterprises, and increasing their access to economic activities infrastructure and
skills training’; third, the information before the administrator or, fourth, the reasons
given for it by the administrator.
[32] It was further submitted by SAPOA that regulation 4 is not only contrary to
the framework of s 2 of the Framework Act as Afribusiness contends, but even
insofar as the Minister may be empowered to create an additional framework
outside s 2 of the Framework Act, the Minister has failed to do so in a manner that
is rational, lawful and fair. In addition, SAPOA contended that the 2017
Regulations, specifically regulation 4 does not, as required by s 217(3) of the
Constitution, prescribe a framework for the proper and legal implementation of s
217(2) of the Constitution in compliance with s 217(1) of the Constitution.
Submissions on behalf of the Minister
[33] It was submitted on behalf of the Minister that Afribusiness places undue
emphasis on s 2(1)(b) of the Framework Act and that it unduly ignores two other
important features of the framework for the procurement process. It was pointed
out that the first feature envisaged by the Framework Act is the pre-qualification
stage. The argument in this regard was that before the Framework Act permits an
organ of state to evaluate any tender, such tender must first ‘qualify’ by meeting
the requirements for an ‘acceptable tender’, where the requirements for an
‘acceptable tender’ in the circumstances of a given tender process are left to the
discretion of the organ of state and not prescribed in any way.
[34] The second feature is one that may arise after the point-scoring exercise is
complete and this allows organs of state to award a tender to a bidder who does
not score the highest points, but rather to another bidder who satisfies certain other
‘objective criteria’.
[35] It was submitted on behalf of the Minister that s 2 of the Framework Act
does not constrain the Minister. It constrains the organs of state. This was so, it
was argued, because when the Minister makes Regulations, he does not act as
an organ of state and is not exercising powers under s 217(1) of the Constitution.
The source of power is s 5 of the Framework Act, it was argued. Section 5 of the
Framework Act, the argument proceeded, confers wide powers on the Minister to
legislate what is considered to be ‘necessary or expedient’. For this proposition
counsel placed reliance on Omar and Others v Minister of Law and Order and
Another; Fani and Others v Minister of Law and Order and Others; State President
and Others v Bill 1987(3) SA 859 (A) in which the phrase ‘necessary or expedient’
was interpreted as conferring on the Minister wide discretionary powers.
Analysis
[36] It may be convenient to first dispose of the last submission advanced on
behalf of the Minister. In my view, the Omar case does not assist the Minister. In
that matter (at 892A) the Court explained that the Legislature was justified in giving
the Minister such wide powers, because of the need to ensure the safety of the
public during a state of emergency, when extraordinary measures were required
to be put in place. The meaning which the court ascribed to the words ‘necessary
or expedient’ was thus based on a consideration of the context in which and the
purpose for which the relevant legislation was enacted.
[37] As s 5 of the Framework Act itself makes plain, the Minister’s powers are
not unconstrained. He may only make regulations ‘regarding any matter that may
be necessary or expedient to prescribe in order to achieve the objects of the Act’.
Section 2 of the Framework Act is headed ‘Framework for the implementation of
preferential procurement policy’. On a proper reading of the regulations the
Minister has failed to create a framework as contemplated in s 2. It is correct that
the application of the pre-qualification requirements is largely discretionary. But the
regulations do not provide organs of state with a framework which will guide them
in the exercise of their discretion should they decide to apply the pre-qualification
requirements.
[38] The discretionary pre-qualification criteria in regulation 4 of the 2017
Regulations constitutes a deviation from the provision of s 217(1) of the
Constitution which enjoins organs of state when contracting for goods or services,
to do so in in accordance with a system which is fair, equitable, transparent,
competitive and cost-effective. Any pre-qualification requirement which is sought
to be imposed must have as its objective the advancement of the requirements of
s 217(1) of the Constitution. The pre-qualification criteria stipulated in regulation 4
and other related regulations do not meet this requirement. Points are to be
allocated to bidders based on the goals set out in s 2 of the Framework Act. The
discretion which is conferred on organs of state under regulation 4 to apply pre-
qualification criteria in certain tenders, without creating a framework for the
application of the criteria, may lend itself to abuse and is contrary to s 2 of the
Framework Act.
[39] The procurement process must comply with five key principles. It must be
equitable, transparent, fair, competitive and cost-effective. As Ponnan JA
explained in Airports Company South Africa SOC Ltd v Imperial Group Ltd and
Others:7
‘The general rule under s 217 of the Constitution is that all public procurement must be
effected in accordance with a system that is fair, equitable, transparent, competitive and
cost-effective. The only exception to that general rule is that envisaged by ss 217(2) and
(3). Section 217(2) allows organs of state to implement preferential procurement policies,
that is, policies that provide for categories of preference in the allocation of contracts and
the protection and advancement of people disadvantaged by unfair discrimination.
Express provision to permit this needed to be included in the Constitution in order for
public procurement to be an instrument of transformation and to prevent that from being
stultified by appeals to the guarantee of equality and non-discrimination in s 9 of the
Constitution. The freedom conferred on organs of state to implement preferential
procurement policies is however circumscribed by s 217(3), which states that national
legislation must prescribe a framework within which those preferential procurement
policies must be implemented. The clear implication therefore is that preferential
procurement policies may only be implemented within a framework prescribed by national
legislation. It follows that the only escape for ACSA from the reach of s 217(1) is if it is
able to bring itself within ss (2) and (3).’
I entirely agree with this analysis of s 217 of the Constitution.
[40] It follows therefore that the Minister’s promulgation of regulations 3(b), 4
and 9 was unlawful. He acted outside his powers under s 5 of the Framework Act.
In exercising the powers to make the 2017 Regulations, the Minister had to comply
with the Constitution and the Framework Act, which is the national legislation that
was enacted to give effect to s 217 of the Constitution. The framework providing
for the evaluation of tenders provides firstly for the determination of the highest
points scorer and thereafter for consideration of objective criteria which may justify
the award of a tender to a lower scorer. The framework does not allow for the
7 Airports Company South Africa SOC Ltd v Imperial Group Ltd and Others [2020] ZASCA 2; 2020
(4) SA 17 (SCA) para 64.
preliminary disqualification of tenderers, without any consideration of a tender as
such. The Minister cannot through the medium of the impugned regulations create
a framework which contradicts the mandated framework of the Framework Act.
[41] The Minister’s decision is ultra vires the powers conferred upon him in terms
of s 5 of the Framework Act. The Constitutional Court held in Minister of
Constitutional Development and Another v South African Restructuring and
Insolvency Practitioners Association and Others [2018] ZACC 20; 2018 (5) SA 349
(CC) para 27 that the rule ultra vires ‘forms part of the principle of legality which is
an integral component of the rule of law’. This principle was affirmed by the
Constitutional Court in Affordable Medicines Trust and Others v Minister of Health
and Others [2005] ZACC 3; 2006 (3) 247 (CC):
‘[49]
The exercise of public power must therefore comply with the Constitution, which is
the supreme law, and the doctrine of legality, which is part of that law. The doctrine of
legality, which is an incident of the rule of law, is one of the constitutional controls through
which the exercise of public power is regulated by the Constitution. It entails that both the
Legislature and the Executive “are constrained by the principle that they may exercise no
power and perform no function beyond that conferred upon them by law”. In this sense
the Constitution entrenches the principle of legality and provides the foundation for the
control of public power.’ (Footnotes omitted.)
[42] The Constitutional Court went on to hold at para 50:
‘[50]
In exercising the power to make regulations, the Minister had to comply with the
Constitution, which is the supreme law, and the empowering provisions of the Medicines
Act. If, in making regulations, the Minister exceeds the powers conferred by the
empowering provisions of the Medicines Act, the Minister acts ultra vires (beyond the
powers) and in breach of the doctrine of legality. The finding that the Minister acted ultra
vires is in effect a finding that the Minister acted in a manner that is inconsistent with the
Constitution and his or her conduct is invalid. What would have been ultra vires under
common law by reason of a functionary exceeding his or her powers is now invalid under
the Constitution as an infringement of the principle of legality. The question, therefore, is
whether the Minister acted ultra vires in making regulations that link a licence to compound
and dispense medicines to specific premises. The answer to this question must be sought
in the empowering provisions.’ (Footnotes omitted.)
[43] It is correct that the discretionary pre-qualification criteria stipulated in
regulation 4 may constitute an antecedent step. But the antecedent step that is
introduced in regulation 4 creates an additional layer which, neither s 217 of the
Constitution, nor s 2 of the Framework Act, authorises. The Minister may not in
terms of s 5 of the Framework Act make regulations which permit organs of state
to incorporate in their tender documents conditions which are inconsistent with s
217 of the Constitution and the Framework Act. In its application, the antecedent
step may well disqualify certain tenderers who do not otherwise fall to be
disqualified by the Framework Act. In that the Minister has exercised a power that
is reserved for the legislature.
[44] That leaves regulation 10: Afribusiness’ argument is that regulation 10 is
unlawful in that it puts B-BBEE above other considerations and it is only if
functionality is part of the evaluation process that the contract must go to the
tenderer that scores the highest points for functionality. In my view there is nothing
objectionable about regulation 10. It seeks to address a much later stage of the
evaluation process. If by then tenderers are equally ranked there can be no
objection to B-BBEE, in the first instance, being used to break the deadlock. At
that stage all tenderers would already have met the functionality requirement.
Remedy
[45] In terms of s 172(1) of the Constitution:
‘(1)
When deciding a constitutional matter within its power, a court─
(a)
must declare that any law or conduct that is inconsistent with the Constitution is
invalid to the extent of its inconsistency; and
(b)
may make any order that is just and equitable, including─
(i)
an order limiting the retrospective effect of the declaration of invalidity; and
(ii)
an order suspending the declaration of invalidity for any period and on any
conditions, to allow the competent authority to correct the defect.’
This may include suspending the order of invalidity to enable the Minister to take
corrective action or set aside only those regulations, whose provisions are
inconsistent with the Framework Act and s 217 of the Constitution.
[46] Counsel for the Minister submitted that in the event that the Court finds
against the Minister on the merits, it should consider setting aside regulation 4 only
and not the regulation in its entirety. However, that option, due to the
interconnectedness of the regulations, may not be an appropriate one. It was
further submitted that any order of invalidity should be suspended for a period of
12 months to allow the Minister to remedy the defects.8 The appropriate remedy in
the circumstances will be to declare the 2017 Regulations to be inconsistent with
s 217 of the Constitution and s 2 of the Framework Act and suspend the order of
invalidity for a period of 12 months from the date of this order.
[47] In the result I make the following order:
The appeal is upheld with costs.
The order of the court a quo is set aside and is replaced with the following
order:
‘(a)
The application succeeds with costs.
(b)
It is declared that the Preferential Procurement Regulations, 2017 are
inconsistent with the Preferential Procurement Policy Framework Act 5 of
2000 and are invalid.
(c)
The declaration of invalidity referred to in para (b) above is suspended for
a period of 12 months from the date of this order.’
_________________
Zondi JA
Judge of Appeal
8 Estate Agency Affairs Board v Auction Alliance (Pty) Ltd and Others [2014] ZACC 3; 2014 (3) SA
106 (CC) para 55.
Appearances:
For appellant:
J G Bergenthuin SC
Instructed by:
Hurter Spies Inc, Centurion
McIntyre Van der Post, Bloemfontein
For respondent:
N Maenetje SC (with him M Stubbs)
Instructed by:
The State Attorney, Pretoria
The State Attorney, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
AL
FROM:
The Registrar, Supreme Court of Appeal
DATE:
2 November 2020
STATUS:
Immediate
Afribusiness NPC v The Minister of Finance (Case no 1050/2019) [2020] ZASCA
140 (2 November 2020)
Please note that the media summary is for the benefit of the media and does not form part of the
judgment of the Supreme Court of Appeal.
Today the Supreme Court of Appeal (SCA) upheld the appeal by the appellant with costs.
This matter concerned the validity of the Preferential Procurement Regulations, 2017 (the 2017
Regulations) promulgated by the Minister of Finance (the Minister) on 20 January 2017 under s 5 of
the Preferential Procurement Policy Framework Act 5 of 2000 (the Framework Act). The appellant,
Afribusiness NPC (Afribusiness), unsuccessfully challenged the regulations before the Gauteng
Division of the High Court, Pretoria (high court) and appealed with the leave of this court. The
background facts are that the Minister acting in terms of s 5(2) of the Framework Act published Draft
Procurement Regulations for public comment. After the time for comment had elapsed, Afribusiness
requested that the period be extended as the initial period was insufficient. The Minister extended the
date and Afribusiness submitted its comments.
The Minister, in terms of s 5 of the Framework Act, later adopted the 2017 Regulations. Aggrieved by
the Minister’s decision, Afribusiness, brought an application in the high court in which it sought for the
regulations to be set aside and be declared invalid. The Minister opposed the application and
contended that his decision to promulgate the 2017 Regulations was an administrative action that was
reviewable. On merits, the Minister contended that the application of pre-qualification criteria in terms
of the 2017 Regulations was discretionary and would not apply in every case; that the procedure he
followed in promulgating the 2017 Regulations met the requirements of PAJA; that the categories of
preference under the 2017 Regulations were based on sound constitutional principles, were not
irrational, unreasonable, or unfair. These contentions were upheld by the high court and it dismissed
Afribusiness’ challenge.
The argument in this Court was whether or not the Minister exceeded his powers in promulgating the
regulations and whether the Minister’s decision to promulgate the regulation was subject to review
under PAJA. Afribusiness argued that the Minister exceeded his powers under s of the Framework
Act by promulgating Regulations which provide for pre-qualification criteria which it contended were
inconsistent with s 217 of the Constitution and s 2 of the Framework Act. It argued that s 2 of the
Framework Act did not allow for qualifying criteria, which could disqualify a potential tenderer from
tendering for State contracts. It maintained further that it was clear from s 2(1)(f) of the Framework Act
that contracts must be awarded to tenderers who scored the highest points unless objective criteria
justified the award to another tenderer. SAPOA as the amicus argued that the blanket ‘permission’ to
apply pre-qualification criteria, without creating a framework for that criteria, caused abuse and the
manipulation of tenders to the detriment of potential bidders. Further, this was considered to not only
being contrary to the framework of s 2 of the Framework Act as Afribusiness contended, but even
insofar as the Minister could be empowered to create an additional framework outside s 2 of the
Framework Act, the Minister had failed to do so in a manner that was rational, lawful and fair.
It was submitted on behalf of the Minister that before the Framework Act permits an organ of state to
evaluate any tender, such tender must first ‘qualify’ by meeting the requirements for an ‘acceptable
tender’, where the requirements for an ‘acceptable tender’ in the circumstances of a given tender
process are left to the discretion of the organ of state and not prescribed in any way. The Minister
submitted that s 2 of the Framework Act constrains only the organs of state. This was so, proceeded
the argument, because when the Minister makes Regulations, he does not act as an organ of state
and is not exercising powers under s 217(1) of the Constitution. The SCA rejected that argument
holding that s 5 of the Framework Act makes it plain that the Minister’s powers are not unconstrained.
He may only make regulations ‘regarding any matter that may be necessary or expedient to prescribe
in order to achieve the objects of the Act’. While the SCA accepted that it was correct that the
application of the pre-qualification requirements was largely discretionary it noted, however, that any
pre-qualification requirement which was sought to be imposed must have as its objective the
advancement of the requirements of s 217(1) of the Constitution. The pre-qualification criteria
stipulated in regulation 4 and other related regulations were said to have not met this requirement.
The SCA held that the Minister’s decision was ultra vires the powers conferred upon him in terms of s
5 of the Framework Act.
The SCA concluded that the appropriate remedy in the circumstances was to declare the 2017
Regulations to be inconsistent with s 217 of the Constitution and s 2 of the Framework Act and
suspend the declaration of invalidity for a period of 12 months from the date of the order to enable the
Minister to take remedial action.
|
2527
|
non-electoral
|
2014
|
[]
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case No:
38/2013
In the matter between:
ASMAL AHMED
Appellant
and
ESSA MAHAMED HAROON NOOR
Respondent
Neutral citation: Asmal v Essa (38/2013) [2013] ZASCA 62 (14 May 2014)
Coram:
MPATI P, LEWIS, MAYA, SHONGWE JJA and MATHOPO AJA
Heard:
14 March 2014
Delivered: 14 May 2014
Summary: National Credit Act 34 of 2005 – whether loan agreements are credit agreements in
terms of the Act – unregistered lender given undated blank cheques for repayment
which included participating profit shares to be stipulated by borrower – cheques
dishonoured upon presentment – loan agreements not credit agreements and profit
shares not „charges‟ under ss 1 and 8 of the Act respectively – cheques constituted
distinct contracts in writing and provisional sentence competent – holder for value of
cheques not obliged when suing the borrower for provisional sentence to comply
with s 40(1) and s 129 read with s 130 of the Act.
__________________________________________________________________
ORDER
On appeal from: KwaZulu-Natal High Court, Pietermaritzburg (Seegobin J sitting as
a court of first instance):
The appeal is dismissed with costs including the costs of two counsel where employed.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
MAYA JA: (MPATI P, LEWIS JA, SHONGWE JA, MATHOPO AJA concurring)
[1] The central issue in this appeal is whether the respondent was obliged to comply
with the provisions of ss 40(1), 129 and 130 of the National Credit Act 34 of 2005 (the
Act) before instituting provisional sentence proceedings based on cheques drawn in his
favour in respect of loans he advanced to the appellant. The cheques were dishonoured
when presented for payment because the appellant had countermanded payment. The
KwaZulu-Natal High Court (Seegobin J) answered the question in the respondent‟s
favour. It decided that the Act did not apply to the parties‟ loan agreements mainly
because they were not secured loans as defined in the Act. Consequently, the court
below granted provisional sentence against the appellant in respect of the money
claims1 based on the cheques. The appeal against that judgment is with the leave of
this court.
1 R470 000 (less R350 000 subsequently paid) under Case No 7317/10, R1 875 000 under Case No 7785/10 and
R1 290 000 under Case No 7786/10, together with interest and costs.
[2] The parties‟ contractual relationship and the circumstances surrounding the
exchange of the cheques were matters of strenuous dispute in the court below.
According to the respondent, the appellant gave him the cheques as payment for the
loans he advanced to him for the purchase and resale of medical equipment to hospitals
and a sectional title unit. The amounts and dates on the cheques, which would be
inserted by the respondent when so instructed by the appellant, would each include a
„participating share of the profit‟ made by the appellant on these transactions. The
profit share amounts would be determined by the appellant at his discretion. The
appellant, on the other hand, contended that the loans were advanced not to him but to
Yashen Satyendra Persadh for whom he stood surety. Because Persadh did not have a
cheque account, repayments to the respondent would be effected by an electronic
funds transfer or a cheque provided by the appellant. The undated cheques were not
meant to be deposited and served merely as proof of the loans. When the loan amounts
requested and advanced increased in time, the respondent required acknowledgements
of debt from Persadh and deeds of suretyship from the appellant in respect of loans
above R1 million, which were duly executed. Signed copies were not, however,
furnished by the appellant as attachments to his answering affidavit.
[3] The following facts were not disputed. The respondent was not registered as a
credit provider in terms of the Act.2 The appellant inserted the respondent‟s name,
signed and crossed each cheque. He then marked two of the cheques „not transferable‟
and one „not negotiable‟. The amounts and dates thereon were, however, inserted by
the respondent and the dates represented the time when payment of each of the
2 The definition of „credit provider‟ is set out in s 1 of the Act which reads in relevant part
„“credit provider”, in respect of a credit agreement to which th[e] Act applies, means–
…
(e) the lender under a secured loan;
…
(h) the party who advances money or credit to another under any other agreement ….‟
relevant amounts was due. The respondent held the cheques for value and drew them
on his First National Bank banking account. Each of the cheques was presented for
payment in accordance with its tenor. The cheques were, however, dishonoured
because the appellant had countermanded payment. As the bank had no obligation to
honour them, notice of dishonour as regards the appellant was accordingly dispensed
with under s 48(2)(c)(v) of the Bills of Exchange Act 34 of 1964.
[4] The appellant defended the proceedings on the basis that the cheques were
given as security for the repayment of underlying loans which, on a proper
interpretation of s 8(4)(d) of the Act, amounted to „secured loans‟ as envisaged therein.
As s 4(5)(a) expressly excludes the use of cheques as a means to pay for goods and
services rendered from the operation of the Act, but says nothing about cheques as a
method for repayment for secured loans, it had to be presumed that there was no
intention to exclude the latter. Alternatively, continued the argument, the loans fell
within the ambit of s 8(4)(f) of the Act because the portion of the profits from the
transactions in respect of which the loans were advanced, which the respondent was to
receive, constituted „a charge‟ as envisaged in that section. Because of the
respondent‟s failure to comply with the relevant provisions of the Act, provisional
sentence could, therefore, not be granted. It was also argued that to exclude
dishonoured cheques from the ambit of the Act would allow unscrupulous creditors to
avoid the measures built into the Act to protect consumers.
[5] As indicated above, the court below was not persuaded by the appellant‟s
contentions. It found that the Act did not apply to the transactions because the
respondent did not retain the cheques as contemplated in the Act‟s definition of a
„secured loan‟. This was so, held the court, because when the appellant delivered the
cheques to the respondent, he did not pledge or cede the cheques but promised that
they would be honoured. In the court‟s opinion, to hold that the cheques could be
pledged as security under the Act would mean that cheques in respect of loans were
subject to the Act. This, in turn, would materially alter the common law applicable to
provisional sentence which treats transactions based on cheques as totally distinct from
those based on underlying agreements and entitles the creditor to elect which cause of
action to pursue. And the legislature could not have intended such a result, at least not
impliedly, and would have expressly said so if it did. The court below further held that
a „charge‟ under the Act had to be known to both parties before they concluded the
agreement; an element missing in this case. The court below concluded that as the
respondent, who was not obliged to register as a credit grantor under the Act, elected
to proceed on the cheques which were not subject to the Act, he was entitled to seek
provisional sentence without complying with the notice requirements of ss 129 and 130
thereof.
[6] The issues narrowed significantly on appeal before us. The appellant wholly
conceded the respondent‟s version of the facts, wisely so, in my view, having regard to
the manifestly poor quality of his own account. The essence of the case now argued on
his behalf was the following. The moneys advanced were loans and the profit share
amounts upon which the parties agreed constituted „a use consideration‟ for the said
loans. In light of s 4(5)(a) of the Act, the loan transactions constituted credit
agreements. A credit agreement, as defined in the Act, entails credit being granted and
the imposition of a „fee, charge or interest‟ in respect of the deferred repayment, for
the use of the credit. The profit shares qualified as a „charge‟, one of the three wide
terms used in s 8(4)(f) of the Act to describe payment for the use of money owed.
Therefore the loans, of which the cheques were part and parcel, constituted credit
agreements and were subject to the provisions of the Act. And because the respondent
was not registered as a credit provider, in breach of s 40(1)(b) of the Act, the credit
agreements were unlawful and thus void in terms of s 89(2)(d). The cheques could not
found provisional sentence in the circumstances.
[7] It is well-recognized that a cheque that has been properly drawn and issued
constitutes a contract in writing, which enjoys the characteristic of negotiability, and
must be founded on a justa causa debendi, or reasonable cause in order to be valid and
enforceable.3 The obligation to pay, represented by the cheque, which generally arises
from some transaction (contractual or otherwise), is dependent upon the validity of that
underlying transaction.4 Thus if, for example, the underlying transaction is voidable,
illegal or there has been a failure to perform, a claim by the payee for enforcement of
the contract will not succeed.5 The validity of the underlying loan agreements
concluded by the parties here therefore bears some relevance for the enforcement of
the obligations arising from the cheques and the competence of the provisional
sentence relief in that exercise.
[8] The Act defines a „credit agreement‟ widely. In s 1 it describes it as an
„agreement that meets all the criteria set out in section 8‟. The relevant parts of s 8, in
turn, provide:
„(1) Subject to subsection (2), an agreement constitutes a credit agreement for the purposes of this
Act if it is–
3 Froman v Robertson 1971 (1) SA 115 (A) at 120F-G; Lutzkie & another NNO v Zenith Concessions Ltd 2003 (6)
SA 643 (SCA) para 6.
4 Ibid.
(a) a credit facility, as described in subsection (3);
(b) a credit transaction, as described in subsection (4);
(c) …
(d) Any combination of the above.
(2) …
(3) An agreement, irrespective of its form but not including an agreement contemplated in subsection
(2) or section 4(6)(b), constitutes a credit facility if, in terms of that agreement–
(a) a credit provider undertakes–
(i) to … pay an amount or amounts, as determined by the consumer from time to time, to the
consumer or on behalf of, or at the direction of, the consumer; and
(ii) either to–
(aa) defer the consumer‟s obligation to … repay to the credit provider any part of an
amount contemplated in subparagraph (i); or
(bb) …; and
(b) any charge, fee or interest is payable to the credit provider in respect of–
(i) any amount deferred as contemplated in paragraph (a)(ii)(aa); or
…
(4) An agreement, irrespective of its form but not including an agreement contemplated in subsection
(2), constitutes a credit agreement if it is–
…
(d) … a secured loan
(f) any other agreement, other than a credit facility or credit guarantee, in terms of which payment of
an amount owed by one person to another is deferred, and any charge, fee or interest is payable to
the credit provider in respect of–
(i) the agreement; or
(ii) the amount that has been deferred.‟
[9] Common to all the forms of a credit agreement, including credit facilities and
credit transactions, is the requirement of payment of a „charge‟, „fee‟ or „interest‟ as
5 Above, fn 3.
envisaged in ss 8(3)(a)(ii) and 8(4)(f)(ii), respectively. The terms „charge‟, „fee‟ and
„interest‟ are, however, not defined in the Act. Bearing in mind that the statutory
context of s 8 (and indeed all the provisions of the Act) is important in the
interpretation of its provisions, it is clear from their ordinary meaning and the context
in which the terms are used that they were meant to cover any consideration or
payment to be made by a credit borrower to a credit provider for the use of credit
under the auspices of the Act. Regard must also be had and effect given to the objects
and purposes of the Act, set out in s 3, in interpreting its provisions.6 Among these
purposes is the promotion of „a fair, transparent, competitive, sustainable, responsible,
efficient, effective … credit market and industry and the [protection of] consumers by
… promoting responsibility in the credit market by … encouraging responsible
borrowing, avoidance of over-indebtedness and fulfilment of financial obligations by
consumers … promoting equity in the credit market by balancing respective rights and
responsibility of credit providers and consumers … addressing and correcting
imbalances in negotiating power between consumers and credit providers by …
providing consumers with adequate disclosure of standardised information in order to
make informed choices‟.
[10] Apart from these objectives, the general tenor of the whole Act makes clear that
one of its overarching objectives is to ensure that the parties to a credit agreement,
especially the consumer, are fully aware of the actual risks and liabilities involved in
the proposed undertaking. For example, ss 100 to 106 of Part C of the Act deal with
„Consumer‟s liability, interest, charges and fees‟. The sections make provision for
„cost of credit‟ which entails the specific types of fees, interest, credit insurance and
default administration charges that a credit provider may impose. They also prescribe
6 In s 2(1) of the Act.
the maximum amounts and the methods by which such amounts must be computed,
which the credit provider may not change unilaterally. The painstaking detail of these
provisions leaves no doubt that certainty regarding the cost of the proposed credit is
imperative. Sections 80(1) and 81 of the Act, which deal with reckless credit, are
similarly couched. They require the credit provider to conduct an assessment to ensure
that the consumer „understands or appreciates‟ the risks, costs or obligations under the
proposed credit agreement.
[11] These measures are obviously intended to protect the consumer from any hidden
costs that may arise from the credit agreement and to ensure that he or she has an
opportunity to consider the precise risk and cost involved before binding himself or
herself. In that case, the parties must quantify the charge, fee or interest and specify the
manner in which it is to be paid when they determine their contractual terms and
conclude the credit agreement. It must follow that the indeterminate profit shares
agreed upon by the appellant and the respondent, for which no date of repayment was
fixed, which were not guaranteed and could well not even have eventuated, and whose
value, if any, was to be determined by the appellant at his sole discretion, cannot
qualify as „a charge‟ under the Act. The submission made on the appellant‟s behalf
that whether a loan is a credit agreement within the meaning of the Act depends not on
its outcome but on its nature – ie what makes the loans credit agreements is the fact
that „extra money was asked for their use‟ regardless of whether that „extra money‟ in
the form of profit shares was not specified or ultimately paid, as it was put – simply
has no merit. Thus, the loans were not credit agreements as envisaged by the Act if no
charges attached to them.
[12] In the light of this finding, the court below correctly rejected the submission that
the loan agreements concluded by the parties were secured loans. A „secured loan‟ is
defined in s 1 of the Act as „an agreement, irrespective of its form but not including an
instalment agreement, in terms of which a person … advances money or grants credit
to another, and … retains, or receives a pledge or cession of the title to any movable
property or other thing of value as security for all amounts due under that agreement‟.
It is clear from the facts (and it was wisely not contended otherwise in argument before
us) that the cheques were not pledged or ceded to the respondent, a finding made also
by the court below. They were issued by the appellant with the intention that they
would be honoured on due presentment and, if they were dishonoured, that the
appellant would compensate the respondent as holder.7
[13] The appellant‟s reliance on the respondent‟s non-compliance with the provisions
of s 40(1) of the Act is yet another non-starter. According to the section, a person must
apply to be registered as a credit provider if he or she „alone or in conjunction with any
associated person, is the credit provider under at least 100 credit agreements … or the
total principal debt owed to that credit provider under all outstanding credit agreements
… exceeds the threshold [of R500 000] prescribed in terms of s 42(1)‟. These
provisions require the existence of credit agreements to kick in. As pointed out, there
were none here. The respondent, therefore, had no obligation to register as a credit
provider in the circumstances.
[14] He similarly had no duty to comply with ss 129 and 130 of the Act before
commencing litigation against the appellant. The general import of these provisions is
7 Froman v Robertson above at 121 F.
that the credit provider is proscribed from commencing any legal proceedings against a
consumer, who is in default under a credit agreement, to enforce it, before first giving
the consumer written notice thereof and before the lapse of time during which the
consumer has failed to respond thereto or has rejected the credit provider‟s proposals.
These provisions also presuppose the existence of a credit agreement and cannot apply
if there is none.
[15] The appellant‟s case can find no support from s 4(5)(a) either. In terms of these
provisions „[i]f a person sells any goods or services and accepts, as full payment for
those goods or services … a cheque or similar instrument upon which payment is
subsequently refused for any reason … the resulting debt owed to the seller by the
issuer of that cheque or charge does not constitute a credit agreement for any purpose
of th[e] Act‟. I agree with the court below that it makes no sense at all that the
provisions would distinguish between a cheque in terms of which payment for goods or
services is to be effected and one in terms of which repayment of a loan is intended by
exempting only the former from the operation of the Act. Simple logic dictates that
both classes of cheques should similarly be excluded from the ambit of the Act. Suffice
it to point out the notorious fact that the Act is not a model of clarity and that a
significant number of its provisions are fraught with ambiguity and vagueness as
attested by the scores of court decisions interpreting its various provisions.
[16] All the indications are that the parties had no intention whatsoever of concluding
credit agreements and bringing their dealings within the scope of the Act. The
respondent was fully entitled to invoke the provisional sentence procedure to enforce
his claims, which are disputed merely on technical grounds. And the reasoning of the
court below and the conclusion it reached cannot be faulted. The appeal must
accordingly fail.
[17] In the result, the appeal is dismissed with costs including the costs of two
counsel where employed.
____________________
MML Maya
Judge of Appeal
APPEARANCES
APPELLANT:
KJ Kemp SC (S Alberts)
Instructed by:
K Maharaj Inc., Durban
Honey Attorneys, Bloemfontein
RESPONDENT:
CJ Hartzenberg SC
Instructed by:
Ganie & Co., Pietermaritzburg
Symington & De Kok, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
14 May 2014
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Asmal v Essa (38/2013) [2013] ZASCA 62 (14 May 2014)
The Supreme Court of Appeal today dismissed, with costs, an appeal from the KwaZulu-
Natal High Court, Pietermaritzburg. The central issue in the appeal, brought with the SCA’s
leave, was whether the respondent was obliged to comply with the notice provisions of the
National Credit Act 34 of 2005 (the Act) before instituting provisional sentence proceedings
based on cheques drawn in his favour in respect of loans he advanced to the appellant.
The cheques were dishonoured when presented for payment by the respondent because the
appellant had countermanded payment.
The high court found in the respondent’s favour, on the basis that the Act did not apply to the
parties’ loan agreements mainly because they were not secured loans as defined in the Act.
Consequently, the court granted provisional sentence against the appellant in respect of the
money claims based on the cheques. The appeal against that judgment is with the leave of
this court.
On appeal the appellant argued that the money advanced to him by the respondent constituted
loans and the profit share amounts upon which the parties agreed in addition to the repayment
of the loan amounts constituted ‘a use consideration’ for the said loans. Therefore, in light of
the Act the loan transactions constituted credit agreements, in the sense that credit was
granted and a ‘fee, charge or interest’ imposed in respect of the deferred repayment, for the
use of the credit. The profit shares qualified as such a ‘charge’. As the respondent was not
registered as a credit provider in breach of s 89(2)(d) of the Act, the credit agreements were
unlawful and thus void. The cheques could not found provisional sentence in the
circumstances.
The SCA held that it is clear from the tenor of the Act that one of its overarching objectives is
to ensure that the consumer is fully aware of the actual risks and the cost of the proposed
credit so as to be protected from any hidden costs that may arise from the credit agreement.
Accordingly, the SCA held that it must follow that the indeterminate profit shares agreed
upon by the appellant and the respondent, for which no date of repayment was fixed, which
were not guaranteed and could well not even have eventuated, and whose value, if any, was
to be determined by the appellant at his sole discretion, cannot qualify as ‘a charge’ under the
Act. The high court was thus correct that the loans did not constitute ‘secured loans’ in terms
of the Act.
The SCA concluded that as the Act is not of application to the loans agreements, its notice
requirements are not applicable. The respondent was thus fully entitled to invoke the
provisional sentence procedure to enforce his claims which were disputed merely on
technical grounds.
|
2722
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 356/11
No Precedential Significance
In the matter between:
Sagren Perumal
First Appellant
Pushpaganthie Perumal
Second Appellant
Rajambal Pillay
Third Appellant
Sadhasivan Pillay
Fourth Appellant
P3 Trucking CC
Fifth Appellant
Sadhasivan Pillay N.O.
Sixth Appellant
Poogendran Naidoo
Seventh Appellant
Loganathan Perumal
Eighth Appellant
Marilyn Hariputh
Ninth Appellant
and
The National Director of Public Prosecutions
Respondent
Neutral citation:
Sagren Perumal v NDPP (356/11) [2011] ZASCA 37 (29
March 2012)
Coram:
MPATI P, HEHER, SNYDERS, and MAJIEDT JJA and
PLASKET AJA
Heard:
15 March 2012
Delivered:
29 March 2012
Summary:
Forfeiture of assets – proceeds of unlawful activities –
the Prevention of Organised Crime Act 121 of 1998.
ORDER
On appeal from: KwaZulu-Natal High Court, Durban (Moosa AJ sitting as court
of first instance):
The appeal is upheld with costs.
The order of the court below is set aside and replaced by the following:
‘The application is dismissed with costs.’
JUDGMENT
SNYDERS JA (MPATI P, HEHER and MAJIEDT JJA and PLASKET AJA
concurring):
[1] This matter is before us with leave of the court below (Moosa AJ in the Kwa-
Zulu-Natal High Court, Durban). It originated as an ex parte application by the
National Director of Public Prosecutions (NDPP), the respondent, in terms of s 38
of the Prevention of Organised Crime Act 121 of 1998 (POCA).1 An order was
obtained on 12 March 2004 (the preservation order) and the property attached in
terms of that order comprises 221 items and some cash, as reflected in an
inventory compiled by the curator bonis appointed by the court to take control of
the property. It includes immovable and movable property owned by each of the
appellants. The order was published in the Government Gazette on 2 April 2004
in terms of s 40 of POCA.2 The respondent timeously approached the court, on
essentially the same founding papers, for an order in terms of s 48 of POCA for
the forfeiture of the property seized under the preservation order. The application
was opposed by all the appellants, argued on 20 October 2008 and on 3 March
1 Section 38 empowers the NDPP to approach a high court, ex parte, for an order preserving
property reasonably believed to be ‘an instrumentality of an offence’, ‘the proceeds of
unlawful activities’ or ‘associated with terrorist and related activities’. When such an order is
obtained the relevant high court authorises the seizure of the property and makes ‘ancillary
orders that the court considers appropriate for the proper, fair and effective execution of the
order’.
2 Section 40 provides for the expiry of a preservation order, 90 days after publication in the
Government Gazette, unless there is an application for a forfeiture order pending before a
high court in relation to the preserved property.
2011 a forfeiture order was granted of all the assets attached pursuant to the
preservation order. The appellants appeal that order.
[2] All of the appellants that are natural persons are related to each other. The
first appellant is married to the second appellant. The third appellant is the
second appellant’s mother. The fourth appellant is the second appellant’s brother
and is the sole member of the fifth appellant and also the sixth appellant, in his
capacity as the sole member of the fifth appellant. The first four appellants and
their families lived together in a house registered in the third appellant’s name, to
which I will refer as the Kings Avenue house. The seventh appellant is the
nephew of the first appellant. The eighth appellant is the first appellant’s brother,
and is married to the ninth appellant.
[3] The third appellant passed away before the hearing of the matter in the court
below. Both counsel confirmed that application was made and granted by the
court below for the substitution of the third appellant with the first and second
appellants, the executors in the estate of the third appellant. That amendment is
not reflected in any of the papers, but I accept that it was duly made. Purely for
convenience, I will continue to refer to the third appellant as such.
[4] The attached property comprises the Kings Avenue house, registered in the
name of the third appellant, its contents, various motor vehicles, the content of
the Boyz-2-Men night club and an investment policy. The case of the respondent
was that all of the assets belong to the first appellant, despite being registered in
the names of his various family members, and are either the proceeds of
unlawful activities, or an instrumentality of crime.
[5] At the commencement of the hearing in this court, counsel informed us that
the respondent has partially abandoned the judgment of the court below to the
extent that the dispute between the parties in this court only involves the Kings
Avenue house, an Iveco Eurotech truck (the truck) and a Henred Freuhauf
Platform truck trailer (the truck trailer), registered in the name of the fifth
appellant, and a Volkswagen Caravelle motorvehicle, registered in the name of
the first appellant. The rest of the property has already been returned to the
appellants. This agreement between the parties limits the issues between them
to the extent that the interests of the seventh to ninth respondents are no longer
affected. Counsel were also agreed that the effect of this agreement should not
have any influence on the costs order to be made.
[6] A successful application for forfeiture of assets in terms of s 48(1) of POCA
requires a court to find, on a balance of probabilities, that the property concerned
is either an instrumentality of an offence or the proceeds of unlawful activities.3
Section 48 is part of chapter 6 of POCA which focuses, unlike chapter 5, on
property and not on the wrongdoer. There is therefore no need for an existing
criminal conviction or pending criminal proceedings before the NDPP avails
himself of the provisions of s 48 and there were none in this case.4 The court,
faced with an application in terms of s 48, simply asks the question whether the
property was an ‘instrumentality of an offence’ or ‘the proceeds of unlawful
activities’.5
[7] The abandonement of part of the judgment of the court below and the
confinement of the case to the limited items of property listed above, further
restricted the enquiry to whether the property was the proceeds of the alleged
unlawful drug dealing activities of the first appellant and it is no longer necessary
to consider whether any property was an instrumentality of an offence.
[8] The respondent’s case is that the first appellant is one of the biggest, if not the
biggest, drug dealer in the greater Durban area, that the assets still under
preservation belong to him, are the proceeds of his drug dealing activities and
have been registered in the names of his family members or their businesses in
order to falsely create the impression that they do not belong to him. In order to
establish these allegations in application proceedings the respondent faced the
application of the well known principles established in Plascon-Evans Paints
3 Section 50: ‘(1) The High Court shall, subject to section 52, make an order applied for under
section 48(1) if the Court finds on a balance of probabilities that the property concerned – (a)
is an instrumentality of an offence referred to in Schedule 1; (b) is the proceeds of unlawful
activities; or (c) is property associated with terrorist and related activities.’
4 Section 50(4) ‘The validity of an order under subsection (1) is not affected by the outcome of
criminal proceedings, or of an investigation with a view to institute such proceedings, in
respect of an offence with which the property concerned is in some way associated.’
5 National Director of Public Prosecutions v R O Cook Properties (Pty) Ltd; National Director
of Public Prosecutions v 37 Gillespie Street Durban (Pty) Ltd & another; National Director of
Public Prosecutions v Seevnarayan 2004 (2) SACR 208 (SCA) paras 19-21.
Limited v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) at 634H-635C. The
issue in this appeal therefore turns on whether the trial court correctly concluded
that the undisputed allegations in the founding affidavit, taken with the appellants’
allegations in the answering affidavits that are not clearly untenable, establish, on
a balance of probability, that the first appellant is indeed a drug dealer and that
he acquired the identified assets from the proceeds of his drug dealing activities.
[9] It is clear from the founding affidavits on behalf of the respondent that the first
appellant had been under investigation by various members of the then
Directorate of Special Operations for drug-related offences since the early
1980s.6 Apart from ordinary investigative procedures of questioning potential
witnesses, the provisions of the Interception and Monitoring Prohibition Act 127
of 1992 were used to eavesdrop on the first appellant’s conversations, s 252A of
the Criminal Procedure Act 51 of 1977 (CPA) was used to attempt to entrap the
first appellant and various searches in terms of the CPA were conducted, all in
an effort to gather evidence of his drug dealing activities. Several of the
investigators deposed to the affidavits that constitute the founding papers against
the appellants.
[10] Amod Khalil Hoosen (Hoosen), a senior special investigator employed by the
National Prosecuting Authority and attached to the DSO, adduces direct
evidence in the second sentence of the following extract from his affidavit (the
references to ‘Perumal’ in all the quotations that follow are references to the first
appellant):
‘My investigations revealed that Perumal had been involved in drug dealing activities for
the past 16 years. On or about 1990 while conducting drug investigations in the
Chatsworth area I arrested Perumal for possession of about 250 mandrax capsules.’
Hoosen does not mention any of the relevant circumstances surrounding this
arrest. The first appellant discloses in his answering affidavit that the arrest never
6 The DSO was created by s 7 of the National Prosecuting Authority Act 32 of 1998, and
special investigators could be appointed in terms of s 19A of the same Act. The DSO was
disbanded by the National Prosecuting Authority Amendment Act 56 of 2008 and replaced by
the Directorate for Priority Crime Investigation by the South African Police Service
Amendment Act 57 of 2008.
led to a prosecution. This fact casts serious doubt over the cogency of Hoosen’s
allegation.
[11] The rest of Hoosen’s affidavit does not reveal any personal knowledge of the
first appellant’s alleged drug dealing activities, but consists of conclusions based
on affidavits gathered in the course of the investigations of the first appellant.
What follows are his main conclusions:
‘During the said investigations Perumal was linked and implicated in numerous drug-
dealing incidences in which large amounts of drugs were found and seized from various
persons whom Perumal used to store and sell drugs.
My investigations revealed that even though Perumal used Runners to conduct his drug
dealing activities he was nevertheless directly actively involved in negotiating and
conducting the drug dealing transactions himself.
My further investigations revealed that the proceeds derived from the sale of drugs were
ultimately paid over to Perumal and that he regularly handled large amounts of cash,
which was generated from the sale of drugs.’
[12] Clarence Francisco Jones (Jones), an investigator in the same position as
Hoosen, described his conclusions as follows:
‘My analysis of Perumal’s drug dealing activities revealed that Perumal conducted his
drug dealing activities in a highly organized and secretive manner. He only employed
and used close associates and family members that he trusted to conduct his drug
dealing activities. He further sold and supplied drugs mainly to established clientele
whom he trusted. He did not directly do the selling of the drugs himself and he generally
did not agree to be directly approached to do drug dealing transactions.’
[13] These conclusions contain an obvious contradiction with those drawn by
Hoosen in the second extract quoted in para 11 above. The true source of the
conclusions is the affidavits of interviewees. The interviewees’ affidavits reveal a
missing link between the available evidence that they provide and the confidently
stated factual conclusions reached by the deponents to the founding affidavits.
What follows are a few examples.
[14] Hoosen relied on an affidavit by one Crystal Moodley. She described herself
as the mistress of one ‘Shangwen’, who had since passed away. The part of her
affidavit that comes closest to implicating the first appellant, reads as follows:
‘There was one occasion I was introduced to a person by the name of Bimbo. This
Bimbo was the person that was Shangwen’s friend and I was present when a deal was
made for him to supply Ecstacy tablets. I knew Ecstacy as “E”. The deal was done
outside the nightclub owned by Bimbo known as Boyz to Men. The person that handed
the “E” tablets to Shangwen was Poogen that worked for Bimbo. Shangwen was on
numerous occasions with Bimbo and he used to phone him often and it would seem to
me that they were close. There were occasions that I was present when he picked up
monies form a drug dealer known as “Bill Kandasamy” or Merebank. Shangwen told me
that he supplied “buttons” to this person.’
[15] This evidence does not support any of the conclusions drawn by Hoosen.
Even if it is accepted that the reference to ‘Bimbo’ in the extract is a reference to
the first appellant the allegations lack detail, fail to disclose the basis of the
knowledge professed therein and, more fundamentally, do not provide any
connection relating to drug dealing between the first appellant and any of the
persons implicated.7
[16] Hoosen also relies on an affidavit by Krishnan Kamalasen Pather (Pather).
He is a family member of the first appellant and made an affidavit after he was
allegedly assaulted by, amongst other members of his family, the first appellant
because he disclosed details of a stolen vehicle in the possession of the first
appellant to the police. The only reference to a stolen vehicle in the papers
concerns a vehicle that the first appellant bought that was later discovered to
have been previously stolen. The vehicle was confiscated by the police, the first
appellant made an affidavit in this regard and that appears to have been the end
of the matter. Pather’s objectivity and reliability, by reason of his alleged conflict
with the first appellant, seem questionable. The contents of his disclosures affirm
this.
7 There is evidence in the papers that the first appellant was also known as Bimbo, but
whether all references to ‘Bimbo’ are necessarily references to the first appellant, is by no
means clear.
‘. . . . [the first appellant] bought two houses in Pinetown, one which Steven and his
mother-in-law lived in, and the other, which Colleen and he stayed in. I knew that
Colleen and [the first appellant] had registered the house on her parents’ name. But I
was also aware that the parents could not afford to buy the house as Rajambal’s
husband did not earn well.
. . . [the first appellant] received a call after which he went to the outside dirt bin and took
out a few tablets, which I was informed and knew to be mandrax (± 4 tablets). He then
asked me to accompany him. We proceeded to the Pavilion Shopping Complex and met
people outside Nando’s. There were three gentlemen in the car and one of whom I knew
by sight. . . .
Thereafter using his cell phone [the first appellant] called his nephew Gordon whom we
had left behind at the house in Pinetown. Gordon arrived a few minutes later and Bimbo
told him to go into the gentlemen’s car and count the money. After doing so Gordon
handed them a parcel, which I assumed could only be drugs (mandrax). This was the
only incident that I had sight of and interaction with Bimbo’s drug deals. . . .
About four years ago I just moved to my current residence when Bimbo on one of his
frequent visits asked me to store drugs for him. He offered to pay my rent and see to my
food cost in return for me agreeing to his request. I blankly refused and it was the turning
point in our relationship.’
[17] Suspicion may be aroused if all the allegations by Pather are accepted as
fact. However, it is clear that, in relation to the immovable properties, he resorted
to sweeping statements without revealing the source of his knowledge. In relation
to the alleged drug dealing his statements are founded on speculation and
presumption and do not warrant the factual conclusions sought to be drawn by
Hoosen.
[18] Farouk Naroth (Naroth) also made an affidavit on which Hoosen relied for his
factual conclusions against the first appellant. The highpoint of his allegations
against the first appellant reads as follows:
‘Bimbo’s nephew, Poogen who also worked at the factory was also involved in the
running of the Club. On numerous occasions I noticed Poogen selling ecstasy to patrons
at the club. This was done in the presence of Bimbo and with his full knowledge. . . .
Bimbo employed an Indian male known to me as Tony to sell drugs inside the club . . .
On numerous occasions I observed customers hand cash to Tony and he in return
hands them pills. At the end of the evening or morning Tony hands the cash to either
Bimbo or Poogen. I noticed that Bimbo’s nephew Poogen was in charge of most of the
operations of the club. . . .
On several occasions during 2000 until 2003 I noticed a drug dealer known as
Shongwan to visit the Club and to be engaged in deep conversations with Bimbo. On
some of these occasions whilst they spoke Bimbo would call Poogen to him and after a
short conversation Shongwan would hand over a parcel to Poogen. This parcel in some
instances would be wrapped in newspaper and would be tightly taped in brown tape.
Poogen would take control of the parcel and after Shongwan had left I would see Bimbo
with the parcel. I had occasion to find out the contents of such parcel when I witnessed
Bimbo opening this parcel and it revealed large bundles of cash.’
[19] These allegations are largely based on the presumption that it was
prohibited substances which were being discussed and sold. It also presumes
knowledge of relationships whilst the facts that brought about that knowledge are
not disclosed. It should also be borne in mind that what remains of the
respondent’s case after partially abandoning the judgment of the court below,
only pertains to the first appellant’s alleged drug dealing activities and not the
question whether the Boyz-2-Men nightclub was an instrumentality of an offence.
[20] The affidavit by Naroth contradicts the affidavit by Pather in one vital respect.
Whilst Naroth purports to describe drug dealing activities at the nightclub, Pather
states that he attended the club on a number of occasions and did not see any
drug related activities in the club.
[21] The respondent also relies on evidence seized by Hoosen from the seventh
appellant’s car. According to Hoosen numerous pieces of paper were seized
which contain entries of names and amounts typical of keeping records of the
sale of drugs. Copies of the seized pieces of paper are annexed to his affidavit.
The first difficulty with this evidence is that the author of the documents is
unknown. Secondly, no connection between the documents and the first
appellant is alleged. There is a reference to ‘Bimbo’ in some of the pieces of
paper, for example, ‘39/Bimbo Paid’. Insofar as this evidence is relied on by the
respondent as evidence of the first appellant’s involvement in drug dealing
activities, it fails hopelessly. The reference to ‘Bimbo’ is not alleged to be a
reference to the first appellant. It is furthermore highly unlikely that the first
appellant, an alleged major drug dealer, would buy small amounts of drugs from
someone else.
[22] The affidavit of Jones reveals the same inadequacies. He relies on and
attaches affidavits by interviewees who recount purchases of mandrax tablets
from ‘Guy’, ‘Aka’ and ‘Anita’. Not a single allegation is made that constitutes
evidence that any of the said sellers conducted the sales for and on behalf of the
first appellant. Jones also makes the allegation that conversations of the first
appellant were recorded during which he had discussions with the second
appellant about dealing in 500 mandrax tablets. He arrested the first and second
appellants on the strength of these recordings and charged them with conspiracy
to deal in mandrax. However, quite startlingly, what the respondent does not
disclose in his founding papers is that by the time Jones made the allegations he
knew, but failed to disclose, that the criminal prosecution that followed upon this
charge had been withdrawn, because the recordings were found to be
‘unsuitable for voice comparison analysis’.
[23] Despite having investigated the first appellant for almost 20 years prior to
launching proceedings under POCA, despite intercepting the first appellant’s
conversations, despite searches and seizures of various premises and property,
despite trying to entrap the first appellant, the respondent has only put up a
smoke and mirrors case which at best raises suspicion but does not sway the
balance of probability in his favour.
[24] All of the affidavits relied upon by the respondent fall short of age-old basic
principles that pertain to evidence on affidavit. The following quote from
Geanotes v Geanotes 1947 (2) SA 512 (C) at 514 is relevant:
‘It will be noticed that the petitioner fails to give the source of her information, or the
grounds of her belief. In Grant-Dalton v. Win and Others (1923, W.L.D. 48), it was laid
down that the Court will not admit statements of belief and information in interlocutory
matters unless the grounds of such information and belief are set out and the Court is
satisfied that it is necessary to act upon such statements by reason of the grave urgency
of the matter or for purpose of preventing an injury or a threatened illegal invasion of
rights. Mr. Justice Krause at page 186 said, inter alia: “The grounds of the deponent’s
belief must be stated so as to show that he has some reasonable and proper cause for
making the statement, and has not sworn merely to raise an issue. The Court of Appeal
in England In re Young Manufacturing Co., Ltd. (1900, 2 Ch. 753), held that an affidavit
of information and belief not stating the sources of information or belief, is irregular, and
therefore inadmissible as evidence, whether on an interlocutory or a final application;
and a party or solicitor attempting to use such an affidavit will do so at his peril as to
costs.”’
[25] The first appellant denies being involved in any form of drug dealing. He also
denies that any of the property of the other appellants is his. On behalf of the
respondent it was argued that the appellants have not answered the case against
them fully or convincingly, but that their denials are vague, sketchy and lacking in
details. Accepting, without deciding, that complaint as valid, the case that the
appellants had to meet is a poor one and their response to it should be assessed
in that light. That their response was not detailed does not supplement the case
for the respondent.8 The denial of drug dealing activities is consistent with the
appellants’ average middle class lifestyle which is apparent from the papers.
Nothing the respondent has disclosed points to an affluent lifestyle lived off the
proceeds of drug dealing. An intensive investigation over almost two decades
has not revealed evidence of the proceeds of drug dealing, or a level of affluence
that could possibly sustain an inference of unlawful activities.
[26] Aside from the first appellant’s denial of the respondent’s case, the latter
faces an insurmountable hurdle when the allegations by the third appellant are
considered. The immovable property the respondent seeks to have declared
forfeit is registered in the name of the third appellant. She put up an affidavit
explaining that her late husband had been economically active for all of his adult
life and that he always managed to save some money. This much is apparent
from the fact that during his lifetime they bought two immovable properties. When
they acquired the second of the two they lived in one and rented out the other.
This continued to render an income to her after his death. She also states that he
kept his savings in cash in a safe at home and upon his death at the beginning of
8 Administrator, Transvaal & others v Theletsane & others 1991 (2) SA 192 (A) at 196C-E.
1998 he left her with approximately R500 000 in cash. She utilised R300 000 of
this money to acquire the Kings Avenue property and with the rest she helped
her son, the fourth appellant, to acquire the truck and truck trailer that enabled
him to earn a living from conducting a transport business.
[27] Nothing in the papers suggests that her version is clearly untenable. The
respondent suggests that it is improbable that her late husband earned enough
to have enabled him to save an amount of approximately R500 000. No facts are
alleged that give rise to such an improbability. On the contrary, the lifestyle of all
the appellants supports the third appellant’s version. Their lifestyle seems
anything but extravagant. They live together, their vehicles are second hand and
are relatively old. The Kings Avenue property was purchased during 2002 for
R800 000 and was funded by a cash deposit of R300 000 and a mortgage bond
in favour of a financial institution in the amount of R500 000 for which friends of
the third appellant stood surety. That the money was not disclosed in the
liquidation and distribution account drawn by the executor of the deceased estate
of the third appellant’s late husband gives rise to several plausible inferences and
not only the one that the respondent seeks to draw, namely that the money was
supplied by the first appellant.
[28] The nature of the property sought to be forfeited does not suggest the
presence of an affluent drug dealer trying to hide his wealth, but of an average
middle class family going about their daily living. The mere fact that the first
appellant was present and, to some extent, instrumental in negotiating the
acquisition of the property, does not give rise to the conclusion that the
respondent seeks to draw. The allegations on behalf of the respondent that the
first appellant is the owner of the Kings Avenue property, the truck and the truck
trailer are based on hearsay evidence and assumption, the source or basis of
which is not disclosed, and is no stronger than the allegations of his alleged drug
dealing activities. The allegations that the first appellant disclosed to the sellers
of the Kings Avenue property, the truck and the truck trailer that he was in actual
fact the purchaser are highly improbable in the light of the respondent’s case that
the first appellant was weaving a highly secretive web of deceit about his
ownership of the property. If that was so, it is unlikely that he would disclose his
deceit to all and sundry.
[29] The respondent has failed to establish, on a balance of probabilities, that the
first appellant was a drug dealer and also that the first appellant funded the
acquisition of the Kings Avenue house, the truck and truck trailer. Consequently,
the court below came to an incorrect conclusion on the application of the
principles set out in Plascon-Evans.
[30] On behalf of the respondent this court was requested, in the event of a
conclusion adverse to the respondent, to refer the matter back to the high court
for the hearing of oral evidence. The conclusion to which I have come serves to
illustrate a finding of the absence of a dispute of fact that requires a referral for
the hearing of oral evidence.9 In addition, the desirability of a referral at a stage in
the proceedings when much time has expired, witnesses have passed away and
the respondent has not availed himself of the fact-finding proceedings available
in terms of s 28 of the National Prosecuting Authority Act 32 of 1998, is
questionable.
[31] Unfortunately something needs to be said about the judgment of the court
below. It consists of 37 pages. Except for two paragraphs it summarises the
history of the case, the evidence and the contentions on behalf of the parties.
The last two paragraphs read:
‘Summary
a)
If this Court was to analyse and dissect the evidence in detail of many hundreds
of pages placed before the above Honourable Court, it will unnecessarily burden this
Judgment.
b)
The Court has taken the approach that it has recorded in this Judgment, a
Summary of the main points argued by the Applicant and the main points argued by the
Respondent.
c)
In the end result, the Court comes to the conclusion set out in the next
paragraph.
Judgment by Court
9 Rawlins & another v Caravantruck (Pty) Ltd 1993 (1) SA 537 (A) at 544G-I.
After having carefully considered and weighed up all the evidence in the Application
papers and the Respondents’ Opposing Affidavits, and mindful of the fact that the onus
is on the Applicant on a balance of probabilities to establish its case, this Court comes to
the conclusion that the Applicant has discharged the onus, and that the Application for a
forfeiture order is well founded and that the order is hereby granted.’
[31] The judgment contains no evaluation of the evidence, no application of legal
principles and no reasoning that sustains the conclusion reached. As such it falls
short of principles repeatedly stated in this regard. See Botes & another v
Nedbank Ltd 1983 (3) SA 27 (A) at 27H-28A; Road Accident Fund v Marunga
2003 (5) SA 164 (SCA) paras 31-32; Mphahlele v First National Bank of SA Ltd
1999 (2) 667 (CC) para 12. Furthermore, the judgment was delivered two years
and five months after the matter was argued. A delay of that duration is simply
unacceptable, particularly in the light of the deficiencies that I have highlighted.
[32] The following order is made:
The appeal is upheld with costs.
The order of the court below is set aside and replaced by the following:
‘The application is dismissed with costs.’
__________________________
S SNYDERS
JUDGE OF APPEAL
APPEARANCES:
For the Appellants:
K J Kemp SC
Instructed by:
Shashi Marajh & Company, Chatsworth,Durban
Webbers, Bloemfontein
For the Respondent:
V I Gajoo SC (with him R Naidoo and A Naidoo)
Instructed by:
State Attorney, KwaZulu – Natal, Durban
State Attorney, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
29 March 2012
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
The National Director of Public Prosecutions (NDPP) has failed, despite
employing mighty investigative State machinery, to prove allegations that the
first appellant has been, since the early 1980’s, one of the biggest drug
dealers in the greater Durban area who sponsored the acquisition of assets
by his family members in an attempt to hide the money he had earned from
drug dealing.
The NDPP managed to obtain a preservation order and subsequently a
forfeiture order in respect of the assets of the first appellant and eight other
appellants, mainly members of his extended family, in the Kwa-Zulu Natal
High Court, Durban in terms of the provisions of the Prevention of Organised
Crime Act 121 of 1998. In the Supreme Court of Appeal (SCA) the NDPP
abandoned part of the judgment obtained in the high court.
Today the SCA upheld the appeal against the NDPP on the basis that the
case against the appellants was not proved on a balance of probability, as
the evidence on behalf of the NDPP amounted to ‘smoke and mirrors’* * *
|
2474
|
non-electoral
|
2014
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 207/2013
In the matter between:
CAMERON STEWART MALCOLM
Appellant
and
PREMIER, WESTERN CAPE GOVERNMENT NO Respondent
Neutral citation: Malcolm v Premier, Western Cape (207/2013) [2014]
ZASCA 9 (14 March 2014)
Coram:
Navsa, Shongwe, Theron and Wallis JJA and Legodi AJA
Heard:
21 February 2014
Delivered: 14 March 2014
Summary: Prescription – plaintiff a minor when claim arose – age of
majority then 21 years – s 13(1)(a) of Prescription Act 68 of 1969 –
interpretation of – interpretation in light of changed circumstances –
effect of s 17 of Children‟s Act 38 of 2005 on expiry of prescriptive
period.
ORDER
On appeal from: Western Cape High Court (Louw J sitting as court of
first instance):
The appeal is upheld with costs and the order of the court below is altered
to one dismissing the special plea of prescription with costs.
JUDGMENT
Wallis JA (Navsa, Shongwe and Theron JJA and Legodi AJA
concurring)
[1] Mr Malcolm was born on 21 June 1987. In 1993, when he was six
years old, he was diagnosed with Stage 1 Hodgkin's Lymphoma. He was
admitted to the Red Cross Children's Hospital in Cape Town for
treatment. He alleges that whilst he was in hospital undergoing treatment
there was an outbreak of Hepatitis B at the hospital and in October 1994
he was diagnosed with that disease. He ascribes his infection with
Hepatitis B to negligence on the part of the hospital and its staff and seeks
by this action to recover damages. His claim was met with a special plea
of prescription, which Louw J upheld. The appeal is with his leave.
[2] In terms of s 11(d) of the Prescription Act 68 of 1969 (the Act) the
period of prescription in respect of Mr Malcolm‟s claim is three years
commencing from when the claim became due. That is accepted as being
in October 1994. As Mr Malcolm was a minor at the time of the expiry of
the prescriptive period, completion of prescription was delayed in terms
of ss 13(1)(a) and (i) of the Act, which read:
„If –
(a)
the creditor is a minor …;
and
(i)
the relevant period of prescription would, but for the provisions of this
subsection, be completed before or on, or within one year after, the day on which the
relevant impediment referred to in paragraph (a) … has ceased to exist,
the period of prescription shall not be completed before a year has elapsed after the
day referred to in paragraph (i).‟
[3] The issue in this case arises from a change in the law relating to the
age of majority that occurred after Mr Malcolm became infected with
Hepatitis B. At that time the age of majority was 21 years in terms of s 1
of the Age of Majority Act 57 of 1972. However, the age of majority was
altered to 18 years by way of s 17 of the Children‟s Act 38 of 2005,
which came into operation on 1 July 2007. On that day and by operation
of law Mr Malcolm attained his majority. The Premier of the Western
Cape, who in her official position is the defendant to the action and the
respondent in this court, contended in the court below, and contends in
this court, that accordingly the impediment of minority referred to in
s 13(1)(a) of the Act ceased to exist on that date, leaving Mr Malcolm
with one year in which to institute this action. The result of his not
having done so was said to be that his claim prescribed one year later on
30 June 2008. Louw J upheld that contention.
[4] The plea of prescription was resisted on the basis that when the
claim arose Mr Malcolm had until one year after he turned 21 to institute
action and this was not affected by the statutory amendment to the age of
majority. Reliance was placed on the broad principle that statutory
changes are presumed not to prejudice acquired rights and on the
provisions of ss 12(2)(b) and (c) of the Interpretation Act 33 of 1957. As
he commenced these proceedings within one year of turning 21 it was
contended that his claim had not prescribed.
[5] The arguments on both sides in the court below and in this court
proceeded on the footing that the reference to a „minor‟ in s 13(1)(a) of
the Act is a reference to a person who has not yet achieved the legal
status of majority. Flowing from this the respondent adopted the
approach that the impediment of being a minor would cease to exist
when the person concerned reached the legal age of majority. However,
this overlooked the fact that the meaning of the word „minor‟ in that
section had already been the subject of a decision of this court in Santam
Versekeringsmaatskappy Bpk v Roux.1 There it was held that it meant a
person who had not yet turned 21, irrespective of whether they had
achieved their majority. In other words being a minor for the purposes of
the Act depended purely upon a person‟s age and not their legal status. It
is accordingly necessary to examine that decision.
[6] In Roux the plaintiff had been injured in a motor collision shortly
before her eighteenth birthday. A little over a year later she married. As a
result she became in law a major, although, as the marriage was one in
community of property before the abolition of the marital power, her
legal capacity was restricted. Shortly after her twenty-first birthday the
marriage ended in divorce. Thereafter, but within one year of her twenty-
first birthday, she commenced the action. The plea of prescription was
raised on the basis that she had ceased to be a minor when she married
1 Santam Versekeringsmaatskappy Bpk v Roux 1978 (2) SA 856 (A).
and accordingly was required to institute her action within one year of
that date and had not done so.
[7] The court was faced with a choice between two contentions.2 For
Ms Roux it was argued that, in the absence of a definition, a „minor‟ in
its ordinary meaning was a person under the age of 21 years. For the
insurance company it was argued that a „minor‟ was a person who was
not a major in the legal sense of having achieved their majority. A person
was accordingly no longer a minor for the purposes of prescription if
they had turned 21, or married, or obtained an order of court under s 2 of
the Age of Majority Act, or attained majority in any other way in which
that status could in law be achieved.3 In opting for the first meaning the
court held that in its ordinary meaning the concept of a „minor‟ referred
to a particular age.4 Support for this was found in the old authorities and
in the analysis by Van den Heever J in Meyer v The Master,5 where that
learned judge pointed out that the word „major‟ was sometimes used to
refer to a specific age and sometimes to the person enjoying full legal
capacity.6 He held that it conventionally refers to a person‟s age, not their
legal status.
2 The two possibilities were age and legal status. As other statutes demonstrate sometimes the one may
be the proper interpretation and sometimes the other. Statutory examples of the word „minor‟ referring
to the person‟s age are to be found in s 1 of the National Gambling Act 7 of 2004 and s 1 of the South
African Citizenship Act 88 of 1995, where a major is defined as a person over the age of 18 years. For
an example based on legal status see s 1 of the South African Passports and Travel Documents Act 4 of
1994. In other statutes where it is used, such as the Consumer Protection Act 68 of 2008 and the
Witness Protection Act 112 of 1998, there is no definition and, as in Roux, the court will have to
construe the legislation when the issue arises.
3 Other possibilities were tacit emancipation or venia aetatis. See Alfred Cockrell in Belinda van
Heerden, Alfred Cockrell and Raylene Keightley (General Editors) Boberg’s Law of Persons and the
Family 2ed (1999), 467-469 and 473-496.
4 At 864B „ʼn bepaalde leeftydsgrens‟.
5 Meyer v The Master 1935 SWA 3 at 5.
6 Being „mondig‟.
[8] Miller JA, who delivered the judgment in Roux, 7 held that the
purpose of the provision was to protect young people below a certain age
and expressed his conclusions as follows:8
„Die beleid van ons reg, egter, is dat jeugdige persone wel beskerm behoort te word;
“the object of the law...is to protect (minors) against their own immaturity of
judgment”.
(Edelstein v Edelstein NO and Others 1952 (3) SA 1 (A) te 15.) …
Rakende verjaring, leer Pothier Obligations:
“Prescription does not run against minors, although they have a tutor: this exception is
not founded upon the rule, contra non valentem agere, non currit prescriptio, since
they have a tutor who may sue for them, but upon a particular indulgence to the
infirmity of their age.”
(Evans se vertaling band 1 te 452.)
Dit is duidelik dat in elkeen van die bogenoemde verwysings, bedoel word deur die
woord “minderjarige” of “minor”, iemand wat 'n bepaalde ouderdomsgrens nog nie
bereik het nie. Omrede die vermoede wat in ons reg geld dat jeugdiges
onoordeelkundig of op onverantwoordelike wyse mag optree (of versuim om op te
tree), word 'n ouderdomsgrens vasgestel om te onderskei tussen diegene wat beskerm
moet word, en andere. Dit kom my voor dat minderjariges in art 13 (1) (a) van die
Verjaringswet ingesluit is, juis omrede die genoemde vermoede. Ek raak derhalwe tot
die gevolgtrekking dat die woord “minor” verstaan moet word om te verwys na enige
persoon wat die bepaalde leeftydsgrens nog nie bereik het nie.‟9
7 Rumpff CJ and Jansen, Corbett and Joubert JJA concurred.
8 At 865F-866A.
9 „However, the policy of our law is that young people ought to be protected:
“the object of the law...is to protect (minors) against their own immaturity of judgment”.
(Edelstein v Edelstein NO and Others 1952 (3) SA 1 (A) at 15.) …
As concerns prescription, Pothier Obligations teaches:
“Prescription does not run against minors, although they have a tutor: this exception is not founded
upon the rule, contra non valentem agere, non currit prescriptio, since they have a tutor who may sue
for them, but upon a particular indulgence to the infirmity of their age.”
(Evans’ translation volume 1 at 452.)
It is clear that in all of the abovementioned authorities, what is intended by the word “minderjarige or
“minor” is someone who has not yet reached a determined age. Because of the presumption that
operates in our law that young people may act indiscriminately or irresponsibly (or fail to act), an age is
fixed to distinguish between those who must be protected and others. In my view minors were included
in s 13(1)(a) of the Prescription Act solely because of that presumption. I therefore come to the
conclusion that the word “minor” must be understood as referring to any person who has not yet
reached the stipulated age.‟ (My translation.)
The court concluded that until a person turned 21 the impediment of
being a minor for the purposes of the Act did not cease to exist. If a
person below 21 had nonetheless achieved their majority this was
irrelevant. The court‟s conclusion was not based on the fact that the
statutory age of majority was 21 but on its view of the ordinary meaning
of the word „minor‟.
[9] If the judgment in Roux remained applicable, as an authoritative
exposition of the meaning of s 13(1)(a) of the Act, then it would be
decisive of this appeal in favour of the appellant, as he would only have
ceased to be a minor for the purposes of prescription when he turned 21.
The respondent did not contend that the judgment was clearly wrong at
the time it was handed down,10 although there were possibly grounds for
criticism.11 Instead it was submitted that the meaning of the section had
changed in the light of the passage of s 17 of the Children‟s Act, which
lowered the age of majority to 18 years. That submission did not affect
the finding that being a minor in terms of the Act relates to a particular
age, but focussed on whether 21 remains the relevant age or whether, in
the light of subsequent events, that age should now be held to be 18.
[10] The proposition underpinning this contention is that, whilst a
statute is enacted at a particular point in time, circumstances in society
may change over time and it is necessary in expounding the proper
10 Steve Tshwete Local Municipality v Fedbond Participation Mortgage Bond Managers (Pty) Ltd &
another 2013 (3) SA 611 (SCA) para 14.
11 It was inconsistent with the views of Professor J C de Wet, who prepared a memorandum on
prescription for the South African Law Commission and drafted the Act, which was passed in the terms
he had drafted. J C de Wet Opuscula Miscellanea 77-144. The draft of s 13(1)(a) is at 142 and his
comment on it is in para 90, p 124. However, the judgment does not appear to have attracted academic
criticism on this point. There are extensive comments on it in 1978 AS 89-90, 92, 287, 436-7, 445-6
and 736. It is dealt with at length in a note by P Q R Boberg „Who Can Sue for Wife‟s or Child‟s
Medical Expenses?‟ (1979) 96 SALJ 525 but is not criticised on this aspect of the decision. I have been
unable to find any other comment and the decision appears to have been accepted in standard texts
dealing with prescription.
meaning of the statute to have regard to the changing social environment
in which the statute falls to be applied from time to time. The relevant
principle of interpretation is that the statute is not fixed at a point in time
but is „always speaking‟. This was not always the position. In Sharpe v
Wakefield12 Lord Esher said:
„[T]he words of a statute must be construed as they would have been the day after the
statute was passed, unless some subsequent Act has declared that some other
construction is to be adopted or has altered the previous statute.‟
This court, in Cape Provincial Administration v Honiball,13 appears to
have applied a similar principle but, it is clear that it did so on the basis of
the principle of parliamentary supremacy. However, in recent years
courts in England have departed from this rigid approach and, by
adopting the approach that statutes are „always speaking‟, they have
scope to extend the meaning of statutes to cover new matters and
situations that could not have been anticipated at the time when they were
enacted.14
[11] There is obvious sense in this approach when a court is confronted
with a novel situation that could not have been in the contemplation of
the legislature at the time the legislation was enacted. Courts can then, in
the light of the broad purpose of the legislation, current social conditions
and technological development, determine whether the new situation can
properly, as a matter of interpretation, be encompassed by the language.
12 Sharpe v Wakefield (1899) 22 QBD 239 at 241. The only reported case in South Africa where this
decision had been followed on this aspect is In Re Soobiah & others (1921) 42 NPD 184.
13 Cape Provincial Administration v Honiball 1942 AD 1 at 15-16. See also L C Steyn Die Uitleg van
Wette 5 ed (1981) 156.
14 The principle appears to originate in John Bell and George Engle Cross Statutory Interpretation 3 ed
(1995) 51-52. It was approved in R v Ireland; R v Burstow [1997] 4 All ER 225 (HL) at 233d-g and
McCartan Turkington Breen (a firm) v Times Newspapers Limited (Northern Ireland) [2000] UKHL
57; [2000] 4 All ER 913 (HL) at 926g-927e (per Lord Steyn). In R (on the application of Quintavalle) v
Secretary of State for Health [2003] UKHL 13; [2003] 2 All ER 113 (HL) paras 8-10 Lord Bingham
sought to reconcile the two approaches. For an application of the principle see Fitzpatrick v Sterling
Housing Association Ltd [1999] 4 All ER 705 (HL). See also Daniel Greenberg Craies on Legislation
9 ed (2008) 703.
But, as Lord Bingham pointed out in Quintavalle, by way of example,
they cannot use the principle to extend legislation relating to dogs to cats,
however desirable such an extension may seem. In other words the
principle has limits, but subject to that qualification and the case by case
working out of those limits, I see no reason why, in appropriate cases,
South African courts should not invoke it, particularly in the light of our
present constitutional order in terms of which statutes are to be construed
in the light of constitutional values.
[12] The Constitution enjoins us to interpret legislation in accordance
with the spirit, purport and objects of the Bill of Rights. Where a
previous interpretation of a statute is no longer consistent with those
values then we are obliged to depart from it. In this case there are
relevant provisions of the Constitution, to some extent those relating to
children, but in particular s 10, which guarantees the right to dignity and
provides that everyone is entitled to have their dignity protected and
respected. This is a core value of our Constitution.15
[13] Since Roux was decided we have experienced unprecedented
changes in our society. South Africa has become a constitutional
democracy in which the dignity of all citizens is subject to constitutional
protection. Our Constitution, which affords special protection to children,
defines them as persons under the age of 18. The corollary is that persons
older than 18 are to be regarded as adults. Our society recognises their
dignity as adults by giving them the right to vote and allowing them to
conclude contracts and enter into marriages, to give consent to medical
treatment, to obtain a passport and many other things. To treat them as
15 President of the Republic of South Africa & another v Hugo 1997 (4) SA 1 (CC) para 41; Christian
Education South Africa v Minister of Education 2000 (4) SA 757 (CC) para 43.
less than adult for a purpose as important as the law governing
prescription infringes their dignity by affording them an advantage, on
the grounds of their supposed immaturity and irresponsibility, that is not
available to other adults. It is the notion that they are by virtue of their
age immature and irresponsible that constitutes the infringement.
[14] Apart from the constitutional aspect there has been a lengthy and
detailed consideration of the legal position of young people in our
society. 16 In line with international trends in most countries and
international instruments, our law regarding the age of majority has been
changed to lower the age from 21 to 18 years. The world has changed
dramatically since 1969 and those changes, already nascent at that time,
have altered our view of young people and our understanding of when
they reach maturity and should be treated as adults. Social circumstances
were very different in 2008, and remain very different in 2014, from
those that prevailed in 1969. Finally the „ordinary meaning‟ that was
ascribed to the word „minor‟ in Roux was culturally determined and a
reflection of the position within some but not all sectors of our
community.
[15] For those reasons, and whatever the precise scope of the „always
speaking‟ principle in our law of statutory interpretation, it seems to me
that it requires us to say that the word „minor‟ in s 13(1)(a) of the Act
now means a person under the age of 18 years and to that extent to depart
from the decision in Roux. However, I do not go so far as to say that it is
confined to meaning any person who in law has not attained their
majority. It was not argued that this aspect of the decision in Roux was
16 Report on the Review of the Child Care Act, South African Law Commission, Project 110. Whilst
the Commission was aware that changes to the age of consent might affect questions of prescription
(see Part 1, p 25) it did not deal specifically with this issue in its report.
clearly wrong, and I prefer to leave open the question whether a person
under 18 who enters into a lawful marriage, or who by virtue of their life
circumstances would be regarded under the common law as having been
tacitly emancipated from their minority, is no longer to be regarded as a
minor for the purposes of the Act. That is not the situation before us and
it would be preferable to leave it for decision on an appropriate occasion
when it arises pertinently.
[16] From what date did this altered interpretation take effect? The
changes that warrant departing from what was decided in Roux
culminated in the enactment of the Children‟s Act and the alteration it
effected to the age of majority. Parliament thereby placed its imprimatur
on the social changes that had occurred over a period of time prior to that
date. For so long as the age of majority remained fixed at 21 it could not
be said that social circumstances had so altered that the legal position as
laid down in Roux had changed. It is therefore from that date and
triggered by that legislative change that the interpretation of s 13(1)(a),
and hence our law, changed. However, when a change in the law of that
nature occurs, it is necessary for the court, as a matter of interpretation, to
determine whether and to what extent the change affects matters that have
their origin in events prior to the change. If a law has been repealed the
Interpretation Act provides, in s 12(2) thereof, for the consequences of
the repeal. The section commences with the words: „Where a law repeals
any other law, then unless the contrary intention appears, the repeal shall
not …‟ It is accordingly applicable to the consequences of the statute or
statutory provision under consideration being repealed. But we are not
dealing with the repeal of a statute and accordingly the reliance on this
section in argument on behalf of Mr Malcolm is misplaced. The
Prescription Act has neither been repealed nor amended. All that has
happened is that the section in the Act has been interpreted in the light of
changed circumstances and constitutional values. That is not a situation
covered by s 12 of the Interpretation Act. Whilst the change in the legal
position was triggered by an amendment to the legal age of majority it did
not involve either the repeal or amendment of s 13(1)(a) of the Act.
[17] That does not, however, mean that the new meaning of s 13(1)(a)
automatically operates in relation to all unexpired periods of prescription
that were already running when the change in meaning occurred. I have
already noted that whenever there is a change to existing law the question
arises whether the change applies in relation to matters that have their
origin in past events. Frequently that question is resolved by way of
transitional provisions in an amending law. The Act provides a clear
example of this. It repealed and replaced the Prescription Act 18 of 1943.
In s 16 it dealt with the implications of this by providing that prescription
in respect of debts arising before the commencement of the Act would be
dealt with under the 1943 Act and debts arising after its commencement
would be dealt with under the Act. No doubt had there been an
amendment of the Act when the Children‟s Act came into operation there
would have been a similar provision governing the transition. Instead it is
necessary for the court to resolve the issue by determining the effect of
the changed interpretation of s 13(1)(a).
[18] The principles applicable when a statute brings about a change in
the law have been laid down in a number of cases. For present purposes
they were summarised by Corbett CJ in the Pericles GC 17 in the
following terms:
17 National Iranian Tanker Co v MV Pericles GC 1995 (1) SA 475 (A) at 483H-I. See also BOE Bank
Ltd v Tshwane Metropolitan Municipality 2005 (4) SA 336 (SCA) para 13.
„There is at common law a prima facie rule of construction that a statute (including a
particular provision in a statute) should not be interpreted as having retrospective
effect unless there is an express provision to that effect or that result is unavoidable on
the language used. A statute is retrospective in its effect if it takes away or impairs a
vested right acquired under existing laws or creates a new obligation or imposes a
new duty or attaches a new disability in regard to events already past.‟
That statement was made in relation to a change in the law brought about
by statute. Appropriately adapted it seems to me equally applicable to a
change in the law resulting from a changed interpretation of a statute,
where that altered interpretation is triggered by a change to another
statute. So adapted there is a presumption against the change in the law
operating retrospectively so as to create a new obligation or impose a new
duty or attach a new disability in regard to events already past.
[19] When the change in meaning of s 13(1)(a) came into effect on
1 July 2007 there must have been a number of unresolved claims by
minors in respect of which prescription had already started to run. If the
change applies to all such claims, as contended by the respondent, then
any claimant who celebrated their eighteenth birthday between 1 July
2005 and 30 June 2008 would be left with only one year after 1 July 2007
in which to pursue their claim if they were to avoid prescription, instead
of the longer period of up to four years that they had before that date.
That could work considerable hardship as the following examples
illustrate. A youth of 17 from a rural area was assaulted in 2006 and
suffered serious injuries requiring him to return home. According to the
doctors who treated him the true impact of his injuries would not be
known until he was 20. He consulted an attorney with a view to bringing
a claim and was advised to wait until his medical condition had settled,
and his damages could be more accurately assessed, before pursuing the
claim. The attorney advised that waiting would not prejudice his position
because the claim would only prescribe when he turns 21. If the youth
acted on that advice and returned in 2010 when he was 21, on the
respondent‟s contention, the attorney would then advise him that the
claim had prescribed.
[20] Other similar examples can be readily imagined. It is commonplace
within some more privileged communities for children to take a gap year
after completing their matric. Many matriculants are already 18. Take one
who has taken advice on a pre-existing claim and been told that they can
pursue their claim at any time up to one year after they turn 21. On that
footing they travel internationally or go and work in a foreign country,
perhaps in an area of need or development,18 and return more than a year
after 1 July 2007. If the altered interpretation of s 13(1)(a) applies to them
their claim will have prescribed.
[21] In these and other situations that can be imagined, minor claimants
would, if the altered meaning were to be applied to them, suffer a
disability in relation to events past. That disability would consist of their
claims being extinguished by prescription (s 10(1) of the Act) as a result
of the change in the legal position. Even if, as Professor Loubser
suggests,19 the proper analysis of prescription under the Act is that it
confers a substantive statutory right or defence on the debtor, the creation
of such a right or defence, would impose a disability on the creditor. In
practical terms if they wished to pursue their claims, they needed to do so
18 Many young people undertaking a gap year work for NGOs in deprived parts of the world in menial
jobs aimed at providing aid to disadvantaged communities.
19 M M Loubser „J C de Wet and the theory of Extinctive Prescription‟ in A Man of Principle The Life
and legacy of JC de Wet (ed Jacques du Plessis and Gerhard Lubbe) 409.
earlier than they would otherwise have had to do.20 This may not amount
to a new duty being imposed in the sense that Corbett CJ used the word
„duty‟, which was as a matter of positive obligation, but that is
immaterial. As long as there is a potential disability for claimants affected
by the change they are entitled to the benefit of the presumption that the
change in the law does not apply to their situations.
[22] No such prejudice confronts potential defendants if the effect of the
change in the law is that it applies only to claims arising after 1 July
2007. Their position in regard to claims that accrued before that date
would be unchanged. They were already in the position that existing
claims might only be pursued many years hence. Thus a claim by an
infant arising from a birth injury, occurring early in 2007, could
potentially be brought at any time up to 2029. The benefit of that period
being reduced by three years to 2026 seems small in comparison with the
potential prejudice to claimants who suddenly found that the period for
pursuing their claims had been markedly reduced. Counsel was unable to
point us to any prejudice that would flow to this defendant, or persons
facing claims generally, if the altered meaning is only applied to claims
arising after 1 July 2007.
[23] The Children‟s Act does not address this issue and nor did the Law
Commission. If anything their silence points in favour of the change in
the law operating only in cases arising after the change occurred. In one
respect at least it is proper to infer that the change did not operate
retrospectively. It is that persons over the age of 18 on 1 July 2007
attained their majority on that day, not on the earlier day when they
20 The change „impacts negatively upon the applicant‟s substantive right to a claim for damages by
impairing and limiting its enforcement‟. Shange v MEC for Education, Kwa-Zulu-Natal 2012 (2) SA
519 (KZD) para 27.
turned 18.21 In other words if they had entered into contracts prior to that
date, then after they turned 18 those contracts did not automatically
become enforceable against them on 1 July 2007. Equally a marriage
entered into by a 19 year old prior to that date, but without the requisite
consent and accordingly invalid,22 would not become valid and could still
be dissolved for such lack of consent.23 Why then should the position in
relation to prescription be any different? In addition to hold that the
change only operated in relation to claims arising after that date would be
consistent with the approach adopted in 1969 when the Act replaced the
1943 Act.24 Overall the balance is tilted firmly in favour of the altered
interpretation of s 13(1)(a) being applicable only to claims arising after
1 July 2007 and I so hold.
[24] In the result the appeal succeeds with costs and the order of the
court below is altered to one dismissing the special plea of prescription
with costs.
M J D WALLIS
JUDGE OF APPEAL
21 Apdol v Road Accident Fund 2013 (2) SA 287 (GNP) para 25.
22 Section 24(1) of the Marriage Act 25 of 1961.
23 Section 24A of the Marriage Act.
24 Section 11 of the 1943 Act made its provisions applicable to periods of prescription that had
commenced but were incomplete when the Act came into operation, subject to the period of
prescription not being reduced.
Appearances
For appellant:
J S Saner
Instructed by:
DSC Attorneys, Cape Town
Rosendorff Reitz and Barry, Bloemfontein
For respondent:
M O‟Sullivan (the heads of argument having been
drafted by N Bawa)
Instructed by:
State Attorney, Cape Town and Bloemfontein.
|
Supreme Court of Appeal of South Africa
MEDIA SUMMARY– JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 12 March 2014
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.
Malcolm v Premier, Western Cape
Mr Malcolm was infected with Hepatitis B whilst a patient in the
Red Cross Children’s Hospital in 1994. In 2008 shortly after his 21st
birthday he instituted action to recover damages against the Premier of
the Western Cape in her official capacity, alleging that his infection was
due to negligence on the part of the hospital staff. In terms of the
Prescription Act he had one year after the impediment of minority ceased
to exist in which to bring his action. At the time he was infected that
would in the ordinary course have been when he reached the age of 21.
However, with effect from 1 July 2007 the age of majority was lowered
to 18. As a result it was argued on behalf of the Premier that he became a
major by operation of law on 1 July 2007 and that as he did not bring his
claim within one year from that date it had prescribed. That contention
had been upheld by the Western Cape High Court.
The SCA said that it had been held in an earlier decision of the
court that for the purposes of prescription the issue was not whether the
person was legally a major, but whether they had reached a particular
age. In the light of circumstances prevailing at the time of that decision in
1978 it held that age to be 21 years. The SCA today held that present
circumstances had changed in regard to the understanding of who is a
minor in our society, in the light of social changes in South Africa and
international trends. It accordingly held that in present circumstances the
age at which a person ceases to be a minor for the purposes of
prescription is 18 years. However, it held that this altered interpretation of
the relevant statutory provision did not operate in relation to claims that
had arisen before the change became effective where prescription was
already running on a different basis. Accordingly the appeal was upheld
and the plea of prescription was dismissed.
|
169
|
non-electoral
|
2017
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1315/2016
In the matter between:
ESQUIRE CONSULTING AND MARKETING CC FIRST APPELLANT
CHRISTO STOCKENSTRÖM SECOND APPELLANT
GERHARDUS HAGER DREYER NO THIRD APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF THE
G H DREYER FAMILIE TRUST, IT7829/02)
FRANCIS DELINA DREYER NO FOURTH APPELLANT
(IN HER CAPACITY AS TRUSTEE OF THE
G H DREYER FAMILIE TRUST, IT7829/02)
SIX FIFTEEN INVESTMENTS (PTY) LIMITED FIFTH APPELLANT
THOMAS ROBERT PEACOCK EDWARDS SIXTH APPELLANT
MARTHINUS JAKOBUS RUDOLF MARX SEVENTH APPELLANT
DR IVAN MARX MEDFORUM EIGHTH APPELLANT
INCORPORATED
BHARATKUMAR KANTILAL MEHTA NINTH APPELLANT
ASHLEY HODEN PARKER NO TENTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF
THE ASHLEY PARKER FAMILY TRUST
TM 5789/1994)
BEVERLEY JOAN PARKER NO ELEVENTH APPELLANT
(IN HER CAPACITY AS TRUSTEE OF
ASHLEY PARKER FAMILY TRUST
TM 5789/1994)
ALAN ROLAND COUSINS NO TWELFTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF THE
ASHLEY PARKER TRUST TM 5789/1994)
CORNELIS ABRAHAM TROSKIE NO THIRTEENTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF
THE BOET TROSKIE KINDERS TRUST
TMP 1447/2015)
STEPHANUS FRANCOIS NEL NO FOURTEENTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF
THE BOET TROSKIE KINDERS TRUST
TMP 1447/2015)
JACOBUS GERHARDUS TROSKIE NO FIFTEENTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF
THE BOET TROSKIE KINDERS TRUST
TMP 1447/2015)
CEDRIC JOHN PETERSON NO SIXTEENTH APPELLANT
(IN HIS CAPACITY AS TRUSTEE OF
THE BOET TROSKIE KINDERS TRUST
TMP 1447/2015)
JEMMA ANN SURRIER SEVENTEENTH APPELLANT
and
SEA GLADES HOLDINGS (PTY) LTD FIRST RESPONDENT
NEVIL LEIGHTON HULETT SECOND RESPONDENT
KOUGA MUNICIPALITY THIRD RESPONDENT
EASTERN CAPE LIQUOR BOARD FOURTH RESPONDENT
Neutral citation: Esquire Consulting and Marketing CC v Sea Glades
Holdings (Pty) Ltd (1315/2016) [2017] ZASCA 167 (30 November 2017)
Coram:
Ponnan, Bosielo, Leach and Mathopo JJA and Ploos van Amstel
AJA
Heard:
10 November 2017
Delivered: 30 November 2017
Summary: Simultaneous applications for rezoning and subdivision of land
brought under the Land Use Planning Ordinance 15 of 1985, Cape (LUPO):
subdivision granted but rezoning of certain erven to business deferred for
further information: later application brought for rezoning of those erven to
business: this construed as part of original application that had been deferred:
two year utilisation period envisaged in s 16(2)(a) of LUPO therefore not
applicable: property in any event utilized for business purposes as envisaged by
LUPO within that period: claim for an interdict based on allegation that
property‟s use for business purposes was illegal accordingly dismissed.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: Eastern Cape Division of the High Court, Port Elizabeth
(Goosen J sitting as court of first instance):
The appeal is dismissed with costs.
________________________________________________________________
JUDGMENT
_____________________________________________________________
Leach JA (Ponnan, Bosielo and Mathopo JJA and Ploos van Amstel AJA
concurring)
[1] The principal issue that has to be decided in this matter is whether the
immovable property owned by the first respondent and more fully described as
erf 3306 Sea Vista, in the Kouga Municipality (erf 3306) is zoned for business
purposes under the Land Use Planning Ordinance 15 of 1985, Cape (LUPO).
The appellants contend it is not and that the respondents ought therefore to have
been interdicted by the court a quo from using it for a business purpose. The
respondents adopt the contrary standpoint. The outcome of this appeal turns on
the resolution of this issue.
[2] The appellants are either the owners of immovable property, or the
trustees of trusts which own immovable property, in what is known as Marina
Village, in which erf 3306 is also situated. Marina Village, in turn, forms part of
the well known St Francis Bay Marina at St Francis Bay, Eastern Cape. The
development of Marina Village, which is described as being the final phase of
the St Francis Bay Marina, was carried out by the first respondent which
appears to be the alter ego of its managing director, the second respondent. The
first respondent is also the registered owner of erf 3306.
[3] In December 2015, the appellants applied to the Eastern Cape Division of
the High Court, Port Elizabeth for an order interdicting and restraining the
respondents from conducting any business whatsoever on erf 3306. They
alleged that the first and second respondents were in the process of establishing
a restaurant business on erf 3306 which, they alleged, was contrary to the
existing town planning scheme and zoning of the property. At the same time,
they sought an order interdicting the fourth respondent, the Eastern Cape Liquor
Board, from issuing the first and second respondents with a liquor licence for
the premises. The third respondent, the Kouga Municipality, within whose
municipal area the St Francis Bay Marina falls, was also joined as an interested
party although no relief was sought against it. For convenience, I intend to refer
to the third respondent simply as „the municipality‟. Both it and the fourth
respondent played no active part either in the proceedings in the court a quo or
before this Court.
[4] Although the appellants initially sought interim urgent relief, this was
later abandoned and by the time the matter came before the court a quo they
sought final relief. This was strenuously opposed by the first and second
respondents. The court a quo ultimately concluded that the appellants had not
established that it was unlawful to conduct a restaurant on the erf in question in
terms of its current zoning. Accordingly, it dismissed the appellants‟ application
with costs, although it subsequently granted leave to appeal to this Court.
[5] To resolve the current dispute regard must be had to the history of
erf 3306. In many respects, this history is shrouded in mystery due to
deficiencies in the papers filed in the proceedings, but what can be gleaned from
what was alleged is the following. What is now known as Marina Village
originally formed part of what was more fully described as „The Remainder of
Portion 32 of the Farm Goedgeloof No 745, St Francis Bay‟, a property zoned
for agricultural use. The first respondent desired to develop a portion of this
farm in order to extend the already existing St Francis Marina. Its proposal in
this regard involved the excavation and construction of a canal linking into an
existing canal of an earlier development of the Marina; the creation of an island
surrounded by water; and the subdivision of the property into various erven,
mostly residential.
[6] In order to give effect to this proposed development, the first respondent
applied to the municipality under s 16 of LUPO for a rezoning of the land it
wished to develop and, under s 24 of LUPO, for the subdivision of the property.
I should immediately record that ss 22(1)(a) of LUPO provides that no
application for subdivision involving a change of zoning may be considered
„unless and until the land concerned has been zoned in the manner permitting of
subdivision‟, But s 22(1)(b) goes on to provide that this shall not preclude
applications for rezoning and subdivision being considered simultaneously. The
first respondent therefore simultaneously applied for subdivision and rezoning.
These applications appear to have been supported, inter alia, by a drawing dated
September 2001 bearing the number SFM/LH/501. Unfortunately neither the
applications nor this drawing were included in the papers filed in the court
below, but the first respondent‟s allegation in a supplementary affidavit (p 266)
that such plan was identical to a plan annexure NLH 12 (p 271) dated August
2003, is not disputed (all the appellants disputed was that this latter plan was not
attached to the 2001 applications, which in the light of it being dated 2003 is
obvious). As appears from this plan, the respondents sought the sub-division of
the land it wished to develop and its rezoning to reflect 148 erven (62 canal
erven and 86 non-canal erven) to be zoned as residential, one canal erf and two
private space erven to be zoned as „Open Space II‟, various roads to be zoned as
„Transport Zone II‟ and two further erven (reflected on the plan as the disputed
erf 3306 as well as erf 3295) to be zoned as „Business Zone II‟. Of the 148
residential erven, it appears that the respondent applied for certain of them to be
zoned as „Residential Zone I‟ and others as „Residential Zone II‟ but these
details are unknown and are not relevant to the present dispute.
[7] In any event, on 13 December 2001 the municipality considered these
applications and resolved as follows:
„(i)
That the subdivision of a Portion of the Remainder of Portion 32 of the Farm
Goedgeloof No 745 be approved in terms of Section 25 of Ordinance 15 of 1985 the
Land Use Planning Ordinance subject to the following conditions:
(a)
The subdivision be according to drawing No SFM/LH/501 dated September 2001
subject to condition (b):
(b)
That the subdivision makes provisions for the following land uses:
1.
Residential Zone I
-
62 Canal erven – average size – 117m2
-
86 Non-canal erven – average size – 899.3m2
2.
Open Space Zone II
-
1 Canal Erf
-
2 Private Open Space Erven
3.
Transport Zone II
-
Roads
. . .
(ii)
That the land use applications for Residential Zone II and Business Zone II be
deferred in order to obtain more detail thereon from the applicant . . .‟
[8] Quite what happened in respect of the application to rezone certain of the
erven as „residential zone two‟ is uncertain but, as I said, those erven are of no
relevance to the present dispute. What is of importance in regard to erven 3306
and 3295, is that the decision to defer their zoning flies in the face of ss 22(1)(a)
of LUPO which, as already mentioned, provides that no application for
subdivision involving a change of zoning may be granted until the land
concerned has been zoned „in a manner permitting of subdivision‟. In the case
of those two erven the municipality put the cart before the horse, so to speak, by
first granting the subdivision and leaving the rezoning for later decision. Be that
as it may, the legality of this resolution has never been challenged and, on the
strength of well-known authority, the municipality‟s administrative decision in
this regard must stand.
[9] Armed with this resolution, the respondents proceeded to construct the
necessary canals to extend the marina, subdivided the erven in terms of the
approval, built roads, laid on infrastructure such as water, sewage and drainage,
and generally conducted themselves as if the Marina Village development had
been finally approved. But of course it had not and there was still the
unresolved question of the zoning of erven 3306 and 3295.
[10] To deal with this, instead of amplifying their already existing application
for rezoning, the respondents, by way of a fresh application, applied to the
municipality for those erven to be rezoned as „Business Zone II‟. This
application was eventually approved by the municipality on 23 September 2004.
By the time this was done, the provision of bulk services necessary for the
development had already been provided, subdivision of the erven had taken
place and at least certain of the residential properties had been sold to new
owners. Pursuant to the rezoning in September 2004, the general plan of the
subdivision of the development was finally approved on 17 October 2005.
[11] The first and second respondents submitted various site development
plans for Marina Village, and in April 2006 the municipality further approved a
site development plan for the property involving a mixture of land uses. In
respect of erf 3306 the plan reflected mooring jetties being provided in a
mooring basin created out of a large segment of the erf immediately adjacent to
a canal being submerged under water. It also provided for fishermen‟s cottages,
a slipway, shops, a restaurant, a village square, an oyster bar, a boat club house,
and parking and loading facilities. Aerial photographs taken in 2007 showed
that although the mooring basin had been constructed by then, no jetties had yet
been installed.
[12] As often happens in developments of this nature, disputes and tensions
arose between the respondents, as developers, and landowners in their
development. Although the precise troubles are not necessary to detail, one
dispute related to the provision of mooring facilities for landowners. Eventually
a so-called „settlement agreement‟ was concluded between the first respondent
and an organisation known as the Marina Village Homeowners Association.
The latter was represented at the time by the second appellant in these
proceedings; he being an attorney and landowner in the Marina Village (he is
also the appellants‟ attorney of record and he and his wife are the sole members
of the first appellant.) That agreement, dated 9 August 2008, dealt inter alia with
matters such as moorings to be erected on erf 3306 and the right of landowners
in Marina Village to use such moorings, the site development plan for erf 3306,
and the right of the homeowners association to have access to the commercial,
business and leisure facilities developed on erf 3306. It was pursuant to this
that floating jetties came to be built in the mooring basin.
[13] It is clear from the terms of this agreement that the second appellant
regarded erf 3306 as having been zoned for business purposes. However, in
October 2015, when he learned that a restaurant was being built on the property,
he took offence to what he stated in the founding affidavit was „an unlawful
invasion of the appellants‟ privacy and right to peaceful and undisturbed
possession of their properties‟ likely to disturb the tranquil atmosphere of the
„peaceful residential character of Marina Village and surrounding residential
properties‟ – all of which is somewhat rich when one knows that he had known
for years the property was zoned for business purposes. In any event, the second
appellant immediately engaged the services of a town planner, Mr C J J Els of
Pretoria, and the two of them went to St Francis Bay and trawled through the
records of the municipality to see if they could find a way to attempt to stop the
development on erf 3306. They thereafter consulted with senior counsel in
Pretoria and prepared papers for an urgent application in which they sought to
interdict the respondents from proceeding with the construction of the
restaurant. At some stage the other appellants were drawn in to support the
application.
[14] The argument the appellants came up with was this:
(a)
The property had been subdivided by way of the municipal resolution of
21 December 2001;
(b)
By 23 September 2004 when the municipality approved the rezoning of
erf 3306, bulk services had been installed by the respondents and at least one
land unit had been registered as envisaged by s 27(1) of LUPO, so that the
subdivision of 21 December 2001 had by then already been deemed to be
confirmed under s 27(3);
(c)
In these circumstances the rezoning affected by the municipality‟s
decision of 23 September 2004 was what the parties referred to as a „standard‟
rezoning in which there was no related subdivision – in contrast to a rezoning in
terms of a substitution scheme in which there is always a related subdivision of
the property concerned;
(d)
Section 16(2)(a)(i) of LUPO, which deals with standard rezonings,
provides that such a rezoning lapses within a period of two years in the event of
the land concerned not being „utilised as permitted in terms of the zoning
granted by the said rezoning‟ within that period;
(e)
As erf 3306 had not been utilised for business purposes within two years
from the date of its rezoning for business purposes in September 2004, or so the
appellants contended, such rezoning had lapsed (of which they had been
unaware until the second appellant‟s investigations in November 2015);
(f)
The construction of a restaurant was consequently illegal in that it
offended the municipal zoning scheme in terms of which, so the argument went,
the property was zoned as residential.
[15] On this basis the appellants contended that, as neighbouring landowners,
they had a clear right not to have a restaurant built in their midst which would
be infringed if an interdict was not granted preventing its construction and use
on erf 3306. In a well-considered judgment the court a quo, after having
subjected the facts and the various provisions of LUPO to detailed scrutiny and
analysis, rejected this argument. It is not necessary for present purposes to
analyse its judgment, particularly as the appellants on appeal raised two
essential disputes for this court‟s decision – first, whether s 16(2)(a)(i) of LUPO
was of application as the appellants alleged and, secondly, whether there had in
fact been a utilisation of erf 3306 for business purposes after it had been
rezoned for such use in 2004 as the respondents contended. It was accepted that
if either of these issues was decided against the appellant, the appeal must fail.
[16] The appellants‟ argument in regard to the first of these issues echoed that
set out in para 14(a)-(c) above. I have difficulty with the argument that the
entire subdivision and rezoning of erf 3306 was effected by the municipality‟s
decision of 21 December 2001. It may well be that the municipal resolution of
that date was not challenged, and the rezoning and subdivision of, say, the
residential erven may well have been confirmed under s 27(3), but I cannot
accept that the same can be said in respect of erf 3306. One cannot be blind to
the fact that the rezoning of that erf was deferred by the municipality at that
time and, as I have already pointed out, LUPO requires the rezoning of a
property to be effected either before or simultaneously with its subdivision. To
pretend that this had in effect been done, even though it had not, would sanction
the very situation which the lawgiver had wished to prevent, and undermine the
principle of legality – compare Cool Ideas 1186 CC v Hubbard & another 2014
(4) SA 474 (CC) paras 52-53. Even if the decision of 21 December 2001 stands,
I therefore do not see how the deeming provisions of s 27(3) LUPO can be
applied to a subdivision not lawfully effected under the provisions of that
ordinance.
[17] No final decision on this need be taken, however, as on the facts it seems
to me that what in fact occurred, as the municipality indeed intended, was that
although the subdivision and rezoning was approved in respect of certain of the
erven, the simultaneous applications for subdivision and rezoning relating to
erven 3306 and 3295 were effectively postponed for a final decision thereon to
be taken later. It is significant that the municipality, in considering the
subsequent rezoning application, considered it to be part of the initial
application for rezoning that had been determined together with the subdivision
application in December 2001. At a meeting of its Standing Committee for
Works, Planning and Development held on 24 August 2004, (p 77 and
following) a recommendation to approve the rezoning of erf 3306 was passed.
The minutes of the meeting record that reference was made to the decision of
December 2001, that „the Council had referred the proposed Business Zone . . .
back subject to formal application and Site Development Plans indicating
proposed uses being submitted‟ and that the subsequent application for rezoning
had therefore been submitted for that purpose. In these circumstances it would
be splitting technical hairs, in my view, to hold that the subsequent application
was a wholly fresh proceeding and did not form part of the initial application.
[18] Accordingly, the decision on 23 September 2004 to approve the rezoning
of erf 3306 brought finality in respect of the earlier application for subdivision
that, for all practical purposes, had been approved in principle in December
2001 and then put on hold by reason of there being no finality in respect of the
rezoning of erven 3306 and 3295. In these circumstances, the argument that
subdivision of erf 3306 had been effected before 2004, so that the subsequent
application for rezoning was a standard rezoning application attracting the
provisions of s 16(2) of LUPO, must fail.
[19] On this basis alone, as the two year period in s 16(2) upon which the
appellants have hung their hat, does not apply, the appeal must fail. But for the
sake of completeness, and even if that was not the case, there seems to me to
have been a clear utilisation of erf 3306 as permitted in terms of the business
zoning before a period of two years from the rezoning for business had elapsed.
[20] In this regard the appellants alleged in their founding affidavit deposed to
in 2015 that the erf „has not been used as a shop or as a restaurant until date
hereof‟ and that the construction work that had begun that year constituted „the
first concrete indications of an intention by the first and second respondents to
utilise erf 3306 for any of the purposes authorised by “business zone II”‟.
Bearing in mind that s 2(xxx) of LUPO contains the definition that
„“utilisation”, in relation to land, means the use of land for purposes of the
improvement of land, and “utilise” has a corresponding meaning‟, this is a
somewhat simplistic view of what was in issue. In the light of this definition,
even if s 16(2) was of application, it was not necessary for the erf to have been
used as a shop or as a restaurant during the two year period as alleged by the
appellants – it was sufficient if the land was used for purposes of improvement
for use in terms of its permitted zoning.
[21] And that is precisely what the respondents did. By 2004 it had excavated
a substantial portion of the property to create the mooring basin which
effectively forms part of a canal that was created; by 2006 the canal walls,
required to accommodate the area of the restaurant, had been constructed as had
the foundations for the deck of the restaurant which is now been built; and by
that time a wooden walk way had been built to join the restaurant deck.
[22] The appellants argued that this evidence was unsatisfactory as it had been
forthcoming in supplementary affidavits filed at the eleventh hour. While that is
so, the appellants never sought an opportunity to respond which they could
easily have done had they disputed the allegations. But more importantly, as
already mentioned it is common cause that by 2004 the respondents had
provided the basic amenities and infrastructure for the development, including
erf 3306. They had therefore effected improvements upon that erf with the
intention for it to be used for business purposes, as had been envisaged in the
initial simultaneous applications for rezoning and subdivision.
[23] It was argued on behalf of the appellants that the fact that this basic
infrastructure had been provided should be ignored as it had been put in place
before the application for rezoning was approved in September 2004, whereas
the only period of relevance was the two year period immediately after that
event. This argument cannot be accepted. The bulk services were provided to
erf 3306 in the clear anticipation that its ultimate rezoning would be approved,
which it was. It seems to me to matter not that the infrastructure had been
installed prior to approval of the rezoning, which resulted in the respondents not
having to provide it thereafter. The fact remains that by the end of the two year
period relied upon by the appellants, the improvements had been effected as
part of the development of the erf for the business purposes for which it had
been rezoned.
[24] In these circumstances the second issue relied upon by the appellants
must be determined against them as well. They therefore failed to prove their
case that the building of a restaurant was unlawful, and their application was
correctly dismissed by the court a quo.
[25] The appeal is dismissed with costs.
______________
L E Leach
Judge of Appeal
Appearances:
For the Appellant:
J P Vorster SC
Instructed by:
Stockenström Fouché Inc Attorneys, Pretoria
McIntyre Van Der Post Attorneys,
Bloemfontein
For the 1st and 2nd Respondent:
G J Friedman
Instructed by:
Friedman Scheckter
Attorneys, Port
Elizabeth
Matsepes Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED
IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
30 November 2017
Status:
Immediate
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal.
ESQUIRE CONSULTING AND MARKETING CC & OTHERS
V
SEA GLADES HOLDINGS (PTY) LTD & OTHERS
The appellants are owners of immovable property in what is known as the
Marina Village, an extension of the St Francis Bay Marina in the Eastern Cape.
They applied to court for an order interdicting and restraining the first and
second respondents from building and conducting a restaurant business on
another erf in the Marina Village, contending that to do so would be contrary to
the existing town planning scheme and zoning of the property. The basis of their
contention was that the property concerned had not been zoned for business
purposes but was, rather, zoned for residential purposes. Their application in the
Eastern Cape High Court was dismissed, and they appealed to the Supreme
Court of Appeal.
In a judgment delivered today, the Supreme Court of Appeal reviewed the
history of the zoning of the erf in question. This showed that there had been an
application by the respondents to subdivide the property which is now known as
the Marina Village into various residential and other erven and to zone the
erven so subdivided accordingly. This was done in respect of s 22(1)(b) of the
Land Use Planning Ordinance 15 of 1985, Cape (LUPO) which states that
although s 22(1)(a) of LUPO provides that no application for subdivision
involving changes zoning may be considered unless and until the land
concerned had been zoned in the manner permitting of subdivision, this shall
not preclude applications for rezoning and subdivision being considered
simultaneously. Unfortunately when it came to approval of the simultaneous
applications for rezoning and subdivision, the municipality granted the
subdivision in December 2001but, in respect of the application for certain of the
erven to be rezoned as business, postponed the matter for further information.
To deal with this, instead of amplifying their already existing application for
rezoning, the respondents applied afresh for rezoning of certain of the erven
which had been subdivided as aforesaid. This application was finally approved
in September 2004 when the erf in question was zoned for business, which
would include a restaurant.
Things were largely allowed to lie fallow until, some 11 years later, in 2015, the
respondents commenced building a restaurant on the erf in question. The
appellants then applied for the interdict. They argued that the subdivision had
been effected in December 2001; that this was deemed to have been confirmed
by the municipality under s 27(3) of LUPO before the approval of the
application for zoning of the disputed erf as business was granted in 2004; that
s 16(2)(a)(i) of LUPO provides that a rezoning lapses within two years in the
event of land concern not being utilised as permitted in terms of the zoning, and
consequently that the 2004 zoning had lapsed as the property had not been used
for business purposes for more than two years before construction began on the
restaurant in 2015.
The Supreme Court of Appeal dismissed this argument. It held that the
municipality, in considering the rezoning application which was granted in
September 2004, considered it to be part of the initial application for rezoning
that had been approved in December 2001. Accordingly the decision of
September 2004 to approve the rezoning brought finality in respect of the earlier
applications for subdivision and rezoning, and that the two year period provided
for in s 16(2) of LUPO was therefore of no application. It found that in any
event the land had been used for purposes of improvement within the two year
period after the rezoning of the property so that even if s 16(2) had been of
application, its rezoning had not been lapsed.
The appeal was therefore dismissed, with costs.
|
2713
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case No: 243/11
In the matter between:
NICOLAAS MARTHINUS PRINSLOO NO
FIRST APPELLANT
JOHANNA JACOBA DE BRUIN NO
SECOND APPELLANT
NICOLAAS MARTHINUS PRINSLOO
THIRD APPELLANT
v
GOLDEX 15 (PTY) LTD
FIRST RESPONDENT
JACOBUS WYNAND SCHEEPERS
SECOND RESPONDENT
Neutral citation:
Prinsloo NO v Goldex 15 (243/11) [2012] ZASCA 28 (28
March 2012).
Coram:
Brand JA, Cachalia JA, Mhlantla JA, Wallis JA et
Boruchowitz AJA
Heard:
14 March 2011
Delivered:
28 March 2011
Summary:
Plea of exceptio rei iudicata in the form of issue
estoppel ─ not allowed where prospect that it would
deprive defendant of fair hearing in subsequent
proceedings.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (Pretorius J sitting as
court of first instance) it is ordered that:
(a)
The appeal is upheld with costs.
(b)
The order of the court a quo is set aside and replaced with the following:
‘The defendants’ plea of res iudicata in the form of issue estoppel is
dismissed with costs.’
________________________________________________________________
JUDGMENT
________________________________________________________________
BRAND JA (CACHALIA JA, MHLANTLA JA, WALLIS JA ET BORUCHOWITZ
AJA CONCURRING):
[1] The respondents instituted an action against the appellants in the North
Gauteng High Court for damages allegedly resulting from a fraudulent
misrepresentation made in connection with the sale of a farm. The appellants
denied the allegations of fraud on which the respondents rested their claim. The
respondents thereupon raised a plea of res iudicata in the form of what has
become known as issue estoppel. When the matter came before Pretorius J in
the court a quo, the parties sought and obtained an order from her that the
special defence of res iudicata should be dealt with at the outset and before the
hearing of any evidence. At the end of these preliminary proceedings, Pretorius J
upheld the plea of res iudicata with costs. The present appeal against that
judgment is with the leave of the court a quo.
[2] The appeal therefore turns on the question whether, in the light of the
facts and circumstances of this case, the plea of res iudicata was rightly upheld.
For present purposes those facts and circumstances are not in dispute. Shorn of
unnecessary detail, they are as follows. The first two appellants, Mr N M Prinsloo
and Ms J J de Bruin NNO, appear in their representative capacities as trustees of
the NM Prinsloo trust. The third appellant is the same Mr Prinsloo, this time in his
personal capacity. The first respondent, Goldex 15 (Pty) Ltd, is a company of
which the second respondent, Mr J W Scheepers, is the sole director and
shareholder. For the sake of convenience, I shall refer to the trust represented by
the first two appellants as ‘the trust’; to the third appellant as ‘Prinsloo’; to the
appellants jointly as ‘the appellants’; to the first respondent as ‘Goldex’; to the
second respondent as ‘Scheepers’; and to the respondents jointly as ‘the
respondents’.
[3] Pursuant to a written deed of sale entered into on 4 October 2004, the
trust sold the farm Rykdom in the Limpopo province to Goldex for R2,6 million.
During the negotiations preceding the sale, the trust was represented by Prinsloo
and Goldex by Scheepers. During February 2005 Scheepers purported to cancel
the sale on behalf of Goldex, essentially on the basis of fraudulent
representations allegedly made by Prinsloo on behalf of the trust during the
negotiations preceding the sale.
[4] In reaction to Goldex’s purported cancellation of the sale, the trust brought
an urgent application in the North Gauteng High Court for an order compelling
Goldex to take transfer of Rykdom against payment of the agreed purchase
price. The answering affidavit on behalf of Goldex was deposed to by Scheepers.
In broad outline, the alleged fraudulent misrepresentation he relied upon for
cancellation of the sale amounted to the following. Prior to the sale, so
Scheepers said, he made it clear to Prinsloo that he would not be interested in
buying the farm if any claim had been lodged against it in terms of the Restitution
of Land Rights Act, 22 of 1994, referred to for the sake of brevity, simply as ‘land
claims’. Prinsloo thereupon gave him the assurance that he was not aware of any
such claim. So important was this representation, Scheepers contended, that the
parties specifically stipulated in clause 18 of the deed of sale, that the seller was
not aware of any land claim against the property. Contrary to these assurances,
so Scheepers said, it transpired after the sale that a land claim had indeed been
lodged in respect of Rykdom by the Mapela community. Moreover, so Scheepers
contended, the circumstances were such that Prinsloo must have been aware of
this claim at the time and that his misrepresentation was therefore fraudulently
made.
[5] In the replying affidavit by Prinsloo on behalf of the trust, he admitted that
he gave Scheepers the assurance that there was no land claim against Rykdom
and that this assurance subsequently proved to be erroneous. He denied,
however, that he was aware of the land claim which had indeed been lodged
against Rykdom when he gave Scheepers the assurance to the contrary. In the
absence of fraud, so Prinsloo contended, Goldex was bound by an express
provision in the deed of sale, not to rely on any representation by the seller with
regard to the property sold which turned out to be untrue.
[6] In the event, the urgent application was dismissed by Webster J. In the
course of his judgement he formulated the dispute for determination, as he saw
it, thus:
‘The issue between the parties is whether [Prinsloo] is guilty of having made a material
fraudulent misrepresentation to the director of [Goldex] that no valid land claim had been
made or was pending in relation to the property, when the agreement of sale was
entered into by the parties.’
[7] In determining that issue, Webster J subjected the affidavits before him to
a detailed analysis. This led him to the following finding:
‘It is my considered view that [Prinsloo], when he entered into a written agreement of
sale of the farm did so in the full knowledge that the farm was the subject of a land claim
and that he deliberately withheld this information from Scheepers, the representative of
[Goldex].’
[8] Following upon the dismissal of its urgent application, the trust
unsuccessfully sought leave from Webster J to appeal against his judgment. A
subsequent application by the trust to this court for leave to appeal, met with the
same fate. This marked the end of the trust’s endeavour to compel specific
performance of the sale. However, as it turned out, it did not mark the end of
litigation resulting from the sale. What then followed was the action by the
respondents against the appellants for damages which eventually gave rise to
this appeal.
[9] As I have indicated by way of introduction, the action by the respondents
against the appellants, jointly and severally, was for delictual damages allegedly
suffered by both Goldex and Scheepers as a result of Prinsloo’s fraudulent
misrepresentation on behalf of the trust. In their particulars of claim the
appellants again relied on the allegation that, during the course of negotiations
preceding the sale, Prinsloo represented to Scheepers that he was unaware of
any land claim in respect of Rykdom, which representation turned out to be false
in that, at the time, Prinsloo was indeed aware of the existence of such claim.
These allegations were denied by the respondents in their plea. This gave rise to
a replication by the respondents that, in the light of the earlier judgment by
Webster J, the appellants were estopped from denying these allegations by the
exceptio rei iudicata. This contention, as we now know, was upheld by Pretorius
J in the court a quo. Hence the crisp issue on appeal is confined to whether that
decision should be endorsed by this court.
[10] The expression ‘res iudicata’ literally means that the matter has already
been decided. The gist of the plea is that the matter or question raised by the
other side had been finally adjudicated upon in proceedings between the parties
and that it therefore cannot be raised again. According to Voet 42.1.1, the
exceptio was available at common law if it were shown that the judgment in the
earlier case was given in a dispute between the same parties, for the same relief
on the same ground or on the same cause (idem actor, idem res et eadem causa
petendi (see eg National Sorghum Breweries Ltd (t/a Vivo African Breweries) v
International Liquor Distributors (Pty) Ltd 2001 (2) SA 232 (SCA) at 239F-H and
the cases there cited). In time, the requirements were, however, relaxed in
situations which give rise to what became known as issue estoppel. This is
explained as follows by Scott JA in Smith v Porritt 2008 (6) SA 303 (SCA) para
10:
‘Following the decision in Boshoff v Union Government 1932 TPD 345 the ambit of the
exceptio res iudicata has over the years been extended by the relaxation in appropriate
cases of the common law requirements that the relief claimed and the cause of action be
the same (eadem res and eadem petendi causa) in both the case in question and the
earlier judgment. Where the circumstances justify the relaxation of these requirements
those that remain are that the parties must be the same (idem actor) and that the same
issue (eadem quaestio) must arise. Broadly stated, the latter involves an inquiry whether
an issue of fact or law was an essential element of the judgment on which reliance is
placed. Where the plea of res iudicata is raised in the absence of a communality of
cause of action and relief claimed it has become commonplace to adopt the terminology
of English law and to speak of issue estoppel. But, as was stressed by Botha JA in
Kommissaris van Binnelandse Inkomste v Absa Bank Bpk 1995 (1) SA 653 (A) at 669D,
667J-671B, this is not to be construed as implying an abandonment of the principles of
the common law in favour of those of English law; the defence remains one of res
iudicata. The recognition of the defence in such cases will however require careful
scrutiny. Each case will depend on its own facts and any extension of the defence will be
on a case-by-case basis (Kommissaris van Binnelandse Inkomste v Absa (supra) at
67E-F). Relevant considerations will include questions of equity and fairness, not only to
the parties themselves but also to others. . . . ‘
[11] In this case it is clear that the relief claimed by the trust in its urgent
application was different from the relief claimed by the respondents in the action
under consideration. In a sense, the one can be said to be the converse of the
other. While the application by the trust presupposed the validity of the sale, the
present action is based on the supposition that the sale no longer existed. Yet,
the pertinent issue decided by Webster J is virtually the same as in this action,
namely: did Prinsloo know there was a land claim against Rykdom when he gave
Scheepers the assurance to the contrary? As I see it, this gives rise to a classic
case of potential issue estoppel in the same mould as in Boshoff v Union
Government (supra) where the concept of issue estoppel was introduced by that
name into our case law for the first time. What Greenberg J held in that case was
essentially that the plaintiff’s claim for damages arising from the alleged wrongful
cancellation of a lease was precluded by an earlier finding in a successful
application by the defendant for the plaintiff’s ejectment, that the lease had been
validly cancelled.
[12] The appellants’ argument as to why the plea of res iudicata in the form of
issue estoppel was wrongly upheld in this case, was essentially twofold. First,
they contended that the ‘same persons’ requirement had not been met in that
neither Prinsloo nor Scheepers were parties in the urgent application
proceedings. Secondly, they relied on the proposition that it was unnecessary
and inappropriate for Webster J to make findings of fraud on the basis of
disputed allegations in motion proceedings, in order to dispose of the application.
In the circumstances, so the appellants contended, it would be unjust and unfair
to hold them bound by these unnecessary and inappropriate findings in the
present case. I propose to deal with these two arguments in turn.
[13] As to the first argument, it appears that even at common law, the ‘same
persons’ requirement was not taken literally to mean only the identical individuals
concerned in both proceedings. As pointed out by this court in Amalgamated
Engineering Union v Minister of Labour 1949 (3) SA 637 (A) at 654:
‘. . . Voet (44.2.5) . . . gives a list of parties who are regarded in law as being the same
for the purpose of the rule that res iudicata can be pleaded only when the parties to the
previous suit have been the same as in the present one. He mentions, inter alios, a
deceased and his heir, principal and agent, a person under curatorship and his curator,
a pupil and his tutor . . . ‘
(See also Joubert (ed) the Law of South Africa Vol 9 2ed para 637 and the cases
there cited.)
[14] Based on these authorities it was held in Man Truck & Bus SA (Pty) Ltd v
Dusbus Leasing CC 2004 (1) SA 454 (W) para 39 that the sole member and
controlling mind of a close corporation is bound by a decision in earlier
proceedings against the close corporation. Relying on Mann Truck & Bus SA, in
turn, the court a quo held Prinsloo bound to Webster J’s decision against the
trust. The appellants’ argument that the court a quo had erred in doing so rested
mainly on the proposition that persons litigating in their personal capacity are not
bound by earlier decisions against them when they were acting as
representatives of another.
[15] The general proposition relied upon by the appellants appears to be
supported by authority (see eg Shokkos v Lampert 1963 (3) SA 421 (W) at 426
(A); LAWSA, op cit para 639; Spencer Bower and Handley Res Iudicata 4ed para
9.22). But, in my view, these authorities do not contemplate the situation that
arose in this case. In this case Prinsloo not only represented the trust, he was the
controlling mind of that entity. It would therefore surprise me if the controlling
mind were not bound by an earlier decision that he committed fraud, while the
mindless body of the trust was held bound by that finding. But, be that as it may.
In the view that I hold on the appellants’ further argument based on fairness and
equity, I find it unnecessary to decide this issue which, in any event, relates to
Prinsloo only. I therefore proceed on the assumption that Prinsloo’s position with
regard to the application of issue estoppel is no different from that of the trust.
[16] The appellants’ argument that the application of issue estoppel in these
proceedings would result in unfairness and inequity derives from two hypotheses.
First, that it was not necessary for Webster J to arrive at any final decision as to
whether or not Prinsloo committed fraud in order to dismiss the trust’s application
to compel specific performance. Secondly, that Webster J could not and should
not have decided the disputed issue of whether fraud was committed on motion
proceedings without the benefits inherent in the hearing of oral evidence,
including discovery of documents, cross-examination of witnesses and so forth.
[17] I think both these propositions are well supported by authority. As to the
first, the trite position is that, as a general rule and save in exceptional
circumstances, disputes of fact arising on affidavit cannot be finally determined
on the papers. The concomitant rule is that in the event of material factual
disputes arising on affidavit in motion proceedings, the applicant can only
succeed in those exceptional circumstances where the respondent’s version of
the disputed facts can safely be rejected on the papers as farfetched or
untenable (see eg the oft quoted passage in Plascon-Evans Paints Ltd v Van
Riebeeck Paints (Pty) Ltd 1984 (3) SA 620 (A) at 634E-635C). The dispute of
fact that arose in the motion proceedings before Webster J fell outside the ambit
of the exceptional circumstances envisaged by the authorities. The allegations of
fraud against Prinsloo which Goldex raised in answer to the application by the
trust, could hardly be described as so farfetched or untenable that they could be
rejected on the papers and it was not suggested that they should. The application
for final relief by the trust was therefore doomed to fail. On that basis and that
basis alone Webster J was bound to dismiss the application with costs. That is
obviously also why this court refused the trust’s application for leave to appeal.
Appeals are not aimed at the reasoning but at the order of the lower court.
Whether or not the court of appeal agrees with the lower court’s reasoning is
therefore of no consequence, if the result would remain the same (see eg
Western Johannesburg Rent Board v Ursula Mansions (Pty) Ltd 1948 (3) SA 353
(A) at 355).
[18] This brings me to the appellants’ second proposition: that it was
inappropriate and unwise for Webster J to find Prinsloo guilty of fraud purely on
the basis of allegations against him on affidavit, which he disputed on feasible
grounds. This proposition emanates from the same considerations as the
previous one. The appellants were also entitled to have their version approached
with caution on the basis that it could only be rejected if it was clearly untenable,
which it was not. What rendered a final rejection of the appellants’ version in
principle even more unwise and inappropriate was, of course, that as the
respondent’s version could not be rejected out of hand, the application was in
any event bound to fail.
[19] I therefore agree with the appellants’ contention that Webster J should not
have made a finding of fraud against Prinsloo on the basis of untested
allegations against him on motion papers that were denied on grounds that could
not be described as farfetched or untenable. The reasons why he should not
have done so, derive not only from common sense, but from many years of
collective judicial experience. They were thus formulated in Sewmungal and
another NNO v Regent Cinema 1977 (1) SA 814 (N) at 819A-C:
‘In approaching this particular type of problem [of factual disputes arising on affidavit] it is
not wrong for a court at the outset to have some regard to the realities of litigation. What
appears to be a good case on paper may become less impressive after the deponents to
the affidavits have been cross-examined. Conversely, what appears to be an improbable
case on the affidavits, may turn out to be less improbable or even probable in relation to
a particular witness after he had been seen and heard by a court. An incautious answer
in cross-examination may change the whole complexion of a case.’
[20] In answer to these arguments the respondents contended that, even if
Webster J was wrong, that would not preclude them from relying on his finding of
fraud for the purpose of res iudicata. In support of this answer they referred to
African Farms and Townships Ltd v Cape Town Municipality 1963 (2) SA 555 (A)
at 564C-G where Steyn CJ said:
‘Because of the authority with which, in the public interest, judicial decisions are
invested, effect must be given to a final judgment, even if it is erroneous. In regard to res
iudicata the enquiry is not whether the judgment is right or wrong, but simply whether
there is a judgment. . . . It is quite clear, therefore, that a defendant is entitled to rely
upon res iudicata notwithstanding that the judgment is wrong.’
[21] But as I see it, the respondents’ answer misses the point of the appellants’
objection. Their objection is not only that Webster J was wrong in his finding of
fraud. Their crucial objection is that, because of Webster J’s fundamentally wrong
approach to the matter before him, it would be inequitable and unfair to preclude
them from denying fraud on the part of Prinsloo in this case, through the
application of issue estoppel. The result of doing so, they argued, will be to
deprive them of the opportunity to properly test the allegations of Prinsloo’s
accusers and to have the findings of fraud reconsidered on appeal.
[22] The respondents’ objection must be evaluated with reference to the
principles that govern the defence of res iudicata in general and issue estoppel in
particular. I have already referred to some of these principles. They have in any
event been discussed extensively in a number of reported decisions (see eg
Kommissaris van Binnelandse Inkomste v Absa Bank Bpk 1995 (1) SA 653 (A);
Bafokeng Tribe v Impala Platinum Ltd 1999 (3) SA 517 (BHC); Holtzhausen v
Gore NO 2002 (2) SA 141 (C); Smith v Porritt 2008 (6) SA 303 (SCA)).
Repetition of the discussion will serve little, if any, purpose. Suffice it therefore to
distil from these authorities those principles that I find of pertinent application in
this case.
[23] In our common law the requirements for res iudicata are threefold:
(a) same parties, (b) same cause of action, (c) same relief. The recognition of
what has become known as issue estoppel did not dispense with this threefold
requirement. But our courts have come to realise that rigid adherence to the
requirements referred to in (b) and (c) may result in defeating the whole purpose
of res iudicata. That purpose, so it has been stated, is to prevent the repetition of
law suits between the same parties, the harassment of a defendant by a
multiplicity of actions and the possibility of conflicting decisions by different courts
on the same issue (see eg Evins v Shield Insurance Co Ltd 1980 (2) SA 815 (A)
at 835G). Issue estoppel therefore allows a court to dispense with the two
requirements of same cause of action and same relief, where the same issue has
been finally decided in previous litigation between the same parties.
[24] At the same time, however, our courts have realised that relaxation of the
strict requirements of res iudicata in issue estoppel situations creates the
potential of causing inequity and unfairness that would not arise upon application
of all three requirements. That potential is explained by Lord Reid in Carl-Zeiss-
Stiftung v Rayner and Keeler Ltd (No 2) [1966] 2 All ER 536 (HL) at 554G-H
when he said:
‘The difficulty which I see about issue estoppel is a practical one. Suppose the first case
is one of trifling importance but it involves for one party proof of facts which would be
expensive and troublesome; and that party can see the possibility that the same point
may arise if his opponent later raises a much more important claim. What is he to do?
The second case may never be brought. Must he go to great trouble and expense to
forestall a possible plea of issue estoppel if the second case is brought?’
[25] One can also imagine a situation where a purchaser seeks confirmation of
his or her purported cancellation of the sale in motion proceedings. The seller
may decide that the expensive and time consuming game is not worth the candle
and thus decide not to oppose. But if the purchaser were then to sue for
substantial damages the application of issue estoppel in the second case may
cause clear inequity. The same situation will not arise in the case where all the
requirements of res iudicata are satisfied. In that event the relief sought in both
cases will be the same. The seller will have to decide whether to speak up in the
first case or hold his or her peace in the second.
[26] Hence, our courts have been at pains to point out the potential inequity of
the application of issue estoppel in particular circumstances. But the
circumstances in which issue estoppel may conceivably arise are so varied that
its application cannot be governed by fixed principles or even by guidelines. All
this court could therefore do was to repeatedly sound the warning that the
application of issue estoppel should be considered on a case-by-case basis and
that deviation from the threefold requirements of res iudicata should not be
allowed when it is likely to give rise to potentially unfair consequences in the
subsequent proceedings (see eg Kommissaris van Binnelandse Inkomste v Absa
Bank Bpk 1995 (1) SA 653 (A) at 676B-E; Smith v Porritt supra 2008 (6) SA 303
(SCA) para 10. That, I believe, is also consistent with the guarantee of a fair
hearing in s 34 of our Constitution.
[27] In this light I agree with the appellants’ contention that the court a quo
erred in allowing the plea of res iudicata in the form of issue estoppel in this case.
In the proceedings before Webster J the allegations of fraud against Prinsloo
were clearly not properly investigated. Consequently, his finding of fraud on
motion papers was clearly inappropriate. But, because of the rules pertaining to
motion proceedings, he happened to be right in dismissing the application before
him. In the result his inappropriate findings of fraud had not been tested on
appeal. In these circumstances I believe it would be patently inequitable and
unfair to hold the appellants bound to those inappropriate findings in the present
proceedings.
[28] In the result:
(a)
The appeal is upheld with costs.
(b)
The order of the court a quo is set aside and replaced with the following:
‘The defendants’ plea of res iudicata in the form of issue estoppel is dismissed
with costs.’
_____________________
F D J BRAND
JUDGE OF APPEAL
Appearances:
For Appellant:
H F Oosthuizen
Instructed by:
Bernhard van der Hoven, Pretoria
Rosendorff Reitz Barry, Bloemfontein
For Respondent:
A B Rossouw SC (with him J H A Saunders)
Instructed by:
Van Zyl Le Roux Inc, Pretoria
Honey Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
28 March 2012
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form
part of the judgment.
Prinsloo NO v Goldex 15 (243/2011) [2012] ZASCA 28 (28 March 2012)
The Supreme Court of Appeal (SCA) upheld an appeal against an order made
by the North Gauteng High Court, Pretoria. The proceedings which gave rise
to this appeal was preceded by an urgent application, by way of motion
proceedings, by the appellants for an order compelling the respondents to
take transfer of the property against payment of the agreed purchase price.
Webster J dismissed that application and found that the third appellant was
guilty of having made a material fraudulent misrepresentation to the
respondents, that no valid land claim had been made or was pending in
relation to the property.
The respondents then instituted action against the appellants in the court a
quo
for
damages
allegedly
resulting
from
the
same
fraudulent
misrepresentation. The appellants denied the allegations of fraud on which
the respondents rested their claim. The respondents thereupon raised a plea
that the appellants were estopped from denying these allegations by the
exceptio rei iudicata, as this issue had already been decided by Webster J.
Pretorius J upheld the plea of res iudicata with costs. The appellant appealed
against this decision to the SCA
The SCA found that, in the proceedings before Webster J, the allegations of
fraud against the appellants were not properly investigated. Consequently, his
finding of fraud on the papers alone was clearly inappropriate. But, because of
the rules pertaining to motion proceedings, he happened to be right in
dismissing the application before him. Therefore the SCA held that it would be
patently inequitable and unfair to hold the appellants bound to those
inappropriate findings in the present proceedings.
For these reasons the SCA made the following order:
(a)
The appeal is upheld with costs
(b)
The order of the court a quo is set aside and replaced with the
following:
‘The defendants’ plea of res iudicata in the form of issue estoppel is dismissed
with costs.’
|
1212
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case number: 133/07
Reportable
In the matter between :
KINGSLEY JACK WHITEAWAY SEALE
APPELLANT
and
BERNARD RENIER VAN ROOYEN NO
FIRST RESPONDENT
RHEINHOLD MATHIAS ANTWEILER NO
SECOND RESPONDENT
PROVINCIAL GOVERNMENT, NORTH WEST PROVINCE
THIRD RESPONDENT
THE REGISTRAR OF DEEDS, PRETORIA
FOURTH RESPONDENT
And in the matter between :
THE PROVINCIAL GOVERNMENT, NORTH WEST PROVINCE
APPELLANT
and
BERNARD RENIER VAN ROOYEN NO
FIRST RESPONDENT
RHEINHOLD MATHIAS ANTWEILER NO
SECOND RESPONDENT
KINGSLEY JACK WHITEAWAY SEALE
THIRD RESPONDENT
THE REGISTRAR OF DEEDS, PRETORIA
FOURTH RESPONDENT
CORAM :
HOWIE P, NAVSA, CLOETE, HEHER et COMBRINCK JJA
HEARD :
5 MARCH 2008
DELIVERED : 27 MARCH 2008
Summary: Review : Administrative Actions : where an initial act is set aside on review
subsequent acts, which depend on the initial act for their validity, are of no force or effect. The
analysis of Forsyth as adopted in Oudekraal Estates (Pty) Ltd v City of Cape Town 2004 (6) SA
222 (SCA) applies to the validity of acts consequent upon the initial act only for so long as the
validity of the initial act has not been set aside on review; and the analysis does not deal with
whether the initial act should be set aside.
Neutral citation: This judgment may be referred to as Seale v Van Rooyen NO (133/07) [2008]
ZASCA 28 (27March 2008).
_________________________________________________________
CLOETE JA/
CLOETE JA:
INTRODUCTION
[1] In Bullock NO v Provincial Government, North West Province1 this court, at
the suit of the Transvaal Yacht Club (‘TYC’), set aside on review the decision of the
Premier of the North West Province (‘the Premier’) to register a notarial deed of
servitude in favour of Mr Seale. As the judgment records,2 an official of the North
West Province (‘the Province’) had on 18 April 2001 executed a power of attorney for
the registration of the servitude and a notarial deed of servitude had been executed
on 12 July 2001. Unbeknown to this court and the TYC the servitude had already
been registered on 22 November 2002, the day on which the TYC’s attorney of
record informed the State Attorney acting on behalf of the Provincial Government of
the Province (‘the Provincial Government’) that the TYC intended to appeal against
the decision of the court a quo in Bullock.
[2] The State Attorney sought cancellation of the servitude in the Deeds Office,
Pretoria, but he was advised by a colleague that the attitude of the Assistant
Registrar was that the order of this court in Bullock ‘should be regarded as null and
void as it does not grant authorisation to the Registrar of Deeds to cancel’ the
servitude. The State Attorney approached Seale through his attorneys but Seale
refused to consent to the servitude being cancelled. He undertook to provide his
reasons for doing so in writing but before they were furnished, the TYC as the
applicant brought motion proceedings in the Pretoria High Court against the
Registrar of Deeds, Pretoria, the Provincial Government and Seale as respectively
the first, second and third respondents. The relief ultimately sought was for an order
(1) directing that the Registrar of Deeds, Pretoria, upon presentation to him of the
order, forthwith cancel the registration of the servitude; alternatively (2) directing the
Provincial Government and Seale to take all steps and to sign all documents
1 2004 (5) SA 262 (SCA). The reference to a 'lease' in para 24 at p 273A, and in the headnote at
p 264B-C, should be a reference to a 'servitude'.
2 Ibid para 5.
necessary, within five days of the order, to cancel registration of the servitude in the
office of the Registrar of Deeds, Pretoria and failing compliance, that the sheriff take
all steps and sign all documents necessary to cancel the servitude. Costs were
sought against the Provincial Government and Seale jointly and severally.
[3] Simultaneously with its answering affidavit the Provincial Government
tendered, unconditionally and at its own cost, with the authority of the court, to
cancel the registration of the servitude in the Pretoria Deeds Office and to pay the
TYC’s costs of the application on an unopposed basis. The State Attorney who had
been handling the litigation explained in the answering affidavit that he had only
found out ‘afterwards’ (when precisely was not disclosed) that the deed of servitude
had been registered on 22 November 2002 and went on to say that:
‘At all relevant times I was under the impression that if [the TYC] would be successful with the appeal,
that such judgment would be sufficient to cancel the registration of the said servitude’
and
‘I was astonished to hear that the judgment of the Court of Appeal was not sufficient for the
cancellation of the said notarial deed of servitude and couldn’t understand why [Seale] won’t consent
to the cancellation.’
The Provincial Government did not participate in the proceedings in the court a quo
after it delivered its answering affidavit and tender on 21 September 2005. Seale on
the other hand put in issue the TYC’s locus standi to bring the application in its own
name and the authority of those who did so, and opposed the application on the
merits. The court a quo (Van Rooyen AJ), in interlocutory proceedings opposed by
Seale, substituted the then trustees of the TYC as the applicants, and ultimately
made an order directing the Registrar of Deeds to cancel the registration of the
servitude. The learned judge further ordered the Provincial Government to pay the
costs of the TYC and Seale. Seale has appealed against the substantive relief
obtained by the TYC both on the merits and on the basis that those who sought the
relief on behalf of the TYC were not authorised to do so. The Provincial Government
has appealed against the costs orders. Both appeals are with the leave of this court.
LOCUS STANDI AND AUTHORITY
[4] The TYC was originally cited as the applicant. Mr van Rooyen, a trustee of the
TYC, deposed to the founding affidavit. He said that the application was brought ‘by
the applicant as represented by me and Brian Macdonald Scott and Anthony Money
as trustees of the applicant by virtue of the authority vested in us by paragraph 14 of
the Constitution of the applicant’. A copy of the TYC’s constitution was annexed to
the founding affidavit. So were a resolution of the trustees authorising Van Rooyen to
bring the application on behalf of the TYC and confirmatory affidavits by Scott and
Money.
[5] It is necessary to quote paragraph 14 of the TYC’s constitution in full. It reads:
’14 TRUSTEES
The role of Trustees shall be to hold in trust the Club’s assets and to protect the legal and financial
viability of the Club in pursuit of the Club’s objectives. The tenure of trustees shall be for multiple
years to enable them to provide continuity over the long-term affairs of the Club. The President of
TYC shall de facto be a Trustee of the Club and there shall be up to three other Trustees.
Trustees shall be elected at an AGM according to the same procedures applying to the election of
officers. They do not require to be re-elected at each AGM but shall hold their position until either they
advise the Secretary in writing that they resign from that position, they cease to be a member of the
Club or they are voted out of that position by a motion at an AGM or Special General Meeting. When
Trustee positions fall vacant it shall be incumbent on the remaining Trustees to ensure nomination
and replacements by the time of the next AGM, or SGM if an urgent need arises.
The Trustees shall represent the Club in any legal actions and shall involve themselves sufficiently in
the Club’s operational affairs to forestall or mitigate any legal actions they consider may harm the
Club’s position. They shall consult the committee of the day on any legal matters. A Trustee shall only
act in a legal capacity for the Club if his actions have the agreement of the other available Trustees
and such action follows the minuted direction of the Executive Committee. Any major expenditure or
commitments that will require the Club to borrow or pledge funds in any form shall, unless approved at
an AGM or SGM require the approval of the Trustees. They shall have the right to call for independent
audits of the Club’s financial affairs and to call special general meetings of the Club in any serious
matters relating to their responsibilities.
The Trustees, for the time being shall be entitled to seats upon the Committee, to take part in its
deliberations and shall possess equal voting rights with other members thereof. They do not lose their
seats on the Committee through non-attendance, as do the other Members.
The following are provided as guidelines only regarding Trustees.
Trustees should ideally be long-standing members of the Club who have been flag officers and
preferably past Commodores. They should bring legal, financial or business experience to their role
and be persons of recognised integrity and sound judgement. They should not hold operational
responsibilities at the Club but can vote at Committee Meetings and provide guidance from their
experience. The Trustees should meet from time to time to consider issues of strategic importance to
the Club. They should act in consensus.’
Clause 9 of the constitution makes it clear in the following provision that the
references in paragraph 14 to ‘the Committee’ are to the executive committee:
‘NB: Where the word Committee is used without qualification in these Rules, the Executive Committee
is signified.’
The function of the executive committee is set out in clause 9 as follows:
‘The Executive Committee shall be appointed at the Annual General Meeting and shall manage,
control and have entire conduct of the affairs of the Club save as shall be prescribed by the duties of
the Trustees.’
[6] The argument of Seale’s counsel was based on that part of clause 14 of the
constitution which reads:
‘A Trustee shall only act in a legal capacity for the Club if his actions have the agreement of the other
available Trustees and such action follows the minuted direction of the Executive Committee.’
It is common cause that there was no minuted direction of the executive committee
authorising the application. That, according to the argument advanced on behalf of
Seale, is fatal.
[7] Counsel for the TYC relied on that part of clause 14 which reads:
‘The Trustees shall represent the Club in any legal actions . . . ‘.
The submission was that this provision authorised the trustees to decide whether
legal proceedings should be instituted.
[8] The constitution is not a model of clarity. It is my view, however, that the
argument on behalf of the TYC is correct. Clause 9 of the constitution vests the
entire conduct of the affairs of the club in the executive committee ‘save as shall be
prescribed by the duties of the Trustees’. The duties of the trustees are, in terms of
the third paragraph of clause 14 of the constitution, to ‘consult’ the executive
committee on any legal matters. These provisions read together are inconsistent with
an interpretation that requires the trustees to act only on the minuted direction of the
executive committee. There is nothing startling in this.3 The trustees are the TYC’s
elder statesmen and –women who are given particular responsibility in regard to
legal matters affecting the Club. That responsibility appears also from provisions of
clause 14 other than those to which I have already specifically emphasised, namely:
‘The role of Trustees shall be . . . to protect the legal . . . viability of the Club . . . The Trustees . . .
shall involve themselves sufficiently in the Club’s operational affairs to forestall or mitigate any legal
actions they consider may harm the Club’s position . . . They should bring legal, financial or business
experience to their role . . .’.
One of the guidelines at the end of clause 14 is that the trustees should act in
consensus. The provisions relied upon by Seale were inserted in my view to cater for
the situation where a single trustee is to act alone. The resort to the singular, ‘a
trustee’, is significant. In such a case the single trustee is not enjoined to act in
consensus with the other trustees ─ those ‘available’ have to agree; and a further
safeguard, inserted only because a single trustee will be acting, is that the action
taken by that trustee has to follow the minuted direction of the executive committee.
[9] The argument on behalf of Seale that the trustees of the TYC required the
authority of the executive committee to bring these proceedings must accordingly
fail. The only other preliminary point taken in Seale’s answering affidavit was that the
TYC lacked standing to bring the application in its own name. That argument was
abandoned on appeal. Counsel representing Seale sought, however, to mount two
further challenges: the first relating to the alleged non-participation of the president of
the TYC in the bringing of the application and the second, that it had not been shown
that the trustees had been properly appointed as such.
[10] It was only in argument in the court a quo that the non-participation of the
president was raised. The submission, repeated on appeal, was that the president,
who is (in terms of the first paragraph of clause 14 of the constitution quoted above)
a trustee, had not joined with the other trustees in bringing the application. There
3 Contrast Kempff v Visse 1958 (1) SA 379 (T) at 380B-C and Nampak Products Ltd t/a Nampak
Flexible Packaging v Sweetcor (Pty) Ltd 1981 (4) SA 919 (T) at 921D-H which deal with the institution
of an action by a company.
may be a perfectly good reason for this: the president may have died, or resigned
and the vacancy may not yet have been filled. Or ─ for all this court knows ─ Van
Rooyen, Scott or Money, or Mr Antweiler (who was a trustee sailing in the
Mediterranean when the application was brought, and subsequently ratified the
action of the other three trustees) could have been the president: such a supposition
is not far-fetched because, in terms of the first paragraph of clause 14 of the
constitution, the number of trustees is limited to the president and three others. But it
is not necessary to speculate. The question was not raised in the affidavits delivered
by Seale and the TYC had no opportunity of dealing with it. The argument advanced
by counsel depends on a fact not canvassed in the papers and it cannot be
entertained for this reason. 4
[11] Although the constitution of the TYC was annexed to the founding affidavit,
Seale did not suggest in his answering affidavit that the trustees who brought the
application had not been properly elected as such. The point was raised in the
interlocutory proceedings for the substitution of the then trustees as applicants. But
Seale did not appeal against the order of the court a quo granting this application;
and in any event, the position was clarified by Van Rooyen in a further affidavit.
Counsel for Seale cavilled at the fact that resolutions of the annual general meeting
at which the trustees were elected, were not annexed; but had Seale entertained any
doubt on this point, he could have obtained those minutes by invoking rule 35(11)
which applies to motion proceedings (Pieters v Administrateur, Suidwes-Afrika)5 and
reads (to the extent relevant):
‘The court may, during the course of any proceeding, order the production by any party thereto under
oath of such documents . . . in his power or control relating to any matter in question in such
proceeding as the court may think meet, and the court may deal with such documents . . ., when
produced, as it thinks meet.’
MERITS
[12] It was submitted on behalf of Seale (I quote from the heads of argument):
4 Minister of Land Affairs and Agriculture v D & F Wevell Trust 2008 (2) SA 184 (SCA) para 43.
5 1972 (2) SA 220 (SWA) at 228B-D.
‘The decision by the State Attorney, to proceed with the registration of the Deed of Servitude, at a
time when it was authorised to do so, should in itself have been the subject of judicial review, before
the registration could be set aside. That never happened.’
The submission is without substance. There was no ‘decision’ by the State Attorney.
The execution of the power of attorney by the official of the Province to enable the
notarial deed of servitude to be registered, the conclusion of the notarial deed of
servitude itself and the lodging of the documents with the Registrar of Deeds by the
State Attorney were not ‘decisions’ but acts performed to give effect to the decision
of the Premier to register a notarial deed of servitude in favour of Seale. This court
held in Bullock that that decision amounted to administrative action based upon
incorrect advice fundamental to its proper exercise and it was accordingly set aside.
[13] Counsel for both Seale and the TYC sought to rely in argument on passages
in the decision of this court in Oudekraal Estates (Pty) Ltd v City of Cape Town6
which adopted7 the analysis by Christopher Forsyth8 of why an act which is invalid
may nevertheless have valid consequences and concluded:9
‘Thus the proper enquiry in each case ─ at least at first ─ is not whether the initial act was valid but
rather whether its substantive validity was a necessary precondition for the validity of consequent
acts. If the validity of consequent acts is dependent on no more than the factual existence of the initial
act then the consequent act will have legal effect for so long as the initial act is not set aside by a
competent court.’
Applying that analysis to the present facts, the substantive validity of the decision of
the Premier (the initial act by the first actor) was not a necessary precondition for the
validity of the consequent act (the registration of the servitude by the Registrar of
Deeds, the second actor); as long as the decision stood the validity of the
registration was dependent on no more than the factual existence of the Premier’s
decision.10 But all of this is irrelevant and the reliance by counsel on the decision in
6 2004 (6) SA 222 (SCA).
7 In para 29.
8 ‘"The Metaphysic of Nullity": Invalidity, Conceptual Reasoning and the Rule of Law’ in Essays on
Public Law in Honour of Sir William Wade QC (Christopher Forsyth and Ivan Hare (eds), Clarendon
Press) at 141; see also the subsequent article by the same learned author ‘The Theory of the Second
Actor Revisited’ 2006 AJ 209.
9 In para 31; emphasis supplied.
10 cf Oudekraal paras 39 and 40.
Oudekraal, misplaced. As appears from the italicised part of the judgment just
quoted, the analysis was accepted by this court as being limited to a consideration of
the validity of a second act performed consequent upon a first invalid act, pending a
decision whether the first act is to be set aside or permitted to stand. This court did
not in Oudekraal suggest that the analysis was relevant to that latter decision. The
judgment emphasised11 that:
‘[A] court that is asked to set aside an invalid administrative act in proceedings for judicial review has
a discretion whether to grant or to withhold the remedy. It is that discretion that accords to judicial
review its essential and pivotal role in administrative law, for it constitutes the indispensable
moderating tool for avoiding or minimising injustice when legality and certainty collide.’
I think it is clear from Oudekraal, and it must in my view follow, that if the first act is
set aside, a second act that depends for its validity on the first act must be invalid as
the legal foundation for its performance was non-existent. It is precisely because of
this consequence that a court asked to review the first act and set it aside has, and
must have, a discretion whether or not to do so.12 Some of the factors relevant to the
exercise of that discretion were discussed in Oudekraal;13 they include the lapse of
time, the need for finality, the consequences for the public at large and the extent to
which persons may have acted in reliance on the decision which it is sought to set
aside. But the question whether or not the decision by the Premier in this matter
should be set aside, has already been answered by this court in Bullock. The result
is that all acts done consequent upon that decision (including the registration of the
servitude), and all acts to give effect to it (including those to which I have referred in
the previous paragraph of this judgment), are of no force or effect.
[14] It was submitted on behalf of the TYC, following upon views expressed from
the bench during the hearing of the appeal, that the decision of this court in Bullock
was retrospective in that it must be substituted for the order of the court of first
instance in Bullock, and it accordingly operated from the date upon which the latter
court gave its order; and that because that date preceded the date of registration of
11 Para 36 at p 246C-D.
12 cf Oudekraal para 38.
13 Para 46.
the servitude, the registration of the servitude was invalid for that reason. That is so
(although an order to this effect would have been required before the Registrar could
cancel the registration of the servitude) but the result would have been the same
even if the registration of the servitude had preceded the date on which the court of
first instance gave its order in Bullock. The reason is that acts performed subsequent
to a decision which is set aside and which can no longer depend upon the mere
existence of that decision for their own validity, are invalid once the decision is set
aside, irrespective of whether those acts were performed before or after the court
order invalidating the decision.
COSTS
[15] As I have already said, the court a quo ordered the Province to pay the costs
of both Seale and the TYC. Seale abandoned the order in his favour. But he only did
so in the heads of argument for this court delivered on 17 September 2007. It was
pointed out by his counsel that he did not oppose the Province’s applications for
leave to the appeal made to the court a quo and to this court; but the fact remains
that until he abandoned the order, the Province was obliged to bring those
proceedings and to proceed to appeal. The Province is accordingly entitled to its
costs up until 17 September 2007 and its counsel sought nothing more.
[16] Counsel for the TYC submitted that the order of the court a quo was justifiable
on the basis that had the State Attorney informed this court of the registration of the
servitude timeously, the point would have been argued and decided in its favour in
Bullock and these proceedings would then have been unnecessary. With hindsight,
that is so (provided the Registrar of Deeds had been joined as a party to the
previous appeal). But the difficulty with the submission is that the State Attorney
dealing with this appeal was entitled to assume that the decision in Bullock would
invalidate also the registration of the servitude (as this court has now held) or, at
worst, would require an order to enable the Registrar to cancel it; and in view of that
decision, the State Attorney would reasonably have been entitled to assume that
such an application would be unopposed. It is Seale who should have been ordered
to pay the costs of the proceedings in the court a quo ─ but there is no cross-appeal
by the TYC for such an order. This, however, cannot redound to the disadvantage of
the Province.
[17] Counsel for the TYC further submitted that the costs order of the court a quo
could be justified on the basis that the Province failed to bring an application to
compel Seale to co-operate in the cancellation of the servitude. But even assuming
any such obligation, the Province was in the process of ascertaining the reasons for
Seale’s refusal to consent to the cancellation of the servitude when the application
was brought by the TYC against inter alios it and Seale; and once that happened,
the Province could not have been expected to do anything more than tender the
relief which it did. The costs occasioned by Seale’s opposition were not of its making
and I fail to see any basis upon which it should be ordered to pay such costs.
[18] Finally, counsel on behalf of the TYC attempted a damage control exercise by
arguing that the Province had unnecessarily embarked on a costly appeal when a
relatively cheaper application in terms of rule 42(1)(a) was available to it. The rule
reads:
‘(1)
The court may, in addition to any other powers it may have, mero motu or upon the
application of any party affected, rescind or vary:
(a)
an order or judgment erroneously sought or erroneously granted in the absence of any party
affected thereby.’
Proceedings against Seale under the rule were competent in as much as he had not
asked for a costs order against the Province and that order was therefore
erroneously granted within the meaning of the rule. But such proceedings would not
have been competent against the TYC, because the TYC did ask for the costs order
made by the court a quo in its favour. The granting of this latter order amounted to a
mis-exercise of the court a quo’s discretion because it unjustifiably disregarded the
tender made by the Province,14 but that renders the order appealable; the order was
not ‘erroneously sought’ or ‘erroneously granted’ within the meaning of the rule. The
14 Naylor v Jansen 2007 (1) SA 16 (SCA) para 14 at 23E-F.
submission by counsel representing the TYC that the rule should be interpreted,
‘because of its plain and grammatical meaning’, as covering orders wrongly granted,
is inconsistent with the interpretation given to the rule in numerous cases, 15 has not
a shred of authority to support it and requires no further consideration. Equally
without merit is the submission that the court a quo could in terms of the rule have
varied the order in favour of the TYC in proceedings brought by the Provincial
Government against Seale, to provide that the Provincial Government and Seale
would be jointly and severally liable for the TYC’s costs. The basis for this latter
submission was that only one costs order was made by the court a quo. In fact two
costs orders were made ─ one in favour of Seale and one in favour of the TYC; and
neither had anything to do with the other.
[19] The Province asked for the costs of two counsel. The questions raised by the
Province’s appeal were anything but complex and there is in my view no basis for
such an order. On the other hand, it was in my judgement a wise and reasonable
precaution for the TYC to have briefed two counsel to oppose the appeal brought by
Seale, in view of the history of this matter, what was at stake in these proceedings
and (I would say without wishing to fan the flames of litigation further) what may
occur in the future.
[20] The following order is made:
(1)
The appeal by Seale is dismissed with costs. Seale is ordered to pay the
costs of appeal of the TYC, including the costs of two counsel.
(2)
Seale is ordered to pay the costs of the appeal by the Province against the
costs order in his favour up to 17 September 2007.
(3)
(a)
The appeal by the Province against the costs order in
favour of the TYC succeeds, with costs.
(b)
The order of the court a quo awarding costs to the TYC is set aside
and the following order substituted:
15 See eg Topol v L S Group Management Services (Pty) Ltd 1988 (1) SA 639 (W) at 648D-650A,
Nyingwa v Moolman NO 1993 (2) SA 508 (Tk) at 510D-511A and cases referred to in both decisions.
‘The Province is ordered to pay the TYC’s costs of the application up to and including 21
September 2005, being the date on which the answering affidavit and tender by the Province
was served upon it. Such costs shall include the costs attendant upon that affidavit and the
tender, shall exclude the costs occasioned by Seale’s opposition to the application and all
interlocutory applications, and shall be taxed on an unopposed basis.’
______________
T D CLOETE
JUDGE OF APPEAL
Concur: Howie P
Navsa JA
Heher JA
Combrinck JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
27 March 2008
Status:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal
K J W SEALE v TYC
1.
For many years the Transvaal Yacht Club (TYC) has conducted
yachting activities on property leased from the Northwest Province at
Hartebeestpoort Dam. In 2001 the Premier of the Province decided to
grant a servitude in favour of Mr Seale over part of the property. The
SCA set this decision aside in 2004, in ignorance of the fact that the
servitude had already been registered.
2.
In the present appeal the SCA ruled that because the Premier's
decision to grant the servitude had been declared invalid, it followed that
the registration of the servitude was also invalid. Mr Seale was ordered
to pay the costs of the TYC.
3.
In a separate appeal, the SCA ordered the TYC to pay most of the
costs of the Province in the Pretoria High Court and on appeal, because
the Province had at an early stage tendered to cancel the servitude at its
own cost. The SCA said that the costs of the proceedings after the
tender were not of the Province's making and were due entirely to the
opposition of Mr Seale. The court found itself unable to order Mr Seale
to pay the TYC's costs because this formed no part of the TYC's appeal.
--ends--
|
2226
|
non-electoral
|
2009
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case number: 147/08
In the matter between:
TRANSMAN (PTY) LTD
APPELLANT
v
GRAHAM DICK
1st RESPONDENT
THE CHAIRPERSON OF THE TRANSMAN
(PTY) LIMITED DISCIPLINARY ENQUIRY 2nd RESPONDENT
Neutral citation:
Transman v Graham Dick (147/2008) [2008] ZASCA 38
(31 March 2009)
Coram:
Mpati P, Jafta, Maya, Mhlantla JJA et Hurt AJA
Heard:
10 March 2009
Delivered: 31 March 2009
Summary:
Jurisdiction – the high court has jurisdiction to entertain administrative
reviews – dismissals from employment cannot be challenged by means
of review – non-compliance with administrative law rules incorporated
into employment agreements constitutes a contractual breach giving rise
to ordinary remedies.
ORDER
On
appeal
from:
High
Court,
Witwatersrand
Local
Division
(Van Oosten J)
In the result the following order is made:
1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the court below is set aside and replaced with the
following order:
‘(a)
The application is dismissed with costs, including the costs
consequent upon the employment of two counsel.’
JUDGMENT
JAFTA JA (Maya and Mhlantla JJA concurring)
[1] This is an appeal against a judgment of the High Court,
Witwatersrand Local Division (Van Oosten J) in terms of which the
verdict of the employer’s disciplinary body was set aside and replaced
with a different verdict by the court. The first respondent (the employee)
challenged – by means of a review application – the findings and
recommendation of the disciplinary body and the employer’s decision to
terminate his employment. The appeal is with the leave of the court
below.
THE FACTS
[2] The employee and his wife were both employed by the employer
while they were at the same time also its directors. The employee’s wife
held the position of managing director. The employee was chairman
before his removal from the board of directors. He was removed from the
board on 10 October 2005.
[3] The employer carries on a labour broking business in terms of
which it provides temporary workers to various clients. It places about 11
000 such workers daily with clients who require temporary labour. Its
annual turnover is approximately R400 million. The business started in
1983 as a partnership between the employee and his wife. In 1988 they
formed a close corporation through which they operated the business.
Later they established the employer company as a vehicle through which
they ran the business. The employee and his wife held equal shares in the
company. Such shares were later transferred to a trust controlled by them.
[4] As from 2001 the employee and his wife experienced marital
problems which also affected their relations at work. There were
complaints and counter-complaints made by them against each other.
Some of these complaints had to be resolved by the employer’s board.
During 2005 the employer became aware of certain allegations of
misconduct against the employee. On 15 August 2005 it addressed to him
a notice of suspension in terms of which he was suspended on specified
conditions pending an investigation into the allegations.
[5] The employee was later charged with 13 counts of misconduct and
was instructed to appear before a disciplinary enquiry chaired by the
second respondent. After a number of postponements for various reasons,
the disciplinary hearing commenced on 13 February 2006. After hearing
evidence from the employer’s witnesses the second respondent received
argument from the parties’ legal representatives. She handed down her
verdict on 10 March 2006 in terms whereof she found the employee
guilty of misconduct in respect of some charges and acquitted him on
others. Having considered the mitigating and aggravating factors the
second respondent recommended that the employee be dismissed.
[6] The employer’s board considered the findings and recommendation
before terminating the employee’s employment on 27 March 2006.
Although the second respondent had recommended dismissal, the board
took a softer line against the employee and decided to retire him. In a
letter addressed to the employee the board stated:
‘As you are aware the chairperson of the disciplinary enquiry recommended that
your services with this company be terminated. The Board has considered the
recommendation and resolved to accept the recommendation and accordingly
terminate your employment.
The Board resolved further that in view of your status as one of the founding
members of the company and as a former Chairman of the Board, you would not be
summarily
dismissed.
The
Board
shall
comply
with
the
Chairperson’s
recommendation by retiring you. Your employment with Transman (Pty) Ltd is
accordingly terminated with effect from today, 27th March 2006 at 10h00.’
[7] There is a dispute on the papers about whether the employee was
dismissed or retired. For present purposes the dispute is however
immaterial. There can be no doubt that the employee’s employment was
terminated. As stated earlier the employee instituted a review application
challenging the termination and the second respondent’s verdict which
underpinned it.
PROCEEDINGS IN THE HIGH COURT
[8] There can be no dispute regarding the nature of the proceedings
instituted by the employee in the court below. He sought an order in the
following terms:
‘1.
Reviewing and setting aside and/or correcting the verdict and decision of [the
chairperson] and [the employer] in terms of which:
1.1
[The chairperson] found the applicant guilty of certain charges and
recommended the dismissal of the applicant.
1.2
[The employer] retired the applicant.
2.
Setting aside and/or substituting the verdict and dismissal of [the chairperson]
and/or [the employer] with a verdict of not guilty and/or substituting the
recommendation of [the chairperson] with a recommendation that no sanction
should be imposed on the application or a sanction other than dismissal.
3.
Directing [the employer] to re-instate the applicant as an employee of [the
employer] with effect from the date of his retirement and on the same terms
and conditions as existed at the time of his retirement.’
[9] In challenging the verdict and termination the employee raised a
number of review grounds. In his founding affidavit he alleged:
‘GROUNDS FOR REVIEW
43 I respectfully state that [the chairperson], in finding me guilty in her verdict of
certain of the charges and certain of the individual counts:
43.1
acted grossly unreasonably, alternatively, unreasonably; and
43.2
could not reasonably or logically have done so on the evidence before her; and
43.3
displayed a biased attitude during my disciplinary enquiry; and
43.4
was well aware of the fact that the disciplinary enquiry was initiated for
ulterior motives and unlawful purposes and that her verdict and
recommendation justify the conclusion that she failed to apply her mind to the
matter in a judicial manner.’
[10] Apart from disputing each ground relied upon by the employee the
employer objected to the jurisdiction of the high court in this matter and
the competence of the relief sought. It contended that both the
chairperson’s verdict and the termination of the employment were not
susceptible to review because those decisions did not constitute
administrative action and principles of administrative law do not apply to
the matter. Regarding jurisdiction the employer argued that in the light of
s 157 of the Labour Relations Act 66 of 1995 the high court lacked
jurisdiction to hear the matter.
[11] Proceeding from the premise that in our law courts are entitled to
review proceedings of domestic tribunals, the court below held that it had
jurisdiction to hear the matter and set aside the verdict of guilty and
replaced it with the verdict of not guilty. Relying on Feinsberg v African
Bank and Another1 and Klein v Dainfern College and Another2 – to which
I shall later return – the court held not only that principles of
administrative law applied to this case but also that the impugned
decisions could be reviewed and set aside in the same way as
administrative actions.
[12] The court below reasoned thus:
‘Counsel for Transman did not take issue with this Court’s power to review the
decision of the chairperson. He in my view correctly, submitted that it must be
assumed in favour of the applicant that his contract of employment with Transman is
subject to an implied term that he would be afforded a fair hearing before he was
dismissed. Authority for the proposition is again to be found in a recent decision of
the Supreme Court of Appeal in Old Mutual Life Assurance Company SA Limited v
Gumbi3 where Jafta JA, writing for the Court, held as follows:
“An employee’s entitlement to a pre-dismissal hearing is well recognized in our law,
such right may have as its source the common law or a statute which applies to the
employment relationship between the parties (Modise & Others v Steve Spar
Blackheath 2001 (2) SA 406 (LAC) ((2000) 21 ILJ 519; [200] 5 BLLR 496 in para 21
and the authorities collected there)”.
Finally on this aspect, I agree with counsel for Transman that this Court in reviewing
her decision, can concern itself only with the relief the applicant would be entitled to
at common law. The nature of the relief that the applicant may be entitled to is
contractual in nature as opposed to the relief provided for in the Labour Relations Act
of 1995.
1 (2004) ILJ 217(T).
2 2006 (3) SA 73 (T).
3 2007 (5) SA 552 (SCA).
The grounds of review relied upon by the applicant are, firstly, malice, secondly, bias
and thirdly, unreasonableness or gross unreasonableness. In the view I take of the
matter only gross unreasonableness requires determination.’
[13] Before considering the issues raised in this appeal it is necessary to
remark on the findings and reasoning of the court below. Before the
decision of this court in Gumbi4 the right to a pre-dismissal hearing was
not implied at common law and this necessitated the development of the
common law in terms of s 39(2) of the Constitution. As from the date of
delivery of the judgment in Gumbi the right of every employee to a pre-
dismissal hearing is implied at common law. Since that judgment was
delivered after the cause of action had arisen in the present matter
reliance on Gumbi was misplaced.
[14] Secondly, in its reasoning the court below conflated the concept of
extending the application of administrative law principles to employment
contracts with administrative review. It spoke of the employee being
entitled to a contractual relief and yet it approached and decided the
matter as if it amounted to administrative action. It reviewed and set aside
the chairperson’s verdict on the basis that it was grossly unreasonable.
Taking a step further than just setting aside the verdict, the court
substituted such verdict with its own verdict of not guilty. The relief
granted is not in keeping with a contractual claim and there was no legal
basis for replacing the verdict with one of not guilty. For reasons that are
not apparent from the judgment the court below left the termination intact
after rescinding its underlying reason – the verdict of guilty.
4 Above n 3.
THE ISSUES
[15] Three issues were raised in this court. The first issue is whether the
high court had jurisdiction to adjudicate the case. The second relates to
the competence of the relief claimed in view of the nature of the
impugned decisions. The issue is whether the validity of such decisions
can be challenged by invoking administrative review procedure. The third
issue is whether on the papers – as they presently stand – the employee
has made out a case for a pre-dismissal hearing based on the terms of the
employment agreement.
JURISDICTION
[16] Counsel for the employer conceded, correctly so in my view, that
in so far as the employee’s claim for a review is concerned, the high court
had jurisdiction to hear the matter. The proposition that administrative
action disputes are justiciable in the high court is without controversy.
What has been controversial is whether a set of facts supporting a claim
of an unfair dismissal could at the same time give rise to a violation of
administrative justice rights.5 As it appears below the controversy has
been settled by the Constitutional Court.
[17] In Chirwa v Transnet Ltd and Others6 the Constitutional Court
held that public servants can no longer challenge their dismissals by
invoking administrative review procedures because they now enjoy the
5 Claase v Transnet Bpk en ‘n Ander 1999 (3) SA 1012 (T); Mgijima v Eastern Cape Appropriate
Technology Unit and Another 2000 (2) SA 291 (Tk) at 309; Minister of Correctional Services and
Another v Ngubo and Others 2000 (2) SA 668 (N); Runeli v Minister of Home Affairs and Others
2000 (2) SA 314 (Tk); NAPTOSA and Others v Minister of Education, Western Cape 2001 (2) SA 112
(C).
6 2008 (4) SA 367 (CC).
same protection afforded employees in the private sector under the
Labour Relations Act. Writing for the majority in that matter Ngcobo J
stated:
‘Support for the view that the termination of the employment of a public sector
employee does not constitute administrative action under s 33 can be found in the
structure of our Constitution. The Constitution draws a clear distinction between
administrative action on the one hand and employment and labour relations on the
other. It recognises that employment and labour relations and administrative action
are two different areas of law….
In my judgment labour and employment relations are dealt with comprehensively in s
23 of the Constitution. Section 33 of the Constitution does not deal with labour and
employment relations. There is no longer a distinction between private and public
sector employees under our Constitution. The starting point under our Constitution is
that all workers should be treated equally and any deviation from this principle should
be justified. There is no reason in principle why public sector employees who fall
within the ambit of the LRA should be treated differently from private sector
employees and be given more rights than private sector employees. Therefore, I am
unable to agree with the view that a public sector employee, who challenges the
manner in which a disciplinary hearing that resulted in his or her dismissal, has two
causes of action, one flowing from the LRA and another flowing from the
Constitution and PAJA.
I conclude that the decision by Transnet to terminate the applicant’s contract of
employment did not constitute administrative action under s 33 of the Constitution.’
[18] It is important to note that in Chirwa the Constitutional Court
deprecated the proposition that civil servants have two causes of action,
but only in so far as the second cause of action is based on s 33 of the
Constitution or the Promotion of Administrative Justice Act 3 of 2000
(PAJA). The decision in Chirwa prohibits the use of review process in
challenging the validity of a dismissal from employment. What this
means is that a cause of action based on a contractual breach is still
permissible.7 But for purposes of determining jurisdiction the fact that
incompetent relief is sought is immaterial. Such enquiry does not entail
the outcome of an adjudicative process. The issue that is essential to the
enquiry is whether the court has authority to adjudicate a particular
dispute. The incompetence of the claim made in the present case,
therefore, plays no part in the determination of the high court’s
jurisdiction. As stated earlier, the employee has instituted review
proceedings over which the high court unquestionably has jurisdiction.
WAS THE REVIEW APPLICATION COMPETENT?
[19] The answer to this question lies in whether the chairperson’s
verdict and the termination of employment constitute decisions which are
reviewable in administrative law. On the authority in Chirwa we know
that such decisions cannot be reviewed either under PAJA or s 33 of the
Constitution. Although Chirwa dealt with employment in the public
sector there is no reason why the same principle should not apply to the
private sector employment.
[20] In this case the employee eschewed any reliance on the Labour
Relations Act 66 of 1995, and as stated above, the court below found that
that Act did not apply to the matter. It dealt with the case on the basis that
the relief claimed was competent at common law. Proceeding from this
premise the court below then invoked the common law standard of gross
unreasonableness as a basis for setting aside the chairperson’s verdict.
The question that arises is whether it is permissible to do so in the light of
the decision in Chirwa. Does the review procedure at common
7 Fedlife Assurance Limited v Wolfaardt 2002 (1) SA 49 (SCA).
law continue to exist side by side with the system entrenched in the
Constitution?
[21] In Container Logistics8 this court held the view that judicial review
could be claimed either under the Constitution or at common law. In this
regard Hefer JA said:
‘Judicial review under the Constitution and under the common law are different
concepts. In the field of administrative law constitutional review is concerned with the
constitutional legality of administrative action, the question in each case being
whether it is or is not consistent with the Constitution and the only criterion being the
Constitution itself. Judicial review under the common law is essentially also
concerned with the legality of administrative action, but the question in each case is
whether the action under consideration is in accordance with the behests of the
empowering statute and the requirements of natural justice.…
No doubt administrative action which is not in accordance with the behests of the
empowering legislation is unlawful and therefore unconstitutional, and action which
does not meet the requirements of natural justice is procedurally unfair and therefore
equally unconstitutional. But, although it is difficult to conceive of a case where the
question of legality cannot ultimately be reduced to a question of constitutionality, it
does not follow that the common-law grounds for review have ceased to exist. What
is lawful and procedurally fair within the purview of s 24 is for the courts to decide
and I have little doubt that, to the extent that there is no inconsistency with the
Constitution, the common-law grounds for review were intended to remain intact.’
[22] The above proposition was, however, rejected by the Constitutional
Court in Pharmaceutical Manufacturers.9 In that case Chaskalson P,
writing for the unanimous court, said:
8 Commissioner of Customs and Excise v Container Logistics (Pty) Ltd, Commissioner of Customs and
Excise v Rennies Group Ltd t/a Renfreight 1999 (3) SA 771 (SCA).
9 Pharmaceutical Manufacturers Association of SA and Another : In re ex parte President of the
Republic of South Africa and Others 2000 (2) SA 674 (CC).
‘I cannot accept this contention, which treats the common law as a body of law
separate and distinct from the Constitution. There are not two systems of law, each
dealing with the same subject-matter, each having similar requirements, each
operating in its own field with its own highest Court. There is only one system of law.
It is shaped by the Constitution which is the supreme law, and all law, including the
common law, derives its force from the Constitution and is subject to constitutional
control.’10
[23] But even if Chirwa did not stand in the way of the relief sought by
the employee in this matter, it would be equally incompetent to grant
such relief at common law. Barring public sector employment contracts,
our common law has always drawn a clear line of distinction between the
branches of law which govern employment matters on the one hand, and
administrative action on the other. The former is governed by the labour
or employment law rules and the latter by administrative law rules. But
before the decision in Chirwa there was an overlap between the two
branches of law when it came to public service contracts.11 The
application of administrative law rules was extended to employment
matters for two reasons. First, the employment and dismissal of public
servants was regulated by statute. Second, public servants were denied
the procedural fairness process that applied to dismissals of employees in
the private sector under the Labour Relations Act of 1956.
[24] Since the decision in Chirwa public servants can no longer invoke
administrative review to challenge the validity of dismissals. However
this does not mean that parties cannot incorporate administrative law
requirements into their employment agreements. In that event the failure
10 Id in para 44.
11 Administrator Transvaal and Others v Zenzile and Others 1991 (1) SA 21 (A).
to comply with such requirements would, however, be a breach of
contract and ordinary contractual claims would be available to the
aggrieved party.12 The incorporated requirements cannot convert what is
essentially a contractual claim into an entitlement to judicial review on
any of the grounds recognised in law. As stated earlier the court below
failed to draw this distinction. It was influenced by decisions of the North
Gauteng High Court in Feinberg and Klein referred to in para [10] above.
[25] In Feinberg, without referring to any authority, the high court
reviewed and set aside a dismissal based on the verdict of guilty reached
by a disciplinary body, on the basis that the employee was denied a fair
and just hearing. This was done after the court had rejected the argument
that it had no jurisdiction to entertain the matter. The issue of whether the
relief sought was competent was not considered at all.
[26] In Klein the high court, proceeding from the premise that coercive
decisions of domestic tribunals in entities such as churches and recreation
clubs have always been susceptible to review,13 held that ‘no rational
reason exists to exclude individuals from the protection of judicial review
in the case of coercive actions by private tribunals not exercising any
public power’. Having found that the employment agreement between the
parties before it included principles of natural justice, the court held that
the employer’s decision to dismiss the employee did not constitute
administrative action contemplated in PAJA and therefore PAJA did not
apply. It proceeded to review and set aside the verdict of guilty and the
sanction imposed pursuant to such verdict. That case was concerned with
12 Denel (Edms) Bpk v Vorster 2004 (4) SA 481 (SCA); Nakin v MEC, Department of Education,
Eastern Cape 2008 (6) SA 320 (Ck) para 11 and the authorities there cited.
13 Jockey Club of South Africa and Others v Feldman 1942 AD 340 and Taylor v Lurstag NO and
Others 2005 (1) SA 362 (W).
a challenge mounted against the verdict of a disciplinary enquiry in a
private sector employment setting.
[27] Although the Klein judgment was delivered before the decision in
Chirwa, the high court lost sight of the fact that none of the domestic
tribunal decisions that it relied on dealt with employment contracts. As it
appears above, in concluding that parties to an employment agreement
can incorporate administrative law rules, the high court was correct. But
it was wrong to assume that once this happens a dismissal of the
employee may be reviewed as if it were administrative action. There can
be no doubt that the object of administrative law rules such as the rules of
natural justice is to afford procedural fairness to the party against whom
the decision is taken. It is also true that judicial review is not the only
mode through which such procedural fairness can be achieved in an
employment setting. The Labour Relations Act imposes a duty on
employers to act in a fair manner when effecting dismissals.14 As does the
common law since its development in Gumbi. In addition, where the
parties have agreed to incorporate rules of natural justice into their
employment agreement, the employee can insist on compliance with such
rules by means of a contractual claim. I conclude therefore that there is no
need to permit a challenge based on judicial review in employment
dismissals. It follows that in this regard the employee has misconceived
his cause of action.
14 Section 188 of the Labour Relations Act 66 of 1995.
HAS
THE
EMPLOYEE
MADE
OUT
A
CASE
FOR
A
CONTRACTUAL PRE-DISMISSAL HEARING?
[28] Counsel for the employee argued that the employee was entitled to
a second hearing before the board terminated his employment. He
submitted that this entitlement arose from an implied term of the
employment agreement. As mentioned earlier the parties to an
employment contract may set a standard of procedural fairness applicable
to their employment relationship by incorporating principles of natural
justice into their agreement. Such incorporation may either be express or
tacit.15
[29] Where – as in the present matter – the incorporation is claimed to
have been tacit, the test ordinarily applicable to a determination of a tacit
term applies.16 That test was restated in a recent decision of this court in
City of Cape Town (CMC Administration) v Bourbon – Leftleyh and
Another NNO.17 In that case Brand JA said:
‘(A) tacit term is based on an inference of what both parties must or would
necessarily have agreed to, but which, for some reason or other, remained
unexpressed. Like all other inferences, acceptance of the proposed tacit term is
entirely dependent on the facts. But as also appears from the cases referred to, a tacit
term is not easily inferred by the courts. The reason for this reluctance is closely
linked to the postulate that the courts can neither make contracts for people nor
supplement their agreements merely because it appears reasonable or convenient to do
so….
It follows that a term cannot be inferred because it would, on the application of the
well-known “officious bystander” test, have been unreasonable of one of the parties
15 Lamprecht and Another v McNeillie 1994 (3) SA 665 (A) at 668.
16 Turner v Jockey Club of South Africa 1974 (3) SA 633 (A) at 645H-648B.
17 2006 (3) SA 488 (SCA).
not to agree to it upon the bystander’s suggestion. Nor can it be inferred because it
would be convenient and might therefore very well have been incorporated in the
contract if the parties had thought about it at the time. A proposed tacit term can only
be imported into a contract if the court is satisfied that the parties would necessarily
have agreed upon such term if it had been suggested to them at the time…. If the
inference is that the response by one of the parties to the bystander’s question might
have been that he would first like to discuss and consider the suggested term, the
importation of the term would not be justified.’18
[30] In the present case the duty was on the employee not only to plead
a contractual claim but also to prove facts from which the contended tacit
term could be inferred. This the employee has failed to do and as a result
there is no factual basis for importing into the employment agreement the
term that he was entitled to a hearing before the board terminated his
employment. In fact he has failed to plead the terms of the employment
agreement between himself and the employer. Therefore he has not
satisfied the requirements of the test for importing terms into a contract.
Accordingly the court below erred in assuming that his employment
contract was ‘subject to an implied term that he would be afforded a fair
hearing before he was dismissed’. It follows that the appeal must succeed.
This finding is reached without adjudicating the merits of the complaint
by the employee.
[31] In the result the following order is made:
1.
The appeal is upheld with costs, including the costs of two counsel.
2.
The order of the court below is set aside and replaced with the
following order:
18 Id in para 19.
‘(a)
The application is dismissed with costs, including the costs
consequent upon the employment of two counsel.’
________________________
C N JAFTA
JUDGE OF APPEAL
HURT AJA (Mpati P concurring):
[32] I have read the judgment of my brother Jafta and agree with the
order which he proposes. I consider, though, that justification for the
order can be found on a more simple basis. I will refer to the parties by
the designations used in the judgment of Van Oosten J in the high court,
viz to the appellant as 'Transman' and to the first respondent as 'the
applicant'.
[33] The background facts material to the decision of the matter are set
out in the judgment of Jafta JA and need not be repeated here. The
essence of the approach adopted by van Oosten J is set out thus in the
early part of his judgment:
‘Counsel for Transman did not take issue with this Court's power to review the
decision of the chairperson. He in my view correctly, submitted that it must be
assumed in favour of the applicant that his contract of employment with Transman is
subject to an implied term that he would be afforded a fair hearing before he was
dismissed.19 . . . . Finally on this aspect, I agree with counsel for Transman that this
Court in reviewing her decision, can concern itself only with the relief the applicant
19 The learned Judge referred, in this regard, to Old Mutual Life Assurance Co of SA Ltd v Gumbi 2007
(5) SA 552 (SCA).
would be entitled to at common law. The nature of the relief that the applicant may be
entitled to is contractual in nature as opposed to the relief provided for in the Labour
Relations Act, 66 of 1995.20 The grounds of review relied upon by the applicant are,
firstly,
malice
secondly,
bias
and,
thirdly,
unreasonableness
or
gross
unreasonableness. In the view I take of the matter only gross unreasonableness
requires determination.’21
[34] Having thus stated his approach, the learned Judge proceeded to
consider the evidence in the record of the disciplinary enquiry and the
evidence and submissions in the review application. He concluded that
the chairperson's decisions to find the applicant guilty on what may be
referred to the 'main charge' as well as on various other charges of a less
serious nature were either grossly unreasonable (the main charge) or not
based fairly upon the evidence adduced by the employer.22 The learned
Judge also found that a decision to suspend the applicant pending the
resolution of the disciplinary proceedings and a decision by the Board of
Directors to retire the applicant from service as an employee were
irregular and unlawful because the audi alteram partem rule had not been
followed before these decisions were taken.
[35] Based on these findings, the following order was made:
'1.
The verdict of [the chairperson] in terms of which the applicant
was found guilty on certain charges as well as the decision to retire the
applicant, are set aside;
20 In this regard the learned judge cited Fedlife Assurance Ltd v Wolfaardt 2002 (1) SA 49 (SCA)
21 That the applicant's claim was, indeed, based on contract is quite clear from paragraph 12
of the applicant's founding affidavit in the application, where he explicitly asserted that the
high court had jurisdiction to deal with the application and the Labour Court did not.
22 On certain of the charges she had made ‘no finding’ and these were not considered further, save for a
comment by the Judge that the applicant was actually entitled to a formal acquittal on these.
2.
The verdict of [the chairperson] referred to in para 1 above is
substituted with a verdict of not guilty.'
[36] There are two features of the situation in which an employee
challenges disciplinary proceedings and/or dismissal on a contractual
basis as opposed to the 'unfair labour practice' with which the Labour
Relations Act 66 of 1995 and proceedings in the Labour Tribunals are
concerned. The first is that, having based his claim on contract, it is
incumbent on the employee to prove the terms of the contract on which
he relies and the breach which entitles him to relief. The second is that
the relief which he seeks must be relief in terms of the common law of
contract. This much is clearly established in the judgments of this court in
Lamprecht v McNeillie 1994 (3) SA 665 (AD), Fedlife (above, footnote
2) and Denel (Edms) Bpk v Vorster 2004 (4) SA 481 (SCA) at 488.
[37] There is no evidence in the founding papers which establishes the
terms of the applicant's contract of employment with Transman. In
paragraph 8.2.2 of her answering affidavit, the deponent for Transman
specifically pointed out that:
'. . . the relief sought by the applicant (sc the review of the disciplinary
proceedings) is, in any event, not based on any right identified in the
founding papers.'
[38] In this situation, the simple question may be asked of the applicant:
'In what respects did the disciplinary hearing constitute a breach of
Transman's contractual obligations toward you?' The question could
certainly not be answered by reference to anything in the applicant's
papers. It is not enough for him to contend for a general implied term
that he would be 'afforded a fair hearing' because what constituted a fair
hearing in this particular situation would plainly depend on the
contractual provisions read as a whole. There is clearly an infinite variety
of ways in which steps can be taken to ensure that an employee is given a
fair hearing in matters which may affect his interests, particularly in the
cases of disciplinary action or dismissal. Where the contract contains
express provisions in this regard, these must be followed.23 Where such
provisions must be implied, their nature and extent must be gauged by
reference to the contract as a whole so that a 'clear and exact formulation'
can be arrived at.24 It follows that the applicant cannot establish his case
as a breach of contract without taking the primary, elementary step of
proving the contract on which he relies. As was decided in Lamprecht,
the applicant's case must fail at its threshold for want of proper proof of
his contract.
[39] I think I should add, in this connection and as further support for
the view that I take, that the very relief granted by Van Oosten J was
plainly not contractual. If he could establish a breach of contract, the
applicant was entitled to an order that Transman perform its obligations
under the employment contract and such damages as the applicant may
have suffered by virtue of the breach, or an order declaring the contract
cancelled and appropriate compensation to the applicant pursuant to such
cancellation.
[40] I agree fully with what my brother Jafta has said in paras 28 to 30
of his judgment, in relation to the applicant's contention that the decision
to retire him without first affording him the right of making
representations to Transman's Board was a breach of contract. My view is
23 Denel (Edms) Bpk v Vorster 2004 (4) SA 481 (SCA), particularly at 488.
24 Desai & Others v Greyridge Investments (Pty) Ltd. 1974 (1) SA 509 (A) at 522.
simply that the same approach should be adopted to the issues arising out
of the applicant's attempt to review the disciplinary proceedings.
________________________
N V HURT
ACTING JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT:
P J van Blerk SC
A C Botha
Instructed by
Bowman Gilfillan Inc,
Sandton, Johannesburg
McIntyre & Van der Post
Bloemfontein
FOR RESPONDENT:
J L C J van Vuuren SC (1st Respondent)
M Smit
Instructed by
Feldman Nance-Kivell,
Parktown, Johannesburg
Lovius-Block Attorneys
Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
31 March 2009
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
Today, the Supreme Court of Appeal (the SCA) has upheld an appeal against
judgment of the Johannesburg High Court in terms of which a verdict of a
disciplinary enquiry was set aside.
Mr Graham Dick was an employee of Transman (Pty) Ltd, a company he established
together with his wife. Having been charged with various counts of misconduct, he
was found guilty and the chairperson of the disciplinary committee recommended
that he be dismissed. Because he was the chairman of Transman’s board of
directors, the board decided to retire him instead of a dismissal.
Mr Dick instituted a review application in the Johannesburg High Court, challenging
the termination of his employment on the basis that the chairperson was biased and
that her decision was grossly unreasonable. Transman opposed the application and
objected to the high court’s jurisdiction to hear the matter and the competence of the
relief sought. The high court found that the verdict was grossly unreasonable and
replaced it with the verdict of not guilty.
On appeal, the SCA found that the high court had jurisdiction but that the termination
could not be challenged by way of review.
|
2614
|
non-electoral
|
2014
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 504/13
In the matter between:
MEDI-CLINIC LIMITED
APPELLANT
and
GEORGE VERMEULEN
RESPONDENT
Neutral citation: Medi-Clinic v Vermeulen (504/13) [2014] ZASCA 150 (26
September 2014)
Coram:
Ponnan, Wallis, Pillay and Zondi JJA and Dambuza AJA
Heard:
22 August 2014
Delivered:
26 September 2014
Summary: Medical negligence ─ hospital and its nursing staff ─ whether bedsore
and sciatic nerve injuries sustained by patient avoidable ─ two schools
of thought on proper treatment of patient ─ correct test of liability.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (Mothle J sitting as court of
first instance):
The appeal is upheld with costs including the costs of two counsel.
The cross-appeal is dismissed with costs.
The order of the court below is set aside and replaced with the following:
„The plaintiff‟s claim is dismissed with costs including the costs of two counsel.‟
JUDGMENT
Zondi JA (Ponnan, Wallis, Pillay JJA and Dambuza AJA concurring):
[1] No one can be unmoved by the disaster which has befallen Mr Vermeulen, the
respondent in this appeal. Mr Vermeulen was hospitalised on 17 May 2007 at Medi-
Clinic Nelspruit Hospital, which is operated by the appellant (the defendant). He
contracted cerebral malaria while on holiday in Mozambique during April 2007. As he
was gravely ill on admission, he was treated in the Intensive Care Unit (ICU) where he
remained from 17 May 2007 until 24 July 2007. Thereafter he was transferred to a
general ward for further treatment until his discharge on 21 October 2007. Shortly after
he was admitted and while he was still in the ICU he developed a pressure sore to the
sacral area and heels of his feet. As a result of the sacral bedsore he suffered bilateral
sciatic nerve injuries with severe impediment of his mobility. Mr Vermeulen became
paralysed and is now wheelchair-bound.
[2] Mr Vermeulen sued the defendant for damages in the North Gauteng High Court,
Pretoria contending that the injuries he sustained were caused by the negligence of the
defendant‟s nursing staff. He alleged that the nursing staff failed to take sufficient
preventative measures to avoid the onset of the sacral bedsore. He said they ought to
have prevented a bedsore from developing by regularly turning him so as to remove
continuous pressure from his sacrum. The defendant denied that its nursing staff were
negligent in their treatment of Mr Vermeulen. It contended that, given Mr Vermeulen‟s
predisposition to sustaining a bedsore and gravely ill condition, the development of the
bedsore was unavoidable. In any event, as the only effective preventative measure,
namely turning would have further endangered his life during the period of critical
illness, the defendant contended that it was medically inadvisable to engage in such
treatment. By agreement between the parties the trial judge (Mothle J) was asked to
determine only the question of liability. He found in favour of Mr Vermeulen and
ordered the defendant to pay costs. The learned trial judge granted the defendant leave
to appeal to this Court against his judgment and Mr Vermeulen against costs which he
disallowed.
[3] As neither the court below nor counsel addressed the legal test to apply in the
determination of the issue of medical negligence, I consider it necessary to begin by
setting out the applicable test. It was pointed out by this Court in Mitchell v Dixon 1914
AD 519 at 525 that:
„a medical practitioner is not expected to bring to bear upon the case entrusted to him the highest
possible degree of professional skill but he is bound to employ reasonable skill and care.‟
In deciding what is reasonable, this Court in Van Wyk v Lewis 1924 AD 438 at 444 held
that the court will have regard to the general level of skill and diligence possessed and
exercised at the time by the members of the branch of the profession to which the
practitioner belongs.
[4] In Michael & another v Linksfield Park Clinic (Pty) Ltd & another 2001 (3) SA
1188 (SCA) (para 35) it was observed that the Van Wyk v Lewis test is not always a
helpful guide in determining the liability of a doctor for medical negligence. The reason
is that, in the absence of evidence of the general practice prevailing in a specialist field,
or a collective or representative opinion in relation to that practice it is difficult to
determine the general level of skill shown by practitioners in that field. The court is often
faced with conflicting medical opinions in regard to what constitutes proper treatment of
a patient with the particular condition under treatment. It must then evaluate this
conflicting expert testimony.
[5] At paras 37-39, the court held that what is required in the evaluation of the
experts‟ evidence is to determine whether and to what extent their opinions are founded
on logical reasoning. It is only on that basis that a court is able to determine whether one
of two conflicting opinions should be preferred. An opinion expressed without logical
foundation can be rejected. But it must be borne in mind that in the medical field it may
not be possible to be definitive. Experts may legitimately hold diametrically opposed
views and be able to support them by logical reasoning. In that event it is not open to a
court simply to express a preference for the one rather than the other and on that basis to
hold the medical practitioner to have been negligent. Provided a medical practitioner
acts in accordance with a reasonable and respectable body of medical opinion his
conduct cannot be condemned as negligent merely because another equally reasonable
and respectable body of medical opinion would have acted differently.
[6] This approach was first enunciated by McNair J in Bolam v Friern Hospital
Management Committee [1957] 2 All ER 118 (QB) at 122 and later adopted by the
House of Lords in Bolitho v City and Hackney Health Authority [1998] AC 232 (HL);
[1997] 4 All ER 771 (HL). In Bolam McNair J, in summarising the true test for
establishing negligence on the part of the doctor in medical negligence cases said (at
122B─C):
„A doctor is not guilty of negligence if he has acted in accordance with a practice accepted as proper
by a responsible body of medical men skilled in that particular art. I do not think there is much
difference in sense. It is just a different way of expressing the same thought. Putting it the other way
round, a doctor is not negligent, if he is acting in accordance with such a practice, merely because
there is a body of opinion that takes a contrary view. At the same time, that does not mean that a
medical man can obstinately and pig-headedly carry on with some old technique if it has been proved
to be contrary to what is really substantially the whole of informed medical opinion. Otherwise you
might get men today saying: “I don‟t believe in anaesthetics. I don‟t believe in antiseptics. I am going
to continue to do my surgery in the way it was done in the eighteenth century”. That clearly would be
wrong.‟
[7] In Bolitho Lord Browne-Wilkinson, with regard to the treatment of expert
evidence in cases where a doctor‟s negligence is sought to be established, stated (at
778d-g):
„. . . in my view, the court is not bound to hold that a defendant doctor escapes liability for negligent
treatment or diagnosis just because he leads evidence from a number of medical experts who are
genuinely of opinion that the defendant‟s treatment or diagnosis accorded with sound medical practice.
In Bolam’s case [1957] 2 All ER 118 at 122, [1957] 1 WLR 583 at 587 McNair J stated that the
defendant had to have acted in accordance with the practice accepted as proper by a “responsible body
of medical men” (my emphasis). Later he referred to “a standard of practice recognised as proper by a
competent reasonable body of opinion” (see [1957] 2 All ER 118 at 122, [1957] 1 WLR 583 at 588;
my emphasis). Again, in the passage which I have cited from Maynard‟s case, Lord Scarman refers to
a “respectable” body of professional opinion. The use of these adjectives ─ responsible, reasonable and
respectable ─ all show that the court has to be satisfied that the exponents of the body of opinion relied
on can demonstrate that such opinion has a logical basis. In particular, in cases involving, as they so
often do, the weighing of risks against benefits, the judge before accepting a body of opinion as being
responsible, reasonable or respectable, will need to be satisfied that, in forming their views, the experts
have directed their minds to the question of comparative risks and benefits and have reached a
defensible conclusion on the matter.‟
[8] After referring to various cases such as Hucks v Cole (1968) (1993) 4 Med LR
393 and Edward Wong Finance Co Ltd v Johnson Stokes & Master (a firm) [1984] AC
296, [1984] 2 WLR 1, Lord Browne-Wilkinson summarised the legal position as follows
(at 779d-g):
„These decisions demonstrate that in cases of diagnosis and treatment there are cases where, despite a
body of professional opinion sanctioning the defendant‟s conduct, the defendant can properly be held
liable for negligence (I am not here considering questions of disclosure of risk). In my judgment that is
because, in some cases, it cannot be demonstrated to the judge‟s satisfaction that the body of opinion
relied on is reasonable or responsible. In the vast majority of cases the fact that distinguished experts in
the field are of a particular opinion will demonstrate the reasonableness of that opinion. In particular,
where there are questions of assessment of the relative risks and benefits of adopting a particular
medical practice, a reasonable view necessarily presupposes that the relative risks and benefits have
been weighed by the experts in forming their opinions. But if, in a rare case, it can be demonstrated
that the professional opinion is not capable of withstanding logical analysis, the judge is entitled to hold
that the body of opinion is not reasonable or responsible.‟
[9] I now proceed to deal with the facts. Mr Vermeulen was first seen at the
emergency rooms of Nelspruit Medi-Clinic on 17 May 2007 at about 15h15. He gave a
history of having returned from Mozambique two weeks before. He had been feeling
feverish and had shortness of breath. He gave a medical history of hypertension. He was
transferred to the ICU at 16h30 with a diagnosis of malaria. His skin was noted to be
„intact‟ and a Waterlow scale assessment,1 a tool used to assess the risk of development
of pressure sores, was performed. He was scored as being „at risk (10 ─ 14)‟. In
general, when a patient is considered to be vulnerable to developing pressure sores,
interventions to control tissue loading such as turning; repositioning at regular intervals;
providing a nimbus mattress, inserting pillows or foams beneath the sacral area and
heels; or tilting the patient, are used.
[10] Mr Vermeulen‟s condition deteriorated and became worse during the period 20
May to 24 May 2004, which the parties described as the critical period. During this
period, he was incapable of turning himself. It is during this period that the sacral
pressure sore developed. It became well-established in the period between 23 and 26
1 A Waterlow scale assessment is used by the nurses in recording the pre-existing condition of the patient on admission and is
composed of the following risk areas; build/weight or height, skin type and visual risk areas, gender and age, appetite,
continence, mobility, tissue malnutrition, neurological deficit, major surgery or trauma and medication. The higher the score,
the higher the risk of pressure sores formation.
May 2007. By the time the critical period of illness had passed, Mr Vermeulen had a
significant and irreversible sacral bedsore.
[11] On admission, Mr Vermeulen had a depressed level of consciousness and was
having great difficulty in breathing. His pulse was 130 beats per minute and he was
already showing signs of respiratory failure. He was thereafter intubated. His blood
pressure was low (at 106/73) and his temperature was high. Quinine was administered
through a peripheral infusion and a catheter was inserted into the bladder. Dr Theron,
the treating physician also inserted a venous cannula via the right jugular vein and an
intra-arterial cannula into the right radial artery. According to Dr Theron, within 48
hours of his admission, Mr Vermeulen needed inotropic2 support to sustain his blood
pressure. His cardiac output started dropping on 19 May 2007 and his blood pressure
dropped to an extremely low level. He required an adrenalin infusion in an attempt to
raise his blood pressure. It was noted on 20 May 2007 that his peripheral perfusion was
poor, his extremities cold and his pedal pulses weak. Skin lesions were also noted.
There is a note on 21 May 2007 that he had poor capillary refilling in his right leg. He
was hyperglycaemic and insulin had to be administered. It appears that renal failure
developed and dialysis was started on 21 May 2007. During the course of the third day
Mr Vermeulen‟s condition worsened and it was during that period that the possibility of
him developing a bedsore existed unless he was turned regularly.
[12] On 20 May 2007 at about 23h30 a nurse noted that the „skin still intact appear
very reddish and sacral allewyn in situ‟. On 22 May blue marks were noted on the sacral
area. It would appear from the assessment form completed on 25 May 2007 that Mr
Vermeulen had lesions on the buttocks measuring 8cm by 8cm, 10cm by 10cm and a
third one of 10cm by 5cm which had turned purple. Dr Botha recommended that he be
treated on a nimbus mattress as he was concerned that Mr Vermeulen‟s skin lesions
could develop into pressure sores having regard to the fact that he weighed 150kg and
the fact that he was on an adrenalin infusion. At 17h20 on 25 May it was noted that the
skin on his sacrum had turned „black‟. Mr Vermeulen was eventually moved onto a
nimbus mattress at 23h10 on 25 May 2007. Dr Smit, a general surgeon was consulted on
9 June and he performed three debridements. According to Dr Smit‟s notes there was
extensive necrosis of the wound and he reported weakness of the ankles before the
procedures.
[13] As far as the cause of the sciatic nerve injury is concerned, Dr Retief‟s evidence
was that it was caused by the pressure sore, either via ischaemia due to external pressure
or via local sepsis and must have occurred after the critical period. This was because the
sacral pressure sore was located directly over the course of the sciatic nerves. The link
between the sciatic nerve injury and the sacral pressure sore is to be found also in the
evidence of Dr Van Wyk. He testified that he „kon omtrent „n driekwart van my vuis in
daardie holte ingedruk het, . . . en die linkerboud kon ek ook „n vuis ingedruk het in die
middel van die wond . . . .‟
[14] The plaintiff‟s case as developed at the trial and advanced in this Court appears to
stand on two legs. First, that the pressure sores, at the very least regarding their severity
if not completely, were avoidable by the implementation of a pressure care regimen of
sufficient frequency and adequacy to either remove or relieve pressure from the sacrum,
heels and nerves. The second was that despite the fact that Mr Vermeulen was critically
ill with malaria, and despite the presence of factors predisposing him to pressure sores, it
was eminently possible to implement a pressure care regimen. It was said that there was
no credible evidence that haemodynamic instability in fact occurred, or motivated or
influenced the decision not to implement the required pressure care regimen or that it
was impossible to implement it for fear of causing Mr Vermeulen‟s demise or
aggravation of the instability.
2 Affecting the force of muscle contraction.
[15] The defendant appeared to have accepted that Mr Vermeulen, who was in the top
1 per cent risk category for the formation of a pressure sore had to be turned on a regular
basis for there to be any prospect of avoiding a pressure sore, but it contended that it
would have been unreasonable for its nursing staff to have done so in the circumstances.
It said that any interference with the haemodynamic stability of a critically ill patient
such as Mr Vermeulen would have been unwise.
[16] The plaintiff bore the onus of proving that the defendant‟s nursing staff were
negligent.3 To that end, he called Dr Martin Lebos, a practising specialist surgeon,
Professor W E Nel, a registered professional nurse and senior lecturer at the University
of Johannesburg; Dr C F Retief, a neurologist; Dr H S Van Wyk, a general practitioner;
Dr Buys, an anaesthesiologist and critical care specialist; and Mr F Theron, a
physiotherapist. The defendant called Dr P Theron, a specialist physician and the
consulting physician to Mr Vermeulen and Professor A R Coetzee, a specialist
anaesthesist and critical care specialist, Executive Head of the Department of
Anesthesiology and Critical Care at the University of Stellenbosch and Tygerberg
Hospital. All the experts were agreed that Mr Vermeulen was gravely ill during 20 May
to 24 May and that in general, it is unsafe to reposition, move or turn a patient who is
critically ill if that patient‟s mean blood pressure is low. They were, however, divided on
what would constitute a life threatening low mean blood pressure in the case of Mr
Vermeulen. Dr Lebos and Dr Theron put it at 60mmHg, while Professor Coetzee put it
at 75mmHg in the light of Mr Vermeulen‟s weight and his alleged undiagnosed diabetes.
[17] Professor Nel‟s evidence was that although most pressure sores are preventable
some are unavoidable. She opined that the most effective strategy to prevent a pressure
sore from forming, is to turn the patient every four hours „from one side to another or on
his back‟ if he is stable. But she pointed out that this strategy is unsuitable for
„extremely unstable‟ patients. She suggested that a pressure sore for such patients can be
prevented by either putting „a very soft pillow‟ underneath the buttocks of the patient for
half an hour or by treating them on a nimbus mattress, although its use does not absolve
the nurses from applying further pressure care. She emphasised that the nature of the
pressure care that was applied to Mr Vermeulen was inadequate. It was also her opinion
that Mr Vermeulen should not have been left seated in a Lazy-Boy chair for hours on 3
to 5 June 2007 with clearly visible lesions. This was also the view expressed by Dr
Buys.
[18] The court below rejected the defendant‟s contention that the onset of the pressure
sore was unavoidable. It also rejected the evidence of Professor Coetzee that turning
him in order to prevent the development of a pressure sore was medically speaking
unsafe. It found that there was evidence which demonstrated that during the critical
period Mr Vermeulen was turned on his side while his mean blood pressure was less
than 60 and that did not result in his demise. It also rejected Dr Theron‟s evidence that
failure by the defendant‟s nursing staff to regularly turn Mr Vermeulen was as a result of
an instruction he had given to them not to turn him when his blood pressure was below
60. It held that the case based on such instruction was not pleaded by the defendant and
neither was it corroborated. It accordingly concluded that the defendant‟s nursing staff
assigned to care for Mr Vermeulen, failed to provide adequate care necessary to
prevent, alternatively delay the onset of the pressure sore and that their „negligence was
the cause of the development of pressure sores which resulted in the lesions on [Mr
Vermeulen‟s] back and heels‟. In coming to this conclusion, the court below accepted
and relied on the evidence of Dr Lebos to the effect that it would have been possible for
the nurses to avoid the onset of the pressure sore by turning Mr Vermeulen in
accordance with the defendant‟s protocol and adopting other measures as suggested by
Dr Buys and Professor Nel. The court below found that the defendant‟s failure to call
the nurses concerned to testify as to their role and conduct constituted a serious
omission.
3 Van Wyk v Lewis supra at 444.
[19] It was submitted on behalf of the defendant that the court below erred in rejecting
Professor Coetzee‟s view that during the critical period Mr Vermeulen was too ill to be
regularly turned so as to prevent the onset of the pressure sores and that this could not
be undertaken without endangering Mr Vermeulen‟s life. It argued that Professor
Coetzee‟s view, which formed the basis of the defendant‟s defence, could not be said to
be illogical or unreasonable. In arriving at the conclusion that it would have been very
dangerous to regularly turn Mr Vermeulen when he was seriously ill, so the submission
went, Professor Coetzee had considered comparative risks and benefits.
[20] On the other hand, counsel for Mr Vermeulen, arguing in support of the court
below‟s findings submitted that Professor Coetzee‟s opinion lacked logical reasoning. In
short, he submitted that there was simply no proof of the fact underlying Professor
Coetzee‟s theory. He pointed out that the hospital records and ICU charts revealed that
during the critical period there were occasions when the hospital staff turned Mr
Vermeulen when his blood pressure was below 60 and such turning did not result in his
death.
[21] An analysis of the experts‟ evidence, in particular that of Dr Lebos and Professor
Coetzee is necessary to determine the correctness of counsel‟s submissions bearing in
mind that the experts were agreed that regular turning of Mr Vermeulen from side to
side was the strategy that the defendant‟s nurses had to implement in order to avoid or
delay or minimise the development of a pressure sore.
[22] According to Dr Lebos once the patient is in an ICU setting pressure care is very
important „you cannot say well, I am going to save his life and ignore it‟ on the grounds
that if he is turned his blood pressure may fall. He expressed doubt about the notion that,
turning a critically ill patient such as Mr Vermeulen could compromise his
haemodynamic stability. He said that the treating doctor would need to be informed that
on moving him there was a change in his haemodynamic stability and would need to
assess how significant that change was. He maintained that there is no way to predict
which patients will become unstable when they are turned, „it just does happen and it
can be alarming in certain patients that when they are turned, they drop their blood
pressure significantly, it can go as low as half of what it originally was‟. He emphasised
that a treating physician will have to assess the amount of the drop, „so unless it is
compromising [the patient‟s] well-being he should be turned‟. Although he conceded
that certain pressure sores are unavoidable he said that this was not the position in this
case, because in his view, Mr Vermeulen „was not given optimum care to prevent
pressure sores‟. But the thrust of his opinion was that he would only take a decision not
to turn the patient if he was convinced that turning him would cost him his life; not that it
would nearly be life threatening. The basis for his hypothesis was that in his view the
risk of the pressure sore killing a patient is 10 per cent and the risk of a critically ill
patient‟s blood pressure dropping to a dangerously low level is less than 5 per cent. In
that scenario he would take the option with the lowest risk and turn the patient, but in
doing so, he would pay no attention to the patient‟s blood pressure levels because in his
view whether or not a critically ill patient should be turned does not depend on the blood
pressure. But he accepted that for a hypertensive patient such as Mr Vermeulen he
would strive for a blood pressure of about 65 and would not turn such a patient if his
blood pressure fell below 65. He conceded that if Mr Vermeulen was an undiagnosed
hypertensive patient he would strive for a blood pressure higher than he would for a
patient who was not an undiagnosed hypertensive.
[23] Professor Coetzee criticised Dr Lebos‟ approach as being too risky. He pointed
out that the problem with Dr Lebos‟ approach is that once a patient has a mean blood
pressure low enough to have resulted in cardiac muscle injury, any further lowering will
cause greater damage with the risk of acute severe myocardial injury and even
ventricular fibrillation. In developing his theory, Professor Coetzee pointed out that if a
patient was operating at a perfusion pressure lower than the acceptable levels for that
patient, he would only allow turning to be attempted with caution. If the pressure further
fluctuated during the attempt, he would instruct the nursing staff not to turn the patient
until such time as the perfusion pressure had improved to safe levels when another
attempt could be made. He opined that Mr Vermeulen‟s history of hypertension was
relevant as the safe mean blood pressure would then be around 90 (and not 75) for him
to have been safely turned. Given the fact that during the critical period a safe mean
blood pressure of 90 could not be achieved it would therefore not have been advisable to
turn him.
[24] In support of his analysis he referred to the notes on the ICU charts which, he
pointed out, showed that from 16h00 on 20 May Mr Vermeulen had a critical low mean
blood pressure of below 60 at which level it would have been ill advised to turn him. He
said that if he were a treating doctor he would have advised the nursing staff not to turn
him, especially if an attempted turn had already resulted in a change. Evidence revealed
that Mr Vermeulen‟s condition as recorded over each 24 hour period was as follows: on
21 May the lowest blood pressure recorded was 47 and the highest 59; on 22 May the
lowest was 48 and the highest 69; 23 May the lowest was 33 and the highest 78 and on
24 May the lowest was 56 and the highest 89. Professor Coetzee testified that where Mr
Vermeulen‟s mean blood pressure dropped to 48, which was life-threatening, he would
have given a firm instruction not to move him at all. He ascribed the development of the
sacral pressure sore to poor perfusion in the sacral area which was due to other factors
such as Mr Vermeulen‟s low blood pressure in turn resulting in poor perfusion; high
tissue pressure due to his extreme obesity and finally the disruption to the tissue integrity
due to his critical illness.
[25] To determine whether or not the defendant‟s nurses were negligent the court
below had to have regard to the views of the parties‟ experts.4 This is so because a
court‟s preference for one body of distinguished professional opinion to another also
professionally distinguished is not sufficient to establish negligence. Failure to act in
accordance with a practice accepted as proper in the relevant field, is necessary5 and it
was for the court to decide that issue. And in doing so, it had to be satisfied that their
opinions have a logical basis and whether in forming their views, the two experts had
directed their minds to the question of comparative risks and benefits and reached a
defensible conclusion on the matter.6
[26] In my view, the court below erred in accepting Dr Lebos‟ opinion and deciding
the issue of negligence on the basis thereof. It did not subject it to critical analysis with a
view to establishing first, whether it had a logical basis and secondly, whether, in
forming his views, Dr Lebos directed his mind to the question of comparative risks and
benefits and reached a defensible conclusion on whether the pressure sore which Mr
Vermeulen sustained was avoidable. The court below should have been vigilant in
assessing whether the reasons given by Dr Lebos for the conclusion that Mr Vermeulen
could be safely turned during the critical period were valid in the light of Professor
Coetzee‟s evidence. In other words, in the assessment of medical risks and benefits
undertaken by Dr Lebos in reaching his conclusion, the court below had to have regard
to the evidence of Professor Coetzee as the assessment of medical risks and benefits is a
matter involving clinical judgment. As Lord Browne-Wilkinson correctly pointed out in
Bolitho supra (at 779j):
„it is only where a judge can be satisfied that the body of expert opinion cannot be logically supported
at all that such opinion will not provide the bench mark by reference to which the defendant‟s conduct
falls to be assessed.‟
[27] There are several difficulties with Dr Lebos‟ theory. First, it proceeds from the
premise that every bedsore is avoidable, because the majority of patients who are treated
in critical care units worldwide do not get a bedsore if they receive pressure care as part
4 Buthelezi v Ndaba 2013 (5) SA 437 (SCA) para 14.
5 Maynard v West Midlands Regional Health Authority [1985] 1 All ER 635 at 639, [1984] 1 WLR 634 at 639.
6 Bolitho, supra at 778.
of their treatment. That flies in the face of the evidence that some bedsores are
unavoidable. Dr Lebos appeared to have believed that the fact that Mr Vermeulen
sustained a pressure sore, meant that the defendant‟s nursing staff were negligent. In
other words, he seemed to suggest that the mere fact that Mr Vermeulen sustained a
bedsore during his stay in the defendant‟s hospital was prima facie evidence of
negligence, the effect of which was that the onus shifted to the defendant to rebut the
presumption of negligence. But that is to reason backwards from effect to cause or even
to apply res ipsa loquitur which is impermissible. Secondly, in his opinion once a
patient is treated in an ICU setting, those treating him have to administer to him pressure
relief management irrespective of how critically ill the patient is. A treating doctor
cannot ignore it and focus on attempting to save the patient‟s life because of the fear that
if he attempts to turn the patient his haemodynamic stability will be compromised. This
approach makes it clear that in forming his views, Dr Lebos did not direct his mind to
the question of comparative risks and benefits. Thirdly, Dr Lebos‟ opinion that before
taking a decision not to turn a critically ill patient, there has to be evidence that
demonstrates that turning or moving a patient, affected the patient‟s haemodynamic
stability, is too risky. According to him, he would only take a decision not to turn the
patient if he was convinced that turning him would cost his life, not that it would be life
threatening, and in taking that decision he would not take into account the patient‟s
blood pressure level because in his experience „there is no figure that says at [a certain
blood pressure level] you should not turn the patient‟.
[28] It is clear from Dr Lebos‟ analysis that in reaching the conclusion that Mr
Vermeulen could be turned, he did not take into account Mr Vermeulen‟s blood pressure
levels which, according to Dr Theron and Professor Coetzee was a relevant factor which
had to be taken into consideration in deciding whether or not a critically ill patient
should be turned. Professor Coetzee explained why the approach postulated by Dr
Lebos was unsupportable:
„Is daar „n daadwerklike risiko indien jy „n party met hierdie tipe bloeddruk in die posisie van mnr
Vermeulen draai, dat hy kan sterf? --- Sonder twyfel is daar so „n risiko en ek wou ook net met die hof
bevestig die problem is dat, om te sien dat die bloeddruk val, moet jy draai. Nou jy weet nie vooraf
hoeveel die bloeddruk gaan val nie. Nou jy gaan nou deur die oefeninge en jy toets die pasiënt en die
pasiënt val onderkant die lewensbehoudende druk, en die hart virbuleer, so, jy sal eers uitvind van jou
fout as jy dit doen. Derhalwe my versigtige benadering is nee. Dit is teoreties te laag, moet nie draai
nie, want jy kan die pasiënt se lewe kos.‟
[29] A decision whether or not to turn Mr Vermeulen during the critical period
required an assessment of the medical risks and benefits of doing so. Professor Coetzee
was of the opinion that, based on his blood pressure levels during the critical period and
the manner in which he reacted to movement, it was unsafe to turn Mr Vermeulen and
accordingly the pressure sore was probably unavoidable. He explained why a minimum
blood pressure level was critical in deciding whether or not to turn Mr Vermeulen. He
pointed out that Mr Vermeulen was a hypertensive patient and that being the case it was
important to maintain his blood pressure within 30 per cent of his normal blood pressure.
To illustrate this point, he pointed out that if Mr Vermeulen‟s blood pressure was 180
mmHg systolic, he would aim for a pressure of 126 mmHg systolic or a 93 mmHg mean.
[30] As regards the contention that the defendant aggravated Mr Vermeulen‟s injuries
by keeping him seated in a chair (Lazy-Boy) for hours on 3 to 5 June, it was the opinion
of Dr P Theron and Professor Coetzee that that was part of Mr Vermeulen‟s treatment.
It was directed at ensuring that his lungs functioned properly. Professor Coetzee
explained that Mr Vermeulen had been intubated and extubated on 2 June and
reintubated on 6 June. He had been on ventilation for a few days and his lungs were not
functioning properly. He had to be seated upright to achieve that because „long fisiologie
dikteer dit is baie beter vir die long‟.
[31] In these circumstances there can be no basis for the conclusion that Professor
Coetzee‟s theory is not logically supported and should for that reason, be rejected. It is
clear from his evidence that in coming to the conclusion that Mr Vermeulen‟s injuries
were unavoidable he weighed the relative risks and benefits of the suggested nursing
care aimed at avoiding bed sores and concluded that such nursing care was medically
inadvisable because of the risk it posed to the patient‟s life. Thus on the evidence
adduced at the trial Professor Coetzee‟s cautious approach cannot be said to be
unreasonable. Dr Lebos did not consider these aspects in reaching his conclusion. It is
clear from Dr Lebos‟ evidence that his theory was directed at preventing the
development of a pressure sore at all costs irrespective of the risks to the patient‟s life.
[32] It follows that the court below‟s finding that the defendant‟s nursing staff were
negligent and that their negligence caused Mr Vermeulen‟s present condition, cannot be
sustained.
[33] In conclusion, the plaintiff has suffered such terrible consequences that there is a
natural feeling that he should be compensated. But, as Denning LJ correctly remarked in
Roe v Ministry of Health & others; Woolley v Same [1954] 2 All ER 131 (CA) at 139:
„But we should be doing a disservice to the community at large if we were to impose liability on
hospitals and doctors for everything that happens to go wrong. Doctors would be led to think more of
their own safety than of the good of their patients. Initiative would be stifled and confidence shaken. A
proper sense of proportion requires us to have regard to the conditions in which hospitals and doctors
have to work. We must insist on due care for the patient at every point, but we must not condemn as
negligence that which is only a misadventure.‟
[34] In the result:
The appeal is upheld with costs including the costs of two counsel.
The cross-appeal is dismissed with costs.
The order of the court below is set aside and replaced with the following:
„The plaintiff‟s claim is dismissed with costs including the costs of two counsel.‟
_______________________
D H Zondi
Judge of Appeal
Appearances
For the Appellant:
R van Riet SC (with him A D Brown)
Instructed by:
Symington & De Kok, Bloemfontein
Fairbridges Attorneys, Cape Town
For the Respondent:
W P de Waal SC (with him W L Munro)
Instructed by:
Honey & Partners Inc, Bloemfontein
Adams & Adams, Pretoria
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
26 September 2014
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not form part of the
judgment of the Supreme Court of Appeal.
Medi-Clinic v Vermeulen (504/13) [2014] ZASCA 150 (26 September 2014)
The Supreme Court of Appeal (SCA) today upheld an appeal against an order of the North Gauteng High Court,
Pretoria finding the appellant, Medi-Clinic to have negligently caused the pressure sores the respondent
sustained during his treatment and admission to the appellant’s hospital in Nelspruit.
The issues before the SCA were whether the pressure sores could have been avoided by the implementation of a
pressure sore regimen of sufficient frequency and adequacy to allow, remove or relieve pressure from the
respondent’s sacrum, heels and nerves and whether despite the respondent’s critical illness with malaria and the
presence of factors predisposing him to pressure sores, it was eminently possible to implement such a pressure
care regimen. The views of the expert witnesses on these issues were diametrically opposed.
The respondent’s claim arose in the following circumstances:
The respondent was admitted on 17 May 2007 at Medi-Clinic Nelspruit Hospital for cerebral malaria he
contracted while on holiday in Mozambique during April 2007. As he was gravely ill on his admission on 17
May 2007 he was treated in the Intensive Care Unit (ICU) where he remained until 24 July 2007. Thereafter he
was transferred to the general ward for further treatment until his discharge on 21 October 2007. Shortly after
his admission and while he was still in the ICU, the respondent developed a pressure sore to the sacral area and
heels of his feet. As a result of the sacral bedsore he suffered bilateral sciatic nerve injury with severe
impediment to his mobility. The respondent became paralysed and is now wheelchair-bound.
The respondent sued the appellant for damages in the North Gauteng High Court contending that the injuries he
sustained were caused by the negligence of the appellant’s hospital staff. He alleged that the defendant’s nursing
staff had failed to take sufficient preventative measures to avoid the onset of the pressure sores. Various expert
witnesses testified on whether the pressure sores were avoidable or not. The high court accepted the evidence of
the experts called on behalf of the respondent who testified that the pressure sores could have been avoided had
a proper pressure sore strategy been implemented. It rejected the evidence of the experts called by the appellant
to the effect that the pressure sore preventative measures could not be implemented without compromising the
respondent’s safety during the period when the respondent was seriously ill. It accordingly found that the
appellant’s nursing staff were negligent in their treatment of the respondent.
The SCA held that the high court erred in rejecting the opinion of the appellant’s expert witnesses in
circumstances where it had not been shown that it was not based on logical reasoning. The SCA further held
that, having regard to the views of the appellant’s expert witnesses, it could not be said that the appellant’s
nursing staff had been negligent in their treatment of the respondent.
|
2482
|
non-electoral
|
2014
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 656/2013
Reportable
In the matter between:
EXPRESS MODEL TRADING 289 CC
APPELLANT
and
DOLPHIN RIDGE BODY CORPORATE
RESPONDENT
Neutral citation:
Express Model Trading 289 CC v Dolphin Ridge Body Corporate
(656/13) [2014] ZASCA 17 (26 March 2014)
Bench:
Ponnan, Leach, Petse and Saldulker JJA and Mocumie AJA
Heard:
4 March 2014
Delivered:
26 March 2014
Summary: Lapsed appeal – refusal of condonation – winding-up of close
corporation – recurrent obligation - whether creditor lost its locus standi in
consequence of payment of original debt by third party.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Western Cape High Court, Cape Town (Dolamo AJ sitting as court
of first instance):
(a)
The application for condonation is dismissed with costs.
(b)
The applicant for condonation is ordered to pay the costs incurred by the
respondent in opposing the lapsed appeal.
(c)
In both instances (a) and (b) the costs shall include the costs of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Ponnan JA (Leach, Petse, Saldulker JJA and Mocumie AJA concurring):
[1] After the record had been filed in this matter the appeal lapsed for failure on
the part of the appellant (now the applicant) – Express Model Trading 289 CC
(Express Model) – to prosecute it by timeously filing its heads of argument. The initial
question that is before us is whether the default by Express Model should be
condoned and the appeal revived. Before turning to that question, it is necessary to
describe how the appeal arose and the circumstances in which it came to lapse.
[2] During February 2010 the respondent, the Dolphin Ridge Body Corporate (the
body corporate), a body corporate incorporated as such in terms of s 36 of the
Sectional Titles Act 95 of 1986 for a residential sectional title development north of
Bloubergstrand known as Dolphin Ridge (Dolphin Ridge), applied to the Western
Cape High Court for the winding-up of Express Model. Express Model had been the
developer of the development and still owned several units in Dolphin Ridge. In
support of that application, Mr Larry Smulowitz, the chairperson of the body
corporate, stated:
‘8.
In terms of Section 37(1) of the Sectional Titles Act, the Respondent is liable for
payment of monthly levies in respect of the aforementioned Sections owned by Respondent
and it’s undivided share in the common property apportioned to that Section in terms of
Section 32 of the Sectional Titles Act.
9.
The Respondent has, for a number of years, failed to make payment of levies upon
the aforesaid basis when it became due and payable. This problem was compounded by the
fact that Respondent, from the date of Applicant’s inception, effectively succeeded in
controlling the election of trustees and consequent actions by the trustees. In this instance,
the Respondent’s member, Mr Saliem Mohammed Hassan and persons nominated and
elected by him (as a representative of Respondent and other entities controlled by Mr
Hassan) effectively controlled the actions of the Body Corporate in their capacity as trustees.
10.
The Respondent’s voting rights as aforesaid was annually secured by making
payment of arrear levies before or at the Annual General Meeting. Due to the substantial
amount of such levies (based on Respondent’s ownership) such actions were obviously
severely prejudicial to Applicant’s financial management.
11.
At Applicant’s most recent Annual General Meeting held on 18 November 2009,
Respondent again made payment of arrear levies in securing its voting rights. At this
meeting the balance of the Applicant’s property owners however secured a majority vote by
mobilising members and conducting trustee elections on the applicable participation quota
as provided for in Section 32 of the Sectional Titles Act. None of Respondent’s or Mr
Hassan’s nominees or were elected as trustees.
12.
The Respondent has failed to make payment of any levies subsequent to the
payment referred to hereinabove. Consequently and on 23 December 2009, the Applicant,
through its attorneys of record, caused to be served a formal letter of demand to Respondent
for payment of arrear levies as at December 2009. Such Letter of Demand was addressed to
Respondent at its registered office and transmitted by registered post. This correspondence
also serves as a formal notice in terms of Section 69(1) of the [Close Corporations] Act . . .
13.
Updated statements as at February 2010, supported by a detailed summary
reflecting the current outstanding balance as R137,634.92, is annexed hereto . . .
APPLICABILITY OF SECTION 68 AND 69 OF THE CLOSE CORPORATIONS ACT
14.
It is accordingly submitted that the Respondent falls to be wound-up by virtue of the
provisions of Section 69 of the Act, in that the Respondent has neglected for 21 (twenty one)
days after proper demand was served upon it at its registered office, to pay the outstanding
sum or to secure or compound the sum to Applicant's reasonable satisfaction.
15.
In addition to the aforesaid it has most recently come to Applicant’s knowledge that in
addition to the basis stated hereinabove, good cause exists to justify an inference that
Respondent is unable to pay its debts. These are the following:
15.1
During a telephone conversation between Applicant’s attorney of record and Mr
Michael Jennings the attorney of record for Respondent, it was confirmed that Respondent
is, in addition to its indebtedness to Applicant, involved in formal legal proceedings in terms
whereof the Respondent has incurred substantial financial obligations through an order of
court and that Respondent is unable and unwilling to meet such obligations. . . .’
In a confirmatory affidavit, Richard Dixon, the body corporate’s attorney of record,
stated:
‘5.
I was telephonically contacted by Mr Michael Jennings Attorney (acting on behalf of
Respondent) on 17 February 2010. During the conversation Mr Jennings confirmed
Respondent’s receipt of Applicant’s Notice in terms of Section 69 of the Close Corporations
Act.
6.
It was further confirmed that Respondent was currently involved in High Court
litigation in respect of an Order granted against Respondent during 2009 in terms whereof
Respondent will, in compliance with such order incur substantial financial obligations.
Respondent is unable or unwilling to do so at this stage.
7.
It was also confirmed that the Respondent is, at this stage, indebted to the City of
Cape Town in a substantial sum which it is neither in a position to pay.
8.
Despite my confirmation that Applicant intends to proceed in the current manner,
payment or an undertaking to pay was not forthcoming.’
[3] The response that those allegations elicited from Mr Mohammed Hassan, the
sole member and controlling mind of Express Model, was:
‘11.2
Applicant has instituted these proceedings against Respondent and has a liquidated
claim as set out in its papers. Respondent avers that the amount is not due and payable as
Respondent has a bona fide defence to and a Counterclaim against Applicant’s claim.
Respondent will aver that Applicant has failed to perform its duties and responsibilities in
accordance with the Sectional Titles Act 95 of 1986 and as a result of this failure
Respondent shall assert that it is not liable for these levies;
11.3
Respondent is able to pay its debts in the ordinary course of business;
11.4
Respondent is able to provide a guarantee for the due payment of any obligations
which this Honourable Court may find is due and payable to Applicant by Respondent;
11.5
Respondent has sufficient assets which it could liquidate, if necessary, to satisfy any
indebtedness to Applicant, which process would not leave Respondent unable to continue
operating profitably.
11.6
Respondent’s Assets are sufficient to cover all of its liabilities, whether to Applicant or
any other creditor.
11.7
Applicant’s letter in accordance with s 69(1) of the Close Corporations Act 60 of 1984
. . . is incorrect and fatally flawed.
. . .
24.
Respondent however denies that its late payment of levies in any manner prejudiced
Applicant’s financial management, and Respondent avers that Applicant has at all times had
funds in its account for due performance of its duties.
. . .
31.
Accordingly I deny that the amount of R 77 156,00 was due and payable at the time
Applicant sent out the material letter. In fact at most, and in accordance with Applicant’s
statements, Respondent would have been in arrears for one month at this time, subject to its
defence and Counterclaim, which alleged arrears would have been in the amount of R
40 878,00 at the time.’
Significantly, Mr Hassan did not dispute that all of the levies had not been timeously
paid or that some of it was in arrears as alleged. In fact Mr Hassan admitted that
R40 878 was then due and payable. Nor, was it disputed that the body corporate’s
demand in terms of s 69(1)(a) of the Close Corporations Act 69 of 1984 had been
served on Express Model’s registered address and that no part of the outstanding
amount claimed had been secured or compounded to the satisfaction of the former.
Mr Dixon’s affidavit did not elicit a response from Mr Jennings.
[4] The issues raised by Mr Hassan were dealt with in a detailed replying affidavit
deposed to by Mr Smulowitz. It was pointed out in that reply, inter alia, that Express
Model was a purely property holding enterprise with no other income aside from the
rentals it received from some of the units that were let to tenants; and that in any
event its rental income was insufficient to cover the monthly mortgage bond
payments, levies, municipal rates and taxes and other expenses attributable to that
enterprise. It was also pointed out that Express Model’s assets, which Mr Hassan
had somewhat laconically asserted were worth R55 million, were not readily
realisable. It was further asserted that Express Model’s indebtedness to the body
corporate had in the meantime increased to R413 671.84. The body corporate
moreover complained that because Express Model’s monthly levy obligations to it
comprised some 38 per cent of the total levy obligation for Dolphin Ridge, the
former’s refusal to pay the levies impacted substantially on the body corporate’s
ability to properly maintain Dolphin Ridge.
[5] The matter came before Fortuin J, who on 31 August 2010 ordered that
Express Model be placed under a provisional order of winding-up returnable on 6
October 2010. On 1 October 2010 the sum of R337 390.12 being the arrear levies
was paid by an undisclosed third party to the provisional liquidator, Mr Christian
Bester. The matter was thereafter postponed on several occasions at the behest of
Express Model. It was agreed between the parties that in the interim additional
affidavits would be filed by them and that in view of the payment of the arrear levies
that had been made by an undisclosed third party, Mr Bester would file a preliminary
report on the financial position of Express Model with the court.
[6] The matter ultimately served before Dolamo AJ, who, on 22 February 2012,
placed Express Model under a final order of winding-up. On 15 August 2012 the
learned judge dismissed with costs an application by Model Express for leave to
appeal against that order. However, on 27 November 2012 and pursuant to a petition
addressed to this court, Bosielo et Tshiqi JJA granted leave to Express Model to
appeal to this court against the order of Dolamo AJ. In respect of costs, the order
granting leave to appeal stated: ‘The costs order of the court a quo in dismissing the
application for leave to appeal is set aside’. Counsel were agreed, however, that it
should in addition also have read: ‘The costs of the application for leave to appeal in
this court are costs in the appeal. If the applicant does not proceed with the appeal,
the applicant is to pay these costs’ - that being the usual order that issues by this
court in an instance such as this. It follows that the order granting leave to appeal to
this court should accordingly be amended by the incorporation of the latter order.
[7] Pursuant to the grant of leave to appeal, the record of appeal was filed with
the registrar of this court on 9 May 2013 and in terms of SCA rule 10(1)(a) Express
Model had six weeks (namely until 20 June 2013) within which to file its heads of
argument. However, it only came to file its heads of argument on 16 August 2013.
SCA rule 10(2A)(a) of this court makes it plain that ‘[i]f the appellant fails to lodge
heads of argument within the prescribed period or within the extended period, the
appeal shall lapse’. Express Model accordingly sought condonation for its failure to
timeously file its heads of argument with the registrar of this court. That application
was opposed by the body corporate.
[8] As it was recently put in Dengetenge Holdings (Pty) Ltd v Southern Sphere
Mining and Development Company Limited [2013] 2 All SA 251 (SCA):
‘[11] Factors which usually weigh with this court in considering an application for
condonation include the degree of non-compliance, the explanation therefor, the importance
of the case, a respondent’s interest in the finality of the judgment of the court below, the
convenience of this Court and the avoidance of unnecessary delay in the administration of
justice (per Holmes JA in Federated Employers Fire & General Insurance Company Limited
and another v McKenzie 1969 (3) SA 360 (A) at 362F-G). . .
[12] In Uitenhage Transitional Local Council v South African Revenue Service 2004 (1) SA
292 (SCA) at paragraph 6 this Court stated:
“One would have hoped that the many admonitions concerning what is required of an
applicant in a condonation application would be trite knowledge among practitioners who are
entrusted with the preparation of appeals to this Court: condonation is not to be had merely
for the asking; a full, detailed and accurate account of the causes of the delay and their
effects must be furnished so as to enable the Court to understand clearly the reasons and to
assess the responsibility. It must be obvious that, if the non-compliance is time-related then
the date, duration and extent of any obstacle on which reliance is placed must be spelled
out.”
[13] What calls for some acceptable explanation is not only the delay in the filing of the
heads of argument, but also the delay in seeking condonation. An appellant should,
whenever it realises that it has not complied with a rule of court, apply for condonation
without delay (Commissioner for Inland Revenue v Burger 1956 (4) SA 446 (A) at 449G-H).’
[9] I shall assume in Express Holding’s favour that the matter is of substantial
importance to it. I also accept that there has been no or minimal inconvenience to
this court. In respect of the remaining factors, however, it is difficult to be as
charitable to it. Mr Barry Michael Jones, Express Holding’s Bloemfontein attorney,
who deposed to the affidavit in support of the application for condonation stated:
‘10.
During or about May 2013, Adv Paul Zietsman SC in BLOEMFONTEIN was approached in
order to ascertain as to his availability to argue the appeal on behalf of the Applicant /
Appellant. He agreed to represent the Applicant / Appellant. Further arrangements were
made by the member of the Applicant / Appellant in order to secure the necessary funding.
However, the date on which the heads of argument were to be filed by, was not initially
mentioned to Adv Paul Zietsman SC.
11.
After receiving instructions from Messrs Michael Jennings Attorneys, I formally proceeded to
brief Adv Paul Zietsman SC as well as Adv Stelios Tsangarakis during the month of June
2012 from the Bloemfontein Bar to attend to the drafting of the heads of arguments on behalf
of the Applicant / Appellant.
12.
I did not realise however, that Adv. Paul Zietsman SC was called upon to act as an Acting
Judge of the High Court in the Free State, BLOEMFONTEIN for the month of June 2013,
and that he was therefor unable to compile the said heads of arguments before the 20th
June 2013.
13.
Furthermore, Adv. Stelios Tsangarakis indicated to Michael Jennings and I that he was
involved in an arbitration matter before retired Justice van Dijkhorst for the first three weeks
in July 2012 in PRETORIA. Consequently this matter would not enjoy his attention as he
was involved in preparation for such arbitration.’
[10] But as Mr Herman Anton Botes, the body corporate’s attorney, who deposed
to the answering affidavit in opposition to the application for condonation, was quick
to point out, Express Model had failed on an earlier occasion to comply with the rules
of this court. He stated:
‘10.
Express Model Trading was required to file the record of appeal by 25 April 2013 in
terms of Rule 8(1) of the Supreme Court of Appeal Rules (“the Rules”).
11.
Although a record of appeal was filed by Express Model Trading on 25 April 2013, a
copy of which was also delivered to me as Dolphin Ridge BC’s attorney, it transpired that the
Court Registrar rejected the record on 25 April 2013 due to deficiencies in it, and afforded
Express Model Trading ten days to rectify the deficiencies. In doing so the Registrar was
presumably acting in terms of Rule 8(2)(b) of the Rules.
12.
I was unaware that the record had been rejected. I accordingly expected Applicant’s
heads of argument to be lodged within six weeks after 25 April 2013 in terms of Rule
10(1)(a) of the Rules.
13.
When no heads of argument were lodged, I made enquiries of the Registrar. I was
then informed for the first time that the record had been rejected, but that Express Model
Trading had been afforded an additional ten days to rectify the deficiencies. I was informed
by the Registrar that an improved record was filed on 9 May 2013 and that the date for the
filing of Express Model Trading’s heads of argument was therefore extended to 20 June
2013. This was later confirmed to me in correspondence from my local attorney of record
(Mcintyre and Van der Post), a copy of which is annexed as “HB1”.’
Moreover, according to Mr Botes, there were significant gaps in Express Model’s
explanation. In that regard he observed
’17.
The date when Adv Zietsman was ostensibly approached for the first time “during or
about May 2013” is not stated. There is moreover no explanation why Adv Zietsman was not
approached earlier in April when Express Model Trading’s attorney must have known that
heads of argument would be due within six weeks from the date of the filing of the record
and when it was anticipated that the record would be filed by 25 April 2013.
18.
Jones does not explain why the date for the filing of heads of argument was not
mentioned to Zietsman. It is incomprehensible that counsel was requested to indicate his
availability to compile heads of argument, when counsel was ostensibly not informed when
the heads of argument would be due.
19.
Jones says that “further arrangements were made by the member of [Express Model
Trading] to secure the necessary funding”. He is careful not to reveal when this was done, or
why it was evidently done at such a late stage. It is not clear whether this statement was
included to suggest that the obtaining of funding was an additional factor that gave rise to
the delay, but if it was, entirely inadequate details have been furnished to demonstrate
sufficient cause for that reason.
20.
There is, further, no explanation by Jones why Advocates Zietsman and Tsangarakis
were only briefed during June 2012, and he is careful not to indicate exactly when in June
2012 they were briefed.
21.
There is also no explanation why Adv Tsangarakis was not contacted earlier to
ensure that he was available to compile the heads of argument.
22.
There is no explanation why Adv Zietsman failed to mention when he was
approached in May that he was called upon to act as an Acting Judge of the High Court for
the month of June, when it must have been obvious that heads of argument would be due
imminently.
23.
Although Adv Tsangarakis was purportedly not available for the first three weeks in
July 2013, there is no indication why Adv Tsangarakis was not in a position to compile the
heads of argument in June, when he clearly was available.
24.
Finally, if the unavailability of counsel had any bearing on the failure timeously to file
heads of argument, there is no explanation for why alternative counsel were not engaged.
25.
In summary, in the circumstances described in these paragraphs of Jones’ affidavit,
the unavailability of counsel to attend to compiling the heads of argument falls significantly
short of an explanation evidencing good or sufficient cause for the purposes of condonation
in this case.’
[11] Faced with some explanation, albeit one on the face of it that appears to be
deliberately opaque and far from adequate, counsel was directed to address the
merits of the appeal so as to enable us to assess Express Model’s prospects of
success and to weigh that together with the other relevant factors in this case. The
thrust of the argument advanced on behalf of Express Holdings, as I understood it,
was that although the high court could not be faulted for granting a provisional
winding-up order, the same did not hold true in respect of its conclusion that a final
order was warranted. In support of that contention three submissions were
advanced: first, that the body corporate had lost its locus standi because of the
payment of the outstanding levies by the third party on 1 October 2010; second, that
Express Model was able to pay its debts; and, third, that in any event, and if
necessary, Express Model had sufficient assets that it could liquidate to cover all of
its liabilities.
As to the first:
[12] The body corporate contended it had not lost its locus standi in consequence
of the payment from the third party inasmuch as: (a) that payment did not have the
effect of settling Express Model’s entire indebtedness to it; and (b) the levies and
other charges were an ongoing payment obligation, which Express Model through a
long pattern of non or late payment had demonstrated a persistent inability to pay. In
that regard, Mr Smulowitz stated:
‘17.
It is common cause that the Respondent’s indebtedness to Applicant in the sum of
R338 000.69 was paid in October 2010. As indicated above, that payment did not include
outstanding amounts for accumulated interest for September and October 2010. As at the
date of payment, therefore, Respondent still remained indebted to Applicant in the respect of
accumulated interest for the latter 2 months, being R18 061.95.’
Moreover, as Mr Bester noted in his interim report:
‘5.1
Shortly after the provisional order of liquidation was granted by the Honourable
Court, the total amount of the Dolphin Ridge BC’s claim (as at 1 October 2010) in the
amount of R337 390.12 was settled by third parties as follows:
5.1.1 R250 000.00 was paid by Billmont 104 CC on 1 October 2010 . . .
5.1.2 R87 390.12 was paid by Class A Trading 480 CC on 1 October 2010 . . .;
5.2
Since 1 October 2010 to 31 March 2011 the Dolphin Ridge BC’s monthly recurring
levies again accumulated to R504 932.84 . . . The Dolphin Ridge BC’s monthly levies are
administration costs (in provisional liquidation) and needs to be paid by the provisional
liquidator if funds are available to do so.
5.3
The amount owing, due and payable for levies for the month of April 2011 is
R55 472-50.
5.4
It remains however a contingent creditor of the corporation as contemplated in
Section 346(1)(b) of the Companies Act.’
[13] Tellingly, Mr Hassan’s response to those allegations was:
‘46.
As a matter of fact the Respondent avers that the levies were paid until the end of
October 2010. As a consequence, the levies are outstanding from 01 November 2010 to end
of March 2011 should have been paid by the provisional liquidator. The Respondent avers
that the duty to pay the levies while the corporation is under provisional liquidation, herein,
derives from the provisional liquidator’s duties and functions to preserve the status quo in
accordance with the Act.’
But, as Mr Smulowitz pointed out:
‘46.
Payment of levies in the circumstances of this case would certainly fall within the
provisional liquidator’s obligations. In this case the provisional liquidator has made payment
in respect of levies to the extent that funds were available from the income of the
Respondent to do so. Significantly, however, the Respondent’s income is insufficient to
cover the levy payments and all other costs of administration of the assets required for each
month, and the Respondent’s again, inter alia, fell in arrears with the payment of levies after
the provisional liquidation order was granted. I refer the Honourable Court to the
supplementary affidavit of the provisional liquidator, Bester, filed simultaneously herewith.’
[14] Thus even if the payment by the third party had wiped the slate clean, as one
is dealing with a relationship between the body corporate as creditor and Express
Model as debtor in relation to a recurrent debt in the form of monthly levies and
charges, for as long as the latter continued to own properties in Dolphin Ridge, the
body corporate (as Mr Bester correctly observed) remained a prospective creditor of
Express Model. That legal relationship is established by the provisions of the
Sectional Titles Act. In Gillis-Mason Construction Co (Pty) Ltd v Overvaal Crushers
(Pty) Ltd 1971 (1) SA 524 (T) at 528 Trengove J defined a prospective creditor as
‘one who by reason of some existing vinculum juris has a claim against a company
which may ripen into an enforceable debt on the happening of some future event or
on some future date’. And as to what is meant by the term vinculum juris, Nestadt J
observed in Holzman NO v Knights Engineering and Precision Works (Pty) Ltd 1979
(2) SA 784 (W) at 787E-F that ‘there must I consider be a legal obligation which
creates a right enforceable in a court of law. It can arise either from contract or delict
. . . .’ Nestadt J added (at 787G): ‘It is clear therefore that the claim of the “creditor”
need not be due or payable at the date of the presentation of the application for
winding-up . . . But it is essential that there actually exists a vinculum juris with the
company. It does not suffice that it will probably arise in the future’.
Counsel for Express Model was thus constrained to concede that he had some
difficulty in persisting with the submission that the body corporate had lost its locus
standi after payment of the sum upon which the application was originally founded.
As to the second
[15] According to Mr Bester, as against Express Model’s monthly rental income of
R171 505, it had the following monthly obligations:
‘4.2.1 Dolphin Ridge Body Corporate
=
R 52 779.50
4.2.2 S A Home Loans:
monthly bond instalment
=
R 31 685.92
4.2.3 Nedbank:
monthly bond instalment
=
R 94 740.95
4.2.4 City of Cape Town (monthly rates
and taxes) (see 4.3.4 herein under) =
R 9 689.19’
Those monthly obligations were not disputed by Mr Hassan. There were as well
other expenses that were placed in dispute by Mr Hassan. Those I leave out of the
reckoning. Thus on the undisputed figures, Express Model’s inability to pay its debts
as and when they fell due have been adequately and convincingly demonstrated on
the papers. In those circumstances the following observation by Innes CJ in De
Waard v Andrews & Thienhaus, Ltd 1907 TS 727 at 733 would appear apt:
‘Speaking for myself, I always look with great suspicion upon, and examine very narrowly,
the position of a debtor who says, “I am sorry that I cannot pay my creditor, but my assets far
exceed my liabilities.” To my mind the best proof of solvency is that a man should pay his
debts; and therefore I always examine in a critical spirit the case of a man who does not pay
what he owes.’
[16] As a further string to his bow, counsel called in aid the following dictum from
Helderberg Laboratories CC v Sola Technologies (Pty) Ltd 2008 (2) SA 627 (C) para
16 (Fourie J, Davis and Goliath JJ concurring):
‘I respectfully disagree with the finding of the court a quo, that the fact that the payment of
the admitted indebtedness was made by a third party on behalf of first to fourth appellants,
justifies the inference that the said appellants were unable to pay their debts. In my view, the
ability of a company or close corporation to pay its debts may be demonstrated by itself
making payment or by its ability to obtain the necessary finance from an exterior source. In
the latter instance the creditworthiness of the debtor would normally enable it to raise the
necessary funds. As submitted by Mr Brusser, the emphasis in determining the ability of a
company or close corporation to pay its debts should be on the fact of payment and not on
the source of the payment.’
To the extent that the full court held that the mere fact that a debt is paid by a third
party did not per se justify the inference that a debtor is unable to pay the debt - that
may as a general proposition be unobjectionable. But, the last sentence of the
quoted passage appears to me to state the position rather too widely. An enquiry of
this kind, I do believe, is fact-based. Thus as important as the fact of payment, may
well be the source of payment. A debtor’s ability to raise a loan from a third party
may indeed be a demonstration of its creditworthiness. On the other hand, it could
conceivably demonstrate the exact opposite, where (as here) it amounts to no more
than borrowing from Peter to pay Paul. Unlike in Helderberg, where the funds appear
to have been borrowed pursuant to an arm’s length transaction from an unrelated
entity, here, Express Model’s benefactor initially remained undisclosed. It
subsequently emerged that assistance was obtained from corporate entities, namely
Billmont and Class A Trading, who as part of Mr Hassan’s stable of corporate
entities, enjoyed a fraternal relationship with Express Model. Mr Bester explains:
‘The Corporation is surety for the debts of Billmont No. 104 CC to Rand Merchant Bank
(“RMB”). Billmont is a “subsidiary” of the corporation. RMB registered surety bonds over the
remaining units of the corporation in liquidation, which surety bonds were registered in the
capital amount of R18 000 000.00 (excluding the additional amounts). The current
outstanding amount owing by Billmont to RMB amounts to R25 300 000.00 (see “A3”). The
full suretyship obligation forms a contingent liability in the books of the corporation and must
be taken into consideration in its liability statement. RMB has submitted two requisitions in
the provisional liquidation of the corporation (see “K1” and “K2”), and I have established that
Billmont is currently in arrears with its payments to RMB.’
It follows that no inferences favourable to Express Model’s creditworthiness or its
ability to raise arm’s length funding can accordingly be drawn.
As to the third
[17] Objectively assessed, Express Model’s liabilities fairly valued do indeed
appear to exceed its assets fairly valued. In that regard Mr Bester records:
‘Due to the conflicting values placed on the properties by the different parties I requested
Claremart Auctioneers to do a valuation of the properties to establish the fair value thereof
for purposes of this report. Enclosed hereto and marked annexure “H” is a copy of the
valuation(s) prepared by Claremart Auctioneers, indicating that the combined value of the
properties amount to R25 640 000.00.
The combined value of the immovable properties of the close corporation, fairly valued,
therefore amounts to R26 990 000.00 (inclusive of “E”).
3.2
Note to assets
3.2.1 The other assets listed by the corporation in its management financial
statements (“A3”) is stock (R102 363), accounts receivable (R674 362) and cash in
trust R137 636);
3.2.2 I cannot comment on the accuracy of these claims or averments at this stage;
3.2.3 The only other asset which the corporation lists is goodwill. As the corporation is
solely a property holding (and leasing) enterprise, no value can be placed on any goodwill;
. . .
Having due regard to the enclosed documentation the liabilities of the corporation can be
summarized as follows:
3.3.1 Mortgagee:
(Nedbank – as at 23 August 2010)
=
R 7 055 355.53
3.3.2 Mortgagee:
(SA Home Loans – as at 23 Aug. 2010)
=
R 3 206 380.40
3.3.3 Loan from member (see 3.4.3 herein under)
=
R10 836 727.00
3.3.4 Rand Merchant Bank (suretyship obligation for
Billmont 104 CC) (See 3.4.2 herein under)
=
R18 000 000.00
3.3.5 SARS (owing by corporation according to financial
statements)
=
R 646 454.00
3.3.6 SARS (additional interest payable as per “I”) (see 3.4.6)
=
R 97 020.10
3.3.7 City of Cape Town
=
R 217 570.08
3.3.8 Accounts payable
=
R 439 864.00
TOTAL
R40 499 371.11
3.4
Notes to liabilities
3.4.1 The outstanding amounts reflected on the mortgage bond loans as at 23 August
2010. I do not know if the monthly bond instalments on these separate bonds have been
paid by third parties since the aforesaid date.
. . .
3.4.3 According to the corporation’s financial statements, Hassan’s loan to the corporation
amounted to R15 175 493.00 in 2008 (see “A1”). The loan was reduced to R10 836 727.00
by 31 August 2010 (see “A3”). It follows that the difference of R4 338 766.00 represents
repayments to Hassan during the aforesaid period. The repayment appears to have been
made by the corporation by raising loans from the bank against the security of mortgage
bonds registered against the corporation’s properties.
3.4.4 The amount owing to the City of Cape Town was determined from the invoices
submitted by the City to the managing agent of the Dolphin Ridge BC. I note that Hassan
disputes this liability. However, he reflects the rates and taxes as monthly expenses in the
corporation’s financial statements;’
That led Mr Bester to conclude that ‘the corporation’s current liabilities (fairly valued)
exceed its current assets (fairly valued), and it follows that the corporation is
currently insolvent’. A conclusion that, I daresay, cannot be assailed.
[18] One final aspect merits mention. Once the winding-up order issued, Express
Model’s position ‘crystallised’ and ‘the hand of law’ was laid upon its estate (Walker v
Syfret NO 1911 AD 141 at 166). The liquidator then entered upon the winding-up of
Express Model. And as it was wound up inter alia on the ground that it was unable to
pay its debts, the operation of the order remained in force despite the appeal (Choice
Holdings Ltd v Yabeng Investment Holding Co Ltd 2001 (2) SA 768 (W)). A period in
excess of three years has since elapsed. The winding-up has progressed apace. In
those circumstances it may indeed prove impossible to turn back the clock. It may
thus be arguable that this appeal has become academic. But it is perhaps not
necessary to go that far. It suffices for present purposes to record that since the
winding-up order issued Express Model’s position appears to have become even
more dire. That much emerges from Mr Botes’ affidavit, where he states:
‘39.
On 1 August 2013 I addressed further correspondence to Express Model Trading’s
attorney in which I conveyed to him that the liquidators were proceeding with the winding-up
of Express Model Trading. A copy of the correspondence is annexed hereto marked “HB4”.
No reply was received thereto.
40.
To date R38 522 206.11 worth of claims have been proved in the liquidation of
Express Model Trading. That includes Rand Merchant Bank’s claims against Express Model
Trading in the sum of R25 370 114.30 arising out of the mortgage bonds registered over
certain of Express Model Trading’s Dolphin Ridge units as security for the bank’s loans to
Billmont 104 A CC, which have in the meantime been called up by Rand Merchant Bank due
to Billmont’s failure to service the monthly loan installments.
41.
In addition, the following amounts are owed by Express Model Trading:
41.1
The debit balance on Nedbank account number 8849003600101 is
R596 716.86;
41.2
The debit balance on Nedbank account number 8966217619001 is
R1 025 902.02;
41.3
The debit balance on Nedbank account number 8966217619901 is
R1 060 643.08;
41.4
The debit balance on Nedbank account number 8157809570901 is
R 1258 466.45;
41.5
A judgment was obtained by Leopard Rock Home Owners Association in the
amount of R84 000.00;
41.6
The loan account of Express Model Trading’s sole member, Mr Hassan, is
reflected in financial statements as R10 836 727.00;
41.7
Tax due to the Receiver of Revenue is R743 474.10;
41.8
Further accounts payable, as reflected in the financial statements, amount to
R439 864.00;
41.9
Arrears rates and taxes to the City of Cape Town of approximately R1 million.
42.
The total of the aforesaid additional liabilities is in excess of R17 million and
therefore, Express Model Trading’s total liabilities at this stage exceeds R55 567 000.00.’
[19] It appears from all of this that the applicant at all material times has been in a
position in which it is unable to pay its debts and it thus has no prospects of success
on appeal. It follows that the lack of attention to detail in the application for
condonation - particularly in respect of matters that obviously called for an
explanation - taken together with the non-existent prospects of success on appeal
renders it impossible to justify the grant of condonation.
[20] In the result:
(a)
The application for condonation is dismissed with costs.
(b)
The applicant for condonation is ordered to pay the costs incurred by the
respondent in opposing the lapsed appeal.
(c)
In both instances (a) and (b) the costs shall include the costs of two counsel.
_________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES:
For Appellant:
P Zietsman SC (with him S Tsangarakis)
Instructed by:
Michael Jennings Attorneys, Welcome Glen
Honey Attorneys, Bloemfontein
For Respondent:
J Muller SC (with him J van der Merwe)
Instructed by:
Mostert & Bosman, Tygervalley
McIntyre & Van Der Post, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
26 March 2014
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Express Model Trading 289 CC v Dolphin Ridge Body Corporate (656/13)
[2014] ZASCA 17 (26 March 2014)
The Supreme Court of Appeal handed down judgment today in an appeal from the Western
Cape High Court, Cape Town. The respondent, Express Model 289 CC (Express Model), a
body corporate for a residential sectional title development (Dolphin Ridge), had applied to
the high court for the winding-up of the appellant, which had been the developer of the
development and still owned several units therein.
The high court had ordered that Express Model be placed under a provisional order of
winding-up, but before the return day an undisclosed third party had paid its arrear levies to
its provisional liquidator. The matter was thereafter postponed on several occasions at the
behest of Express Model. It was agreed between the parties that in the interim additional
affidavits would be filed and that in view of the payment of the arrear levies that had been
made, the provisional liquidator would file a preliminary report on the financial position of
Express Model with the court. On the return day in February 2012, the high court placed
Express Model under a final order of winding-up.
Pursuant to a petition addressed to this court, Express Model was granted leave to appeal that
order. The record of appeal was filed with the registrar of this court on 9 May 2013 and
Express Model then had six weeks within which to file its heads of argument. However, it
failed to meet this deadline. Express Model accordingly sought condonation for its failure to
timeously file its heads of argument with the registrar of this court. That application was
opposed by Dolphin Ridge. The question before this court was therefore whether this default
should be condoned and the appeal revived.
In outlining the factors relevant to this enquiry, including Express Model’s prospects of
success on appeal, weighed against the other relevant factors, this court noted that no
inferences favourable to Express Model’s creditworthiness or its ability to raise arm’s length
funding can be drawn; the provisional liquidator had concluded that the corporation was
insolvent; and since then its position appears only to have deteriorated.
As Express Model, at all material times, has been unable to pay its debts, the SCA concluded
that had no prospects of success on appeal. Moreover, the lack of attention to detail in the
application for condonation – particularly in respect of matters that obviously called for an
explanation – taken together with the non-existent prospects of success on appeal rendered it
impossible to justify the grant of condonation. The application for condonation was thus
dismissed with costs.
|
3059
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No.: 185/2015
In the matter between:
LAW SOCIETY OF THE NORTHERN PROVINCES FIRST
APPELLANT
M J S GROBLER
SECOND
APPELLANT
and
LOUW DE WITT LE ROUX
FIRST RESPONDENT
GIDEON FRANCOIS DU PLESSIS
SECOND
RESPONDENT
DE LOUW LE ROUX & DEOFRANN
DU PLESSIS INCORPORATED t/a LE ROUX
DU PLESSIS ATTORNEYS
THIRD
RESPONDENT
Neutral citation: Law Society of the Northern Provinces v Le Roux (185/2015)
[2015] ZASCA 168 (26 November 2015)
Coram:
Maya DP, Shongwe, Majiedt, Petse and Mathopo JJA
Heard:
6 November 2015
Delivered:
26 November 2015
Summary: Attorneys Act 53 of 1979 – Law Society’s resolution introducing a
requirement to its rules for the submission of an acceptable, unqualified audit
certificate for the issue of fidelity fund certificates under s 42(3)(a) of the Act
constituted administrative action within the meaning of the Promotion of
Administrative Justice Act 3 of 2000 and is binding until set aside on review – wrong
relief sought by insolvent attorneys from whom the Law Society’s secretary withheld
the certificates because their firm’s trust account was in deficit and its audit certificate
accordingly qualified as a result of fraudulent misappropriation of funds from the
account by their associate – should have taken the resolution on review instead of
merely challenging the secretary’s refusal to issue the certificates – appeal thus upheld.
__________________________________________________________________
ORDER
__________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Tuchten J sitting as
court of first instance):
1 The appeal is upheld with costs, including the costs of two counsel, on the scale
as between attorney and client.
2 The order of the Gauteng Division of the High Court, Pretoria, is set aside and
replaced with the following order:
‘The application is dismissed with costs on the scale as between attorney and
client.’
_________________________________________________________________
JUDGMENT
__________________________________________________________________
MAYA DP (SHONGWE, MAJIEDT, PETSE and MATHOPO JJA concurring):
[1] This is an appeal against the judgment of the Gauteng Division of the High
Court, Pretoria (Tuchten J) which compelled the secretary of the first appellant (the
Law Society) to issue fidelity fund certificates to the first and second respondents. The
matter serves before us with the leave of the court a quo.
[2] The first and second respondents practise as attorneys in the third respondent,
an incorporated firm (the firm). In October 2014, they unsuccessfully applied to the
secretary of the Law Society (the secretary) for the renewal of their fidelity fund
certificates. The reason given for the refusal, which sparked these proceedings, was
that they had ‘not complied with the lawful requirements of the Law Society in terms
of Section 42(3)(a) of the Attorneys Act, 1979 having regard to the problems …
identified relating to [their] firm’s trust account and the allegations of a trust shortage’.
[3] This decision was made against the backdrop of the stringent regulatory
framework provided by law for the regulation and control of attorneys’ trust accounts.
An important cog in that framework is the Attorneys’ Fidelity Fund,1 which is meant to
protect the public against the misappropriation of their money entrusted to attorneys. It
is chiefly financed by means of contributions made by practising attorneys in terms of s
43 of the Attorneys Act 53 of 1979 (the Act) and the interest the attorneys earn on
their trust bank accounts in terms of s 78(3) of the Act. Its purpose is set out in s 26(a)
of the Act which provides that ‘the fund shall be applied for the purpose of
reimbursing persons who may suffer pecuniary loss as a result of … theft committed
by a practising practitioner, his or her candidate attorney or his or her employee, of any
money or other property entrusted by or on behalf of such persons to him or her or to
his or her candidate attorney or employee in the course of his or her practice or while
acting as executor or administrator in the estate of a deceased person or as a trustee in
an insolvent estate or in any similar capacity’.
[4] The attorneys’ trust accounts are regulated by ss 78 and 79 of the Act which,
inter alia, require attorneys to hold all money entrusted to them in separate trust
1 Established by s 8 of the Attorneys’ Admission Amendment and Legal Practitioners’ Fidelity Fund Act 19 of 1941.
banking accounts2 which do not form part of the attorney’s assets;3 and to keep proper
accounting records containing particulars and information of the money held in trust4
which shall be inspected by the council of the society of the province in which the
attorney practises to satisfy itself that they are kept properly.5 These provisions are
supported by rules 68 to 70 of the Rules of the Law Society6 which impose similar
requirements and enjoin attorneys, inter alia, to ensure prompt deposit of trust money
received;7 that the money in a trust account is not less than the total amount of the
credit balances of its trust creditors;8 that no account of any trust creditor is in debit;9
and that withdrawals from the trust account are only in respect of payments to or for or
on behalf of a trust creditor.10 Rule 70(1) obliges a firm,11 at its expense once in each
calendar year, or at such time as the council may require, to appoint an accountant
approved by the council to act on behalf of and as the representative of the fund to
discharge the duties assigned to him or her in terms of rule 70.4.12 These duties are
essentially the preparation of an audit report in the form prescribed by the Third
2 Section 78(1).
3 Section 78(7) and s 79.
4 Section 78(4).
5 Section 78(5).
6 In this instance the rules of the Law Society of the Northern Provisions (Incorporated as the Law Society of the Transvaal)
made under the authority of s 74 of the Act and promulgated in GG 7164 of 1August 1980, as amended.
7 Rule 69.1.
8 Rule 69.3.1.
9 Rule 69.3.2.
10 Rule 69.5.
11 Defined in Rule 1.9 as a partnership of practitioners, a sole practitioner for his own account, a professional company who
or which in each case conducts the practice of a practitioner.
12 Section 70.4 provides:
‘Duties of accountant
Every accountant who has accepted an appointment in terms of rule 70.1 shall –
70.4.1
within six months of the annual closing of the accounting records of the firm concerned, or at such other times as
the Council may require, furnish the council with a report which shall be in the form of the Third Schedule to these rules;
70.4.2
without delay report in writing directly to the council if, at any time during the discharge of his function and duties
under this rule–
70.4.2.1 it comes to his/her notice that at any date the total of the balances shown on trust accounts in the accounting
records of the firm exceeded the total amount of the funds in its trust banking account, its trust investment account and its
trust cash;
70.4.2.2 any material queries regarding its accounting records which he/she has raised with the firm have not been dealt
with to his/her satisfaction;
70.4.2.3 any reasonable request made by him/her for access to its accounting records and supporting documents or for any
authority referred to in rule 70.2 has not been met to his/her satisfaction.’
Schedule to the rules, once a year, and to report to the council on the firm’s
compliance with the requirements of the Act and the rules regarding its accounting.
[5] Section 41 of the Act bars an attorney from practising for his or her own account
without a fidelity fund certificate.13 Section 83(10) of the Act criminalises breach of
these provisions by providing that ‘[a]ny person who directly or indirectly purports to
act as a practitioner or to practise on his or her own account or in partnership without
being in possession of a fidelity fund certificate, shall be guilty of an offence and on
conviction liable to a fine not exceeding R2 000 or to imprisonment for a period not
exceeding six months or to both such fine and such imprisonment’. Section 42(1) of
the Act obliges the attorney to apply in the prescribed form to the secretary of the
society concerned for the certificate. Subsection (2) requires such application to be
accompanied by the contribution (if any) payable in terms of s 43.14
[6] In addition to rule 70, the Law Society resolved, on 30 September 2013, to
amend the ‘lawful requirements’ for the issue of a fidelity fund certificate, in terms of s
42(3)(a) of the Act. The resolution required timeous submission of the original
completed and signed application form for the certificate and the lodgement with the
Law Society of an acceptable, unqualified audit certificate for the relevant period. The
Law Society duly notified its members (which included the respondents) of the
13 Section 1 of the Act makes reference to ‘a practitioner’ which is defined as an ‘attorney, notary or conveyancer’. A fidelity
fund certificate is defined as ‘a certificate issued in terms of section 42’. Section 41 provides that:
‘(1) a practitioner shall not practise or act as a practitioner on his or her own account or in partnership unless he or she is in
possession of a fidelity fund certificate.
(2) Any practitioner who practises or acts in contravention of subsection (1) shall not be entitled to any fee, reward or
disbursement in respect of anything done by him or her while so practising or acting’.
14 Section 43 determines the contributions which practitioners practising for their own account are required to make to the
Attorneys Fidelity Fund annually. In terms of s 42(3)(b) the certificate shall be valid until 31 December of the year in
respect of which it was issued
resolution.15 Failure to comply would also deprive the members of the Attorneys
Indemnity Insurance cover.
15 Law Society Notice 4 September 2013.
[7] It is the respondents’ failure to comply with the requirements for an unqualified
audit requirement which led to the secretary’s refusal of their applications for renewal
of their fidelity fund certificates. The respondents’ audit certificate was heavily
qualified because their trust account had been plundered and was accordingly in
disarray. Three of the firm’s trust creditors had debit balances amounting to R545 758
and a sum of R5 024 041 appeared to have been misappropriated from the firm’s trust
account, in breach of rules 68.1, 69.3 and 69.5.
[8] The culprit was the second respondent’s brother, Mr Andries Christiaan
Dormehl du Plessis (Du Plessis), who worked at the firm until his expulsion for his
misdeeds on 16 July 2014. From 2007 until his admission as an attorney on 24 March
2014 he was a candidate attorney at the firm. Thereafter, he practised as a sole
proprietor under the name of Dormehl Du Plessis Incorporated but ran his practice in
association with the firm from its premises under a lease. He also used its personnel,
office facilities and trust account for all deposits in respect of his matters. He referred
all his conveyancing work to the firm as he was not a qualified conveyancer.
[9] The association ended abruptly when Du Plessis confessed to the second
respondent that he had misappropriated several millions of rands from the firm’s trust
account over several months. Pursuant to this disclosure he was immediately removed
from the premises. The respondents took various steps to rectify the situation,
including reporting him to the Law Society, laying fraud charges against him,
launching sequestration proceedings against his estate, mandating a forensic audit and
placing their own immovable property on the open market for sale to raise funds to
rectify the trust deficit.
[10] In August 2014, the Law Society appointed an independent auditor, Mr Ashwin
Reddy, to conduct a forensic audit on the firm. He made the following findings:
‘[Du Plessis] was able to defraud the firm’s trust bank account by taking advantage of certain
weaknesses in the firm’s system of internal controls. In particular, the firm did not obtain suitable
confirmation of the client’s bank account details as well as confirming the client’s bank accounts
details prior to payment. [Du Plessis] recognised the weakness and took advantage of the weakness
by falsifying correspondence from clients wherein they confirm their bank account details. Suitable
proof of banking details would be a cancelled cheque, a letter from the bank or a bank stamped bank
statement.
Due to the significant trust shortage … as well as the claims lodged with the Attorney’s Fidelity
Fund, I am of the opinion that the firm poses a high risk to the Attorney’s Fidelity Fund and trust
creditors.
In my opinion [the first and second respondents] were not party to the fraudulent activities of [Du
Plessis] however as the directors of the firm they are ultimately reliable for establishing, maintaining
and monitoring the firm’s system of internal controls with the objective of preventing and detecting
fraud as well as safe-guarding trust assets. Furthermore the Directors of the firm are responsible for
the supervision and oversight of all staff members. I thus recommend that my report be referred to
the Disciplinary Department to consider further appropriate steps against [the first and second
respondents].
In light of [Du Plessis’s] fraudulent and dishonest actions which has resulted in financial loss to the
firm, trust creditors and ultimately the Attorney’s Fidelity Fund, I recommend my report be referred
to the Council to consider further appropriate steps.’
[11] Mr Reddy described the disorder he found in the firm’s trust account as follows:
‘During my inspections of the accounting records I quantified the trust shortage to be an amount of
R4,690,070, based solely on the information I was provided. The directors of the firm are not in the
financial position to reimburse the trust creditors, the funds which have been misappropriated.
Furthermore the accounting records are not accurate in that the fraudulent payments to Mr Du
Plessis have been accounted for as legitimate payments towards trust creditors. This places the firm
in a predicament as they are unable to properly account to the trust creditors, nor are they able to
identify the actual liability towards each trust creditor. The effect of this is that the directors are
unable to provide satisfactory responses to the queries of the affected trust creditors.’
In essence, the gravamen of the report was that the respondents are factually and
commercially insolvent.
[12] Pursuant to Mr Reddy’s report, the Law Society launched an application, which
was subsequently struck off the roll for lack of urgency, for the suspension of the first
and second respondents from practice pending the finalisation of an application for the
removal of their names from the roll of Attorneys.16 In the meantime, the respondents
had lodged their applications for fidelity fund certificates for 2015. When the
applications were refused, they successfully brought an urgent application in the
Gauteng Division, Pretoria (Tuchten J), to compel the secretary to issue the
certificates.
[13] The court a quo found that the first and second respondents had ‘shown
themselves to be fit and proper people to practise … caught up in a situation which
was not of their own making’. In the court’s view, s 42(3)(a) of the Act enjoined the
secretary to assess the risk attendant on the issue of the certificate which it believed
was ‘very low’ in this case. The court then found the requirement of an unqualified
audit certificate unlawful because it did not ‘address the situation of an entirely
unblameworthy applicant who is unable through circumstances beyond his control to
comply with it’ and required the respondents to do what they were objectively
incapable of in circumstances where they were blameless and the risk to the Law
Society and the Fidelity Fund, if the certificates were issued, were negligible.
Interestingly, the court recognised that deposits into the firm’s trust account in deficit
16 The application was subsequently struck off the roll for lack of urgency and it does not appear that it was pursued
thereafter.
by the respondents’ future trust creditors would likely be exposed to risk. But it held
that such risk could be ‘mitigated to some extent by a direction that the [respondents]
open a fresh banking account into which trust deposits must be deposited and … that
such deposits will not carry the risk that the depositors in relation to amounts
previously deposited will suffer as a result of the misbehaviour of [Du Plessis]’.
[14] On appeal before us, it was argued for the respondents that the requirement of
an acceptable, unqualified audit certificate is invalid because it ‘is overbroad, vague
and leaves no room for discretion’ as it does not cater for exceptions or instances such
as where the qualification may be trivial, or the applicant practitioners are not
blameworthy and cannot comply with the requirement through circumstances beyond
their control. It was further argued that the respondents were entitled to mount a
collateral challenge against the validity of the Law Society’s resolution and that the
court a quo was correct to set aside the secretary’s decision and substitute its own
decision.
[15] I agree with the Law Society’s contention that the chief hurdle for the
respondents is that their application targeted the wrong party. The respondents’ main
complaint in their papers and in argument before us, as set out above, concerned the
scope and validity of the resolution. But the only relief sought in their notice of motion
was an order compelling the secretary to renew their fidelity fund certificates. The
difficulty with this approach is that it neither reckons with the statutory provisions in
terms of which the secretary acts when considering applications for fidelity fund
certificates nor the nature of the resolution and the effect thereof.
[16] The empowering provisions are couched in s 42(3)(a) of the Act which provides
that ‘[u]pon receipt of the application [for a fidelity fund certificate], the secretary of
the society concerned shall, if he or she is satisfied that the applicant has discharged all
his or her liabilities to the society in respect of his or her contribution and that he or
she has complied with any other lawful requirement of the society, forthwith issue to
the applicant a fidelity fund certificate in the prescribed form’. These provisions clearly
circumscribe the secretary’s role to merely satisfying herself that the application
complies with the relevant, lawful requirements. Whilst that exercise involves some
judgment on her part, she nevertheless enjoys no discretion to go beyond simply
granting the application if it meets the requirements or declining it if it does not. As the
respondents’ applications did not meet the requirement of an unqualified audit
certificate the secretary had no option but to decline them.
[17] But the more fundamental problem arises from the fact that the resolution, which
remains extant, was a decision of an administrative nature made by an organ of state or
a juristic person exercising a public power and performing a public function under an
empowering statutory provision, which had a direct external legal effect on
practitioners and adversely affected their rights. Thus, it constituted administrative
action within the meaning of s 1(a) and (b) of the Promotion of Administrative Justice
Act 3 of 2000. It is trite in our law that invalid administrative action may not simply be
ignored, but may be valid and effectual, and may continue to have legal consequences
until set aside on judicial review.17 The resolution was therefore binding on the
secretary and the respondents. Furthermore, the principles of fairness embedded in our
law militate against invalidating the requirement without affording the Law Society an
opportunity to explain the requirement. And this could be done only in review
proceedings. The respondents should, therefore, have challenged the resolution in such
proceedings and followed a wrong procedure.
17 Oudekraal Estates (Pty) Ltd v City of Cape Town & others2004 (6) SA 222 (SCA) paras 26 and 40 (41/2003) [2004]
ZASCA 48 (28 May 2004); MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye and Lazer
Institute 2014 (3) SA 481 (CC) paras 87-106; Incorporated Law Society, Transvaal v Visse & others (1); Incorporated
[18] Having thus found, it is not necessary or even prudent to determine the validity
of the resolution and the appeal should succeed on that basis alone. But a few material
misdirections committed by the court a quo bear mention. For its finding that the
requirement was unlawful the court relied on this court’s statement in Law Society of
the Northern Provinces & another v Viljoen; Law Society of the Northern Provinces
and another v Dykes & others.18 There, the court determined that a lawful requirement
under s 42(3)(a) of the Act ‘means one that: (i) relates to the purpose served by the
issue of a fidelity fund certificate; (ii) unequivocally informs the practitioner what it is
that the society requires of him or her; (iii) the practitioner is capable of complying
with, since the section is designed to enable the practitioner to carry on practice
subject to satisfying the requirement’.19 In the court a quo’s view, (iii) invalidated the
requirement because it required practitioners ‘to do things which they are objectively
not capable of doing in situations where they are not blameworthy and where the risk
to the law society and to the fund is as small as it is in the present case’.
[19] The first problem with this finding, ie that any risk that might arise from the
issue of the certificates was ‘very low’ or ‘small’, is belied by Mr Reddy’s undisputed
findings to the contrary. The second problem is that the court a quo’s interpretation of
(iii) above overlooks the context in which the statement was made and accordingly
misconceives its meaning. The court in Viljoen also remarked that the enquiry
conducted by a secretary dealing with an application for a fidelity fund certificate is
‘intended solely to assess any risk attendant on the secretary … so as to ensure that the
Fidelity Fund is not overexposed’. In the circumstances, the court’s statement in (iii)
could only have meant that the requirement must be capable of objective fulfilment.
Law Society, Transvaal v Viljoen (2)
18 Law Society of the Northern Provinces & another v Viljoen; Law Society of the Northern Provinces & another v
Dykes & others 2011 (2) SA 327 (SCA); [2010] ZASCA 176 (2 December 2010).
The court simply could not have meant that the secretary was obliged to issue a
19 Ibid, para 15.
fidelity fund certificate to an insolvent practitioner with a trust account in deficit, such
as the respondents, which would patently place the Fidelity Fund at risk.20
[20] This finding finds support in the court a quo’s own order for the opening of a
new trust account and the attempt to immunise deposits of new trust creditors’ funds
made into that account, which was a key condition to the issue of the certificates. This
unprecedented order clearly attests to the court a quo’s recognition of the real risk that
any fresh trust funds would be swallowed up by the trust account in deficit to the
prejudice of the new trust creditors. Needless to say, neither the Law Society nor the
secretary could grant such a remedy. And it remains highly doubtful that the court a
quo itself could, as the order impermissibly sought to alter the ranking of claims in
insolvency in the absence of the relevant creditors.
[21] The following order is accordingly made.
1 The appeal is upheld with costs, including the costs of two counsel, on the scale
as between attorney and client.
2 The order of the Gauteng Division of the High Court, Pretoria, is set aside and
replaced with the following order:
‘The application is dismissed with costs on the scale as between attorney and
client.’
__________________________
M M L MAYA
Deputy President of the Supreme
Court of Appeal
20 According to the first and second respondents, the trust deficit amounts were initially in the region of R7 million which
they reduced by a sum of R1,5 million which was all they were able to raise to rectify the situation. The respondents are
therefore actually and commercially insolvent.
APPEARANCES
For the Appellants:
W Trengrove SC (with H Vorster)
Instructed by: Rooth & Wessels Attorneys, Pretoria
Phatshoane Henney, Bloemfontein
For the Respondents:
JGW Basson
Instructed by: Clarke & Van Eck Attorneys, Pretoria
Martins Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
26 November 2015
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Law Society of the Northern Provinces v Le Roux (185/2015) [2015] ZASCA 168
(26 November 2015)
The Supreme Court of Appeal (SCA) today handed down judgment in a matter relating to the lawful
requirements of the Law Society of the Northern Provinces for the submission of an unqualified audit
certificate for the issue of fidelity fund certificates to a practitioner, and whether the secretary of the
Law Society could be compelled to grant a fidelity fund certificate where the practitioner had a
qualified audit certificate.
The appeal to the SCA by the Law Society of the Northern Provinces (the Law Society) was against
the judgment of the Gauteng Division of the High Court, Pretoria that held that the secretary of the
Law Society was required to issue fidelity fund certificates to the first and second respondents.
Proceedings began in the Gauteng Division of the High Court, Pretoria when the first and second
respondents, two practising attorneys practising as such in the third respondent, an incorporated firm
launched an urgent application seeking an order compelling the secretary of the Law Society (the
secretary) to issue fidelity fund certificates after they unsuccessfully applied to the secretary for the
renewal of their fidelity fund certificate. The secretary had refused to issue the fidelity fund certificates
because the respondents did not comply with a requirement of the Law Society in that they lodged a
qualified audit certificate with their applications to renew their fidelity fund certificates. The Law
Society had issued a resolution on 30 September 2013 amending the lawful requirements for the
issue of a fidelity fund certificate in terms of s 42(3)(a) of the Attorneys Act 53 of 1979 (the Act) to
provide that an application for a fidelity fund certificate must be accompanied by an acceptable,
unqualified audit certificate of the practitioner. The respondents’ audit certificate was heavily qualified
because one of the associates who worked with them had misappropriated a large sum of money
from the third respondent’s trust account. The court a quo held that the requirement by the Law
Society for an unqualified audit report before it could issue a fidelity fund certificate was unlawful
because it required practitioners ‘to do things that they are objectively not capable of doing in
situations where they are not blameworthy and where the risk to the law society and to the fund is as
small as it is in this case’.
The SCA held that the resolution by the Law Society constituted administrative action within the
meaning of s1(a) and 1(b) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA) in that it
was a decision of an administrative nature made by an organ of state or a juristic person exercising a
public power and performing a public function under an empowering statutory provision, which has
direct external legal effect on practitioners and adversely affects their rights. The SCA reiterated that
an-invalid administrative action may continue to have legal consequences until set aside on judicial
review and that the resolution was binding on the secretary and the respondents until set aside only
by judicial review.
The SCA also found that the provisions of s 42(3)(a) of the Act circumscribed the role of the secretary
to merely satisfying herself that the application by the practitioner complies with the lawful
requirements, and that she did not have the discretion to grant the application where a practitioner did
not meet the lawful requirements.
The SCA also held that the court committed an irregularity when it found that the resolution was
unlawful in that it required practitioners ‘to do things that they were not objectively capable of doing in
situations where they were not blameworthy’. The correct position is that the requirement must be
capable of objective fulfilment, and not that the secretary was obliged to issue a fidelity fund
certificate to an insolvent practitioner with a trust deficit.
The SCA accordingly upheld the appeal with costs and the judgment of the Gauteng Division of the
High Court, Pretoria was set aside and replaced with an order dismissing the application with costs
on the scale as between attorney and client.
--- ends ---
|
545
|
non-electoral
|
2016
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 641/2015
In the matter between:
STATE INFORMATION TECHNOLOGY AGENCY SOC LTD APPELLANT
and
GIJIMA HOLDINGS (PTY) LTD RESPONDENT
Neutral citation: State Information Technology Agency Soc v Gijima Holdings
(641/2015) [2016] ZASCA 143 (30 September 2016)
Coram:
Cachalia, Bosielo, Tshiqi and Van der Merwe JJA and Dlodlo AJA
Heard:
30 August 2016
Delivered:
30 September 2016
Summary: Promotion of Administrative Justice Act 3 of 2000 (PAJA) : applicability
to organ of state seeking to set aside its own decision : legality review not available
when PAJA applies.
___________________________________________________________________
ORDER
On appeal from: Gauteng Division, Pretoria (Matojane J sitting as court of first
instance):
The appeal is dismissed with costs, including the costs of two counsel.
___________________________________________________________________
JUDGMENT
Cachalia JA (Tshiqi and Van der Merwe JJA concurring)
[1] This is an appeal from the Gauteng High Court (Matojane J) dismissing an
application by a state entity to declare its contract with a listed company
unenforceable for want of compliance with the public procurement requirements of
s 217 of the Constitution. There is no dispute that these requirements were not
followed in awarding the contract. The court a quo dismissed the application
because the entity had relied directly on the constitutional principle of legality,
instead of instituting review proceedings under s 6 of the Promotion of Administrative
Justice Act 3 of 2000 (PAJA). It had also not applied under s 9(1)(b) to condone its
failure to institute such proceedings within 180 days of the contract having been
concluded, as s 7(1)(b) requires.
[2] The state entity – the appellant in these proceedings – is the State Information
Technology Agency (SITA). The respondent – Gijima – is a listed company operating
in the area of information and communication technology. SITA advances the
following submissions in this appeal: First, it contends that PAJA does not apply
when an organ of state seeks to undo its own decisions; secondly, it says that even if
PAJA does apply, the entity may elect to proceed either by way of review under
PAJA or rely directly on the principle of legality; and finally, it maintains that if it is
entitled to make this election and proceed by way of a legality challenge, the delay in
bringing these proceedings was not unreasonable.
[3] It is of some interest to set out the facts that gave rise to the present dispute.
The parties have concluded contracts and conducted business together on several
projects for more than ten years. SITA provides information technology, information
systems, and related services (IT services) to government departments. It performs
this function by entering into agreements with private service providers, such as
Gijima, which in turn provides IT services to the government department. The way it
works is that government departments needing IT services submit a business case
and user requirements to SITA, which then prepares a procurement schedule for the
execution of the request bid, and a detailed costing for the subsequent contract
management.
[4] SITA thereafter concludes a business agreement with the relevant
government department for IT services to be provided to it by private service
providers. Armed with this agreement and following a procurement process, SITA
enters into a further agreement for the provision of IT services with a private service
provider on the basis of what the government department is willing to pay for those
services.
[5] The relationship between the parties has, since 2006, been regulated by a
contract that became known as ‘the 433 contract’, which set forth the general terms
and conditions applicable to all service level agreements between them. The 433
contract placed Gijima on SITA’s ‘preferred supplier’ list. It stipulated that the
services were to be implemented in accordance with separate service level
agreements that would be concluded from time to time. The parties have since
entered into a number of agreements for the provision of IT services to different
government departments.
[6] On 27 September 2006, the parties entered into one such agreement in terms
of which Gijima was to provide IT services to the South African Police Service (the
‘SAPS agreement’). The agreement was extended several times.
[7] On 25 January 2012 SITA unlawfully terminated the SAPS agreement as a
result of which Gijima stood to suffer R20 million in lost revenue. This prompted
Gijima to institute urgent proceedings to protect its rights under the SAPS
agreement. Following negotiations between the parties, SITA recommended a
commercial solution to resolve the dispute. It proposed that Gijima abandon its claim
arising from the termination of the SAPS agreement in return for which it would
receive a new service contract to offset its potential losses.
[8] Gijima was concerned about SITA’s competence to conclude this contract
without having gone through a competitive bidding process and raised these
reservations with SITA. SITA assured Gijima that it had the authority to conclude the
contract. Relying on this assurance, Gijima agreed to settle the dispute on the basis
proposed by SITA.
[9] Thus, on 6 February 2012, the parties entered into a settlement agreement in
terms of which they agreed that Gijima would render IT services to the Department
of Defence from 1 April 2012 to 31 July 2012. The agreement contemplated that
SITA would compensate Gijima for losses arising from the termination of the SAPS
agreement. Mr Blake Mosley-Lefatola, the erstwhile chief executive officer, signed
the agreement on behalf of SITA.
[10] After the settlement agreement was concluded a further meeting was held
between the parties where Gijima again recorded its concerns that any subsequent
agreement appointing it as the Defence Department’s service provider may be
contrary to the requirement that public procurements are subject to a system of
competitive bidding. At this meeting SITA was represented by, amongst others,
Ms Thenji Mjoli, its former executive of ‘Supply Chain Management’. She allayed
Gijima’s misgivings by giving her word that the appellant’s ‘rec’ committee had the
power to authorise the agreement up to an amount of R50 million. Gijima thus
agreed to negotiate the terms of the agreement to render services to the Defence
Department.
[11] Protracted negotiations over five months followed. SITA was represented by
Ms Mjoli, Mr Carl Masekoameng, its senior procurement contracts manager;
Mr Denis Carstens, a senior manager in its Business Division and Mr Toto
Matshediso, the lead consultant of ‘Budget, Internal Reporting and Projects’. Other
senior staff, including Mr Mosley-Lefatola, also participated in the process.
Throughout the process, Gijima queried whether SITA was complying with its tender
requirements. SITA repeatedly assured Gijima that it was. However, to safeguard its
position, Gijima insisted on inserting a term in the contract according to which SITA
warranted that all procurement processes had been complied with. SITA willingly
agreed to this term. The value of the contract concluded on 17 July 2012 was
R11 329 130 and was intended to endure for five months.
[12] Pursuant to the agreement, Gijima rendered IT services to the Defence
Department and submitted invoices to SITA for payment. The agreement was
thereafter extended on 20 September 2012, 21 December 2012 and 8 April 2013
respectively through the addition of further addenda. I shall hereafter refer to the
agreement and its addenda simply as ‘the agreement’ or ‘the contract’.
[13] A payment dispute developed between the parties during the third extension
period and was referred to arbitration for resolution. On 30 May 2013, SITA informed
Gijima of its intention not to extend the agreement any further.
[14] On 7 July 2013 Gijima submitted its statement of claim to the arbitrator in the
payment dispute in which it claimed R9,5 million for services rendered under the
agreement. In response, SITA pleaded that the agreement was concluded in
contravention of the procurement system contemplated in s 217 of the Constitution
and was therefore invalid and unenforceable against it. This was the first time that
SITA had adopted this stance after assuring Gijima – repeatedly – that there were no
procurement problems with the conclusion of this agreement. Faced with a
constitutional challenge to the main agreement, the arbitrator, on 20 March 2014,
ruled that he had no jurisdiction to determine this issue. And on 6 May 2014, SITA
launched the present proceedings in the court a quo.
[15] I now turn to consider SITA’s first contention, which is that PAJA does not
apply at all when an organ of state seeks to set aside its own decisions. For this
novel proposition it unsurprisingly cites no authority, and I am aware of none.
[16] It is well established that a decision1 by a state entity to award a contract for
services constitutes administrative action in terms of s 1 of PAJA.2 Once this is
accepted, there is no good reason for immunising administrative decisions taken by
the state from review under PAJA. PAJA does not expressly exclude the state and
its language carries no such implication. In fact, s 6(1) specifically empowers ‘[a]ny
person’ to institute proceedings for the judicial review of administrative action, which
suggests that administrative actions taken by the state are included. Furthermore,
there does not appear to be any justification for permitting the state, with all the
resources at its disposal, not to be subjected to the exacting requirements of PAJA in
1 Section 1 of PAJA defines a ‘decision’ as –
‘any decision of an administrative nature made . . . under an empowering provision . . . .’
2 Steenkamp NO v Provincial Tender Board, Eastern Cape [2006] ZACC 16; 2007 (3) SA 121 (CC)
para 90.
the way that all other litigants are. As Cameron J explained in MEC for Health,
Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye & Lazar Institute:
‘Government is not an indigent or bewildered litigant, adrift on a sea of litigious
uncertainty, to whom the courts must extend a procedure-circumventing lifeline. It is
the Constitution’s primary agent. It must do right, and it must do it properly.’3
[17] SITA contends that, even if PAJA applies in principle, the conclusion of the
agreement did not fall within the definition of administrative action because it did not
adversely affect the rights of any person and did not have a direct, external legal
effect. This argument is advanced on the ground that, in fact, the agreement
conferred benefits on Gijima and did not deprive it of any rights.
[18] A literal reading of these requirements does not accord with this court’s
approach in Grey’s Marine Hout Bay (Pty) Ltd v. Minister of Public Works,4 where it
said that such a construction is ‘. . . inconsonant with s 3(1), which envisages that
administrative action might or might not affect rights adversely’.5 The court went on
to explain that, when read in conjunction with the requirement that the decision must
have an external legal effect, the intention was to convey that administrative action
must have ‘the capacity to affect legal rights’, with the two qualifications in tandem
serving to emphasise that it impacts directly and immediately on persons.6
[19] In my view, the conclusion of the agreement, whether or not beneficial to
Gijima, certainly had the capacity to adversely affect its rights, because it
contemplated Gijima’s foregoing its damages claim under the SAPS agreement in
return for rendering IT services to the Defence Department. And, following upon
SITA’s express warranty in the agreement that it had complied with all procurement
3MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye & Lazar Institute
[2014] ZACC 6; 2014 (3) SA 481 (CC) para 82.
4 Grey’s Marine Hout Bay (Pty) Ltd & others v Minister of Public Works & others [2005] ZASCA 43;
2005 (6) SA 313 (SCA).
5 Ibid para 23.
6 Ibid para 23.
requirements, the agreement arguably also affected Gijima’s legitimate expectation
that SITA would honour its terms. But I need not arrive at any specific conclusion in
this latter regard.
[20] The phrase ‘direct, external legal effect’ was borrowed from German federal
law. The allusion to the word ‘direct’ refers to decisions that are final; the word
‘external’ to those that affect not only the decision-maker but also other parties, and
the word ‘legal’ overlaps with the requirements that rights must be affected.7 There
can be no doubt that the decision to conclude the agreement met all these
requirements. The decision was final; it had the capacity to adversely affect Gijima’s
rights and those of the Defence Department, which counsel for SITA conceded
during his argument.
[21] The upshot is that SITA cannot avoid the provisions of PAJA. Its failure to
follow a prescribed competitive process therefore brings its administrative decision,
in awarding the contract to Gijima, within the scope of s 6(2)(a)(i), s 6(2)(b) and
s 6(2)(f)(i) of PAJA. This is because: it did not have the authority to contract outside
of a competitive bidding process to do so; it contravened s 217 of the Constitution
and had also failed to comply with a mandatory and material procedure prescribed
by law.
[22] Once it is accepted that PAJA applies when state entities challenge their own
administrative decisions, the next question, whether the 180-day delay rule in s 7
nevertheless does not apply to them, must be considered. SITA contends that the
provision does not apply; this contention is supported by a provincial decision in
Telkom SA Limited v Merid Trading (Pty) Ltd & others (Telkom SA).8 There, as in this
case, it was contended that s 7(1) did not apply when a decision-maker seeks to sets
7 See Generally: C Hoexter Administrative Law in South Africa 2 ed (2012) at 227-234.
8 Telkom SA Limited v Merid Trading (Pty) Ltd & others; Bihati Solutions (Pty) Ltd v Telkom SA
Limited & others (27974/2010, 25945/2010) [2011] ZAGPPHC 1 (7 January 2011).
aside its own decision.9 This is because, the argument went, paragraphs s 7(1)(a)
and (b), which provide for the date from which the 180-day period begins to run
against the decision-maker, do not cover that situation. Instead the common law
unreasonable delay rule enunciated in Wolgroeiers Afslaers (Edms) (Bpk) v
Munisipaliteit van Kaapstad10 applies. This involves a two stage inquiry: first, whether
the proceedings were instituted after a reasonable time has passed, and if so,
whether the court should exercise its judicial discretion to overlook the unreasonable
delay taking the relevant circumstances into consideration.
[23] The court in Telkom SA upheld the contention. In so doing it held that the
lawmaker seems to have deliberately omitted applying s7 of PAJA to the situation
where a decision-maker seeks to review its own decision.11 It therefore proceeded to
decide the case on the common law rule.
[24] It appears, however, that in interpreting s 7 of PAJA in this manner the court
overlooked s 9(1)(b), which empowers a court ‘on application by the person or
administrator concerned’ to extend the 180 days referred to in s 7(1). An
‘administrator’ is defined in s 1 of PAJA to include an ‘organ of state’. So, read
together, as ss 7 and 9 must be, the 180-day rule indeed applies to organs of state,
and does to the SITA decision at issue in this case. On this point, therefore, Telkom
was incorrectly decided.
[25] Once the 180-day rule applies, s 9(1)(b) allows this period to be extended
only by agreement of the parties or if the person or administrator applies for an
9 ‘Procedure for judicial review
(1) Any proceedings for judicial review in terms of section 6(1) must be instituted without
unreasonable delay and not later than 180 days after the date-
(a) subject to subsection (2)(c), on which any proceedings instituted in terms of internal remedies as
contemplated in subsection (2)(a) have been concluded; or
(b) where no such remedies exist, on which the person concerned was informed of the
administrative action, became aware of the action and the reasons for it or might reasonably have
been expected to have become aware of the action and the reasons.’
10 Wolgroeiers Afslaers (Edms) (Bpk) v Munisipaliteit van Kaapstad 1978 (1) SA 13 (A).
11 Telkom (fn 8 above) para 10.
extension. A court may grant an extension where the interests of justice so require,
as s 9(2) states. It follows that where an applicant needs an extension it must apply
for one and give a full and a reasonable explanation for the delay.
[26] In the instant matter, as I have mentioned, SITA avoided PAJA by seeking
declaratory relief directly under the constitutional principle of legality. It thus could
not, and did not, invoke s 9(2) by applying for an extension of the 180-day period. In
fact, in its founding affidavit, it did not refer to the delay or offer an explanation for it
at all. This is unacceptable.12 In these circumstances, the court a quo found that it
was not in the interests of justice to grant an extension in terms of s 9. However,
without an application from SITA, supported by facts justifying an extension of the
180-day period, the court did not have the power to even consider whether it was in
the interests of justice to extend the period or to entertain the application.13 That
should have been the end of the matter.
[27] But the matter does not end here. SITA maintains that it is nevertheless
entitled to avoid instituting review proceedings under PAJA – and the procedural
requirement under s7 to institute its proceedings within 180 days – by relying directly
on the constitutional principle of legality to obtain declaratory relief against Gijima.
Put differently, it contends that if PAJA applies it had a choice to initiate a review
under its provisions or bypass it, and formulate its cause of action as a legality
challenge. It relies heavily for this submission on the judgment of this court in
Municipal Manager: Qaukeni Local Municipality & another v FV General Trading
CC.14
[28] These were the facts: The municipality concluded an agreement with a
service provider in contravention of prescribed statutory requirements and s 217 of
12 Khumalo & another v Member of the Executive Council for Education: KwaZulu-Natal [2013] ZACC
49; 2014 (5) SA 579 (CC) para 51.
13 Tasima (Pty) Ltd v Department of Transport & others [2013] ZAGPPHC 69; 2013 (4) SA 134 (GNP)
para 30.
14 Municipal Manager: Qaukeni Local Municipality & another v FV General Trading CC [2009] ZASCA
66; 2010 (1) SA 356 (SCA).
the Constitution. It then sought to terminate the contract. The service provider
instituted proceedings to declare the purported termination unlawful together with an
order enforcing the contract. In a counter-application, the municipality sought a
declaratory order that the contract was unlawful and unenforceable against it.
[29] In this court the service provider contended that because the municipality had
not instituted review proceedings to set aside the invalid contract under PAJA, and
the counter-application was not a review, the municipality had no defence to its
action. The court dismissed the argument and said the following:
‘While I accept that the award of a municipal service amounts to administrative action that
may be reviewed by an interested third party under PAJA, it may not be necessary to
proceed by review when a municipality seeks to avoid a contract it has concluded in respect
of which no other party has an interest. But it is unnecessary to reach any final conclusion in
that regard. If the second appellant's procurement of municipal services through its contract
with the respondent was unlawful, it is invalid, and this is a case in which the appellants were
duty- bound not to submit to an unlawful contract, but to oppose the respondent's attempt to
enforce it. This it did by way of its opposition to the main application and by seeking a
declaration of unlawfulness in the counter-application. In doing so it raised the question of
the legality of the contract fairly and squarely, just as it would have done in a formal review.
In these circumstances, substance must triumph over form. And while my observations
should not be construed as a finding that a review of the award of the contract to the
respondent could not have been brought by an interested party, the appellants' failure to
bring formal review proceedings under PAJA is no reason to deny them relief.’15
[30] Although it is perhaps implicit in this passage that a litigant may raise a
legality challenge instead of proceeding by way of a formal review under PAJA, the
court explicitly left open the question whether it was necessary for a municipality to
do so when it seeks to avoid a contract in respect of which no third party has an
interest. It is therefore not binding authority for the issue in this case. Furthermore,
and importantly, the delay rule was not in issue there. However, in MEC for Health,
Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye & Lazer Institute 16
15 Ibid para 26.
16 MEC For Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye & Lazer Institute
2014 (3) SA 481 (CC) para 83.
Cameron J, writing for the majority in the Constitutional Court, intimated that an
organ of state could not avoid the consequences of the delay rule by resorting to
‘procedural tricks’.17 This is because, he said, when the government has delayed
bringing proceedings to set aside its decision ‘the court and Kirland are entitled to
know what happened in that time’.18 In other words, it could not simply ignore the
rule by not bringing a counter-application.
[31] As with Qaukeni, in Kirland the court did not decide the extent to which organs
of state can or must use the provisions of PAJA in proceedings where they seek to
review their own decisions.19 Kwa Sani Municipality v Underberg/Himeville
Community Watch Association & another20 also concerned a municipality seeking to
set aside its own decision. This court said that the facts made it unnecessary to
determine whether it was necessary for the review to be brought under the common
law or under the provisions of PAJA since the delay rule – whether under PAJA or at
common law – would apply, thus insulating the unlawful act from being set aside.
[32] However, the issue has now been raised squarely in this case, and can no
longer be elided. It is important to bear in mind that SITA did not institute review
proceedings by using uniform rule 53 either under PAJA or directly under the
Constitution on the ground of legality. If it had, it would have had to have made the
complete record available to Gijima and the court; and justify the delay. Instead it
applied for declaratory relief, which in substance is a legality review, but without
explaining the delay. Under s 7 of PAJA, as we have mentioned, the delay rule is
180 days. When the application is styled as a legality challenge, but in substance is
a legailty review, the two-stage enquiry enunciated in Wolgroeiers21 applies. This
means that the fact of an undue delay will play a role in the court’s exercise of its
discretion whether or not to entertain the review.22 As I have said, SITA’s contention
17 Ibid para 83.
18 Ibid para 70.
19 Ibid para 82 at fn 43.
20 Kwa Sani Municipality v Underberg/Himeville Community Watch Association & another [2015]
ZASCA 24; [2015] 2 All SA 657 (SCA) para 32-34.
21 Fn 10 above. See also Khumalo & another v Member of the Executive Council for Education:
KwaZulu-Natal [2013] ZACC 49; 2014 (5) SA 579 (CC) para 49.
22 Lawrence Baxter Administrative Law (1989) Juta p 715.
is that it had a choice to proceed by way of PAJA or rely directly on the constitutional
principle of legality.
[33] It is necessary to distinguish between a PAJA review, on the one hand and a
legality review, on the other. PAJA was enacted to give effect to the right to lawful
administrative action in s 33 of the Constitution.23 And, as it was intended to be, and
in substance is, a codification of the rights in s 33, so the Constitutional Court said in
New Clicks,24 it was not possible for litigants to go behind it, by relying either directly
on s 33(1) or on the common law, when reviewing unlawful administrative actions as
this would undermine the very purpose for which it was enacted.25 So, PAJA covers
administrative action while private (contractual) power remains reviewable at
common law.26 In short, if the unlawful administrative action falls within PAJA’s remit
there is no alternative pathway to review through the common law.
[34] But the ‘burgeoning principle of legality’27 is arguably a greater threat to PAJA
than recourse to the common law because it regulates the exercise of all public
power. This includes, in addition to administrative decisions covered by s 33 and
PAJA, power exercised by the legislature and the executive.28 Lord Bingham, one of
Britain’s most eminent jurists, pithily captured the principle thus:
‘Ministers and public officials at all levels must exercise the powers conferred on them in
good faith, fairly, for the purpose for which the powers were conferred, without exceeding the
limits of such powers and not unreasonably.’29
23 ‘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, . . . .’
24 Minister of Health & another NO v New Clicks South Africa (Pty) Ltd & others (Treatment Action
Campaign & another as Amici Curiae) [2005] ZACC 14; 2006 (2) SA 311 CC.
25 Ibid paras 95 and 143.
26 C Hoexter ‘The Constitutionalization and Codification of Judicial Review in South Africa’ in
C Forsyth et al Effective Judicial Review (2010) at 56.
27 See C Hoexter (above fn 7) generally at 133-137.
28 Fedsure Life Assurance Ltd & others v Greater Johannesburg Transitional Metropolitan Council &
others 1999 (1) SA 374 (CC) paras 58 and 59.
29 T Bingham The Rule of Law (2010) at 60.
[35] Because of the ubiquitous reach of the principle of legality, and the fact that
administrative actions also fall within its remit, it is unsurprising that litigants and the
courts have sometimes deliberately sidestepped PAJA. The reason is obvious; it is
at times difficult to work out whether the unlawful action complained of qualifies as
administrative action. Many of the elements of the definition remain unsettled. One
only has to look to the difficulty courts have had in establishing whether the action in
question has satisfied the element of having ‘a direct, external legal effect’ to
demonstrate the nature of the problem.30
[36] But it is not a problem that can legitimately be avoided. For if a litigant or a
court could simply avoid having to conduct the sometimes testing analytical enquiry
into whether the action complained of amounts to administrative action, PAJA, in
Professor Hoexter’s words:
‘. . . would soon become redundant, for no sane applicant would submit to its definition of
administrative action (or to the strict procedural requirements of section 7) if he or she
actually had a choice.’31
[37] Put differently, the consequence of this would be that the principle of legality,
unencumbered by PAJA’s definitional and procedural complexities, would become
the preferred choice of litigants and the courts – which is happening increasingly –
and PAJA would fall into desuetude. This would be a perverse development of the
law, one that the framers of the Constitution would not have contemplated when they
drafted s 33(3) of the Constitution.32 Neither would the lawmaker have imagined this
when enacting PAJA.
[38] In my view, the proper place for the principle of legality in our law is to act as a
safety-net or a measure of last resort when the law allows no other avenues to
challenge the unlawful exercise of public power. It cannot be the first port of call or
30 See Hoexter (above fn 7).
31 See Hoexter (above fn 27) at p 59.
32 See fn 23 above.
an alternative path to review, when PAJA applies. As this court said in National
Director of Public Prosecutions & others v Freedom Under Law:33
‘The legality principle has now become well established in our law as an alternative pathway
to judicial review where PAJA finds no application.’ (emphasis added)
[39] The facts of this case demonstrate precisely why SITA should not be allowed
to bypass PAJA and rely directly on the principle of legality. Under s 7 of PAJA, SITA
was well outside the 180-day rule when it commenced proceedings to nullify its
contract with Gijima. By framing its application as a legality review it sought to
circumvent PAJA and its 180-day rule. What is more, SITA’s true objective in
seeking to nullify its contract with Gijima was not to vindicate the principle of legality,
but one of self-interest: to avoid having to deal with its payment dispute arising from
its breach of contract through arbitration. The courts cannot countenance such
dishonourable conduct, particularly from an organ of state.34 I should emphasise that
the delay rule, which is aimed at bringing finality to administrative decisions is itself
an incident of the rule of law. As Boonzaier observes in his thoughtful treatment of
the topic: ‘government can act antithetically to the rule of law even as it purports to
assert legality.’35 SITA’s legality challenge was therefore not competent, and its
application was correctly dismissed.
[40] But, even if SITA was entitled to rely directly on the principle of legality it
would still have had to overcome the insurmountable hurdle of justifying its delay.
This is because, having instituted legality review proceedings it would need to show
that proceedings were instituted within a reasonable time, failing which, that there
were, nevertheless, good reasons for the court to entertain the application and
overlook the fact of the unreasonable delay in the circumstances of the case. In this
latter regard, SITA would have to persuade the court that any potential prejudice or
33 National Director of Public Prosecutions & others v Freedom Under Law 2014 (4) SA 298 (SCA)
para 28.
34 Cf Khumalo & another v Member of the Executive Council for Education: KwaZulu-Natal 2014 (3)
SA BCLR 333 (CC) paras 71-73. See also L Boonzaier ‘Good Reviews, Bad Actors’ (2017) 7 CCR
(forthcoming) at 10-11.
35 Ibid.
adverse consequences caused to Gijima by the delay could be overcome.36 It has
not done so.
[41] It is beyond dispute that the delay of some 22 months in launching its legality
challenge is unreasonable. SITA contends that the delay should be overlooked
because it became aware that the contract was invalid only when it was required to
deliver its plea in the arbitration proceedings. But this explanation was not proffered
in its founding papers; in fact there was simply no proper explanation of the process
or the delay. Instead, it used affidavits from a deponent who was not involved in the
process and who had no direct knowledge of the relevant facts. The first time this
account was given was in a laconic, single sentence in the replying affidavit. This
alone justifies its rejection.
[42] Furthermore, the explanation appears to be contrived and far-fetched. SITA
was aware of Gijima’s concerns with the validity of the agreement, which the head of
procurement and other senior officials consistently dismissed. In fact, SITA went so
far as to give an express warranty to the effect that all procurement requirements
had been met in circumstances where its senior management must have been
aware that this was not the case. During the lengthy negotiations over the payment
dispute between the parties, no issue concerning the validity of the contract was
raised. In the circumstances, the perfunctory and cavalier explanation for the delay is
unreasonable and must fail. The prejudice to Gijima is evident.
[43] SITA attempts to explain away the prejudice to Gijima by contending that it
has already benefitted from the agreement to the tune of R26 million. That is not the
point. Gijima has had to forego a R20 million damages claim in respect of the
unlawful termination of its SAPS contract, which is probably no longer enforceable
because of prescription. What is more, Gijima had pertinently raised its concerns
regarding the efficacy of the procurement process and was entitled to rely on SITA’s
36 Ibid para 52.
express warranty regarding the validity of the procurement process. It did so to its
prejudice immediately when the contract was concluded. It has since then performed
fully under the terms of the agreement, only to be met with a challenge to the
lawfulness of the contract 22 months after its conclusion. In the circumstances it
would be unfairly prejudicial to Gijima for this court to consider the merits of the
dispute, and we decline to do so.
[44] In summary, we hold that PAJA applies when an organ of state seeks to set
aside its own administrative decisions. And when PAJA does apply, litigants and the
courts are not entitled to bypass its provisions and rely directly on the constitutional
principle of legality. But even if this case is approached as a legality review, SITA
failed to place facts before the court to overcome the hurdle of the unreasonable
delay in commencing proceedings against Gijima.
[45] In the result the following order is made:
‘The appeal is dismissed with costs, including the costs of two counsel.’
_______________
A Cachalia
Judge of Appeal
Bosielo JA (Dlodlo AJA concurring)
[46] I have had the benefit of reading the judgment by my brother Cachalia JA. I
regret that I do not agree with his reasoning and conclusion. I hereunder set out my
fundamental grounds for differing with him. As my colleague has set out the salient
facts out as fully as possible, I will not repeat them save where it is necessary to give
context to my dissenting judgment. More so that to a large extent, the facts are
common cause or not seriously disputed.
[47] Essentially, our fundamental point of difference is, whether the parties being
in agreement that the impugned contract is invalid for its failure to comply with the
peremptory statutory requirements of s 21737 of the Constitution, SITA should be
denied the opportunity to have this illegal contract declared invalid simply because it
adopted the route of a review based on legality and not through the Promotion of
Administrative Justice Act 3 of 2000 (PAJA). Therefore the crisp legal question to be
answered is whether it is legally permissible for SITA to launch a legality attack when
PAJA is available.
[48] These background facts are necessary to explain my judgment. SITA is an
organ of state; it has for almost 10 years been involved with GIJIMA in various
business transactions for various government departments. The relationship
between SITA and GIJIMA was regulated by a contract called ‘the 433 contract’.
Based on this ‘433 contract’ GIJIMA was placed on ‘a preferred list’ of suppliers. My
colleague describes the relationship as follows in paras 3 and 4 of his judgment.
37 Section 217 of the Constitution provides:
Procurement – (1) When an organ of state in the national, provincial or local sphere of government, or
any other institution identified in national legislation, contracts for goods or services, it must do so in
accordance with a system which is fair, equitable, transparent, competitive and cost-effective.
(2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection
from implementing a procurement policy providing for –
(a) categories of preference in the allocation of contracts; and
(b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair
discrimination
(3) National legislation must prescribe a framework within which the policy referred to in subsection
(2) must be implemented.
Para [3] ‘It is of some interest to set out the facts that gave rise to the present
dispute. The parties have concluded contracts and conducted business together on
several projects for more than ten years. SITA provides information technology,
information systems, and related services (IT services) to government departments.
It performs this function by entering into agreements with private service providers,
such as Gijima, which in turn provides IT services to the government department.
The way it works is that government departments needing IT services submit a
business case and user requirements to SITA, which then prepares a procurement
schedule for the execution of the request bid, and a detailed costing for the
subsequent contract management.
Para [4] SITA thereafter concludes a business agreement with the relevant
government department for IT services to be provided to it by private service
providers. Armed with this agreement and following a procurement process, SITA
enters into a further agreement for the provision of IT services with a private service
provider on the basis of what the government department is willing to pay for those
services.’
[49] Since 2006, the parties have concluded numerous procurement agreements
based on the so-called ‘433 contracts’. Pursuant to this, GIJIMA did business with
various government departments at both provincial or national levels. These included
Public Works; Agriculture; Economic Affairs; Safety and Liason; Sport, Recreation,
Arts and Culture; Welfare; Kwazulu-Natal Health and the Office of the Premier,
Limpopo. It appears that GIJIMA enjoyed some monopoly of government work.
[50] It is not disputed that the impugned contract was not the result of a normal
tender process. It was more of a convenient compromise by SITA to appease the
disgruntled GIJIMA for the South African Police Service (SAPS) contract which SITA
terminated. This is how this occurred. SITA had concluded an agreement on 26
September 2006 with GIJIMA in terms whereof GIJIMA would render certain
services to SAPS. When SITA sought to have this contract terminated, GIJIMA
launched proceedings in the high court to stop SITA from terminating the contract.
On 6 February 2016, SITA and GIJIMA settled the matter out of court when
essentially SITA offered GIJIMA another contract as a substitute for the SAPS
contract. In terms of the settlement the parties agreed ‘that Gijima shall be appointed
as DSS Service provider to the department of Defence from 1 April 2012 to 31 July
2012 on SITA’s standard terms and conclusion.’ Based on this settlement
agreement, GIJIMA was appointed for the ‘provisioning of hardware, maintenance
and support for the Department of Defence without any tender. The rand value of
this agreement is R11 329 130.
[51] Self-evidently, this contract does not comply with the clear precepts of s 217
nor the Preferential Procurement Policy Framework Act 2000 nor SITA’s own supply
chain management policy. In simple terms there was no open tender. In the
circumstances, the process can hardly be said to be transparent, equitable, fair,
competitive or cost effective. Section 172(1)(a)38 of the Constitution commands that
such a contract be declared invalid as being inconsistent with the Constitution.
[52] As fate would have it, a dispute arose between the parties regarding payment.
As a result, on 30 May 2013, SITA gave notice to GIJIMA of its intention to terminate
the contract. On 17 July 2013, GIJIMA instituted arbitration proceedings against
SITA. SITA opposed the claim on the basis that the contract was unconstitutional as
it did not comply with s 217 of the Constitution. In other words, it impugned the
legality of the contract. On 20 March 2014, the arbitrator ruled that based on the
constitutional attack, he had no jurisdiction over the matter.
38 Section 172(1) of the Constitution provides:
‘Powers of courts in constitutional matters –
(1) When deciding a constitutional matter within its power, a court -
(a) must declare that any law or conduct that is inconsistent with the Constitution is invalid to the
extent of its inconsistency; and
(b) may make any order that is just and equitable, including –
(i) an order limiting the retrospective effect of the declaration of invalidity; and
(ii) an order suspending the declaration of invalidity for any period and on any conditions, to
allow the competent authority to correct the defect.’
[53] Hardly three months thereafter, on 6 May 2014, SITA issued the present
proceedings in the high court in terms whereof it sought to review and had this
contract set aside as being invalid as it was not compliant with s 217 of the
Constitution. GIJIMA opposed the application. GIJIMA contended in the main that
the application should be dismissed as it should have been brought under PAJA and
not the principle of legality. Paradoxically, this is notwithstanding the fact that it
conceded that the impugned contract was not awarded in terms of s 217 of the
Constitution.
[54] My colleague accepts GIJIMA’s submissions that SITA should have
proceeded by way of PAJA and not an attack based on legality. He holds the view
that the appeal ought to be dismissed. In dismissing the appeal, my colleague stated
the following:
Para 44 ‘In summary, I hold that PAJA applies when an organ of state seeks to set aside its
own administrative decisions. And when PAJA does apply, litigants and the courts are not
entitled to bypass its provisions and rely directly on the constitutional principle of legality. But
even if this was approached as a legality review, SITA failed to place the facts before the
court to overcome the hurdle of unreasonable delay in commencing proceedings against
Gijima.’
He then concludes as follows at para 38:
‘In my view, the proper place for the principle of legality in our law is to act as a safety-net or
a measure of last resort when the law allows no other avenues to challenge the unlawful
exercise of public power. It cannot be the first port of call or an alternative path to review,
when PAJA applies.’
[55] I do not agree with my colleague in his findings and conclusion. Section 7(2)
of the Constitution39 states in peremptory terms that organs of state have a
constitutional obligation to respect, protect and fulfil our constitutional obligations.
Courts are a constituent part of the state. Like all organs of state, they also have a
39 Section 7(2) of the Constitution provides:
‘The state must respect, protect, promote and fulfil the rights in the Bill of rights.’
constitutional obligation to ensure that constitutional obligations are respected and
fulfilled. It would be subversive of this constitutional obligation to use the courts to
thwart a party or deny it the opportunity to assert, protect and promote the principle
of legality. I can think of no reason in law, logic or principle that can justify a court to
deny SITA its right to attack the constitutionality of a contract which is admitted to be
unconstitutional simply because it opted for an attack based on the principle of
legality and not through PAJA. For me that amounts to a slavish adherence to
formalism and compromising substance. Generally the law is about justice. And
justice should not be deflected or sacrificed on the alter of formalism. In the language
of s 172 of the Constitution such acts are invalid as they are inconsistent with the
Constitution. Section 1(c)40 of the Constitution asserts in unambiguous language the
supremacy of the Constitution and the rule of law as one of its foundational values.
Self-evidently, this is a constitutional imperative.
[56] In turn, s 241 of the Constitution declares the Constitution to be the Supreme
Law of the Republic. It states in peremptory terms that any law or conduct
inconsistent with it is invalid and, importantly, that the obligations imposed on it must
be fulfilled.
[57] Our courts are the foremost and vigilant guardians of our Constitution, its
values and mores. Like all other organs of state, they have an obligation to respect,
protect, promote and fulfil its obligations. As a result, no court may countenance or
enforce conduct that is incongruent with the Constitution as it will be acting in
violation of the Constitution – the supreme law. This principle was enunciated in
Kirkland as follows:
40 Section 1 of the Constitution provides:
‘1. The Republic of South Africa is one, sovereign, democratic state founded on the following values:
(a) Human dignity, the achievement of equality and the advancement of human rights and freedoms.
(b) Non-racialism and non-sexism.
(c) Supremacy of the constitution and the rule of law.
(d) Universal adult suffrage, a national common voters roll, regular elections and a multi-party system
of democratic government, to ensure accountability, responsiveness and openness.’
41 Section 2 of the Constitution provides:
‘Section 172(1)(a) obliges every court when deciding a constitutional matter within its powers
to declare invalid any conduct that is inconsistent with the Constitution. The court has no
choice’.
[58] A question that needs to be answered in this appeal is whether it is
permissible, in the context of the court’s constitutional obligations as set out in s
172(1) of the Constitution for a court to countenance or legitimize a flagrant
unconstitutional procurement like the one in this case under the guise that SITA
should have proceeded by way of PAJA and not legality. Put simply, can SITA be
denied the opportunity to vindicate s 217 and the principle of legality by such
procedural technicalities. Certainly not. PAJA owes its existence to the Constitution.
[59] Faced with such an intractable problem, the Constitutional Court held as
follows in Khumalo:42
‘In the previous section it was explained that the rule of law is a founding value of the
Constitution and that the state functionaries are enjoined to uphold and protect it, inter alia,
by seeking the redress of their departments’ unlawful actions. Because of these fundamental
commitments, a court should be slow to allow procedural obstacles to prevent it from looking
into a challenge to lawfulness of an exercise of public power.’ (Own emphasis).
[60] SITA, as a public institution or organ of state has a constitutional obligation,
when confronted with such a flagrant violation of s 217, to take appropriate action.
This obligation assumes greater importance in the sphere of public procurement as
public resources are implicated. This puts enormous responsibility on it to ensure
that public resources are used properly and prudently. This Court puts it more
pointedly as follows in Premier, Free State Province & others where it stated:
‘the province [SITA] was under a duty not to submit itself to an unlawful contract and
[was] entitled indeed obliged, to ignore the delivery contract and to resist’.43
42 Khumalo & another v MEC, Education: KwaZulu-Natal 2014 (3) BCLR (CC).
[61] By parity of reasoning, it is antithetical to the supremacy of the Constitution
and the rule of law to compel SITA to comply with an invalid contract, solely because
of a procedural technicality. Such an approach would result in contracts that are
patently illegal or inconsistent with the Constitution being allowed to stand. Needless
to say, this will undermine the constitutional principle of legality. And in the field of
public procurement, it will create an opportunity for unscrupulous tenderers and
some corrupt government officials to bypass s 217 and embark on corrupt activities.
Such conduct will inevitably lead to a wastage of scarce public resources. This
legitimate concern is articulated as follows in Trencon Construction v Industrial
Development Corporation 2015 (5) SA 245 (CC) at para 1:
‘In our society, tendering plays a vital role in the delivery of goods and services. Large sums
of public money are poured into the process and government wields massive public power
when choosing to award a tender. It is for this reason that the Constitution obliges organs of
state to ensure a procurement process is fair, equitable, transparent, competitive and cost-
effective. Where a procurement process is shown not to be so, courts have the power to
intervene.’
[62] The evidence here is that GIJIMA stood to benefit some R11 329 130 from
this contract, where there was no open and competitive process. There is no
evidence that it was fair, equitable or cost effective. Section 217 aspires to ensure
that whenever public funds are disbursed to procure services, there must be some
proof that the process is transparent, competitive and cost effective. In other words,
the state must get value for money. Furthermore, by being open and transparent,
there is some assurance that the process will be fair and equitable as other
competent bidders will have a fair opportunity to put in competing bids. Needless to
say that such a process is aimed at dealing a deadly blow to the scourge of fraud,
corruption and bribery that are so ubiquitous in the field of public procurement.
Sadly, over the years corruption has become synonymous with public procurement
in this country. With the passage of time, it has become a malignant cancer which is
43 Premier, Free State & others v Firechem Free State (Pty) Ltd 2000 (4) SA 413 (SCA); [2000] 3 All
SA 247 para 36.
fast eroding our social and moral fabric. The deleterious effect of a failure to abide by
s 217 are admirably set out in AllPay Consolidated44 as follows:
‘As Corruption Watch explained, with reference to international authority and experience,
deviation from fair process may themselves all too often be symptoms of corruption or
malfeasance in the process. In other words, an unfair process may betoken a deliberately
skewed process. Hence insistence on compliance with formalities has a threefold purpose:
(a) it ensures fairness to participants in the bid process; (b) it enhances the likelihood of
efficiency and optimality in the outcome; and (c) it serves as a guardian against a process
skewed by corrupt influences.’
Furthermore, the Constitutional Court stated the following to about insidious effect of
corruption in Glenister.45
‘There can be no gainsaying that corruption threatens to fell at the knees virtually everything
we hold dear and precious in our hard-won constitutional order. It blatently undermines the
democratic ethos, the institutions democracy, the rule of law and the fundamental values of
our nascent constitutional project. It fuels maladministration and public fraudulence and
imperils the capacity of the state to fulfil its obligations to respect, protect, promote and fulfil
all the rights enshrined in the Bill of Rights. When corruption and organized crime flourish,
sustainable development and economic growth are stunted. And in turn, the stability and
security of society is put at risk.’
[63] It is correct as my colleague states in his judgment that there is no clarity or
unanimity on whether organs of state are obliged to use PAJA and not invoke the
principle of legality when they seek to review their own decisions. This question was
left open in Kwa Sani Municipality v Underberg/Himeville Community Watch
Association, MEC for Health, Eastern Cape & another v Kirkland Investments (Pty)
Ltd and Municipal Manager: Qaukeni Local Municipality & another v FV General
Trading CC. As my colleague remarked aptly, this is the time for this question to be
answered clearly.
44 AllPay Consolidated v Chief Executive Officer, SASSA 2014 (1) SA 604 (CC) para 27.
45 Glenister v President of the Republic of South Africa & others 2011 (3) SA 347 (CC); 2 All 16; 2007
(3) BCLR 300 at para 33-35.
[64] In this case it is common cause that there was no open tender when this
contract was awarded to GIJIMA. This is a clear violation of s 217. Section 217 (1)(a)
declares such a contract unconstitutional and invalid to the extent of its inconsistency
with Constitution. SITA had instituted proceedings to have its decision reviewed and
set aside as being unconstitutional. All the necessary averments were traversed in
the affidavits by the respective parties. The question of the legality of this contract
was raised clearly and unequivocally. However, instead of PAJA it opted to proceed
by way of an attack based on the principle of legality.
[65] To my mind, this step does not violate the principle of subsidiarity as there is
no frontal attack against the legality of a procurement process. In any event the
principle of subsidiarity is not inflexible. There will be cases like this one where it is
not applicable as set out in My Vote Counts v Speaker 2016 (1) SA 132 (CC) at para
182. My colleague would dismiss SITA’s appeal based on its failure to use PAJA. I
think he is wrong. A failure to bring the application under PAJA can never be a good
reason to deny SITA the relief it seeks. I am fortified in my view by what this court
stated in Municipal Manager v FV General Trading46 where it held:
‘While I accept that the award of a municipal service amounts to administrative action that
may be reviewed by an interested third party under PAJA, it may not be necessary to
proceed by review when a municipality seeks to avoid a contract it has concluded in respect
of which no other party has an interest. But it is unnecessary to reach any final conclusion in
that regard. If the second respondent’s procurement of municipal services through its
contract with the respondent was unlawful, it is invalid and this is a case in which the
appellants were duty bound not to submit to an unlawful contract but to oppose the
respondent’s attempt to enforce it. This it did by way of its opposition to the main application
and by seeking a declaration of unlawfulness in the counter-application. In doing so it raised
the question of the legality of the contract fairly and squarely, just as it would have done in a
formal review. In these circumstances, substance must triumph over form. And while my
observations should not be construed as a finding that a review of the award of the contract
to the respondent could not have been brought by an interested party, the appellants’ failure
to bring formal review proceedings under PAJA is no reason to deny them relief.’
46 2010 (1) SA 356 (SCA) para 26.
[66] It is common cause that SITA is an organ of state which performs public
functions in terms of national legislation. As its functions have a public character, it is
subject to the principle of legality, which requires it to perform its functions within the
strict parameters of the law. The parties are agreed that the impugned contract was
not done in accordance with the prescripts of s 217 of the Constitution. As an organ
of state, SITA has a constitutional obligation to have this illegal contract reviewed
and set aside. SITA being an organ of state has no choice. It is not only entitled but
obliged by the Constitution to approach a court to have its own unconstitutional act
or decision declared invalid and set aside. See Pepcor Retirement Fund & another v
Financial Services Board &another 2003 (6) SA 38 (SCA).
[67] There is some support for the view that PAJA does not purport to exhaust the
possibility of reviews based on the exercise of public power. In other words it is not
the be all and end all. As a result direct constitutional review of the exercise of public
power by an organ of state remains open on the basis of amongst others, the
principle of legality in matters that do not strictly qualify as administrative action
under Constitution or PAJA itself.47 The Constitutional Court gave a clear indication
in Bato Star Fishing48 that there are administrative actions that do not fall under
PAJA. It said at para 25:
‘The provisions of s 6 divulge a clear intention to codify grounds of review of administrative
action as defined in PAJA. The cause of action for the judicial of review of administrative
action now ordinarily arises from PAJA, not from the common law as in the past. And the
authority of PAJA to ground such causes of action rests squarely on the Constitution. It is not
necessary to consider here causes of action for judicial review of administrative action that
do not fall within the scope of PAJA.’ (My own emphasis).
[68] Essentially, judicial review under PAJA is an important remedy for individuals
aggrieved by bad decisions made by public administrators. The clear language of
s 6(1) of PAJA seems to suggest that only persons who are aggrieved by a decision
47 The Promotion of Administrative Justice Act Bench book – the bench book – Ian Currie and
Jonathan Klaasen.
48 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs 2004 (4) SA 490 para 25.
by an administrator may institute review proceedings against such an administrator.
Section 6(2) gives a court or tribunal the power to judicially review an impugned
administrative action taken by an administrator. To my mind, the distinction which s 6
draws between who may take a matter on review under PAJA and against whom, is
very crucial. It is not fortuitous that s 6 does not refer to an instance where an organ
of state initiates review proceedings, particularly where legality is involved. To my
mind, a direct attack by SITA based on the principle of legality was the proper route
to take in this case. I do not understand the passage in Minister of Health49 to the
effect that a litigant cannot avoid the provisions of PAJA by going behind it, and
seeking to rely on s 33(1) of the Constitution or the common law to mean that a state
organ which wishes to bring a constitutional challenge against its own decision can
only go by way of PAJA and never through the principle of legality. It is true that
PAJA is the national legislation that was passed to give effect to the rights in s 33,50
which clearly contemplates private citizens (persons). This must be so as s 33(2)
refers expressly to everyone whose rights have been adversely affected by an
administrative action. We know that only an organ of state can take an administrative
action.
[69] My colleague expressed some disquiet about what he described as
unreasonable delay before SITA instituted these review proceedings. This he does
by counting from the day the agreement was concluded. His calculations add to 22
months. In contrast SITA stated that it became aware of the unconstitutionality of the
agreement during its preparations for the arbitration hearing. It raised
unconstitutionality as a defence at the arbitration hearings. It instituted the review
proceedings within three months after the arbitrator declined to hear the matter. This
cannot be described as unreasonable delay. As a result, there was no need for an
49 Minister of Health v New Clicks SA (Pty) Ltd & others 2006 (2) SA 311 (CC) paras 95-96.
50 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.
explanation. In any event, unlike PAJA, an attack based on the principle of legality is
not subject to time limits except that it must be done within a reasonable time. What
a reasonable time is can only be decided on the facts of each case. This requires the
presiding judge to exercise a value judgment. On SITA’S submissions, there was no
delay. In any event, I think that it would be unfair to put up such procedural
technicalities as hurdles to deny SITA the right to vindicate legality.
[70] On the facts of this case, I have no doubt that it is in the public interest to
allow SITA to vindicate s 217 and the principle of legality and not to thwart it by
procedural technicalities. This will conduce to proper and accountable use of state
resources for the benefit of the public as it offers the organs of state which find
themselves in similar circumstances like SITA, an effective mechanism to deal with
corruption, inefficiency and wasteful expenditure.
[71] In the result, I would uphold the appeal with costs including the costs of two
counsel.
______________
L O Bosielo
Judge of Appeal
APPEARANCES
For Appellants:
K Tsatsawane (and C Marule)
Instructed by:
Gildenhuys Malatji Inc, Pretoria
Honey Attorneys, Bloemfontein
For Respondent:
A Subel SC (and S Bunn)
Instructed by:
Baker & McKenzie, Johannesburg
Symington & De Kok, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
30 September 2016
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
STATE INFORMATION TECHNOLOGY AGENCY SOC LTD
v
GIJIMA HOLDINGS (PTY) LTD
The Supreme Court of Appeal (SCA) today dismissed an appeal by the State
Information Technology Agency (SITA) to declare unlawful a contract it concluded
with Gijima (an information technology company) in July 2012.
Gijima had delivered services to the Department of Defence until a payment
dispute arose. Gijima referred the dispute, in which it was claiming R9.5 million, to
an arbitrator in July 2013. At the arbitration SITA claimed that the contract was
entered into without having gone through an open tender process and was
therefore unconstitutional and unlawful. Because this was a constitutional issue the
arbitrator ruled that he had no jurisdiction to consider the issue.
SITA then applied to the High Court in Pretoria to declare the contract unlawful.
The High Court dismissed the application on the ground that the SITA had delayed
unreasonably in instituting legal proceedings against Gijima.
The contract was concluded following the settlement of a R20 million dispute
between SITA and Gijima relating to an earlier contract in terms which Gijima had
provided IT services to the South African Police Service (SAPS). SITA had
unlawfully terminated that contract and agreed, as part of the settlement with
Gijima, to enter into another contract with Gijima in terms of which it would render
services to the Department of Defence in order to compensate it for the unlawful
termination of the SAPS contract.
During the negotiations with SITA for the Defence Contract SITA repeatedly
assured Gijima that there were no legal problems with the fact that this contract
was not being put out for an open tender. SITA warranted this in the agreement.
However, when the payment dispute arose SITA sought to invalidate the
agreement despite having given Gijima these assurances.
The SCA, by a majority (Cachalia JA, Tshiqi and Van Der Merwe JJA concurring),
held that SITA had acted in a self-interested and dishonourable manner and had
delayed for more 22 months in seeking to invalidate the contract, which it knew all
along was unlawful. It had also circumvented the Promotion of Administrative
Justice Act 3 of 2000, which required the decision to conclude the contract be
challenged within 180 days, which the SCA held it could not do.
In a minority judgment (Bosieolo JA, Dlodlo AJA concurring) held that SITA was
entitled to institute review proceedings under the principle of legality and had not
delayed unreasonably in instituting legal proceedings against Gijima.
|
1841
|
non-electoral
|
2011
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 329/10
In the matter between:
THE MEC FOR THE DEPARTMENT OF HEALTH
FOR THE PROVINCE OF KWAZULU-NATAL
Appellant
and
DENISE FRANKS
Respondent
Neutral citation:
The MEC for the Department of Health v Denise Franks
(329/10) [2011] ZASCA 84 (27 May 2011)
Coram:
NAVSA, PONNAN, SNYDERS, THERON JJA AND MEER
AJA
Heard:
09 May 2011
Delivered:
27 May 2011
Summary:
Delict - factual causation not established – inferences from
facts in civil matters.
ORDER
On appeal from: KwaZulu-Natal High Court (Pietermaritzburg) (Patel J sitting
as court of first instance):
The appeal is upheld with costs, including the costs of two counsel.
The order by the court below is set aside and replaced with the
following:
‘The plaintiff’s action is dismissed with costs, including the costs of two
counsel.’
JUDGMENT
SNYDERS JA (Navsa, Ponnan, Theron JJA and Meer AJA concurring)
[1] The KwaZulu-Natal High Court, Pietermaritzburg (Patel J sitting as court of
first instance) decided that the appellant was to be held liable for the
paramedics in his employ having transmitted the Human Immunodeficiency
Virus (HI Virus) to the respondent, Ms Franks, at the scene of a collision in
which she was injured and a pedestrian was killed. The appellant was given
leave to appeal by the court below. The conclusion reached by the court
below is wrong for the reasons that follow.
[2] On 31 August 2000 the respondent was a passenger in a vehicle that was
travelling to Durban on the N3 highway. At approximately 18:30, near the
Mooi River Toll Plaza the vehicle collided with a pedestrian, Mr Mthalane, the
deceased, causing his death. The respondent, sitting in the front passenger
seat, suffered fractures to her skull and several lacerations to the left side of
her scalp apparently due to the fact that her head struck the windscreen of the
vehicle.
[3] Two paramedics in the employ of the appellant attended to the respondent
at the scene of the collision and took her by ambulance to the
Pietermaritzburg Medi-Clinic where she received further treatment. After her
discharge from hospital on 5 September 2000 she returned to her home in
Johannesburg. Approximately three weeks later she experienced curious
symptoms and approximately another three weeks later the symptoms were
identified as classic sero-conversion as a result of having contracted the HI
Virus.
[4] The doctors treating the respondent informed her that the window period
for the HI Virus to manifest in sero-conversion symptoms and a positive blood
test is three to six weeks from the date of infection. Calculating backwards
from 10 October 2000, when she was first diagnosed, and adopting a process
of reconstruction and elimination, the respondent concluded that she could
only have been infected as a result of the treatment she received at the scene
of the collision, from the paramedics in the employ of the appellant. It was her
friend, Ms Ritchie, who was a passenger in the same vehicle, who planted the
idea with the appellant that the infection possibly occurred at the scene of the
collision.
[5] The respondent’s cause of action is based on the alleged negligent
causation of bodily harm by the appellant’s employees, acting within the
course and scope of their employment. The respondent pleaded a positive
allegation of fact that the deceased was infected with the HI Virus at the time
of the collision and that the appellant’s employees negligently caused the
transfer of the virus from the deceased’s body to her.
[6] During the hearing of the appeal both counsel were agreed, correctly so,
that it was essential for the respondent’s case to have established the fact
that the deceased was infected with the HI Virus. No direct factual proof was
introduced at the trial, hence the respondent’s counsel relied on four
circumstantial facts and a process of inferential reasoning for his submission
that the court below correctly found that the deceased was infected with the
HI Virus. Firstly, that the deceased had recorded the telephone number of an
organisation called AID for AIDS in his diary. Secondly, that the incidence of
infection with the HI Virus in KwaZulu-Natal was high. Thirdly, that the
collision and treatment received as a result thereof is the only occasion at
which the respondent could have been infected with the HI Virus. Fourthly,
that the evidence of the sequence of events at the scene of the collision
established the opportunity for the respondent’s infection.
[7] The respondent’s attorneys retrieved the deceased’s diary and introduced
it into evidence through the testimony of his father. Mr Mthalane identified the
diary and the handwriting therein as that of his son. The diary contains names
and numbers of individuals and, what appear to be businesses. The names
‘Aid for Aids (Bonitus)’ and a telephone number appear twice in the diary.
[8] The finding by the court below that the deceased was infected with the HI
Virus reads as follows:
‘The plaintiff has at least at a prima facie level made out a case that the deceased may have
had HIV or for that matter full blown AIDS. In his notebook, it was shown in the deceased’s
own handwriting that he had noted various HIV/AIDS helpline numbers. In cross-examination,
Prof. Smith conceded that only two inferences may be drawn from these notations in the
deceased’s diary, namely, that either he was an AIDS Councillor or was himself infected with
the virus. No evidence was presented that he was an AIDS Councillor nor did defendant’s
Counsel canvass this possibility with the deceased’s father when he testified. People are not
in the habit of carrying these numbers unless they have a particular interest. Mthalane having
any academic interest in the matter is far fetched and can be easily discounted.
In my view and in the absence of evidence providing an alternative explanation, the only
reasonable inference in the circumstances is that Mthalane was HIV positive at the time of the
accident. The inference is further strengthened by the incidence of HIV in this province as
testified to by Prof Smith and Dr Webber and alluded to hereinbefore.’
[9] The reasoning of the court below is replete with errors. The conclusion that
it has been shown ‘prima facie’ that the deceased ‘may have had HIV’ does
not satisfy the civil burden of proof. Only one HIV/AIDS helpline number is
contained in the deceased’s diary, repeated twice and not ‘various HIV/AIDS
helpline numbers’. The concession relied upon from the evidence of the
expert witness for the appellant, Prof Smith, on what inferences were to be
drawn from the inscriptions in the deceased’s diary, was inadmissible. Prof
Smith is a specialist virologist, called as a witness to inform the court of,
amongst other things in his field of expertise, the characteristics of the HI
Virus, its viability outside the body, the possible ways of transfer of the virus
and the window period for finding evidence of the virus in the bloodstream
after infection. Whether the deceased was infected with the HI Virus is an
inference sought to be drawn from an inscription in a diary, not from facts
within the expertise of Prof Smith. Hence the inferential reasoning from the
inscription in the diary was within the exclusive domain of the court below and
Prof Smith’s evidence in that regard is inadmissible. To have expected the
appellant to have produced evidence to eliminate some inferences was
tantamount to placing an onus of proof on the appellant. The reverse should
have been done. The respondent was obliged to put the evidence before the
court that warranted the inference sought to be drawn. It was for the
respondent’s counsel to have asked the deceased’s father about the
deceased’s marital status, interests, morality, health and activities. Such
information may have provided the basis for preferring one inference over
another. It was furthermore a simple matter for the respondent’s legal
representatives to have followed up the telephone numbers in the deceased’s
diary and placed the outcome of the investigation before the trial court. That
the deceased may have had an academic interest in the subject matter of the
HI Virus was rejected as ‘far fetched’ without explanation. This rejection is
unfounded in view of the absence of any facts about the deceased. The trial
court’s conclusion that ‘the only reasonable inference in the circumstances is
that Mthalane was HIV positive at the time of the accident’ is untenable.
[10] The difference in standard of proof between criminal and civil litigation
has necessitated the adaptation of the second leg of the well known process
of inferential reasoning stated in R v Blom 1939 AD 188 at 202-203:
‘In reasoning by inference there are two cardinal rules of logic which cannot be ignored: (1)
The inference sought to be drawn must be consistent with all the proved facts. If it is not, the
inference cannot be drawn. (2) The proved facts should be such that they exclude every
reasonable inference from them save the one sought to be drawn.’
In Ocean Accident and Guarantee Corporation Ltd v Koch 1963 (4) SA 147
(A) at 159B-D the adapted process of reasoning was stated as follows:
‘As to the balancing of probabilities, I agree with the remarks of SELKE, J, in Govan v
Skidmore, 1952 (1) SA 732 (N) at p. 734, namely “. . . in finding facts or making inferences in
a civil case, it seems to me that one may, as Wigmore conveys in his work on Evidence, 3rd
ed., para. 32, by balancing probabilities select a conclusion which seems to be the more
natural, or plausible, conclusion from amongst several conceivable ones, even though that
conclusion be not the only reasonable one”.
I need hardly add that “plausible” is not here used in its bad sense of “specious”, but in the
connotation which is conveyed by words such as acceptable, credible, suitable. (Oxford
Dictionary, and Websters’s International Dictionary).’ 1
[11] There is no single other fact about the deceased against which to test the
consistency of an inference sought to be drawn from the possession of a
telephone number of an Aids help-line. The conclusion drawn by the court
below is pure speculation. The mere possession of a telephone number does
not give rise to the probable inferences sought to be drawn by the court
below. Two speculative propositions were suggested during the trial. That the
appellant was infected with the HI Virus and that the appellant was involved in
assistance and support for people infected with the HI Virus. The respondent
preferred the former, arguing that it is improbable that the deceased would
have written down the number of an organisation that he worked for. Equally
valid or invalid speculation does, however, arise. The deceased could have
been a social worker or community conscious individual who referred people
with the HI Virus to the organisation Aid for Aids or he could have been
interested in the subject matter and in search of information. This exercise
illustrates that in the absence of any other facts one can only speculate and
there exists no indication why one speculative proposition is more acceptable
than any of the others.
[12] Counsel for the respondent submitted that if the inscription in the
deceased’s diary is reconciled with the remaining three aspects mentioned in
para 6 the conclusion that the deceased was infected with the HI virus
manifests as the most acceptable of all possible inferences. The trial court not
only drew this inference, but also found that it was strengthened by the
‘incidence of HIV in this province’. The evidence of Prof Smith was that ‘in the
year 2000, 20% of the male population of South Africa was HIV positive’. The
1 See also AA Onderlinge Assuransie-Assosiasie Bpk v De Beer 1982 (2) SA 603 (A) at
614G-A and Scwikkard and Van der Merwe Principles of Evidence 3 ed 2009 p 538 para 30 5
3.
court below accepted the following as common cause in relation to the
statistics:
‘The prevalence of the HIV virus in the male population in KwaZulu-Natal in and around 2000
was according to the experts, and I do not think it to be contravened, was in the region of
30%.’
[13] This finding by the trial court is not being challenged by any of the parties,
but is, however, not reconcilable with an inference that the deceased, a
random member of the society, was part of the statistical 30%. Although the
prevalence of HI Virus infection, relatively speaking, is very high, known to be
of the highest in the world, the incidence is more reconcilable with a
conclusion that the deceased was probably not infected with the HI Virus.
Therefore the incidence percentage of HI Virus infection does not assist the
drawing of an inference that the deceased was infected.
[14] Given the window period for infection to manifest, it is logical to conclude
that the respondent was likely to have been infected towards the end of
August, beginning of September. Uncontested evidence by the respondent
attempted to exclude her infection in any other way than through contact with
infected blood at the scene of the collision. She testified that she had been
faithful to her husband during their 20 year marriage. She could not have
been infected through sexual intercourse as he has tested negatively for the
HI Virus on several occasions after her diagnoses. She had a dental
extraction that required surgery and stitching two days before the collision. To
exclude that as a cause she led the evidence of Dr Spencer, a specialist in
internal medicine and infectious diseases, that the incidence of infection
during such a procedure is very low. Dr Chite, a neuro-surgeon who practices
at the Pietermaritzburg Medi-Cross testified that the prospects of her having
been infected whilst she was treated at the casualty ward of that hospital after
the collision, was also very small.
[15] The evidence tendered to exclude the respondent’s infection during the
dental procedure and the treatment at the casualty ward of the hospital is
general and vague in its terms, unrelated to the specific occasion of the
respondent’s treatment and given by persons who were not present when she
was treated. It contributes little to the specifics of an investigation of a
probable occasion of infection and should not have been elevated to that. The
evidence does, however, establish that, in general terms, the incidence of
infection at dental surgeries and casualty wards of hospitals is small. But that
is also true of the scene of the collision. The individuals who treated the
respondent testified to safe practises adopted to prevent the transfer of
viruses and their evidence exclude the opportunity of transfer of blood from
the deceased to the respondent. Assuming for the moment that the deceased
was infected with the HI Virus, the expert evidence, in general, was that the
virus had limited prospects to remain viable after the collision, considering that
the deceased would have died five to ten minutes after impact and that the
viability of the virus was dependant on factors such as time passed since
death, ambient temperature and viral load. The influence of these factors on a
virus outside the deceased’s body in congealed blood was even greater and
the chances of infection dependant on the quantity of congealed blood
transferred. The evidence was that the ambulance arrived approximately 40
minutes after the collision. Prof Smith was of the view that the HI Virus would
not have remained viable outside the body for longer than ten minutes. Prof
Martin, a virologist, testified that the virus could have survived for longer, but
the length of time is uncertain. At best, the evidence shows that the chances
of the virus surviving under the circumstances that operated at the scene of
the collision and for the respondent to have been infected in the way that she
contends, are as small, if not smaller, than at the average dental surgery or
casualty ward.
[16] The trial court made credibility findings about the evidence of witnesses
that testified to events after the collision and arrived at the conclusion that
credible evidence on behalf of the respondent showed that blood from the
deceased was transferred to the respondent by the appellant’s employees.
This is an irrelevant fact if it was not established that the deceased was
infected with the HI Virus. However, the court below used this factual finding
to assist in drawing the inference that the deceased was infected with the HI
Virus, a conclusion defended by the respondent. This reasoning is illogical as
it begs the question and amounts to the drawing of an inference from an
inference. Even if the reasoning was sound, the appellant’s challenge of the
trial court’s evaluation of the evidence and the conclusions arrived at should
be considered.
[17] An appeal court is slow to interfere with factual findings based on
credibility, but if they are plainly wrong, the appellate court is at large to
disregard the findings affected by the misdirection and arrive at its own
conclusion.2 The discussion that follows will show that this court is at large to
disregard the rejection by the trial court of the evidence of the appellant’s
witnesses.
[18] The trial court accepted the evidence of the respondent’s friend Ritchie.
The evidence of the two witnesses for the appellant, Mr Mahabeer and Mr
Dayal, was rejected. Mahabeer was in the employ of Toll Road Concessions
(Pty) Ltd at the time, tasked to provide roadside assistance and first aid to
stranded motorists. He held a basic life support qualification which allowed
and enabled him to provide first aid. Dayal was one of the two paramedics in
the employ of the appellant that arrived on the scene and attended to the
respondent.
[19] The essential difference in the evidence of Ritchie on the one hand and
Mahabeer and Dayal on the other, involves the investigation of an opportunity
for blood from the deceased’s body to have come into contact with the
respondent’s open head wound. The court below accepted Ritchie’s evidence
in the following terms:
‘Her evidence was that the ambulance personnel, i.e. the defendant’s employees, stopped at
the body of the deceased before they came to assist the plaintiff. She could not see what they
were doing to the deceased, but saw that they were “working on him”. She assumed that they
were checking for vital signs. They also removed the body from the road surface. They
thereafter came to the plaintiff and administered treatment to her. Part of this treatment was
an attempt to put an IV-line in the plaintiff’s arm. They also put a bandage on the plaintiff’s
head after manipulating the wound.’
2 R v Dhlumayo 1948 (2) SA 677 (A) at 705-706 and the wealth of subsequent cases that
confirm the principle.
[20] Mahabeer testified that he was the first person to arrive on the scene of
the collision. He put a dry dressing on the respondent’s head wound, without
‘manipulating the wound’. The effect of the rejection of Mahabeer’s evidence
was that the trial court did not accept that he was on the scene and attended
to the respondent. Objective evidence introduced at the trial, without any
objection, corroborates that Mahabeer was at the scene. A so-called MVC
Report, completed by the staff in the control room that notified Mahabeer of
the collision and summonsed him to attend, was handed into evidence. This
document supports Mahabeer’s evidence that he was informed of the collision
at 18:40 and arrived on the scene at 18:42. More importantly, it also contains
other information supplied by Mahabeer at the time from the scene of the
collision to the control room. He confirmed this information during his
evidence, namely that the breakdown service arrived at 18:46, the police at
19:05 and the ambulance of the appellant at 19:30.
[21] Dayal corroborated Mahabeer’s evidence when he testified that he put a
dry bandage on the respondent’s head wound over a smaller one that was
already in place. Only a conspiracy to be dishonest could account for the
evidence by Mahabeer and Dayal. It was never suggested to either of them
that their evidence was the result of such a conspiracy.
[22] Criticisms of the evidence of Mahabeer and Dayal were advanced on
behalf of the appellant. Inconsistencies in their evidence are on lesser issues
and to be expected of witnesses testifying almost five years after the event.
There are no indications inherent in the evidence of the two witnesses why
their evidence should be rejected. The trial court’s list of criticisms of their
evidence does not go to the root of their evidence and is equally applicable to
the evidence of Ritchie. They all gave evidence long after the event and, to
some degree, reconstructed the occasion. Mahabeer and Dayal were assisted
by documentation completed at the time. They were also assisted by the
routine procedures always adopted by them in the performance of their
functions. Although this collision was an event that stood out for Ritchie as
unusual, she was involved in the collision and could not have been
emotionally untouched. These factors are not determinative of the reliability of
the evidence of any of the witnesses and should not have motivated credibility
findings.
[23] Dayal’s evidence of the sequence of events was that he and his
colleague arrived on the scene and first treated the respondent whilst wearing
new gloves, thereafter and before loading her into the ambulance he changed
his gloves and went to the deceased, checked the deceased’s vital signs,
pronounced him dead, returned to the ambulance, discarded the gloves he
used when he checked the deceased’s vital signs, loaded the respondent into
the ambulance and left. Both Mahabeer and Dayal’s evidence therefore
exclude any opportunity for the actual transfer of blood from the deceased to
the respondent.
[24] Ritchie’s evidence was inherently no better than that of the appellant’s
witnesses. However, the court below ignored crucial contradictions between
the respondent’s pleadings and Ritchie’s evidence, the only witness for the
respondent of the events on the scene after the collision. In her particulars of
claim the respondent pleaded:
‘The emergency medical treatment performed by the said employees of the Defendant as set
out in paragraph 7 above, was performed on the Plaintiff directly after the said employees
had:
8.1
carried the body of Mthalane from the surface of the freeway where it was
lying to the side of the freeway;
8.2
attempted to resuscitate Mthalane and/or administered emergency medical
treatment to him, which treatment necessitated physical contact between the said employees
and the blood of the body or corpse of Mthalane;
8.3
applied dressings and medication to the right leg of Mthalane where it had
been amputated.’
[25] The pleaded version was not supported by any evidence on behalf of the
respondent. This significant discrepancy in the respondent’s case motivated
an unopposed application for an amendment at the end of the trial to insert a
new paragraph 8.4 into the particulars of claim in the following terms:
‘8.4
touched the body of the deceased to look for vital signs.’
[26] If any witnesses’ reconstruction of the events led to inconsistencies that
affected the reliability of a version, it was that of Ritchie. There is no support in
the evidence for a finding that there was an opportunity at the scene of the
collision, for transfer of blood from the deceased to the respondent’s open
wound.
[27] The respondent did not prove her case and should not have succeeded in
the court below. Therefore the following order is made:
The appeal is upheld with costs, including the costs of two counsel.
The order by the court below is set aside and replaced with the
following:
‘The plaintiff’s action is dismissed with costs, including the costs of two
counsel.’
_________________
S SNYDERS
JUDGE OF APPEAL
APPEARANCES:
For appellant:
Y N Moodley SC (with him T S I Mthembu)
Instructed by: The State Attorney, Kwazulu-Natal;
The State Attorney, Bloemfontein.
For respondent:
D T v R du Plessis SC
Instructed by: Hauptfleish Attorneys, Johannesburg;
McIntyre & Van Der Post, Bloemfontein.
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
* * *
Ms Franks suffered the misfortune of contracting HIV. She believed it happened at
the scene of a collision that she was involved in. The vehicle that she was
passenger in collided with a pedestrian on the N3 highway near the Mooi River Toll
Plaza. The pedestrian was killed and she suffered, amongst other injuries,
lacerations to her scalp. She was treated on the scene by an employee of Tolcon
and paramedics in the employ of the respondent. According to information available
to her the respondent’s paramedics dealt with the deceased pedestrian before they
treated her and she presumed that they transferred HIV infected blood from him to
her. She was successful in her action against the respondent in the Pietermaritzburg
High Court.
However, today the Supreme Court of Appeal overruled that decision and concluded
that Ms Franks did not manage to place reliable evidence before the court to support
her presumption. Fundamental to the failure of her appeal was the complete
absence of any evidence that the deceased was infected with HIV.
|
3240
|
non-electoral
|
2007
|
REPUBLIC OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number: 302/06
Reportable
In the matter between:
THE MINISTER OF SAFETY AND SECURITY
FIRST APPELLANT
THE COMMANDING OFFICER SERIOUS
ECONOMIC OFFENCES UNIT
SECOND APPELLANT
D H S SMITH
THIRD APPELLANT
and
S H BENNETT
FIRST RESPONDENT
G P PORRITT
SECOND RESPONDENT
SYNERGY MANAGEMENT (PTY) LTD
THIRD RESPONDENT
MAJORSHELF 117 (PTY) LTD
FOURTH RESPONDENT
A DATHOO N.O
FIFTH RESPONDENT
J U E BUYTENDAG N.O
SIXTH RESPONDENT
B M MTBELE N.O
SEVENTH RESPONDENT
CORAM:
FARLAM, NUGENT, CLOETE, PONNAN et
MLAMBO JJA
HEARD:
3 MAY 2007
DELIVERED: 8 NOVEMBER 2007
SUMMARY:
Search and seizure – whether execution of warrants issued in terms
of s 21 of Criminal Procedure Act 51 of 1977 invalid – whether seizure of documents
covered by warrant invalidated by simultaneous seizure at the same time of privileged
documents not covered thereby.
Neutral citation: This judgment may be referred to as Minister of Safety and
Security v Bennett [2007] SCA 139 (RSA).
_______________________________________________________
JUDGMENT
________________________________________________________
FARLAM JA
[1] This is an appeal against a decision by Bertelsmann J, sitting in the
Pretoria High Court, in which, amongst other things, he declared the
execution of certain search warrants to have been performed in an
unconstitutional and unlawful fashion and ordered the return of all documents
removed in terms of the warrants.
[2] The
respondents
in
this
matter,
Susan
Hilary
Bennett,
a
businesswoman of Johannesburg, Gary Patrick Porritt, a businessman of
Johannesburg and two companies at whose premises searches authorized by
the warrants took place, applied to the Pretoria High Court for, amongst other
things, orders (1) setting aside search warrants issued by magistrates in
Pietermaritzburg, Kokstad and Johannesburg, (2) directing the appellants, the
Minister of Safety and Security, the commanding officer of the Serious
Economic Offences Unit of the South African Police Services, and a member
of the unit, who is the investigating officer in a criminal case pending against
the respondents, to return all documents, data and other property seized
pursuant to the warrants and (3) interdicting the appellants from utilizing any
of the documents, other property seized pursuant to the warrants or copies or
reproductions thereof or information derived therefrom.
[3] Bertelsmann J refused to set aside the warrants holding that they were
validly issued. He also refused to interdict the use at the trial of the
respondents of the documents, data or other property or copies or
reproductions or information therefrom, holding in this regard that the trial
court would be in a better position to decide on the admissibility of evidence
derived from the execution of the warrants. The respondents have not cross
appealed against his refusal to set the warrants aside or to interdict evidence
obtained pursuant to the execution thereof.
[4] The learned judge did, however, as I have said, grant an order
declaring the execution of the warrants to have been performed in an
unconstitutional and unlawful fashion as well as directing the appellants to
return to the respondents all documents removed in terms of the warrants. In
addition to ordering the appellants to pay the costs he made a declaration that
the appellants were entitled, at their own expense, to make copies of all
documents they had removed in terms of the warrants, other than privileged
documentation, and ordered that such copies prepared by the appellants had
to be placed in sealed boxes and handed to the Registrar of the
Johannesburg High Court for safekeeping, pending a decision by the trial
court as to the admissibility of individual documents.
[5] The second respondent was arrested on various charges of fraud and
contravening the Income Tax Act in December 2002. The first respondent was
arrested on the same charges in March 2003.
[6] They are to stand trial in the Johannesburg High Court on an
indictment containing over 3 000 counts of fraud and contraventions of
various provisions of the Income Tax Act, the Companies Act, the Stock
Exchanges Control Act, the Exchange Control Regulations and the Prevention
of Organised Crime Act.
[7] On 24 March 2005 members of the South African Police Service,
acting in terms of search warrants issued on 23 and 24 March 2005 under s
21 of the Criminal Procedure Act 51 of 1977, searched premises at 218 Boom
Street, Pietermaritzburg, Hlani Farm, Swartberg, and 32 Delta Road, Elton
Hill, Johannesburg and seized some 400 000 documents. The documents
seized were marked with reference to the identification of the files in which
they were bound and placed in boxes which were sealed.
[8] At the time of the search and seizure at Boom Street, Pietermaritzburg,
an attorney, Mr TP Reed, who acted on behalf of the respondents, was
present and participated in a discussion with the third appellant and Director
Van Graan, another representative of the South African Police Service,
relating to the procedure to be followed with regard to the documents seized.
The marking of the documents and their being placed in sealed boxes took
place in accordance with an agreement concluded then and there between Mr
Reed and the third appellant and Director Van Graan. It was also agreed that
Mr Reed could be present when the seals were removed so that he could
satisfy himself that the documents had not been tampered with.
[9] During the discussion between Mr Reed and Director Van Graan and
the third appellant it was never suggested that privileged documents were
involved.
[10] Subsequent to the seizure of the documents the first and second
respondents brought an application in Pretoria High Court for an order
interdicting the first appellant from opening the sealed boxes containing the
seized documents, pending the outcome of an application for the setting aside
of the warrants. In the founding affidavit in that application it was stated for the
first time that privileged documents had been seized. This allegation was
confined to the documents seized at Delta Road, Elton Hill, Johannesburg.
[11] The application for an interdict was dismissed by Van der Merwe J on
13 May 2005. In his judgment he found that the warrants had been lawfully
issued and executed.
[12] Thereafter the State Attorney, acting on behalf of the appellants, invited
the first and second respondents to engage in a process with an independent
advocate appointed on behalf of the Police Service in order to identify
privileged or possibly privileged documents. In terms of the process the
advocate and the first and second respondents were to be present when the
boxes were opened, privileged documents were to be identified and
immediately handed over to the first and second respondents. No members of
the Police Service were to participate in the process. This process was
agreed to. It extended over the period from 23 May to 2 June 2005. In total 18
000 pages of privileged documents were identified and handed over to the
first and second respondents. On all days except the last either the first or the
second respondent was present with the independent advocate when the
boxes were opened.
[13] On 3 June 2005, the day after the identification process ended, the first
and second respondents (to whom I shall refer in what follows as ‘the
respondents’) brought an application, inter alia, for an order authorising them
to make copies of all documents seized, alternatively to have access to the
process of paginating and inventorising them. In this application they alleged
for the first time that privileged documents had also been seized at Boom
Street and Loop Street, Pietermaritzburg.
[14] On 11 August 2005 the respondents brought the application forming
the subject of the present appeal. As I have said the respondents did not
obtain the relief they had sought in relation to the alleged validity of the
warrants or an exclusion of information obtained thereunder at their trial but
they did obtain an order for the return of all the documents seized, whether or
not they were privileged. (The appellants had tendered return of all privileged
documentation, in so far as it had not already been returned.)
[15] The portion of the judgment dealing with the return of the documents,
even though not covered by privilege, reads as follows:
‘61.
The removal of the privileged documentation was intentional in the sense that the
police were informed, while they were executing the warrants, by applicants’ attorney
that privileged documents were among the vast mound of paper that was removed.
None of the items identified as privileged were inspected by the police. They have
remained sealed.
62.
But the removal of privileged documentation remains a very serious matter. It
infringes the right to legal representation and to attorney-client confidentiality,
regardless of whether the documents were inspected and considered by the State
and the police or not.
63.
The removal of privileged documents was never authorized by the warrants. A
warrant must be strictly interpreted – this is trite: See section 14 of the Constitution
108 of 1996; Powell NO and Others v Van der Merwe NO and Others 2005 (1) SACR
317 (SCA) and the comprehensive discussion of the authorities therein; Cheadle,
Thompson and Haysom and Others v Minister of Law and Order and Others 1986 (2)
SA 279 (W); De Wet and Others v Willers NO and Another 1953 (4) SA 124 (T).
64.
The applicants demand the return of all items seized in the operation that was tainted
by the removal of the privileged documents, as well as a blanket interdict against the
use thereof in all future proceedings, in particular the criminal trial that is about to
start next year. Grave as the infringement of the right to protection of privileged
communications is, I am not convinced that the future proceedings have been
irreparably tainted to the extent that the entire criminal trial with all its thousands of
charges can at this stage already be said to be unfair under any circumstances.
There is no evidence that the privileged papers were ever read by any police officer
or State official. Although the warrants were carried out unlawfully, and although all
documents removed in terms of the warrants must therefore be returned to the
applicants, it is normally the prerogative of the trial court to decide whether any
evidence that would otherwise be admissible but was obtained unconstitutionally,
should nonetheless be admitted in the interests of justice.’
[16] Counsel for the appellants contended that the Court a quo misdirected
itself in a number of respects and that its decision that the warrants had been
executed in an unconstitutional and unlawful fashion was incorrect. In
particular they submitted that the court’s finding that members of the Police
Services intentionally removed privileged documents, which was clearly the
basis of its decision on this part of the case, was not supported by the
evidence before it. It will be recalled that the judge said that ‘the removal of
the privileged material was intentional in the sense that the police were
informed, while they were executing the warrants, by [the respondents’]
attorney that privileged documents were among the vast mound of paper that
was removed.’ (The emphasis is mine.)
[17] It is clear that this statement refers to what Mr Reed, the attorney who
was then acting for the respondents, said to the third appellant and Director
Van Graan when the search warrant relating to the premises in Boom Street,
Pietermaritzburg, was being executed. The respondents’ own version of what
happened then is set out in a letter addressed by the attorneys presently
acting for the respondents to the State Attorney on 17 May 2005, the material
portions of which read as follows:
‘4.1
Attorney Reed saw Superintendent Smith [the third appellant] at the Boom Street
premises shortly after the SAPS had arrived to commence their search and seizure. He saw
that members of the SAPS were putting quantities of files into boxes and told Superintendent
Smith that he required a full index of every document taken. Superintendent Smith said he
would do so and would place the items in boxes which would be sealed and the boxes would
be opened at their office in Pretoria on Wednesday, 30 March 2005. He said that Mr Porritt or
any person authorised by Mr Porritt may be present. . . .
4.2
Superintendent Smith and Director van Graan later came to see Attorney Reed at his
offices (which are just up the street) and said that they did not have time to go through all the
documents and that they were simply going to issue an index indicating the number of lever
arch files removed. They stated, however, that our clients would not be prejudiced as they
could be present or could have a representative present when the boxes were opened in
Pretoria and a proper inventory drawn up. . . .
4.3
On the basis of their concession that they did not have time to go through all the
documents and without prejudice to the rights of our clients, Attorney Reed accepted the offer
that our clients or their representatives could be present when the boxes were opened;
however, he insisted on an index being issued by the SAPS indicating the subject matter of
each file. Director van Graan and Superintendent Smith agreed to let him have this and again
stated that, in any event, our clients and/or their representatives could be present at the
opening of the boxes. . . .
4.4
It was Attorney Reed’s clear understanding that this agreement applied to the
opening of all the boxes sealed during the various search and seizure operations.
4.5
Attorney Reed then spoke to Mrs Bennett [the first respondent] . . .
4.6
Attorney Reed then informed Director van Graan and Superintendent Smith that Mrs
Bennett would not be available on 30 March 2005 as she was involved in a court
case. Attorney Reed was informed by them that if Mrs Bennett could not be present
then she could arrange for someone else to represent her. Attorney Reed thereupon
stated to Director van Graan and Superintendent Smith that this was impractical as
only Mrs Bennett and Mr Porritt (and not someone who had no experience of the
matter) could properly say what documents were covered by the warrants or not. . . .
4.7
The offer made by Superintendent Smith and Director van Graan was unconditional
and was given on the basis that they accepted that the search and seizure operations
were being carried out without the presence of our clients and that all the documents
being removed had not been properly examined or inventoried and may not be
covered by the warrants. It was understood that any prejudice suffered by our clients
could be mitigated by their being present when the sealed boxes were opened.’
[18] It is clear that the existence of privileged documents was not
mentioned by Mr Reed to the members of the Police Service who were
executing the warrants.
[19] The matter is taken further in a letter written on 22 May 2005 by Mr
Harry Pretorius, another attorney who acted at one stage on behalf of the
respondents, in which the following appears:
’10.
With regard to privilege, if our clients had been present at the search and seizure
operations, they would have been able to claim privilege over any articles at the time,
which could then have been placed in a sealed box pending an agreement as to how
these articles would be handled.
11.
However, this did not happen because your client deliberately chose to carry out their
operations on the late morning before the Easter weekend, when any reasonable
person would have known that it was likely that our clients would not be present at
the premises and that their legal representatives would also not be available. In any
case, it would have been impossible for our clients to have been in seven different
locations at the same time, and they were thus denied their right to claim privilege at
the time of the search and seizure.
12.
Attorney Tommy Reed, who was consulted at the Boom Street premises but did not
attend during the entire operation as he too was leaving for the Easter weekend, was
the only person who had any knowledge of the concept of privilege. However, he has
stated that only our clients would know what documents were privileged or not.
13.
The persons who were present at the four premises when documents were seized
had no such knowledge of the concept of privilege or that it could be claimed, or
indeed what documents could be claimed as being privileged. Such persons were the
domestic worker employed by Sue Bennett (and not the businesses) at Delta Road,
the farm manager at Hlani Farm, John Robinson (an estate agent) at Loop Street,
and the receptionist and two bookkeeping staff at Boom Street.
14.
In any event, we do not believe that anyone other than our clients can have had the
requisite knowledge of the facts in order to claim privilege at the time of the seizures.
In this respect, it should be noted that Mrs Bennett has not had sight of stacks of the
documents seized in Pietermaritzburg – only Mr Porritt has – so she would also have
to check with Mr Porritt on what can be claimed as privileged.’
[20] This statement makes it clear beyond any doubt that privilege was not
claimed at the time of the search and seizure at any of the four places where
the warrants were executed.
[21] In the circumstances I am satisfied that the basis for the court a quo’s
finding that the warrants were executed in an unconstitutional and unlawful
manner was incorrect. The members of the police service adopted the
procedure they did with the consent of the respondents’ attorney, Mr Reed.
This procedure was designed to ensure that the respondents would not be
prejudiced in any way. The attorney and client privilege was not in fact
breached because the privileged documents remained sealed in the boxes
until identified, whereupon they were forthwith handed to the respondents. Not
a single document was read by any member of the Police Service or any
other State official.
[22] Counsel for the respondents contended, however, that what they called
the animus of the police when executing the warrants was not relevant when
the lawfulness of the execution of the warrants was under consideration in a
case such as the present when privileged documents were seized. They
contended further that the fact that the documents once seized were put in
sealed boxes and not read by the police was also irrelevant.
[23] Counsel stressed that the warrants did not authorise the seizure of
privileged documents and that in seizing such documents (even though they
were not read and were kept in sealed boxes until identified and handed over
in terms of the process summarised above) the police had acted beyond the
terms of the warrant. Counsel went so far as to submit that the seizure of one
privileged document rendered the whole execution of the warrant in question
invalid with the result that all documents seized thereunder had to be returned
even if they were covered by the express terms of the warrant. It was
contended that this result flowed from the fact that the attorney and client
privilege, for obvious and cogent reasons, enjoys a high degree of protection
under our law. It was conceded that no authority could be found either in our
system or in other jurisdictions supporting the proposition contended for but it
was argued that it was necessary from a policy point of view for such a ruling
to be made. Counsel also contended that, although this was not the law
before the Constitution came into force, the strong adherence to the principle
of legality which characterises our law under the Constitution means that the
law is now different. It was also argued that, if this were not so, the door would
be opened to what were described as cavalier searches with no practical
restrictions. Once they had a search warrant the police could enter premises,
seize whatever took their fancy, sort it at their leisure and hand back what was
not covered by the warrant: there would be no effective sanction to prevent
such behaviour.
[24] In my view this argument is devoid of merit. I can think (without
intending to cover the whole field) of various sanctions which could be
invoked against conduct of the kind described, namely delictual actions for
damages and disciplinary steps against the police officers concerned.
[25] In any event it is difficult to see how considerations of that kind can
operate in a case such as the present where the police officers concerned
acted in the way they did with the consent of the respondents’ attorney and
the authorities went out of their way to devise and implement a process to
prevent prejudice to the respondents.
[26] Nor is it clear why documents covered by a valid search warrant and
seized in execution thereof should be regarded as having been unlawfully
seized merely because privileged documents, which ex hypothesi were not
covered by the warrant, were also seized. Regard being had to the judge’s
order to the effect that the State could copy the documents not covered by
privilege and lodge them for safe keeping with the Registrar of the
Johannesburg High Court (which order was not challenged on appeal before
us) it is difficult to see how the resultant practical problems the State would
encounter in trying to use the documents could be regarded as a sanction,
effective or otherwise, against the police who seized the privileged documents
in the circumstances described.
[27] In the circumstances I am satisfied that the appeal must succeed and
that the judgment of the court a quo cannot be upheld.
[28] As regards costs no costs order was made in the court a quo and
counsel for the appellants did not contend that if the appeal succeeded, the
appellants should be given their costs in the court a quo.
[29] The following order is made:
1.
The appeal is allowed with costs, including those occasioned by the
employment of two counsel.
2.
The order of the court a quo is set aside and replaced with the
following:
‘The application is dismissed.’
……………..
IG FARLAM
JUDGE OF APPEAL
CONCURRING
NUGENT
JA
CLOETE
JA
PONNAN
JA
MLAMBO
JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM:
The Registrar, Supreme Court of Appeal
DATE:
8 NOVEMBER 2007
STATUS:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
The Supreme Court of Appeal gave judgment today upholding an appeal brought by
the Minister of Safety and Security, the commanding officer of the Serious Economic
Offences Unit and a member of the unit against an order made in the Pretoria High
Court by Mr Justice Bertelsmann in favour of Ms S Bennett, Mr G Porritt and two
companies, in which he declared the execution of certain search warrants to have been
performed in an unconstitutional and unlawful fashion.
Appeal Judge Farlam, with whom Appeal Judges Nugent, Cloete, Ponnan and
Mlambo concurred, held that Mr Justice Bertelsmann had misdirected himself in
holding that the police in this case had intentionally removed privileged documents
from the respondents’ premises.
Appeal Judge Farlam said that the members of the police who executed the warrants
adopted a procedure agreed to by the attorney acting for Ms Bennett, Mr Porritt and
their companies. The documents seized were not read by the police but marked and
placed in sealed boxes. Later the sealed boxes were opened in the presence of an
independent advocate and (except for the last day) either Ms Bennett or Ms Porritt.
Documents found to be privileged were returned to Ms Bennett and Mr Porritt. No
member of the police force participated in the process and not a single document was
read by any member of the police service or any other State official.
Mr Justice Farlam also rejected an argument put up by counsel for Ms Bennett, Mr
Porritt and their companies that the whole search and seizure operation was rendered
unconstitutional because the police had in addition to documents covered by the
warrants, seized privileged documents which were not covered.
|
3928
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 747/2021
In the matter between:
MEMBER OF EXECUTIVE COUNCIL RESPONSIBLE
FOR LOCAL GOVERNMENT, WESTERN CAPE
APPELLANT
and
MATZIKAMA LOCAL MUNICIPALITY
FIRST RESPONDENT
CHARL STRYDOM N O
SECOND RESPONDENT
ESTELLE MYNHARDT N O
THIRD RESPONDENT
Neutral Citation:
MEC Responsible for Local Government, Western Cape v
Matzikama Local Municipality and Others (747/2021) [2022]
ZASCA 167 (30 November 2022)
Coram:
Plasket, Hughes and Mabindla-Boqwana JJA and Basson and
Mali AJJA
Heard:
10 November 2022
Delivered:
30 November 2022
Summary:
Constitutional law – provincial government powers in relation to
local government – s 106(1) of the Local Government: Municipal Systems Act 32 of
2000 – appointment of investigation into maladministration, fraud, corruption or other
serious malpractice in a municipality – Member of the Executive Council may, in terms
of s 106(1), appoint investigators to investigate allegations of theft.
____________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Western Cape Division of the High Court, Cape Town (Hockey AJ
sitting as court of first instance):
The appeal is upheld.
Paragraphs 3, 5 and 6 of the high court’s order are set aside and paragraph 3
is replaced with the following:
‘3.1 The applicant’s application is dismissed with costs, including the costs of
two counsel.
3.2 The respondent is directed to pay the applicant’s costs in respect of the
applications to amend the notice of motion and to strike out.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Plasket JA and Basson AJA (Hughes and Mabindla-Boqwana JJA and Mali AJA
concurring)
[1] In terms of s 106(1) of the Local Government: Municipal Systems Act 32 of
2000 (the Systems Act), when a Member of the Executive Council responsible for local
government in a provincial government (the MEC) has reason to believe that certain
forms of abuse of power have occurred or are occurring in a municipality, they may
appoint one or more persons to investigate and report on the allegations. The section
reads as follows:
‘If an MEC has reason to believe that a municipality in the province cannot or does not fulfil a
statutory obligation binding on that municipality or that maladministration, fraud, corruption or
any other serious malpractice has occurred or is occurring in a municipality in the province,
the MEC must –
(a)
by written notice to the municipality, request the municipal council or municipal
manager to provide the MEC with information required in the notice; or
(b)
if the MEC considers it necessary, designate a person or persons to investigate
the matter.’
[2] In this appeal, the MEC for Local Government in the Western Cape provincial
government appointed two people in terms of s 106(1) – the second and third
respondents (the investigators) – to investigate allegations relating to a number of
abuses of power, including the theft of municipal money, in the Matzikama Local
Municipality (the municipality). The appeal concerns a narrow but important issue,
namely, whether s 106 empowers an MEC to appoint an investigation into criminal
conduct other than fraud or corruption, which are specifically mentioned in the section.
In order to answer the question raised, it is necessary to interpret s 106(1) and to
consider the judgment in City of Cape Town v Premier, Western Cape, and Others,1 a
matter that Hockey AJ in the Western Cape Division of the High Court, Cape Town
(the high court) considered himself bound by.
Litigation history
[3] In September 2019 eight complaints concerning misconduct in the
administration of the municipality were brought to the attention of the MEC. They
included the alleged irregular appointment of certain individuals without having the
requisite qualifications, the irregular appointment of two family members of the mayor,
the alleged theft of municipal funds in the amount of R 320 000 (the theft allegation)
and irregular payments made to a former ward councillor. After considering the
complaints and after having afforded the municipality an opportunity to make
representations as required by s 106(1)(a) and s 5 of the Western Cape Monitoring
and Support of Municipalities Act 4 of 2014, the MEC took a decision on 21 September
2020 that six of those allegations to which the municipality had given an inadequate
explanation should be investigated by the investigators. One of these complaints
related to the theft allegation.
[4] The municipality launched an urgent application against the MEC and the
investigators to interdict the implementation of the MEC’s decision, pending the
completion of a process of inter-governmental dispute resolution in terms of the
1 City of Cape Town v Premier, Western Cape, and Others [2008] ZAWCHC 52; 2008 (6) SA 345 (C)
(City of Cape Town).
Intergovernmental Relations Framework Act 13 of 2005 (the Framework Act). In the
alternative, it sought to review and set aside the MEC’s decision. The MEC launched
a counter-application in which he sought an order that the municipality, and all those
working for it, be directed to cooperate with the investigators.
[5] The municipality’s case changed fundamentally. It abandoned reliance on the
Framework Act as the basis for an interim interdict and applied to amend its notice of
motion to convert its case into a review of the MEC’s decision. Its application to amend
was granted. A second interlocutory application, brought by the MEC to strike out
matter from the municipality’s replying affidavit, was substantially unsuccessful.
[6] After the interlocutory issues had been dealt with, the key issue before the high
court was whether the MEC had reason to believe that ‘maladministration, fraud,
corruption or any other serious malpractice’ had occurred or were occurring in the
municipality. The high court was satisfied that the MEC had carefully considered all
the complaints with the information at his disposal and that he had ‘reason to believe
that serious malpractice has occurred or was occurring when he made the decision to
initiate the investigation’. It accepted that the MEC did not act with an ulterior motive
when he took the decision. It concluded that all of the allegations were of such a
serious nature that it could not be said that, if found to be true, they did not constitute
one or more of the forms of misconduct that may trigger a s 106(1) investigation. The
high court dismissed the municipality’s application (save in respect of the theft
allegation) and granted the MEC’s counter-application. It made an order that each
party pay its own costs.
[7] The high court, relying on the judgment in City of Cape Town, held that the MEC
had no power in terms of s 106(1) to refer the allegation of theft for investigation
‘especially in light of the fact that this issue had already been referred to the police for
criminal investigation’. The upshot of this finding is that allegations of criminal conduct
in a municipality, with the exception of fraud and corruption, may not be referred for
investigation in terms of s 106(1).
[8] The MEC sought and was granted leave to appeal against the setting aside of
the referral of the theft allegation to the investigators, as well as against the costs
order. These were embodied in paragraphs 3, 5 and 6 of the high court’s order. It
dismissed the municipality’s application for leave to appeal against the dismissal of
the bulk of its application and granted the MEC’s counter-application. This appeal was
unopposed and was disposed of in terms of s 19(a) of the Superior Courts Act 10 of
2013. I turn now to the issues that require determination.
The exclusion of theft from the investigation
City of Cape Town
[9] In City of Cape Town, the MEC had appointed an investigation in terms of
s 106(1) into certain alleged criminal conduct within the city and in a second
municipality. The Premier then appointed a commission, in terms of the Commissions
Act 8 of 1947, to investigate the same conduct. He later dissolved the commission and
simultaneously appointed a second commission with the same terms of reference.
When he did this, the high court held, it had the effect of dissolving the s 106(1)
investigation too.2 The issues for determination, when the city applied for the setting
aside of the appointment of the second commission, were whether the Premier could
appoint a commission to investigate local government affairs otherwise than through
s 106(1); and whether the Premier had appointed the commission for an ulterior
motive.
[10] During the course of reasoning that the appointment of the commission was
invalid on both accounts, the court made certain observations concerning s 106(1).
These included that it was undesirable for a commission to investigate criminal
conduct because this blurred the lines between the functions of the police and the
executive.3 More importantly, however, the court held:4
‘A power on the part of the Premier to appoint a commission to investigate suspected criminal
conduct in relation to a municipality, independently of the provisions of s 106 of the Systems
Act, would again result in the provisions of this section becoming superfluous. In such an
event, the Premier would be entitled to appoint a commission to investigate suspected criminal
conduct of whatever nature, and not merely fraud and corruption in relation to a municipality.
This would not only intrude upon the autonomy of the police to perform such a function, but
also the autonomy of local government.’
2 Ibid para 34.
3 Ibid para 154.
4 Ibid para 155.
[11] The court also held in the following paragraph that the effect of s 106 ‘is to limit
the power of the Premier to appoint a commission of inquiry, with coercive powers, to
investigate only the crimes of fraud and corruption in relation to a municipality.’5
[12] What stands out in the City of Cape Town judgment is that no contextual
process of interpreting s 106 was undertaken by the court. Instead, it appears to have
simply accepted that only the crimes of fraud and corruption may be investigated in
terms of s 106. In order to determine whether this conclusion is correct, and hence the
correctness of Hockey AJ’s setting aside of the referral of the theft allegation for
investigation, it is necessary to interpret s 106(1). We turn now to that exercise.
The scheme of s 106
[13] The power conferred upon the MEC by s 106(1) of the Systems Act is
dependent on the jurisdictional fact that the MEC has reason to believe that
maladministration, fraud, corruption or any other serious malpractices had occurred or
were occurring in the municipality. If this jurisdictional precondition is satisfied the MEC
may appoint an investigation.6 The MEC’s belief is objectively justiciable. That means
that the belief must be based on reasonable grounds.7
[14] Section 106(1) must be construed within the broader context of the Constitution
and the Systems Act. On a general level, the constitutional values and principles
governing public administration set out in s 195 of the Constitution are implicated. The
Constitutional Court in Khumalo and Another v Member of the Executive Council for
Education KwaZulu-Natal8 emphasised that where ‘a responsible functionary is
enlightened of a potential irregularity, s 195 [of the Constitution] lays a compelling
basis for the founding of a duty on the functionary to investigate and, if need be, to
correct any unlawfulness through the appropriate avenues’ and that this duty ‘is
founded, inter alia, in the emphasis on accountability and transparency in
5 Ibid para 156.
6 Duncan v Minister of Law and Order 1986 (2) SA 805 (A) at 818F-I.
7 Minister of Law and Order and Others v Hurley and Another 1986 (3) SA 568 (A) at 578B-D and 579D-
F; Democratic Alliance Western Cape and Others v Minister of Local Government, Western Cape and
Another 2005 (3) SA 576 (C) para 25.
8 Khumalo and Another v Member of the Executive Council for Education KwaZulu-Natal [2013] ZACC
49; 2014 (5) SA 579 (CC) para 35.
s 195(1)(f) and (g) and the requirement of a high standard of professional ethics in
s 195(1)(a)’.
[15] Section 40 of the Constitution created government ‘as national, provincial and
local spheres of government which are distinctive, interdependent and interrelated’.
Section 151(3) provides that a municipality ‘has the right to govern, on its own initiative,
the local government affairs of its community, subject to national and provincial
legislation, as provided for in the Constitution’. Section 155(6) provides for the
establishment and monitoring of municipalities by provincial governments. The section
says:
‘Each provincial government must establish municipalities in its province in a manner
consistent with the legislation enacted in terms of subsections (2) and (3) and, by legislative
or other measures, must –
(a)
provide for the monitoring and support of local government in the province; and
(b)
promote the development of local government capacity to enable municipalities to
perform their functions and manage their own affairs.’
[16] Section 125 allocates a number of functions to provincial governments. Section
125(2)(g) allows for executive authority to be exercised by ‘performing any other
function assigned to the provincial executive in terms of the Constitution or an Act of
Parliament’. Section 105 of the Systems Act assigns a monitoring function to provincial
executives in respect of local governments. Section 105(1) states:
‘The MEC for local government in a province must establish mechanisms, processes and
procedures in terms of section 155(6) of the Constitution to-
(a)
monitor municipalities in the province in managing their own affairs, exercising their
powers and performing their functions;
(b)
monitor the development of local government capacity in the province; and
(c)
assess the support needed by municipalities to strengthen their capacity to manage
their own affairs, exercise their powers and perform their functions.’
[17] It is within this legislative context that s 106 is located. It is part of the system
for the monitoring, by provincial executives, of local governments so that the
performance of local governments may be strengthened and improved, and municipal
officials be held accountable for their administration. Section 106 is therefore a
mechanism by which an MEC may investigate allegations that serious problems have
arisen relating to the administration and governance of a municipality. The purpose of
activating the mechanism is to obtain the necessary facts so that the source of the
problem can be identified, with a view to remedying the weakness in the system.
[18] Section 106(1), when it refers to the crimes of fraud and corruption, does not
state expressly that only these crimes, and no others, may be investigated in terms
of the section. We would have expected this to have been stated clearly had that
been the intention of the legislature. The terms ‘maladministration’ and ‘serious
malpractice’ are broad enough to encompass both conduct that is criminal and
conduct that is not. For instance, the theft of money from a municipality by a
municipal official is, without doubt, a serious malpractice.
[19] The restricted interpretation of the section by the high court would have to
rely on a tacit exclusion of crimes other than theft or corruption, being read into the
section. There is no indication, whether from the context that we have outlined
above or from the provision itself that this was intended. Indeed, there are strong
indicators that pull in the opposite direction.
[20] First, such an interpretation is arbitrary and could lead to arbitrary results. It
is arbitrary because there is no apparent basis why investigators may investigate
allegations of fraud or corruption but not, for instance, theft. Its arbitrariness of
result may be illustrated by the following example: if investigators were appointed
to investigate allegations of fraud, and they found that the evidence they uncovered
proved theft, the restricted interpretation would mean that they could not report
their findings to the MEC because it would be beyond the scope of their mandate.
They would have to report that they found no evidence of fraud.
[21] Secondly, the restricted interpretation, as the above example illustrates,
would undermine the purpose of s 106. Only some forms of maladministration and
serious malpractices could be investigated and remedied, while those forms that
are tainted by criminality could not be. On the face of it, the more serious forms of
maladministration and serious malpractice would in this way be shielded from
investigation. When viewed in the context sketched above and of s 106 being a
purpose-built mechanism not only for monitoring and strengthening of local
government but also for accountability, the restricted interpretation is not a sensible
meaning to give to the section.
[22] Thirdly, it seems to us that the exclusion of all criminal conduct apart from
fraud and corruption from investigation may well have the effect of rendering s 106
investigations a dead letter. The Local Government: Municipal Finances
Management Act 56 of 2003 creates, in s 173, a broad range of criminal offences
related to maladministration of municipal finances. Other local government
statutes, including the Systems Act, create even more offences related to the way
in which municipalities are administered. Their combined effect is that a large
swathe of maladministration has been criminalised. The restricted interpretation
would block s 106 investigations into the very matters that it was meant for.
[23] Finally, the concerns expressed by the court in City of Cape Town about the
blurring of the lines between the executive and the police are, in our view, more
apparent than real. A criminal investigation and a s 106 investigation serve very
different purposes. One is aimed at detecting and punishing crime while the other,
as we have explained, is concerned with monitoring, remedying the problems
identified and holding municipal officials to account. Furthermore, specific,
objectively justiciable jurisdictional facts have to be present before the power to
appoint investigators is triggered. And administrative justice principles – whether
in terms of the Promotion of Administrative Justice Act 3 of 2000 or the principle of
legality – are designed to prevent any abuse of discretion on the part of MECs. In
particular, they may not exercise their powers for an improper purpose or an ulterior
motive, in bad faith or unreasonably. City of Cape Town is itself a good example of
this.
[24] For all of the above reasons, we conclude that s 106(1) does not mean that
only the crimes of fraud and corruption may be investigated and that other crimes,
such as theft, may not be. That means that we are of the view that City of Cape
Town was wrongly decided in this respect. It follows that the high court in this
matter erred in excluding from the investigation the theft allegations. The result is
that the MEC’s appeal on the merits must succeed.
Costs
[25] As stated above, two interlocutory applications served before the high court.
They were an application brought by the municipality to amend its notice of motion,
which was granted, and an application brought by the MEC to strike out several
paragraphs of the municipality’s replying affidavit, which was refused (save for one
paragraph). The court then dismissed the municipality’s application, save for the theft
allegation, and granted the MEC’s counter application. The high court held that each
party should pay its own costs. Two reasons were furnished for this order. First, the
MEC was ‘mostly successful in his opposition to the final interdict’ but ‘substantially
unsuccessful’ in opposing the application to amend and the application to strike out.
Secondly, both parties were litigating with public funds.
[26] A court of appeal will only interfere with the exercise of a discretion regarding
costs in circumscribed instances9 and would be slow to substitute its own decision
simply because it does not agree with a permissible option chosen by the lower court.10
It will, however, interfere if the court’s discretion was exercised on the basis of wrong
principles. In this matter, the high court equated the municipality’s limited success on
the two procedural points with the MEC’s substantive success on the merits. It also
took into account the irrelevant fact that public funds were used by both parties. The
high court misdirected itself in both respects, meriting interference on appeal. The
costs order therefore falls to be set aside and must be replaced with a costs order
in favour of the MEC on the merits, but the municipality’s success in the
interlocutory applications must also be accounted for in the order that we make.
The order
[27] In the result, the following order is made:
The appeal is upheld.
9 Public Protector v Commissioner for the South African Revenue Service and Others [2020] ZACC
28; 2022 (1) SA 340 (CC) para 31.
10 Florence v Government of the Republic of South Africa [2014] ZACC 22; 2014 (6) SA 456 (CC)
para 113; Public Protector v South African Reserve Bank [2019] ZACC 19; 2019 (6) SA 253 (CC)
para 144.
Paragraphs 3, 5 and 6 of the high court’s order are set aside and paragraph 3
is replaced with the following:
‘3.1 The applicant’s application is dismissed with costs, including the costs of
two counsel.
3.2 The respondent is directed to pay the applicant’s costs in respect of the
applications to amend the notice of motion and to strike out.’
_________________________
C PLASKET
JUDGE OF APPEAL
_________________________
A C BASSON
ACTING JUDGE OF APPEAL
APPEARANCES
For Appellant:
Karrisha Pillay SC (with her Cecily-Ann Daniels)
Instructed by:
State Attorney, Cape Town
State Attorney, Bloemfontein
For Respondents:
No appearance
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
30 November 2022
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
MEC Responsible for Local Government, Western Cape v Matzikama Local
Municipality and Others (747/2021) [2022] ZASCA 167 (30 November 2022)
MEDIA STATEMENT
The Supreme Court of Appeal (SCA) today upheld the appeal of the Member of the
Executive Council for Local Government in the Western Cape provincial government
(the MEC) against the Matzikama Local Municipality (the municipality).
The MEC had in terms of s 106(1) of the Local Government: Municipal Systems Act
32 of 2000 (the Systems Act) appointed two people to investigate allegations of
abuses of power within the municipality. The section empowered him to do so if he
had reason to believe that ‘maladministration, fraud, corruption or serious malpractice’
were occurring or had occurred in a municipality. One of the allegations which had
been referred for investigation was an allegation that R320 000 of municipal funds had
been stolen.
The municipality applied, in the Western Cape Division of the High Court, Cape Town
(the high court) for the review and setting aside of the MEC’s decision to appoint the
investigation. The MEC brought a counter-application for an order to compel the
municipality and its officials to co-operate with the investigators.
The high court granted the MEC’s counter-application and dismissed the municipality’s
application except for one issue. It held that the MEC had no power to refer the theft
allegation for investigation, as the only forms of criminal conduct he could refer for
investigation in terms of s 106 were fraud and corruption. The MEC sought and was
granted leave by the high court to appeal to the SCA against this finding.
The SCA held that the purpose of s 106 was to monitor the performance of local
governments with a view to remedying weaknesses, and to hold municipal officials to
account. The interpretation of the section favoured by the high court would undermine
this purpose and lead to arbitrary results. It could have the effect of rendering s 106 a
dead letter. The SCA held that s 106(1) meant that not only the crimes of fraud and
corruption could be investigated but that other crimes, such as theft, could also be.
|
2956
|
non-electoral
|
2015
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 20091/2014
In the matter between:
JOHANNES WINDVOGEL
APPELLANT
and
THE STATE
RESPONDENT
Neutral citation: Johannes Windvogel v The State (20091/2014) [2015]
ZASCA 63 (8 May 2015).
Coram:
Mhlantla and Leach JJA and Mayat AJA
Heard:
30 March 2015
Delivered: 8 May 2015
Summary: Criminal law and procedure – application in terms of s
16(1)(b) of the Superior Courts Act 10 of 2013 for special leave to appeal
against a decision of a division of the high court sitting as a court of
appeal – high court has no jurisdiction to hear application – special leave
of the Supreme Court of Appeal is required – special leave to appeal
against sentence granted.
Drug Offences – cocaine – dealing in contravention of s 5(b) of the Drugs
and Drug Trafficking Act 140 of 1992 – sentence – appellant sold cocaine
during a police trap – high court misdirected itself when ante-dating the
sentence to a date when appellant was on bail – cumulative effect of
sentence disturbingly inappropriate – sentence set aside and replaced by
sentence of eight years on each count – a portion of the sentences in the
three counts to run concurrently with sentence on first count – effective
sentence of 20 years’ imprisonment.
___
ORDER
___
On appeal from: Gauteng Division, Johannesburg (Wepener J with
Vally J concurring sitting as court of appeal):
1 The appellant is granted special leave to appeal in terms of s 16 (1)(b)
of the Superior Courts Act 10 of 2013 against the sentence of
imprisonment imposed by the Gauteng Division, Johannesburg.
2 The appeal is upheld.
3 The sentence imposed by the court a quo is set aside and replaced with:
‘(a) The accused is sentenced to a period of eight years’ imprisonment on
each of the four counts, that is, counts 6,7,8 and 10 respectively.
(b) A period of four years of each sentence imposed on counts 7, 8 and 10
is ordered to run concurrently with the sentence imposed on count 6
(effectively a sentence of 20 years’ imprisonment).
(c) In terms of s 282 of the Criminal Procedure Act 51 of 1977 the
sentence is antedated to 31 January 2003.’
___
JUDGMENT
___
Mhlantla JA (Leach JJA and Mayat AJA concurring)
[1] The appellant was arrested on 28 June 2000 in consequence of a
trapping operation by members of the South African Police Service. He
was charged together with his former co-accused in the regional court,
Johannesburg on 12 counts of dealing in prohibited substances in
contravention of s 5(b) of the Drugs and Drug Trafficking Act 140 of
1992 (the Drugs Act).1 At the commencement of the trial, the appellant
pleaded not guilty. The State adduced evidence whilst the appellant
elected not to testify. The uncontested evidence tendered on behalf of the
State was that the appellant had been identified as a dealer. The police
officers who set up a trap for the appellant testified that the appellant had
participated during the sale of cocaine over a period of two weeks on four
different occasions and that he appeared to be in control of the operations.
[2] At the end of the trial, the appellant was convicted on four counts
as follows:
(a)
Count 6: 3.1 grams of cocaine and one tablet containing
methaqualone (a mandrax tablet) sold for R1 300;
(b)
Count 7: 3.8 grams of cocaine sold for R1 450;
(c)
Count 8: 9.5 grams of cocaine sold for R2 800; and
1 Section 5 (b) of the Drugs Act reads:
‘Dealing in drugs
No person shall deal in -
(a)….
(b) Any dangerous dependence-producing substance or any undesirable dependence-producing
substance.’
(d)
Count 10: 4.8 grams of cocaine sold for R 1 300.
[3] On 31 January 2003 the trial court imposed a sentence of eight
years’ imprisonment on each count. An effective term of 32 years’
imprisonment was thus imposed. The trial court ordered this sentence to
run concurrently with a sentence of 20 years’ imprisonment that the
appellant was already serving for a previous conviction for a similar
offence. Two months later, the trial court granted a confiscation order
against the appellant’s estate in terms of s 18 of the Prevention of
Organised Crime Act 121 of 1998.
[4] On 18 February 2004 the appellant’s previous conviction and
sentence of 20 years’ imprisonment were set aside on appeal.
Subsequently, the trial court granted the appellant leave to appeal against
the sentence imposed in this matter. On 6 July 2005 the appellant was
released on bail pending appeal. At that stage, he had already served a
period of almost two and a half years of his sentence.
[5] On 7 November 2013, almost nine years after leave to appeal had
been granted by the trial court, the appeal came before the Gauteng
Division, Johannesburg (Wepener and Vally JJ). Throughout this period
the appellant had been on bail pending appeal. The court a quo had regard
to the appellant’s previous convictions most of which related to dealing in
drugs and held that the appellant was an unrepentant drug dealer. It
concluded that the total sentence of 32 years’ imprisonment had been
appropriate.
[6] In an attempt to afford the appellant the benefit of the period
already served, the court a quo said:2
‘The appellant was incarcerated from 2002 to July 2005, i.e. a period of 3 years on the
conviction and sentence of 20 years’ imprisonment, which have been set aside. This,
the magistrate could not take into account as the conviction had not been set aside
when the appellant was convicted and sentenced by the magistrate in the current
matter. This would, in my view, be an appropriate case to take the period of
imprisonment so served into account by antedating the sentence by 3 years. The
appellant should have the benefit of 3 years’ incarceration as if it was served for the
conviction in this matter.’
[7] The court a quo therefore set aside the sentence imposed by the
trial court and replaced it with an identical sentence but antedated it to 7
November 2010. On 12 November 2013 the appellant applied for leave to
appeal to this court. Two weeks later, on 29 November 2013 the court a
quo granted leave to appeal to this court.
[8] The appeal in this court was heard on 1 March 2015. Subsequent to
the hearing of the appeal, it became apparent that the court a quo did not
have jurisdiction to hear an application for leave to appeal to this court as
s 16(1)(b) of the Superior Courts Act 10 of 2013 (the Act), which came
into operation on 23 August 2013, provided that an appeal against any
decision of a division on appeal to it lies to the Supreme Court of Appeal
upon special leave having been granted by this court. Consequently, the
jurisdictional basis for an appeal to this court was absent. In the result, the
court a quo did not have the power to grant the appellant leave to appeal
to this court and the proceedings on 1 March were a nullity.
2 Paragraph 21.
[9] This court had to consider an application for special leave to appeal
before entertaining the appeal. The parties were apprised of the applicable
provisions and the appellant was requested to lodge a formal application
for special leave to appeal to this court.3 On 27 March 2015 the appellant
then filed an application for special leave to appeal to this court in respect
of sentence in terms of s 16(1) of the Act. The application was heard on
30 March, being the reconvened date of the matter.
[10] In Van Wyk v S, Galela v S,4 this court when considering an
application for special leave said:
‘An applicant for special leave to appeal must show, in addition to the ordinary
requirement of reasonable prospects of success, that there are special circumstances
which merit a further appeal to this court. This may arise when in the opinion of this
court the appeal raises a substantial point of law, or where the matter is of very great
importance to the parties or of great public importance, or where the prospects of
success are so strong that the refusal of leave to appeal would probably result in a
manifest denial of justice.’
[11] This court has held that the imposition of a sentence is pre-
eminently within the discretion of a trial court. A court of appeal will be
entitled to interfere with the sentence imposed by the trial court if the
sentence is: disturbingly inappropriate or so totally out of proportion to
the magnitude of the offence; sufficiently disparate; vitiated by
misdirections showing that the trial court exercised its discretion
unreasonably or is otherwise such that no reasonable court would have
3 Section 17(3) of the Act provides:
‘(3) An application for special leave to appeal under section 16(1)(b) may be granted by the Supreme
Court of Appeal on application filed with the registrar of that court within one month after the decision
sought to be appealed against, or such longer period as may on good cause be allowed, and the
provisions of subsection (2)(c) to (f) shall apply with the changes required by the context.’
4 Van Wyk v S, Galela v S (20273/2014, 20448/2014) [2014] ZASCA 152 (29 September 2014) para
21; [2014] 4 All SA 708 (SCA). See also Westinghouse Brake & Equipment (Pty) Ltd v Bilger
Engineering (Pty) Ltd 1986 (2) SA 555 (A) at 564H – 565E.
imposed it.5
[12] The merits of an appeal are relevant when determining whether
special circumstances exist in order to grant special leave to appeal.
Before us, counsel for the appellant urged us to grant special leave to
appeal on the basis of the following grounds: first, that the sentence
imposed by the court a quo did not achieve its stated purpose of granting
the appellant the benefit of the period incarcerated and that it resulted in
him having to serve more than 32 years’ imprisonment; secondly, the
cumulative effect of the sentence imposed is so severe as to be shockingly
inappropriate. On the other hand, counsel for the State opposed the
application on the basis that there were no reasonable prospects of
success.
[13] I agree with the submission on behalf of the appellant. A sentence
can only be antedated in terms of s 282 of the Criminal Procedure Act 51
of 19776 (the CPA) when, on appeal or review a sentence for a conviction
is either imposed or altered, and the court is satisfied that part of the
sentence has already been served and that the offender should be given
the benefit thereof. It is common cause that the appellant was not
incarcerated during November 2010 nor was he serving a sentence when
the appeal was heard. He was on bail from July 2005 until November
2013.
5 S v Romer 2011 (2) SACR 153 (SCA) para 22.
6 Section 282 reads:
‘Whenever any sentence of imprisonment, imposed on any person on conviction for an offence, is set
aside on appeal or review and any sentence of imprisonment or other sentence of imprisonment is
thereafter imposed on such person in respect of such offence in place of the sentence of imprisonment
imposed on conviction, or any other offence which is substituted for that offence on appeal or review,
the sentence which was later imposed may, if the court imposing it is satisfied that the person
concerned has served any part of the sentence of imprisonment imposed on conviction, be antedated by
the court to a specified date, which shall not be earlier than the date on which the sentence of
imprisonment imposed on conviction was imposed, and thereupon the sentence which was later
imposed shall be deemed to have been imposed on the date so specified.’
[14] Consequently, although the court a quo expressed its stated intent
to afford the appellant the benefit of time he had already served after
being convicted, the effect of it antedating the appellant’s effective
sentence of 32 years to 7 November 2010 had the opposite effect. It
obliged the appellant to serve 32 years from that date, so the period of
more than two and a half years from January 2003 to July 2005 which he
served before he was released on bail did not accrue to his benefit.
Effectively then, the appellant’s sentence as imposed by the court a quo
will be the two and a half years imprisonment that he served from January
2003 plus the 32 years he is obliged to serve with effect from 7
November 2010 ie a period of 34 and a half years. Such a sentence, of
course, was not what the court a quo intended.
[15] In the result the court a quo misdirected itself and this resulted in a
failure of justice which rendered the appeal unfair. This misdirection
entitles us to intervene and consider sentence afresh. It follows that the
appellant must be granted leave to appeal in terms of s 16(1)(b) of the Act
to this court against his sentence.
[16] As to sentence: the appellant was 38 years old at the time of the
commission of the offences and is the father of eight children. He was the
sole breadwinner for his family. He has an unimpressive list of previous
convictions. Three of these are relevant to the offences in this case. These
are: on 19 November 1983 the appellant was convicted of dealing in
drugs (6 mandrax tablets) and was sentenced to five years’ imprisonment.
On 11 March 1991 he was again convicted of dealing in drugs, being 61
mandrax tablets whereupon a sentence of 12 months’ imprisonment was
imposed. A further period of three years’ imprisonment was suspended
for five years on certain conditions. On the same day the appellant was
also convicted on two counts of dealing in drugs. A sentence of 12 years’
imprisonment was imposed. The offences in this appeal were committed
shortly after his release from prison. It is clear that the appellant
continued with his drug dealing conduct over a period of many years. The
sentences imposed as reflected in his SAP 69 form did not deter him from
continuing with his drug dealing activities once he completed serving
each sentence. In my view, the court a quo was justified in describing him
as an unrepentant dealer.
[17] The appellant has been convicted of serious offences which were
committed for personal gain. Counsel for the appellant categorised the
offences as activities flowing from a single trapping operation which
involved minimal values and quantities of drugs. He submitted that the
police could have arrested the appellant during the first encounter but
encouraged him to commit the other three offences. He submitted that
under the circumstances, the sentence imposed was inappropriate. In
support of this contention, he relied on the decisions of S v Hightower,7 S
v Randall8 and S v Mkhize9 to illustrate the severity of the sentence.
[18] This argument is without merit. The appellant conducted his drug
dealing business on a continuous basis. The facts of the cases relied upon
can be distinguished from the facts of this case. For example, in
Hightower, the appellant, who was a 55 year old first offender, was
convicted of dealing in 220 grams of cocaine. He had co-operated with
the police. He had pleaded guilty and had shown remorse. His sentence of
20 years’ imprisonment was set aside on appeal and replaced with one of
7 S v Hightower 1992 (1) SACR 420 (W).
8 S v Randall 1995 (1) SACR 559 (C).
9 S v Mkhize 2000 (1) SACR 410 (W).
10 years, three years of which were suspended.
[19] In Randall, the accused was 23 years old and a first offender. She
was convicted of dealing in 717 grams of cocaine. The court accepted that
she had been involved in one incident and concluded that she had been
induced to commit the offence by others who exploited her youth and
innocence. The sentence of 15 years’ imprisonment of which seven years
were suspended was confirmed on appeal.
[20] In Mkhize, the appellant was 42 years old and a mother of two
children. She was arrested in consequence of a police trap and co-
operated with the police. She was convicted of dealing in drugs for
selling 25 rocks of cocaine with a street value of R1 375. She had a
previous conviction of dealing in drugs. The sentence of 12 years’
imprisonment by the trial court was reduced to eight years’ imprisonment
of which three years were suspended on certain conditions.
[21] On the other hand, the appellant in this matter has three previous
convictions and has been convicted on four counts of dealing in cocaine.
It is clear from the evidence that he had conducted a drug dealing
business over many years. The attempt to trivialise the serious nature of
the offences is accordingly rejected.
[22] Having regard to all the relevant factors, I am of the view that the
sentence of eight years’ imprisonment on each count was appropriate.
However, the cumulative effect thereof is shockingly excessive. Counsel
for the State, in my view, quite correctly found himself unable to argue
the contrary. It seems to me that a portion of some of the sentences
should be served concurrently, so that an effective period of 20 years’
imprisonment be imposed. Furthermore, the period of approximately two
and a half years already served by the appellant must be taken into
account by the Department of Correctional Services. This can be achieved
by an order antedating the sentence to 31 January 2003, being the date
when the trial court imposed the sentence. The appeal therefore succeeds
on these respects only.
[23] In the result the following order is made:
1 The appellant is granted special leave to appeal in terms of s 16 (1)(b)
of the Superior Courts Act 10 of 2013 against the sentence of
imprisonment imposed by the Gauteng Division, Johannesburg.
2 The appeal is upheld.
3 The sentence imposed by the court a quo is set aside and replaced with:
‘(a) The accused is sentenced to a period of eight years’ imprisonment on
each of the four counts, that is, counts 6,7,8 and 10 respectively.
(b) A period of four years of each sentence imposed on counts 7, 8 and 10
is ordered to run concurrently with the sentence imposed on count 6
(effectively a sentence of 20 years’ imprisonment).
(c) In terms of s 282 of the Criminal Procedure Act 51 of 1977 the
sentence is antedated to 31 January 2003.’
__________________
NZ MHLANTLA
JUDGE OF APPEAL
APPEARANCES:
For Appellant:
E Giddion
E Giddion Attorneys
Johannesburg
c/o Frans Botha Attorneys
3 Barnes Street
Bloemfontein
For Respondent:
F Mohamed
The Director of Public Prosecutions
Johannesburg
c/o The Director of Public Prosecutions
Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
8 May 2015
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
Johannes Windvogel v The State
(20091/2014) [2015] ZASCA 63
________________________________________________________________________________
Today the Supreme Court of Appeal (SCA) handed down a judgment in which it granted the
appellant special leave to appeal in terms of s 16(1)(b) of the Superior Courts Act 10 of 2013 and
upheld the appeal.
The issue before the SCA was whether special leave to appeal should be granted to the appellant
and if so whether the custodial sentence imposed upon the appellant was shockingly inappropriate
in the circumstances.
The appellant was arrested on 28 June 2000 in consequence of a trapping operation by members of
the South African Police Service. He was charged with 12 counts of dealing in prohibited substances
in contravention of s 5(b) of the Drugs and Drug Trafficking Act 140 of 1992. At the end of the trial,
the appellant was convicted on four counts of dealing in prohibited substances.
On 31 January 2003 the trial court imposed a sentence of eight years’ imprisonment on each count.
An effective term of 32 years’ imprisonment was thus imposed. The trial court ordered this sentence
to run concurrently with a sentence of 20 years’ imprisonment that the appellant was already serving
for a previous conviction for a similar offence. On 18 February 2004 the appellant’s previous
conviction and sentence of 20 years’ imprisonment were set aside on appeal. Subsequently, the trial
court granted the appellant leave to appeal against the sentence imposed in this matter. On 6 July
2005 the appellant was released on bail pending appeal. At that stage, he had already served a
period of almost two and a half years of his sentence. On 7 November 2013, almost nine years after
leave to appeal had been granted by the trial court, the appeal came before the Gauteng Division,
Johannesburg. It concluded that the total sentence of 32 years’ imprisonment had been appropriate.
The court a quo expressed its intent to afford the appellant the benefit of the period served. It
therefore set aside the sentence imposed by the trial court and replaced it with an identical sentence
but antedated it to 7 November 2010. The court a quo thereafter granted the appellant leave to
appeal to this court.
On appeal to this court it became apparent that the court a quo did not have jurisdiction to hear an
application for leave to appeal to this court as s 16(1)(b) of the Superior Courts Act 10 of 2013
provided that an appeal against any decision of a division on appeal to it lies to the Supreme Court
of Appeal upon special leave having been granted by this court. The parties were apprised of the
applicable provisions and the appellant was requested to lodge a formal application for special leave
to appeal to this court which it did.
The SCA noted that the merits of an appeal were relevant when determining whether special
circumstances existed in order to grant special leave to appeal. The SCA held that it was common
cause that the appellant was not incarcerated during November 2010 nor was he serving a sentence
when the appeal was heard as he was on bail from July 2005 until November 2013. The SCA
concluded that the court a quo misdirected itself as the effect of antedating the sentence to 7
November 2010 had the opposite effect- that of increasing the sentence imposed by the trial court by
a period of more than two and a half years-a period that should have accrued to his benefit. The
misdirection resulted in a failure of justice which rendered the appeal unfair. This entitled this court to
intervene and consider sentence afresh.
After considering all the relevant factors, the SCA concluded that the appellant was an unrepentant
dealer and that the sentence of eight years’ imprisonment on each count was appropriate. It
however held that the cumulative effect of that sentence was shockingly excessive. The appeal was
thus upheld in this respect only. The court therefore ordered portions of the sentences imposed on
three counts should run concurrently with the sentence imposed on the first count. The effect thereof
was that the appellant will serve an effective term of 20 years’ imprisonment. The court further
antedated the sentence to 31 January 2003 being the date when the trial court imposed the
sentence. The period of two and a half years already served by the appellant will thus be taken into
account by the Department of Correctional Services.
--- ends ---
|
2464
|
non-electoral
|
2013
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 754/2012
In the matter between:
SOLENTA AVIATION (PTY) LTD
Appellant
and
AVIATION @ WORK (PTY) LIMITED
Respondent
Neutral citation:
Solenta v Aviation @ Work (754/2012) [2013] ZASCA 103
(12 September 2013)
Coram:
Mthiyane AP, Ponnan, Tshiqi and Willis JJA and Meyer AJA
Heard:
23 August 2013
Delivered:
12 September 2013
Summary:
Prescription – Extinctive prescription – s 15(1) of the
Prescription Act 68 of 1969 – whether the running of
prescription is interrupted by service on debtor of combined
summons whereby action is instituted by a plaintiff company
which is not the creditor but subsequently substituted with the
true one by means of an amendment after the prescriptive
period.
ORDER
On appeal from: the North Gauteng High Court, Pretoria (JW Louw J sitting as court of
first instance):
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Meyer AJA (Mthiyane AP, Ponnan, Tshiqi, Willis JJA concurring):
[1] This is an appeal against a judgment of Louw J, sitting in the North Gauteng High
Court, in which he upheld a special plea of prescription raised by the respondent,
Aviation @ Work (Pty) Ltd, against a claim for payment of damages brought against it
by the appellant, Solenta Aviation (Pty) Ltd.
[2] On 13 March 2007, a combined summons was issued in the name of Solenta
Aviation Workshops (Pty) Ltd (Solenta Aviation Workshops) against the respondent. A
plea with a claim in reconvention was in due course delivered by the respondent,
followed by the delivery of a replication and a plea to the claim in reconvention in the
name of Solenta Aviation Workshops.
[3] It was common cause on the pleadings that on or about 22 March 2006 and at
Wonderboom, Pretoria, Solenta Aviation Workshops, as lessor, and the respondent, as
lessee, concluded a written agreement - referred to as the ‘Aircraft Dry Lease
Agreement’ – in terms whereof Solenta Aviation Workshops leased a certain Cessna
aircraft to the respondent (‘the contract’). A copy of the contract upon which reliance
was placed was annexed to the particulars of claim, and admitted. Solenta Aviation
Workshops in convention and the respondent in reconvention claimed damages against
each other resulting from the other party’s alleged breach of the contract.
[4] The description of the lessor in terms of the contract is ‘Solenta Aviation (Pty)
Ltd’ and not Solenta Aviation Workshops as described in the combined summons and in
the particulars of claim. On 18 August 2009, a notice of intention to amend was
delivered in which notice was given that the description of the plaintiff was to be
amended to ‘Solenta Aviation (Pty) Ltd’ by the deletion of the word ‘Workshops’ where it
appears in the summons and in paragraph 1 of the particulars of claim. The respondent
objected to the proposed amendment on the grounds that it would amount to a
substitution of one plaintiff for another and that any claim that Solenta Aviation (Pty) Ltd
might have had against the respondent had prescribed. An application for leave to
amend the citation of the plaintiff was then brought.
[5] In granting the amendment on 31 March 2010, Potterill J held that the description
of the plaintiff amounted to a misnomer rather than a substitution of the correct plaintiff
for the wrong one. She held that the true identity of the plaintiff was recognisable from
the particulars of claim and the annexed contract and that service of the summons on
the respondent had interrupted the running of prescription in terms of s 15(1) of the
Prescription Act.1
[6] The amendment was effected on 7 April 2010. The respondent thereupon
amended its plea by raising a special plea of prescription to the appellant’s claim. The
appellant delivered a replication in answer to the respondent’s special defence. It is
common cause on these further pleadings that Solenta Aviation Workshops and the
appellant were both registered companies and therefore separate legal entities. It is
also common cause that the contract was concluded between the appellant and the
respondent; that no contractual relationship existed between Solenta Aviation
Workshops and the respondent at the time of instituting the action; and, that Solenta
Aviation Workshops was not a creditor of the appellant.
1 Prescription Act 68 of 1969.
[7] It is alleged in the special plea that service on the respondent of the summons
whereby Solenta Aviation Workshops claimed payment of damages arising from the
respondent’s alleged breach of the contract - which breach is alleged in the particulars
of claim to have taken place on or about 13 May 2006 - did not interrupt the running of
prescription in terms of s 15(1) of the Prescription Act and that a period of more than
three years had lapsed since the alleged breach and the delivery of the notice of
intention to amend the citation of the plaintiff or of the actual substitution of the appellant
for Solenta Aviation Workshops.
[8] The appellant responded in its replication to the special plea that, although
incorrectly described in the summons and particulars of claim, it was the company that
instituted the action against the respondent on 13 March 2007 and that that process
conveyed to the reader the intention of the appellant, as creditor, to claim payment from
its debtor, the respondent. The defence of res iudicata in the form of what has become
known as issue estoppel is also raised. It is alleged that, in dismissing the respondent’s
objection to the proposed amendment, ‘… the court determined the identical issue
between the identical parties now raised in the special plea …’ and that the respondent
‘… is accordingly, and in addition, issue estopped on the issue raised in the special
plea.’
[9] The trial on two separated issues proceeded before Louw J. He was only
concerned with the issues of res iudicata and prescription while the remaining issues
stood over for later determination. No evidence was led and the parties confined
themselves to the documents that formed part of the record. In upholding the special
plea of prescription, the court a quo followed the decision of this court in Blaauwberg
Meat Wholesalers CC v Anglo Dutch Meats (Exports) Ltd 2 and held that the summons
that was served in this instance, objectively considered, failed to communicate to the
defendant (respondent) the intention of the plaintiff (appellant) to claim payment of the
debt. It held that the summons did not meet the objects of s 15(1) of the Prescription
Act and it did not interrupt prescription. In dismissing the plea of res iudicata, the court
a quo held that the application for amendment was interlocutory and the finding of
2 Blaauwberg Meat Wholesalers CC v Anglo Dutch Meats (Exports) Ltd 2004 (3) SA 160 (SCA).
Potterill J was not one that finally disposed of an issue in the action between the
parties.3 In the result, the appellant’s claim was dismissed with costs, including the
costs of two counsel. The appellant appeals to this court with the leave of the court a
quo. This appeal concerns the same issues of prescription and res iudicata.
[10] In terms of s 12(1) of the Prescription Act, prescription begins to run when the
debt becomes due. It is common cause between the parties that the debt which forms
the subject of the appellant’s claim became due on 13 May 2006. Sections 10(1) and
11(d) provide for a period of prescription of three years in the present case. The notice
of the application to amend the citation of the plaintiff was given on 18 August 2009,
which was after the prescriptive period. Section 15(1) provides as follows:
‘The running of prescription shall, subject to the provisions of subsection (2), be interrupted by the service
on the debtor of any process whereby the creditor claims payment of the debt.’ (Underlining added.)
[11] The question to be decided is therefore whether the combined summons served
on the respondent by which action was instituted in the name of Solenta Aviation
Workshops was a claim by the creditor of the debt, which it is now common cause is the
appellant, in compliance with the provisions of s 15(1).
[12] The general rule or test applicable in the determination of whether there is
compliance with s 15(1) was re-affirmed by this court in Blaauwberg thus:4
‘For obvious practical reasons the Legislature ordained certainty about when and how the running of
prescription is interrupted. That certainty is of importance to both debtors and creditors. It chose an
objective outward manifestation of the creditor’s intentions as the criterion, viz the service on the debtor of
process in which the creditor claims payment of the debt. That is not a standard which allows for
reservations of mind or reliance on intentions which are not reasonably ascertainable from the process
itself. Nor does it, as a general rule, let in, in a supplementation of an alleged compliance with s 15(1), the
subjective knowledge of either party not derived from the process, such as, for example, the content of a
3 The court a quo followed the decision of the Full Court of the Western Cape High Court in Anglo Dutch
Meats (Exports) Limited v Blaauwberg Meat Wholesalers CC 2002 CLR 292 (C) paras 17-19.
4 Fn 2 supra para 13.
letter of demand received by the debtor shortly before service of the process. Compare Standard Bank of
SA Ltd v Oneanate Investments (Pty) Ltd 1995 (4) SA 510 (C) at 553E-G.’5
[13] In Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd, the case referred
to in the above quotation, Selikowitz J stated the test as follows:
‘The test as to whether any given process interrupts prescription in respect of a particular debt must be an
objective one. The process in question must be objectively considered. Knowledge which one or both of
the parties may have dehors the process cannot affect its interpretation or its interruptive effect. More
particularly, the fact that the plaintiff may subjectively intend to claim a particular debt, and that defendant
may, by virtue of extrinsic knowledge, appreciate that plaintiff has wrongly identified the debt in his
summons, cannot convert the summons into one which interrupts prescription in respect of any debt other
than the one identified in the process. It is the process which interrupts prescription, not the plaintiff’s
subjective intention to sue.’
[14] Counsel for the appellant placed great reliance upon the description of the lessor
as ‘Solenta Aviation (Pty) Ltd’ and that of the lessee as ‘Aviation @ Work (Pty) Ltd’ in
the contract that is annexed to the combined summons that was served upon the
respondent as well as on the reference to ‘domicilium citandi et executandi’ in the
description of each party on the face of the combined summons and in paragraphs 1
and 2 of the particulars of claim. The details of the creditor given in the summons and
in paragraph 1 of the particulars of claim were that:
‘[t]he plaintiff is Solenta Aviation Workshops (Pty) Ltd, a company, duly incorporated in accordance with the
laws of the Republic of South Africa with domicilium citandi et executandi of (sic) Block 5 Stratford Office
Park, Corner Cedar Avenue and Valley Road, Broadacres, Johannesburg.’
The appellant was sought to be introduced to the proceedings by the deletion of the
word ‘Workshops’. For the rest the citation remained unchanged. It is common cause
that both corporate entities had the same registered address, which was the one given
in the combined summons and in the particulars of claim. The appellant’s counsel
submitted that the description of the lessor in the contract and the reference to a
5 In Associated Paint & Chemical Industries (Pty) Ltd t/a Albestra Paint and Lacquers v Smit 2000 (2) SA
789 (SCA) para 18 this court applied the objective test and concluded that the claim made in the
summons was, on a plain reading, not that of the true creditor.
‘domicilium citandi et executandi’ communicated to the respondent the correct identity of
the creditor, viz the appellant.
[15] To look only at the contents of the contract and to conclude that the respondent
must have appreciated, or even did appreciate, who the true creditor was, which is
essentially what the argument on behalf of the appellant amounts to, can in my view not
be conclusive of the enquiry as to whether payment of the debt was claimed by the
creditor. The parties to an action are cited in the combined summons and particulars of
claim and the cause of action is set out in the particulars of claim. It is true that the debt
which the appellant seeks to claim is the same debt that Solenta Aviation Workshops
sought to enforce in the combined summons that was served upon the respondent.
This does not mean that the combined summons was issued by ‘the creditor’ in
compliance with s 15(1).6 The description of the plaintiff as Solenta Aviation Workshops
and of the defendant as Aviation @ Work (Pty) Ltd on the face of the combined
summons and in the particulars of claim and the further averments about the written
agreement that was concluded between those two entities make it plain that the
appellant was not the creditor that claimed payment of the debt in terms of the
combined summons notwithstanding the reference to the appellant’s name as the lessor
in the annexed contract. The citation of the domicilium does not assist the appellant.
[16] The admissions by the respondent of the citations of the parties and of the
contract and its terms also do not avail the appellant. They did not bring about an
automatic substitution of one plaintiff for another.7 The appellant’s counsel in my view
correctly conceded that the admissions could also not be regarded as an unconditional
acknowledgement of liability in terms of s 14(1) of the Prescription Act. The admissions
in any event admit the parties to the contract to have been the respondent and Solenta
Workshops and not the respondent and the appellant. They also do not assist the
appellant.
6 Fn 5 para 16.
7 Fn 5 para 6.
[17] To sum up: in applying the objective test the claim made in the combined
summons was, on a plain reading, not that of the true creditor, which is the appellant,
and service of that process on the respondent did not interrupt the running of
prescription. The appellant’s counsel conceded that, if this be the finding, it will not be
necessary to consider the defence of issue estoppel.
[18] The appellant’s counsel resisted the request on behalf of the respondent that a
costs order in favour of the respondent include the costs of two counsel. I consider the
employment of two counsel on behalf of the respondent to have been prudent and not
extravagant.
[19] In the result the following order is made:
The appeal is dismissed with costs, including the costs of two counsel.
P A Meyer
Acting Judge of Appeal
APPEARANCES:
For Appellant:
D J Vetten
Instructed by:
Darryl Furman & Associates
Pretoria
Matsepes Incorporated
Bloemfontein
For Respondent:
M C Erasmus SC and
N C Hartman
Instructed by:
Mathys Krog Attorneys
Pretoria
Hugo & Bruwer Attorneys
Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
12 September 2013
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
SOLENTA v AVIATION
The Supreme Court of Appeal today dismissed an appeal against a judgment of the
North Gauteng High Court in which a special plea of prescription raised by the
respondent, Aviation @ Work (Pty) Ltd, against a claim for payment of damages
brought against it by the appellant, Solenta Aviation (Pty) Ltd, was upheld. The
action was commenced by the service of a combined summons on the respondent
that was issued in the name of Solenta Aviation Workshops (Pty) Ltd as creditor of
the debt that formed the subject of the claim. The summons was amended after the
expiry of the prescriptive period to reflect the appellant as the creditor. The Supreme
Court of Appeal held that, objectively considered, the claim originally made in the
combined summons was, on a plain reading of the process, not that of the true
creditor, which is the appellant, and that service of that process on the respondent
did not interrupt the running of prescription in terms of s 15(1) of the Prescription Act
68 of 1969.
|
3111
|
non-electoral
|
2007
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case number : 69/06
REPORTABLE
In the matter between :
ANDRIES PETRUS LUBBE NO
First Appellant
WILLEM PETRUS LUBBE NO
Second Appellant
HILTON SAVIN NO
Third Appellant
PAUL OLIVER SAUER MEAKER NO
Fourth Appellant
CORRIDA HOLDINGS (PTY) LIMITED
Fifth Appellant
CORRIDA SHOES (PTY) LIMITED
Sixth Appellant
and
MILLENNIUM STYLE (PTY) LIMITED
First Respondent
BRETT GEORGE HODGSON NO
Second Respondent
PULSE POLYURETHANE MANUFACTURERS
(PTY) LIMITED
`
Third Respondent
GUY BOWMAN
Fourth Respondent
and in the matter of a counter-application between:
ANDRIES PETRUS LUBBE NO
First Appellant
WILLEM PETRUS LUBBE NO
Second Appellant
HILTON SAVIN NO
Third Appellant
PAUL OLIVER SAUER MEAKER NO
Fourth Appellant
and
MILLENNIUM STYLE (PTY) LTD
Respondent
CORAM :
HARMS ADP, BRAND, CLOETE, PONNAN AND CACHALIA JJA
HEARD :
23 FEBRUARY 2007
DELIVERED :
16 MARCH 2007
Summary:
Trade marks – expungement – devices and shapes
Neutral Citation:
This judgment may be referred to as Lubbe NO v Millennium
Style [2007] SCA 10 (RSA)
JUDGMENT
HARMS ADP:
[1] This is a trade mark case. Msimang J, sitting in the high court,
dismissed an application for an interdict based on trade mark infringement of
six trade marks1 that belong to a Trust represented by its trustees. In
response to a counter-application for the rectification of the trade mark
register he ordered that the marks be expunged. He consequently dismissed
the infringement application having found in addition that there could in any
event not have been any infringement. He granted leave in relation to the
expungement only but this Court extended the scope of the appeal by
granting leave in relation to the infringement.
[2] There are cyber-squatters and there are those who squat on the trade
mark register. Judged by the papers in this case the Trust is an entity that
used the register to stifle competition and not for its statutory purpose. The
fact that there is no opposition to an application for registration or that there is
not already something similar on the register does not mean that the
application should proceed to grant.
[3] This practice gives intellectual property law a bad name. It also throws
serious doubt on whether this part of the law covers anything intellectual.
Significantly, a few days before the hearing of the appeal the Trust admitted
that two of its marks did not have the ability to distinguish but nevertheless
sought to prevent their expungement on technical grounds. The reader may
be surprised to know that the Registrar had registered the one (TM
1987/9450) in Part A of the register in terms of the Trade Marks Act 62 of
1963, which meant that the Registrar was at the time satisfied that the mark
was distinctive. Maybe I should surprise the reader further by describing this
particular trade mark: it is a device for a shoe sole and the device consists of
1 TM 1998/14074; 1987/9452; 1987/9449; 1988/5584; 1987/9450; and 1987/9451, all registered in
Class 25 in respect of footware.
a single transverse stripe towards the end of the heel. The other mark (TM
1998/14074) covered by the Trust’s concession is simply the side view of a
shoe sole.
[4] But this case is not really about trade marks. It is about the suppression
of competition. The appellants are upset because a former employee went
into competition with them by making shoes that by virtue of their design and
construction and overall appearance are ‘an almost direct copy’ of a shoe
made by or under licence from the Trust. As said by the main deponent on
behalf of the appellants, Mr AP Lubbe, their case is essentially a simple one:
the trade marks are infringed because the respondents use the distinctive
characteristics of the appellants’ sole construction. Their unfair competition
case, it need be stated, fell apart in the high court and no attempt was made
to rebuild it.
[5] The appellants’ case invited an attack on the five trade marks registered
in Part A of the register under the 1963 Act on the ground that in each
instance the shape and configuration of a shoe sole was registered,
something not permitted by the 1963 Act. The appellants responded
vehemently by stating that they were entitled to register the shape and
configuration of a sole as a trade mark because it is a ‘device’.
[6] In cannot be gainsaid that shapes were not registrable under the 1963
Act as trade marks and calling shapes ‘devices’ made no difference to the
conclusion. See Weber-Stephen Products Co v Registrar of Trade Marks
1994 (3) SA 611 (T) at 615G-I; cf Koninklijke Philips Electronics NV v
Remington Products Australia Pty Ltd [2000] FCA 876 para 16. But, submitted
counsel for the appellants, we must ignore what the appellants had said about
the meaning of their trade marks because what was indeed registered were
devices, i.e., visual representations or illustrations capable of being
reproduced on a surface, whether by printing, embossing, or by any other
means (s 2(1) ‘device’). To explain the difference: the appellants’ case on the
papers was that the transverse stripe referred to represents an indication that
the end of the heel is bevelled. Now the argument is that the stripe is simply a
stripe printed or embossed on a sole. The argument becomes odd if regard is
had to TM 1988/05584. It clearly shows an ordinary heel of a shoe plus three
stripes of no particular distinctiveness. Counsel had to submit that what was
obviously intended to be a heel was in reality the impression of a heel but that
the use of a real heel would also infringe.
[7] This aspect of the case can be disposed of on two bases. The first is
this. The admission, disclaimer, memorandum, limitation or condition of each
of these registrations begins with this statement:
‘Die merk bestaan uit die devise van die patroon van ‘n SOOL, wat toegepas word op ‘n
SKOEISEL.’
Translated, it means that the mark consists of a device of the design of a sole
applied to footware. There is a big difference between a device which has to
be applied onto a sole (which could have been registered) and a design of a
sole (which could not). The wording confirms what the marks were obviously
intended to represent, namely the design of a sole, and how the appellants
impermissibly sought to enforce them.
[8] Once the conclusion is that these marks were not registrable under the
1963 Act, they have to be expunged. Under s 70 of the Trade Marks Act 194
of 1993, the validity of the original entry of a trade mark on the register
existing at the commencement of this Act must be determined in accordance
with the law then in force. Section 42 of the 1963 Act provided that (subject to
certain exclusions) trade marks registered in Part A are to be taken as valid in
all respects after seven years. One exclusion was if the trade mark offended
against s 16 which, in turn, prohibited a registration ‘contrary to law’. The
registration of the shape of an article was at the time contrary to law because
only ‘marks’ as defined (which excluded shapes) could be registered.
[9] The second basis relates to the trade mark value of distinctive shoe
soles and devices for soles. Under the 1993 Act devices, shapes and
configurations may be registered as trade marks. But the mere fact that they
may be distinctive does not mean that they are distinctive in the trade mark
sense, i.e. to indicate source of origin. Typically the pattern or shape of a shoe
sole would be regarded by the purchaser as either ornamental or as part of
the design of the shoe tread and it is seldom that it will be considered to be a
source identifier. The respondents’ evidence to this effect was not and could
not be gainsaid in any meaningful way. Indeed, if regard is had to the fact the
appellants have not in twenty years used any of these marks as trade marks
the conclusion becomes irresistible. (I shall refrain from asking why the marks
were not attacked on the ground of non-use.) See Bergkelder Bpk v
Vredendal Koöp Wynmakery [2006] SCA 8 (RSA) para 8-9; cf Adidas-
Salomon AG v Fitnessworld Trading Ltd Case C-408/01 (ECJ) para 38-42.
Attached to this judgment is a representation of all these marks and it will be
obvious from a mere glance that not one of the devices has any trade mark
significance and that they would be perceived by the public as sole tread
designs, whether functional or aesthetic. Because these marks are
accordingly not capable of distinguishing in the trade mark sense they have to
be expunged from the register. See Bergkelder Bpk at para 14.
[10] Turning then to TM 1998/14074 which, as mentioned, consisted of the
side view of a shoe sole and which the appellants concede was and is
incapable of distinguishing, the case of the appellants is that the mark should
not have been expunged because the respondents are no longer persons
interested in the mark. This, according to the argument, is because the
appellants no longer rely on its infringement and because the respondents do
not allege that they wish to use that representation. This argument, which was
eventually not persisted in, can nevertheless be disposed of in a few words.
The question whether a party is an ‘interested person’ entitled to apply for the
rectification of the register under s 24 of the 1993 Act is determined at the
time of litis contestatio and once a party has legal standing, the other party
cannot by its action destroy the first mentioned party’s standing. The other
reason is this: a person in the trade area covered by the impugned trade mark
is in principle an interested party because such a person has an interest in
having the register clear of objectionable registrations. Cf Ritz Hotel Ltd v
Charles of the Ritz Ltd 1988 (3) SA 290 (A) at 307H-308E and Mars Inc v
Candy World (Pty) Ltd 1991 (1) SA 567 (A) at 574C.
[11] The question may fairly be asked why such a simple case has reached
this Court, especially after Galgut DJP had already held at the interlocutory
stage that the appellants do not have a prima facie case. In spite of the record
of some 650 pages it should not have, but the complexity of the argument
presented below and in the heads of argument may provide part of the
answer.
[12] The appeal is dismissed with costs, including those consequent upon
the employment of two counsel.
________________________
L T C HARMS
ACTING DEPUTY PRESIDENT
AGREE:
BRAND JA
CLOETE JA
PONNAN JA
CACHALIA JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date:
16 March 2007
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
A LUBBE NO AND OTHERS v MILLENNIUM STYLE (PTY) LTD
The SCA dismissed this appeal with costs. The case concerned the validity of trade mark
registrations and their infringement. The trade marks were supposed to be devices to be
applied to shoe sales but were found to be an attempt to register shapes. The SCA also
found that the trade marks were inherently not capable of distinguishing.
The court expressed its displeasure about the ease with which “trade marks” are
registered and the use of the register for ulterior purposes.
--ends--
|
1360
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No 599/09
In the matter between:
JOHN ARNOLD BREDENKAMP
First Appellant
BRECO INTERNATIONAL LTD
Second Appellant
HAMILTON PLACE TRUST
Third Appellant
INTERNATIONAL CIGARETTE MANUFACTURERS
(PTY) LTD
Fourth Appellant
and
STANDARD BANK OF SA LTD
First Respondent
Neutral citation: Bredenkamp v Standard Bank (599/09) [2010] ZASCA 75 (27 May
2010)
Coram:
Harms DP, Cloete, Ponnan and Cachalia JJA and Saldulker AJA
Heard:
06 May 2010
Delivered:
27 May 2010
Summary:
Banker and client – closing of account by bank – when justified –
exercise of a contractual right, which does not involve any public policy
considerations or constitutional values, does not have to be ‘fair’.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: South Gauteng High Court (Johannesburg) (Lamont J sitting as
court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
HARMS DP (CLOETE, PONNAN and CACHALIA JJA and SALDULKER AJA
concurring)
INTRODUCTION
[1] This appeal relates to the right of a banker to close a client’s account.1 The
issue was presented as a constitutional issue because it was said to be based on
principles laid down by the Constitutional Court (the CC) in Barkhuizen v Napier.2
The first proposition is that the benchmark for the constitutional validity of a term of a
contract is fairness; and the second is that even if a contract is fair and valid, its
enforcement must also be fair in order to survive constitutional scrutiny.3 The
appellant’s case, as it unfolded during the course of the proceedings, was based on
the second but it will be necessary to consider both because in my judgment they
are not to be found in the CC judgment and are in any event unsound.
[2] The appellants, who were the applicants in the High Court, are Mr John
Bredenkamp, two companies that ‘belong’ to him, and a trust that owns one of
Bredenkamp’s many residences.4 Before us the case of the trust was abandoned,
1 The complex relationship between a bank and its customers was discussed by Moseneke AJ in
Standard Bank of SA Ltd v Absa Bank Ltd [1995] 1 All SA 535, 1995 (2) SA 740 (T) at 746G-747E.
2 2007 (5) SA 323 (CC), 2007 (7) BCLR 691 (CC).
3 Breedenkamp v Standard Bank of SA Ltd 2009 (5) SA 304, [2009] 3 All SA 339 (GSJ) (the Jajbhay J
judgment). The incorrect spelling of Bredenkamp in the law reports comes from this judgment.
4 The second appellant is Breco International Ltd; the third is Hamilton Place Trust; and the fourth is
International Cigarette Manufacturers (Pty) Ltd.
which means that we are concerned only with Bredenkamp and his two companies,
and further references to ‘the appellants’ will be to them. According to the founding
affidavit, the appellants are international commodities traders that required banking
facilities in order to conduct business in this country. They also required Pound
Sterling and US Dollar denominated accounts to make and receive payment for
commodities bought and sold internationally. In addition, Bredenkamp required
personal banking facilities.
[3] The appellants, consequently, opened a number of accounts with the
respondent, Standard Bank of SA Ltd, during 2002. Bredenkamp held a MasterCard
credit card, a number of current accounts and two foreign currency accounts. The
one company held a current account and the other a money market account.
[4] On 8 December 2008, the Bank notified the appellants that it had suspended
the credit card facilities and that it intended to withdraw them on 6 January 2009.
One of Bredenkamp’s current accounts had an overdraft facility attached, and that
was likewise suspended and was to be withdrawn on the same date. As far as the
other current accounts and the foreign currency accounts were concerned, the Bank
requested the appellants to make alternative arrangements because these were to
be closed on 19 January 2009. At the request of the appellants the Bank gave them
extensions from time to time. The detail is of no consequence.
[5] The appellants approached the High Court as a matter of urgency for an
interim interdict restraining the Bank from cancelling the contracts, which underlie
the banking facilities, and from closing the accounts. The matter came in the first
instance before Jajbhay J (whose untimely death occurred two days before the
hearing of this appeal). The learned judge granted the interim interdict and his
judgment is reported.5 On the return day the matter came before Lamont J who
found that the appellants had not made out a case for an interdict and so he
discharged the rule and dismissed the application. His judgment is also reported.6
This appeal against his judgment is with the leave of this Court.
THE APPLICATION
5 The Jajbhay J judgment.
6 Breedenkamp v Standard Bank of SA Ltd 2009 (6) SA 277 (GSJ).
[6] The Bank sought to justify its right to terminate its relationship with the
appellants on two grounds. The first was that it had the right in terms of an express
term of its contracts to close the accounts with reasonable notice. It also relied on an
implied term with the same effect, namely that an indefinite contractual relationship
may be terminated with reasonable notice.7 (An implied term is one implied by law
into all contracts of a particular nature (a naturale). This means that it is a rule of law
that can be varied or made inapplicable by agreement. A tacit term is one that has to
be implied with reference to the presumed intention of the parties to a particular
contract.)
[7] The Bank did not initially inform the appellants of its reasons for termination.
One would assume that in the ordinary course of events the motive of a party in
exercising a right – contractual in this case – is irrelevant.8 (A possible exception
could be the abuse of rights.)
[8] The final relief sought in the notice of motion was multi-pronged and wide-
ranging. It was based primarily on the supposition that the contracts between the
parties did not contain the express term. Probably realizing that the term could be
said to be implied, the appellants sought an order declaring that the common-law
rule is that an indeterminate contract may be terminated only in the event of a
breach by the other party. In the event, the affidavit of Bredenkamp, dealt with later,
sought to make out a different case without an amendment of the notice of motion.
[9] In the alternative, the appellants sought to attack the validity of the implied
term and by implication the express term. Apart from a generalized attack on the
basis of both being contra bonos mores, the constitutional attack was particularized
with reference to a breach of the following rights contained in the Bill of Rights, viz:
‘section 9 (equality); section 10 (human dignity); section 14 (privacy); section 15 (freedom of
religion, belief and opinion); section 16 (freedom of expression); section 18 (freedom of
association); section 22 (freedom of trade, occupation and profession); section 25
7 Putco Ltd v TV & Radio Guarantee Co (Pty) Ltd 1985 (4) SA 809 (A); ([1985] 2 All SA 533 (A));
Amalgamated Beverage Industries Ltd v Rond Vista Wholesalers 2004 (1) SA 538 (SCA); [2003] 4 All
SA 95 (SCA).
8 Compare National Director of Public Prosecutions v Zuma 2009 (2) SA 277 (SCA), [2008] 1 All SA
197 (SCA) para 37-38; Jansen van Vuuren & ano NNO v Kruger 1993 (4) SA 842 (A), [1993] 2 All SA
619 (A).
(property); section 32 (access to information); section 33 (just administrative action); [and]
section 34 (access to courts).’
[10] There was also a prayer for review of the Bank’s decision in terms of
administrative justice principles on the basis that the appellants were entitled to a
hearing before the decision to close the accounts was taken. The appellants have
abandoned this leg of their case. However, they harked back to a right to be heard
(not a right to a hearing) in another context.
[11] The crucial relief sought was for an order that the Bank had to ‘maintain the
accounts’ – presumably until the appellants were to commit a breach of contract.
The apparent basis for the relief was that the term was invalid or that it flowed from
the new common-law rule that was to be developed.
THE REASONS FOR TERMINATION
[12] The Bank disclosed its reasons for termination in its first set of affidavits. The
decision came about because of the listing of Bredenkamp and a number of entities
owned or controlled by him as ‘specially designated nationals’ (SDNs) by the US
Department of Treasury’s Office of Foreign Asset Control (OFAC) on 25 November
2008. OFAC administers and enforces economic and trade sanctions based on US
foreign policy and national security goals. The Bank became aware of the listing on
26 November.
[13] MasterCard, a US company, is not permitted by US law to conduct any
business directly or indirectly with any listed person or entity and the Bank, by virtue
of its relationship with MasterCard, could not permit an SDN to use a MasterCard.
The Bank was, accordingly, obliged to cancel the MasterCard account and
Bredenkamp accepted before us that he was not entitled to any relief in relation to
this account.
[14] The reason why Bredenkamp was listed by OFAC is because he was said to
be a ‘crony’ of President Mugabe of Zimbabwe and that he had provided financial
and logistical support to the ‘regime’ that has enabled Mugabe ‘to pursue policies
that seriously undermine democratic processes and institutions in Zimbabwe’.
Bredenkamp disputed these allegations. The Bank in turn did not suggest that the
grounds for his listing were factually correct or justified and this Court, too, is not
called upon to determine whether they are.
[15] An on-line report at the time alerted the Bank to the fact that Bredenkamp
was allegedly involved in various business activities, including tobacco trading, grey-
market arms trading and trafficking, equity investments, oil distribution and diamond
extraction.
[16] Bredenkamp was clearly not an ordinary client. On one bank form he
indicated that his monthly income was R500 000 during 2002. He was reputed to
have been one of the 100 richest persons in the UK. He owned residences in
several parts of the world. It is accordingly not surprising that the Bank, immediately
after the listing (which in itself was evidence of his prominence and wealth), made
internal inquiries and discussed his case at the level of senior executives and
managers.
[17] The Bank’s first concern was that if it were to maintain its relationship with the
appellants, ‘domestic and foreign onlookers might reasonably believe or suspect that
accounts held at Standard Bank would or could be used to facilitate unlawful and/or
unethical acts’ and its association ‘might well undermine a bank’s hard-won and
fragile national and international reputation’.
[18] The Bank was also apprehensive of the possibility that any continued
relationship with the appellants would create material business risks. Although the
Bank itself is not bound to comply with the listing, many financial institutions with
which it conducts business internationally are. These financial institutions impose
stringent obligations in respect of the correspondent accounts they offer to banks
such as the respondent. Any misstep by the Bank concerning a client who is an SDN
could lead to the seizure of funds transferred in bulk on behalf of a number of clients,
to a closure of accounts or to an adverse report to OFAC. It follows that it was not
only the Bank’s reputation that it felt was at risk but that there were also material
business risks.
[19] Subsequently, but while the termination was suspended and before the filing
of the answering affidavit, the Bank made further inquiries about Bredenkamp and
established that, apart from his listing, he had an unenviable and dubious reputation
locally and internationally.9 The allegations included the following: He was a
sanctions buster not only of US but also of UN arms embargoes; he smuggled
cigarettes and thereby circumvented customs and tax laws; he benefitted from the
war in the Congo; he was the subject of serious fraud investigations in the UK and of
police raids and tax evasion investigations in South Africa; his Dutch citizenship had
been withdrawn; and that he was a ‘paymaster of irregular commissions to SA
government officials’. Once again, it must be assumed, as the Bank did, that these
allegations may not be true: unfortunately, reputation is not necessarily based on
fact but often on perception.
[20] To add to Bredenkamp’s woes the UK soon followed the US and Bredenkamp
was placed on a consolidated list of financial targets in relation to the Zimbabwe
‘regime’. The European Union followed suit on 20 February 2009. Bredenkamp has
launched review proceedings in relation to the EU listing but there is nothing on the
papers to indicate that he has taken any formal steps to set aside the other listings.
THE CASE BEFORE LAMONT J
[21] The appellants’ case as argued before Lamont J was much narrower than
that envisaged in the papers. It is important to understand the downsizing because it
impacts on the argument eventually presented to this Court.
[22] I deal first with the attack on the express term of the contract on which the
Bank relied to close the accounts. Bredenkamp, in his first affidavit which was
supplementary to the founding affidavit, attacked the express term on the basis that
it was contained in a standard-form contract imposed by a powerful corporate entity
upon a vulnerable consumer, accordingly operated in an unbalanced way, and was
unconstitutional. He added that he had been under the ‘definite impression that my
relationship with the bank would be perpetual and that it would not be terminated
without good reason or, at minimum, without first discussing with me the reasons
why the bank chose to do so’.
[23] The problem with the attack on the express term was that it took the case
nowhere because it provided no more than does the implied term or common-law
rule, which entitles a party to terminate an indefinite contractual relationship on
9 Lamont J judgment para 25.
reasonable notice. This compelled the appellants to attack the common-law rule.
The attack was constitutionally based with reference to the list of values in the Bill of
Rights referred to earlier. Bredenkamp submitted that the common law should be
developed so as to require that the decision to close an account be preceded by a
hearing and be based on rational or reasonable grounds.
[24] The appellants themselves scuttled these arguments. They accepted that the
agreement with the Bank entitled either party to terminate the relationship on
reasonable notice for any reason10 and that this clause or the implied term did not
offend any constitutional value. It was accordingly valid. They also accepted that due
notice had been given and that a reasonable time had been allowed.
[25] The issue Lamont J was asked to decide was whether or not, in the particular
circumstances under which the Bank had closed the accounts, any constitutional
values were ‘offended’ (para 14). On the basis that any had, the appellants whittled
down the relief sought. They now required an order prohibiting the Bank from closing
the accounts in the absence of good cause (because the contracts had already been
closed a mandamus to the effect that the closing was unlawful would have been
more appropriate) and interdicting the Bank from closing the accounts unless and
until good cause arose (para 19). Lamont J recognized that the constitutional values
had to be identified (para 17) but eventually considered the matter with reference, it
would appear, to the constitutional value of ‘fairness’ (para 31). Since he quoted at
length from Barkhuizen, one may assume that he proceeded from the assumption
that this value was recognised in that case.
THE CASE BEFORE THE SCA
[26] The argument for the appellants before this Court did not differ much from
that before Lamont J. It took as its lodestar para 56 from the majority judgment of
Ngcobo J in Barkhuizen which reads:
‘There are two questions to be asked in determining fairness. The first is whether the clause
itself is unreasonable. Secondly, if the clause is reasonable, whether it should be enforced
in the light of the circumstances which prevented compliance with the time limitation clause.’
10 I do not necessarily subscribe to the appellants’ submission that the entitlement extends to ‘bad’
reasons, at least by the Bank. This could amount to an abuse of the Bank’s rights.
This dictum, according to the argument, means that all contractual provisions have
to be ‘reasonable’. If they are not, they are unconstitutional. And even if they are
reasonable, their enforcement must also be reasonable. The contextual phrase
‘which prevented compliance with the time limitation clause’ was conveniently
glossed over.
[27] Consistent with the approach before Lamont J the appellants accepted that
the common-law rule and the express term of the contract were fair and reasonable
and therefore not in conflict with any constitutional values. Their complaint was
accordingly limited to the exercise of the admittedly ‘fair’ and valid contractual right.
The argument proceeded on the basis that Barkhuizen stands as authority for the
proposition that fairness is a core value of the Bill of Rights and that it is therefore a
broad requirement of our law generally. This would mean that any conduct (including
legislation), which is unfair, would be in conflict with the Constitution and,
accordingly void – a novel proposition, at least for me. In any event, according to the
argument, fairness and reasonableness have infused the law of contract to such an
extent that ordinary principles, such as those relating to mistake, misrepresentation,
cancellation and all else have been subsumed by constitutional fairness.
[28] I would be surprised if the judgment of Ngcobo J holds that an agreement to
pay a loan on demand or on a given agreed day requires for enforcement an inquiry
into the reasonableness of the creditor’s decision to rely on the contractual right. It
would mean that the debtor could argue that he needs time to pay; that the creditor
does not require the money on the given day; and that enforcement could lead to the
debtor’s sequestration – all very unfair. I shall attempt to demonstrate that the CC
did not do any such thing. For once we were not referred to any foreign
constitutional jurisprudence with such far-reaching consequences, presumably
because there is none.
[29] It is important to underscore a number of issues. The first is that the
appellants specifically said before us that they do not suggest that the common law
had to be developed. This came about when counsel was unable to formulate the
exception to the implied term which would fit his case. The problem that faced the
appellants in this regard was that it is inconsistent to accept that a contract of
indefinite duration (including this one) may be terminated with reasonable notice but
at the same time to contend that this one could not without good cause. The two
rules would be in conflict. This means that the provisions of s 39(2) of the Bill of
Rights, which require a court to promote the spirit, purport and objects of the Bill of
Rights when developing the common law, do not arise. Another consequence is that
the relief now sought, which is identical to that sought before Lamont J, is hardly
appropriate because it was based on a development of the common law.
[30] The second is this: although the appellants in the part quoted from the notice
of motion recited nearly every provision of the Bill of Rights counsel stated that they
do not suggest that the exercise of the right to terminate ‘implicated’ any
constitutional principle. It is accordingly not their case that the closing of the account
compromised constitutional democracy, or their dignity, freedom or right to equality
and the like, and the expansive interpretation of the Bill of Rights does accordingly
not arise (s 39(1)). The case is about fairness as an over-arching principle, and
nothing more.
[31] Thirdly, lack of bona fides was not alleged nor was it argued that the Bank
was not bona fide in closing the accounts.11 Having read Dutch and German law on
the subject of bona fides in contract law, which derives not from any bill of rights but
from their codes, I also could not find any instance where a similar defence was
raised.
[32] Lastly, the appellants also did not seek to rely on a revival of the exceptio
doli generalis. Whatever its scope may have been, in the absence of another
defence it cannot be fraudulent, unconscionable or inequitable to rely on a valid
right, in this case the right to terminate on reasonable notice.12 It is unfortunately
necessary to say something more about the exceptio because an obiter footnote in
Crown Restaurant13 read with Barkhuizen has given some14 the impression that the
CC has revived the exceptio doli generalis, which was laid to rest by this Court in
11 South African Forestry Co Ltd v York Timbers Ltd 2005 (3) SA 323 (SCA), [2005] 4 All SA 168
(SCA) paras 28-34 expands on Brisley v Drotsky 2002 (4) SA 1 (SCA); 2002 (12) BCLR 1229 (SCA).
See also F D J Brand ‘The role of good faith, equity and fairness in the South African law of contract:
The influence of the common law and the Constitution’ 126 (2009) SALJ 71.
12 Universal Stores Ltd v O K Bazaars (1929) Ltd 1973 (4) SA 747 (A) at 762G-H.
13 Crown Restaurant CC v Gold Reef City Theme Park (Pty) Ltd 2008 (4) SA 16, 2007 (5) BCLR 453.
(CC) fn 1.
14 A J Kerr ‘The defence of unfair conduct on the part of the plaintiff at the time the action is brought:
The exceptio doli generalis and the replicatio doli in modern law’ 125 (2008) SALJ 241.
Bank of Lisbon.15 The footnote states that it was generally assumed before Bank of
Lisbon that the exceptio doli generalis provided a remedy against an unfair contract
and against the unfair enforcement of contracts. With all due respect, the statement
requires qualification.
[33] The majority in Bank of Lisbon, using a historical analysis, found that the
exceptio had not been part of our law. It was part of the Roman law of procedure
and never a substantive rule, and was used to alleviate the strictness of contracts
that were not based on bona fides. Since all contracts in our law are considered to
be bonae fidei, the exceptio had no purpose in modern law. The majority also
pointed out (at 610F-611D) that according to the jurisprudence of this Court – and
lower courts – a party is bound by a contract provided the contract is valid and
untainted and that a party could not raise the exceptio merely because one party has
exercised a right conferred by the contract.16 As Innes CJ already said:17
‘No doubt the condition is hard and onerous; but if people sign such conditions they must, in
the absence of fraud, be held to them. Public policy so demands.’
[34] Jansen J was extremely sceptical about the exceptio as a self-standing
defence; and he found it difficult to envisage an appropriate field of its operation.18 In
this Court, too, he (as a judge of appeal) had rejected the proposition that a party
was not bound by the term of a contract because it was unfair.19 In Bank of Lisbon,
however, he relied in his minority judgment on a number of cases where the
exceptio had been mentioned as a defence. But those cases were all covered by
clear rules such as rectification, mistake and estoppel.20 As in German law, the
exceptio was simply a convenient label for a number of rules but it had no specific
content.21
[35] The disquiet about facts similar to those in Bank of Lisbon had led AS Botha
15 Bank of Lisbon and SA Ltd v De Ornelas 1988 (3) SA 580 (A).
16 See also Union Government v Vianini Ferro-Concrete Pipes (Pty) Ltd 1941 AD 43 at 50.
17 Wells v South African Alumenite Co 1927 AD 69 at 73.
18 North Vaal Mineral Co Ltd v Lovasz 1961 (3) SA 604 (T) at 607F-608F.
19 Paddock Motors (Pty) Ltd v Igesund 1976 (3) SA 16 (A) at 28F-G. See also Magna Alloys and
Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A) at 893H-894B.
20 Carole Lewis ‘The demise of the exceptio doli: Is there another route to contractual equity?’ 107
(1990) SALJ 26 at 33.
21 Zimmermann & Whittaker Good faith in European contract law (2000) pp 19 and 29.
J in an earlier judgment to adopt the exceptio as a general principle.22 In both cases
a bank sought to use a deed of suretyship with a wide wording to secure debts that
had not been within the contemplation of the parties when the agreement was
entered into. In other words, the bank sought to rely on the deed for a purpose that
was never intended at the time of execution. As Lewis has pointed out, the problem
would not have arisen if the deeds had been appropriately interpreted. They should
have been interpreted contextually in their matrix.23 The result of a judgment is often
determined by the issues defined by the parties.24
FIRST PRINCIPLES
[36] It is unfortunately necessary to say something about the much maligned
principle that contracts have to be respected. Davis J, for instance, took issue with
‘contractual autonomy’ because it reflects in his view a libertarian view of the world
which is in conflict with the spirit of the Constitution read as a whole.25 This led to a
counter by Wallis J26 and a riposte by Davis J.27
[37] Much has been said about pactum sunt servandum as a holy cow. It may
have been one during Germanic and early Roman times when the law ‘laboured
under the tyranny of the word and the rule of formalism’.28 It has not been a holy cow
nor has contractual autonomy existed since the time of Justinian. The maxim was
derived from Codex 2.3.7 where in a particular context two Emperors had said that
‘pacti conventionisque fides servanda est’.29 Codex 2.3.6, stated that it is a self-
evident principle that contracts (pacta) concluded contrary to laws, imperial
constitutions,30 or the boni mores are of no force or effect. See also Codex 2.3.29.31
22 Rand Bank Ltd v Rubenstein 1981 (2) SA 207 (W).
23 KPMG Chartered Accountants SA v Securefin Ltd 2009 (4) SA 399 (SCA), [2009] 2 All SA 523 para
39. See also South African Forestry Co Ltd v York Timbers Ltd 2005 (3) SA 323 (SCA) paras 28-34.
24 Dikgang Moseneke ‘Transformative constitutionalism: Its implications for the law of contract’ 20
(2009) Stell LR 3 at 11.
25 Advtech Resourcing (Pty) Ltd t/a Communicate Personnel Group v Kuhn 2008 (2) SA 375 (C),
[2007] 4 All SA 1368 para 30.
26 Den Braven SA (Pty) Ltd v Pillay & another 2008 (6) SA 229 (D), ([2008] 3 All SA 518).
27 Mozart Ice Cream Franchises (Pty) Ltd v Davidoff 2009 (3) SA 78 (C).
28 Aquilius (FP van den Heever) ‘Immorality and Illegality in Contract’ 58 (1941) SALJ 337 at p 339.
29 There is a more generalized statement in Codex 4.54.8 but read in context, especially Codex
4.54.4 which contains an early example of estoppel, it does not pretend to provide the last word on
the subject.
30 I used the rendition of W G Hiemstra and H L Gonin’s Trilingual Legal Dictionary 2 ed sv ‘pacta’.
31 For a detailed discussion see Edouard v Administrator, Natal 1989 (2) SA 368 (D).
[38] This Court in Sasfin32 consequently restated the obvious, namely that our
common law does not recognize agreements that are contrary to public policy. Our
courts have always been fully prepared to reassess public policy and declare
contracts invalid on that ground.33 Determining whether or not an agreement was
contrary to public policy requires a balancing of competing values. That contractual
promises should be kept is but one of the values. Reasonable people, irrespective of
any philosophical or political bent, might disagree whether any particular value
judgment was ‘correct’, ie, more acceptable.34 Didcott J, for one, believed in relation
to restraint of trade cases that the sanctity of contract trumped freedom of trade
whereas AS Botha J (a former member of this Court who also died recently) together
with Spoelstra AJ, thought otherwise while Vermooten J agreed with Didcott J.35 The
view of Didcott J was eventually adopted by this Court in Magna Alloys.36 The
disagreement in Sasfin between the majority and the minority did not affect the
principle but its application to particular clauses and severability. Public policy
considerations are also not static and their weight may change as circumstances
change.
[39] Others have spoken more eloquently about the interaction between the
Constitution and the common law, more particularly the law of contract, but I shall
attempt to state the basics that have become trite but may not always have been
observed. The common law derives its force from the Constitution and is only ‘valid’
to the extent that it complies or is congruent with the Constitution. Every rule has to
pass constitutional muster. Public policy and the boni mores are now deeply rooted
in the Constitution and its underlying values. This does not mean that public policy
values cannot be found elsewhere. A constitutional principle that tends to be
overlooked when generalized resort to constitutional values is made is the principle
of legality. Making rules of law discretionary or subject to value judgments may be
destructive of the rule of law.
32 Sasfin (Pty) Ltd v Beukes 1989 (1) SA 1 (A) at 7I-9H.
33 A good example is Hurwitz v Taylor 1926 TPD 81 declaring marriage brokerage contracts invalid in
spite of the Roman Dutch law that recognised them.
34 Brisley v Drotsky 2002 (4) SA 1 (SCA) para 8.
35 See the discussion in National Chemsearch (SA) Pty Ltd v Borrowman and Another 1979 (3) SA
1092 (T) at 1100H-1101B.
36 Magna Alloys and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A).
[40] It is now time to quote from the judgment of Ngcobo J in Barkhuizen about the
holy cow. He said (para 87):
‘Pacta sunt servanda is a profoundly moral principle, on which the coherence of any society
relies. It is also a universally recognised legal principle. But, the general rule that
agreements must be honoured cannot apply to immoral agreements which violate public
policy. As indicated above, courts have recognised this and our Constitution re-enforces it.’
THE BARKHUIZEN JUDGMENT
[41] Although the judgment of the substantial majority (per Ngcobo J), with due
respect, appears to me to be clear and consistent, some have interpreted it
differently. It is accordingly my unenviable task to construe the judgment to the
extent that it impacts on this case.
[42] The case concerned the constitutionality of a time limitation clause in a short-
term insurance policy. It provided that the insured had to institute any claim within
three months after the claim had been rejected by the insurer. The case of the
insured was that the term limited his right of access to courts guaranteed by s 34 of
the Bill of Rights.
[43] The CC found that our common law has always recognised the right of an
aggrieved person to seek the assistance of a court of law and that a term in a
contract, which deprives a party of the right, is contrary to public policy (para 34).
Section 34 not only reflects the foundational values that underlie our constitutional
order, it also constitutes public policy (para 33). The question whether the clause
was contrary to public policy depended on whether it was inimical to the values that
underlie our constitutional democracy ‘as given expression to in section 34’ (para
36). (I emphasize the reference to the specific constitutional value involved in view of
the appellants’ admission that they do not rely on any particular value.) The CC
applied the tests laid down in Mohlomi,37 a judgment dealing with a statutory
limitation of the right of access to courts, which implies that the application of
constitutional values to legislation and contract does not differ. (It is trite that fairness
is not the test for statutory constitutionality.)
[44] The clause in question did not deny but only limited the right to seek judicial
37 Mohlomi v Minister of Defence 1997 (1) SA 124 (CC), (1996 (12) BCLR 1559).
redress (para 45). A limitation of this particular constitutional right is not per se
contrary to public policy but it would be if the limitation were ‘unreasonable or unfair’
(para 51). The CC then turned to consider the two quoted questions, namely
whether the clause itself was ex facie unreasonable and, if not, whether it should be
enforced ‘in the light of the circumstances which prevented compliance with the time
limitation clause’ (para 56).
[45] The first question requires no further attention. About the second the CC
said this (para 58):
‘The second question involves an inquiry into the circumstances that prevented compliance
with the clause. It was unreasonable to insist on compliance with the clause or impossible
for the person to comply with the time limitation clause. Naturally, the onus is upon the party
seeking to avoid the enforcement of the time limitation clause. What this means in practical
terms is that once it is accepted that the clause does not violate public policy and non-
compliance with it is established, the claimant is required to show that in the circumstances
of the case there was a good reason why there was a failure to comply.’
This reflects the approach our courts have taken in relation to the enforcement of
clauses in restraint of trade. One considers, in the light of the circumstances
prevailing at the time of enforcement, whether or not it would be contrary to public
policy to enforce the restraint.38
[46] The public policy considerations that apply at the enforcement stage are no
different from those that apply at the first stage: is the limitation of the identified
constitutional value – the right of access to courts –fair and reasonable in the
circumstances? Significantly, the CC referred to only one example of unfair
enforcement and that related to impossibility where application of the lex non cogit
ad impossibilia rule could conceivably solve the problem. It did not raise simpler
examples of unfair enforcement such as that of an insured who is unable to afford a
lawyer and therefore not able to comply with a time limit.
[47] This all means that, as I understand the judgment, if a contract is prima facie
contrary to constitutional values questions of enforcement would not arise. However,
38 National Chemsearch (SA) Pty Ltd v Borrowman 1979 (3) SA 1092 (T) at 1107E-H; Magna Alloys
and Research (SA) (Pty) Ltd v Ellis 1984 (4) SA 874 (A) at 895D-I.
enforcement of a prima facie innocent contract may implicate an identified
constitutional value. If the value is unjustifiably affected, the term will not be
enforced. An example would be where a lease provides for the right to sublease with
the consent of the landlord. Such a term is prima facie innocent. Should the landlord
attempt to use it to prevent the property being sublet in circumstances amounting to
discrimination under the equality clause, the term will not be enforced.
[48] Similarly, if the value is subject to limitation, such as the right of access to
courts or to practise a trade or profession, and was ‘reasonably’ limited within the
meaning of s 36, the court must assess at the time of enforcement whether the
limitation is still fair and reasonable in the circumstances.
[49] It is evident from the judgment that if evidence is required to determine
whether a contract is in conflict with public policy or whether its enforcement would
be so, the party who attacks the clause at either stage must establish the facts
(paras 66, 84-85 and 93).
[50] With all due respect, I do not believe that the judgment held or purported to
hold that the enforcement of a valid contractual term must be fair and reasonable
even if no public policy consideration found in the Constitution or elsewhere is
implicated.39 Had it been otherwise I do not believe that Ngcobo J would have said
this (para 57):
‘Self-autonomy, or the ability to regulate one’s own affairs, even to one’s own detriment, is
the very essence of freedom and a vital part of dignity. The extent to which the contract was
freely and voluntarily concluded is clearly a vital factor as it will determine the weight that
should be afforded to the values of freedom and dignity. The other consideration is that all
persons have a right to seek judicial redress.’
[51] It is also not without significance that there is no indication in either of the
minority judgments of Moseneke ACJ and Sachs J of an over-arching requirement of
fairness. Instead, both judgments dealt with the matter as one of public policy as
found in the Constitution and there is nothing in them that supports the appellants’
39 Employment contracts are affected by the right to fair labour practices: Murray v Minister of
Defence 2009 (3) SA 130, [2008] 3 All SA 66 (SCA) para 11; Nakin v MEC, Department of Education,
Eastern Cape 2008 (6) SA 320, [2008] 2 All SA 559 (CkHC) para 36. The CC did not subject the
arbitration agreement in Lufuno Mphaphuli & Associates v Andrews 2009 (4) SA 529, 2009 (6) BCLR
527 (CC) or its enforcement to the fairness test.
argument.
[52] The appellants sought to bolster their argument in respect of a general
doctrine of unfairness with reference to a number of instances that, they say,
establish fairness as the basis of all our law. The cases concerned extortion and
restraint of trade, and there was also a general reference to Sasfin where the court
had struck down a contract as being contra bonos mores. It is difficult to understand
the relevance of these instances. They all dealt with contracts that were contra
bonos mores and were consequently invalid. Here the appellants have conceded the
validity of the contractual term. They also relied on three judgments that deal with
unlawful boycotts or blacklisting.40 These cases related to claims in delict. It escapes
me how they can be of any assistance in deciding the principles applicable to this
case and so does the argument that administrative justice principles of fairness
somehow ‘inform’ contract law.
FAIRNESS
[53] In the light of my conclusion that fairness is not a free-standing requirement
for the exercise of a contractual right it is strictly unnecessary to consider the facts
relating to fairness but because of the way the matter was argued it is preferable to
deal with the issue.
[54] Fairness remains a slippery concept as was illustrated by the fact that
Jajbhay J found that the closing of the account was unfair while Lamont J, on
basically the same facts, found otherwise. I am in general agreement with the
approach of Lamont J.
[55] The appellants’ case in simple terms is this. They require bank accounts to
conduct business locally. The closing of a bank account is a serious matter. If they
were to approach one of the remaining three major banks in the country for an
account they would have to disclose the fact of closure. Those banks would then
establish from them the reason for closure.41 When informed, they would not grant
40 Murdoch v Bulloch 1923 TPD 495; Hawker v Life Offices Association of SA 1987 (3) SA 777, [1987]
2 All SA 100 (C); Wolmarans v ABSA Bank Ltd 2005 (6) SA 551 (C).
41 It is not suggested that the Bank would have disclosed the reason for closing the accounts to other
banks. That would have been a breach of confidentiality. The Bank did not even disclose its reason to
the appellants and if the appellants had, before forcing the Bank to divulge its reason, approached
other banks the foundation of the appellants’ case would have fallen away.
the appellants banking facilities. The result of the closing of their accounts, they say,
effectively ‘unbanked’ them (a term coined by counsel). This is due to the fact that
the banking industry is in the hands of few who enjoy significant market power. It is
accordingly a case ‘where private power approximates public power or has a wide
and public impact’ when everyone ‘is entitled to effective relief in the face of
unjustified invasion of a right expressly or otherwise conferred by the highest law in
our land’.42
[56] The appellants’ argument is in many respects circuitous, self-destructive and,
in any event, without merit. They accept that in terms of the valid agreement the
Bank was entitled to terminate without any cause but they ask for an order that the
Bank may only terminate on good cause. This would require a tacit term or the
development of the common law, both of which they eschew. But, they say, in this
case the Bank cannot close the account with a bona fide reason because of
consequences to them that cannot be laid at the door of the Bank.
[57] The fact that the appellants as business entities are entitled to banking
facilities may be a commercial consideration but it is difficult to see how someone
can insist on opening a banking account with a particular bank and, if there is an
account, to insist that the relationship should endure against the will, bona fide
formed, of the bank. There is also a factual issue. The use put by the appellants of
their accounts shows without doubt that they do have other accounts, although
maybe none locally. The second appellant, which is the commodities trader, does
not hold a foreign currency account with the Bank. There is no indication that it uses
its current account as a trading account. The fourth appellant, which appears to be a
manufacturing company, only has a money market account with the Bank and not a
business account.43 And Bredenkamp’s accounts were used for mundane matters
only.
[58] The appellants also have a serious problem with causation. It is the listing
(fair or unfair) that ‘unbanked’ the appellants, and not the closing of the accounts. Ms
42 Dikgang Moseneke loc cit.
43 An affidavit of Mr Bezuidenhout filed by the Bank refers to a current account held by the fourth
appellant with number 023390778 which was once used to transfer a large amount to a bank account
held by the second appellant in Switzerland. The current account has not been referred to in the
notice of motion or in the relief now sought. Its status is unknown.
Ina Steyn of Absa Bank testified that the fact that the account of an aspirant
customer was closed by another financial institution is an important factor to
consider when deciding whether or not to accept the client. However, it is the reason
rather than the fact of closure that would be its concern. Absa, she said, regards an
applicant’s status on a credible SDN list as a critical factor in reaching its decision. In
the ordinary course of events Absa checks whether an applicant is an SDN. She
mentioned that Absa had already refused the appellants banking facilities in view of
the listing.44 There is no suggestion that this was done because the accounts were
closed.
[59] The fact that banks may not wish to provide listed entities with banking
facilities is unrelated to the fact that there are only a few major banks in the country.
A proliferation of banks would not have made any difference. The impact on the
appellants was not caused by the decision to close the accounts; it was caused by
the listing. It is therefore not a case of the abuse by the Bank of private power that
approximates public power.
[60] I find it difficult to perceive the fairness of imposing on a Bank the obligation to
retain a client simply because other banks are not likely to accept that entity as a
client. The appellants were unable to find a constitutional niche or other public policy
consideration justifying their demand. There was, accordingly, in the words of
Moseneke DCJ no ‘unjustified invasion of a right expressly or otherwise conferred by
the highest law in our land’.45
[61] The appellants also submitted that the Bank’s decision was procedurally and
substantively unfair. This argument was built on quicksand because they abandoned
an administrative law review; they do not suggest that the common law must be
developed so that a party who is entitled to cancel a contract has to give the other
party a hearing before cancellation; and they do not rely on a tacit term to that
effect.46 Furthermore, a hearing in the form of a discussion would not have had any
effect and would have been an exercise in futility. Bredenkamp presumably would
44 The appellants filed affidavits by Mr Marius Nel who is also an Absa employee. His evidence is
somewhat different but it is clear that he is not qualified to speak about these matters. Furthermore, to
the extent that his evidence is different, her evidence has to be referred on ordinary motion principles.
45 Dikgang Moseneke loc cit.
46 Such a tacit term was found to exist in the circumstances in De Lange v ABSA Makelaars (Edms)
Bpk [2010] ZASCA 21 (23 March 2010).
have told the Bank that the listing was not justified, and he may have produced
evidence to that effect. But the Bank’s cancellation was not premised on the truth of
the allegations underlying the listing; it was based on the fact of the listing and the
possible reputational and commercial consequences of the listing for the Bank.
[62] The next submission was that the Bank had less drastic steps available: It
could have asked for undertakings from the appellants to reduce its risks or could
have kept their accounts under surveillance for questionable transactions. Whether
these options were viable is doubtful but they cannot be related to the relief
presently sought, namely that the Bank may not cancel without good cause.
[63] The appellants objected to the Bank’s reliance on Bredenkamp’s reputation.
The first objection was that the facts were not true but, as indicated, the Bank did not
seek to rely on the factual accuracy of the reports but on Bredenkamp’s reputation
itself. Their other complaint was that a bank is not entitled to take moral
considerations into account when deciding to close an account. The answer is that
the Bank did not make any moral judgment; it made a business decision to protect
its reputation. The appellants then said that banks are inconsistent because some
banks do deal with SDNs. The problem with the submission is that it is destructive of
the appellants’ whole case. It indicates that a listed entity or someone with a bad
reputation is not for that reason necessarily unbanked. Lastly, in this context, the
appellants object to the Bank’s reliance on facts determined after its decision to
close the accounts. There is no merit in the objection. A party has always had the
right to justify a cancellation with objective facts unbeknown to that party at the time
when the cancellation took place.47 Counsel could not give a reason why the rule
does not apply or whether and how it should be developed.
[64] This leaves for consideration the question whether the Bank had (in terms of
the relief presently sought) good cause to close the accounts. The Bank had a
contract, which is valid, that gave it the right to cancel. It perceived that the listing
created reputational and business risks. It assessed those risks at a senior level. It
came to a conclusion. It exercised its right of termination in a bona fide manner. It
47 Matador Buildings (Pty) Ltd v Harman 1971 (2) SA 21 (C); [1971] 1 All SA 381 (C); Putco Ltd v TV
& Radio Guarantee Co (Pty) Ltd 1985 (4) SA 809 (A) at 832; Datacolor International (Pty) Ltd v
Intamarket (Pty) Ltd [2001] 1 All SA 581 (A), 2001 (2) SA 284 (SCA) para 28.
gave the appellants a reasonable time to take their business elsewhere. The
termination did not offend any identifiable constitutional value and was not otherwise
contrary to any other public policy consideration. The Bank did not publicise the
closure or the reasons for its decision. It was the appellants who made these facts
public by launching the proceedings and requiring the Bank to disclose the reasons.
[65] The appellants’ response was that, objectively speaking, the Bank’s fears
about its reputation and business risks were unjustified. I do not believe it is for a
court to assess whether or not a bona fide business decision, which is on the face of
it reasonable and rational, was objectively ‘wrong’ where in the circumstances no
public policy considerations are involved. Fairness has two sides. The appellants
approach the matter from their point of view only. That, in my view, is wrong.
[66] The appeal is accordingly dismissed with costs, including the costs of two
counsel.
_____________________
L T C Harms
Deputy President
APPEARANCES:
M Brassey SC (with him K Hopkins)
APPELLANTS:
Instructed by Wertheim Becker Inc, Johannesburg
E G Cooper Majiedt Inc, Bloemfontein
1st RESPONDENT:
J J Gauntlett SC (with him R M Pearse)
Instructed by Deneys Reitz Attorneys, Johannesburg
Webbers, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 27 MAY 2010
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
J A BREDENKAMP AND OTHERS v STANDARD BANK OF SA LTD
The Supreme Court of Appeal today dismissed an appeal by Mr Bredenkamp and
two companies and a trust in which he has interests against a judgment of the high
court. The appellants had sought an order preventing the Standard bank of closing
their accounts with the Bank. The high court had dismissed the application. It was
accepted that the Bank had, in terms of its contract with the appellants and in terms
of the common law the right to close the accounts with reasonable notice.
However, the appellants contended that the closing was unfair because it was
unlikely that they would be able to obtain other banking facilities. They relied on a
Constitutional Court judgment for the proposition that a party is not entitled to use its
contractual rights if it would be unfair to the other party. The court held that the
appellants had misconstrued the CC judgment and, in any event, the closing of the
accounts was not unfair under the circumstances of the case.
---ends---
|
3997
|
non-electoral
|
2023
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 1332/2021
In the matter between:
UNICA IRON AND STEEL (PTY) LTD
FIRST APPELLANT
MOHAMED ASIF QASIM
SECOND APPELLANT
and
THE MINISTER OF TRADE
AND INDUSTRY
FIRST RESPONDENT
THE MANUFACTURING
DEVELOMENT BOARD
SECOND RESPONDENT
Neutral citation: Unica Iron and Steel (Pty) Ltd and Another v The Minister
of Trade and Industry and Another (Case no 1332/21)
[2023] ZASCA 42 (31 March 2023)
Coram:
VAN DER MERWE, SCHIPPERS, MOTHLE, WEINER
AND GOOSEN JJA
Heard:
17 February 2023
Delivered:
31 March 2023
Summary: Appeal – order declaring that attorney authorised to act in
action – not appealable unless interests of justice so demand – parties agreeing
that appeal hinges on legal issue – issue agreed upon academic and abstract –
interests of justice do not require order be regarded as appealable decision –
matter struck from roll.
_____________________________________________________________
ORDER
_____________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Matime AJ
sitting as court of first instance):
The matter is struck off the roll with costs, including the costs of two counsel.
_____________________________________________________________
JUDGMENT
_____________________________________________________________
Weiner JA (Van der Merwe, Schippers, Mothle and Goosen JJA
concurring)
[1] In March 2015, the respondents, the Minister of Trade and Industry (the
Minister), and the Manufacturing Development Board (the MDB)1 instituted
action in the Gauteng Division of the High Court, Pretoria (the high court)
against the appellants, Unica Iron and Steel (Pty) Ltd (Unica) and
Mr Mohamed Asif Qasim (Mr Qasim).2 In the action, they claimed repayment
of incentive grants in the sum of R4 734 986.00, which had been paid to Unica
in terms of the Small Medium Enterprise Development Programme
(SMEDP).
[2] The Minister is responsible for the Department of Trade and Industry
(the DTI). The MDB is a juristic entity established in terms of s 2(1) of the
Manufacturing Development Act 187 of 1993 (the Act). The Minister, in
terms of the Act, implemented the SMEDP which offered incentive grants to
1 When the respondents are referred to together, they will be referred to as the ‘respondents’.
2 Similarly, when the appellants are referred to together, they will be referred to as the ‘appellants’.
beneficiaries who qualified for the programme. Pursuant to an application by
Mr Qasim, on behalf of Unica, an agreement was concluded in terms of which
such grants were made available to and paid to Unica. The respondents alleged
in the action that Unica and Mr Qasim had breached the agreement, by failing
to comply with the requirements of the relevant local authorities relating to
the protection of the environment. They thus sought to recover the amounts
paid.
[3] The appellants filed a Notice in terms of Rule 7 of the Uniform Rules
of Court (rule 7), disputing the mandate of Rudman & Associates
Incorporated (Rudmans) to act on the respondents’ behalf. Rule 7(1) provides
that:
‘Subject to the provisions of sub-rules (2) and (3) a power of attorney to act need not be
filed, but the authority of anyone acting on behalf of a party may, within 10 days after it
has come to the notice of a party that such a person is so acting, or with the leave of the
court on good cause shown at any time before judgement, be disputed, whereafter such
person may no longer act unless he satisfies the court that he is authorised so to act, and to
enable him to do so the court may postpone the hearing of the action or application.’
[4] Rule 7 does not prescribe the manner in which authority to act may be
established, where such authority is challenged. In Administrator, Transvaal
v Mponyane and Others,3 Botha J dealt with the requirements of rule 7 and
stated that:
‘In my view there is nothing in Rule 7 in its present form that requires the authorisation of
an attorney to be embodied in a document styled a power of attorney. The provisions of
Rule 7 specifically requiring powers of attorney in appeals fortifies the impression that
otherwise an attorney's mandate can be proved otherwise than by the production of a
3 Administrator, Transvaal v Mponyane and Others [1990] 4 All SA 257 (W).
written power of attorney. I also think that Rule 7 should be viewed against the background
of its original form. Before its recent amendment it only required powers of attorney to be
lodged in the case of actions and appeals…I have no doubt that the underlying intention of
the recent amendment of Rule 7 was to make the Rule less cumbersome and formalistic.
I therefore conclude that proof of the authority of the respondents' attorney is not dependent
on the production of a written power of attorney.’3
[5] The respondents attempted to demonstrate to the appellants that
Rudmans were duly authorised, without success. In the light of this dispute,
the respondents applied to the high court for a declarator that Rudmans had
been and were authorised to represent them in the matter.
[6] The high court granted the order with costs. The arguments of the
appellants before the court a quo included a submission that it was not legally
permissible for the State Attorney to appoint private attorneys to act on its
behalf in a district where the State attorney has an office. The appellants
contended that this was contrary to the provisions of s 8 of State Attorney Act
56 of 1957.4 The high court rejected this contention and accepted that
Rudmans had been instructed by the State Attorney, as its correspondent.
[7] The order was based upon the supposition that it was the State Attorney,
as opposed to the DTI, who had instructed Rudmans, when this was not
correct. It is apparent that, based upon this reasoning, the parties formulated
the question of law on the basis that the State Attorney had instructed and
3 Ibid at 258.
4 Section 8 (1) provides: The State Attorney shall be entitled in the exercise of his functions aforesaid to
instruct and employ as correspondent any attorney or other qualified person to act in any legal proceedings
or matters in any place in the same way and, mutatis mutandis, subject to the same rules, terms and conditions
as govern attorneys in private practice, and shall be entitled to receive and recover from such correspondent
the same allowances as he would be entitled to do if he were an attorney in private practice.
mandated Rudmans to act for the respondents. However, as will appear below,
on the facts of this case, there is no evidence that the State Attorney appointed
Rudmans to act on its behalf.
[8] The high court granted leave to the appellants to appeal to this Court.5
In terms of rule 8(8) of this Court,6 the parties agreed that the appeal hinged
on a question of law and they formulated it by agreement. It reads as follows:
‘Does the State attorney, pursuant to, inter alia, the State Attorneys Act 56 of 1957, have
the power and authority to appoint and instruct an attorney from the private sector, in the
same district as that in which the State attorney is based or has an office, to act as the
primary attorney in a matter involving the State or an organ of State?’
[9] Although the high court granted leave to appeal to this Court, that
decision does not bind this Court. The Constitutional Court in United
Democratic Movement and Another v Lebashe Investment Group (Pty) Ltd
and Others (United Democratic Movement)7 held that:
‘In terms of section 168(3) of the Constitution, the Supreme Court of Appeal has
jurisdiction to hear and decide appeals on any matter arising from the High Court. When a
matter comes before the Supreme Court of Appeal, it has jurisdiction to determine whether
the lower court’s ruling in the proposed appeal is a “decision” within the meaning of
section 16(1)(a) of the Superior Courts Act. The Supreme Court of Appeal is not bound by
5 The appellants do not appeal against the costs order.
6 Rule 8(8) of the Rules regulating the conduct of the proceedings of the SCA states that:
‘(8)(a) Whenever the decision of an appeal is likely to hinge exclusively on a specific issue or issues of law
and/or fact, the appellant shall, within 10 days of the noting of the appeal, request the respondent’s consent
to submit such issue or issues to the Court, failing which the respondent shall, within 10 days thereafter, make
a similar request to the appellant.
(b) The respondent or the appellant, as the case may be, shall within 10 days agree thereto or state the reasons
for not agreeing to the request.
(c) The request and the response shall form part of the record.
7 United Democratic Movement and Another v Lebashe Investment Group (Pty) Ltd and Others [2022] ZACC
34; 2022 (12) BCLR 1521 (CC); 2023 (1) SA 353 (CC).
the lower court’s assessment and is entitled to reach its own conclusion on the question.
The word “decision” is given a meaning equivalent to the meaning given to the words
“judgment or order”. The word “judgment” is used to refer to the decision of a court as
well as its reasoning.’8 (Emphasis added.)
‘…The Supreme Court of Appeal was not only entitled but obliged to determine whether
the matter was an appeal against a “decision” and thus an appeal within its jurisdiction.
The High Court’s granting of leave to appeal did not bind the Supreme Court of Appeal on
that issue.’9
[10] An appeal lies only against an order granted. The order in the present
matter is an interlocutory order. Thus, the first question is whether it is a
‘decision’ in terms of s 16(1)(a) of the Superior Courts Act 10 of 2013
(Superior Courts Act), which provides:
‘16 Appeals generally. —
(1) Subject to section 15(1), the Constitution and any other law —
(a) an appeal against any decision of a Division as a court of first instance lies, upon leave
having been granted —
(i)
if the court consisted of a single judge, either to the Supreme Court of Appeal
or to a full court of that Division, depending on the direction issued in terms
of section 17(6); or …’ (Emphasis added.)
[11] The order is not final nor definitive of the rights of the parties to the
action and does not have the effect of disposing of any portion of the relief
claimed in the main proceedings. In DRDGOLD Limited and Another v Nkala
and Others (DRDGOLD),10 this Court stated:
8 Ibid para 39 footnotes omitted.
9 Ibid para 40.
10 DRDGOLD Limited and Another v Nkala and Others [2023] ZASCA 9.
‘What then, is a ‘decision’ contemplated in s 16(1)? To answer this question, one must
examine the corresponding position under the Supreme Court Act. Section 20(1) thereof
provided:
“An appeal from a judgment or order of the court of a provincial or local division in any
civil proceedings or against any judgment or order of such a court given on appeal shall be
heard by the appellate division or a full court as the case may be.”
In Zweni this court considered s 20(1). At 532C-D Harms AJA explained:
“The expression “judgment or order” in s 20(1) of the Act has a special, almost technical,
meaning; all decisions given in the course of the resolution of a dispute between litigants
are not “judgments or orders” . . ..”
He proceeded to say that in this context the word ‘judgment’ might have two meanings.
The first was the reasoning of the court and the second its pronouncement on the relief
claimed. He said that s 20(1) concerned only the second meaning. This was in accordance
with the trite principle that an appeal lies against an order and not against the reasoning on
which the order is based. Harms AJA famously concluded at 532I-533A:
“A “judgment or order” is a decision which, as a general principle, has three attributes,
first, the decision must be final in effect and not susceptible of alteration by the Court of
first instance; second, it must be definitive of the rights of the parties; and, third, it must
have the effect of disposing of at least a substantial portion of the relief claimed in the main
proceedings”.’11
[12] This Court in DRDGOLD proceeded to state:
‘In Western Areas this court had occasion to consider the issue of appealability in
accordance with the prescripts of s 39(2) of the Constitution. Howie P concluded as follows
at para 28:
“I am accordingly of the view that it would accord with the obligation imposed by s 39(2)
of the Constitution to construe the word “decision” in s 21(1) of the Supreme Court Act to
include a judicial pronouncement in criminal proceedings that is not appealable on the
Zweni test but one which the interests of justice require should nevertheless be subject to
11 Ibid para 19-20.
an appeal before termination of such proceedings. The scope which this extended meaning
could have in civil proceedings is unnecessary to decide. It need hardly be said that what
the interests of justice require depends on the facts of each particular case.”
In Philani-Ma-Afrika & Others v Mailula & Others [2009] ZASCA 115; 2010 (2) SA 573
(SCA) para 20, this court further developed the law in this regard by applying the reasoning
in Western Areas to a civil matter. It said that ‘what is of paramount importance in deciding
whether a judgment is appealable is the interests of justice.’
Thus, the following legal position crystallised under the Supreme Court Act. An order that
met the three Zweni requirements would be an appealable decision. In accordance with the
general rule against piecemeal entertainment of appeals, an order that did not have all the
Zweni attributes, would generally not be an appealable decision. Such an order would
nevertheless qualify as an appealable decision if it had a final and definitive effect on the
proceedings or if the interests of justice required it to be regarded as an appealable
decision.’12
[13] The only question is whether the order of the high court should, in the
interests of justice, be regarded as a ‘decision’ under s 16(1)(a) of the Superior
Courts Act, and thus qualify as appealable. For the reasons set out below, I am
of the view that it is not in the interests of justice that the appeal should be
entertained. This is because, as will be demonstrated below, the agreed
question of law bears no relation to the facts of the case.
[14] The instruction to Rudmans emanated from an email dated
2 June 2014 which Ms Cingo, the Trade and Industry Adviser of the DTI, sent
to the State Attorney and copied to Rudmans, for the attention of Mr Percy
Rudman. It read:
‘Dear Sir
RE: THE DTI/UNICA IRON AND STEEL Pty Ltd
12 Ibid para 23 and 24.
Your ref: New matter
Find herewith instruction to recover incentive payment that was made to the
abovementioned entity as they were not in compliance with the guidelines of the Small
Medium Enterprise Development Incentive Programme (SMEDP).
…
Rudman Attorneys are hereby appointed as per your instruction attached13 to refer all
incentive related recoveries to Rudman attorneys.’ (Emphasis added.)
[15] Ms Cingo attached a previous email dated 4 May 2014, which was
addressed by Mr Ramnarain, a State Attorney, to Ms Pretorius of the DTI. It
contained the ‘instruction’ referred to in the 2 June 2014 email. The
4 May 2014 email, however, referred to an unrelated matter of Khabonina
Guest House. Mr Ramnarain informed Ms Pretorius:
‘…As you might be aware I am overseeing all of your related matters that has been
outsourced to Rudman Attorneys. I guess on receipt of these instructions, I can only assume
that either registration or an attorney from Mr van Rensburg[‘s] section transferred the
documentation to me as I am overseeing all the incentive matters.
…I am also aware that there are many related matters of great value which Mr Rudman is
already attending to. Do you not think that it will be practical and economical if he deals
with this matter as well?’
[16] Understandably, Rudmans (represented by Mr Werner Fourie)
requested clarity from Ms Cingo, in regard to the email of 2 June 2014 and its
attachment. She responded in a second email on 2 June 2014 as follows:
‘The email you referring to Werner its from the Office of the State Attorney giving the DTI
the right to directly refer matters to your office, but it arose from the matter of Khabonina
(your office already has instruction) which I think it [is] what might be causing confusion.
13 This instruction was imparted to the DTI in an email dated 4 May 2014.
Please note that whenever a new instruction is forwarded that email will be attached. It [is]
protecting the DTI and your office so to speak should a need arise.’
[17] This was, however, not what the 4 May 2014 email conveyed. It did not
afford ‘the right to directly refer matters’ to Rudmans. In any event, such right
or an ‘instruction to refer all incentive related recoveries to Rudman attorneys’
did not constitute a mandate from the State Attorney to Rudmans. Mr Fourie
confirmed under oath that Rudmans had been appointed by the DTI to act in
this matter.
[18] There was simply no evidence that the State Attorney instructed
Rudmans. A supporting affidavit of Mr Ramnarain was never signed. Such an
appointment would have required entering into a contract of mandate. There
was no such evidence. The appellants conceded that there was insufficient
evidence that the State Attorney had instructed Rudmans. It follows that, on
the facts as outlined above, Rudmans was mandated by the DTI and not the
State Attorney. The formulated question thus raises an abstract and academic
issue. This Court does not determine such issues. Therefore, it is not in the
interests of justice to entertain the appeal.
[19] In the result, the matter is struck off the roll with costs, including the
costs of two counsel.
________________________
WEINER JA
JUDGE OF APPEAL
Appearances
For appellants:
O A Moosa SC and A MacManus
Instructed by:
Pather and Pather Inc, La Lucia
Claude Reid Attorneys, Bloemfontein.
For respondents: M Mphaga SC with ACJ Van Dyk
Instructed by:
Rudman and Associates Inc, Pretoria
Horn and Van Rensburg Attorneys, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
31 March 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Unica Iron and Steel (Pty) Ltd and Another v The Minister of Trade and Industry and Another (1332/21)
[2023] ZASCA 42 (31 March 2023)
Today the Supreme Court of Appeal (SCA) handed down judgment with an order which struck the
appellants appeal from the roll with costs, including the costs of two counsel. The appeal was against
an order of the Gauteng High Court granted in favour of the respondents.
The respondents had issued summons to recover amounts paid to Unica Iron and Steel (Pty) Ltd in
terms of an incentive grant programme. The Minister of Trade and Industry (DTI) had mandated
Rudman & Associates Incorporated (Rudmans) to act on their behalf. The appellants filed a Notice in
terms of Rule 7 of the Uniform Rules of Court disputing the mandate of Rudmans to act on the
respondent’s behalf.
The respondents applied to the high court for a declarator that Rudmans had been and were authorised
to represent them in the matter. The appellants submitted that it was not legally permissible for the State
Attorney to appoint private attorneys to act on its behalf in a district where the State attorney has an
office. The high court rejected this contention and accepted that Rudmans had been instructed by the
State Attorney, as its correspondent.
Before the SCA, the parties agreed in terms of rule 8(8) of the Rules regulating the conduct of the
proceedings of the SCA that the appeal hinged on a question of law which they formulated by agreement
as follows:
‘Does the State attorney, pursuant to, inter alia, the State Attorneys Act 56 of 1957, have the power and
authority to appoint and instruct an attorney from the private sector, in the same district as that in which
the State attorney is based or has an office, to act as the primary attorney in a matter involving the State
or an organ of State?’ (the question of law)
The SCA stated that the high court order was based upon the supposition that it was the State Attorney,
as opposed to the DTI, who had instructed Rudmans, when this was factually incorrect. Based upon
this reasoning, the parties formulated the question of law.
The SCA held that the high court order was an interlocutory order and not an appealable ‘decision’ in
terms of s 16(1)(a) of the Superior Courts Act 10 of 2013. The order was neither final nor definitive of
the rights of the parties and did not dispose of any portion of the relief claimed in the main proceedings.
The question remaining was whether the order should, nevertheless in the interests of justice, be
regarded as appealable. The SCA held that was not in the interests of justice that the appeal should be
entertained because the agreed question of law bore no relation to the facts of the case. There was no
evidence that the State Attorney instructed Rudmans; on the facts presented in the matter, Rudmans
was mandated by the DTI and not the State Attorney.
The SCA held that the question of law raised an abstract and academic issue which the SCA does not
determine.
In the result, the matter was struck off the roll with costs, including the costs of two counsel.
--------oOo--------
|
3029
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 20469/2014
In the matter between:
KAREL SNYDERS
FIRST APPELLANT
SOFIA SNYDERS
SECOND APPELLANT
MINOR CHILDREN
THIRD APPELLANT
and
LOUISA FREDERIKA DE JAGER
RESPONDENT
Neutral citation:
Snyders v De Jager (20469/2014) [2015] ZASCA 137
(30 September 2015).
Coram:
Ponnan, Saldulker, Dambuza and Mathopo JJA and
Van der Merwe AJA
Heard:
15 September 2015
Delivered:
30 September 2015
Summary:
An appeal does not lie to the Supreme Court of Appeal
against an order of the Land Claims Court confirming an eviction order of the
magistrates‟ court on automatic review to it in terms of s 19(3) of the
Extension of Security of Tenure Act 62 of 1997.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: Land Claims Court, Randburg (Matojane J sitting as court of
first instance):
The matter is struck from the roll with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
Van der Merwe AJA (Ponnan, Saldulker, Dambuza and Mathopo JJA
concurring):
[1] The appellants, Mr Karel Snyders, his wife Ms Sofia Snyders and their
minor children, reside on the farm known as Voorbaat, in the district of
Ladismith in the Western Cape Province (the farm).1 The farm is owned by Mr
F J N Stassen, but is managed on his behalf by the respondent, Ms Louisa
Frederika de Jager.
[2] On 26 March 2009, the respondent launched an application in terms of
the Extension of Security of Tenure Act 62 of 1997 (ESTA) in the Magistrate‟s
Court, Ladismith for the eviction of the appellants from the farm. The
application was opposed by the appellants. Following upon an inspection in
loco on the farm and after consideration of the affidavits of the parties and the
viva voce evidence presented, the magistrate gave judgment on 14 November
2012 granting the order of eviction sought.
[3] The eviction order thereafter served before the Land Claims Court
(LCC) on automatic review in terms of s 19(3) of ESTA. This section provides:
1 The land that constitutes the farm is described in the deed of transfer as portions 44, 47, 48,
49, 50, 85, 86 and 111 of the farm Voorbaat no 42, the farm Waterkloof no 51 and the farm
Waterkloof, all situated in the Kannaland Municipality, Ladismith, Western Cape Province.
„Any order for eviction by a magistrate‟s court in terms of this Act, in respect of
proceedings instituted on or before a date to be determined by the Minister and
published in the Gazette,2 shall be subject to automatic review by the Land Claims
Court, which may ─
(a)
confirm such order in whole or in part;
(b)
set aside such order in whole or in part;
(c)
substitute such order in whole or in part; or
(d)
remit the case to the magistrate‟s court with directions to deal with any matter
in such manner as the Land Claims Court may think fit.‟
[4] The automatic review was dealt with by Matojane J. On 13 February
2013 he confirmed the eviction order of the magistrate‟s court. The relevant
part of the order reads:
„Having read the record of the proceedings in the Magistrate‟s Court, the whole of the
order made by the Magistrate on 14 November 2012 is confirmed, this is done in
terms of section 19(3)(a) of the Act.‟
[5] The appellants requested full reasons for this order, purportedly in
terms of LCC rule 69(1)(b)(ii). This rule provides that a party that wishes to
appeal against an order of the LCC, must apply to the LCC for leave to
appeal. It further provides that if application for leave to appeal was not made
orally at the time when the order was made, it must be made by notice
delivered within 15 days after the order was made or after full reasons for the
order were given.
[6] The court a quo responded to this request on 13 August 2013, when it
delivered what was described as a „Review Judgment‟, furnishing reasons for
the confirmation of the eviction order. The appellants thereafter filed a notice
of application for leave to appeal against the confirmation order and on 6
August 2014 the court a quo granted leave to appeal to this court. There is no
doubt that the intended appeal is limited to the merits of the eviction order.
That is clear from the grounds of appeal set out in the notice of application for
2 No date has as yet been determined by the Minister or published in the Gazette. In Lusan
Premium Wines (Pty) Ltd v Stoffels & others [2000] 2 All SA 367 (LCC) para 4 it was held that
the effect of the failure to do so is to extend the review jurisdiction of the Land Claims Court
indefinitely. This decision was not challenged before us.
leave to appeal in the LCC and the subsequent notice of appeal filed with the
registrar of this court. In any event it is only the eviction order which was
subject to automatic review by the LCC in terms of s 19(3) of ESTA.
[7] The first issue for determination is whether the matter is properly
before this court, the question being whether an appeal lies to this court
against an order of the LCC confirming an eviction order of a magistrates‟
court on automatic review to it in terms of s 19(3) of ESTA.
[8] It is necessary to deal at the outset with the argument of counsel for
the appellants that this court should exercise jurisdiction on the ground that
the respondent had consented to the jurisdiction of this court. The argument is
without merit. First, this court does not have original jurisdiction. Its jurisdiction
is determined by the Constitution and by statute. Its inherent power to protect
and regulate its own process does not extend to the assumption of jurisdiction
not conferred upon it by statute.3 It follows that this court cannot assume
jurisdiction merely because the parties consented. Secondly, the argument
has no factual basis. The respondent did not expressly consent to the
jurisdiction of this court. And counsel for the appellants was unable to point to
any conduct of the respondent that is consistent only with such consent. On
the contrary, in supplementary heads of argument filed with this court the
respondent contends that this court lacks jurisdiction.
[9] This issue has not been decided by this court. I am aware of only two
judgments of this court that dealt with a situation where an eviction order of a
magistrate‟s court had previously served before the LCC on automatic review.
These
decisions
are
Rashavha
v
Van
Rensburg4
and
Land
en
Landbouontwikkelingsbank van Suid-Afrika v Conradie.5 Both matters are
clearly distinguishable on the facts. In Rashavha, the eviction order made by
the magistrates‟ court against the appellant, was not confirmed by the LCC on
3 See Moch v Nedtravel (Pty) Ltd t/a American Express Travel Service 1996 (3) SA 1 (A) at
7E-G; New Clicks South Africa (Pty) Ltd v Minister of Health 2005 (3) SA 238 (SCA) para 19
and S v Tonkin 2014 (1) SACR 583 (SCA) para 6.
4 Rashavha v Van Rensburg 2004 (2) SA 421 (SCA).
5 Land en Landbouontwikkelingsbank van Suid-Afrika v Conradie 2005 (4) SA 506 (SCA).
automatic review. The LCC referred the matter back to the magistrate with
certain directions. The magistrate reconsidered the matter and issued a fresh
eviction order against the appellant. The appellant appealed to the LCC
against the latter eviction order. The LCC dismissed the appeal, but granted
leave to appeal to this court. Lewis JA6 remarked that there was no argument
that the appeal from the magistrates‟ court incorrectly served before the LCC.
In that matter the appeal to this court was therefore against the dismissal by
the LCC of the appeal to it. The facts in Conradie were that when the eviction
order of the magistrates‟ court came before the LCC on automatic review, it
was set aside by the LCC and substituted with an order dismissing the
application for eviction. The LCC granted leave to appeal to this court against
its substituted order. On appeal to this court, the order of the LCC was set
aside and replaced with an order confirming the eviction order of the
magistrate. In that matter therefore, the appeal to this court was against the
order of the LCC setting aside the eviction order of the magistrates‟ court and
dismissing the application for eviction.
[10] The LCC considered this issue in the recent judgment of Brummer &
another v Joostenberg.7 There the eviction order of the magistrate was
confirmed by the LCC on automatic review. The respondent in the
magistrates‟ court was aggrieved and applied to the LCC for leave to appeal
against the confirmation order. Meer AJP struck the matter from the roll. The
court reasoned that a magistrate‟s order of eviction that was confirmed by the
LCC on automatic review, remains an order of the magistrates‟ court.
However, if the LCC on automatic review substituted the order of the
magistrates‟ court with its own decision, so the court held, the substituted
decision becomes a decision of the LCC. The court therefore concluded that
despite the confirmation of the eviction order by the LCC on automatic review,
an appeal against the magistrate‟s decision lies to the LCC, but that when the
LCC substituted its decision for that of the magistrate, an appeal lies from the
LCC to this court.
6 At para 5.
7 Brummer & another v Joostenberg (LCC) unreported case no 16R/2013 (20 February 2015).
[11] I agree with the conclusions reached in Brummer. However, I reach
those conclusions by a different route.
[12] Section 19(2) of ESTA provides that civil appeals from magistrates‟
courts in terms of ESTA shall lie to the LCC. In terms of s 19(4), the
provisions of s 19(3) shall not apply to a case in which an appeal has been
noted by an occupier. In terms of LCC rule 71(1), any party that has appealed
against a decision of a magistrate‟s court over which the LCC enjoys
appellate jurisdiction, must prosecute such appeal in the same manner as a
civil appeal from the magistrates‟ court to the High Court. Section 20(1)(c) of
ESTA clothes the LCC with common law review power. It provides that the
LCC has the power to review an act, omission or decision of any functionary
acting or purporting to act in terms of ESTA. LCC rule 35 determines the
procedure to be followed in such a case. This procedure is similar to that
provided for in Uniform rule 53. LCC rule 35A deals with the procedure to be
followed in respect of automatic reviews.
[13] Thus, it is clear that ESTA recognises the distinction between an
appeal against an eviction order of a magistrate and the common law or
automatic review thereof. As a general rule, where the complaint is against
the result of the proceedings of the lower court, an appeal is the appropriate
remedy, whereas review is aimed at the method by which the result was
reached.8 This was explained as follows by Schutz JA when dealing with a
review in Minister of Environmental Affairs and Tourism v Phambili Fisheries:9
„During the course of the argument for Phambili we were frequently told that
something that Chief Director had done was “wrong”. This is the language of appeal,
not review. I do not think that the word was misused, because time and again it
appears that what is really under attack is the substance of the decision, not the
procedure by means of which it was arrived at. That is not our job.‟
8 D E van Loggerenberg & P B J Farlam Erasmus: Superior Court Practice at A1-32N; Lawsa,
first re-issue, vol 3, part 1 para 394.
9 Minister of Environmental Affairs and Tourism v Phambili Fisheries (Pty) Ltd 2003 (6) SA
407 (SCA) para 52.
[14] In that regard our system of automatic review in the context of criminal
proceedings may not be an entirely inappropriate analogy. The system of
automatic review of certain proceedings in terms of the Criminal Procedure
Act 51 of 1977 provides a measure of protection to the large number of
undefended accused persons in criminal trials in the magistrates‟ court.10 The
power of the High Court to intervene on automatic review in terms of the
Criminal Procedure Act is not limited to cases of irregularity. Any point on
which the proceedings can be faulted, may be taken into account.11 It seems
clear that by providing for automatic review of eviction orders in terms of
ESTA, it was intended to similarly provide a measure of protection to the often
vulnerable occupiers of land as defined in ESTA. In Lategan v Koopman &
others,12 Gildenhuys J held, correctly in my view, that the unique South
African system of automatic review in terms of the Criminal Procedure Act
provides guidance in respect of the nature and import of automatic review in
terms of ESTA.13 He said that the court should, as a point of departure,
determine whether justice was done and that the court should follow a broad
approach and should not scrutinize the findings of the magistrate as
meticulously as it might do in the case of an appeal.
[15] Although there may well be a fine line between an automatic review in
terms of ESTA and an appeal, the distinction must not be blurred.14 In my
view the following statement of Ngcobo J in Sidumo & another v Rustenburg
Platinum Mines Ltd & others15 is of particular relevance:
„What must be emphasised is that there may well be a fine line between a review and
an appeal, in particular, where, as I will show later in this judgment, the reviewing
court considers the reasons given by a tribunal, not to determine whether the result is
correct, but to determine whether a gross irregularity occurred in the proceedings. At
10 For the history of automatic review in criminal matters in South Africa, see „On the System
of Automatic Review and Punishment of Crime‟ (1962) 79 SALJ 267.
11 Lawsa, 2 ed, vol 5, part 2, para 347; Albert Kruger Hiemstra’s Criminal Procedure at p 30-
21.
12 Lategan v Koopman & others 1998 (3) SA 457 (LCC) para 11.
13 See also Springs City Council v Occupants of the Farm Kwa-thema 210 2000 (1) SA 476
(LCC) para 19.
14 Shoprite Checkers (Pty) Ltd v Commission for Conciliation, Mediation and Arbitration &
others 2009 (3) SA 493 (SCA) para 28.
15 Sidumo & another v Rustenburg Platinum Mines Ltd & others 2008 (2) SA 24 (CC) para
244.
times it may be difficult to draw the line. There is, however, a clear line. And this line
must be maintained.‟
[16] In my judgment all of this leads to the inescapable conclusion that an
order confirming an eviction order on automatic review in terms of s 19(3) of
ESTA is not an order on the substantive merits of the matter. Should the LCC
set aside the eviction order and substitute it with a substantive order of its own
in terms of s 19(3)(b) and (c), different considerations apply. In such case the
eviction order of the magistrate would no longer be extant and could therefore
not be appealed against. An appeal against the substituted order of the LCC
would then lie to this court, subject to the required leave to appeal having
been granted. Prima facie the test on appeal in such a matter would be to
determine which order the LCC should have made on automatic review, but it
is not presently necessary to decide this issue.
[17] It follows that if this court were to entertain the appeal on the merits, it
would in effect be hearing an appeal directly from the magistrates‟ court to this
court.16 Given the hierarchy of our courts, the undesirability of such a course
is patent. Moreover, that would be in direct conflict with s 19(2) of ESTA,
which, as I have said, provides that civil appeals from a magistrate‟s court in
terms of ESTA lie to the LCC.
[18] In terms of s 16(1)(c) of the Superior Courts Act 10 of 2013, any appeal
against any decision of a court of similar status to the High Court (such as the
LCC), lies to this court upon leave to appeal having been granted in terms of
s 17 of the Superior Courts Act by that court or, if refused, by this court. For
the reasons mentioned, the LCC did not determine the merits of the eviction
order of the magistrate. The LCC was therefore not empowered to grant leave
to appeal to this court on the merits, as it purported to do. In the
circumstances, the order of the LCC granting leave to appeal to this court is a
nullity. In the absence of leave to appeal on the merits having properly been
16 See S v Tonkin (above) para 6.
granted in terms of ss 16 and 17 of the Superior Courts Act, this court has no
jurisdiction to entertain the matter.17
[19] As the matter is not properly before us, we can hardly enter into the
merits of the dispute, as was urged upon us by counsel for the appellant.
Consequently the matter falls to be struck from the roll. In my view the
respondent is entitled to her costs, even though the financial position of the
appellants appears such that any award of costs will in all probability be no
more than cold comfort to the respondent.
[20] The matter is struck from the roll with costs.
_______________________
C H G VAN DER MERWE
ACTING JUDGE OF APPEAL
17 Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd 2015 (4) SA 34 (SCA)
para 13.
APPEARANCES:
For Appellants:
P R Hathorn
Instructed by:
J D van der Merwe Attorneys, Stellenbosch
Webbers, Bloemfontein
For Respondent:
J J Botha
Instructed by:
Blythe & Coetzee, Ladismith
Rosendorff Reitz Barry, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 30 September 2015
Status: Immediate
SNYDERS v DE JAGER
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
1.
The appellants, Mr Karel Snyders, his wife Ms Sofia Snyders and their minor
children, reside on the farm Voorbaat in the district of Ladismith in the Western Cape
Province (the farm). The respondent, Ms L F de Jager is the manager of the farm. The
respondent applied in the Magistrates’ Court of Ladismith for the eviction of the appellants
from the farm. The magistrate granted the order sought. The eviction order of the magistrate
was confirmed by the Land Claims Court (LCC) on automatic review to it in terms of s 19(3)
of the Extension of Security of Tenure Act 62 of 1997 (ESTA).
2.
The appellants sought and obtained leave to appeal to the Supreme Court of Appeal
(SCA) against the confirmation order of the LCC. Today the SCA held that an appeal does
not lie to the SCA against an order of the LCC confirming an eviction order of the
Magistrates’ Court on automatic review to it in terms of s 19(3) of ESTA. The SCA therefore
struck the matter from the roll.
--ends--
|
3108
|
non-electoral
|
2007
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Reportable
Case Number : 60 / 06
In the matter between
BP SOUTHERN AFRICA (PTY) LTD
APPELLANT
and
THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICES
RESPONDENT
Coram :
HOWIE P, BRAND, NUGENT, PONNAN et CACHALIA JJA
Date of hearing :
22 FEBRUARY 2007
Date of delivery : 13 MARCH 2007
SUMMARY
Income Tax Act 58 of 1962 – section 11(a) – recurrent annual royalty payments
– expenditure incurred in the production of income.
Neutral citation: This judgment may be referred to as :
BPSA (Pty) Ltd v The Commissioner for SARS [2007] SCA 7 (RSA)
___________________________________________________________________
J U D G M E N T
___________________________________________________________________
PONNAN JA
[1] The appellant was incorporated on 9 May 1924 under the name Atlantic
Refining Company of Africa Limited. On 2 July 1959, 35 years after commencing
business, the appellant changed its name to BP Southern Africa (Pty) Ltd ('BPSA').
BPSA was until October 2001 a wholly owned subsidiary of BP Plc ('BP'), a UK-
based company. Thereafter BP divested itself, pursuant to a Black Economic
Empowerment deal, of a portion of its interest in BPSA. Since then BP has
effectively held 75% of BPSA's shares.
[2] The petroleum market in South Africa is tightly regulated as to price and
product. BPSA operates as a refiner, manufacturer, supplier and marketer of
petroleum products. It purchases crude oil from abroad and manufactures or refines
petroleum products in this country. It sells and distributes both nationally and
elsewhere in Africa petroleum products that have either been refined or
manufactured by it or purchased by it from one of its competitors in the industry. It
likewise supplies other oil companies in South Africa with its products in terms of
certain swap agreements.
[3] The BP trademarks (‘the licensed marks’) and the trade dress, colour
schemes, designs and symbols (‘the licensed marketing indicia’) which BPSA
commenced using during about 1959 are owned by BP worldwide. BPSA initially
used the licensed marks and the licensed marketing indicia in terms of an informal
oral arrangement with BP, and thereafter, in terms of a written agreement with BP
free of any payment of royalties. During 1997 BPSA concluded a written trade mark
licence agreement ('the agreement') with BP, in terms whereof it was granted
authorisation to use and display the licensed marks and licensed marketing indicia
against payment of royalties.
[4] In terms of the agreement the royalty fee payable to BP was expressed as a
rate per litre of product sold. It thus obviously varied from year to year. For the tax
years 1997, 1998 and 1999 the royalty fee payments were respectively
R40 190 000, R45 150 000 and R42 519 000.
[5] BPSA subsequently claimed those payments as deductions in terms of
s 11(a) of the Income Tax Act 58 of 1962 ('the Act') in the determination of its taxable
income. The respondent, the Commissioner of the South African Revenue Services
('SARS') disallowed those deductions. BPSA’s objection to the disallowance was
overruled and its subsequent appeal to the Cape Town Income Tax Special Court
(Waglay J, sitting with assessors), was dismissed. Against that decision BPSA now
appeals with leave of the Special Court.
[6] Section 11(a) provides
'11
General deductions allowed in determination of taxable income — For the purpose of
determining the taxable income derived by any person from carrying on any trade, there shall be
allowed as deductions from the income of such person so derived —
(a)
expenditure and losses actually incurred in the production of the income, provided
such expenditure and losses are not of a capital nature;'
(See Commissioner, SARS v BP South Africa (Pty) Ltd 2006 (5) SA 559 (SCA) para
6.)
[7] As has occurred many times in the past, this court is required yet again to
determine whether expenditure incurred by a taxpayer is either capital or revenue
expenditure. By now the distinction is hopefully clear enough conceptually (see
Rand Mines (Mining & Services) Ltd v Commissioner for Inland Revenue [1997] 1 All
SA 279 (A) at 285 and the cases there cited). The purpose of expenditure is
important and often decisive in assessing whether it is of a capital or revenue nature.
Expenditure incurred for purposes of acquiring a capital asset of the business is
capital expenditure whereas expenditure which is part of the cost incidental to the
performance of the income-producing operations as distinct from the equipment of
the income-producing machinery is revenue in nature (New State Areas Ltd v
Commissioner for Inland Revenue 1946 AD 610 at 627). A distinction is thus drawn
between expenditure made to acquire an income-producing concern (in respect of
which the outlay is usually non-recurrent) and money spent '. . . . in working the
concern for the present production of profit' (Commissioner for Inland Revenue v
George Forest Timber Co Ltd 1924 AD 516 at 526-527).
[8] The conclusion to be drawn from all of the cases seems to be that the true
nature of each transaction must be examined in order to determine whether the
expenditure in question is capital or revenue expenditure. (New State Areas Ltd v
Commissioner for Inland Revenue 1946 AD 610 at 627.) In deciding that question
each case must be decided on its own facts and circumstances. (Commissioner for
Inland Revenue v African Oxygen Ltd 1963 (1) SA 681 (A) at 691 A-B.)
[9] In this case, the agreement commenced on 1 January 1997 and was initially
to endure for a period of two years whereafter it would be renewed automatically for
succeeding periods of 12 months unless terminated by either party upon the giving
of six months notice. For the purposes of this judgment, the further material terms of
the agreement, in summary, were:
'(a)
BPSA was granted a personal non-exclusive and non-assignable authorisation to use the
licensed marks and the licensed marketing indicia;
(b)
BP remained the sole rightful owner of the licensed marks and licensed marketing indicia, and
all rights and goodwill attaching or arising out of the use by BPSA thereof accrued to the
benefit of BP; and
(d)
Upon termination of the 1997 agreement, BPSA would no longer be entitled to use the name
BP Southern Africa or the licensed marks and the licensed marketing indicia.'
[10] The further facts giving rise to the dispute between the parties fall within a
very small compass and were set out in a Statement of Agreed Facts which served
before the court below. Nothing turns on those further facts. It is nonetheless
perhaps important for the sake of completeness to record how royalties came to be
paid by BPSA at the behest of its parent company BP for the use of the intellectual
property in the first place. That, as also why the payment of royalties was first
mooted after a protracted period of use free of payment, is explained thus in the
stated case:
'(a)
During the period from 1993 to 1996, BP sold a number of its divisions in various parts of the
world and it became apparent during these sales that the licensed marks and the licensed
marketing indicia carried a considerable commercial value.
(b)
Consequently, during 1996 BP decided that users of the licensed marks and the licensed
marketing indicia should be required to pay a royalty. Accordingly, it commissioned an
independent company, Interbrand UK Limited ("Interbrand") to determine the value of its
licensed marks and licensed marketing indicia. Interbrand was also commissioned to assess
the fair market value of any royalty payments to be made to BP for usage of such licensed
marks and licensed marketing indicia by all users thereof, including the Appellant.'
It was thus only after Interbrand had concluded its investigation that the agreement
was concluded in accordance with recommendations made by it.
[11] It was contended for the respondent that the ostensibly brief initial duration of
the agreement and the relatively short period required for termination after that initial
period should not be accorded significant weight as the umbilical cord that ties BPSA
to its UK parent is unlikely, after the initial term of the agreement or at any later time,
to be severed. Accordingly, so it was argued, BPSA will effectively garner a benefit
of far greater magnitude than, at first blush, the agreement confers upon it. That may
well be so. But, to engage in such speculation would in my view be an act of grave
folly. For it is to the agreement itself that one must look, which as ought to be
apparent, provides the ready counter that the agreement might well not endure
beyond its initial term of two years. There is nothing to suggest that the parties have
concealed the true character of their agreement (see Zandberg v Van Zyl 1910 AD
302 at 309) or that they did not intend it to have effect according to its tenor; it must
accordingly be interpreted by a court according to its tenor (see Commissioner of
Customs and Excise v Randles, Brothers & Hudson Ltd 1941 AD 369 at 395-6). It
bears noting that it was not contended by counsel for SARS that the transaction was
simulated. Nor, given the agreement that had been reached to proceed by way of a
stated case in the court below, could it be so contended.
[12] For the reasons that follow, the conclusion reached by the court below that
the expenditure in issue is of a capital nature, does not, in my opinion have due
regard to the essential features of the agreement and is therefore unsustainable.
[13] In order to determine whether expenditure has been incurred in the production
of income 'important, sometimes overriding, factors are the purpose of the expenditure and what the
expenditure actually effects'. (Per Corbett JA in Commissioner for Inland Revenue v
Nemojim (Pty) Ltd 1983 (4) SA 935 (A) at 947F-H.) The annual royalty payment, as
the Statement of Agreed facts makes plain, was ‘in consideration for the use of the
licensed marks and the licensed marketing indicia’. Its purpose was to procure for
BPSA the use – not ownership - of the intellectual property of another from its sole
and rightful owner for the duration of the agreement. Thus the ownership of the
intellectual property remained with BP throughout and, upon termination of the
agreement, whether by virtue of non-renewal after the initial two-year period or the
giving of six months notice by either party thereafter, BPSA would automatically
cease to have the right to use the intellectual property in question.
[14] The anticipated and actual recurrent nature of the disputed payments is a
strong indicator that they related to revenue rather than capital. The recurrent cost of
procuring the use of something which belongs to another is usually recognised as
being of a revenue nature. The most obvious example is the recurrent rent paid by a
taxpayer for the use of premises from which he/she trades. As Centlivres CJ stated:
‘[r]ent is an expenditure incurred in the production of income and is of a non-capital
nature and is therefore deductible … for the purpose of determining taxable income’
(Turnbull v Commissioner for Inland Revenue 1953 (2) SA 573 (A) at 579 A-B.) The
annual royalty fee in the present case is to all intents and purposes indistinguishable
from recurrent rent paid for the use of another's property.
[15] A cardinal feature of the present case is that the expenditure in issue neither
created nor preserved any capital asset in the hands of the taxpayer. Whilst not in
itself conclusive that is indeed a consideration of considerable importance. (Warner
Lambert SA (Pty) Ltd v Commissioner, SARS 2003 (5) SA 344 (SCA) at para 17.)
Where no new asset for the enduring benefit of the taxpayer (enduring in the way
that fixed capital endures (New State Areas Ltd at 625A)) has been created, any
questioned expenditure naturally tends to assume more of a revenue character
(Warner Lambert SA (Pty) Ltd par 17).
[16] Having regard to all of the circumstances, the expenditure in issue was, in my
judgment, so closely linked with the appellant's income-earning operations during the
tax years in question, as to constitute revenue expenditure in respect of each of
those tax years. It follows that those sums were deductible under the provisions of
section 11(a) of the Act. This conclusion renders it unnecessary to consider the
further submissions advanced on behalf of BPSA which called in aid section 11(f) of
the Act.
[17] In the result:
(1)
The appeal is allowed with costs, such costs to include those
consequent upon the employment of two counsel.
(2)
The judgment of the Special Court is altered to read:
(a)
The appeal is allowed with costs, such costs to include those
consequent upon the employment of two counsel;
(b)
For the tax years 1997, 1998 and 1999, respectively, the sums
of R40 190 000, R45 150 000 and R42 519 000 are declared to
be deductible under s 11 (a) of the Act;
(c)
It is directed that the assessments be altered accordingly.
V M PONNAN
JUDGE OF APPEAL
CONCUR:
HOWIE P
BRAND JA
NUGENT JA
CACHALIA JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
13 March 2007
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form
part of the judgment.
CASE
BP Southern Africa (Pty) Ltd v The Commissioner for South
African Revenue Services
(Case No 60 / 06)
Media Statement
Today the Supreme Court of Appeal ('SCA') held that royalty payments are tax deductible in
terms of s 11(a) of the Income Tax Act. It accordingly upheld an appeal by BP Southern
Africa (Pty) Ltd ('BPSA') against a judgment of the Cape Town Income Tax Special Court.
During 1997 BPSA concluded a written trade mark licence agreement with its parent
company BP plc in terms whereof it was granted authorisation to use and display the licensed
marks and licensed marketing indicia of the latter against payment of royalties. For the tax
years 1997, 1998 and 1999 the royalty fee payments were respectively R40 190 000,
R45 150 000 and R42 519 000. BPSA subsequently claimed those payments as deductions
in terms of section 11(a) of the Income Tax Act 58 of 1962 in the determination of its taxable
income. The Commissioner of the South African Revenue Services ('SARS') disallowed
those deductions. BPSA's objection to the disallowance was overruled by SARS and its
subsequent appeal to the Cape Town Income Tax Special Court was dismissed. The SCA
reasoned that the annual royalty payment procured for BPSA the use - not ownership - of the
intellectual property of its parent company. The recurrent nature of the payment which neither
created nor preserved any asset in the hands of BPSA was to all intents and purposes
indistinguishable from recurrent rent paid for the use of another's property. The SCA
concluded that the expenditure in issue was so closely linked to the appellant's income-
earning operations during the tax years in question as to constitute revenue expenditure in
respect of each of those tax years. The SCA accordingly declared those amounts to be
deductible under section 11(a) of the Act and directed that SARS alter the assessments for
each of those tax years accordingly.
--- ends ---
|
3342
|
non-electoral
|
2020
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 335/2019
In the matter between:
PARKS TAU
APPELLANT
and
HERMAN MASHABA
RESPONDENT
AFRICAN NATIONAL CONGRESS
WOMEN’S LEAGUE
SECOND RESPONDENT
CONGRESS OF SOUTH AFRICAN
TRADE UNIONS
THIRD RESPONDENT
Neutral citation: Tau v Mashaba and Others (335/2019) [2020] ZASCA 26 (26
March 2020)
Coram:
MAYA P, ZONDI, MOLEMELA AND SCHIPPERS JJA AND
GORVEN AJA
Heard:
4 March 2020
Delivered: 26 March 2020
Summary: Civil Procedure – motion proceedings – parties to define and court
to adjudicate dispute – court not empowered to grant relief not sought – interdict
pending defamation action infrequently granted – defence of justification –
sustainable foundation in papers – interdict not justified.
ORDER
On appeal from: Gauteng Division of the High Court, Johannesburg (Van der
Linde J sitting as court of first instance):
The appeal is upheld with costs, including the costs of two counsel.
The order of the high court is set aside and replaced with the following:
‘The application is dismissed with costs, including the costs of two counsel
where so employed.’
JUDGMENT
Schippers JA (Maya P, Zondi and Molemela JJA and Gorven AJA
concurring):
[1] It is often said that one has to be thick-skinned to survive as a politician.
But harsh criticism does not include unlawful action. In this case it was alleged
that the appellant, a member of the African National Congress (ANC) and the
former Mayor of the City of Johannesburg Metropolitan Municipality (the
Municipality), had acted unlawfully by making defamatory statements
concerning Mr Herman Mashaba (the respondent), his political rival and a
member of the Democratic Alliance (DA), who succeeded him as the Mayor of
Johannesburg.
[2] In an address at the funeral of a fellow councillor on 28 August 2016, the
appellant said the following concerning the respondent:
‘The City of Johannesburg is today led by a man that believes that the women who are senior
executives in the City of Johannesburg prostituted themselves to be in the jobs that they are in.
He says that in fact for them to earn the positions that they are in they had to sleep with the
leadership … .
We have heard views from the Mayor Herman Mashaba who says that in fact if it were up to
him he would not want to be black.’ (The initial statements.)
[3] Pursuant to the publication of the initial statements, on 7 October 2016, the
third respondent, the Congress of South African Trade Unions (COSATU),
delivered a memorandum of grievances to the respondent’s office in which it
noted his ‘ill-informed comments’ which it said were ‘sexist in regard to women
leadership in our country and the City of Johannesburg in particular’. Contrary to
the respondent’s assertion, COSATU did not repeat the initial statements.
COSATU urged the respondent to desist from making sexist comments that
undermined women; and demanded that his administration treat women with
dignity and respect, and that he issue a public apology for his sexist statements.
On the same day the second respondent, the African National Congress Women’s
League (ANCWL), issued a media statement in which it repeated the initial
statement to the effect that women had to sleep with the leadership in order to be
appointed to their positions. The ANCWL called on political parties in the
Municipality who valued women as equal citizens of this country, to pass a vote
of no confidence in the then coalition government of the Municipality. The
statement recorded that it would be embarrassing for political parties in the
Municipality ‘to allow the City to be led by a person who views women as nothing
else but sex traders in exchange for positions’.
[4] Two months after the appellant had uttered the initial statements, on 1
November 2016, the respondent launched an application in the Gauteng Division
of the High Court, Johannesburg, for the following relief:
‘Pending the institution of an action for defamation and damages, which must be instituted
against the first respondent within 60 days of the granting of the order herein:
1.
Ordering the respondents:
1.1
forthwith to retract the offending remarks;
1.2
to refrain from repeating such and/or similar remarks concerning the applicant in future;
1.3
to issue an unconditional apology to the applicant framed along agreed terms;
alternatively terms to be imposed by the court;
1.4
to ensure the widest possible publication of the retraction and/or apology envisaged in
1.1 and 1.2 above.’
[5] The respondent alleged that the initial statements were false and were
intended to convey, inter alia, that he was sexist and a bigot; that he was racist,
anti-black and viewed black people as inferior to others; and that he believed that
female executives in the Municipality were prostitutes and otherwise not
qualified to hold their positions. The respondent said that he did not protest
against similar false statements at the time of the 2016 local government
elections, because he ‘accepted that as part of their campaign, parties make all
sorts of outrageous statements to attract voters’.
[6] The appellant opposed the application. He said that he and the respondent
often made statements and comments about each other’s political stances because
they were political opponents. The initial statements had to be viewed in that
context. Prior to and after the 2016 local government elections, the respondent
had publicly criticised the ANC’s policies in government and in the Municipality.
Importantly, the appellant alleged that the initial statements were a response to
the following statement made by the respondent and published in the media on
10 August 2016:
‘If I had a social worker running the police, there’s no way I will accept that . . .
If the wrong people are in the wrong positions, they are going to be purged. I am not apologetic
about that. The days when they allowed their girlfriends to run state institutions are over.’ (The
offending remark.)
[7] The appellant went on to say that the offending remark was a reference to
the employment practices of the Municipality; and that he understood it to mean
that women appointed to lead entities of the Municipality during his tenure as
mayor, ‘were appointed purely on the basis of their romantic or sexual
relationships with male superiors’, which was ‘sexist, demeaning and
disrespectful of women’. The appellant alleged that the initial statements ‘were a
fair representation of the objectionable views expressed by the [respondent]’ in
the offending remark; that they did not falsely represent that remark; and that they
were not defamatory.
[8] The appellant presented evidence that members of the public and interest
groups had also interpreted the offending remark as being sexist and demeaning
of women. He referred to an extract from the electronic publication,
‘Businesslive’, which had reported that pursuant to the publication of the
offending remark, a group of women, supported by various organisations,
including the Black Management Forum, the Young Women for Business
Network, the #SexismMustFall Women’s Group and the ANCWL had marched
to the respondent’s office. They demanded that he apologise for and withdraw the
offending remark, which allegedly referred to the ANC administration; and that
he make a commitment to advance gender equality in Johannesburg. The
#SexismMustFall Women’s Group issued a statement that the offending remark
was ‘poisonous and threatened to taint the reputations of women’.
[9] The respondent did not deny that he had made the offending remark. In his
capacity as the DA’s mayoral candidate, prior to the formation of a coalition
government in the Municipality, he had allegedly demanded documents
concerning recent appointments to key positions in the Municipality. The
respondent however alleged that the offending remark was not made with
reference to employment practices in the Municipality under the appellant’s
leadership, but that it was, in his words, ‘a general reference using the example
of South African Airways, where allegations of a politician’s girlfriend running
a state institution abound’.
[10] As regards the statement that if it were up to him the respondent would not
want to be black, the appellant alleged that the respondent had made various
public statements which caused him to comment that the respondent ‘hates being
Black’. These included an interview on Radio 702 in January 2016, shortly after
his appointment as Mayor of the City of Johannesburg, in which the respondent
said that if he had the power, he would do away with racial classification laws
and policies ‘yesterday’. Also, in January 2016, the respondent was quoted in the
City Press newspaper as having said, ‘I am really intrigued that in South Africa
today, I am still regarded as a black person’. The appellant also referred to the
respondent’s statements concerning the government’s policies of black economic
empowerment and affirmative action, in an address to Solidarity’s Shadow
Report to the United Nations Committee on the Elimination of Racial
Discrimination in May 2015, in which he had said, ‘The notion of empowering
previously disadvantaged blacks is a noble ideal, noble but racist’. The
respondent had also publicly stated that poor people could not be trusted. The
respondent did not deny that he had made these public statements, but alleged
that his views did not render him ‘anti-black’, a racist’; nor did they imply that
he was ‘in denial about [his] obvious blackness’, as he had named his company
‘Black Like Me’.
[11] The appellant also referred to the reaction of members of the public and
social media commentators concerning the respondent’s objections to being
labelled as a black person. These included opinions that the respondent’s thinking
allowed politicians ‘to divide South Africans along tribal lines’; and that the
racially based policies in government were intended to redress the injustices of
the past.
[12] The application came before Van der Linde J who issued the following
order:
‘(a)
It is declared that the statement made by the 1st respondent on the 28th August 2016 is
defamatory of the applicant.
(b)
The 1st respondent is interdicted and restrained from repeating the statement, or
statements to the same effect.
(c)
All other issues relating to relief arising in the present application are deferred for
decision in the pending action instituted by the applicant against the 1st respondent for
damages for defamation.
(d)
The 1st respondent is directed to pay the costs of the application, including the costs of
two counsel.’
[13] The judge said that he came to the conclusion that the initial statements
were defamatory ‘on the basis of such material as is relevant and admissible to
found a final order’; and held that there was no scope for holding that the said
conclusion was merely prima facie. Then the judge said:
‘The relief claimed, final in nature, includes a retraction, apology, and publication of these. The
trial action and the intended damages claim there are pending. Whether the applicant would in
addition to damages be entitled to a retraction and an apology should be considered together,
and should appropriately be resolved in that forum.
Therefore, acting in terms of rule 33(4), I separate from the issues that I will have decided, all
further issues that arise in this application concerning the applicant’s entitlement to relief and
defer them for decision in the pending action.’1
1 Rule 33(4) of the Uniform Rules of Court provides:
‘If, in any pending action, it appears to the court mero motu that there is a question of law or fact which may
conveniently be decided either before any evidence is led or separately from any other question, the court may
make an order directing the disposal of such question in such manner as it may deem fit and may order that all
further proceedings be stayed until such question has been disposed of, and the court shall on the application of
any party make such order unless it appears that the questions cannot conveniently be decided separately.’
[14] Subsequently, in the judgment granting leave to appeal to this court, the
judge acknowledged that the separation and referral of the remaining issues for
trial, purportedly in terms of rule 33(4) of the Uniform Rules of Court, was an
error. He said:
‘In separating the relief granted from the relief deferred, I purported to act under rule 33(4).
That was an error as the definition of “action” in the uniform rules does not include
“application”. It may be that I had the power in any event to defer the other forms of relief
claimed – retraction, apology – for determination in the pending action; in particular, the
entitlement to such relief could conceivably simply have been referred for the hearing of oral
evidence. But that was not the formal approach I adopted.’
[15] By reason of the conclusion to which I have come, it is unnecessary to
decide whether the referral of the relief sought in paragraphs 1.1, 1.3 and 1.4 of
the notice of motion for hearing in the defamation action, in terms of rule 33(4),
was appropriate. On this score it suffices to say that Wallis JA, on behalf of the
majority in Theron,2 stated that it is undesirable to dispose of an application
piecemeal:
'In general, however, the desirable course to be followed in application proceedings, where the
affidavits are both the evidence and the pleadings, is for all the affidavits to be delivered and
the entire application to be disposed of in a single hearing.'
[16] I turn now to the central issue in this appeal: whether the high court should
have granted final relief in the form of a declaratory order that the initial
statements were defamatory, and an order restraining the appellant from repeating
them. The starting point for any analysis of this issue is the relief sought by the
2 Theron and Another NNO v Loubser NO and Others 2014 (3) SA 323 (SCA) para 26. Ponnan JA, after reviewing
the relevant authorities, concluded that there was authority for the proposition that a high court, in the exercise of
its inherent jurisdiction, may separate issues in application proceedings. However, the correctness of that
proposition was left open. See also Louis Pasteur Holdings (Pty) Ltd and Others v Absa Bank Ltd and Others
[2018] ZASCA 163; 2019 (3) SA 97 (SCA) paras 32-33.
respondent, as ‘the pleadings – including in motion proceedings, not only the
formal terminology of the notice of motion, but also the contents of the supporting
affidavits – must be interpreted to establish what the legal basis of the applicant’s
claim is’.3
[17] The respondent sought the interdicts in paragraphs 1.1 to 1.4 of the notice
of motion quoted above, on the basis that the initial statements were false,
defamatory and aimed at belittling and discrediting him, ‘[p]ending the institution
of an action for defamation and damages’. Whether an interdict is interim or final
depends on its effect on the issue, not on its form.4 The relief sought in paragraphs
1.1, 1.3 and 1.4 of the notice of motion were final interdicts. An order to retract
the initial statements, to issue an unconditional apology for them and to ensure
publication of the retraction and apology, presupposes a finding that the initial
statements were defamatory of the respondent. That would involve a final
determination of the rights of the parties, which has to be made in the defamation
action. Further, if such an order were to be executed, it could not be undone: the
notion of an interim retraction or apology is untenable.
[18] The same cannot be said of the relief claimed in paragraph 1.2 of the notice
of motion: an interim interdict to restrain the appellant from repeating the initial
statements, pending finalisation of the action for damages. It is true that the notice
of motion states that paragraph 1.2 is an interdict pending the ‘institution’ of the
defamation action; and the notice does not contain a prayer that pending the
finalisation of that action, paragraph 1.2 would operate as an interim interdict.
However, it is clear from the papers that the respondent sought an interim interdict
3 Gcaba v Minister for Safety and Security and Others [2009] ZACC 26; 2010 (1) SA 238 (CC) para 75.
4 See 11 Lawsa 2 ed at 418 para 401 and the authorities cited in footnote 2.
pending the outcome of a defamation action: to preserve his interests until the
merits of that action were finally determined.5
[19] So, on this part of the case, what was before the high court was not an
application for a declaratory order, much less a final interdict. The high court
erred in disregarding the pleadings and evidence, and in issuing a declaratory
order, mero motu, that the initial statements were defamatory of the respondent.
In this regard, the pronouncement by this court on the nature of civil litigation in
our adversarial system, bears repetition:
‘[I]t is for the parties, either in the pleadings or affidavits (which serve the function of both
pleadings and evidence), to set out and define the nature of their dispute, and it is for the court
to adjudicate upon those issues. That is so even where the dispute involves an issue pertaining
to the basic human rights guaranteed by our Constitution, for “(i)t is impermissible for a party
to rely on a constitutional complaint that was not pleaded”. There are cases where the parties
may expand those issues by the way in which they conduct the proceedings. There may also be
instances where the court may mero motu raise a question of law that emerges fully from the
evidence and is necessary for the decision of the case. That is subject to the proviso that no
prejudice will be caused to any party by its being decided. Beyond that it is for the parties to
identify the dispute and for the court to determine that dispute and that dispute alone.’6
[20] The founding affidavit makes it clear that the dispute between the parties
was whether the respondent was entitled to a retraction and apology; and an
interdict to prevent the respondents from repeating the initial statements ‘between
the granting of the interim order and the finalisation of the action’. That is also
how the appellant understood the case he was called upon to meet. Both parties
had approached the application on the basis that the trial court would decide
whether the appellant was liable for damages for defamation. The papers show
5 Airoadexpress (Pty) Ltd v Chairman, Local Road Transportation Board, Durban and Others 1986 (2) SA 663
(A) at 681E; Apleni v Minister of Law and Order and Others; Lamani v Minister of Law and Order and Others
1989 (1) SA 195 (A) at 201B.
6 Fischer and Another v Ramahlele and Others [2014] ZASCA 88; 2014 (4) SA 614 (SCA); [2014] 3 All SA 395
(SCA) para 13, footnotes omitted.
that the appellant’s defences were fair comment, truth and public benefit and
‘political commentary’. The order declaring that the initial statements were
defamatory of the respondent, effectively precludes the appellant from exercising
his right to adduce evidence in defence of a claim for defamation. That, in turn,
adversely impacts upon his fundamental right to have a dispute decided in a fair
public hearing, enshrined in s 34 of the Constitution.7
[21] Had the high court determined the dispute before it as defined by the
parties, it ought to have decided whether the respondent had met the requirements
for the grant of an interim interdict. These are: a prima facie right; a well-
grounded apprehension of irreparable harm if the relief is not granted; that the
balance of convenience favours the granting of an interim interdict; and the
absence of another satisfactory remedy.8 An interim interdict pending an action
is an extraordinary remedy within the discretion of the court.9
[22] As to the proper approach to an application for an interdict to restrain the
publication of defamatory material, Plewman JA in Hix Networking,10 approved
the following dictum by Greenberg J in Heilbron:11
‘If an injury which would give rise to a claim in law is apprehended, then I think it is clear that
the person against whom the injury is about to be committed is not compelled to wait for the
damage and sue afterwards for compensation, but can move the Court to prevent any damage
being done to him. As he approaches the Court on motion, his facts must be clear and if there
is a dispute as to whether what is about to be done is actionable, it cannot be decided on motion.
The result is that if the injury which is sought to be restrained is said to be a defamation, then
he is not entitled to the intervention of the Court by way of interdict, unless it is clear that the
7 Section 34 of the Constitution provides:
‘Everyone has the right to have any dispute that can be resolved by the application of law decided in a fair public
hearing before a court or, where appropriate, another independent and impartial tribunal or forum.’
8 Lawsa fn 6 at 419 para 403; Eriksen Motors (Welkom) Ltd v Protea Motors, Warrenton and Another 1973 (3)
SA 685 (A) at 691D.
9 Eriksen fn 9 at 691C.
10 Hix Networking Technologies v System Publishers (Pty) Ltd and Another 1997 (1) SA 391 (A) at 399B-E.
11 Heilbron v Blignaut 1931 WLD 167 at 169.
defendant has no defence. Thus if the defendant sets up that he can prove truth and public
benefit, the Court is not entitled to disregard the statement on oath to that effect, because, if his
statement were true, it would be a defence, and the basis of the claim for an interdict is that an
actionable wrong, i.e. conduct for which there is no defence in law, is about to be committed.’
[23] This court also approved the analysis in Buthelezi,12 that Greenberg J ‘did
not intend to lay down that a mere allegation, or a denial under oath, is sufficient
“to set up” a defence which would be the case if a matter had to be decided on
pleadings alone’.13 Put simply, the mere say-so of a deponent who alleges a
defence of justification should not be accepted at face value: the facts on which
it is based must be analysed to determine its weight. A factual foundation for a
defence of fair comment or truth and public benefit must be established in
evidence.14
[24] Applying these principles to the facts and considering the evidence
outlined above as a whole, I do not think that it can be said that the appellant has
no defence, or that the facts put up in support of the defence of justification may
be rejected out of hand. The nub of the appellant’s defence was that the initial
statements had to be considered in the context of the political rivalry between him
and the respondent; and that they were a riposte to the offending remark that the
appellant, and others, had interpreted as being demeaning and disrespectful of
women. Likewise, the appellant’s statement that the respondent did not want to
be black, was made pursuant to the respondent’s own public statements, which
radio and social media commentators had weighed into. The appellant’s stance
12 Buthelezi v Poorter and Others 1974 (4) SA 831 (W) at 836A-F.
13 Hix Networking fn 14 at 399F-G; Buthelezi fn 16 at 836C-F.
14 Herbal Zone (Pty) Limited v Infitech Technologies (Pty) Limited [2017] ZASCA 8; [2017] 2 All SA 347
(SCA) para 38.
was that the respondent’s views on affirmative action were inconsistent with
nation building and the realisation of racial equality. And the appellant’s
comment that the respondent did not want to be black, was also a retort to the
latter’s public statement that poor people, or as the appellant put it, ‘[b]lack
people who overwhelmingly comprise the poor’, could not be trusted.
[25] This, obviously, is not to say that the appellant’s defence of justification is
likely to succeed in the defamation action, which is pending. That is an issue to
be decided by the trial court. But where a factual foundation for a defence of
justification has been set up in motion proceedings, a court cannot know whether
defamation has been proved until the trial process has shown where the truth lies.
And of course, if the defence of justification fails, the appellant will have to pay
damages. The high court thus erred in holding that as a matter of law, the
respondent had established that the appellant had defamed him.
[26] On the facts, the respondent also did not establish an apprehension of harm,
in that there was no evidence the appellant had any intention of harming his good
name and reputation in the future. On the contrary, the facts point the other way.
The appellant, in terms, stated that any apprehension of impending harm was
unreasonable; that he had not repeated the initial statements after 28 August 2016;
and that there was no threat that he intended do so. These allegations went
unchallenged. And some two and a half years had passed after the initial
statements had been made, without incident or complaint, when the final interdict
was granted on 8 February 2019. An interdict is not a remedy for the past invasion
of rights: it is concerned with the present and the future.15
15 Lawsa fn 6 at 412 para 390; Philip Morris Inc v Marlboro Shirt Co SA 1991 (2) SA 720 (A) at 735B-C,
approving Stauffer Chemicals Chemical Products Division of Cheeseborough-Ponds (Pty) Ltd v Monsanto Co
1988 (1) SA 806 (T) at 809F-G.
[27] Regarding the absence of another satisfactory remedy, the respondent
alleged that his reputation in politics and his reputation and good name could not
await the outcome of the action, essentially because, as he put it, he had been
‘associated with the twin demons of racism and sexism’. This allegation also, is
insupportable on the facts. It appears that the members of the public and
commentators had considered the respondent’s stance on affirmative action as
racist long before publication of the initial statements. The offending remark
made on 10 August 2016, in the context of appointments in the Municipality, had
also resulted in the public perception that he was sexist.
[28] There is no allegation in the founding affidavit why an award of damages
for defamation would not vindicate the respondent’s right to his good name and
reputation. In my view, the following passage in Herbal Zone16 provides a
complete answer to the alleged absence of an adequate remedy:
‘[A]n interdict to prevent the publication of defamatory matter … is directed at preventing the
party interdicted from making statements in the future. If granted it impinges upon that party’s
constitutionally protected right to freedom of speech. For that reason such an interdict is only
infrequently granted, the party claiming that they will be injured by such speech ordinarily
being left to their remedy of a claim for damages in due course. Nugent JA said in this court:17
“Where it is alleged, for example, that a publication is defamatory, but it has yet to be established
that the defamation is unlawful, an award of damages is usually capable of vindicating the right to
reputation if it is later found to have been infringed, and an anticipatory ban on publication will
seldom be necessary for that purpose.” ’.
[29] For these reasons the following order is made:
The appeal is upheld with costs, including the costs of two counsel.
The order of the high court is set aside and replaced with the following:
16 Herbal Zone fn 16 para 36.
17 Midi Television (Pty) Ltd t/a E-TV v Director of Public Prosecutions (Western Cape) 2007 (5) SA 540 (SCA)
para 20.
‘The application is dismissed with costs, including the costs of two counsel
where so employed.’
__________________
A Schippers
Judge of Appeal
APPEARANCES
For Appellant:
I Semenya SC
M Ndiweni
Instructed by:
Ntanga Nkuhlu Inc. Attorneys, Sandton
Phatsoane Henney Attorneys, Bloemfontein
For Respondent:
D C Mpofu SC
Y Peer
Instructed by:
Mabuza Attorneys, Johannesburg
Matsepes Inc., Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
26 March 2020
STATUS
Immediate
Tau v Mashaba and Others (335/2019) [2020] ZASCA 26 (26 March
2020)
Please note that the media summary is intended for the benefit of the media and does not form
part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal (the SCA) today upheld an appeal against
an order by Gauteng Division, Johannesburg, which granted a declaratory
order that certain statements made by the appellant, Mr Parks Tau, the
former Mayor of the City of Johannesburg, were defamatory of his
successor, Mr Herman Mashaba.
Mr Mashaba’s application in the high court was for an interdict to compel
Mr Tau, the Congress of the South African trade Unions (COSATU), and
the African National Congress Women’s League (ANCWL) to retract the
offending statements, issue an apology, and publish the retraction and
apology. Mr Mashaba did not proceed with his claim against COSATU and
the ANCWL. The high court held that the offending statements were
defamatory of Mr Mashaba and issued a final interdict restraining Mr Parks
from repeating those statements. It referred the retraction and the apology,
and the publication thereof to the court hearing the action for damages for
defamation, instituted by Mr Mashaba against Mr Tau.
The SCA held that the high court erred in granting the declaratory order
and a final interdict restraining Mr Tau from uttering the offending
statements. It found that the defences of fair comment and truth and public
benefit raised by Mr Tau could not be rejected out of hand, and had to be
decided by the court which will hear the defamation action.
|
2778
|
non-electoral
|
2012
|
REPORTABLE
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 458/2011
In the matter between:
MINISTER OF MINERALS AND ENERGY
Appellant
and
AGRI SOUTH AFRICA
Respondent
CENTRE FOR APPLIED LEGAL STUDIES
Amicus Curiae
Neutral citation: Minister of Minerals and Energy v Agri SA (CALS
amicus curiae ) (458/11) [2012] ZASCA 93 (31 May
2012)
Coram:
NUGENT,
HEHER,
MHLANTLA,
LEACH
and
WALLIS JJA.
Heard:
4 May 2012
Delivered: 31 May 2012
Summary: Expropriation of mineral rights – Mineral and Petroleum
Resources Development Act 28 of 2002 (MPRDA) – expropriation of
common law mining rights – are such rights expropriated under the
provisions of the MPRDA – entitlement to compensation in terms of item
12(1) of Schedule II to the MPRDA.
ORDER
On appeal from: North Gauteng High Court, Pretoria (Du Plessis J
sitting as court of first instance).
The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
The order of the court below is set aside and replaced by the
following order:
‗(a) The plaintiff‘s claim is dismissed with costs, such costs to
include those consequent upon the employment of two counsel, but
excluding all costs incurred in respect of or relating to the
amendment referred to in paragraph (b) below.
(b) The defendant is ordered to pay the plaintiff‘s wasted costs,
including the costs consequent upon the calling of witnesses and
the hearing of evidence, occasioned by its application to amend its
plea on 8 March 2011, such costs to include those consequent upon
the employment of two counsel.‘
JUDGMENT
WALLIS JA (HEHER and LEACH JJA concurring, NUGENT JA at
paragraph 102 and MHLANTLA JA concurring for different reasons.)
Introduction
[1] The transformation of the legal landscape in regard to minerals and
mining occasioned by the Minerals and Petroleum Resources
Development Act 28 of 2002 (the MPRDA) has been the subject of
previous consideration and comment by this court.1 This is a test case
aimed at determining whether the MPRDA expropriated rights that
existed prior to its coming into force. The protagonists are Agri South
Africa (Agri SA), which contends that it did, and the Minister of Minerals
and Energy (the Minister), who contends that it did not. In adopting that
stance the Minister reflects the viewpoint of the government at the time
the MPRDA was introduced in Parliament. However, that view was not
unchallenged.2 Accordingly, had a court held that the MPRDA
expropriated all or some existing rights and no provision was made for
compensation, there was a risk of the legislation being held to be
unconstitutional for non-compliance with the requirements of s 25(2)(b)
of the Constitution, which requires that any expropriation be subject to
the payment of compensation. In order to ensure constitutional
1 Holcim SA (Pty) Ltd v Prudent Investors (Pty) Ltd & others [2011] 1 All SA 364 (SCA) paras 20 to
24 and Xstrata & others v SFF Association (326/2011) [2012] ZASCA 20 para 1.
2 See for example Pieter Badenhorst and Rassie Malherbe ‗The Constitutionality of the Mineral
Development Draft Bill 2000 (Part 2)‘ 2001 TSAR 765 especially at 779 and 785.
compliance, whilst maintaining the stance that no expropriation was
involved, item 12(1) of Schedule II provides that:
‗Any person who can prove that his or her property has been expropriated in terms of
any provision of this Act may claim compensation from the State.‘ 3
The government‘s stance that the MPRDA did not expropriate existing
rights is reflected in the requirement that a person contending for an
expropriation must prove it. In that light, criticism that item 12(1) was
drafted evasively4 appears misplaced. There is nothing amiss in
government contending that the MPRDA did not expropriate existing
rights, but providing that, if they are wrong, compensation will be
payable as required by the Constitution.
[2] The factual background to this case is as follows. The MPRDA
came into force on 1 May 2004. Prior to that date Sebenza Mining (Pty)
Ltd (then called Bulgara Investment Holdings (Pty) Ltd) had taken a
notarial cession of the rights to coal in, on, under and in respect of two
properties situated in Mpumalanga (the coal rights). In 2006 the
company, by then in liquidation, lodged a claim for compensation in
terms of item 12(1) contending that the MPRDA expropriated its coal
rights. This claim was rejected. On 10 October 2006 it ceded its claim to
Agri SA, which acquired it for the purpose of bringing the present
litigation. In doing so it was acting in the broad interests of its members,
who took the view that, as a result of the changes effected by the
MPRDA, they had lost valuable mining rights. Agri SA claimed
compensation for the alleged expropriation of the coal rights in an
amount of not less than R750 000. The trial came before Du Plessis J,
3 AJ van der Walt Constitutional Property Law (3ed, 2011) 446-451 speculates about the reason for
including item 12(1) in the MPRDA but overlooks its obvious purpose. It does not impliedly recognise
that the MPRDA brings about an expropriation, and the contrary view in Agri SA v Minister of
Minerals and Energy 2010 (1) SA 104 (GNP) para 16, is incorrect.
4 M O Dale and others South African Mineral and Petroleum Law Sch II-206 (Issue 9).
who upheld the claim and awarded compensation of R750 000. The
appeal and cross-appeal are with his leave. In the appeal the Minister
seeks to set aside the compensation award in its entirety. In the cross-
appeal Agri SA seeks an increase in the compensation awarded to R2
million. At the commencement of the appeal the Centre for Applied Legal
Studies (CALS) sought and was granted leave to intervene as amicus
curiae. Broadly speaking it aligned itself with the stance of the Minister.
[3] Sebenza Mining‘s rights were restricted to the coal rights under a
notarial cession of rights from the owners of the properties in question
and the claim of which Agri SA has taken cession is a claim for
compensation in relation to those rights alone. However, counsel made it
clear in argument that Agri SA does not seek to distinguish these rights,
or the position of Sebenza Mining, from any other mineral rights that
previously existed or any other holder of such rights. It does not
distinguish between precious metals and base metals, or between these
and other forms of minerals, such as sand, stone or clay, precious stones,
other gemstones and mineral oils. Nor does it distinguish between used
and unused rights or between rights that were not separated from the land
to which they related and rights that were so separated. To illustrate the
breadth of the argument it was argued that the MPRDA effected an
expropriation of the rights enjoyed by giant mining houses just as much
as it had expropriated the unexploited mineral rights of farmers in rural
areas. It was submitted that the only reason there had not been more
claims in respect of existing mining operations was that the holders had
suffered no financial loss, because they had converted their rights in
terms of the transitional provisions in the Second Schedule to the
MPRDA to rights in terms of the MPRDA.
[4] In view of this, the outcome of the appeal turns on the answer to a
single question. Did the MPRDA expropriate all mineral rights in South
Africa? Under earlier legislation such rights were held either by the
owners of land or, where they had been separated from the land in respect
of which the rights were to be exercised, the holders of the separated
rights. Although there were differences in the form and nature of these
rights, depending on the manner in which they had been constituted, they
can for present purposes be referred to generically as mineral rights and
the beneficiaries of the rights as holders of mineral rights.
[5] The argument proceeded, and was upheld by the trial court, on the
basis of a comparison between the rights enjoyed by a holder of mineral
rights in terms of the predecessor to the MPRDA, the Minerals Act 50 of
1991 (the 1991 Act) and the position under the MPRDA. The starting
point was s 5(1) of the 1991 Act, which reads as follows:
‗Subject to the provisions of this Act, the holder of the right to any mineral in respect
of land or tailings, as the case may be, or any person who has acquired the consent of
such holder …shall have the right to enter upon such land or the land on which such
tailings are situated, as the case may be, together with such persons, plant or
equipment as may be required for purposes of prospecting or mining and to prospect
and mine for such mineral on or in such land or tailings, as the case may be, and to
dispose thereof.‘
The leading commentary on the 1991 Act said that this restored to holders
of mineral rights their common law rights in relation to prospecting for,
mining, extracting and disposing of minerals.5 The argument adopts this
terminology and contends that the rights of holders of mineral rights
under the 1991 Act were common law rights that were destroyed by the
MPRDA.
5 M Kaplan and M O Dale A Guide to the Minerals Act 1991 at 5-6. Hanri Mostert Mineral Law:
Principles and Policies 69 endorses this proposition.
[6] Agri SA contended that these rights had in substance, if not in the
same form, become vested in the government through its representative
the Minister. Whilst it was argued that an expropriation might occur
where the expropriated property is ultimately to be placed in the hands of
a third party and not the expropriator, Agri SA did not contend that
mineral rights had been expropriated by being transferred to third parties.
Its case was that an expropriation was effected by the MPRDA on 1 May
2004, when the MPRDA came into operation and that the Minister had in
substance acquired the expropriated rights. It disavowed any reliance on
the suggestion by the Minister and CALS, in their alternative arguments,
that the date of any expropriation would have been later and would have
diverged from case to case, because any expropriation would only occur
when existing miners or new entrants to the industry were awarded a
prospecting right or a mining right or mining permit under the MPRDA in
place of the previous holder of the mineral rights to that property. We can
confine ourselves therefore to a consideration of the narrow proposition
that the MPRDA effected an expropriation of all existing mining rights in
South Africa on 1 May 2004.
[7] In its particulars of claim Agri SA said that the expropriation was
effected by s 5, read with ss 2, 3 and 4, of the MPRDA. In further
particulars for trial it inverted this by relying primarily on s 3 and only
then and by way of supplement on the other provisions. As the question is
one of law this change is of no great moment. The outcome of this
litigation depends upon broad principles relating to the source and nature
of mineral rights and the construction of the relevant provisions of the
MPRDA in the context of the statute as a whole and in the light of the
Constitution. The precise form in which the argument has been couched
from time to time does not affect this.
[8] The relevant provisions of the MPRDA start with the preamble
where it is acknowledged that ‗South Africa‘s mineral and petroleum
resources belong to the nation and that the State is the custodian thereof‘.
The relevant objects in s 2 are said to be to:
‗(a)
recognise the internationally accepted right of the State to exercise sovereignty
over all the mineral and petroleum resources within the Republic;
(b)
give effect to the principle of the State‘s custodianship of the nation‘s mineral
and petroleum resources;
(c)
promote equitable access to the nation‘s mineral and petroleum resources to
all the people of South Africa;
(d) to (f)
…
(g)
provide for security of tenure in respect of prospecting, exploration, mining
and production operations.‘
The role of the State in this new dispensation is set out in s 3, which
provides that:
‗(1) Mineral and petroleum resources are the common heritage of all the people of
South Africa and the State is the custodian thereof for the benefit of all South
Africans.
(2) As the custodian of the nation‘s mineral and petroleum resources, the State, acting
through the Minister, may—
(a)
grant, issue, refuse, control, administer and manage any reconnaissance
permission, prospecting right, permission to remove, mining right, mining permit,
retention permit, technical co-operation permit, reconnaissance permit, exploration
right and production right; and
(b)
in consultation with the Minister of Finance, determine and levy, any fee or
consideration payable in terms of any relevant Act of Parliament.‘
[9] Section 5 deals with the nature and consequences of the rights
created under the MPRDA. It provides that:
‗(1) A prospecting right, mining right, exploration right or production right granted in
terms of this Act is a limited real right in respect of the mineral or petroleum and the
land to which such right relates.
(2) The holder of a prospecting right, mining right, exploration right or production
right is entitled to the rights referred to in this section and such other rights as may be
granted to, acquired by or conferred upon such holder under this Act or any other law.
(3) Subject to this Act, any holder of a prospecting right, a mining right, exploration
right or production right may—
(a)
enter the land to which such right relates together with his or her employees,
and may bring onto that land any plant, machinery or equipment and build, construct
or lay down any surface, underground or under sea infrastructure which may be
required for the purposes of prospecting, mining, exploration or production, as the
case may be;
(b)
prospect, mine, explore or produce, as the case may be, for his or her own
account on or under that land for the mineral or petroleum for which such right has
been granted;
(c)
remove and dispose of any such mineral found during the course of
prospecting, mining, exploration or production, as the case may be;
(d)
subject to the National Water Act, 1998 (Act No. 36 of 1998), use water from
any natural spring, lake, river or stream, situated on, or flowing through, such land or
from any excavation previously made and used for prospecting, mining, exploration
or production purposes, or sink a well or borehole required for use relating to
prospecting, mining, exploration or production on such land; and
(e)
carry out any other activity incidental to prospecting, mining, exploration or
production operations, which activity does not contravene the provisions of this Act.
(4) No person may prospect for or remove, mine, conduct technical co-operation
operations, reconnaissance operations, explore for and produce any mineral or
petroleum or commence with any work incidental thereto on any area without—
(a)
an
approved
environmental
management
programme
or
approved
environmental management plan, as the case may be;
(b)
a reconnaissance permission, prospecting right, permission to remove, mining
right, mining permit, retention permit, technical co-operation permit, reconnaissance
permit, exploration right or production right, as the case may be; and
(c)
notifying and consulting with the landowner or lawful occupier of the land in
question.‘
[10] It is plain from these provisions that anyone who wishes to
prospect for or mine minerals in South Africa may only do so in terms of
rights acquired and held under the MPRDA. The rights of holders of
mineral rights reflected in s 5(1) of the 1991 Act have, as such,
disappeared. Whilst those who held such rights under the 1991 Act, and
persons authorised by them, were formerly the only persons who could,
subject to the 1991 Act, prospect and mine, and accordingly enjoyed
exclusivity, that is no longer the case. They are free to compete with
others for rights under the MPRDA, but their status as holders of mineral
rights, recognised in the past, is of no relevance to whether they will be
afforded such rights in the current dispensation. In addition, the owners of
land, from which the mineral rights have not been separated, can no
longer prevent others from coming onto their land for the purpose of
mining. All they have is a right under s 5(4)(c) of the MPRDA6 to be
notified and consulted before others, acting in terms of rights afforded to
them by the Minister under the MPRDA, come onto their land to prospect
or mine. There are no longer any rights that can be put up for sale, used as
security or bequeathed to one‘s heirs. That broadly constitutes the
deprivation of which Agri SA complains.
[11] Against that background the appeal raises three issues. They are:
(a)
What constitutes an expropriation in terms of s 25(2) of the
Constitution?
6 Subject to the dispute resolution provisions in s 54 of the MPRDA and the possibility that some
compensation may be paid to them, either as agreed or as determined by arbitration or a competent
court.
(b)
What were the rights enjoyed by holders of mineral rights prior to
the MPRDA coming into operation?
(c)
Were those rights expropriated in terms of the provisions of the
MPRDA?
If the last of these questions is answered in favour of Agri SA then it
follows that Sebenza Mining‘s coal rights were expropriated and we must
then consider the proper assessment of the compensation due to it.
The meaning of ‗expropriation‘
[12] The Constitution draws a distinction between a deprivation of
property and an expropriation.7 A deprivation of property is only
constitutionally compliant if it occurs in terms of a law of general
application and is not arbitrary. An expropriation is a special type of
deprivation. It must, like any other deprivation, take place in terms of a
law of general application and not be arbitrary. In addition it must be for
a public purpose or in the public interest and the expropriation must be
subject to the payment of compensation. Agri SA contends that the
MPRDA expropriated all pre-existing mineral rights. It did not contend
that the MPRDA involved an arbitrary deprivation of all or some of those
rights. There would be difficulties in advancing such an argument in the
light of the constitutional imperatives of transformation and accessibility
to natural resources to which CALS drew our attention. If we conclude
that the MPRDA did not expropriate pre-existing mineral rights the
appeal must succeed.
7 Sections 25(1) and (2) embodying this distinction read as follows:
‗(1) No one may be deprived of property except in terms of law of general application, and no law may
permit arbitrary deprivation of property.
(2) Property may be expropriated only in terms of law of general application—
(a) for a public purpose or in the public interest; and
(b) subject to compensation, the amount of which and the time and manner of payment of which have
either been agreed to by those affected or decided or approved by a court.‘
[13] As item 12(1) was directed at ensuring the constitutional
compliance of the MPRDA if it expropriated property, the ‗expropriation‘
to which it refers must be an expropriation as contemplated by s 25(2) of
the Constitution. In Harksen v Lane NO & others8 Goldstone J said:
‗[31] The word ―expropriate‖ is generally used in our law to describe the process
whereby a public authority takes property (usually immovable) for a public purpose
and usually against payment of compensation. Whilst expropriation constitutes a form
of deprivation of property, s 28 makes a distinction between deprivation of rights in
property, on the one hand (ss (2)), and expropriation of rights in property, on the other
(ss (3)). Section 28(2) states that no deprivation of rights in property is permitted
otherwise than in accordance with a law. Section 28(3) sets out further requirements
which need to be met for expropriation, namely that the expropriation must be for a
public purpose and against payment of compensation.
[32] The distinction between expropriation (or compulsory acquisition as it is called
in some other foreign jurisdictions) which involves acquisition of rights in property by
a public authority for a public purpose and the deprivation of rights in property which
fall short of compulsory acquisition has long been recognised in our law. In
Beckenstrater v Sand River Irrigation Board,9 Trollip J said:
―(T)he ordinary meaning of 'expropriate‘' is ‗to dispossess of ownership, to deprive of
property‘ … but in statutory provisions, like secs 60 and 94 of the Water Act, it is
generally used in a wider sense as meaning not only dispossession or deprivation but
also appropriation by the expropriator of the particular right, and abatement or
extinction, as the case may be, of any other existing right held by another which is
inconsistent with the appropriated right. That is the effect of cases like Stellenbosch
Divisional Council v Shapiro 1953 (3) SA 418 (C) at 422-3, 424; SAR & H v
Registrar of Deeds 1919 NPD 66; Kent NO v SAR & H 1946 AD 398 at 405-6; and
Minister van Waterwese v Mostert and Others 1964 (2) SA 656 (A) at 666-7.‖‘
8 Harksen v Lane NO & others 1998 (1) SA 300 (CC) paras 31 and 32.
9 1964 (4) SA 510 (T) at 515A-C.
[14] It has been suggested10 that the Constitutional Court departed from
this approach in the FNB case.11 The basis for that suggestion is that in
FNB the court commenced by dealing with deprivation of property and
whether it was arbitrary, whilst in Harksen it dealt directly with
expropriation. It would be surprising to conclude that FNB departed from
Harksen without saying so expressly, given their proximity in time and
that Harksen is not even referred to in the judgment in FNB. What is
more Ackerman J, who wrote FNB, had concurred in Harksen. The
differences in approach between the two are readily ascribable to the fact
that they were concerned with different questions. Harksen dealt with a
contention that s 21 of the Insolvency Act 24 of 1936, which provides for
the vesting of the property of one party to a marriage in the trustee of
their insolvent spouse, pending proof by the solvent spouse of ownership
of the assets in question, constituted an expropriation contrary to s 25(2)
of the Constitution. FNB concerned whether the provisions of s 114 of the
Customs and Excise Act 91 of 1964, providing for a lien for payment of a
customs debt over all goods, including those of third parties, on any
premises in possession or under control of the customs debtor, constituted
an arbitrary deprivation of property.12 Both judgments accept that
expropriation is a form13 or subset14 of deprivation. Accordingly, whether
a challenge is mounted under s 25(1) or s 25(2) the first issue will be
whether there has been a deprivation of property. But that does not
necessarily mean that the court must consider whether the particular
deprivation of property was arbitrary, when the only point in issue in the
10 A J van der Walt ‗Striving for the better interpretation – a critical reflection on the Constitutional
Court‘s Harksen and FNB decisions on the Property Clause‘ (2004) 121 SALJ 854 at 869-870; Van der
Walt , supra, fn 3 at 341 to 347.
11 First National Bank of SA Ltd t/a Wesbank v Commissioner, South African Revenue Service &
another: First National Bank of SA Ltd t/a Wesbank v Minister of Finance 2002 (4) SA 768 (CC)
12 It appears that FNB argued that this was a prohibited expropriation (see para 26 of the judgment), but
the case was disposed of on the grounds that the section involved an arbitrary deprivation of property.
13 Harksen para 31.
14 FNB para 57.
case is whether an expropriation has occurred. If the person contending
for an expropriation is content not to allege that the deprivation is
arbitrary, there is no reason for the court to enquire into that question. Its
view on that would be obiter and it is a salutary approach, if possible, in
writing judgments to avoid obiter dicta. Where the issue is whether an
expropriation has occurred, the important question will be whether the
deprivation reflects those characteristics that serve to mark out an
expropriation from other types of deprivation of property.15 In identifying
those characteristics FNB said merely that we must be circumspect in
relying on pre-constitutional jurisprudence16 concerning expropriation,
because it may not necessarily be reliable in construing the property
clause under our present constitutional dispensation.17
[15] The
MPRDA
exhibits
strong
regulatory
features.
Other
jurisdictions have grappled with cases dealing with the effect that
regulatory measures, such as planning regulations, may have on existing
property rights. This has resulted in the development in some
jurisdictions of doctrines of constructive expropriation or inverse
condemnation. In Steinberg v South Peninsula Municipality18 this court
left open the question whether there is room within our constitutional
framework for the development of a concept of constructive
expropriation. In Reflect-All 1025 CC & others v MEC for Public
Transport, Roads and Works, Gauteng Provincial Government, &
another19 Nkabinde J likewise left the question open, saying only that she
15 It is accepted in the present case that the MPRDA is an Act of general application; that it was passed
for a public purpose and that it provides for compensation if it brings about an expropriation.
16 I use the term to encompass both case law and academic writing on the topic.
17 FNB para 59.
18 Steinberg v South Peninsula Municipality 2001 (4) SA 1243 (SCA) para 8.
19 Reflect-All 1025 CC & others v MEC for Public Transport, Roads and Works, Gauteng Provincial
Government,& another 2009 (6) SA 391 (CC) paras 65 and 66. Elmarie van der Schyff in her doctoral
dissertation The Constitutionality of the Mineral and Petroleum Resources Development Act 28 of 2002
was uncertain whether it was an appropriate doctrine in the South African
context and that it gives rise to debatable questions. We have not been
asked to develop such a doctrine in the present case. Agri SA contends
that the MPRDA effects a direct expropriation of previously existing
mineral rights by taking those rights from existing rights holders and
vesting their substance in the Minister. It is accordingly unnecessary to
address this complex question. It is also unnecessary to address an issue
raised by Professor van der Walt20 whether an expropriation can be
effected by statute in South Africa. No-one suggested that it could not be
effected in this way.
[16] The primary contention of the Minister and CALS is that the
MPRDA did not effect a general expropriation of existing mineral rights
because the State did not acquire any rights in consequence of the
MPRDA coming into operation. They accepted, although the correctness
of this acceptance will be revisited later in the judgment, that there was a
deprivation of property because all mineral rights under the 1991 Act
were extinguished by the MPRDA. However, they say that those rights
have not been acquired by the State and, as this is a necessary
characteristic of an expropriation that is fatal to Agri SA‘s claim.
Reliance is placed upon the quoted passage from Harksen and the
Reflect-All judgment, in which the contention that there had been an
expropriation of property, effected by the long-standing designation of
portions of the appellants‘ properties for road purposes, was rejected
because there had been no acquisition of the land affected by the
designation. The relevant passage from that judgment reads as follows:
at 164-177 proposes the adoption of a form of constructive expropriation. Professor van der Walt, fn 3,
supra, 347-384 rejects the doctrine.
20 Footnote 3, supra, 433-4 and 456-8, where he concludes erroneously that item 12(1) ‗amounts to
some form of statutory expropriation‘, a proposition not advanced by Agri SA.
‗[64] The applicants argued that s 10(3) is inconsistent with the constitutional
guarantee against uncompensated expropriation of property. I do not agree. Although
it is trite that the Constitution and its attendant reform legislation must be interpreted
purposively, courts should be cautious not to extend the meaning of expropriation to
situations where the deprivation does not have the effect of the property being
acquired by the State.21 It must be emphasised that s 10(3) does not transfer rights to
the State. What it does is this: it deprives the landowner of rights to exploit the
affected part of the land within the road reserve and thus protects part of the planning
process which has economic value and is in the long run in the public interest.
Remarkably, while the applicants accepted the distinction drawn by the court in
Harksen, they nevertheless contended that s 10(3), read with ss 8 and 9 of the
Infrastructure Act, enables the State to ―acquire‖ land for the construction of public
roads. As I have said, the State has not acquired the applicants' land as envisaged in
ss 25(2) and 25(3) of the Constitution. For that reason, no compensation need be
paid.‘ (Emphasis added.)
[17] Agri SA counters this argument in the following way. It contends
that expropriation is an original, not a derivative form of acquisition of
ownership. It does not involve a transfer from the expropriatee to the
expropriator, but the extinguishing of the expropriatee‘s title or right and
the acquisition by the expropriator, or possibly a third party through the
expropriator, of a new right, equivalent or similar, but not necessarily
identical, to that previously enjoyed by the expropriatee. Accordingly, so
it is argued, the issue of expropriation in this case cannot be determined
by asking whether, in consequence of the MPRDA, the State has acquired
the mineral rights that existed under the old dispensation. As those rights
21 This should not be read as if it were a statute prescribing that acquisition must be by the State in
order for there to be an expropriation. In that case the only possible beneficiary of any ‗acquisition‘
would have been the State and this dictated the language used by Nkabinde J. In Offit Farming
Enterprises (Pty) Ltd & another v Coega Development Corporation & others 2010 (4) SA 242 (SCA)
paras 14 to 18 this court held that the Constitution permitted an expropriation in the public interest even
though the party ultimately acquiring the expropriated property was someone other than the
expropriating authority. That finding was not challenged or questioned in the subsequent appeal to the
Constitutional Court. Offit Enterprises (Pty) Ltd & another v Coega Development Corporation &
others 2011 (1) SA 293 (CC).
have been extinguished the answer to that question must necessarily be in
the negative. Instead, it is contended that the proper question is whether
the scheme for the regulation of mining in South Africa, contained in
sections 2 to 5 of the MPRDA, vested in the State the substantive content
of those rights, transferring the right to prospect, mine for and dispose of
extracted minerals from the holders of mineral rights to the Minister.
Agri SA says that the MPRDA divested owners of existing mining rights
and granted ‗a corresponding power, right or advantage to the
expropriator in order to grant a similar right to a third party‘ and that this
amounted to an expropriation. It contends that the court must look behind
the appearance of the exercise of a regulatory power to the underlying
reality that as a result of the MPRDA the rights enjoyed by holders of
mining rights prior to the MPRDA have been extinguished and are now
exercisable by the Minister and those to whom rights are granted under
the MPRDA.
[18] Both arguments proceed on the footing that one of the identifying
characteristics of an expropriation is that the expropriator acquires
property (in its constitutional sense) either for itself or for others, whether
directly or indirectly, that bears some resemblance to the property that
was the subject of the expropriation. That is consistent with the decision
in Harksen and is in my view correct. I find unconvincing the suggestion
by Professor van der Walt22 that, in terms of the Constitution, the
characteristic that distinguishes an expropriation from other forms of
deprivation is compensation. That puts the cart of compensation before
the horse of expropriation. The need to identify whether a particular act
constitutes an expropriation will arise in two circumstances. The first is
where the validity of a law or some executive or administrative action is
22 Footnote 3, supra, pp 343-4.
challenged on the ground that it involves an expropriation but does not
provide for the payment of compensation, thereby infringing s 25(2) of
the Constitution. The second is where, as in this case, there is provision
for the payment of compensation if a law or action constitutes an
expropriation, but there is a dispute whether the particular law or action
involves an expropriation. In either event the presence or absence of a
provision for compensation cannot be determinative of whether there is
an expropriation. If one looks as the structure of s 25(2) of the
Constitution it is more appropriate to view compensation as a pre-
requisite for a lawful expropriation and a necessary consequence of an
expropriation, rather than as a defining characteristic serving to
distinguish expropriations from other forms of deprivation. The absence
of an obligation to pay compensation is necessarily neutral, whilst its
presence can never be more than a factor that may point to an
expropriation.
[19] Accepting that one of the hallmarks of expropriation is that the
expropriator or others through it acquire property, Agri SA says that what
is acquired need not be the same or substantially the same as what has
been taken. For obvious reasons this is a contention that can only be
advanced when the subject of the alleged expropriation is incorporeal
property. Even in that context there is room for considerable debate
whether the argument is correct. In Minister van Waterwese v Mostert &
andere23 it was said that the person who expropriates only acquires, by
means of the expropriation, the rights that have been expropriated.24
Reference is made by counsel for Agri SA to a passage from the
23 Minister van Waterwese v Mostert & andere 1964 (2) SA 656 (A) at 667A-B.
24 Van Wyk JA said: ‗… in die afwesigheid van ʼn regsfiksie, kan van niemand meer onteien word as
wat hy eien nie‘ and ‗… die persoon wat onteien slegs die regte wat onteien is deur die onteiening kan
verkry‘.
judgment of van Winsen J in Stellenbosch Divisional Council v
Shapiro,25 where it was said that if property burdened by a
fideicommissum is expropriated the burden falls away with the
expropriation. However, it is by no means clear that this supports the
principle for which counsel contends. The case26 van Winsen J relied on
for this observation, involved a dispute over the entitlement of the local
authority
to
expropriate
immovable
property
burdened
by
a
fideicommissum where the ultimate beneficiaries of the fideicommissum
were not yet in existence. The court decided that expropriation was
permissible on the basis that the fideicommissum remained in existence
after expropriation but burdened the compensation rather than the
property.27 It is not authority for the proposition that what is acquired by
expropriation can be greater than what was taken, nor is it authority for
the proposition that what is acquired can be different from what was
taken.
[20] There is support for the contentions of the Minister in four cases,
two from Zimbabwe28 and two judgments of the Privy Council on appeal
from Malaysia29 and Mauritius30 respectively. In each the claim for
compensation failed on the basis that, whilst the rights of the claimants
had either been extinguished or significantly diminished and the
government in each case had significantly extended its rights and powers,
the claimants had failed to show that any rights previously possessed by
them had been acquired by the government. That strict approach to the
25 Stellenbosch Divisional Council v Shapiro 1953 (3) SA 418 (C) at 423H-424A.
26 The Town Council of Cape Town v Hiddingh’s Executors (1894) 11 SC 146.
27 A principle embodied in s 12 of the Expropriation Act 55 of 1965. See Estate Marks v Pretoria City
Council 1969 (3) SA 227 (A) at 243A-D.
28 Hewlett v Minister of Finance 1982 (1) SA 490 (ZS) at 501H-507G; Davies & others v Minister of
Lands, Agriculture and Water Development 1997 (1) SA 228 (ZSC) at 232F-235I.
29 Government of Malaysia v Selangor Pilot Association [1978] AC 337 (PC).
30 Société United Docks & others v Government of Mauritius: Marine Workers Union & others v
Mauritius Marine Authority & others [1985] 1 All ER 864 (PC) at 870c-d.
concept of an acquisition flowing from an expropriation supports the
contention by the Minister and CALS.
[21] However there is a different line of cases reflecting a different
approach to this problem. In Australia in Mutual Pools & Staff Pty Ltd v
The Commonwealth31 Deane and Gaudron JJ said:
‗The extinguishment, modification or deprivation of rights in relation to property does
not of itself constitute an acquisition of property … For there to be an ―acquisition of
property‖, there must be an obtaining of at least some identifiable benefit or
advantage relating to the ownership or use of property. On the other hand, it is
possible to envisage circumstances in which an extinguishment, modification or
deprivation of the proprietary rights of one person would involve an acquisition of
property by another by reason of some identifiable and measurable countervailing
benefit or advantage accruing to that other person as a result.‘
In Georgiadis v Australian and
Overseas Telecommunications
Corporation32 it was held that there is no reason why what is acquired
should correspond precisely to what has been taken. A case that illustrates
this possibility is the Canadian case of Manitoba Fisheries Ltd v The
Queen,33 where a commercial monopoly in relation to the export of
freshwater fish from Canada was granted to a statutorily created Crown
corporation, which could in turn grant licences to private businesses. The
claimant had not been granted such a licence and as a result its existing
profitable business could no longer be pursued. Whilst provision was
made for provinces to compensate businesses for their redundant plant
and equipment Manitoba had not done so. The Supreme Court of Canada
held that the effect of creating the statutory monopoly was that the Crown
corporation acquired the goodwill of the claimant‘s existing business and
31 Mutual Pools & Staff Pty Ltd v The Commonwealth [1994] HCA 9; (1994) 179 CLR 155 at 185.
32 Georgiadis v Australian and Overseas Telecommunications Corporation (1994) 179 CLR 297
(HCA) at 304-5.
33 Manitoba Fisheries Ltd v The Queen 88 DLR (3d) 462.
had thereby ‗taken‘ its business. A similar conclusion was reached in the
case of Ulster Transport Authority v James Brown & Sons Ltd,34 namely
that the repeal of a statutory exemption which had allowed the company
to trade in competition with a government established board providing the
same services, was ‗a device for diverting a definite part of the business
of furniture removers and storage from the respondents and others to the
appellant‘ and was intended ‗to enable the appellants to capture the …
business‘.
[22] Lastly, in this survey of the problems that arise in determining
whether an expropriation has resulted in an acquisition of property by the
expropriating authority, there is the Australian case of Newcrest Mining
(WA) Ltd & another v The Commonwealth of Australia & another. 35 It is
a case that may have a particular resonance in the present one in that it
involved rights conferred by the Commonwealth, all rights to minerals
having been reserved to the Crown, under mining leases with commercial
entities. The areas covered by the leases were then incorporated into a
world heritage site, the Kakadu National Park, where there was a
statutory prohibition on the recovery of minerals. There was also an
express statutory provision that provided that no compensation would be
payable if rights were lost in consequence of the incorporation of
property into a conservation area, such as Kakadu. This rendered the
rights under the mineral leases valueless because they could not be
exploited. The majority of the court held that there was an acquisition by
the Commonwealth because the effect of the sterilisation of the lessee‘s
rights was to enhance the value of the government‘s holdings. However,
in dissent McHugh J pointed out that the Commonwealth gained nothing
34 Ulster Transport Authority v James Brown & Sons Ltd [1953] NI 79 at 113 and 116.
35 Newcrest Mining (WA) Ltd & another v The Commonwealth of Australia & another (1997) 190 CLR
513 (HCA).
thereby. It was not enabled to exploit the minerals and had the prohibition
been lifted the claimant could have exploited them under the mineral
leases. He accordingly held that there was no acquisition.
[23] These are complex and difficult questions. The approach that
requires almost complete correspondence between what is taken from the
expropriatee and the benefit or advantage accruing to the expropriator
appears simple, but it ignores the reality that deprivations of property can
take a variety of forms36 and be effected in various different ways. The
resultant advantage to the authority that effects the deprivation may also
take a variety of forms. An unduly literal concept of acquisition flowing
from a deprivation may mean that the concept of expropriation is too
narrow and fails to afford the protection to property rights that s 25(2) is
designed to afford. A broader and more generous concept of acquisition
may also go some way towards addressing the problems that caused this
court in Steinberg to pose the question whether there is scope under the
Constitution for a concept of constructive expropriation. On the other
hand an overly generous approach to the notion of acquisition runs the
risk of reducing it to something akin to the peppercorn that in the English
common law system suffices to provide the requisite consideration for a
binding contract. That would blur the distinction our Constitution draws
between expropriations and other forms of deprivation of property. It may
also create barriers to the constitutionally mandated process of
transformation in regard particularly to access to land and natural
resources, where s 25 has sought to strike a careful balance between
existing property rights and the achievement of transformation.
36 Mkontwana v Nelson Mandela Metropolitan Municipality & another; Bisset & others v Buffalo City
Municipality & others; Transfer Rights Action Campaign & others v MEC, Local Government and
Housing, Gauteng, &others (KwaZulu-Natal Law Society and Msunduzi Municipality as Amici Curiae)
2005 (1) SA 530 (CC) paras 87-91.
[24] In view of these difficulties it is undesirable to adopt a categorical
approach to understanding what constitutes acquisition for the purposes
of expropriation. I accept that acquisition by or through the expropriating
authority is a characteristic of an expropriation in terms of s 25(2).
However, it is preferable to determine what constitutes an acquisition for
the purpose of identifying an expropriation on a case by case basis having
regard to the particular form that any alleged expropriation takes, the
nature of the property alleged to have been expropriated and the content
of the rights allegedly acquired by the expropriator. This is of particular
importance when one is dealing with an alleged expropriation of
incorporeal property, effected by way of changes made in a regulatory
environment. In that situation it will be as important to examine the
substance of the right as its source, especially where there is a need for
continuity of operations in the industry under consideration and the
changes include transitional measures. That in turn may affect whether
there has been a deprivation or the nature of any deprivation. In order to
decide both the question of deprivation and the question of acquisition in
the present case it is accordingly first necessary to consider the nature of
the mineral rights that Agri SA says have been expropriated.
The nature of mineral rights
[25] In accordance with long-standing usage mineral rights are referred
to as common law rights. Indeed they are so described in a leading
judgment of this court in Trojan Exploration Co (Pty) Ltd v Rustenburg
Platinum Mines Ltd & others,37 where the court was faced with a conflict
37 Trojan Exploration Co (Pty) Ltd v Rustenburg Platinum Mines Ltd & others 1996 (4) SA 499 (A) at
510A.
between two rights holders, the one holding the right to mine precious
metals over the property and the other the right to mine all other minerals.
They were so described, without further analysis, in the trial court‘s
judgment and in the arguments of counsel both in that court and in this
court. However, it is instructive to examine more closely and in its
entirety the relevant passage from the judgment of Schutz JA, which,
notwithstanding the division of views as to the outcome of the case, was
accepted by all his colleagues. It reads:
‗A brief account of the genesis of the various rights, their nature and subsequent fate,
is needed because of certain arguments which will be considered later. Prior to 1925
the Transvaal Land Co Ltd owned Umkoanesstad, its surface and what was beneath it,
in all the fullness that the common law allows, although even by then for about half a
century there had been legislation which could affect its rights if payable minerals
were present. In that year Willem Remmers acquired the farm, but simultaneously the
mineral rights were separated and retained by Transvaal Land Co Ltd by means of a
reservation in the transfer deed and the registration of a certificate of mineral rights in
its favour. Those rights were defined as ―all the mineral rights and all minerals, oil,
precious stones, precious or base minerals‖. Such a separate registration of mineral
rights had come to be recognised in the Transvaal long before 1925: see Houtpoort
Mining and Estate Syndicate Ltd v Jacobs 1904 TS 105 at 110; also Nolte v
Johannesburg Consolidated Investment Co Ltd 1943 AD 295 at 315.
Indeed an entire structure of mineral and mining law had been evolved in South
Africa both by the Courts and various legislatures. The need for such development
arose out of the lack of such laws in the Roman-Dutch system. …
The nature of rights to minerals which had been separated from the ownership of the
land, as they had developed in South Africa, was described by Innes CJ in Van Vuren
and Others v Registrar of Deeds 1907 TS 289 at 294 as being the entitlement ―to go
upon the property to which they relate to search for minerals, and, if he (the holder)
finds any, to sever them and carry them away‖. As these rights could not be fitted into
the traditional classification of servitudes with exactness - they were not praedial as
they were in favour of a person, not a dominant property - they were not personal as
they were freely transferable - they had to be given another name, and the Chief
Justice dubbed them quasi-servitudes, a label that has stuck. They are real rights.
Their exercise may conflict with the interests of the landowner. In a case of
irreconcilable conflict the interests of the latter are subordinated, for if it were
otherwise the grant of mineral rights might be deprived of content: see eg Nolte's case
supra at 315: Hudson v Mann and Another 1950 (4) SA 485 (T) at 488E-F. For so
long as minerals remain in the ground they continue to be the property of the
landowner: only when the holder of the right to minerals severs them do they become
movables owned by him: Van Vuren's case supra at 295. Those are the main
established common-law principles that are relevant.‘38
[26] From this we see that what have come to be referred to as common
law rights emerged from the combined work of the courts and various
legislatures over the many years in which mining has been a significant
activity in South Africa. As Schutz JA expressed it ‗an entire structure of
mineral and mining law had been evolved in South Africa both by the
Courts and various legislatures‘. That accords with the view of Lord
Sumner in the Privy Council in Union of South Africa (Minister of
Railways and Harbours) v Simmer and Jack Proprietary Mines Ltd,39
where in dealing with the nature of mynpacht rights he said:
‗Mynpacht rights are sui generis and are the creature of statutes, which have conferred
on the State the right to dispose of precious metals and invest the State‘s grantees with
the right to win and get them, the ownership right of the dominium notwithstanding.‘
It has been convenient down the years to describe the system of mining
law as giving rise to common law mineral rights, but that nomenclature
was probably adopted because of the role the courts played in
characterising such rights. Hitherto it has been unnecessary to explore the
underpinnings of the system and untangle its roots with a view to
discerning the source and nature of these rights and whether they are in
38 At 509A-510A.
39 Union of South Africa (Minister of Railways and Harbours) v Simmer and Jack Proprietary Mines
Ltd [1918] AC 591 at 600.
fact derived from the common law. That exercise must be undertaken in
the present case because it is those rights that Agri SA contends were
expropriated by the MPRDA.
[27] Section 5(1) of the 1991 Act, which provides the foundation for the
argument on behalf of Agri SA, conferred the right to enter upon the land,
to prospect and mine for minerals and to dispose of those that were
extracted upon holders of mineral rights. These are collectively referred
to as the right to mine. A number of subsidiary rights or entitlements flow
from the right to mine, particularly as between prospectors and miners on
the one hand and property owners on the other. Together with the right to
mine they constitute what were referred to as common law mineral rights.
The holders of mineral rights could deal with them by, for example,
selling them or bequeathing them to an heir, or could sterilise them by
debarring others from coming upon the land to engage in prospecting or
mining activities. The latter could be important to a farmer who wished to
prevent any disruption of the surface of the land in order to pursue
farming activities without interference. There is land that is valuable
farming land under which rich mineral deposits are to be found. Where
the owner held the mineral rights they were able to determine whether
farming or mining would take place.
[28] The concept of mineral rights is founded on the right to mine.
Does the right to mine have its source in the common law as Agri SA
claims? In order to answer this question it is necessary to delve into the
history of our mining law and the evolution of mineral rights. In
undertaking that task it is right that I confess my debt in particular to
Professor M O Dale and his doctoral thesis An Historical and
Comparative Study of the Concept and Acquisition of Mineral Rights
(hereafter Dale) and Dr L V Kaplan‘s thesis The development of various
aspects of the gold mining laws in South Africa from 1871 until 1967
(hereafter Kaplan).40 Much of what follows is derived from these sources
and from a consideration of the statutes to which they refer.41 For reasons
that will emerge the consideration of these issues will be divided into
different periods.
The common law
[29] Whilst there is little writing in Roman Law on the topic of mineral
rights Professor Dale says42 that there was a clear tendency to move away
from unrestricted ownership of minerals to a restricted ownership of land
on which minerals were found. This was linked to an appropriation by the
State of the authority to determine who would enjoy the right to mine,
initially in respect of public land and then in relation to private land. He
notes that:
‗This restriction of the landowner‘s full dominium in favour of freedom to mine, is a
tendency which, while founded in Rome, is discernible in almost all legal systems,
and is possibly attributable to the fact that the mining industry is generally of such
national importance that it is allowed to take precedence over the interests of the
individual landowner.‘
40 I have also derived much assistance from the extensive writings in various journals of Professors P J
Badenhorst and H Mostert; from the historical overview in B L S Franklin and M Kaplan Mining and
Mineral Laws of South Africa 1-21 and from Professor Badenhorst‘s doctoral thesis Die Juridiese
Bevoegdheid om Minerale te Ontgin in die Suid-Afrikaanse Reg. In the latter at p 3, fn 5 he makes the
point that it is unclear whether mining rights as separate real rights were known to the common law and
therefore adopts the expression ‗tradisionele mineraalreg‘ in preference to ‗gemeenregtelike
mineraalreg‘.
41 After the hearing of the appeal and the preparation and circulation of the draft of this judgment, we
were furnished with proof copies of Professor Hanri Mostert‘s book referred to in fn 4 supra. In large
measure it is based on an analysis of the origins of mineral rights that is similar to the one in this
judgment. It has provided a useful check on the conclusions reached in the judgment in regard to the
historical analysis, although my conclusions in regard to the right to mine go further than hers and are
not dependent upon characterising the critical provisions of mining legislation as regulatory.
42 Dale at 3.
In Roman times various devices were used by the State to exercise
authority over the right to mine. These included permits and
authorisations and the requirement to pay royalties in return for the grant
of a right to mine. In devising this system whilst ‗the right to mine … was
strictly under State Control‘ the interests of the State, the miner and the
landowner were balanced and protected. This approach was not unique to
the Romans. His conclusion is that:
‗The development in Roman Law from private ownership of the right to mine on
one‘s own land, to the control of the mining industry and the right to mine by the
State, is one which is not singular to the Romans, but is traceable in the systems of
most countries.‘43
[30] That view is shared by Professor Barton, who testified on behalf of
the Minister. He pointed out that absolute private ownership of minerals,
carrying with it a right to exploit those minerals is rare. According to him,
and this does not appear to have been disputed, there are two major
variations. Under the one (the Dominial system) the State is said to own
the minerals irrespective of ownership of the land on or under which they
are found. Under the other (the Regalian or royalty system) the State
controls the minerals and allocates the right to mine in return for the
payment of royalties. Sometimes this is justified on the hypothesis that
the minerals are not in private ownership at all but are owned by ‗the
people‘ collectively. There are echoes of this notion in the preamble to
the MPRDA where it states that South Africa‘s mineral and petroleum
resources ‗belong to the nation‘ and that the State is the custodian thereof.
[31] As Schutz JA pointed out there is little of use in the Roman Dutch
writers concerning mining and mineral rights because the Dutch countries
43 Dale at 12.
were not places where much mining occurred. Interestingly, however,
Voet 41.1.1344 says in regard to Holland‘s overseas possessions that the
right to all minerals and precious stones was vested in the Dutch East
India Company by a law of the Estates-General. This appears to reflect in
some measure the principle of the State exercising control over the right
to mine.45
[32] The common law principle is that the rights of the owner of
immovable property extend up to the heavens and down to the centre of
the earth. This is expressed in the maxim cuius est solum eius usque ad
caelum et ad inferos, usually abbreviated in academic writing to the cuius
est solum principle. Its origins are obscure as it is not to be found in the
Digest or elsewhere in the Corpus Iuris Civilis, but emerges in the writing
of the Glossator, Accursius, in the thirteenth century. It is not a principle
unique to the civil law tradition but is also applicable, with some
qualification in the light of modern conditions, under the English
common law.46 The principle continues to be recognised in our law
today,47 although we have not had occasion to consider some of the
difficulties in giving it unrestricted application in modern conditions. Its
application leads to the conclusion that the minerals in the soil under the
surface of immovable property are owned by, or, to use the Latin
expression, part of the dominium vested in, the owner of the property.48
Unlike the English law, where separate ownership of strata of the soil
44 Gane‘s translation, Vol 6, 192.
45 I doubt, however, whether it fully justifies Professor C G van der Merwe‘s comment, based on it,
that: ‗Sedert die Middeleeue word die reg op die ontginning van minerale as ʼn privilegie van die staat
beskou. Hierdie standpunt het in die Romeins-Hollands sowel as die Suid-Afrikaanse reg neerslag
gevind.‘ C G van der Merwe Sakereg (2ed, 1989) 566.
46 Star Energy Weald Basin Ltd & Anor v Bocardo SA [2010] UKSC 35; [2010] 3 All ER 975; [2011] 1
AC 380, paras 13 to 28 where Lord Hope discusses the brocard in some detail.
47 Anglo Operations Ltd v Sandhurst Estates (Pty) Ltd 2007 (2) SA 363 (SCA) para 16.
48 Le Roux & others v Loewenthal 1905 TS 742 at 745; Nolte v Johannesburg Consolidated Investment
Co Ltd 1943 AD 295 at 315.
under the surface is possible, such separation was never recognised in
Roman Dutch law,49 so that there could not be a separate ownership of
minerals before their extraction from the soil.
[33] In general the owners of property are free to do with it what they
wish. That is the foundation for the view that as a matter of common law
the right to mine vests in the owner of the land. Professor Badenhorst
identifies the entitlement to exploit the minerals in, on and under the land
as being one of the entitlements arising from ownership of land.50
Flowing from that entitlement, owners could permit others to prospect or
mine on their land, but that was in terms of personal contracts, not giving
rise to real rights. From the early days of mining in South Africa contracts
were concluded in terms of which the right to ‗prospect, dig, quarry and
exploit for, work, win, take out and carry away, and for his own account
to sell and dispose of minerals, metals or precious stones‘ was conferred
by landowners upon those who wished to prospect or mine.51 This
required ‗a progressive development of the law keeping place with
modern requirements‘.52
[34] The endeavour to accommodate the demands of mining within the
framework of contract and the common law gave rise to considerable
49 ‗Horizontal layers of the earth cannot with us, as they can in England, be separately owned.‘ per
Bristowe J in Coronation Collieries v Malan 1911 TPD 577 at 591; Anglo Operations Ltd v Sandhurst
Estates (Pty) Ltd supra para 16. The contrast between the English law and our own is discussed by
Dale, supra, Chapter 3.
50 P J Badenhorst ‗The re-vesting of state entitlements to exploit minerals in South Africa: privatisation
or deregulation?‘ 1991 TSAR 113 at 114. In accordance with the school of thought in property law that
there cannot be a right in a right, he eschews the use of the expression ‗rights‘ in relation to the things
that the owner may do preferring the expression ‗entitlements‘. The difficulty with this approach is that
when this entitlement is severed from the land it becomes an independent real right, which suggests
that its legal character is different prior to severance than after, a notion that poses considerable
conceptual difficulties.
51 This is the wording of the contract in Henderson & another v Hanekom (1903) 20 SC 513 at 522 of
which Kotzé J said that the conclusion of such contracts had become one of daily practice.
52 Per De Villiers CJ in Henderson & another v Hanekom op cit 519.
difficulties. Thus, for example, although these contracts were commonly,
including in legislation, referred to as leases of mineral rights, the
appropriateness of this nomenclature was questionable as they lacked the
hallmarks of a contract of locatio conductio.53 Another problem was the
nature of the rights afforded by such contracts. Personal rights, unlike real
rights, cannot be asserted against the world and this affected the security
afforded by such contracts. That was important because, from an early
stage it became apparent that substantial investment was needed to
develop mines. Such investment would not be forthcoming if, for
example, the insolvency of the landowner could destroy the rights on the
basis of which that investment had been made. The lack of separate
ownership of the minerals themselves gave rise to difficulties in
transferring them.54 None of these problems could be resolved until the
right to mine could be separated from the dominium of the land itself.
That occurred in the following stage of development.
The pre-Union legislation
[35] As is well known diamonds were discovered in South Africa in
1867. In 1871 the Kimberley pipes were discovered and in 1880, after
some uncertainty, Griqualand West was annexed to the Cape Colony. In
the South African Republic (to which I will for convenience refer as the
Transvaal) there were initial gold rushes in Pilgrim‘s Rest and Barberton.
The main Witwatersrand gold bearing reef was discovered on Langlaagte
farm in 1886, leading to the Witwatersrand gold rush and the
development of the gold mining industry, in which many of the leading
industrialists from the Kimberley diamond mines played a leading role.
53 Lazarus and Jackson v Wessels & others 1903 TS 499 at 506.
54 Dale at 82.
The first major attempt to explore for coal occurred in 1881 in the
Dundee area of the Colony of Natal. This lead to the establishment of
mines in that area and by 1903 more than half a million tons of coal was
being produced by collieries in Dundee and surrounding areas. Mining
accordingly became a significant part of the economic life of the Cape,
Transvaal and Natal and this resulted in legislation.
[36] In the Cape Colony, save to an insignificant extent, all rights to
precious stones, gold and silver were reserved to the Crown in terms of
s 4 of Sir John Cradock‘s Proclamation on Conversion of Loan Places to
Quitrent Tenure dated 6 August 1813.
‗Government reserves no other rights but those on mines of precious stones, gold, or
silver; as also the right of making and repairing public roads, and raising materials for
that purpose on the premises: Other mines of iron, lead, copper, tin, coal, slate or
limestone belong to the proprietor.‘
When Namaqualand was incorporated into the colony provision was
made by statute55 for the leasing and working of mineral lands in return
for payment of rent and a royalty. In 1883, shortly after the annexation of
Griqualand West, a comprehensive statute, the Precious Stones and
Minerals Mining Act,56 was passed. It provided for the taking out of
prospecting licences for precious stones, gold, silver and platinum on
Crown land or land where the right to those precious stones and minerals
was reserved. In the latter case the consent of the owner of the land was
not required. Discoveries had to be declared and this could then lead to
the area being proclaimed as a mine or alluvial digging always under
government control. Royalties were payable on the gross return from
mining. On private land not subject to a reservation of rights the owner
could allow prospecting or the extraction of minerals or precious stones,
55 The Mining Leases Act 10 of 1865 (Cape). This was amended from time to time thereafter.
56 Act 19 of 1883 (Cape).
but, if the number of claims exceeded a stipulated maximum, the area
could be proclaimed. Whilst in that event the owner would fix the amount
of the royalty, 10 per cent would be payable to the government. In later
years amendments were made to provide for compulsory prospecting57
and the rights of owners of land were varied. Lastly two new and
consolidated pieces of legislation were passed in 189858 and 189959 in
relation to precious metals and precious stones. The provisions of both
were similar. Prospecting licences could be obtained for both Crown and
private land, in the latter case with the consent of the owner, and on
discovery provision was made for proclamation with some protection for
owners. In 1907 similar regulation of prospecting for and mining of most
base minerals was enacted,60 whereby prospecting licences were issued
for prospecting on Crown land and if minerals were discovered a mineral
lease would be awarded subject to the payment of both rental and
royalties.
[37] In the Transvaal a Volksraad resolution of 1858 resolved that the
owners of land where minerals were found would be bound to sell or
lease the land to the government. Ordinance 5 of 1866 provided for the
exploitation and smelting of ores and the payment of a royalty to
government in respect of the proceeds. In 1871 the first of a series of laws
known generally as the Gold Laws and bearing the long title:
‗Regelende de ontdekking, het beheer en bestuur van de velden waarop
edelgesteenten en edele metalen in dezen Staat gevonden word‘61
was passed. 62 It provided that:
57 The Precious Stones and Minerals Mining Law Amendment Act 44 of 1887 (Cape).
58 Precious Minerals Act 31 of 1898 (Cape).
59 Precious Stones Act 11 of 1899 (Cape).
60 The Mineral Law Amendment Act 16 of 1907 (C).
61 An Act regulating the discovery, control and management of the fields where precious stones and
precious metals are found in this State. (My translation.)
62 Law 1 of 1871.
‗het mijnregt op alle edelgesteenten en edele metalen behoort aan de Staat.‘63
Discoveries of precious stones or precious metals had to be reported after
which the government would exercise control over the proclamation of
diggings and the activities of mining. Licences were required by anyone
wishing to dig for precious stones or precious metals. As Professor Dale
describes it:
‗The essence of the law was therefore the reservation of the right to mine to the State,
State control of diggings including private land, and the payment of licence moneys.‘
The first Gold Law was followed by a succession of laws all of which
conformed in essence to the same pattern, whilst building upon their
predecessors and adapting to new conditions.64 They all sought to strike a
balance between the interests of the State and those of the diggers and
landowners.65 The State needed the revenues that mining would generate
and accordingly needed to encourage the introduction of capital and
mining, whilst the majority of citizens (as opposed to uitlanders, as the
foreign miners were termed) were farmers, whose farming activities and
lives were disrupted by mining and who resented other people becoming
rich on the product of their land. As part of this balance provision was
made in the 1875 law for payments to be made to surface owners and for
the owners to have some control over prospecting on their own land.
[38] The 1883 law went further than its predecessors in providing that:
63 The mining right to all precious stones and precious metals belongs to the State. (My translation.)
64 Law 2 of 1872; Law 7 of 1874; Law 6 of 1875; Law 1 of 1883; Law 8 of 1885; Law 10 of 1887; Law
9 of 1888; Law 8 of 1889; Law 10 of 1891; Law 18 of 1982; Law 14 of 1894; Law 19 of 1895; Law 21
of 1986 and Law 15 of 1898. The full title of each law is set out in a table in Dr Kaplan‘s thesis at xi.
From Law 1 of 1883 they were entitled laws ‗op het delven van en handel drijven in edel metalen en
edelgesteenten in de Z A Republiek‘. The 1898 Law was the first to be described as ‗De Goudwet Der
Zuid-Afrikaansche Republiek op Het Delven van en Handel Drijven in Edele Metalen.‘.
65 Dale, at 194, draws attention (referring to the position in 1897) to ‗the delicate counter-balancing of
the potentially conflicting rights of the surface owner, mineral right holder, and mining title holder, as
also between the various mining title holders themselves‘ He also adopts the view of M Nathan in the
preface to Gold and Base Metals Laws (6ed, 1944) that these laws reflected the growing importance of
State supervision and intervention and the recognition of the interest of the public at large.
‗Het eigendom in en mijnregt op alle edelgesteenten en edelmetalen behoort aan den
Staat.‘
In other words the State would now claim ownership of precious stones
and precious metals as well as the right to mine them. This was a
departure from the cuius est solum principle as it contemplated ownership
of the minerals separately from the soil in which they were to be found.
More importantly it highlighted the view of the Transvaal that power over
these minerals vested in the State rather than the owners of private
property. Owners were afforded some preference by giving them a
concession to dig for gold on approved terms but that was all.
[39] In the same year a fundamentally important development occurred in
a law not primarily directed at mining and minerals, but at transfer duties.
It was Law 7 of 188366 which provided in article 14 that:
‗Geen afstand van regt op mineralen aanwezig te zijn of werkelijk aanwezig op eenige
plaats, zal wettig wezen zonder dat daaroover eene notarieele acte is opgemaakt en
behoorlijk geregistreerd ten kantore van der Registrateur van Akte.‘67
By s 23 of Law 8 of 1885 the requirement of notarial execution and
registration was extended to mynpachten. Innes CJ dealt with the earlier
provision in Jolly v Herman’s Executors68 in the following terms:
‗At the date when the agreement now sued upon was entered into, the law as to the
registration of mineral contracts was contained in Law No. 7 of 1883 and in
Volksraad Besluit No. 1422 of the 12th August, 1886. By sec. 14 of the statute it was
enacted that no grant of rights to minerals on any farm should be lawful unless
embodied in a notarial deed and duly registered in the office of the Registrar of
Deeds. Those provisions are strong and clear; … In view of the magnitude of the
interests affected by mineral grants in this country, and of the desirability of publicly
66 Tot regeling van de Betaling van Heerenregten.
67 No disposal of rights to minerals believed to be present or actually present on any property shall be
lawful unless a notarial deed thereover is prepared and properly registered at the office of the Registrar
of Deeds. (My translation.) The provision was replaced by s 16 of Law 20 of 1895 and thereafter by
s 29 of Proclamation 8 of 1902 which was to the same effect.
68 Jolly v Herman’s Executors 1903 TS 515 at 520.
recording such grants, so that all persons concerned might know them, it seems to me
that the policy of the legislature was quite as much to register these transactions as to
tax them. However that may be, the Volksraad did not long rest content with the
wording of the section above referred to. By Besluit No. 1422 of the 12th August,
1886, that body resolved that all contracts concerning the cession of rights to minerals
or about rights to mine (omtrent afstand van regten op mineralen of omtrent regten
om te delven) which did not conform to the provisions of the first paragraph of sec. 14
of Law No. 7 of 1883 should be ab initio void, and no one should have any action
whatever on such agreements. It is impossible after this lapse of time to say what case
occurred, or what facts came to the notice of the Raad between 1883 and 1886 which
led to this Besluit. But whatever the reason may have been which induced the
legislature to take action, the effect of the action which they did take was
unmistakable.
The policy embodied in the Law of 1883 was further extended, and in two directions.
It was made to apply to contracts which had not been covered by the statute, and the
result of non-compliance with the statutory direction was expressed in language still
stronger and more unmistakable than had been used before. The Law dealt only with
grants to mineral rights; the Besluit extended the provisions of the Law to all
agreements connected with such grants or with rights to mine. The Law declared that
non-notarial or unregistered contracts were unlawful; the Besluit directed that they
should be considered void ab initio, and should confer no rights of action of any kind
whatever.‘
[40] In 1884 the focus shifted briefly from gold to coal when, by
Volksraad resolution of 10 November 1884, the government was
authorised to grant licences for the working of coal mines on government
owned land. This was the first time that some control was taken of the
mineral rights in respect of base metals, perhaps as a result of similar
explorations in the Transvaal, which then included Vryheid, Utrecht and
Paulpietersburg, to those being undertaken in Natal. Another Volksraad
resolution in 1889 resolved that the government submit a law on base
metals to the Volksraad during the next session. That was done by way of
Law 10 of 1891, which provided, in a chapter intended to make
provisional regulation in respect of base metals, for licences to mine base
metals on proclaimed land. The chief feature of this appears to have been
that if the licence holder discovered precious metals or precious stones
they would receive a preference in being enabled to work their discovery.
[41] The 1885 law reverted to the original position in 1871, namely
that:
‗Het mijn-en beschikkiingsregt op alle edelgesteenten en edelmetalen behoort aan den
Staat.‘
Private owners were permitted to prospect on their own land and to
permit others to do so, but the government became entitled to appoint a
state mineralogist to conduct a survey, no doubt with a view to
identifying viable mineral deposits. The system of proclamation of
diggings was maintained and some preference was afforded to the
discoverer of minerals and the owner. The law clarified that by precious
metals gold was meant. Silver was added in 1887. A consolidating law
was passed in 1892, which required stone makers, rock quarries and chalk
burners to obtain licences for these activities on proclaimed land.
[42] In 1895 the Transvaal enacted its first comprehensive law dealing
with base metals and minerals in the form of the Base Metals and
Minerals Law 17 of 1895, which provided in s 1 that:
‗Het eigendomsrecht van en het beschikkingsrecht oor onedele metalen en mineralen,
zoowel op geproclameerde als ongeproclameerde gronden, behoort aan den eigenaar
van den grond.‘69
Whilst the entitlement to engage in prospecting and mining for base
metals was held by or was within the gift of the owner, a royalty would
69 The ownership of and right to exploit base metals and minerals on both proclaimed and
unproclaimed ground belongs to the owner of the ground. (My translation.)
be payable to the State. On government land licences were required and a
royalty was also payable. The law was replaced in 189770 but without
major change. Then in 1898 precious stones were separated from gold,
silver and quicksilver in two new statutes.71 Both statutes continued to
state, as had their predecessors, that the right to mine precious stones and
precious metals was reserved to the State. After the war ended in 1902,
the Crown Land Disposal Ordinance72 provided for the reservation of all
rights to minerals, mineral products and precious stones to the Crown on
land granted by the Crown. This was moderated in 190673 by making
such a reservation permissible but not obligatory.
[43] Prior to union in 1910 there were new ordinances dealing with both
precious stones74 and precious and base metals.75 As to the former
Professor Dale says it ‗preserved the philosophy that the right of mining
for and disposing of precious stones is vested in the Crown‘.76 As to the
latter it provided in s 1 that:
‗The right of mining for and disposing of all precious metals is vested in the Crown;
The ownership of and the right of mining for and disposing of base metals on Crown
or private land, is vested in the owner of such land.‘
This last of the Gold Laws, for the first time, referred to and defined the
expression ‗holder of the mineral rights‘, thereby giving statutory
recognition to the possibility of a separation of the right to minerals from
the ownership of the land. It also defined, for the first time in the Gold
Laws, the expression ‗mining title‘. The definition set out six different
sources of mining titles. All six flowed from statutory grants under the
70 Base Minerals and Metals Law 14 of 1897 (T).
71 Gold Law 15 of 1898 (T) and Precious Stones Law 22 of 1898 (T).
72 Ordinance 57 of 1903 (T).
73 By Ordinance 13 of 1906 (T).
74 Precious Stones Ordinance 66 of 1903 (T).
75 Gold and Base Metals Ordinance 35 of 1908 (T).
76 Dale at 197.
Gold Laws. In the 1908 law prospecting for precious metals required a
permit save in the case of the owner of land. On discovery of precious
metals the area could be proclaimed as a public digging, a mineral lease
could be granted or a State mine established. In order to obtain a mineral
lease the applicant would have to show that it had the capacity to mine.
These provisions were replicated in relation to base metals on Crown land
but otherwise the owner was permitted to prospect or mine for base
metals, or to permit others to do so. However, in terms of s 121, a royalty
was payable to the government on the extraction of base minerals.
[44] In Natal there were some early laws relating to mining, the first of
which involving a concession to a coal company, but the first major piece
of legislation was the Natal Mines Act 17 of 1887, which provided in s 4
that:
‗The right of mining for and disposing of all gold, precious stones and precious
metals, and all other minerals in the Colony of Natal, is hereby vested in the Crown
for the purposes of and subject to the provisions of this Law.‖
This went further than the legislation in the Cape and Transvaal in that it
reserved to the Crown the right to mine for and dispose of all minerals.
Prospecting required a prospecting licence and on the discovery of
minerals there could be public proclamation of diggings or a mining
lease. A linguistic, though not a practical, distinction was drawn between
a gold mining lease and a mineral lease. The Natal Mines Act emphasised
the search for gold and coal. Owners could obtain mining leases on
payment of rent and royalties. Thus from the outset the position in Natal
was that the government controlled the right to mine and dispose of all
minerals. This continued when the 1887 Act was replaced in 188877 and
again in 1899.78
[45] There was also legislation dealing with mining in the Republic of
the Orange Free State and, after 1902, the Orange River Colony, although
the major mining activities in that area lay in the future. This largely
followed the early Transvaal legislation. Separate provision was made in
relation to diamonds, where the State had the option to acquire, with the
consent of the owner, any farm on which diamonds were discovered as an
alternative to proclaiming diggings. In 1904 three pieces of legislation
were passed dealing with precious metals,79 precious stones80 and base
metals.81 These did not differ in principle from the legislation in the
Transvaal, save that in regard to base metals they provided that the owner
could prospect for them or consent to a prospector doing so, but in that
event the prospector had to obtain a licence, even though the prospecting
was to take place on private land. As in the Transvaal a royalty was
payable in respect of the extraction of base metals. Measures in the form
of licence fees for non-working of a claim or even in some circumstances
forfeiture of the claim were put in place to encourage mining. Like the
Transvaal an ordinance82 was passed reserving all rights, including the
right to mine, to precious stones and precious and base minerals on
alienated Crown lands to the Crown.
[46] At the end of this general and necessarily limited survey of the
pre-Union legislation governing mining in South Africa some conclusions
77 Natal Mines Act 34 of 1888.
78 Coal and Mines Act 43 of 1899 (N).
79 Precious Metals Ordinance 3 of 1904 (O).
80 Precious Stones Ordinance 4 of 1904 (O).
81 Base Metals and Minerals Ordinance 8 of 1904 (O).
82 Crown Land Disposal Ordinance 13 of 1908 (O).
can be expressed. In relation to precious stones, of which diamonds were
the most important, gold and silver (and in the Transvaal quicksilver83),
the right to mine was everywhere reserved to the State under legislation.
As Innes CJ expressed it in Greathead v Transvaal Government and
Randfontein Estate and Gold Mining Co Ltd:84
‗The policy and scope of the Gold Law of 1889, and its successors, was to vest the
sole right of mining for, and disposing of, precious metals in the State.‘
This statement was equally applicable to the other parts of the country
prior to Union. Natal went further in that the sole right of mining for and
disposing of base metals and minerals also vested in the State. In the
Transvaal and Orange Free State and parts of the Cape royalties were
payable to the government on the products of mining for base metals and
minerals. This is significant because a royalty is conventionally a
payment in return for the right to mine for and extract metals, minerals,
precious stones or oils and gas.85 Counsel for Agri SA accepted that this
was the nature of these royalties and that they were not a form of
taxation. In this way therefore the government in these areas conferred
and controlled the right to mine in relation to base metals and minerals as
well as precious stones and precious metals.
[47] The control that the governments of the four colonies and their
predecessors exercised over the right to mine in the areas under their
jurisdiction did not divest the owners of land on which minerals were
found of their rights of ownership in those minerals, prior to their being
extracted by the process of mining. Until then ownership remained with
83 Mercury in solid form that was used in the process of extracting gold from gold ore.
84 Greathead v Transvaal Government and Randfontein Estate and Gold Mining Co Ltd 1910 TS 276
at 288. This was a view consistently held by him. See Neebe v Registrar of Mining Rights 1902 TS 65
at 81 where he said: ‗The right of mining for and disposing of all precious metals has by statute been
given to the State.‘ See also Smith J at 90.
85 Xstrata & others v SFF Association, supra, para 18.
the owner of the land, but that ownership was restricted because the right
to mine was controlled by the State. As Innes CJ said:86
‗But that does not decide the question as to the ownership of the mining rights. Under
the scheme of all the gold laws, past and present, such rights are treated as distinct
from the dominium of the soil; they are vested in and disposed of by the State, and are
exercisable and enjoyed quite apart from the dominium.‘
[48] I conclude that from an early stage of South African mining
development the right to mine was a right that the State asserted for itself
and controlled. It then allocated to owners, prospectors, claims holders or
persons holding mynpachte or mineral leases in terms of legislation, the
right, in accordance with the terms of those grants, to exercise the right to
mine as it deemed appropriate. Professor Dale writes:87
‗The Mining Industry is of such great national importance in a country that is blessed
with mineral wealth, that from the earliest times, the State has sought to control it in
some form or another.
…
In South Africa, after 1850, each of the four colonies which in 1910 united to form the
Union of South Africa, developed its own system whereby the State controlled the
prospecting and mining of certain minerals, in particular precious metals and precious
stones …‘
In relation to any minerals to which these statutes did not apply he says
that ‗the ordinary common law provisions in regard to the acquisition of
mineral rights, a right to prospect and a right to mine … apply‘. That may
be so but the extent of this entitlement is unclear. It was not the case at all
for Natal. In areas other than Natal and some parts of the Cape the owner
was expressly permitted to prospect and cause base minerals to be mined.
In the Transvaal that was as a result of a specific provision in the Gold
86 Simmer and Jack Proprietary Mines Ltd v Union Government (Minister of Railways and Harbours)
1915 AD 368 at 396.
87 Dale at 171-2.
Law that gave the right to mine base minerals to the owner of the land on
which they were found and demanded payment of a royalty for the
privilege. In the Orange Free State the position was the same, except that
a prospecting licence was required as it was in parts of the Cape. In three
of the provinces royalties were payable on all or some base mineral
production. None of this is compatible with the notion that there were
substantial areas where the common law held sway. At the very least I
think Professor Mostert is correct in saying88 that: ‗The right to seek for
and extract minerals was, however, in many respects, the prerogative of
the state.‘
[49] A key event in the development of mining rights in South Africa
was the imposition of the requirement that disposals of such rights and
mynpachte had to be notarially executed and registered in the Deeds
Registry in order to be binding. The construction the courts placed upon
such registered rights facilitated the creation of separate mineral rights.
Originally there was nothing to say in what form registration should take
place. It appears from Houtpoort Mining & Estate Syndicate Ltd v
Jacobs89 that the Registrar‘s practice was to place such deeds in a register
of Diverse Akten, although in some instances he registered them at the
instance of the parties against the title deed in the Land Register.
[50] That case dealt with the earlier legislation referred to in paragraph
39, which was replaced in 1902 with a provision that ‗No lease of any
mijnpacht, claim or right to minerals …‘ would be valid unless notarially
executed and registered ‗against the title deeds of the property‘.90 Innes
CJ held that this applied to ‗those mineral prospecting contracts in return
88 Mostert supra 20.
89 Houtpoort Mining & Estate Syndicate Ltd v Jacobs 1904 TS 105
90 Section 29 of Proclamation 8 of 1902 (T).
for the payment of a yearly rent, and with or without option rights which
are so common in this country‘.91 He went on to say in regard to a right to
search for and win minerals that:
‗I must confess to having at first experienced considerable difficulty --- a difficulty
which pressed me during the argument in finding an appropriate juristic niche in
which to place this right. Rights of that nature are peculiar to the circumstances of the
country, and do not readily fall under any of the classes of real rights discussed by the
commentators. They seem at first sight to be very much of the nature of personal
servitudes; but then they are freely assignable. On further consideration, however, I
am of opinion that the difficulty I have referred to is more academic than real. After
all, the right in question involves the taking away and appropriation of portions of
realty; it implies the exercise of certain privileges generally attached only to
ownership, and it is treated by the Proclamation as a real right and is ordered to be
registered against the title. In my opinion; therefore, this right when registered
occupies the position of a real right …‘
[51] Thereafter, in Van Vuren v Registrar of Deeds,92 Innes CJ, having
pointed out that the rights so registered were neither personal nor praedial
servitudes, described them as quasi-servitudes. Separate registration of
any mining right was now required and they were effectively
characterised as real rights. In addition the 1908 Gold Law provided a
definition of mining title. In the same year provision was made for all
mining titles to be registered under the Mining Titles Registration Act.93
Thus was the foundation laid for a class of separate mineral rights held
separately from the ownership of land. This was a marked departure from
the common law and the operation of the cuius et solum principle. The
latter was ‗diluted by the fact that the landowner who had alienated the
91 Lazarus and Jackson v Wessels & others supra 506.
92 Van Vuren v Registrar of Deeds 1907 TS 289 at 295.
93 Act 29 of 1908.
mineral rights to another was denuded of any entitlement regarding
extraction of and disposal over such minerals‘.94
[52] Thus the ability to sever mineral rights from the dominium of the
land to which they related was afforded by statute, not the common law.
That meant they could be dealt with as separate real rights. Their
registration in the Deeds Registry against the title deeds of the property
provided protection that, as the Houtpoort Mining case demonstrated, had
not hitherto been available. The further concepts underlying our notion of
mineral rights were then developed by ‗the creative judgments‘95 of our
courts. Against that background I turn to consider the next important
period in relation to mineral laws from 1910 to 1967.
From 1910 to 1967
[53] Section 123 of the South Africa Act, 1909 provided that:
‗All rights in and to mines and minerals, and all rights in connection with the
searching for, working for, or disposing of minerals or precious stones, which at the
establishment of the Union are vested in the Government of any of the Colonies, shall
on such establishment vest in the Governor-General-in-Council.‘
The pre-Union statutes summarised above remained in force and did so,
subject to some amendment and supplementation, until their repeal by the
Mineral Rights Act 20 of 1967. During this lengthy period mining
became ever more important to the South African economy. Not
surprisingly therefore the legislative changes that did occur reflect an
expansion of the State‘s powers of control over mineral resources. In
three instances legislation was adopted that, like the Gold Laws and the
94 Mostert supra 7
95 The phrase is Professor Badenhorst‘s in his article ‗Towards a theory of mineral rights‘ 1990 TSAR
239 at 239.
Natal Mines Act, vested the right to mine and the right to exploit minerals
in the State. The first of these was the Precious Stones Act,96 which
provided in s 1 that ‗the right of mining for and disposing of all precious
stones is vested in the Crown‘. Precious stones were defined to include
diamonds, rubies, sapphires and any other substances proclaimed as such
by the Governor-General. Accordingly the legislation reserved to the
State the power by proclamation to extend its right to mine to other
materials. This was similar to the position under the 1908 Gold Law and
its predecessors, which authorised the extension of the class of precious
metals by way of proclamation. That power had been exercised to include
silver and quicksilver during republican days and was invoked in 1922 to
include platinum, iridium and the platinum group metals.97
[54] In 1942 the State assumed the right to mine for natural oil in terms
of s 2 of the Natural Oil Act,98 which provided that ‗the right to prospect
and mine for natural oil is vested in the State‘, although there was at that
time little anticipation of natural oil being discovered in South Africa.
This was at a time when off-shore drilling had only taken place in a very
few locations close to shore in very shallow waters. The advent of deep
water off-shore drilling came after the end of World War 2.99 Uranium
was a different matter and the State took control of that in 1948 under the
Atomic Energy Act, 100 which provided that
‗… there shall be vested in the State the sole right –
(a)
to search, prospect or mine for prescribed materials or in any manner to acquire
any such material or to dispose thereof;
96 Act 44 of 1927.
97 Kaplan 11.
98 Act 46 of 1942.
99 See A Brief History of Offshore Drilling a staff working paper prepared for the National Commission
investigating the BP Deepwater Horizon Oil Spill and Offshore Drilling available at
http://www.oilspillcommission.gov/sites/default/files/documents/A%20Brief%20History%20of%20Off
shore%20Drilling%20Working%20Paper%208%2023%2010.pdf.
100 Act 35 of 1948.
(b)
to extract or isolate any such material from any substance, or to concentrate,
refine or process, or to produce atomic energy.‘
Prescribed materials were defined as uranium, thorium or any other
material proclaimed by the Governor-General and included any substance
containing uranium, thorium or any other such material.
[55] Apart from these instances there were also developments in the
law relating to base minerals. No doubt this was influenced by the
expansion of mining in metals such as iron ore, manganese, chromium
and asbestos101 that had occurred from around the time of Union through
the 1920s and early 1930s. Whilst the exercise of the right to mine these
base minerals remained largely in private hands, steps were taken in the
Base Minerals Amendment Act102 to encourage and compel the holders of
such rights to exploit them. To this end the Minister was empowered to
give notice to a holder of such rights, who was not prospecting for
minerals pursuant to those rights or in the view of the Minister was not
doing so adequately, calling upon the holder to prospect adequately or to
cause such prospecting to be undertaken within six months, failing which
the Minister could call for tenders for and grant a prospecting lease over
the affected property. However, if this occurred, the royalties that would
be paid would enure for the benefit of the mineral rights holder. Base
minerals were comprehensively defined as including ‗any mineral
substance‘ with the exclusion of natural oil, precious stones, water and
precious metals as defined in the statutes governing the exploitation of
those. In order to avoid any overlap, once the Atomic Energy Act had
101 H P Hart ‗Asbestos in South Africa‘ J. S. Afr. Inst. Min. Metal vol 88, no 6, 185-196, which notes
that asbestos mining began in earnest in South Africa in the 1930s.
102 Act 39 of 1942.
come into operation the exclusions were extended to exclude material
covered by the Atomic Energy Act in 1951.103
[56] In the 1960s a process of consolidating and revising the statutes
governing mining in South Africa occurred. First there was the Precious
Stones Act.104 As with its predecessors it provided that the right of mining
for and disposing of precious stones was vested in the State. In other
respects it largely followed the pattern of earlier legislation. More
important, because of its broader scope, was the Mining Rights Act 20 of
1967 (the 1967 Act), which replaced all the pre-Union legislation and for
the first time created a single system of mining rights in South Africa as a
whole. Section 2(1) provided that:
‗Save as otherwise provided in this Act –
(a)
the right of prospecting for natural oil and of mining for and disposing of
precious metals and natural oil is vested in the State;
(b)
the right of prospecting and mining for and disposing of base minerals on any
land is vested in the holder of the right to base minerals in respect of the land.‘
The exclusion of material covered by the Atomic Energy Act was
continued by s 2(2). Mining title was defined105 as meaning:
‗any right to mine granted or acquired under this Act, and any other right to mine
granted or acquired under any prior law and existing at the commencement of this
Act, but does not include a right to mine for precious stones.‘
This language is significant because it contemplated that all mineral
rights would flow from a statutory grant or be acquired by virtue of
statutory provisions. That is inconsistent with the notion that such rights
flow from the common law. 106
103 By s 1 of the Base Mineral Investigation Act 31 of 1951.
104 Act 73 of 1964.
105 In s 1(xxiii).
106 Franklin and Kaplan, supra, 340 say that the sources of mining title under this definition are twofold
namely a right to mine granted under the 1967 Act or a statutory right acquired directly by the holder.
In either event the right flows from the statute not the common law. In the Mining Titles Registration
[57] Under s 7(1) of the 1967 Act no person was permitted to prospect
for precious metals on either State land or private land not held under
mining title, or for base minerals on unproclaimed State land not held
under mining title, without a permit. Under s 11 the Minister could
conduct an investigation into the precious metal, base metal or natural oil
content of any land. Under s 15(1), if the holder of mineral rights or
others having an entitlement to prospect did not do so or did not do so to
the Minister‘s satisfaction, the Minister could proceed along lines similar
to those under the Base Minerals Amendment Act, 1942. In other words
there was an inducement, and if necessary a compulsion, to explore for
and exploit minerals. Under s 25(2) the Minister was obliged to issue
mining leases in respect of precious metals to holders of mineral rights
over unproclaimed private land, to owners or lessees of unproclaimed
alienated State land and otherwise to the prospector. However the
entitlement of these persons to a mining lease was not absolute. The
Minister had to be satisfied that the precious metal, base mineral or
natural oil was present in workable quantities; that the scheme under
which it was proposed to carry on mining was satisfactory; and that the
applicant had, or had made arrangements to obtain, adequate financial
resources and capital to conduct the proposed mining activities.
[58] The 1967 Act preserved the power of the State President to
proclaim public diggings and the right of persons to peg claims in such
diggings. It dealt with prior rights under mynpachten and provided, in
s 75, for existing mining leases and mineral leases to remain in force as if
it had not been passed. Sections 76(1) and 77(1) provided for mining
Act 16 of 1967 the concept of a holder of a mining right is defined (s1(vi)) in relation to rights ‗granted
or acquired‘ under the 1967 Act or any other statute.
leases in relation to base minerals granted under the old Transvaal and
Cape legislation to be converted into mining leases under the 1967 Act.
[59] From 1910 onwards the rights established in the Transvaal for the
registration of mining titles were maintained and from time to time
extended.107 In addition the two Deeds Registries Acts108 made provision
for separate registration of some mineral rights, and, in 1967, the Mining
Titles Registration Act109 required that title to all mineral rights be
registered. Registration in turn required the development of principles
relating to the resolution of conflicts between the holders of mineral
rights and owners of the land or other rights holders or public authorities.
These disputes were resolved by the courts applying and adapting
common law principles to these novel rights. They did so by using
familiar legal terms such as lease and servitude while acknowledging that
they were not being used in their conventional sense. In the process the
legislative origin of these rights and the degree of departure from
common law principles became obscured.
[60] This tendency to obscure or overlook the key role of legislation in
the development of our law of mineral rights is well illustrated by the
analysis in the leading textbook on mining law in regard to the effect of
s 2(1) of the 1967 Act.110 That section dealt clearly and explicitly with the
right to mine in relation to precious minerals (ss 1(a)) and base minerals
(ss 1(b)). In doing so it followed the example of the 1908 Gold Law.
There seems little reason not to view this as a statutory allocation of the
right to mine in accordance with government policy of the day. One
107 Franklin and Kaplan, supra, 586.
108 Act 13 of 1918 and Act 47 of 1937.
109 Act 16 of 1967.
110 See footnote 106 and para61, post.
cannot view ss 1(a) as taking away the common law rights of landowners.
That would be inconsistent with over a century of history reflecting the
approach of successive governments in the different parts of the country
that it was for government, not landowners, to determine who should
exercise the right to mine, at least in regard to precious stones, precious
metals, natural oil and uranium and in some instances more. Insofar as
there can be any question of taking away rights vested in landowners by
the cuius et solum principle, that had occurred many years before when
mineral rights became capable of severance from ownership of the land,
and it was never reversed. Section 2(1)(a) clearly retained the position in
regard to precious metals and natural oil that the right to mine was vested
in the State and was allocated by statute.
[61] Looking at the structure of s 2(1) there seems no good reason to
think that it reflects an entirely different view in regard to the right to
mine base minerals. That is recognised by Franklin and Kaplan111 when
they pose the question whether this is a statutory grant of those rights or a
restatement of the common law.112 However, without further analysis
they then express the view that it is a restatement of common law rights.
In my opinion that is incorrect. Under the common law only the owner of
the land would have had the right to prospect for, mine for and dispose of
base minerals in accordance with the cuius et solum principle.
Section 2(1)(b) does not mention the owner of the land at all, although it
is the landowner who is the beneficiary of the cuius et solum principle.
The section conferred the right to mine in relation to base minerals on the
holder of the rights to base minerals, who might or might not have been
the owner of the land. If they were, the fact of ownership of the land
111 Supra 345-6.
112 The same question was posed, without being answered, by Caney J in S A Permanent Building
Society v Liquidator, Isipingo Beach Homes (Pty) Ltd 1961 (1) SA 305 (D) at 313C.
added nothing to their entitlement to prospect and mine. At most it
afforded greater control over the use to which their property could be put.
Where the rights were separated they were held under a title that had its
origins in legislation and was impossible to acquire at common law. I
conclude that s 2(1)(b) reflects an allocation by the State of the
entitlement to exercise the right to mine to holders of mineral rights to
base metals. The underlying principle is that the State has always viewed
it as its entitlement to control and allocate the right to mine. Even if one
accepts that Professor Dale is correct in saying that at Union in each of
the four provinces ‗the State controlled the prospecting and mining of
certain minerals‘ leaving some to be dealt with by landowners pursuant to
the rights enjoyed by owners under the common law, under s 2(1) the
State controlled the prospecting and mining of all minerals, precious and
base, and either reserved them to itself or allocated them to the holders of
mineral rights. Professor Mostert summarises matters correctly when she
says113 that:
The philosophy of state control over minerals during the period 1964 to 1990 resulted
in a system whereby the state, in which the right to mine was vested, conferred rights
to mine and prospect to mineral rights holders.‘
The 1991 Act
[62] There can be no doubt that the 1991 Act was intended to alter the
position in respect of mineral rights that had developed over the 150 years
that preceded it.114 Its genesis was a policy of privatisation and
113 Mostert supra 55.
114 In what follows I deal with the 1991 Act as if it had been applicable from the outset in the whole of
South Africa. That was not however the case, as in the so-called TVBC states and homelands the 1967
Act remained in force and in some instances there was local legislation. There was only a unified
system after the passage of the Mineral and Energy Laws Rationalisation Act 47 of 1994. A more
complete picture emerges from Mostert, supra, 51-53.
deregulation announced by the government of the day in 1987.115 Its
embodiment was s 5(1) the terms of which bear repetition:
‗Subject to the provisions of this Act, the holder of the right to any mineral in respect
of land or tailings, as the case may be, or any person who has acquired the consent of
such holder …shall have the right to enter upon such land or the land on which such
tailings are situated, as the case may be, together with such persons, plant or
equipment as may be required for purposes of prospecting or mining and to prospect
and mine for such mineral on or in such land or tailings, as the case may be, and to
dispose thereof.‘
The shift from s 2(1) of the 1967 Act lay in the fact that there was no
longer an express reservation to the State of any mineral rights, save
where those rights had not been severed from State land or where they
had been severed, but for some reason the State was still the holder of the
rights. Nor was there any reservation of rights to the owner of land. In
this iteration of South African mining legislation the holder of the mining
rights was the only person able to exercise the right to mine. Neither the
State nor the landowner was so entitled, save where they were also the
holder of the mining rights in respect of land.
[63] Kaplan and Dale116 expressed the view that this was a restoration
of common law rights in the following comment on s 5(1):
‗This has the effect, subject to the system of authorisations and subject to the special
provisions relating to alluvial diggings mentioned below, that the common law rights
of the holder of the rights to minerals revive to their full extent, Section 5(1) probably
having been intended to be a mere restatement of such common law … Accordingly,
the Minerals Act is more easily comprehensible if the principles formerly applicable
to base metals on private unproclaimed land are extended to all other minerals on all
other classes of land.‘
115 Badenhorst fn 50 supra, p 113, fn 7.
116 Supra, para 1.5.2, pp 5-6 and paras 4.2 and 4.3 pp 46-48.
Professor Badenhorst drew attention to two major difficulties with this
view.117 First, nowhere in the common law was an independent right to
mine identified or refined. The entitlement to mine arising from
ownership of land was recognised (presumably by reference to the cuius
et solum principle), but its recognition was indirect and flowed from the
principle that ownership of land gave the owner an entitlement to the
fruits of the soil. Second, a mineral right was not recognised as a separate
independent right by the common law. That was a development that had
its origin in legislation and statutory instruments that imported and
adapted British mining practice of reserving the right to mine to the State,
or recognised mineral rights as separate rights. Both the legislature and
the courts then categorised these rights by adapting familiar common law
terms, such as ownership, lease and servitude.118
[64] The 1991 Act vested substantial powers in the responsible
Minister. Although s 5(1) conferred the right to mine on the holders of
mineral rights, that was made subject to their obtaining authorisation in
terms of s 5(2). The extent of this power of authorisation is best
illustrated by the fact that it was thought necessary in s 5(2)(b) to provide
a special exemption from the obligation to obtain a mining authorisation
for occupiers of land who removed sand, stone, rock, gravel, clay or soil
117 P J Badenhorst ‗Artikel 5(1) van die Mineraalwet 50 van 1991: ʼn herformulering van die
gemenereg?‘ (1995) 58 THRHR 1 at 5-8.
118 Professor Badenhorst expresses it thus:
‗Tweedens word kategorisering van bevoegdhede voortspruitend uit 'n mineraalreg as sodanig nie in
die gemenereg aangetref nie aangesien 'n mineraalreg nog nie as afsonderlike en selfstandige saaklike
reg bestaan het nie. Hierdie ontwikkeling het sedert 1813 hier te lande plaasgevind, hoofsaaklik
vanweë wetgewing wat óf uitdrukking verleen het aan die Britse praktyk om tydens die uitgifte van
grond die mineraalregte ten gunste van die owerheid voor te behou, óf die selfstandigheid van
mineraalregte erken het.
Kategorisering van ontginningsbevoegdhede wat ingevolge die gemenereg bestaanbaar sou wees, het
eerder deur (i) die wetgewer en (ii) die howe na analogie van die inhoud van eiendomsreg, die
serwituut-figuur en wetgewing plaasgevind.
Die wetgewer het 'n belangrike rol gespeel in die nadere identifisering van die ontginningsbevoegdhede
wat vanuit ontginningsregte voorspruit deurdat hierdie bevoegdhede as selfstandige regte beskou is.‘
for farming purposes or for effecting improvements in connection with
farming purposes on the land they were occupying. That such an
exemption was necessary illustrates that the Minister had extensive
powers to control mining activities and could exercise those powers
through the grant or withholding of mining authorisations. The issuing of
mining authorisations was governed by s 9 and was dependent on the
Director: Mineral Development being satisfied that the proposed mining
would result in the optimal development of the minerals; that the
applicant had the capacity to rehabilitate the mine once mining activities
ceased; that the applicant had the ability, which obviously included the
financial resources, to mine optimally and rehabilitate the surface. In
terms of s 9(5) an application for a mining authorisation had to include
substantial information concerning the proposal. The Director would, in
terms of s 11(1), determine the duration of the authorisation and in terms
of s 63 the Minister was empowered to make regulations governing the
exploitation, processing, utilisation or use of or the disposal of any
mineral and the conditions attaching to any mining authorisation.
[65] The reaction of the Chamber of Mines to the original draft of the
Bill that became the 1991 Act was hostile. They said in a memorandum
that:
‗The State will maintain complete control of all mining for and disposal of all
minerals, precious as well as base; firstly, by laying down conditions for the grant of
permits and licences with power to vary such conditions; and secondly by being in a
position to dictate … that the manner in which the mining operations and marketing
of minerals are being conducted must be in the Minister‘s liking.‘
Whilst the Bill was amended thereafter, the position remained that it was
characterised by ‗a cradle to grave form of regulation‘.119 Professor
Badenhorst concluded that in its final form it embodied an increase and
not a decrease in State control because it extended control to all mining of
base minerals; it gave wide discretionary powers to officials and the
Minister and it maintained strict control of all previous state-held
entitlements to exploit minerals including base minerals.120
[66] These comments were in my view justified. To characterise the
1991 Act as restoring common law rights and relaxing state control of the
right to mine was erroneous. What the 1991 Act did was to confer on the
holder of mineral rights the exclusive right to exploit them, because only
the holder, or someone acting with the consent of the holder, could obtain
an authorisation to prospect or mine that would enable the rights to be
exploited. In itself that was not a major change, as the holders of mineral
rights, or persons acting with their consent, had in large measure under
the 1967 Act been the only persons entitled to exercise those rights,
subject to the exception mentioned below in relation to unexploited
rights. The change lay more in two matters. First there was no longer any
express reservation of rights to the State in respect of any category of
minerals, although the State was, for various reasons, a substantial holder
of mineral rights and would remain such. Second, the provisions directed
at securing the optimum exploitation of minerals were altered. The State
could no longer, as it had been entitled to do under the 1967 Act, grant a
prospecting lease in respect of unexploited mineral deposits against the
will of the owner of the land or the holder of the mineral rights, subject
119 Badenhorst, fn 46, supra, 129. Mostert, supra, para 5.2.1, pp 60-69 and para 5.4 at p 72 appears to
share this view, although she also seems to think that in some form this involved a restoration of
common law rights, a view I do not share.
120 Badenhorst op cit 129-130.
only to the payment of rental and compensation for damage.121 In terms
of chapter IV of the 1991 Act, the Minister could in very limited
circumstances, where the right to prospect could not be secured from the
rights holder, authorise prospecting and could also cause unexploited
deposits to be investigated. However, if it was thought desirable to
exploit them, either the land or the rights would have to be expropriated
and compensation paid. There is nothing in the record to indicate the
extent to which the Minister had exercised his powers under s 15 of the
1967 Act. It is accordingly impossible to say more than that the 1991 Act
diminished the powers of the Minister in this respect and expanded the
rights of the mineral rights holder. However, the exercise of mineral
rights was still closely regulated and there were provisions to bring about
the optimum exploitation and discourage sterilisation of viable mining
rights,122 as there had been in other legislation down the years.
[67] Three small and perhaps slightly obscure provisions make it clear
that the State was not, in the 1991 Act, abandoning the principle that the
right to mine vested in it and that it was for the State to allocate that right
as it deemed appropriate. The first is s 5(2)(a), which empowered the
South African Roads Board and provincial governments (in relation to
provincial roads) to search for and take ‗sand, stone, rock, gravel, clay
and soil‘ for road-building purposes irrespective of whether they held
mineral rights to those minerals. That would clearly diminish the rights of
holders of mineral rights in respect of those minerals. The second is s 6(3)
which, no doubt in response to the Trojan Mining case, authorised a
person who was exercising a right to mine in respect of one mineral to
121 Section 15 of the 1967 Act and particularly s 15(3). A prospecting lease was the gateway to a
mining lease. Franklin and Kaplan, supra, 79. In the case of a prospecting lease under s 15 the
prospector would be entitled to obtain a mining lease under s 25(1)(e) read with s 25(2)(c) of the 1967
Act.
122 Chapter IV of the 1991 Act.
mine and dispose of other minerals in respect of which they did not have
such rights, subject only to an obligation to compensate the holder of the
mineral rights in respect of the other mineral. Again that is a subtraction
from the rights of the second mineral rights holder. Third the exercise of
mineral rights was prohibited in certain areas in terms of s 7 of the 1991
Act. All of these illustrate to my mind the fact that in the 1991 Act, as in
previous legislation the State was asserting that the right to mine vested in
it and that it was for the State to allocate that right in the manner and to
the extent it saw fit.
Legal position prior to 2002
[68] It is apparent from this survey that what have come to be referred
to as common law mineral rights, in both judgments of the courts and
academic writing, do not in fact have their origin in the common law.
They originate largely from legislation governing the right to mine and
legislation that permitted personal rights obtained under contracts to be
registered as rights separate from the ownership of the land to which
those rights related. Their ‗common law flavour‘ has arisen from the
creative judgments of the courts in characterising and giving effect to
such rights within a framework provided by well-known categories of
rights in our law. This juristic pigeonholing cannot however be used to
disguise the true origins of such rights. Nor can the adoption by the courts
or, on occasions, the legislature, of the expression ‗common law mineral
rights‘ be taken as being any more than a convenient mode of referring
generally to such rights. It cannot alter their true source and nature.
[69] Underpinning the development of varying forms of mineral rights
over the years has been the basic philosophy that the right to mine is
under the suzerainty of the State and its exercise is allocated from time to
time, as the State deems appropriate. Apart from a few instances the State
has not claimed ownership of minerals separate from the ownership of the
land on or under which they are found. It has been content to allow such
ownership to remain with the landowner. However, ownership of
minerals without the right to exploit that ownership is of little value. At
most it confers on the owner the power to exclude others from exploiting
them. Even that has been of limited value over the years as early
legislation recognised the claims of diggers and proclaimed private land
as public diggings in order to ensure that the minerals were exploited for
the benefit of the State and its inhabitants. Later legislation has contained
provisions directed at ensuring the optimal exploitation of mineral rights.
This accords with a point made by Professor Dale123 that State
interference in relation to mining has aimed to:
‗… ensure the full exploitation of the mineral wealth of the country either by itself
mining or by throwing open the land to public prospecting and mining, thus ensuring
that sterilization of valuable minerals did not occur merely because private
landowners did not wish, or were not in a position, to prospect and mine their land.‘
[70] Two other important points flow from this analysis. The first is that
the value of mineral rights – and I recognise that for many years such
rights have had substantial value – has flowed from the entitlement the
holders have enjoyed under the legislation in force from time to time to
exercise, with or without some form of permit, licence or authorisation,
the right to mine. Mere ownership of minerals in the ground was only
valuable when owners could control access to their land for the purpose
of prospecting and mining for minerals. Where they could not, as in the
initial gold rush, where claims were pegged out on private land and the
123 Dale at 172.
state recognised such claims, the value of that ownership was diminished.
By 1991 the presence of minerals on or under land conferred no value on
the owner, unless the right to mine in respect of those minerals was also
vested in the owner of the property. Even then the value lay not in the
person‘s ownership of the land but in their being the holder of the mineral
rights. As Heher JA put it in Holcim:124
‗Under the Minerals Act 1991, (and previous to that Act) it was the mining
authorisation which conferred practical value on the mineral rights by authorising the
exercise of those rights.‘
[71] The value of mineral rights at any time lay first in the anticipation
that minerals in payable quantities were to be found on the property, and
second in the anticipation that under the then current system in terms of
which the State controlled the right to mine an appropriate permit, licence
or authorisation would be obtained. This situation pertains whenever
parties are negotiating a price pursuant to a possible sale or where, for a
purpose, such as rating, estate duty, compensation on expropriation or the
like, the market value of property must be assessed. The owner contends
that the land has potential for use for particular purposes that enhance its
value. The prospective purchaser or valuer will assess the likelihood of
the land being usable for that purpose. Often the potential use will require
some form of authority from a public authority.125 If so the likelihood of
the public authority granting that authority will affect the value of the
property.
[72] Accordingly the value of mineral rights will have ebbed and
flowed over time with every adaptation of the statutory scheme for the
124 Para 37.
125 See for example the discussion of this issue in Port Edward Town Board v Kay 1996 (3) SA 664
(SCA) at 674I-682H.
allocation of the right to mine. Prior to 1922 in the Transvaal the right to
mine for minerals other than gold, silver and quicksilver included the
right to mine for platinum. When platinum was proclaimed to be a
precious metal under the 1908 Gold Law any value ascribable to the
presence of platinum attaching to a right to mine base minerals in the
Transvaal would have declined. When the 1967 Act made mining leases
the key feature of the allocation of the right to mine, rights held under
different forms of mineral rights would have diminished in value, save to
the extent that they were preserved or could be converted into mining
leases. Agri SA‘s argument necessarily implies that each of these changes
involved an expropriation of mineral rights and would, if the present
constitutional protection had then existed, have resulted in compensation
being payable for the loss of the rights in question. But that comes close
to saying that any action that detrimentally affects the value of a right is
an expropriation, which is certainly not correct.
[73] The second point is that changes in the statutory system for the
allocation of the right to mine will affect those who have already received
permits, licences or authorisations under the current system differently
from those who merely have the right to apply for such permits, licences
or authorisations, but have not yet done so. Where rights have been
exercised, changes in the statutory system may detrimentally affect the
activities being conducted pursuant to the exercise of those rights. In the
latter case what is affected is the ability in the future to exercise those
rights by applying for a permit, licence or authorisation on an exclusive
or preferential basis. The difference is well illustrated by cases dealing
with the effect of statutory amendments on accrued rights in the context
of applications for permits or licences. Where an application has already
been lodged, a right to have it considered and decided in accordance with
the current licensing regime may arise. However, people who could have
made an application under the earlier regime, but did not do so and are
excluded under the new regime, have no cause for complaint.126 Applying
those principles in the present case the holders of unused mineral rights
could not complain that they had an accrued right to apply for an
authorisation to mine under the 1991 Act. Their entitlement to make such
an application was removed by the repeal of that Act. Of course that does
not provide an immediate answer to the question whether their mineral
rights have been expropriated, but it illustrates the fact that those who had
exercised their entitlement under the 1991 Act to obtain an authorisation
stand in a different position to those who had not. In turn that undercuts
the contention that in considering whether their mineral rights have been
expropriated they can be treated as being similarly situated.
What happened in 2002?
[74] The relevant provisions of the MPRDA were set out earlier in
paragraphs 8 and 9. The right to mine is now to be allocated to persons
who apply for that right in accordance with the provisions of the
MPRDA. No preference is given to the owner of land or the previous
holders of mineral rights, although they can compete with everyone else
for the allocation of a prospecting or mining right or a mining permit
under the MPRDA. Existing mineral rights are relevant only in relation to
the transitional provisions of the MPRDA contained in Schedule II. The
way in which they are dealt with depends on whether they had been
exercised under the 1991 Act or whether they had not. These provisions
need to be examined.
126 Director of Public Works & another v Ho Po Sang & others (1961) 2 All ER 721 (PC); Natal Bottle
Store-keepers and Off-sales Licences Association v Liquor Licensing Board for Area 31 & others 1965
(2) SA 11 (D); Industrial Council for the Furniture Manufacturing Industry, Natal v Minister of
Manpower and Another 1984 (2) SA 238 (D).
[75] In item 1 of Schedule II the following definitions appear:
‗―holder‖ in relation to an old order right, means the person to whom such right was
or is deemed to have been granted or by whom it is held or is deemed to be held, or
such person‘s successor in title before this Act came into effect;
―Minerals Act‖ means the Minerals Act, 1991 (Act No. 50 of 1991);
―old order mining right‖ means any mining lease, consent to mine, permission to
mine, claim licence, mining authorisation or right listed in Table 2 to this Schedule in
force immediately before the date on which this Act took effect and in respect of
which mining operations are being conducted;
―old order prospecting right‖ means any prospecting lease, permission, consent,
permit or licence, and the rights attached thereto, listed in Table 1 to this Schedule in
force immediately before the date on which this Act took effect and in respect of
which prospecting is being conducted;
―old order right‖ means an old order mining right, old order prospecting right or
unused old order right, as the case may be;
―unused old order right‖ means any right, entitlement, permit or licence listed in
Table 3 to this Schedule in respect of which no prospecting or mining was being
conducted immediately before this Act took effect.‘
[76] The statutory old order rights referred to in these definitions are
derived from the mineral rights that existed under the 1991 Act. That is
apparent from Tables 1, 2 and 3 to Schedule II. Depending on the nature
of the previous right it translated into either an old order mining right, or
an old order prospecting right or an unused old order right. I accept, as
this court held in Holcim, that these are new statutory rights not merely
the previous rights under a different guise. However, the argument
presented by Agri SA is that not only were common law mineral rights
destroyed by the MPRDA, but that, in substance, those rights have been
acquired by the State. In paragraph 24 I made the point that in order to
determine whether there has been either a deprivation of rights held by
the holders of mineral rights or an acquisition of those rights by the state
it is first necessary to consider the nature of mineral rights. The next step
in the analysis must be to compare the position of holders of mineral
rights in terms of those rights and their position after the changes brought
about by the MPRDA. That deals with the issue of deprivation. Then the
position of the state insofar as the rights it held before and after the
enactment of the MPRDA must be considered in order to determine the
issue of acquisition.
[77] The holder of an old order prospecting right was dealt with under
item 6 of the Schedule, which is headed ‗Continuation of old order
prospecting right‘. Under item 6(1) the old order right continued for two
years. In other words for two years a person who held one of the rights
falling within the concept of an old order prospecting right continued to
enjoy precisely the same rights they had enjoyed under the 1991 Act,
save that they were unable to transfer their old order prospecting right to
a third party as they had been able to do previously. During the period of
two years they were entitled, but not obliged – they were free to allow the
right to lapse if they wished – to lodge the right for conversion in terms of
item 6(2) and the Minister was obliged to convert the right into a
prospecting right under the MPRDA. The process of conversion was
straightforward. Once the holder of the old order prospecting right
complied with the requirements of item 6(2) the Minister was obliged
under item 6(3) to convert the old order right into a prospecting right
under the MPRDA. In terms of s 5(1) of the MPRDA, such a prospecting
right is a limited real right entitling the holder to prospect on the land to
which it relates subject to the conditions attaching to that right. The right
endures for the period provided in s 17 of the MPRDA and is subject to
renewal in terms of s 18 of the MPRDA.
[78] The position in respect of those mineral rights existing under the
1991 Act that were translated into old order mining rights in terms of
Schedule II was similar. They were dealt with under item 7, which this
court analysed in Holcim. It is unnecessary to repeat that analysis. Unless
the right was abandoned the holder of the old order right would convert it
into a mining right under the MPRDA with all the advantages flowing
from such right as set out in s 5, read with ss 23 and 24, of the MPRDA.
The intention was, as Heher JA said in Holcim127 to achieve ‗the seamless
continuation of existing mining operations which are tested … by the
scope of the licence pursuant to which the operations were being
conducted‘. The same was true of prospecting activities under the 1991
Act.
[79] Unused old order rights were dealt with under item 8 of the
Schedule. These rights were continued for a period of one year only.
During that year item 8(2) gave the holder of such rights ‗the exclusive
right to apply for a prospecting right or a mining right, as the case may
be‘ in terms of the provisions of the MPRDA. Accordingly the holder of
such rights instead of having the exclusive right to apply for an
authorisation to exercise such rights, as was the case under the 1991 Act,
was given an exclusive right to apply for either a prospecting right or a
mining right under either s 16 or s 22 of the MPRDA. The consideration
of any such application then followed the procedures prescribed under the
MPRDA and the application was dealt with and disposed of under the
MPRDA. If a right was granted the holder of the new right would be in
the same position as a person who had converted an old order prospecting
or mining right as the case might be.
127 Para 26.
[80] The operation of Schedule II served to provide former mineral
rights holders, who had already started to exploit those rights, with rights
that enabled them to a greater or lesser extent to continue to engage in the
activities that they were engaging in under the 1991 Act. It is correct that
the allocation of the right to mine was now entirely at the disposal of the
State acting through the agency of the Minister, with the holder of
mineral rights no longer enjoying any preferent or exclusive right to such
an allocation, but the transitional provisions resulted in those who had
been allocated a right to mine under the 1991 Act and exercised it
continuing to enjoy it under the new dispensation. It is so that the terms
upon which they did so would have altered to some extent, but they
remained in possession of the right either to prospect or mine for, and in
the later case to dispose of, minerals as before. Those with unused rights
were afforded the opportunity to exercise those rights but would lose
them if they did not exercise that opportunity. It is against that
background that I turn to deal with the third question raised by this case
namely whether the MPRDA expropriated mineral rights.
Was there an expropriation of mineral rights?
[81] It is helpful at the commencement of this part of the judgment to
remind oneself of the full ambit of the contention that is being advanced
by Agri SA. It is that all mineral rights in existence under the 1991 Act at
the time the MPRDA came into operation were expropriated under that
Act. Central to this is the contention that the rights were taken away from
the holders of those rights and in substance vested in the Minister as
representative of the State. At the heart of those mineral rights and central
to all of them is the right to mine in the sense I have used it throughout
this judgment as the right to prospect and mine and dispose of the
minerals extracted from mining. I start therefore by considering what has
happened in regard to the right to mine under the MPRDA.
[82] Agri SA‘s argument is based upon the hypothesis that mineral
rights were common law rights and that extensive common law rights
were taken away and replaced by lesser statutory rights in the gift of the
Minister. This was the approach adopted by the trial court, no doubt
because it was the approach adopted by counsel. However, as I have
endeavoured to show, that is an incorrect characterisation of the right to
mine that lies at the heart of the debate. A convenient shorthand
terminology, useful in the sphere of the type of disputes that our courts
had over the years to deal with in cases involving mining and minerals,
has been erroneously construed as identifying the source of mineral
rights. It is on that basis that it is said that the right to mine flows from the
common law and has been expropriated.
[83] This contention is not borne out on analysis, whether one‘s starting
point is the common law or the history of mineral rights in South Africa.
Taking the common law as the starting point it is said to be founded in
the cuius et solum principle. However, that principle has no application
once mineral rights are severed from the ownership of the land to which
they relate. That severance was not effected by the common law. It came
about in the first instance through the legislation that required the
contracts embodying personal rights to prospect or mine for minerals to
be registered. Then the courts construed the resulting registered rights as
real rights separate from the dominium of the land. Their separate
character was preserved in subsequent legislation dealing with mining
and with the registration of mineral rights. One cannot then ascribe the
origin of separated mineral rights to the workings of the common law.
[84] Looked at from the perspective of the history of mining legislation
in South Africa, that history demonstrates that it has been the policy of
successive governments, be they colonial, those of the old republics, the
union government or the former regime in South Africa before the advent
of democracy, that the State controlled the right to mine and its exercise.
In other words the State has always asserted that in its broad sense, as
opposed to the narrower use of the word in relation to rights enjoyed by
individuals, the right to mine is vested in the State and that the State
either exercises or allocates that right.128 The manner in which this has
been done has varied down the years, but the central philosophy in regard
to control by the State has been consistent.
[85] It seems to me that the key issue is not whether, as a result of the
exercise of the power to allocate the right to mine, that right was placed
in the hands of persons in the private sector, which is inevitable unless the
mines are nationalised. It is rather whether the right vested in the State,
along with the power to allocate the right to others, or whether it vested in
individuals arising from their ownership of land or some other private
source. In my view it was the former. That being so the MPRDA is
merely the latest in a long line of legislation and statutory instruments in
South Africa that affirms the principle that the right to mine is controlled
by the State, and allocated to those who wish to exercise it. The right to
mine remains, as it has always been, ever since mining became an
important part of the economy of South Africa, under the control of and
128 It is in this sense that I understand Professor Dale to refer to the right to mine being vested in the
State. It is also the sense in which I understand Professor Barton to use it in describing comparative
legislative systems.
vested in the State, which allocates it in accordance with current policy.
That being so the first requirement of an expropriation, namely that there
be a deprivation of property, is not established insofar as the right to mine
is concerned. That right was never vested in the holders of mineral rights,
but was vested in the State and allocated to those holders in accordance
with the legislation applicable to it from time to time. It could not
therefore be expropriated although rights flowing from the State‘s
allocation of the right to mine could.
[86] Whether this involves the incorporation into South African law of
elements of the public trust doctrine that has some application in the
United States of America seems to me neither here nor there. Nor do I
think it necessary to try and extract additional meaning from the
provisions of the MPRDA that describe the State as the custodian of
South Africa‘s mineral and petroleum resources and say that these belong
to the nation. Once it is accepted that the State is vested with the right to
mine and is able to allocate that right in relation to the country‘s mineral
resources, it is I think clear that the State is exercising sovereignty over
those resources. That the State must exercise its powers on behalf of the
nation goes without saying in a constitutional democracy. The statements
that the mineral and petroleum resources of the country ‗belong to the
nation‘ and that the State is the custodian of these resources, encapsulate
in non-technical language the notion that the right to mine vests in the
State. There is nothing to be gained by attempts to dissect these concepts
and categorise them in terms of private law concepts such as ownership.
It suffices to say that recognising that the right to mine is vested in the
State is wholly in accordance with these statements.
[87] Accepting that the right to mine has remained vested in the State,
and that the mineral rights that existed prior to 2004 are no more, is there
any other basis upon which the contention of a wholesale expropriation of
mineral rights can be sustained? The trial court approached the matter by
way of a before and after comparison of the position of holders of mineral
rights. That was premised on the proposition that the right to mine vested
in the mineral rights holder by virtue of the inherent nature of those rights
rather than as a result of a statutory allocation of the right to mine. The
first difficulty is that the premise is faulty. The second, arising from the
before and after approach, is that one is not then comparing a lost
common law right with a statutory grant. The comparison is between two
statutory grants, namely the rights enjoyed under the previous statutory
dispensation and those enjoyed under the present dispensation.
[88] Reference to the transitional provisions demonstrates that this
alternative approach cannot assist Agri SA. The preamble to the MPRDA
reaffirms ‗the State‘s commitment to guaranteeing security of tenure in
respect of prospecting and mining operations‘. Section 2(g) of the
MPRDA identifies one of its objects as being to ‗provide for security of
tenure in respect of prospecting, exploration, mining and production
operations‘. Item 2 of Schedule II repeats this as being one of the objects
of the transitional provisions and records that one of its aims is to give to
holders of old order rights ‗an opportunity to comply with this Act‘,
which it seeks to achieve by way of the provisions summarised in
paragraphs 76 to 78. These provisions make it clear that the rights that
former mineral rights holders received as a result of the conversion of
their old order rights overlapped to a large extent with those they
previously enjoyed.
[89] This reality was highlighted by counsel when he submitted that the
large mining houses had not brought claims under item 12(1) because
they had suffered no loss. However, the reason they suffered no loss is
because, subject no doubt to some variation, they continued to enjoy the
same or similar rights to those they held prior to the MPRDA coming into
operation. That accords with what Du Plessis J said in paragraph 81 of his
judgment in the trial court, namely that the prospecting and mining rights
granted under the MPRDA are ‗a real right with substantially the same
content as the rights the holders of quasi-servitudes had before the
MPRDA‘. If one uses the mining houses as an example and asks whether,
once the MPRDA came into operation, they continued to enjoy, by way
of an allocation from the State, the right to mine, to extract minerals and
dispose of them, the answer would be in the affirmative. Reference to the
reports of the companies listed in the resource sector of the JSE would
reveal that this was the case. That being so, the MPRDA can at most have
deprived them of some part of the mineral rights they previously
possessed. Prior to 1 April 2004 they were mining in terms of their
mineral rights and authorisations granted under the 1991 Act. From
1 April 2004 they were mining in terms of old order mining rights in
terms of Schedule II. After conversion they continued mining, but in
terms of mining permits issued under the MPRDA. I find it impossible to
say in the light of the continuity of their mining activities that they were
at any stage deprived of their right to mine. It is true that the source of the
right is now different but the substance is the same.
[90] The entitlement of holders of old order prospecting and mining
rights to convert their rights into prospecting and mining rights in terms
of the MPRDA is destructive of the contention that the content of the
mineral rights translated into old order rights was removed by the
MPRDA. The aim was to afford security of tenure and that was largely
achieved by the mechanism of translating existing mineral rights into old
order rights and providing for their conversion. I accept that the rights
now enjoyed may not be precisely the same as those previously enjoyed.
That means no more than that some part of the rights previously enjoyed,
or some components of those rights when viewed as a whole, have been
removed. It is not, however, compatible with the wholesale removal of
the content of mineral rights. Nor is it compatible with the substantial
content of mineral rights having vested in the Minister. Accordingly both
elements of an expropriation – deprivation and acquisition – are absent. I
do not exclude the possibility that some holders of rights may be able to
advance a case that, because of their own particular circumstances, there
has been an expropriation of some or all of the rights they previously
enjoyed. However, we are not concerned with such a case but with a
contention that there was a blanket expropriation of mineral rights. That
case cannot be sustained in the light of the transitional provisions.
[91] I have borne in mind that there are no longer any mineral rights, in
the previously understood sense, that are capable of transmission to
others without involvement from the side of the state. That does not assist
Agri SA‘s argument. If existing rights have been converted into
prospecting or mining rights under the MPRDA they are capable of being
transferred, although this requires ministerial permission.129 If they have
not been converted then it is the absence of the rights themselves, rather
than the absence of transmissibility, that is the source of loss. The fact
that the transmissibility of rights under the new dispensation is restricted
does not support the notion that there has been a deprivation of rights, in
the absence of evidence indicating how this impacts on the value of the
129 Section 11.
newly acquired rights. A substantial, if not the major, portion of mining
in South Africa is undertaken by large companies. If the mine is valuable
the company exploiting it will not want to give up their mining right.
When a transfer is sought it must be granted provided the transferee is
capable of carrying out its obligations under the right and satisfies the
requirements set out in the MPRDA for the allocation of such a right
initially. It may transpire that in practice there is little difficulty in
transferring rights in the new dispensation. If it presents a problem there
may be commercial means of circumventing the difficulty. I am unable to
see that the issue of transmissibility of rights has a bearing on the
question whether all mineral rights have been expropriated. Nor do I
think that new provisions in regard to the duration of rights affects
matters. Rights may now be of a fixed duration rather than indefinite, but
they are renewable and whether their duration matters will depend upon
how long it will take to mine them to exhaustion. Furthermore, as
Professor Mostert points out,130 rights obtained on conversion may endure
for longer than the rights that were held before.
[92] The foregoing analysis demonstrates that the situation of different
holders of mineral rights will differ, depending upon whether they
converted their old order rights and the result of conversion. In some
instances advantages may flow to one party from a conversion of rights as
the facts of Xstrata & others v SFF Association illustrate. On the other
hand, as Xstrata, the recipient of the advantage, urged upon the court, that
may have been a situation where there was an expropriation. I do not
suggest that this was necessarily the case, but mention it to illustrate the
point that different factual circumstances may warrant different
conclusions on the issue of expropriation. Similarly, the fact that the
130 Mostert, supra, 99.
owner of land may no longer be able to prevent the exploitation of
minerals on their property may be a considerable burden for a farmer who
wishes to preserve the land for farming purposes, but may be of little
concern, save for the lack of financial benefit flowing from these
activities, to another landowner. The point is that each mineral rights
holder will have been affected differently by the advent of the MPRDA.
That is inconsistent with the notion of a blanket expropriation of all
mineral rights.
[93] In the trial court the judge concluded on this aspect of the case that:
‗From a reading of sections 3 and 5 it is apparent that, when the MPRDA commenced
the State, acting through the Minister, was vested with the power to grant rights the
content of whereof were substantially the same as, and in some respects identical to,
the contents of the quasi-servitude of the holder of mineral rights. It follows that, by
enactment of the MPRDA, the State acquired the substance of the property rights of
the erstwhile holders of quasi-servitudes. The fact that the State‘s competencies are
collectively called custodianship does not matter.‘
[94] I respectfully disagree. The entire structure of the transitional
provisions of the MPRDA was directed at securing that the holders of
mineral rights would continue to enjoy broadly the same rights under the
new mining dispensation once those rights were translated into old order
prospecting and mining rights and converted under the MPRDA. The
process of converting those rights was largely formal and the Minister
was obliged to convert, provided the rights holder complied with the
limited and objective requirements for conversion. The rights acquired on
conversion were not acquired in consequence of an exercise of the
Minister‘s power to grant rights under ss 17 and 23 of the Act. They were
acquired because the MPRDA made specific provision in Schedule II for
their continued enjoyment by the holders of mineral rights through the
process of conversion. In substance the rights remained largely the same,
albeit with a different provenance. The fact that the MPRDA conferred
upon the Minister the power to grant such rights to new applicants in
respect of properties where no such rights exist, does not mean that in
relation to existing prospecting and mining rights they were taken away
from holders of mineral rights, acquired by the Minister and then granted
again to the original holders. The conversion process provided the means
whereby in substance existing mineral rights holders retained the
entitlements they previously had subject to some variation, the
importance of which would vary from case to case. They were neither
deprived of their rights nor were the rights they previously enjoyed
acquired by the State in the person of the Minister.
[95] That conclusion is fatal to the contention that the MPRDA
expropriated all so-called common law mineral rights. It plainly did not
do so in respect of existing prospecting and mining rights that were being
used. It is appropriate, however, to consider whether it effected a
narrower expropriation of all unused mineral rights, into which category
Sebenza Mining‘s rights fell. In the trial court, whilst confining himself to
the coal rights of Sebenza Mining, the reasoning of Du Plessis J involves
upholding the broad submission that the MPRDA expropriated all
mineral rights. However, in his judgment at the exception stage of this
case131 Hartzenberg J appears to have approached the matter on a
narrower basis that all the rights translated into unused old order rights, as
specified in Table 3 to Schedule II, were expropriated.
[96] Hartzenberg J referred to common law rights in the same fashion as
they were referred to at the trial. He then analysed item 8 that provides
131 Footnote 3, supra.
for the conversion of unused old order rights. He correctly said that the
application for conversion was one in terms of either s 16 or s 22 of the
MPRDA and drew attention to the fact that under the 1991 Act there
would have been no compulsion on holders of such rights to seek
authorisations to exploit them. They were free to let them lie fallow.
Under the MPRDA they either had to apply for their conversion or lose
them entirely. Such an application was not a formality and not all
applications would succeed. Leaving on one side his erroneous view that
item 12(1) by necessary implication recognised that an expropriation had
occurred, Hartzenberg J said that, apart from the transitional provisions,
mineral rights were not recognised in the MPRDA and concluded that
item 8 was no more than a means of mitigating loss and did not prevent
there from being a deprivation of existing mineral rights and their
acquisition by the State.
[97] I agree that item 8 proceeds on a different footing from items 6 and
7, which deal with rights that were already being exploited when the
MPRDA came into operation. I agree also that it forced the holders of
such rights to decide whether to try and make use of them on penalty of
deprivation. However, that was only a more stringent approach by the
State to compel holders of mining rights to exploit them than that adopted
in previous legislation. My difficulty is with the proposition that item 8
was merely a means whereby holders of unused old order rights could
mitigate the loss they had already suffered in consequence of an
expropriation of their rights. That overlooks the consequence of a holder
of such rights successfully applying for either a prospecting or a mining
right as contemplated in item 8. In that event they would hold greater
rights than they had enjoyed under the 1991 Act. Under the earlier Act
their unused rights would only have been of value to the extent that they
were capable of being exploited by way of an authorisation to prospect or
mine and the holders of such rights had an exclusive right to obtain that
authorisation. Under item 8 they not only retained that preference for a
year, but would acquire more extensive rights if they sought and obtained
a prospecting or mining right. The imposition of a time limit did not
deprive them of their rights. A failure to apply for a right to exercise them
would.
[98] Hartzenberg J also attached some weight to the fact that applicants
seeking to proceed under item 8 would have to pay a fee; undertake an
environmental impact assessment and satisfy the Minister that they had
access to adequate funds to prospect or mine. However that overlooks the
fact that in terms of s 9(3)(a) and (c) of the 1991 Act an applicant for an
authorisation to mine would have had to satisfy the Minister in regard to
the manner and scale of the proposed operations and their ability to mine
optimally as well as their ability to rehabilitate the surface after
exhausting the minerals being mined. In terms of s 39 of the 1991 Act
they would have had to submit an environmental management
programme. It is by no means clear that there would have been a great
deal of difference between the two situations. Similarly it is not clear that
there would be any great difference between an application for a
prospecting authorisation under s 6 of the 1991 Act and an application for
a prospecting permit under s 16 of the MPRDA. I do not think that these
issues have any impact on the question whether the MPRDA effected an
expropriation of those mineral rights that were translated into unused old
order rights.
Conclusion
[99] It is as well at the conclusion of a lengthy judgment to summarise
what it decides and make it clear what it does not decide. What it decides
is that the right to mine in South Africa, in the sense of the right to
prospect and mine for minerals and extract and dispose of them, is vested
in the State. It is allocated by the State in accordance with policies that
are determined from time to time and embodied in the applicable
legislation. The MPRDA is the current iteration of that right. The
contention that all mineral rights that existed in South Africa under the
1991 Act were expropriated under the MPRDA is incorrect. The
judgment does not exclude the possibility that the MPRDA may have
effected an expropriation of certain rights that existed under the previous
dispensation, but holds that whether it did so depends not on any general
expropriation of mineral rights, but on the facts of a particular case. Nor
does it decide that the effect of a broadly regulatory statute cannot be to
effect an expropriation, but leaves that open for the future. In fact the
judgment is not concerned with the regulatory impact of the MPRDA as
opposed to its substantive treatment of the right to mine. I do not find it
helpful to pose the issues in this case as being ‗regulatory vs
expropriatory‘.132 In my view the right to mine, as opposed to its
allocation, is not a regulatory matter, but a matter of the substantive
powers of the State in contrast to private law rights to property.
[100] That means that the judgment in favour of Agri SA must be set
aside. It is unnecessary in those circumstances to express any view on the
assessment of the amount of compensation awarded by the trial court.
There was an issue over the wasted costs occasioned by an amendment
brought by the Minister at the close of her case. This compelled Agri SA
132 It is here that I part company from Professor Mostert in her analysis in Chapters 6 to 8, which
locates the right to mine within a regulatory framework for mining.
to call additional witnesses and incur additional costs. The Minister did
not dispute that a separate order should be made in terms of which she
should be responsible for these wasted costs but suggested that they be
fixed as the costs of one day of the trial. In my view it is more appropriate
to leave that issue to the taxing master.
[101] In the result the following order is made.
The appeal is upheld with costs, such costs to include those
consequent upon the employment of two counsel.
The order of the court below is set aside and replaced by the
following order:
‗(a) The plaintiff‘s claim is dismissed with costs, such costs to
include those consequent upon the employment of two counsel, but
excluding all costs incurred in respect of or relating to the
amendment referred to in paragraph (b) below.
(b) The defendant is ordered to pay the plaintiff‘s wasted costs,
including the costs consequent upon the calling of witnesses and
the hearing of evidence, occasioned by its application to amend its
plea on 8 March 2011, such costs to include those consequent upon
the employment of two counsel.‘
M J D WALLIS
JUDGE OF APPEAL
NUGENT JA (MHLANTLA JA concurring)
[102] I have read the judgment of my colleague and I agree with the
orders that he proposes. However, I reach my conclusion along a slightly
different path and I find it necessary to set out my approach to the matter
briefly.
[103] The mineral rights that are in issue in this appeal are mineral rights
on private land that were not being exploited, and in respect of which no
authorisation to prospect for and to mine the minerals had been issued, at
the time the MPRDA took effect – what are referred to in the Act as
‗unused old order rights‘. Although the argument advanced on behalf of
Agri SA was said by its counsel to apply as much to ‗old order rights‘
that were being used when the Act took effect, nonetheless I confine
myself to unused rights, bearing in mind that holders of other rights are
not parties to these proceedings and we have not had the benefit of
hearing what they might otherwise have said.
[104] I am grateful to my colleague for his succinct yet comprehensive
analysis of the mining legislation that has existed from time to time in our
history, with which I agree. His analysis amply demonstrates that, from
the beginning of significant mining in this country, legislation has
stripped the right to prospect for and to mine minerals from such common
law rights as owners of land might have had. What remained of that
common law right after they had been stripped – if anything remained at
all133 – was only the right to the minerals while they were in situ under
the ground.
133 At least some of the legislation might be construed as extinguishing common law mineral rights
altogether, and conferring upon the owner an equivalent statutory right to the minerals in situ, at least
[105] My colleague has pointed out that the right to minerals in situ is of
no value unless they are capable of being turned to account. Throughout
its history the legislation has consistently recognised that the holders of
mineral rights should enjoy at least some of the bounty. At times the
holder was given the right to exploit part of the mineral deposit while the
remainder was made available for exploitation by others. At times the
holder was given at least a preference when the rights were allocated.
And even where the right to prospect and mine was allocated to others the
holder of the mineral rights was usually given some of the fruits by way
of royalties or rentals or a portion of the license fees. It was the potential
that they offered to secure those benefits – whatever form the benefits
took at various times – that gave mineral rights their value. Without some
potential of that kind there is no market for mineral rights and they exist
as no more than a curiosity.
[106] But in whatever way the holders of mineral rights reaped benefit
from the minerals over the years, that has been the product of
contemporary legislative policy, dictated by political imperatives from
time to time, and not of the mineral rights themselves. If they have
always been of value that is only because it has always been government
policy to give them the potential for being turned to financial account.
[107] The policy of affording the holder at least some benefits from
exploitation of the minerals – which were features of all legislation until
by implication. Whether the right of owners to the minerals in situ is a remnant of their common law
right, or whether it is itself a right conferred at various times by statute, is nonetheless not material to
this appeal.
then – was carried through to the Mining Rights Act 20 of 1967. In
general, it was the holder of the mineral rights who would be allocated
the benefit of exploiting them, at least as a matter of preference, but the
state nonetheless retained the right to allocate them elsewhere,
particularly to prevent them being hoarded or sterilised to the detriment
of the country. Thus s 15(1) allowed the Minister of Mines, if he had
reason to believe that adequate prospecting operations may prove the
existence of minerals, to call upon the holder of the mineral rights to
commence prospecting or to cause prospecting to commence, failing
which the Minister was entitled to authorise prospecting by third parties,
subject only to payment to the holder of the mineral rights of rental fixed
by the Minister.134 Similarly, s 33(1) entitled the Minister, where he was
satisfied that reasonable grounds existed for believing that minerals
existed on any land in workable quantities, to call upon the person who
qualified for a mining lease (generally, but not exclusively, the holder of
the mineral rights), to apply for such a lease, failing which he was
deemed to have abandoned his right to the lease, which entitled the
Minister to grant a mining lease to others.135
[108] I attach greater significance than my colleague to the effect of the
Minerals Act 50 of 1991. It seems to me to have departed in some
respects significantly from what had gone before, particularly so far as
the hoarding and sterilisation of unused mineral rights was concerned,
which are the rights now in issue. The extent to which anti-sterilisation
provisions of earlier legislation had been called upon in the past is not
material. Poised as the country was on the brink of a new dispensation, in
134 Section 15(1) read with s 15(3).
135 Section 35 read with s 42.
which access to land and natural resources was destined to come to the
fore, provisions of that kind could be expected to assume significance, no
matter the extent to which it had been necessary to call upon them before.
[109] So far as the allocation of exploitation rights is concerned the
material provisions of the 1991 Act were simple and stark. Section s 5(1)
allowed the holder of mineral rights, or any person who had his consent,
but no others, to prospect for and to mine the minerals, subject to state
authorisation being given. And while state authorisation could be
withheld, where it was given ss 6(1) and 9(1) allowed it to be given only
to the holder of the mineral rights, or to a person who had his consent,
with some exceptions for rare occurrences that are not significant136.
Almost without exception the ability to exploit the mineral wealth of the
country was placed in the exclusive control of the holders of mineral
rights. As for the hoarding and sterilisation of mineral rights, far from the
state‘s considerable remedies under the 1967 Act and earlier legislation,
its only remedy under the 1991 Act was to expropriate the relevant land,
or to ‗expropriate‘ the mineral rights (a misnomer) – which the Minister
was permitted to do if he deemed it necessary in the public interest137 –
against payment of compensation to the holder of the rights.138
[110] In those few brief provisions the 1991 parliament placed the
exploitation of minerals within the full monopoly of mineral right
holders. It retained to the state considerable power to prevent uneconomic
136 Where the holder of the mineral rights could not be readily traced, and where the person entitled to
the rights by succession had not obtained them by cession after a period of two years: s 17(1).
137 Section 24(1).
138 Compensation was payable by the person at whose request the land or rights had been
expropriated. In the absence of agreement, it was to be determined by valuation in accordance with s
12 of the Expropriation Act 63 of 1975 (s 24(1).
or environmentally damaging exploitation, by requiring stringent
conditions to be met before authorisation would be granted,139 but so far
as exploitation might take place that could be done only with the consent
of the mineral-right holder.
[111] There can be no doubt that the MPRDA divested unused mineral
rights of the value that they held while the 1991 Act held sway. The
thrust of the argument before us on behalf of Agri SA was that this came
about because the MPRDA extinguished the common law rights of a
mineral-right holder, and those rights, so it was submitted, included the
right to exploit the minerals. As it was put in the heads of argument, the
holder of a mineral right previously ‗did not have to apply to the state for
the right to go onto the land, search for coal, and dispose of any coal it
found‘ – those rights ‗existed as the content, at common law, of the
mineral right and were not conferred by the state granting a prospecting
permit or mining licence in terms of sections 6 and 9 of the Minerals
Act‘.
139 Section 9(1) prohibited the issue of a mining authorization unless the regional director was
satisfied –
(a) with the manner in which and the scale on which the applicant intends to mine the mineral
concerned optimally and safely under such mining authorization;
(b) with the manner in which such applicant intends to rehabilitate disturbances of the surface
which may be caused by his mining operation;
(c) that such applicant has the ability and can make the necessary provision to mine such minerals
optimally and safely and to rehabilitate such disturbances of the surface ; and
(d) that the mineral concerned in respect of which a mining permit is to be issued -
(i)
occurs in limited quantities in or on the land or in tailings, as the case may be,
comprising the subject of the application; or
(ii)
will be mined on as limited scale; and
(iii)
will be mined on a temporary basis; or
(e) that there are reasonable grounds to believe that the mineral concerned in respect of which a
mining licence is to be issued –
(i)
occurs in more than limited quantities in or on the land or in tailings, as the case may
be, comprising the subject of the application; or
(ii)
will be mined on a larger than limited scale; and
(iii)
will be mined for a longer period than two years.‘
[112] That the MPRDA extinguished common law rights – such as they
were – seems to me to be plain. Item 8(4) of Schedule II says as much in
providing that
‗subject to subitems (2) and (3)140 an unused old order right ceases to exist upon the
expiry of the period contemplated by subitem (1)‘ [that is, one year after the Act came
into operation].
An ‗unused old order right‘ is defined in Table 3 of Schedule to include
‗common law‘ rights.
[113] But I do not agree, for reasons I have given, and that are expressed
more comprehensively in the judgment of my colleague, that the
‗content‘ of such common law rights included rights of exploitation, as
submitted on behalf of Agri SA. Since the commencement of significant
mining those have always been statutory rights granted in the gift of the
state, their grant being restricted by the 1991 Act to holders of the mineral
rights.
[114] In those circumstances the abolition by the MPRDA of ‗common
law rights‘ seems to me to be immaterial. Even without their abolition the
holder of mineral rights would have been in the same position. The
provisions of the MPRDA that have brought about the loss of their value
are not those that abolish common law rights but instead ss 16, 17, 22 and
23. Sections 16 and 17 deal with applications for and the grant of
prospecting permits respectively. Sections 22 and 23 deal with
applications for and the grant of mining authorizations. I do not find it
140 Those subitems are not now material
necessary to set out the terms of those sections. It is sufficient to extract
from them a feature that they have in common.
[115] Under those sections the grant of prospecting and mining
authorisations is not confined to the holders of the mineral rights or those
that have their consent – as it was under the 1991 Act. They might be
granted to anybody, provided only that they satisfy various stipulated
conditions.141 The holding of mineral rights is no longer the gateway to
the exploitation of minerals and it is for that reason that the mineral rights
have ceased to have value. Indeed, the draftsman of the MPRDA might
just as well not have extinguished common law rights at all, for the
difference that it makes. Once they became irrelevant to the exploitation
of minerals – as ss 16, 17, 22 and 23 have made them – they existed in
any event as no more than a curiosity. In short, it was the extinction of the
monopoly that had been conferred upon holders of mineral rights by ss 6
and 9 of the 1991 Act – brought about by ss 16, 17, 22 and 23 – that
caused mineral rights to lose their value, not the extinction of the rights
themselves.
[116] Whether the extinction of ‗common law rights‘ by the MPRDA
constitutes an ‗expropriation‘ of those rights, as contended for by Agri
SA, thus seems to me to be an abstract question that has no practical
bearing on their claim. Such value as it has lost, for which it claims
compensation, did not lie in its common law rights, but it lay instead in
the exclusive ability to exploit those rights that was conferred by the
earlier legislation. If any question of expropriation arises at all it seems to
141 For example, that they have the financial resources and technical capacity to prospect or mine, as
the case may be.
me the question is whether the extension to others of a statutory right that
holders of mineral rights had previously enjoyed exclusively constitutes
an expropriation.
[117] My colleague has dealt extensively with what is meant by
‗expropriation‘ in the MPRDA and I need not repeat what he has said. I
can see no basis upon which to find that the extension to others of
exploitation rights that were earlier within the exclusive control of
mineral-right holders constitutes a deprivation of property. Those rights
of exploitation did not exist as elements or characteristics of the mineral
rights – what counsel for Agri SA called the ‗content‘ of the mineral
rights. The holding of mineral rights did no more than to identify upon
whom the legislature had chosen to bestow its gift. So far as it created a
monopoly in doing so I cannot see that the statutory monopoly
constituted a property right. By choosing to bestow its gift anew in 2002
parliament did not deprive the holders of mineral rights of property – it
deprived them of value that had accrued to their property by the creation
of the monopoly. While property might have value, I do not think that
value is in itself property.
[118] For those reasons I agree with the orders that my colleague
proposes.
R W NUGENT
JUDGE OF APPEAL
Appearances
For appellant:
C H J BADENHORST SC (with him M
WESLEY)
Instructed by:
The State Attorney, Pretoria and Bloemfontein
For respondent:
G
L
GROBLER
SC
(with
him
J
L
GILDENHUYS)
Instructed by:
Macrobert Attorneys, Pretoria
Claude Reid Inc, Bloemfontein.
For amicus curiae:
GEOFF BUDLENDER SC (with him MAX
DU PLESSIS and J BRICKHILL)
Instructed by:
Legal Resources Centre, Cape Town
Webbers attorneys, Bloemfontein
|
Supreme Court of Appeal of South Africa
MEDIA SUMMARY– JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 31 May 2012
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.
Minister of Minerals and Energy v Agri SA (CALS amicus curiae)
In a test case brought by Agri SA to determine whether the
Minerals and Petroleum Development Act 28 of 2002 (the MPRDA)
expropriated mineral rights in South Africa, the SCA today upheld an
appeal by the Minister of Minerals and Energy against the judgment of
the North Gauteng High Court, in which it held that there had been such
an expropriation in respect of unused mineral rights to mine coal in
Mpumalanga and ordered the payment of compensation.
The court held that it was necessary to examine the history of
mineral rights in South Africa. When that was done it emerged that the
right to mine, that is, the right to prospect for, mine and dispose of
minerals, has always been regarded as a right vesting in the State and
allocated by the State in accordance with the policies of the day. The
MPRDA maintains this situation. The SCA held that as the right to mine
has not been taken from holders of mineral rights, and the MPRDA
afforded security of tenure by way of the transitional provisions, there has
been no general expropriation of mineral rights in South Africa.
In extending the right to mine beyond those who traditionally held
mineral rights to the community at large the monopoly previously
enjoyed by the holders of mineral rights has been terminated. This
reflects government policy to transform the mining sector. It does not
mean that there has been an expropriation of mineral rights. The court
accepted the possibility of an argument that a right had been expropriated
by the MPRDA in specific factual situations, but held that the contention
advanced by Agri SA that there had been a general expropriation of
mineral rights was unfounded. This was so whether one considered
mineral rights generally or only unused mineral rights. It accordingly
upheld the appeal and set aside the order for the payment of
compensation made by the trial court.
|
1858
|
non-electoral
|
2011
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No 260/10
In the matter between
KLUB LEKKERRUS/LIBERTAS
APPELLANT
and
TROYE VILLA (PTY) LTD
FIRST RESPONDENT
LEKKERRUS WARMWATERBRON (PTY) LTD SECOND RESPONDENT
LIBERTAS MINERALE BRON (PTY) LTD
THIRD RESPONDENT
WERNICO (PTY) LTD
FOURTH RESPONDENT
LEKKERRUS BESTUURSONDERNEMING CC
FIFTH RESPONDENT
JOHANNA JACOBA VAN TONDER
SIXTH RESPONDENT
HERMAN DANIEL WOITE
SEVENTH RESPONDENT
Neutral citation: Klub Lekkerrus/Libertas v Troye Villa (Pty) Ltd (260/10)
[2011] ZASCA 101 (1 June 2011)
Coram:
HARMS DP, MALAN, SHONGWE, MAJIEDT JJA and MEER
AJA
Heard:
13 May 2011
Delivered: 1 June 2011
Summary:
Contract ─ sale of shares ─ new tacit agreement ─ not affected
by non-variation clause ─ voluntary associations ─ dissolution of ─ legal effect
of amalgamation.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
North Gauteng High Court (Pretoria), (Makgoba J sitting
as court of first instance):
(1)
The appeal is upheld with costs against the first, sixth and seventh
respondents jointly and severally, including the costs of two counsel.
(2)
The order of the court below is substituted with the following order:
‘(a)
Mr H D Woite is joined as the eighth plaintiff in his capacity as
executor in the estate of the late P J H van Tonder, estate no
14453/97.
(b)
It is declared that the first defendant and its members are, with
effect from 10 August 2007, not entitled to any right of access,
possession, control and occupation of any of the properties
belonging to first and fourth plaintiffs, namely Portions 21, 22,
23, 24 and 25 of the farm Welgevonden 343 district
Potgietersrus, Registration Division KR, Limpopo Province and
Portion 32 (a portion of Portion 12) of the farm Welgevonden
343, district Potgietersrus, Registration Division KR, Limpopo
Province.
(c)
The balance of the plaintiffs' claims is dismissed.
(d)
It is declared that the first defendant is the sole shareholder of
all the issued shares in the second and third plaintiffs and that
the share registers should reflect that fact.
(e)
The balance of the first defendant’s counterclaims is dismissed.
(f)
The first, sixth, seventh and eighth plaintiffs are ordered jointly
and severally to pay the first defendant's costs, including the
costs of two counsel.’
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (HARMS DP, MALAN, SHONGWE JJA and MEER AJA
concurring):
[1] The appellant, Klub Lekkerrus/Libertas (the Club) came about through
the amalgamation of two voluntary associations, Klub Lekkerrus and Klub
Libertas. Like its forebears, the Club (which was the main defendant below),
operates as a holiday club under a written constitution.
[2] This appeal concerns in the main a dispute about the ownership of
shares in the second and third plaintiffs (the plaintiffs are the respondents in
the appeal) arising from two written agreements in terms of which Klub
Lekkerrus and Klub Libertas had purchased all the issued shares and loan
accounts in the second plaintiff and the third plaintiff respectively. At issue
further is the effect of the amalgamation on these agreements of sale which
the Club had continued with and whether a non-variation clause in the
agreements precluded such continuation. For the reasons that follow we find
that the Club is the owner of the shares in the second and third plaintiffs,
since new agreements on the same terms were tacitly concluded between the
parties in place of the two agreements mentioned and that the non-variation
clause was no bar to the tacit new agreements.
[3] Sitting in the North Gauteng High Court (Pretoria), Makgoba J held
otherwise by upholding the plaintiffs’ claims with costs and dismissed with
costs the Club's counterclaims. This appeal is with the leave of the court
below.
[4] Klub Lekkerrus and Klub Libertas previously operated as separate
voluntary associations with separate constitutions, members' meetings and
financial statements. The Club was formed after the two clubs' members
unanimously resolved during 1991 to amalgamate. A single board of trustees
was constituted to give effect to the amalgamation. A constitution for the new
Club was drawn and there is no dispute about its validity.
[5] The first plaintiff, Troye Villa (Pty) Ltd (Troye Villa), is registered as the
sole shareholder of the second and third plaintiffs each of which owns a
portion of the farm Welgevonden 343, district Mokopane (previously
Potgietersrus). Troye Villa is also the registered owner of Portions 21, 22, 23,
24 and 25 of Welgevonden. The fourth plaintiff (Wernico) is the registered
owner of a remaining part of another portion of that farm. The fifth plaintiff,
Lekkerrus Bestuursonderneming CC, is a close corporation which conducts
business as a management corporation. It was established with the aim of
managing a holiday resort on behalf of Klub Lekkerrus.
[6] The sixth plaintiff, Mrs Johanna Jacoba van Tonder, is the widow of the
late Mr P J H van Tonder who owned all the issued shares in the second and
third plaintiffs and who was the president of the clubs and a member of a
managing corporation. The seventh plaintiff, Mr H D Woite, is an auditor by
profession and at all material times he acted as such for the second, third and
fourth plaintiffs and for the appellant. He was also the executor in the
deceased estate of Mr van Tonder. Although Mr Woite joined as plaintiff in his
personal capacity only, there is an application before this court that he be
joined also in his capacity as executor. In the light of the special
circumstances of this case, that application is granted.
[7] Welgevonden, which consists of a number of portions, has several hot
water springs. Holiday resorts, Lekkerrus and Libertas, have since the late
1950s and early 1960s been established on two of them. During the early
1980s, Mr van Tonder operated the holiday resorts through his companies,
the second and third plaintiffs – each being the owner of a portion of the farm.
A comprehensive strategic reorganisation of the businesses of the resorts
occurred in 1990. First, on legal advice, they were converted into holiday
clubs, apparently in order to preserve their racial exclusivity in the face of
impending legislation outlawing racially segregated residential areas, facilities
and amenities. Secondly, they became timeshare schemes on the advice of
an estate agent in order to enhance the businesses' financial viability.
[8] Several agreements were concluded on 10 August 1990 following the
establishment of the two holiday clubs. Separate management contracts were
concluded between them and two management corporations, namely the fifth
plaintiff and Libertas Bestuursonderneming CC, which was not a party to the
proceedings. It is common cause that after amalgamation, the fifth plaintiff, in
terms of the contract concluded with Klub Lekkerrus, managed the affairs of
the amalgamated Club. One of the claims against the latter was in fact based
on this agreement.
[9] Separate lease agreements were likewise concluded between Klub
Lekkerrus and the second plaintiff and between Klub Libertas and the third
plaintiff for periods of 9 years and 11 months, each for a different portion of
Welgevonden. These leases contained a non-variation clause. In spite of this
it was common cause on the pleadings that the Club was the lessee until
2007. A claim upheld by the court below was based on the common
assumption that these agreements survived the amalgamation and that the
Club was the lessee. This is only possible if one accepts, as one has to do,
that tacit agreements were entered into between Mr van Tonder and the
amalgamated Club in the same terms.
[10] On that same date Klub Lekkerrus purchased all the issued shares and
the loan accounts of Mr van Tonder in the second plaintiff and Klub Libertas
all the issued shares and loan accounts of Mr van Tonder in the third plaintiff.
These agreements will be referred to as agreements 'E' and 'F' respectively.
The respective sales of shares agreements were referred to in and linked to
the corresponding lease agreements. The terms of these agreements were
identical, save that the minimum purchase price for the second plaintiff's
shares and loan accounts was R4.5 million and for the third plaintiff it was
R2.5 million. Both agreements stipulated that the purchase price had to be
paid within 60 months from the date of the signature of the agreements. The
purchase price provision read as follows:
'2.1
Die totale koopprys vir die aandele sowel as die leningsrekenings beloop die
gesamentlike
bedrag
van
'n
som
gelykstaande
aan
60%
van
die
lidmaatskapintreegelde (waarby ingesluit tydsdelingbelange) wat die koper van sy
lede invorder oor 'n tydperk van sestig maande vanaf datum van die ondertekening
hiervan, met dien verstande dat die koopprys minstens die som van R4 500 000.00
(vier en 'n half miljoen rand) sal beloop. [For second plaintiff; in respect of third
plaintiff the sum was R2 500 000.00].
2.2
Betaling van voormelde som geskied in kontant aan die Verkoper aan die
einde van elke maand ooreenkomstig die formule hierbo vermeld (waarop die
koopprys bereken word) ten opsigte van alle voormelde gelde wat die koper werklik
van tyd tot tyd in ontvangs neem.
2.3
Die eerste betaling ooreenkomstig voormelde formule sal plaasvind voor of
op 30 Deptember 1990 en daarna op die laaste dag van elke daaropvolgende maand
vir 'n totale tydperk van 60 maande vanaf datum van sluiting van hierdie
ooreenkoms, met dien verstande dat die voormelde minimum koopprys voor die
afloop van die gemelde tydperk van 60 maande betaal moet wees.'
[11] Ownership of the shares passed immediately and effect was given to
the sale of shares agreements by transferring the shares to the respective
purchasers, but the share certificates and blank transfer forms were held in
pledge for Mr van Tonder by Mr Woite as security for the outstanding
purchase prices. The share registers reflect that the shares were later, on 19
January 1998, registered in the Club's name.
[12] The sixty-month period for payment of the purchase price expired on 9
August 1995. It is common cause that the full purchase price was not paid by
that date, due to insufficient timeshare sales. No demand for payment or
threatened cancellation by reason of non-payment was however made by Mr
van Tonder. Towards the end of 1995, Mr van Tonder began experiencing
severe financial hardship due to unrelated failed business ventures and the
poor timeshare sales in the holiday clubs. He passed away in July 1997, while
there was a sequestration application, instituted by Absa Bank against him,
pending. After Mr van Tonder's death, Mrs van Tonder and Mr Woite
effectively assumed control of the Club's business affairs. Mrs van Tonder
succeeded her late husband as president of the Club.
[13] In spite of the amalgamation all the parties to the sale agreements
acted on the assumption that the amalgamated club had stepped into the
shoes of the original clubs. This was in the face of non-variation clauses in
terms identical to those contained in the leases.
[14] It was only after the death of Mr van Tonder that the continued
existence of the sale agreements became an issue - probably due to Mr
Woite's poor understanding of the law. He believed that agreements 'E' and 'F'
had come to an end because of Mr van Tonder’s demise – long after the final
date for payment and many years after the amalgamation. As indicated, Mr
Woite during all those years kept the original clubs as owners on the share
registers. Acting on this belief, the Club (represented by Mrs van Tonder) and
Mr van Tonder's estate (represented by the executor Mr Woite) purported to
enter into a new written agreement during November 1997 in terms of which
the Club purchased the shares in the second and third plaintiffs from the
estate. Mrs van Tonder, believing that because she as chairman was entitled
to do so, signed on behalf of the Club. It was common cause that this
agreement (agreement 'G') was null and void due to the fact that the purchase
price of the shares was indeterminable. The plaintiffs contend, however, that
clause 2.5 thereof was severable from the rest of the agreement because it
did not concern the purchase price of the shares but was instead an
undertaking by the Club with no counter obligation. It read as follows:
'Die partye kom verder ooreen dat 60% van die akkommodasiegelde van Jaarlede
aan die VERKOPER betaal word in kontant vir 'n onbepaalde tydperk vanaf 16
November 1996 op 'n maandelikse basis.'
This clause formed the basis of the claim by the plaintiffs for payment by the
Club of some R 15 million, which was successful.
[15] A further written agreement, linked to agreement 'G', was concluded
during January 1998 between Mr Woite qua executor and Mrs van Tonder on
behalf of Troye Villa, a company belonging to Mrs van Tonder, in terms of
which the latter purchased Mr van Tonder's entire interest in agreement 'G' for
a sum of R2,355 million. The objective appears to have been for Mrs van
Tonder to step into her late husband's shoes as seller and developer. The
interest of the deceased estate in the Club was thereafter purportedly
transferred to Troye Villa. The parties were agreed at the trial that this
agreement was tainted by the invalidity of agreement 'G' so that it, too, was of
no force and effect.
[16] The minutes of the Club contain a repeated recordal during the period
prior to the change in trustees referred to below, that part of the purchase
price in respect of the sale of shares remained unpaid. From around 2005
relations between Mr Woite and Mrs van Tonder on the one part and Club
members on the other began to sour. Club members became increasingly
hostile, the primary bone of contention being the outstanding purchase price.
The Club members elected a small committee to take issues up with Mr Woite
and Mrs van Tonder. Matters came to a head in 2007 when, in a palace
revolt, a new board of trustees was elected, effectively deposing Mr Woite and
Mrs van Tonder. The management agreement with fifth plaintiff was
cancelled. Shortly thereafter the Club was notified in writing by an attorney
acting for the second and third plaintiffs of the termination of the lease
agreements, effective six months later, namely on 10 August 2007. The Club
was asked to vacate the properties on that date. The demand was not met.
[17] The court below granted the plaintiffs' claims by ordering as follows:
(a) A declarator that Mr van Tonder's estate is entitled to the possession and
registration of all issued shares in the second and third plaintiffs in the name
of the estate as well as cession of all the loan accounts of the Club in the said
plaintiffs and rectification of their share registers accordingly. This was based
on the finding that the sale agreements between Mr van Tonder and the two
clubs had lapsed when they came to an end at the time of amalgamation; that
the amalgamated Club had no contract with him; that the 1998 share sale was
void because of the uncertainty of the price; and that the subsequent sale to
Troye Villa was also void.
(b) An order that the aforementioned transfer and cession be effected only
upon payment of the sum of R3 198 688.80 by the estate to the Club. This
was ordered because of a tender by the plaintiffs, allegedly to assure that they
were not enriched at the expense of Club members.
(c) An order declaring that the estate is entitled to payment by the Club of the
sum of R15 699 576.00 with interest from 1 January 2007 to date of payment.
This order was based on the finding that the quoted clause 2.5 was divisible
from the rest of the agreement.
(d) Declarators that the lease agreements had been lawfully terminated with
effect from 10 August 2007 and that with effect from that date the second and
third plaintiffs were entitled to full possession, control and occupation of the
properties in question and that the Club had no such rights. It was common
cause that the leases had come to an end. The right to occupation depended
on who was in control of the two property-owning companies.
(e) An order that the Club and its members vacate the properties within 30
days of the date of the order. This order was not sought but if the first
declaratory should stand it would have followed. However, if the first
declarator fails, it cannot remain.
(f) A declaration that the Club and its members were, with effect from 10
August 2007, not entitled to any right of access, possession, control and
occupation of any of the properties belonging to first and fourth plaintiffs,
namely portions 21, 22, 23, 24, 25 and portion 32 (a portion of portion 12) of
the farm Welgevonden. These are adjoining properties that have been used
by the Club precario and to which the Club had no legal entitlement. It was not
really an issue during the trial and its correctness has not been in issue on
appeal.
[18] Apart from costs orders the court below also dismissed the Club’s
counterclaim. The counterclaim was based on the allegation that the
amalgamated Club was the purchaser in terms of the two sale agreements ‘E’
and ‘F’ and that the agreements stood and that the Club was entitled to
rectification of the share registers to reflect it as owner.
[19] The plaintiffs’ claim, as originally framed, was based on the tacit
supposition that the sale agreements had survived the amalgamation but had
been cancelled due to non-payment. How or why they had survived was not,
as in the case of the leases and the management contract, an issue. The
original plea responded to the original averments in the particulars of claim by
admitting the conclusion of agreements 'E' and 'F' followed by an averment
that the Club had fulfilled all its obligations in terms of the said agreements.
Survival, as a matter of fact and law, was common cause.
[20] However, shortly before the trial date the plaintiffs amended the
particulars of claim substantially. As will be indicated, the amendment only
affected the sale agreements and not the leases which were on all fours with
them. There was also not a consequent amendment of the plea to the
counterclaim. That amendment introduced new material averments that:
(a)
Klub Lekkerrus and Klub Libertas had come to an end in 1991 and that
a new entity, namely the Club, was established;
(b)
agreements 'E' and 'F' contained a non-variation clause;
(c)
the Club was never substituted as party to these agreements;
(d)
no lawful delegation of rights and obligations had taken place from Klub
Lekkerrus and Klub Libertas to the Club;
(e)
the said agreements had come to an end in 1991 so that all the issued
shares fell into the deceased estate.
[21] Surprisingly, no consequential amendment of the Club's original plea
ensued in the face of the substantial amendments and new averments in the
particulars of claim. But at the beginning of the trial the Club sought leave to
amend its plea to deal with the plaintiffs’ new stance. The plaintiffs objected to
the proposed amendment on the basis that it amounted to the withdrawal of
an admission, namely that the two constituent clubs had been dissolved and
that, as a consequence, the agreements had been terminated at that time.
This implied admission emanates from the Club's failure to plead in particular
to the new averments in the amended particulars of claim.1 In refusing the
application for amendment, the trial judge described the result as a 'technical
1 Uniform Rule 22(3) reads as follows:
'Every allegation of fact in the combined summons or declaration which is not stated in the
plea to be denied or to be not admitted, shall be deemed to be admitted. If any explanation or
qualification of any denial is necessary, it shall be stated in the plea.'
knockout' to the Club's case. There can be little doubt that the refusal did
indeed have a severe adverse impact on the Club's case.
[22] The court below found that the plaintiffs would be prejudiced by the
introduction of new defences in the proposed amended plea, such as waiver
and estoppel. But such prejudice was irrelevant for present purposes,
because the court below did not deal at all with the aspect of prejudice in the
context of the withdrawal of the admission. As will be shown, there was no
conceivable prejudice to the plaintiffs, except that they could lose the case,
which is not a factor.
[23] The Club was ready to introduce its application for amendment at the
commencement of the hearing and before any evidence was led, but the court
below, at the behest of the plaintiffs, permitted the hearing of this substantive
application only during Mrs van Tonder's evidence. As it turned out, the
particular issue, namely whether the sale agreements ‘survived’ the
amalgamation was fully canvassed with Mrs van Tonder in chief and during
cross-examination and was based on common cause facts. The plaintiffs did
not seek a postponement and during argument before this court their counsel
was singularly unable to point to any evidence which could have been led to
address the so-called new issue. There simply was no such evidence and
there was no prejudice to the plaintiffs. The Club's alleged admission was in
any event inconsistent with:
(a)
its counterclaim that the Club, based on agreements ‘E’ and ‘F’, be
reflected on the share registers as sole shareholder of the second and third
plaintiffs and the lack of a plea thereto that the agreements had fallen away;
(b)
the plaintiffs' averments in their particulars of claim that the
management agreement continued in respect of the Club as it did previously
in respect of the two constituent clubs because of the amalgamation;
(c)
the plaintiffs' claims, granted by the court below, that the lease
agreements were lawfully terminated on 10 August 2007, which implied that,
until then, the lease agreements had simply continued as before with the Club
(which in any event became a common cause fact at the trial).
[24] Moreover, and in any event, the conclusion concerning the dissolution
of the two constituent clubs and the consequent termination of agreements 'E'
and 'F' as pleaded in the amended particulars of claim, is legal and not
factual. A court is not bound to a party's admission on a legal issue ─ it has to
bring its own assessment to bear on it and to apply the law in that
assessment.2 The trial judge erred in refusing the application for amendment
in relation to the withdrawal of the admission.
[25] Turning to the merits ─ the kernel of the dispute is whether agreements
'E' and 'F' had lapsed on amalgamation which, in turn, would answer the
enquiry as to where the shares in second and third plaintiffs vest. The
plaintiffs' argument, which found favour with the court below, was that the
constituent clubs had dissolved upon amalgamation, thereby terminating
agreements 'E' and 'F'. The court below found further that because of the non-
variation clause there had to be a written cession and delegation of rights and
obligations to change the name of the purchaser in agreements 'E' and 'F' to
that of the Club. It also found that the agreements had in any event lapsed
because the purchase prices had not been paid within 60 months. These
findings are supported neither by the law nor the facts. I discuss first the
applicable legal principles before turning to the facts which underlie them.
[26] A transfer of rights and obligations (generally referred to as an
'assignment' in our law) must be assessed in the context of each case to
ascertain whether both rights and obligations or only the one or the other are
to be transferred.3 The intention of the parties must be ascertained in this
regard.4 Our law recognizes that agreements can be concluded tacitly to
replace previous agreements.5 The non-variation clauses in agreements 'E'
and 'F' on which strong reliance was placed by the plaintiffs, do not preclude
the application of this principle. As Harms JA put it in Telcordia:6
2 Saayman v Road Accident Fund 2011 (1) SA 106 (SCA) paras 28 and 29.
3 Simon NO v Air Operations of Europe AB & others 1999 (1) SA 217 (SCA) at 228I-J.
4 MTK Saagmeule (Pty) Ltd v Killyman Estates (Pty) Ltd 1980 (3) SA 1 (A) at 12A.
5 Golden Fried Chicken (Pty) Ltd v Sirad Fast Foods CC & others 2002 (1) SA 822 (SCA)
para 7; Telcordia Technologies Inc v Telkom SA Ltd 2007 (3) SA 266 (SCA) para 12.
6 Ibid.
‘[T]he principle [that is of the effect of a non-variation clause in a contract] does not
create an unreasonable straitjacket because the general principles of the law of
contract still apply, and these may release a party from its workings. One of these
would, for instance, be the rule that a party may not approbate and reprobate.'
The example cited in this passage is apposite in this matter, as will presently
appear.
[27] It is also trite that a contracting party, when faced with breach of the
contract by the other party, must elect whether to terminate or to enforce the
contract. Once an election is made, the party is bound by it. A party who
elects to cancel must clearly and unequivocally express an intent to do so.7
Whether or not there has been such an election to cancel is a factual issue.8
[28] In applying these principles to the facts the following emerge: First, it
became common cause during the trial that the Club was formed by
unanimous decision of the members of the two constituent clubs to merge. It
follows that, in law, the Club became the successor to the two clubs. The
evidence overwhelmingly supports this conclusion. It is not in issue that the
management contract with the fifth plaintiff simply continued after
amalgamation as before. It is further common cause that the lease
agreements also continued as before after amalgamation. This continuation
could only have been possible if the Club had as a matter of law stepped into
the shoes of its predecessors. Like agreements 'E' and 'F', the lease
agreements also contained non-variation clauses. The minutes of the
members' meetings after amalgamation and Mrs van Tonder's own evidence
lend further support to this conclusion. One example will suffice to illustrate
the point. The minutes of the Club's seventh annual general meeting on 15
November 1997 (ie the first such meeting after Mr van Tonder's death) reflect
that Mr Woite delivered the presidential address in which he declared as
follows:
'Ten opsigte van die voortbestaan van die Klub moet ons meld dat die Klub
ongestoord voortgaan. Daar bestaan nog steeds huurkontrakte vir die eiendom en
7 Stewart Wrightson (Pty) Ltd v Thorpe 1977 (2) SA 943 (A) at 954A.
8 Peters & others NNO v Schoeman & others 2001 (1) SA 872 (SCA) para 12.
die Klub kan dus nog die Oorde benut soos voorheen. Die kontrak met die
Bestuursonderneming, om die klubsake te hanteer, is nog steeds in plek en gaan
gewoonweg voort.'
When questioned on this in her evidence in chief, Mrs van Tonder confirmed
the correctness of these recordals and confirmed that 'everything carried on
as normal'. This conclusion is further buttressed by the Club's plea and
counterclaim. To conclude ─ there can be little doubt on the evidence that
tacitly new agreements of sale on the same terms as agreements ‘E’ and ‘F’
had been concluded between the parties. The above references provide
ample evidence of the parties' conduct justifying the inference that the parties
had the requisite consensus.9 New agreements had therefore tacitly come
into being.10 The plaintiffs' reliance on the non-variation clauses cannot be
upheld. The Club is therefore the lawful owner of all the issued shares in the
second and third plaintiffs.
[29] The second aspect is Mr van Tonder's election in respect of the non-
payment of the purchase price of the shares by the due date. The evidence is
overwhelming that he elected to keep the agreements, including the new tacit
agreements, extant. As stated above, he did not threaten cancellation, nor did
he demand immediate payment of the outstanding balance. On the contrary,
Mr van Tonder continued to collect payments made towards the purchase
price, he decided where such payments should go and at the 1996 annual
general meeting granted the Club an indefinite extension of time for payment
of the balance of the purchase price. On the evidence this conduct signifying
an election to continue with the contract, continued for well over ten years. I
therefore find that there was a clear and unequivocal approbation on the part
of Mr van Tonder.
[30] There is considerable merit in the contention advanced by its counsel
that the Club has on the evidence paid the minimum purchase price in respect
of second and third plaintiffs. We have not been asked to make such a
finding, but it is nonetheless clear in the light of our finding that clause 2.5 is
9 See Gordon Lloyd Page & Associates v Rivera & another 2001 (1) SA 88 (SCA) para 11.
10 Golden Fried Chicken (Pty) Ltd v Sirad Fast Foods CC & others supra para 7.
not divisible and in the fact that large sums of money were paid over to the
estate that this contention is correct. In view of these findings, the plaintiffs’
claim for rectification and attendant orders cannot stand while, in turn, the
counterclaim for rectification of the share registers must be upheld.
[31] What remains are the claim for R15 699 576.00, the declarator that the
two lease agreements had been lawfully terminated with effect from 10
August 2007, and the ejectment of the appellant from the properties. The
claim for R15 699 576.00 was based on clause 2.5 of agreement 'G', signed
by Mrs van Tonder as trustee on behalf of the Club. She apparently believed
that since she took over from her husband as chairman of the Club she could
do as she wished, including entering into contracts. However, the constitution
of the Club provided otherwise. In spite of a clear challenge to her authority,
there was no evidence that she was authorised by the board of trustees to
enter into this agreement. Absent an authority, the question whether the
agreement was divisible does not arise because clause 2.5 was also not
authorised. But, in any event, even if clause 2.5 survived this lack of authority,
it is clearly not severable. This is apparent not only from the text of agreement
'G' but also from the context, that is the factual matrix in which the parties
operated.11 Agreement 'G' is an agreement for the sale of shares as its
heading indicates. Clause 1 deals with the merx and clause 2 with the
purchase price. Clauses 2.1, 2.2, 2.3 and 2.4 concern the purchase price and
its calculation. Clause 2.5 is inserted in the clause dealing with the price. The
word 'verder' is significant and suggests that it is a further provision dealing
with the price. There is no provision for any other consideration for the
undertaking in clause 2.5, and the conclusion seems inescapable that it is an
integral part of agreement 'G'. It cannot be severed from the rest of the
agreement. The context also supports this construction. The accommodation
fees referred to in that clause were payable by non-members ('jaarlede') for
accommodation at the resorts. Members paid joining fees ('intreegelde') to
purchase timeshare and also paid annual levies ('jaargelde') and in return
11 See KPMG Chartered Accountants (SA) v Securefin Ltd & another 2009 (4) SA 399 (SCA)
para 39; Swart & 'n ander v Cape Fabrix (Pty) Ltd 1979 (1) SA 195 (A) at 202C-D.
received free accommodation at the resorts. Clause 2.5 purportedly replaced
the purchase price provision in agreements 'E' and 'F' in terms of which the
purchase price was calculated as 60% of members' joining fees collected for a
period of 60 months from date of signature of the agreements (with the
proviso that for Lekkerrus the minimum purchase price was R4.5 million and
for Libertas it was R2.5 million). The change in the price formula was brought
about by the extremely poor timeshare sales. The provision that the purchase
price was to be recovered from income derived from non-members'
accommodation fees was therefore introduced to meet the shortfall. It is plain
from the aforegoing that clause 2.5 forms an integral and inseparable part of
the purchase price provision, which is a material term of the contract. It is thus
not severable from the rest of agreement 'G'.
[32] I therefore conclude on the main issue that tacit agreements in the
terms set out in ‘E’ and ‘F’ between the Club and Mr van Tonder were
concluded upon the amalgamation of the clubs; that they survived the
payment date; that they were not affected by Mr van Tonder’s death; that the
shares were properly transferred to the Club; that the agreements were not
replaced by the later sale agreement; that Mrs van Tonder and Mr Woite were
not entitled to transfer the shares to anyone save the Club; and that the Club
is entitled to rectification of the share registers.
[33] I do recognise the fact that neither party has relied in explicit terms on
tacit agreements, but to deny their reality after nearly two decades of
acceptance by everyone of their existence would amount to a travesty of
justice.
[34] The finding of the court below that the lease agreements had been
validly terminated with effect from 10 August 2007, was not challenged on
appeal, correctly so. No order to that effect was, however, required. The issue
is academic in the light of my finding that the Club is the lawful owner of all the
issued shares in the second and third plaintiffs which own the resorts. It is
therefore for the Club as sole shareholder to make a decision on eviction and
the use of the resorts. For the same reason the eviction order cannot stand.
[35] As mentioned, it was not in issue that the Club had made use of
facilities on properties belonging to Troye Villa and Wernico, namely staff
accommodation, a walking trail, a sewerage treatment plant, a refuse dump
and a lapa, without any agreement between the parties in respect thereof.
The relief sought, namely that access to these properties and use of the
facilities had been lawfully cancelled on 10 August 2007 and that,
consequently, the Club and its members thereafter had no right to access of
such property, was also not in issue. The order to that effect has to be
retained.
[36] Lastly, the costs order warrants consideration. The Club has been
substantially successful, inasmuch as the appeal is to be upheld. Ordinarily
the plaintiffs, having met with some success on appeal to the limited extent
set out in the previous paragraph would have been entitled to a portion of their
costs. But there was hardly any dispute on these aspects at the trial, nor did
they add measurably to the litigation costs. It seems that, in exercising a
discretion on costs, it should follow the outcome, that is that the Club was
successful on all those matters which were in issue. The first, sixth, seventh
and eighth plaintiffs litigated in the names of the second and third plaintiffs,
while they were not entitled to the shares in those companies. It would
consequently be just and equitable for the first, sixth, seventh and eighth
plaintiffs to bear the costs.
[37] The following order is made:
(1)
The appeal is upheld with costs against the first, sixth and seventh
respondents jointly and severally, including the costs of two counsel.
(2)
The order of the court below is substituted with the following order:
‘(a)
Mr H D Woite is joined as the eighth plaintiff in his capacity as
executor in the estate of the late P J H van Tonder, estate no
14453/97.
(b)
It is declared that the first defendant and its members are, with
effect from 10 August 2007, not entitled to any right of access,
possession, control and occupation of any of the properties
belonging to first and fourth plaintiffs, namely Portions 21, 22,
23, 24 and 25 of the farm Welgevonden 343 district
Potgietersrus, Registration Division KR, Limpopo Province and
Portion 32 (a portion of Portion 12) of the farm Welgevonden
343, district Potgietersrus, Registration Division KR, Limpopo
Province.
(c)
The balance of the plaintiffs' claims is dismissed.
(d)
It is declared that the first defendant is the sole shareholder of
all the issued shares in the second and third plaintiffs and that
the share registers should reflect that fact.
(e)
The balance of the first defendant’s counterclaims is dismissed.
(f)
The first, sixth, seventh and eighth plaintiffs are ordered jointly
and severally to pay the first defendant's costs, including the
costs of two counsel.’
___________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for Appellant
:
N G D Maritz SC
:
A A Botha
Instructed by
:
Van der Merwe Attorneys
Pretoria
Kramer Weihmann & Joubert Inc
Bloemfontein
Counsel for Respondent
:
T P Krüger
J R Minnaar
Instructed by
:
Marius Coertze Attorneys
Pretoria
Oelofse & Kriel Attorneys
Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
1 June 2011
STATUS: Immediate
KLUB LEKKERRUS/LIBERTAS v TROYE VILLA CASE NO 260/10
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
1. The Supreme Court of Appeal has upheld an appeal in the above matter
which concerns sale of shares agreements.
2. The respondents had instituted action as plaintiffs in the North Gauteng High
Court, Pretoria where their claims were upheld by Makgoba J, who also
dismissed the appellant's (who was the first defendant in that court)
counterclaims.
3. The late Mr P J H van Tonder owned properties in the Mokopane (formerly
Potgietersrus) area on which he operated two holiday resorts, Klubs
Lekkerrus and Libertas. Through agreements of sale of shares and loan
accounts the two clubs, which later amalgamated to form the appellant,
purchased the properties. Lease and management agreements were also
concluded.
4. After a dispute arose between Mr van Tonder's widow, Mrs J J van Tonder
(the 6th respondent) and Mr H D Woite (an auditor and the 7th respondent) on
the one hand and the appellant club's members on the other, the Club was
served with a notice of eviction in respect of the properties, resulting in this
litigation.
5. The SCA granted an application by the respondents to join Mr Woite in his
capacity as executor of the estate of the late Mr van Tonder, on appeal. The
SCA held that the parties have tacitly concluded new agreements on the
same terms as the original sale of shares agreements and that the lease and
management agreements had continued. The SCA concluded that the Club
was the lawful owner of the shares in the second and third respondent
companies and that the companies' share registers should be rectified
accordingly. The SCA upheld the appeal and substituted the North Gauteng
High Court's orders accordingly.
- - - ends - - -
|
1
|
non-electoral
|
2017
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 52/2016
In the matter between:
MINISTER OF RURAL DEVELOPMENT
AND LAND REFORM
FIRST APPELLANT
THE REGIONAL LAND CLAIMS
COMMISSIONER, EASTERN CAPE SECOND APPELLANT
and
IVOR LEROY PHILLIPS
RESPONDENT
Neutral citation: Minister of Rural Development and Land Reform v Phillips
(52/2016) [2017] ZASCA 1 (22 February 2017)
Coram:
Leach, Tshiqi and Zondi JJA and Makgoka and Schippers AJJA
Heard:
21 November 2016
Delivered: 22 February 2017
Summary: Award of financial compensation made to redress a dispossession
of a right in land under the Restitution of Land Rights Act 22 of 1994 :
principles applicable to the determination of redress : no reasonable prospect of
another court finding the Land Claims Court had erred in its determination.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: Land Claims Court of South Africa, Randburg (Meer AJP
and assessor sitting as court of first instance):
1 The application for condonation of the late filing of the record of the
proceedings in the court a quo and reinstatement of the appeal is dismissed, and
the appeal is struck from the roll.
2 The applicants are to pay the respondent‟s costs, such costs to include the
costs of two counsel.
________________________________________________________________
JUDGMENT
________________________________________________________________
Leach JA (Tshiqi and Zondi JJA and Makgoka and Schippers AJJA
concurring)
[1] The applicants sought and obtained leave to appeal to this Court against
an order made by the Land Claims Court that the respondent be paid
R14 785 000 under the Restitution of Land Rights Act 22 of 1994 (the
Restitution Act) pursuant to his having been dispossessed of certain farming
properties in the Eastern Cape under a past racial law for which he had not
received just and equitable compensation. They also sought to appeal against an
order that they pay costs on the scale as between attorney and client.
[2] The applicants, however, allowed their appeal to lapse by failing to file
the record timeously, and on 27 October 2015 the Registrar of this Court
addressed a letter to that effect to the parties.1 As a result, the respondent
served a letter on the applicants (respectively on 30 November and 1 December,
2015) demanding satisfaction of the judgment. The same letter was served on
the State Attorney, Mthatha on 15 January 2016. This eventually appears to
have provoked a reaction as, on 22 January 2016, the applicants launched the
present application seeking an order condoning their failure to lodge the appeal
record timeously and re-instating their appeal. The primary exculpatory factor
they relied upon was a professed difficulty in obtaining a record from the
company charged with its transcription.
[3] This relief was opposed by the respondent. In doing so he drew attention to
various correspondence that had passed, as well as an affidavit from the
transcribers, in support of an argument that there had been dilatoriness on the
part of the applicants and the State Attorney. That may well have been the case
but this matter may be determined without any decision on that issue. Indeed
the matter was argued essentially on the merits of the proposed appeal, it being
the respondent‟s contention that there was no reasonable prospect of success in
the appeal and, consequently, on that ground alone the application ought to be
dismissed. In this way, the merits of the appeal were ventilated in this Court in
order to determine whether the appeal, which had been provisionally enrolled,
should be heard or struck from the roll.
[4] I therefore turn to deal with the merits of the respondent‟s claim that was
upheld in the court a quo. It was based on an allegation that he had been
dispossessed of his rights in land as a result of a past racial law, namely, the
1 Rule 8(3) of the Rules of the Supreme Court of Appeal provides: „If the appellant fails to lodge the record
within the prescribed period or within the extended period, the appeal shall lapse.‟
Development Trust and Land Act 18 of 1936 (the Development Act). The land
in question were the farms Thibet Park 346, Otterford 347, Portion 1 of Keys
Poort 149 and the remainder of Keys Poort 149, situate in the division of
Queenstown and Tarkastad, in the Eastern Cape. Although registered as four
separate entities, the first two were historically treated as the farm Thibet Park
whilst the latter two were known as the farm Keys Poort. They were referred to
collectively by the court a quo as „the subject properties‟ and, for convenience, I
intend to use this collective nomenclature as well.
[5] The subject properties were farmed as if they were a single unit, the
respondent having stated in a memorandum of 29 April 1977 that „there is not
even a fence on the boundary between my said two farms‟ and that this had
been the position for several generations. Indeed, the Otterford portion was
acquired by an ancestor of the respondent in November 1891 while the
remainder of Thibet Park and Keys Poort were purchased by the respondent‟s
father in 1955. They were held in the respondent‟s name by way of a Deed of
Transfer No 19325 of 1971.
[6] It was the respondent‟s case that in 1977 he had sold the subject
properties under duress to the South African Development Trust for R475 000,
a sum which he contended did not constitute just and equitable compensation as
envisaged in s 2 of the Restitution Act. The farms were acquired from him for
subsequent incorporation into the so-called „Republic of Ciskei‟ after the area in
which they were situated had been declared to be a „released area‟ for
occupation solely by black persons under the terms of the Development Act.
They were indeed later incorporated into Ciskei and, today, form part of what is
known as the Tsolwana Game Reserve.
[7] The respondent claimed that he had sold under duress and that, in all the
circumstances, he had been dispossessed of the subject properties. He therefore
lodged a claim under the provisions of s 2 of the Restitution Act on 28
December 1998, seeking equitable redress in the form of financial
compensation for this dispossession. This was the beginning of a long and
drawn-out process which eventually culminated in the order of the court a quo
against which the applicants seek to appeal.
[8] A period of almost six years elapsed before the second applicant, in a letter
dated 16 August 2004, accepted the respondent‟s claim as valid. On 8
November 2006, negotiations between the second applicant and the respondent
resulted in an offer to pay the respondent R6,9 million. This was rejected and
no further progress was made until 18 August 2010, when the Land Claims
Court granted a mandamus compelling the second applicant to refer the
respondent‟s claim for adjudication. It was only pursuant to this that, on 13
November 2010, the second applicant referred the claim to the Land Claims
Court under the provisions of s 14(1) of the Restitution Act. In doing so, the
second applicant disputed that a valid claim had been lodged under s 2 of that
Act. The basis for it doing so was its contention that the compensation the
respondent had received at the time of his dispossession constituted just and
equitable compensation as contemplated under s 2(2). However, the merits of
the claim, namely, that the respondent had suffered a dispossession when he
had sold the farms under duress, remained undisputed.
[9] The matter was set down for trial on 6 May 2013. As appears from what I
have said, at that stage the sole issue was whether the respondent had received
just and equitable compensation at the time of his dispossession, such
dispossession being at that stage common cause. Shortly before the trial,
however, the second applicant delivered a notice of amendment seeking to
withdraw the admissions contained in the referral; in particular, the admission
that the respondent had been dispossessed. After a pre-trial conference, the
respondent agreed to the amendment and to the trial proceeding solely on the
question of whether there had been a dispossession of his rights in land when he
sold the subject properties in 1977.
[10] Accordingly, the Land Claims Court then proceeded to decide as a
separate issue whether there had been a dispossession as envisaged by the
Restitution Act. After hearing evidence, it held in favour of the respondent and,
on 9 May 2013, granted an order declaring that the respondent had indeed been
dispossessed of rights in land in respect of the subject properties. Subsequently,
on 30 July 2013, the Land Claims Court dismissed an application for leave to
appeal against that order.
[11] The applicants, however, persisted in disputing that the respondent had
been dispossessed, and petitioned this court for leave to appeal. In doing so they
contended, inter alia, that the respondent, as a white person, did not fall within
the category of those who are entitled to restitution under the Restitution Act
and that the Land Claims Court had erred in finding to the contrary. They went
on to allege that even if the respondent was within the class of persons entitled
to restitution, he had not been dispossessed of rights in land in that the sale
under coercion or duress could not be regarded as a dispossession. All of this
flew in the face of a long list of judgments, unnecessary to mention in this
judgment, but which the applicants argued were merely obiter.
[12] In any event, the application for leave to appeal to this court was refused,
as was a subsequent application for leave addressed to the Constitutional Court.
That brought finality in the respondent‟s favour on the issue of whether there
had been a dispossession. Accordingly only the issue of compensation remained
to be determined. In this convoluted way the matter returned to the court a quo,
in mid-June 2014, for it to determine what compensation the respondent should
be paid as equitable redress.
[13] In determining what redress would be appropriate, the court a quo
undertook as its starting point an assessment of the financial loss suffered by the
respondent at the time of the dispossession. This was in accordance with the
decision of the Constitutional Court in Florence.2 Consequently the primary
issue between the parties in the court a quo was the value of the subject
properties in 1977, and whether the respondent had been under-compensated
when he sold them.
[14] Turning to the question of value, it should be recorded that the subject
properties are situated to the north of the Winterberg range. They are blessed
with sweetveld grazing which remains palatable and nutritious throughout the
year and provides a relatively low cost, but high quality, food source for
livestock. Together with that of the Smaldeel (a region I shall mention later) the
subject properties fall within an area generally regarded as being one of the best
livestock areas in the country, known to be tick-free and, importantly, largely
disease-free. They also enjoy a high average rainfall of 450-500mm per annum,
falling mainly during the summer and autumn. Moreover, unlike most of the
properties nearby where water is not perennial, the subject properties are
transected by the Swart Kei River which runs through them. Not only is the
river perennial but it is additionally fed by the Limietskloof and Thrift irrigation
dams. Their soils are inherently fertile, there being deep, irrigable soils
straddling the Swart Kei. As a result, drought, that constant enemy of South
African farmers, was not as serious a problem for the respondent as it was to
2 Florence v Government of the Republic of South Africa 2014 (6) SA 456 (CC) paras 129-134.
many others, not only as there was water for stock but fodder was produced
from irrigated lands to provide feed.
[15] By reason of the way the argument developed in this Court, it is not
necessary to deal in any further detail with the improvements on the subject
properties or the benefits Mother Nature had bestowed upon them. Suffice it to
say that they formed an integral part of the assets used by the respondent and
his three brothers with whom he farmed in partnership. The partnership
conducted a flourishing enterprise. It ran in excess of 1 000 cattle and 10 000
sheep. It had both a race horse stud and a Dorper sheep stud as well as a dairy
herd of some 560 Jersey cows. Three hundred hectares of lands, more than a
third of which which were located on the subject properties, were under
irrigation and provided mainly lucerne at a yield of some 15 tons per hectare
per annum. The subject properties were thus magnificent farms of considerable
value.
[16] The respondent was paid R475 700 for the subject properties in 1977,
being R321 500 in respect of the farm Thibet Park and R154 100 in respect of
the Keys Poort. These were the amounts reflected in a valuation report prepared
by a valuer employed by the State at the time, a Mr Prinsloo. Neither side relied
upon his valuation which was justifiably and stringently criticised by the court a
quo. However, despite the glaring inconsistencies that it contained, and
Mr Prinsloo‟s apparent failure to appreciate the value of the abundance of water
on the subject properties (factors which the court a quo found justified the
rejection of his valuation), both the applicants and the valuers who testified on
their behalf steadfastly maintained during evidence that the amount the
respondent had been paid had amounted to adequate compensation.
[17] However during the course of argument the applicants changed their
stance, and the court a quo recorded:
„Whilst the [appellants‟] valuers and their counsel maintained throughout that the
[respondent] had been adequately compensated, surprisingly in their heads of argument they
advocated that the sum of R3,209,000 be determined as just and equitable compensation. I
shall attempt to explain the calculation leading up to this as was explained to me. Mr Notshe
said that they had arrived at this figure by adding a solatium of R28,375 calculated in
accordance with s 12 of the Expropriation Act No 63 of 1975 to the market value of
R467,500 as of date of dispossession determined by them, resulting in a shortfall of R20,175
adjusted to a present value of R605,250. They then arrived at a shortfall of 3 to 5 million rand
between the current value of R467,500 which they estimated to be R14,025,000, and the sum
of R17 million, to R19 million which they estimated (without any explanation or motivation)
to be the value of the subject properties, had they remained in the plaintiff‟s possession. They
thereafter estimated (once again without explanation) that R2,6 million would be just and
equitable compensation, and added R605,250 to this figure to arrive at R3,209,000 as a final
just and equitable compensation figure. It is of grave concern that the [applicants] saw fit to
provide such random and unmotivated figures unsupported by evidence only at the stage of
argument.‟
[18] The applicants changed their stance again in this Court. They reverted to
contending that the amount paid to the respondent at the date of dispossession
had been adequate and that no further redress under the Restitution Act was
justified. But as is apparent from what is set out below, the basis of this
contention changed from that adopted during the trial and in respect of which
leave to appeal to this court had been granted – namely that the respondent had
in fact been paid more than the subject properties were worth – to an argument
that even if there had been a substantial under-payment, no further financial
compensation should be paid to the respondent.
[19] In advancing his case that he had been paid substantially less than he
ought to have been, the respondent relied upon the expert testimony of
professional associated valuers, Mr Henderson and Prof Tainton, the latter
being a professor emeritus at the University of KwaZulu-Natal. In their
valuations of the subject properties, they relied upon what has become known
as „the Smaldeel norms‟ for land values. Produced by a committee of
agricultural and property experts, these norms were based on the market value
of a broad spectrum of agricultural properties in the so-called „Smaldeel‟. This
is a high rainfall area situated between the Keiskamma and Kat rivers, south of
Alice and in the vicinity of Fort Beaufort, and renowned for the high quality of
its livestock grazing. The Smaldeel norms were designed to achieve a measure
of uniformity of land values in the area as the government of the day was
determined to incorporate a number of farms in the Smaldeel region into Ciskei,
and needed an empirical basis to assess compensation for the farmers whose
land was to be acquired for this purpose. This led to the appointment of a
committee of experts in the field of pastoral science and agriculture who were
mandated to determine an acceptable set of norms which could be used to value
these properties. Although these norms were only finally agreed upon in 1981, a
few years after the respondent had been dispossessed of the subject properties,
they were regarded by Mr Henderson and Prof Tainton to be appropriate for use
in the present case. This was as they took into account market transactions that
had occurred at a similar time and as the grazing and rainfall of the Smaldeel
are similar to that of the subject properties.
[20] Whilst the court a quo did not slavishly follow the evidence of the
respondent‟s valuers, it did accept the use of the Smaldeel norms as a means to
determine market value. On the other hand, it rejected the evidence given by the
valuers who testified for the applicants, Messrs Voges and Taylor, who had
relied for their valuation of the subject properties upon a list of sales provided
by a firm of accountants as possible comparable transactions, and had then
merely done a so-called „desktop‟ valuation without even inspecting the various
properties. The only relevance of the 12 transactions they had relied upon came
from a similarity of veld types and did not take account of any of the other
important features of the subject properties.
[21] In dealing with this evidence, the court a quo stated, quite correctly, that
„it is trite that a comparable transaction which has not been properly
investigated affords little assistance and that our courts have rejected valuations
on the grounds that valuers have not investigated sufficiently the transactions on
which they have relied‟. It went on to say:
„The fact that the defendants‟ valuations of the subject properties and the 12 transactions
were compiled on a desktop basis without visiting the properties led to inaccuracies in the
recordings of the extent and nature of the irrigation on both the subject properties and the 12
transactions. Crucially in respect of the subject property the defendants‟ reports largely
ignored the existence of 110 hectares of irrigated land. It is difficult to comprehend how the
defendants‟ valuers could have considered that a desktop valuation could suffice for the
purposes of the determination of value in a complex restitution claim. It is disquieting that
they saw fit to rely on this method especially in a disputed claim. A desktop valuation is a
procedure which flies in the face of accepted valuation practice requiring proper
investigation.
Then too in respect of the alleged comparable properties the defendants‟ initial report
contains no reference to arable, irrigable or irrigated land. In the table subsequently filed
irrigated land is indicated on some of the properties, but without explanation. The
discrepancies between the desktop valuation and the schedule is a cause for criticism, as is
the failure to provide the requested supporting maps, photographs, collateral evidence and the
failure to access relevant historical documents. Simply to have based the valuation and
analysis of the subject properties on the deeds of transfer, topo-cadastral maps and aerial
photographs was conduct unbefitting of a diligent valuer. So too, the failure to do their own
research and the acceptance without more of the instruction not to inspect the subject
properties. All things considered, the basic data that the defendants‟ valuers had was
insufficient to do a reliable valuation based on the comparable sales method or to determine
if the sales were arm‟s length transactions.‟
[22] In the light of these findings, the court a quo rejected the valuations of the
applicants‟ experts. Guided by certain of the evidence of the respondent‟s
experts, it donned its mantle of „super valuator‟3 and, after having closely
analysed various other sales of properties which it held were comparable in
various respects with the subject properties, concluded that when dispossessed
in 1977, the respondent had been under-compensated by an amount of
R568 909 (being R315 653 in respect of Thibet Park and R253 256 in respect of
Keys Poort).
[23] That sum, when transposed in terms of an agreed index to the current
value of money under s 33(eC) of the Restitution Act, is equivalent to an
amount of R16 427 889. To that figure the court a quo made a downward
adjustment, following the approach laid down by Moseneke ACJ in the
majority judgment in Florence where it was said:
„[124] Equitable redress must be sufficient to make up for what was taken away at the time
of dispossession. The amount of compensation has to be just and equitable reflecting a fair
balance between public interest and the interest of those affected after considering relevant
circumstances listed in s 33 of the Restitution Act. For instance, a history of hardship caused
by the dispossession may entitle a claimant to a higher compensation award in order to
assuage past disrespect and indignity.
[125] But compensation within the scheme of the Restitution Act is neither punitive nor
retributive. It is not to be likened to a delictual claim aimed at awarding damages that are
capable of precise computation of loss on a “but-for” basis. It is a constitutionalised scheme
paid out of public funds in order to find equitable redress to a tragic past. Ultimately, what is
just and equitable must be evaluated not only from the perspective of the claimant but also of
the State as the custodian of the national fiscus and the broad interests of society, as well as
all those who might be affected by the order made.‟
3 As to which see Southern Transvaal Buildings (Pty) Ltd v Johannesburg City Council 1979 (1) SA 949 (W).
[24] In the light of this dictum, the court a quo felt that the requirements of
justice and equity dictated that a downward adjustment of 10% would be
equitable to take account not only of the respondent‟s perception, but to also
take into consideration the concerns of the national fiscus in a strained economy
and as the interests of a society in which many land claims still have to be
settled. Applying such a deduction to the current value of the respondent‟s
calculated 1977 loss, it arrived at the sum of R14 785 00 ultimately awarded.
[25] The court a quo‟s determination of the value of the subject properties in
1977 was the essential finding which the applicants sought to impugn in their
application for leave to appeal. They contended that the court a quo had erred
both in rejecting their expert witnesses and accepting the evidence of those of
the respondent. They also contended that the punitive costs order granted
against them was not justified. In granting leave to appeal, the court a quo
stated that it was mindful of the fact that valuation is not an exact science and it
felt that another court could come to a different decision relating to its
valuation. It was thus apparent to the court a quo that, save for the costs issue,
the only relevant issue was that of the value of the subject properties in 1977.
[26] That it was indeed the relevant issue is borne out by the applicants‟ heads
of argument filed in this court. They were devoted almost entirely to the
question of the value of the subject properties in 1977, and traversed the
appropriateness of the use of the Smaldeel norms, the comparable transactions,
the rainfall capacity of the properties and allegedly inconsistent and unreliable
information which was taken into account – before concluding that the
respondent‟s experts as to value ought to have been rejected and that the
evidence of their valuators, that the subject properties had not been under-
valued, ought to have been accepted.
[27] However, at the outset of the hearing before this Court, no sooner had the
difficulties which the court a quo had with the applicants‟ experts been put to
him, leading counsel for the applicants promptly conceded that the applicants‟
experts had been correctly discredited and that their evidence could not be
relied upon, and that the court a quo had been entitled to have regard to the
respondent‟s evidence as to value. Not only was this a correct concession that
had to be made, but it was one that ought to have been obvious and made before
the trial in the court a quo. And to all intents and purposes, it effectively
abandoned the cardinal issue raised in the appeal.
[28] In addition, the applicants‟ counsel further conceded that the amount
determined by the court a quo could be regarded as being just and equitable
financial compensation for the dispossession the respondent had suffered.
However, he argued that it was not proper „redress‟ as referred to in s 25(7) of
the Constitution and s 33 of the Restitution Act.
[29] On this issue, it was contended that the court a quo had misdirected itself
by approaching the matter on the basis that it was bound to compensate the
respondent, which is not the same as determining redress. In this regard it was
argued that there had been a failure to distinguish between just and equitable
compensation payable in term of s 27(3) of the Constitution and equitable
redress assessed in terms of s 25(7) of the Constitution (this being a ground of
appeal inserted into the applicants‟ notice of appeal by way of a purported
amendment dated 17 May 2016). Moreover, in considering what redress was
appropriate, it was argued that the court a quo had also erred in deciding that
any amount at all should be paid to the respondent in that (a) he had been able
to procure another farm with what he had been paid for the subject properties ─
albeit in Molteno a hundred kilometres away ─ and (b) if the respondent had
built up his new farm, its current value should be taken into account as he might
well be in at least as good a position today as he may have been had the
dispossession not taken place.
[30] There is no merit in these contentions. It is quite clear from the judgment
of the court a quo, and its reference to the judgment in Florence, that it was
fully aware that although the land values were an important factor, it was not
the sole criterion relevant to what was appropriate redress. And in regard to the
second leg of this argument, it is now well established that what a dispossessed
person does with whatever compensation is received from the dispossession has
little to do with whether that compensation was adequate or not.4 As Moseneke
ACJ said in Florence:5
„This means that the scheme of the Restitution Act makes the time of dispossession the
critical starting point of an assessment of financial compensation. The government is right
that the purpose of the financial compensation is to provide relief to claimants in order to
restore them to a position as if they had been adequately compensated immediately after the
dispossession. It must be correct that just and equitable financial compensation does not aim
to restore claimants in current monetary terms to the position they would have been in had
they not been dispossessed, but rather the financial loss they incurred at the time of
dispossession. The Land Claims Court was correct to set the loss at the time of dispossession
of the market value of the property less the amount of compensation the applications had
received at the time of dispossession.‟6
This is precisely what the court a quo did in the present case, and the argument
that it erred or misdirected itself in doing so cannot be sustained.
[31] Counsel for the applicants also argued that no redress ought to have been
awarded as, when the respondent had been dispossessed, he was not obliged to
sell and could have remained in possession until the subject properties were
4 Haakdoornbult Boerdery CC & others v Mphela & others 2007 (5) SA 596 (SCA) para 43 referred to with
approval in Florence para 132. See further Ndebele-Nolzun dza Community v The Farm Kafferskraal 2003 (5)
SA 375 (LCC) para 29.
5 Para 132.
6 See further Florence para 148.
expropriated. Had that occurred he would have had the right to challenge the
amount at which the subject properties were expropriated and thereby recover
adequate compensation. It would therefore be wrong, so the argument went, to
allow him to obtain compensation now for what he had lost when he had failed
to avail himself of that opportunity in the past.
[32] This overlooks the fact that the threat of expropriation was indeed one of
the factors that led to the dispossession as it would have entailed a long drawn-
out process without certainty as to the amount the respondent would receive and
without any certainty as to his future. But even more importantly, the argument
in this regard is merely an echo of that which was made by the applicants in
their unsuccessful applications both to this court and to the Constitutional
Court. It was then alleged that there had been no dispossession as the
respondent‟s rights in land had been taken in exchange for compensation which
he had the right to challenge. Indeed, the applicant‟s argument that it would not
be just and equitable to afford relief in the circumstances amounts in essence to
an argument that there was no dispossession, an issue which has already been
finally determined against the applicants. The present matter must therefore
proceed on the basis that there was a dispossession. The sole issue in these
proceedings is the amount of financial compensation to be paid as redress, and
it ill behoves the applicants to argue that no redress should be paid despite there
having been a dispossession.
[33] As was held by the Constitutional Court in Mphela,7 and reiterated by
that court in Florence,8the Land Claims Court has a strict and true discretion
and enjoys wide adjudicative remedial powers conferred on it, inter alia, under
7 Mphela & others v Haakdoornbult Boerdery CC & others 2008 (4) SA 488 (CC) paras 25-26.
8 Florence para 112.
ss 33 and 35 of the Restitution Act.9 Consequently, the power of an appellate
court to interfere with the exercise of discretion by a Land Claims Court is not
without restraint but is limited by whether the discretion invested in that court
had not been judicially exercised or had been influenced by wrong principles or
a misdirection of the facts or was one that could not reasonably have been
made. Bearing that in mind, in the light of what I have set out above the
discretion exercised in the court a quo in this matter in regard to the financial
compensation to be awarded, appears to me to be immune from appellate
interference.
[34] So too does the award of costs on a punitive scale. It was argued on the
applicants‟ behalf that costs on a punitive scale was unjustified. However in
dealing with the question of costs, the court a quo correctly emphasized that the
second applicant, the Regional Land Claims Commissioner, is tasked by the
Restitution Act to support claimants and to assist them.10 The court went on:
„From the protracted history of this matter it would appear that the [respondent] received
very little support from the second [applicant]. In fact the Regional Land Claims
Commissioner, who is supposed to play a mediatory role, sided completely with the State as
a defendant and opposed the claim vehemently. It is also extremely disconcerting that the
Regional Land Claims Commissioner changed its stance so drastically from 2007 when a
settlement offer was made to the [respondent], presumably on the basis that he did not
receive just and equitable compensation, to the stance that the [respondent] was over
compensated, and thereafter once again changed to ultimately arrive at its current stance. The
various valuation reports obtained by the Regional Land Claims Commissioner are also
suggestive of an attempt to thwart the [respondent‟s] claim and not to assist. I note also my
concern that despite repeated attempts by the Court to get the parties to settle, the stance of
the [applicants] was intransigent in this regard.‟
Then after referring to authorities in which it had been held that officials such
as the second applicant are „functionaries who have to receive and investigate
9 Florence paras 116-117.
10 See in this regard s 6(1) of the Restitution Act which sets out the general functions of the Commission.
the . . . claim in an objective, fair and responsible manner‟11 and that the second
applicant‟s conduct in particular had been untenable, the court a quo concluded
that costs on a punitive scale was merited.
[35] Counsel for the applicants sought to criticise this reasoning in the light
of the facts of the present case. However, at first blush, the second applicant in
particular certainly did change its stance from offering to settle the claim by
paying millions of rand to contending that in fact no amount at all should be
paid. Indeed she has since persistently shown a lack of objectivity and has
relied on clearly fallacious reasoning and allegedly comparable transactions
which in truth were nothing of the sort.
[36] Moreover, the court a quo also exercised a judicial discretion in regard to
the costs. In this instance too, interference with that discretion can only be
justified in instances where it is found that the court of first instance did not act
judicially, or acted upon a wrong principle, or was influenced by wrong
principles or a misdirection of the facts, or reached a decision which could not
reasonably have been made by a court properly directing itself to all the
relevant facts and principles.12 In the light of what I have already mentioned,
there is no reasonable prospect of the applicants succeeding in establishing a
basis to interfere with the discretion exercised by the court a quo in regard to
costs.
[37] In any event, as for the reasons already given the applicants have no
prospect of success in regard to the merits of the dispute, it also becomes
relevant that it is trite that leave to appeal to this court need not be given where
the issue relates solely to the question of costs. That is a longstanding policy,
11 Hlaneki & others v Commission on Restitution of Land Rights & others [2006] 1 All SA 633 LCC para 30.
12 See Dobsa v Dlamini Advisory Services; Dlamini Advisory Services v Dobsa (050/2016) [2016] ZASCA 131
(28 September 2016) para 14 and the authorities therein cited.
now fortified by s 16(2)(a)(ii) of the Superior Courts Act 10 of 2013. There are
no exceptional circumstances present which justified departure from this rule
and there is thus no reason to allow an appeal solely in regard to costs.
[38] For these reasons there is in my view no reasonable prospect of an appeal
succeeding. That being so, the application for condonation and the
reinstatement of the appeal must fail.
[39] It is therefore ordered:
1 The application for condonation of the late filing of the record of the
proceedings in the court a quo and reinstatement and the appeal is dismissed
and the appeal is struck from the roll.
2 The applicants are to pay the respondent‟s costs, such costs to include the
costs of two counsel.
_______________
L E Leach
Judge of Appeal
Appearances:
For the Appellant:
V S Notshe SC (with him T Seneke)
Instructed by:
State Attorney, Mthatha
State Attorney, Bloemfontein
For the Respondent:
H S Havenga SC (with him O H Ronaasen SC)
Instructed by:
Roelofse Meyer Incorporated, Port Elizabeth
Honey Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
22 February 2017
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
MINISTER OF RURAL DEVELOPMENT AND LAND REFORM
and
IVOR LEROY PHILLIPS
The respondent, Mr Phillips, sold certain farming properties to the South African
Development Trust in 1977. He subsequently instituted action against the Minister
of Rural Development and Land Reform as well as the Regional Land Claims
Commissioner, Eastern Cape in which he claimed compensation under the
Restitution of Land Rights Act 22 of 1994, contending that the sale of the farms in
1977 constituted a dispossession envisaged by that Act for which he had not
received adequate compensation. The Land Claims Commissioner initially
attempted to settle the matter by paying a substantial sum of money but later
adopted the attitude, also taken by the Minister, that Mr Phillips, as a white person,
was not entitled to receive restitution under the Act.
The arguments advanced by the respondents in this regard flew in the face of a
long line of judgments to the contrary. On 9 May 2013 the Land Claims Court
granted an order claiming that Mr Phillips had indeed been dispossessed of rights
of land and that his sale of the properties, which had taken place under coercion
and duress, amounted to a dispossession. The Minister and the Land Claims
Commissioner both applied to the Supreme Court of Appeal for leave to appeal
against this decision. Their application was dismissed as was a subsequent
application for leave to appeal addressed to the Constitutional Court.
Consequently, in June 2014 the matter went back to the Land Claims Court for it to
determine what compensation should be awarded to Mr Phillips as equitable
redress under The Restitution Act. After evidence was led, the Land Claims Court
decided that Mr Phillips ought to be paid a sum of R14 785 000. The Minister and
the Commissioner appealed to the Supreme Court of Appeal against that award.
However, they allowed their appeal to lapse and, when the matter came before the
Supreme Court of Appeal, it was necessary for them to apply for condonation and
reinstatement of their appeal. In considering these questions, the court had regard
to the prospects of the appeal succeeding.
The principal point on which the appeal was based, was the contention that the
Land Claims Court had erred in valuing the farms by having regard to the so-called
‘Smaldeel norms’ which had been used by the respondent’s expert witnesses in
their valuation of the property, and that the evidence of the experts the Minister and
Commissioner had called on value ought to have been accepted. However, in
argument, counsel for the Minister and the Commissioner conceded that their
witnesses had been correctly discredited and that the Smaldeel norms were
appropriate.
The appellants also contended that as the compensation Mr Phillips had been paid
had been used by him to farm successfully, he should not be awarded any further
redress. This the SCA held flew in the face of the judgment of the Constitutional
Court in Florence the Government of the Republic of South Africa 2014 (6) SA 456
(CC) para 132 where it was held that it is correct to set the loss at the time of
dispossession having regard to the market value of the property less the amount of
compensation received at the time of dispossession.
The SCA also rejected an argument that no redress ought to be awarded as
Mr Phillips had not been obliged to sell and could have remained in possession
until his farms had been expropriated when he could have challenged the
compensation.
Turning to the question of costs, the Land Claims Court had ordered the applicants
to pay costs on the scale between attorney and client. The Supreme Court of
Appeal held that there is no reasonable prospect of it being shown that this
discretion had been improperly exercised.
As there was no prospect of the proposed appeal succeeding, the application for
condonation of the late filing of the record for the proceedings and the
reinstatement of the appeal was dismissed, and the appeal was struck from the
roll.
|
3288
|
non-electoral
|
2006
|
REPUBLIC OF SOUTH AFRICA
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
Case number 008/06
Reportable
In the matter between:
ROBERT GREEN FIRST APPELLANT
BHEKI MASHABA SECOND APPELLANT
and
THE STATE RESPONDENT
CORAM:
FARLAM, HEHER JJA et CACHALIA AJA
HEARD:
11 JANUARY 2006
DELIVERED:
3 MARCH 2006
SUMMARY:
Criminal Procedure – bail – refusal – Court’s discretion to invoke
s 60(3) Act 51 of 1977.
Neutral citation: This judgment may be referred to as R Green and Another v The
State [2006] SCA 3 (RSA).
________________________________________________________
JUDGMENT
________________________________________________________
FARLAM JA
INTRODUCTION
[1] The two appellants in this matter, who are charged in the
magistrate’s court for the regional division of Mpumalanga with robbery
with aggravating circumstances involving the use of firearms, appealed to
the Pretoria High Court against the decision by a regional court magistrate
to dismiss their application for bail and to order, in terms of section
60(11)(a) of the Criminal Procedure Act 51 of 1977, as amended (to which
I shall refer in what follows as ‘the Act’), that they be detained in custody
until dealt with in accordance with the law.
[2] The magistrate had found that the appellants had failed to establish
exceptional circumstances justifying their release on bail in the interests of
justice.
[3] Bosielo J dismissed the appellants’ appeal, holding that the
magistrate was correct in finding that there were no exceptional
circumstances justifying the release of the appellants on bail in the
interests of justice.
2.
RELEVANT STATUTORY PROVISIONS
[4] It is convenient at this stage to set out the statutory provisions
which are relevant in this matter. They are contained in section 60(1), (2),
(3), (10 and (11).
These sub-sections, as far as is material, read as follows:
‘(1)(a) An accused who is in custody in respect of an offence shall … be
entitled to be released on bail at any stage preceding his or her conviction
in respect of such offence, if the court is satisfied that the interests of
justice so permit.
(2) In bail proceedings the court –
. . .
(c) may . . . require of the prosecutor or the accused . . . that evidence be
adduced . . . .
(3)
If the court is of the opinion that it does not have reliable or
sufficient information or evidence at its disposal or that it lacks certain
important information to reach a decision on the bail application the
presiding officer shall order that such information or evidence be placed
before the court.
…
(10) Notwithstanding the fact that the prosecution does not oppose the
granting of bail, the court has the duty … to weigh up the personal
interests of the accused against the interests of justice.
(11) Notwithstanding any provision of this Act, where an accused is
charged with an offence referred to –
(a)
in Schedule 6, the court shall order that the accused be detained in
custody until he or she is dealt with in accordance with the law, unless the
accused, having been given a reasonable opportunity to do so, adduces
evidence which satisfies the court that exceptional circumstances exist
which in the interests of justice permit his of her release. ..’
[5] Among the offences listed in Schedule 6 of the Act is robbery
involving the use by the accused or any co-perpetrators or participants of a
firearm.
[6] In terms of section 65(4), which deals with bail appeals to the High
Court from decisions in lower courts, the court hearing the appeal ‘shall
not set aside the decision against which the appeal is brought, unless such
court … is satisfied that the decision was wrong, in which event the court
… shall give the decision which in its … opinion the lower court should
have given.’
[7] Section 60 of the Act was extensively added to by amendments
effected by the Criminal Procedure Second Amendment Acts of 1995 (Act
75 of 1995) and 1997 (Act 85 of 1997). These amendments gave rise to a
number of constitutional challenges to the new bail dispensation, including
the provision in subsection 11(a). These challenges were considered by
the Constitutional Court in a judgment reported as S v Dlamini; S v Dladla
and Others; S v Joubert; S v Schietekat 1999(4) SA 623 (CC). In what
follows I shall refer to that judgment as ‘the Dlamini decision’.
[8] The Constitutional Court upheld the constitutionality of the
provisions challenged. As far as sub-section 11(a) is concerned it held that
the inclusion of the requirement of ‘exceptional circumstances’ in the sub-
section limited the right ‘to be released from detention if the interests of
justice permit, subject to reasonable conditions’, which is enshrined in
section 35(1)(f) of the Constitution, but was a limitation which was
reasonable and justifiable in terms of section 36 of the Constitution.
3. PROCEEDINGS IN THE COURT OF FIRST INSTANCE
[9] In the charge sheet in the present case the State alleged that the
appellants were guilty of robbery with aggravating circumstances (as
defined in section 1 of the Act) in that on the 9th September 2005 at or
near Nelspruit they assaulted four persons and with force took from them
R7 276 150, the aggravating circumstances being the use of firearms.
[10] When the appellants first appeared in court there were two persons
charged with them, namely PT Makhakula and SG Nkosi. The appellants’
attorney, who was also appearing for Makhakula and Nkosi, opposed an
application brought by the State for a postponement to enable it to prepare
for a bail application to be brought by the appellants and their co-accused.
Shortly after an adjournment to enable discussions between the
prosecutor and the defence attorney to take place, the prosecutor
announced that he was withdrawing the case against Makhakula and
Nkosi and stated that they would probably be used as State witnesses.
The investigating officer, Superintendent MF Molapo, then testified in
support of the State’s application for a postponement.
[11] In cross-examination it emerged that the second appellant was the
security manager at the place where the robbery occurred. It was put to
him that Makhakula and Nkosi, who had apparently made statements
implicating the appellants, averred that they had been assaulted and
forced to make statements that were false. This he denied. The defence
then called Makhakula and Nkosi, who repeated under oath what the
defence attorney had put to Superintendent Molapo.
[12] The State’s application for a postponement of the case until 24
October 2005 was granted.
[13] On 24 October 2005 the defence attorney applied for access to the
police docket, but this application was refused by the magistrate, basing
his decision on section 60 (14) of the Act, which in terms provides that an
accused does not have the right of access to the police docket at the bail
stage.
[14] The magistrate did, however, grant a defence application calling on
the State to indicate on what grounds it averred that the appellants were
linked to the robbery.
[15] In response to this the prosecutor gave the following information as
to the grounds on which the State relied for its contention that the
appellants were linked with the robbery:
(a)
an amount of approximately R80 000 had been seized by the
police, who were in the process of investigating whether this money could
be identified as part of the R7 million taken during the robbery;
(b)
the appellants were also connected to the crime by fingerprints;
(c)
they had been identified as persons visible on closed circuit
television film taken during the robbery;
(d)
clothing resembling that worn by participants in the robbery was
subsequently seized while in their possession;
(e)
certain vehicles had been bought immediately after the robbery,
some of which had, as the prosecutor put it, been ‘confiscated’ by the
Asset Forfeiture Unit;
(f)
some of the properties so purchased had disappeared but the
police and the Asset Forfeiture Unit had the necessary particulars
regarding these properties;
(g)
two persons [clearly in the circumstances he was referring to
Makhakula and Nkosi] had made statements implicating the appellants.
[16] The defence attorney then applied for access to the closed circuit
television tapes. The State opposed the application and it was dismissed.
[17] On the following day the two appellants testified in support of their
application. They both denied that they were linked in any way with the
robbery. The second appellant said that he was not at the scene when the
robbery took place but had been there earlier and that while he was on his
way to go to one of the paypoints he had been telephoned and told about
it. Both appellants testified that they would stand their trial, not interfere
with state witnesses or the police investigation and not commit any
offences in the interim.
[18] Superintendent Molapo, the investigating officer, then testified for
the State in support of the State’s opposition to the application. Most of
what he said in chief was destroyed in cross-examination and it is
accordingly unnecessary for me to summarise it. The magistrate was well
aware of the aspects in respect of which Superintendent Molapo’s
evidence was discredited in cross-examination. The aspects on which he
relied in his judgment were the following:
(a)
the first appellant’s fingerprints were found on the utility vehicle
which was used by the robbers as a getaway vehicle to escape with the
proceeds of the robbery and which was later found abandoned;
(b)
it is clear from the video film taken by the closed circuit television
camera that the first appellant was the driver of the getaway vehicle;
(c)
a t-shirt which the first appellant wore when he appeared in court
resembled the t-shirt worn by the appellant during the robbery according to
what could be seen on the closed circuit television film;
(d)
the second appellant could be seen on the closed circuit television
film arriving for work substantially before the normal time, talking to two
security officers, embracing them and kissing one of them, a female,
leaving the scene and returning to report for work in the normal manner,
the security officers in question being the persons who were later seen
helping the robbers to load the proceeds of the robbery onto the getaway
vehicle;
(e)
the second appellant’s employer stated in an affidavit that the
second appellant had reported to him before the robbery that the first
appellant had approached him for information to enable him to commit a
robbery, that the second appellant had been told to investigate the matter
so that a case could be brought against the first appellant, which did not
happen before the robbery took place;
(f)
the State was in possession of other affidavits which indicated that
the second appellant, although it had nothing to do with his job description,
had on various occasions shortly before the robbery made enquiries
relating to the amount of cash that was in the safe on the premises at
certain times.
(Counsel for the State conceded in the course of argument in this court
that there were no other aspects of Superintendent Molapo’s evidence
which survived the cross-examination and which require to be considered.)
[19] The appellants’ attorney submitted that the appellants had
established the presence of exceptional circumstances which justified their
release as being in the interests of justice. He contended that the
appellants’ evidence, which had not been contradicted, should be
accepted and that the evidence of the investigating officer should be
rejected. He then subjected this evidence to detailed criticism which it is
not necessary for me to repeat. Dealing with the evidence that the
appellants were linked with the robbery by what appears on the closed
circuit television video he pointed out that the State whose case could in
no way be prejudiced by showing the video to the court, possibly even in
the absence of the appellants and their attorney, had refused to do so.
Relying, inter alia, on the judgment of this Court in S v Botha 2002 (1)
SACR 222 (SCA) at para [21], in which it was said that proof by an
accused that he will probably be acquitted can constitute exceptional
circumstances, he submitted that was in fact no evidence against the
appellants and that they should accordingly be released on bail.
[20] In his judgment refusing the application the magistrate held that,
although there were certain aspects in respect of which Superintendent
Molapo’s evidence rested, as he put it, on ‘wankelrige bene’, there were
other aspects ‘wat wel deeglik water hou’ and on the strength of which he
could find that there was what he called ‘’n prima facie sterk saak’ against
the appellants. The aspects to which he referred are those summarized in
par [18] above. He was not prepared to find that Superintendent Molapo’s
evidence on these points could be rejected. His reasoning on the point
appears from the following passage in his judgment:
‘… ons [weet] almal dat meineed ‘n ernstige misdaad is en indien Malapo
vir die Hof gelieg het aangaande die sterk saak teen die beskuldigdes wat
op hierdie stadium tot beskikking van die Staat is dan kan hy van meineed
aangekla word en sal hy waarskynlik in sy posisie en hoedanigheid direkte
gevangenisstraf in die gesig staar. As dit dus sou blyk dat Malapo onder
eed in hierdie hof gelieg het oor die feit dat beskuldigde nommer 1 se
vingerafdrukke op die gewraakte voertuig gevind is en dat die Staat
inderdaad oor daardie getuienis beskik, sal dit baie maklik wees vir die
Staat om hom te vervolg op ‘n aanklag van meineed. Dieselfde gaan
natuurlik oor of indien hy sou gelieg het oor dit wat waarneembaar is op
die beelde van die geslote kring televisie kameras of die ander
getuieverklarings waarna hy verwys het met verwysing na beskuldigde 2
se betrokkenheid. Daarmee saam kan daar natuurlik, indien hy gelieg het,
uiteindelik ‘n geweldige siviele eis teen hom ingestel word, teen hom en
die toepaslike ministers vir kwaadwillige arrestasie en vervolging en
kwaadwillige opponering van die borgverrigtinge. Alhoewel Malapo my
verstom het in sekere aspekte van die reg soos dat hy nie weet wat ‘n
Bylae 1 misdaad is nie, glo ek dat hy wel deeglik bewus is van die risiko’s
verbonde daaraan om te lieg oor die feite soos ek hier uitgespel het. Op
grond daarvan of weens hierdie observasies voel ek dat ek nie in ‘n
posisie is om te bevind dat Malapo inderdaad ‘n ongeloofwaardige getuie
is wie se getuienis verwerp moet word aangaande die getuienis wat tans
teen die beskuldigdes beskikbaar is nie en moet ek vir doeleindes van
hierdie saak bevind dat daar op sterkte van Malapo se getuienis inderdaad
‘n prima facie sterk saak teen die twee beskuldigdes uitgemaak kan word
ongeag hulle ontkenning dat hulle by die pleging van die misdade betrokke
was of nie.’
JUDGMENT OF COURT A QUO
[21] In his judgment dismissing the appellants’ appeal Bosielo J held
that as the appellants had not appealed against the magistrate’s refusal to
allow the appellants access to the police docket or to the material therein
which implicates the appellants, his function was limited to deciding
whether ‘the facts put on record by the appellants [met] the low threshold
as postulated in [the Dlamini decision] with regard to “exceptional
circumstances”.’ His conclusion, based on that approach was that the
magistrate’s approach could not be faulted and the appeal had to be
dismissed.
APPELLANTS’ CONTENTIONS BEFORE THIS COURT
[22] Arguing the matter in this Court counsel for the appellant submitted
that the magistrate had erred in relying on certain portions of
Superintendent Malapo’s evidence for his finding that there was a strong
prima facie case against the appellants. In this regard he pointed out that
on other important parts of the case Malapo had been shown to be
untruthful and submitted on the strength thereof that he had been shown
to be an arrogant witness, who was not deterred by the law of perjury from
giving evidence which was demonstrably false. In the circumstances, he
submitted, it was inappropriate to rely on his ipse dixit on matters as to
which the State could easily have produced the closed circuit television
video and statements from its fingerprint expert and the second appellant’s
employer and the person or persons to whom he addressed the enquiries
referred to earlier. Producing the video and the statements would not have
led to a dress rehearsal of the State’s case and would not have prejudiced
it any way. On the other hand, if the appellants’ evidence, which had not
been
significantly
challenged
in
cross-examination,
was
correct,
Superintendent Malapo’s evidence relating to the video and the
fingerprints must be false. It followed, he contended, that the appeal
should succeed and the appellants released on bail.
DISCUSSION
[23] I agree with this criticism of the magistrate’s approach and am
satisfied that the order he made cannot stand. It is accordingly incumbent
on this Court, acting in terms of section 65(4) of the Act, to give the
decision the magistrate should have given. I do not think that the
appellants’ counsel’s submission that this Court should order that the
appellants should be released on bail can be accepted without more. It
seems to me, on the particular and in some respects peculiar
circumstances of this case, that one cannot assume that the prosecutor’s
refusal to give the defence access to the closed circuit television video can
necessarily be explained on the basis that Superintendent Malapo’s
evidence in regard thereto was false: it is possible, to put it no higher, that
the prosecutor had not seen the video. (The defence application did not
relate to the other items of evidence.) It is clear from section 60 (10) that
the court’s function in a bail application is intended to be more pro-active
than in normal criminal proceedings. As it was put in the Dlamini decision
(at para [11]), ‘a bail hearing is a unique judicial function’ and ‘the
inquisitorial powers of the presiding officer are greater’. On a proper
consideration of the case on which the State relied any reasonable court
must have concluded that it lacked reliable and important information
necessary to reach a decision, notwithstanding that such information was
apparently readily available. In such circumstances the court has no
discretion but to invoke s 60(3). In my view, the magistrate should, instead
of refusing bail without more, have ordered the State to grant the defence
access to the video tapes and any statements made by the police
fingerprint experts linking the fingerprints of either of the appellants with
the crime, with the decision on whether or not to grant bail to be made
thereafter.
[24] I am aware that such an order would have been contrary to that
made earlier by the magistrate when the defence had applied for access to
the video tape but that decision was interlocutory and subject to revision in
the light of subsequent events, in this case the substantial demolition of
evidence of the investigating officer. (The fact that that decision was not
attacked on appeal, something which appears to have influenced the
learned judge in the court below, takes the case no further. An appeal
against the magistrate’s decision would have been confined to the matter
before him when he refused to order the production of the video tapes and
may well have been unsuccessful.)
ORDER
[25] The following order is made:
1.
The appeal succeeds.
2.
The order made in the court a quo is set aside and replaced by the
following:
‘A.
The appeal succeeds.
B. The order made by the magistrate is set aside and replaced by
the following:
“1.
No order on the bail application is made at this stage.
2.
The State is ordered to grant the defence access to
the video tapes and any statements made by the
police fingerprint experts relating to the fingerprints of
either the appellants linking them with the crime.”’
……………..
IG FARLAM
JUDGE OF APPEAL
CONCURRING
HEHER
JA
CACHALIA AJA
|
MEDIA STATEMENT – CASE HEARING IN SUPREME COURT OF APPEAL
Robert Green and Another v The State
Supreme Court of Appeal -63/04
Hearing date: 11 January 2006
Judgment date: 3 March 2006
Criminal Procedure – bail – refusal – Court’s discretion to invoke s 60(3) Act 51 of 1977
Media Summary of Judgment
Two Mpumalanga men, who are standing trial in the Regional court, Nelspruit, were partially successful
in their appeal to the Supreme Court of Appeal against the refusal by the regional magistrate to release
them on bail.
The Supreme Court of Appeal held today that the magistrate erred in making an order refusing to grant
bail to Robert Green and Bheki Mashaba, who are charged with participating in an armed robbery at
Nelspruit in September last year when over R7 million was taken. Green and Mashaba had testified at
the bail hearing that they had not been involved in any way in the robbery. They said that in the
circumstances there could be no case against them and that this constituted an exceptional
circumstance justifying their release on bail.
In reply the State called the investigating officer, Superintendent MF Molapo, who said there was a
strong case against them, including a closed circuit TV video tape showing that Green had driven the
getaway vehicle used in the robbery and Mashaba, who was the security manager at the place where
the robbery occurred, embracing the security officers who helped the robbers to load the proceeds of
the robbery onto the getaway vehicle as well as evidence that Green’s fingerprints were later found on
the getaway vehicle which was abandoned after the robbery.
Superintendent Molapo was cross-examined at the bail hearing and large portions of his evidence
were shown to be false.
The State refused to allow the defence access to the closed circuit television tapes.
The magistrate said that there was no reason to reject Molapo’s evidence regarding the television
tapes or the fingerprints and accordingly refused bail. An appeal to the Pretoria High Court was
unsuccessful.
Giving judgment in the Supreme Court of Appeal Mr Justice IG Farlam, with whom Mr Justice J Heher
and Mr Justice A Cachalia concurred, said that the magistrate should not in the circumstances have
accepted Molapo’s evidence and should have ordered the State to make available to the defence the
television tapes and the fingerprint evidence.
The decision to refuse bail was set aside and replaced by an order declining to make an order on the
bail application at this stage and directing the State to make the television tape and the statements by
the fingerprint experts available to the defence.
|
3013
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 20470/2014
In the matter between:
FOUR ARROWS INVESTMENTS 68 (PTY) LTD
APPELLANT
and
ABIGAIL CONSTRUCTION CC
FIRST RESPONDENT
THE REGISTRAR OF DEEDS, PRETORIA
SECOND RESPONDENT
Neutral citation:
Four
Arrows
Investments
v
Abigail
Construction
(20470/2014) [2015] ZASCA 121 (17 September 2015)
Coram:
Lewis, Mhlantla, Willis, Saldulker and Swain JJA
Heard:
8 September 2015
Delivered:
17 September 2015
Summary:
Whether option had been granted: option for the purchase of a
portion of agricultural land without Ministerial consent – prohibited in terms of s
3(e)(i) of the Subdivision of Agricultural Land Act 70 of 1970.
ORDER
On appeal from: Gauteng Division of the High Court, Pretoria, (Bam J sitting as
court of first instance).
The appeal is dismissed with costs such costs to include the costs of two counsel.
JUDGMENT
_______________________________________________________________
Swain JA (Lewis, Mhlantla, Willis and Saldulker JJA concurring):
[1] The central issue in this appeal is whether a contract concluded between the
appellant, Four Arrows Investments 68 (Pty) Ltd (Four Arrows), and the first
respondent, Abigail Construction CC (Abigail), conferred upon Four Arrows an option
to purchase a demarcated portion of an undivided immovable property, or whether
the contract constituted a sale of the property, which was subject to a suspensive
condition.
[2] The importance of the distinction for Four Arrows lies in its submission that
an option for the sale of a portion of agricultural land, the nature of the immovable
property in question, does not fall within the prohibition contained in s 3(e)(i) of the
Subdivision of Agricultural Land Act 70 of 1970 (the Act). This section provides that
‘no portion of agricultural land . . . shall be sold or advertised for sale . . . unless the
Minister has consented in writing.’ The definition of ‘sale’ in s 1 of the Act includes a
sale subject to a suspensive condition.
[3] Four Arrows unsuccessfully relied upon this submission in seeking an order
before the Gauteng Division of the High Court, Pretoria, compelling Abigail to pass
transfer of the whole property to it. Transfer was sought in reliance upon additional
terms in the contract, which made provision for this eventuality in the event of the
sale agreement between Abigail and the liquidators of an insolvent company, from
whom the property was to be acquired, not proceeding, or the consent of the Minister
of Agriculture (the Minister) to the subdivision of the property not being obtained.
[4] The court a quo (Bam J) held that the contract constituted a sale subject to a
suspensive condition, being the approval of the Minister. In reliance upon the
decision of this court in Geue & another v Van der Lith & another [2003] ZASCA 118;
2004 (3) SA 333 (SCA), it declared the contract void, as claimed by Abigail in its
counter-application. The appeal against this decision is with the leave of this court.
[5] Apart from the clause in the contract purporting to confer an option upon
Four Arrows, the remaining clauses all clearly indicate that a sale of the property
subject to a suspensive condition was intended by the parties. The contract is
headed ‘Agreement of sale of immovable property. . . .’ Abigail and Four Arrows are
respectively defined as ‘the seller’ and ‘the purchaser’ and it is provided that ‘[t]he
seller hereby sells to the purchaser who hereby purchases the property, at the price
and upon and subject to the terms and conditions herein contained.’
[6] Although it is recorded that Four Arrows has agreed to assist Abigail in
financing the payment of Abigail’s purchase price for the property in the amount of
R4 047 000, it is then recorded that this amount ‘constitutes payment of the
purchase price due to the seller by the purchaser, payable in advance’. It is common
cause that this amount was paid: Abigail was ordered to repay Four Arrows by the
court a quo.
[7] In this context, clause 2.7.1 which purports to grant an option to Four Arrows
to purchase an undivided half share in the property is incomprehensible. The clause
provides as follows:
‘. . . [T]his Agreement shall be deemed to be an option to purchase the Property granted by
the Seller [Abigail] to the Purchaser [Four Arrows] at the price and upon and subject to the
terms and conditions hereof which option shall be exercisable by the Purchaser at any time
after the Purchaser and the Seller succeeds in obtaining the required consent to the
subdivision of the Property from Portion 175.’
[8] As its name implies, an option confers upon the option holder a choice
whether to enter into the main contract or not. It is clear, however, that no provision
is made in the contract for the repayment by Abigail of the purchase price paid in
advance, in the event of Four Arrows choosing not to exercise the ‘option’. This
eventuality was not catered for because the parties clearly envisaged the sale
proceeding without any election to purchase the property by Four Arrows, once the
consent of the Minister was obtained. The absence of this essential element
precludes the creation of an option by the parties. The fact that the parties recorded
that the agreement ‘shall be deemed to be an option to purchase the property’
matters not. Substance rather than form has to be considered to ascertain the true
nature of the transaction.1 Its true nature is that of a sale subject to a suspensive
condition, which is prohibited in terms of the Act.
[9] Even if a valid option to purchase had been conferred upon Four Arrows, the
outcome would be the same. In Geue (para 15) it was stated that:
‘The purpose of the Act is not only to prevent alienation of undivided portions of land. The
target zone of the Act is much wider. This is clear, for example, from s 3(e)(i), which also
prohibits advertisements for sale. Since advertisements obviously precede the actual sale or
alienation of an undivided portion, it is by no means absurd to infer that the Legislature
intended to prohibit any sale of an undivided portion of farmland, whether conditional or not,
unless and until the subdivision has actually been approved by the Minister. Courts are not
entitled, under the guise of absurdity, to avoid the Legislature’s clear intention because they
regard particular consequences to be harsh or even unwise. Moreover, once the intention of
the Legislature is clearly established, it can be dangerous to speculate as to why the
Legislature would have intended a particular result. . . .’
1 Roshcon (Pty) Ltd v Anchor Auto Body Builders CC & others [2014] ZASCA 40; 2014 (4) SA 319
(SCA) para 23 et seq.
[10] That the Legislature has prohibited the advertisement of a portion of
agricultural land for sale in the absence of Ministerial consent, clearly indicates that
the object of the legislation was not only to prohibit concluded sale agreements, but
also preliminary steps which may be a precursor to the conclusion of a prohibited
agreement of sale. In this context the grant of an option would clearly be a precursor
to the conclusion of a prohibited agreement of sale, at the election of the option
holder.
[11] That an option falls within the ambit of the prohibition contained in the Act
becomes clear when its true nature is considered:
‘The essence of an option is that it is binding on the option grantor. It is an offer, in this case
to sell property, which cannot be revoked. It is the option holder that has the choice whether
to exercise its right.’2
In the present context the option grantor purports to be bound to sell a portion of
agricultural land without Ministerial consent, on the election of the option holder,
contrary to the provisions of the Act. The fact that the option may provide, as in the
present case, that the option holder may only exercise the option after the consent of
the Minister has been obtained, matters not. In the interim, the option grantor
purports to be bound to sell a portion of agricultural land without Ministerial consent,
which remains contrary to the provisions of the Act.
[12] Counsel for Four Arrows submitted, however, that if clause 2.7.1 was found
to be null and void and unenforceable, the whole contract should not suffer the same
fate on the basis that the provisions of this clause were severable from the
remainder of the contract. On this basis the entitlement of Four Arrows to receive
transfer of the whole property, would be based upon the additional terms referred to
2 Du Plessis NO & another v Goldco Motor & Cycle Supplies (Pty) Ltd [2009] ZASCA 62; 2009 (6) SA
617 (SCA) para 15.
above, conferring this right on Four Arrows, in the event of the sale agreement
between Abigail and the original owner not proceeding.
[13] The probable intention of the parties as it appears from the contract as a
whole, was that the principal purpose of the contract was to enable Four Arrows to
purchase one half of the property. The provisions of the contract which provided for
the acquisition of the whole property were clearly subsidiary to this principal
purpose.3 The offending clause consequently results in the entire contract being null
and void.
[14] In any event, on the evidence, the agreement of sale between Abigail and its
seller did proceed to fruition. Four Arrows accordingly did not prove that it was
entitled to obtain transfer of the whole property.
[15] The following order is made:
The appeal is dismissed with costs such costs to include the costs of two counsel.
K G B Swain
Judge of Appeal
3 Sasfin (Pty) Ltd v Beukes [1988] ZASCA 94; 1989 (1) SA 1 (A) at 16B and 17D-E.
Appearances:
For the Appellant:
M C Erasmus SC (with him D Prinsloo)
Instructed by:
De Bruin Oberholzer Attorneys, Centurion
Symington & De Kok, Bloemfontein
For the Respondent:
C A Da Silva SC (with him J C Klopper)
Instructed by:
Corrie Nel & Co, Pretoria
Honey & Associates, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
17 September 2015
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form
part of the judgment.
Four Arrows Investments 68 v Abigail Construction (20470/2014) [2015]
ZASCA 121 (17 September 2015)
Media Statement
The fact that the parties to an agreement described it as an option, was held by the
SCA to be irrelevant when in substance it was a sale subject to a suspensive
condition and consequently prohibited in terms of Section 3(e)(i) of the Subdivision of
Agricultural Land Act 70 of 1970, in the absence of the requisite Ministerial consent.
The SCA also held that even if it was an option, the result would be the same. The
appeal was accordingly dismissed.
--- Ends ---
|
3062
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 20719/2014
In the matter between:
ABSA BANK LIMITED
APPELLANT
and
CHRISTINA MARTHA MOORE
FIRST RESPONDENT
JACQUES MOORE SECOND RESPONDENT
Neutral Citation: Absa v Moore (20719/2014) [2015] ZASCA 171 (26 November
2015)
Coram:
Lewis, Ponnan, Pillay and Saldulker JJA and Van der Merwe AJA
Heard:
6 November 2015
Delivered: 26 November 2015
Summary: Where a sale giving rise to the transfer of immovable property is induced
by fraudulent misrepresentation, such that the owner does not intend to transfer
ownership, registration of the transfer is of no force. A person who is not the owner
of immovable property cannot grant a valid mortgage bond over it.
___________________________________________________________________
ORDER
On appeal from: Gauteng Local Division of the High Court, Johannesburg (Chohan
AJ sitting as court of first instance):
The appeal is dismissed with the costs of two counsel, where so employed, save that
para 3 of the order of the court a quo is replaced with:
‘The applicants are the owners of the property situate at Erf 116, Three Rivers East
Township IR Gauteng.’
___________________________________________________________________
JUDGMENT
Lewis JA (Ponnan, Pillay and Saldulker JJA and Van der Merwe AJA
concurring)
[1] This appeal concerns a fraudulent scheme devised and implemented by
Brusson Finance (Pty) Ltd (Brusson), and to which many individuals and various
banks have fallen victim. Brusson has been liquidated and the fallout has left
individuals to litigate against banks in an attempt to preclude sales in execution of
their homes. Courts in the Free State and in Gauteng, where Brusson seems to have
defrauded most of their victims, have dealt with matters in different ways and
Brusson transactions have, to some extent, been differently structured in respect of
each victim.
[2] In the matter before us, the respondents Ms Christine Moore and her husband
Mr Jacques Moore, live in a home in Vereeniging, on Erf 116, Three Rivers East,
Gauteng. The street address is 6 Egret Avenue, Three Rivers East, Vereeniging.
The property was registered in the name of Ms Moore. She is married in community
of property to Mr Moore. The property was subject to five mortgage bonds in favour
of the appellant, Absa Bank Ltd (the Bank), and the amount owing to the Bank in
May 2009 was some R145 000. The Moores were in arrear in the payment of the
instalments on the bond. They were unable to pay other debts as well. When they
applied for an extension of their home loan the Bank declined to grant it because of
their poor credit rating. They were in dire financial straits.
[3] The Moores chanced upon an advertisement in the local newspaper for
Brusson financing. The advertisement appears as follows:
[4] The Moores required a loan of some R220 000. Mrs Moore contacted
Brusson on the telephone number set out in the advertisement, and spoke to a
representative. She was apparently keen to assist the Moores provided that they had
property to use as security for the loan. Brusson faxed to the Moores various
documents that they were required to fill in to facilitate their application for a loan.
They subsequently went to a Brusson office and signed three documents which they
believed gave effect to a loan to them and provided security for repayment of the
loan in the form of a bond over their property to Brusson. I shall return to the terms of
the documents and what the Moores were led to believe was their effect. In
summary, the first of the three documents was an ‘Offer to Purchase’ in terms of
which a person (the name of the purchaser, Mr Sunnyboy Kabini, was later inserted,
but not by the Moores) offered to buy the Moores’ home for R686 000, payable on
transfer of the property to him. The second was a ‘Deed of Sale’ in terms of which Mr
Kabini sold the property back to the Moores, the price to be paid in instalments. The
third was a ‘Memorandum of Agreement’ between Brusson, the Moores and Mr
Kabini that regulated their tripartite relationship.
[5] The Moores signed all three documents on 12 May 2009. On 31 June 2009
Mr Kabini applied to the Bank for a home loan, secured by a mortgage bond over the
property. The loan was granted. On 24 August 2009 the property was transferred to
Mr Kabini and a mortgage bond over it was registered in favour of the Bank. Five
bonds, all in favour of the Bank where the Moores were the mortgagors, were
simultaneously cancelled. The Moores were unaware that the property was
transferred and that a new bond was registered in favour of the Bank.
[6] Before then, and soon after their visit to the Brusson office, an amount of
R157 651 was paid into their bank account. They believed this to be the loan from
Brusson that would tide them over their financial plight. Brusson informed them that
this amount would be repayable in monthly instalments of R6 907 that would include
interest.
[7] The Moores could not pay these monthly instalments, and on 2 November
2009 Ms Moore applied for debt review under the National Credit Act 34 of 2005. A
debt counsellor was appointed and he applied to the Magistrates’ Court,
Vereeniging, for a restructuring of their debt obligations. He recorded the debt owing
to Brusson as a ‘bond’. In terms of the court order the Moores were required to repay
Brusson only R3 058 a month.
[8] In July 2010, the Moores received a letter from an attorney, Mr T C Hitge,
written on behalf of Brusson, advising that they were in breach of their obligation to
pay to Brusson the monthly instalment of R6 907. Significantly, Mr Hitge advised that
the instalments were payable in terms of the ‘Offer to Purchase and Instalment Sale
Agreement’ with Mr Kabini. The arrears said to be owing to Brusson at that stage
amounted to R43 597. He threatened the Moores with legal action.
[9] The Moores reacted to the letter by instructing an attorney, Mr W van Vuuren,
who, on 13 October 2010, wrote a letter of complaint to the National Credit
Regulator. Mr Van Vuuren advised the Regulator that the Moores had approached
Brusson when they experienced financial difficulty, and were under the impression
that an investor, Mr Kabini, would lend them money and that the property would be
the security for the loan. He referred to the letter from Mr Hitge, and advised that it
was the first time that the Moores had received notice that they had apparently sold
their property to Mr Kabini. He also advised that the Moores had applied for debt
review, that the monthly instalments payable to Brusson had been reduced and that
Brusson had been told of this.
[10] Mr van Vuuren referred the Regulator to the decision of Jordaan J in Ditshego
v Brusson Finance (Pty) Ltd in the Free State High Court (unreported case no
5144/2009, handed down on 22 July 2010) in which the court had held that similar
contracts with Brusson were invalid. He asked the Regulator for advice on how to
proceed on behalf of the Moores. Apparently no response to this letter was received,
and the Moores said they could not afford to pay a lawyer to represent them
anymore.
[11] On 23 March 2011, the Bank issued summons against Mr Kabini, who was in
default of his obligations under the bond. It took judgment by default on 12 July 2011
for payment of R500 067 plus interest and costs. The court declared the property
specially executable. On 3 August 2011 the Bank issued a writ of execution and a
notice of attachment of the property was served at the property of the Moores. It was
addressed to Mr Kabini, but it referred specifically to 6 Egret Ave, Three Rivers East,
Vereeniging, which was of course occupied by the Moores. The Sheriff noted that it
was received on 26 August 2011. The Moores knew then that the property was
attached in execution of Mr Kabini’s debt to the Bank.
[12] No further steps were taken after that by the Moores. It was only when the
Moores received a letter from Resque Financial Solutions, that was sent to Mr Kabini
at their address, that they realized that their home was going to be sold in execution
of someone else’s debt. The letter was dated 17 May 2013 and was received on 23
May. It was then that the Moores took action. They approached the Legal Resources
Centre (LRC) for legal advice. The LRC had been approached by several other
victims of the Brusson scam and it wrote immediately, on 27 May 2013, to the
Sheriff, Vereeniging and to the attorneys for the Bank, requesting the stay of the
execution, and stating that, if not stayed, the Moores would bring an urgent
application to prevent the sale.
[13] On 28 May 2013 the Moores brought an urgent application to interdict the sale
of the property in the South Gauteng High Court, and for the rescission of the default
judgment against Kabini. The application for the interdict was granted on 30 May
2013. And on 24 June 2013 they applied for declaratory orders that the three
agreements be declared invalid, that Ms Moore was entitled to restitution of the
property and that the mortgage bond over the property was invalid and should be set
aside. The applications were brought against the Sheriff for the District of
Vereeniging, Mr Kabini, the Bank (as third respondent), the liquidators of Brusson
and the Registrar of Deeds.
[14] Only the Bank opposed the applications. They were consolidated and heard
by Chohan AJ (in what had been renamed the Gauteng Local Division of the High
Court), who found for the Moores, and handed down judgment on 26 September
2013. The appeal against the orders of the court a quo is with its leave. That court
found that the agreement concluded between the Moores and Brusson, and the
agreements between the Moores and Mr Kabini, were ‘invalid, unlawful and of no
force and effect’. It also ordered that the Moores were entitled to restitution of the
property subject to two conditions: the reinstatement of the five mortgage bonds that
had been previously been registered over the property; and the Moores paying the
Bank the amount that they had received from Brusson, less any amounts that they
had paid to it. The court also set aside the mortgage bond over the property and the
default judgment, (in so far as at permitted execution) against Mr Kabini. It ordered
the parties to pay their own costs, having found that the Moores were in some
respects to blame for their predicament. The Moores have not cross-appealed
against the order that the restitution of their property be subject to conditions, nor
against the costs order.
The issues on appeal
[15] The Bank now focuses first on whether the court a quo correctly found that
the Moores were entitled to an order setting aside the mortgage bond, or an order
that deprives the Bank of its real right in the property. Secondly, the Bank argues
that it should not be deprived of its real right over the property when it was innocent
of any wrongdoing. The Bank argues that it advanced R480 000 to Mr Kabini in good
faith against the security of the bond and that the bond stands independently of the
invalid transactions. The Moores argue, on the other hand, that Mr Kabini did not
ever acquire ownership of the property and therefore could not grant security in the
form of a bond over the property.
[16] I shall return to these arguments as they are the crux of the appeal, but wish
first to clarify the law on which the court a quo’s judgment was based, its findings
and those of other courts that have dealt with the Brusson scam. Other grounds of
appeal, including that the agreement with Brusson did not amount to a pactum
commissorium, and that the agreements did not contravene the National Credit Act,
were not pursued at the hearing of the appeal.
[17] Moreover, the argument raised by the Bank in its heads of argument on
appeal, that the Moores should be estopped from disputing the validity of the transfer
of their property to Mr Kabini, was also not pursued at the appeal hearing. In its
heads of argument the Bank had also contended that the Moores had signed the
documents, which they had had ample opportunity to read, and were precluded from
arguing that the documents did not reflect their consensus by the principle underlying
the maxim caveat subscriptor. The principle is of no application in the face of fraud
and the argument was thus rightly not pursued at the appeal hearing.
The Brusson scam and the agreements that the Moores signed
[18] It is necessary, however, before turning to the legal principles on which the
court a quo, and other courts found, to deal with the salient provisions of the
agreements between the Moores, Brusson and Kabini. The first agreement signed
was headed ‘Offer to Purchase’. The Moores, on the face of it, sold their property to
Mr Kabini for payment of the purchase price of R686 000, payable on transfer. The
sale was conditional on Mr Kabini raising a loan, against a bond, of R480 000.
Occupation of the property was to be given to the Moores (despite the fact that they
were already in occupation) on transfer, and they were required to pay a monthly
sum in consideration for occupation of R7 909. The contract also required the
Moores to pay a commission of R47 910 to Brusson.
[19] The ‘Deed of Sale’ between the Moores and Mr Kabini provided that he sold
the property back to the Moores for R648 000, payable in monthly instalments of R7
578 plus interest. The full outstanding balance had to be paid within 36 months, and
on that happening, Mr Kabini would transfer the property back to the Moores.
Payment of the instalments was to be made to Brusson, not Mr Kabini, and in
addition, the Moores were required to pay an administration fee of some R2 207
monthly to Brusson. Mr Kabini was required to pay to Brusson an amount of
R168 000 in consideration for Brusson standing surety for his obligations.
[20] The third contract was the tripartite ‘Memorandum of Agreement’ that
regulated the relationship of Brusson, the Moores and Mr Kabini. It reflected the
obligations already purportedly arising out of the other two agreements.
[21] As I have indicated, the three contracts are typical of those that have been
examined by the provincial divisions in other matters involving the Brusson scam,
and the divisions have generally followed the same approach in deciding that the
contracts signed by victims of the scam are invalid.
The approach of the court a quo and other courts
[22] The decisions dealing with the Brusson scam include Ditshego v Brusson
Finance (Pty) Limited [2010] ZAFSHC 68 (above); Cloete NO v Basson [2010]
ZAGPJHC 87 (4 October 2010); Absa Bank v Boshoff [2012] ZAECPEHC 58 (28
August 2012); Leshoro v Nedbank [2014] ZAFSHC 69 (20 March 2014); Mabuza v
Nedbank [2014] ZAGPPHC 513 2015 (3) SA 365 (GP); Barnard v Nedbank [2014]
ZAGPPHC 723 (11 September 2014) and Radebe v Sheriff for the District of
Vereeniging [2014] ZAGPJHC 228 (25 September 2014).
[23] In Ditshego (followed by the court a quo in this matter) Jordaan J in the Free
State High Court held that the contracts were all interrelated and interdependent,
such that there was in effect only one transaction, and that was invalid. He regarded
several features of the transaction as unusual and ‘foreign’ to bona fide agreements
of sale of immovable property. The court had regard not only to the contracts
themselves, but also to a brochure describing the Brusson scheme, produced by
Brusson as client information. (In her founding affidavit to the application for
declaratory relief, Ms Moore attached a similar brochure explaining the scheme.) I
deal only with those common to the transaction in this matter.
[24] The unusual features include: the investor does not really intend buying the
property and never takes occupation; the client does not really intend selling the
property and does not lose occupation; the investor pays nothing, but applies for a
bond over the property as he has a good credit rating; the price payable in terms of
the instalment sale agreement accrues not to the investor but to Brusson; all
payments are made to Brusson; in the event of default by the clients, Brusson is
entitled to take transfer of the property.
[25] Jordaan J concluded that the contracts were simulated and accordingly
invalid. He did not deal with the validity of the bond over the property. In finding that
the transaction was simulated, Jordaan J relied on Maize Board v Jackson 2005 (6)
SA 592 (SCA) para 8. There, following a long line of cases in this court, Ponnan JA
held that the true enquiry, in determining whether contracts are simulated, ‘is to
establish whether the real nature and the implementation of these particular
contracts is consistent with their ostensible form. In pursuit of the enquiry, one must
strive to ascertain, from all of the relevant circumstances, the actual meaning of the
contracting parties.’ This court referred to an earlier decision in Michau v Maize
Board 2003 (6) SA 459 (SCA) para 4, and the authorities cited there, which have
held over decades that parties may not conceal the true nature of their transaction.
See, more recently, Commissioner for the South African Revenue Service v NWK
Ltd 2011 (2) SA 67 (SCA) paras 40-55; Roshcon (Pty) Ltd v Anchor Auto Body
Builders CC & others 2014 (4) SA 319 (SCA) paras 22-37; and Commissioner, South
African Revenue Service v Bosch & another 2015 (2) SA 174 (SCA) paras 38-41, in
all of which the principles dealing with simulated transactions are discussed in depth.
[26] In cases dealing with the Brusson scam the courts have by and large held the
transactions to be simulated. But I consider that they are not. The Moores and other
victims of the scam certainly did not intend to disguise their contracts as something
they were not. On the contrary: they were hoodwinked as to the nature of the
transactions. They believed them to serve some other purpose entirely. The Brusson
transactions, certainly the ones before the Free State High Court and the court a
quo, were not simulated in the sense in which that term is properly used. The
question is whether they were rendered invalid as a result of a fraud perpetrated on
the victim client. And the further question is what the victim clients really intended to
achieve by contracting with Brusson and so-called investors.
[27] The distinction is an important one. Where a transaction pursuant to which
property is to be transferred is simulated – where all parties intend to disguise the
true nature of the transaction – the transferor and transferee may well intend to
transfer ownership. And since a valid transaction is not required for a transfer to be
effected, the transfer itself may not be impeached. I shall deal with the legal
principles when considering the Moores’ understanding of their contracts with Mr
Kabini and Brusson and accordingly their intention. Suffice to say for the moment
that it is only where the parties do not intend to change the ownership of the
property, but have been misled into purporting to do so, or for some other reason
that vitiates their intention to transfer property, such as undue influence or duress,
that the transfer will be of no effect.
[28] That was appreciated by Nicholls J in Radebe (above) where she held that
the clients had not intended to transfer ownership of their property and that the so-
called transferee could not validly register a bond over that property. The court a quo
followed the reasoning in Radebe but also considered that the contracts between the
Moores, Brusson and Mr Kabini were simulated. I now turn to the analysis of the
facts by Chohan AJ.
The findings of the court a quo
[29] As I have said, Chohan AJ found that the contracts between the Moores, Mr
Kabini and Brusson were simulated and thus void. This despite his view that the
result was ‘difficult to reconcile’ with certain facts. These were that (a) the offer to
purchase in express terms provided for the transfer of the property to the purchaser,
although Mr Kabini’s name did not appear on the document that the Moores signed;
(b) the Moores would have signed the relevant transfer documents to enable the
Registrar of Deeds to transfer their property to Mr Kabini (the judge remarked that
the papers were silent on this point, but in fact they were not); (c) the Moores
required a loan of only R220 000 whereas the purchase price of the property was
R686 000; (d) there were five bonds over the property and the Moores ceased
paying the Bank; (e) the papers did not disclose the market value of the property
when the agreements were concluded; (f) the papers did not disclose whether the
Moores had continued to pay rates and service charges; (g) when the Moores
applied for a debt review they identified their debt to Brusson as a bond; and finally,
(h) when the Moores received the notice of attachment on 26 August 2011 they took
no steps to ascertain why their property was being attached.
[30] Several of these findings are quite simply wrong. It is true that the agreement
with Mr Kabini, signed before it was completely filled in, was headed ‘offer to
purchase’. But Mrs Moore explained in her founding affidavit that the Brusson
representative had told them that the documents simply served to give Brusson
security over the property for repayment of the loan. She said:
‘While we were at Brusson House, Brusson explained to us that the documents we
were signing were just to confirm that the property was being provided as security for the
loan. In particular, no one explained that the agreements were for the sale of the property. I
also did not take independent advice at the time, since I was desperate and grateful for the
financial assistance provided by Brusson and believed that the representations given by
Brusson were correct.
[We] did not understand that we were concluding a sale of our property. We believed
that Brusson was assisting us in obtaining a loan. If it had been made clear to us that in
order to secure the loan, we had to sell our property to a third party, we would never have
entered into the transaction.
[We] signed the documents because of what was explained to us, namely that the
documents pertain to our request for a loan.’
The Bank did not counter these averments. They stand uncontradicted and must be
accepted.
[31] The Moores also explained that they had never seen a conveyancer or
instructed one to transfer their property. They thus did not understand how the
transfer occurred. Again, the Bank put up no evidence to controvert this. Not even
the conveyancer’s evidence was put to counter this. The judge a quo thus erred in
finding that it was inconceivable that they had not signed documents authorizing the
transfer.
[32] As to the difference in the amounts required by the Moores (R220 000) and
the ‘price’ of the property (R686 000), Mrs Moore explained that they required R145
000 to pay off their debt to the Bank. They had other debts to pay off. They in fact
received R157 651 from Brusson. They did not realize the ‘price’ Mr Kabini allegedly
paid was R686 000.
[33] The Moores’ version of why they no longer paid the Bank in respect of the five
bonds formerly registered over the property is consistent with what they believed had
happened: Brusson had paid off those bonds, and registered one in its favour as
security for the amount of the loan made to them by it – R157 651. They were
required to pay bond instalments to Brusson instead. It was these instalments that
they could not pay monthly, and which triggered their application for debt review.
And so it was also quite understandable that their debt to Brusson was reflected by
the debt counsellor as a ‘bond’ when they applied to court for a debt restructuring.
None of this was denied by the Bank and so again any adverse inference that the
court a quo drew was unjustified. Further, they were never called upon by the Bank
to say whether they had continued to pay rates and service charges. The fact that
they said nothing about this is thus irrelevant.
[34] The issue on which the Bank places most store is that the Moores failed to do
anything after they received the notice of attachment in August 2011. This is not
adequately explained by the Moores. But it will be recalled that when they received
the letter from Brusson’s attorney in July 2010, they instructed an attorney who
responded by writing to the National Credit Regulator asking for advice on how to
proceed. There is no evidence to suggest that they must have continued to believe
that there was a problem that needed to be resolved.
[35] The Bank argues on appeal that the findings of the court a quo were not taken
into account sufficiently by the court itself when it concluded that the transactions
were simulated. It ‘artificially devalued’ the correct factual findings. However, the
findings were, as I have said, unwarranted given the absence of evidence put up by
the Bank to show that the averments made by the Moores were wrong. The Bank’s
argument that those averments were inherently improbable is also untenable. The
Moores explained just how it happened that they became a victim of the Brusson
scam.
They
were
induced
to
enter
into
the
contracts
by
fraudulent
misrepresentations made by Brusson.
The transfer of the property and the validity of the bond in favour of the Bank
[36] The court a quo found that the transfer was nonetheless invalid, and that the
bond was also invalid given that the Moores had not intended to transfer their
property to anyone, let alone Mr Kabini. It relied in this regard on Nedbank v
Mendelow 2013 (6) SA 130 (SCA) where I held (paras 13 and 14):
‘This court has recently reaffirmed the principle that where there is no real intention to
transfer ownership on the part of the owner or one of the owners, then a purported
registration of transfer (and likewise the registration of any other real right, such as a
mortgage bond) has no effect. In Legator McKenna Inc & another v Shea & others [2010 (1)
SA 35 (SCA) paras 21 and 22] Brand JA confirmed, first, that the abstract theory of transfer
of ownership applies to immovable property, and second, that if there is any defect in what
he termed the ‘real agreement’ – that is, the intention on the part of the transferor and the
transferee to transfer ownership of a thing respectively – then ownership will not pass
despite registration. Thus while a valid underlying agreement to pass ownership, such as a
sale or donation, is not required, there must nonetheless be a genuine intention to transfer
ownership. This principle was unanimously approved in Commissioner of Customs and
Excise v Randles, Brothers & Hudson Ltd [1941 AD 369] and has been followed consistently
since then.
However, if the underlying agreement is tainted by fraud or obtained by some other
means that vitiates consent (such as duress or undue influence) then ownership does not
pass: Preller & others v Jordaan [1956 (1) SA 483 (A) at 496.]’
[37] I referred also to Meintjies NO v Coetzer & others 2010 (5) SA 186 (SCA)
para 9 and Gainsford & others NNO v Tiffski Property Investments (Pty) Ltd & others
2012 (3) SA 35 (SCA) paras 38 and 39. To these must be added Quartermark
Investments (Pty) Ltd v Mkhwanazi & another 2014 (3) SA 96 (SCA) paras 21-25.
These cases all confirm the same fundamental legal principle: where the so-called
transferor does not intend to transfer ownership the registration has no effect.
[38] The court a quo thus correctly held that Mr Kabini had not acquired ownership
of the property. The question that remains is whether the mortgage bond registered
to secure the Bank’s loan to him is also invalid. It is clear from the decisions referred
to above that the bond also has no effect. Mr Kabini was not the owner. He had no
property to bond. And the court a quo correctly held that the bond was also invalid.
That was the finding also of Nicholls J in Radebe, referred to earlier.
[39] The Bank argued on appeal that even if Mr Kabini was not the owner of the
property he had nonetheless intended to register a bond over the property. But that
is of no relevance. He simply did not have the legal capacity to register that bond
over that property. He could not grant a real right in property that he did not own.
[40] The Bank contends that it should not be left without legal recourse as it too is
the innocent victim of a scam. It also argues that the Moores should not benefit from
the fact that their property will be bond-free, if we find that the bond is invalid,
especially given that they were in some way to blame for their predicament. In my
view all parties were innocent victims of a fraudulent scheme.
The order of the court a quo
[41] The Bank argues that if we find that the bond is invalid, we should at least
refine the order made by the court a quo, and order the Moores to pay what they
have tendered to pay to the Bank, against registration of a bond securing that
amount. It will be recalled that the order was that the Moores were entitled to
restitution of the property subject to the reinstatement of the five bonds over it and
payment by the Moores of the amount they received from Brusson, less any of the
payments that they made to it. That order, the Bank argues, should be made subject
to time limits.
[42] However, I do not understand on what basis the order in question was made.
The Bank did not ask for such relief in the event that the bond in its favour was found
to be invalid. And this court cannot make a contract between the Bank and the
Moores. We cannot order that the Moores pay an amount that they did not owe to
the Bank, nor that they register a bond over their property in favour of the Bank.
There is no longer any contractual nexus between these parties. The court a quo
simply did not have the power to make a contract for the parties. Thus even though
the Moores did not cross-appeal against that order this court cannot uphold it.
[43] The Bank still has a claim for repayment of the loan against Mr Kabini, albeit
unsecured. And it may also have a claim against the conveyancer responsible for the
registration of the bond in the first place. Section 15A(1) of the Deeds Registries Act
47 of 1937 provides that a conveyancer who prepares a document for the purpose of
registration in a deeds registry, and who signs the prescribed certificate required in
order to do so, ‘accepts by virtue of such signing the responsibility, to the extent
prescribed by regulation for the purpose of this section, for the accuracy of those
facts’ mentioned in the document. Regulation 44A of the regulations sets out the
particulars which the conveyancer must provide and repeats the statement that he or
she is responsible for the facts certified.
Rescission of the default judgment
[44] Finally, the court a quo ordered that the default judgment and order as to
executability granted to the Bank against Mr Kabini should be set aside. The Bank
argued before the court a quo that the Moores had no locus standi to apply for the
rescission of the judgment and order against Mr Kabini. It has not pressed this
argument on appeal. Chohan AJ correctly found that in terms of Rule 42(1)(a) of the
Uniform Rules of Court, the Moores were entitled to apply for rescission of the
default judgment. The rule reads:
‘The court may, in addition to any other powers it may have, mero motu or upon the
application of any party affected, rescind or vary –
(a) An order or judgment erroneously sought or erroneously granted in the absence of
any party affected thereby; . . .’
The Moores were quite obviously parties affected by the judgment, and, had the
court asked to make the order been aware of the true facts it would most certainly
not have granted it. (See, most recently, on the circumstances in which an
application for rescission under rule 42(1)(a) will be granted Minnaar v Van Rooyen
NO [2015] ZASCA 114.)
[45] However, the Bank’s further argument, pressed on appeal, was that the
Moores should be precluded from obtaining rescission of the default judgment
because of their delay in seeking the relief. Despite knowing of the writ of attachment
in August 2011 they took no steps to set the default judgment aside until May 2013
when they were advised that their property was to be sold in execution of Mr Kabini’s
debt. The Bank accepts that in deciding whether to rescind a default judgment the
court has a discretion, but contends that the two-year delay was unreasonable and
inexcusable.
[46] As a matter of fact, as I mentioned earlier, the Moores learned of the
existence of the default judgment and proposed sale in execution only in May 2013.
They had before then, on receiving the notice of attachment, taken steps by
instructing an attorney who wrote to the National Credit Regulator. That they
thereafter did nothing may be worth criticizing. But it was up to the Bank to show why
it was entitled to sell in execution the property of the Moores when it had taken the
default judgment against Mr Kabini: it had to show that it had the right to take default
judgment in the first place.
[47] In any event, a court, when exercising a discretion to rescind an order given
by default, must weigh against the delay the prospect of success of the application.
The prospect of the Moores’ success was strong, and there was no reason to
preclude them from obtaining the rescission that they sought.
[48] Although I consider that the costs order made by the court a quo (that each
party would bear its own costs) was unjustified, there is no cross-appeal against it
and the Moores accept that it should stand.
[49] In the result the appeal is dismissed with the costs of two counsel, where so
employed, save that para 3 of the order is replaced with:
‘The applicants are the owners of the property situate at Erf 116, Three Rivers East
Township IR Gauteng.’
_______________________
C H Lewis
Judge of Appeal
APPEARANCES
For Appellant:
A Gautschi SC (with him G W Amm)
Instructed by:
Lowndes Dlamini, Sandton
Matsepes, Bloemfontein
For Respondent:
W Trengove SC (with him P M P Ngcongo)
(Heads of Argument also prepared by O
Ben-Zeev)
Instructed by:
Legal Resources Centre, Johannesburg
Webbers, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT
OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
26 November 2015
STATUS
Immediate
Absa v Moore [2015] ZASCA 171
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal today handed down judgment dealing with the
consequences of a fraudulent scheme run by Brusson Finance (Pty) Ltd
(Brusson) to which many consumers and banks have fallen victim. A number
of divisions of the High Court have been faced with questions as to the validity
of contracts signed by unwary people who have been misled as to their effect,
and of mortgage bonds obtained by ‘owners’ of property party to the scam.
In this matter, the court below held that contracts induced by fraudulent
misrepresentations made by Brusson were invalid, and that a mortgage bond
registered over property fraudulently registered in favour of Absa Bank (the
Bank), fell to be set aside. This court dismissed an appeal against that
judgment.
The Moores owned a home in Vereeniging. In 2009 they ran into financial
difficulty and could not pay bond instalments in respect of five bonds
registered against their property in favour of the Bank. They also could not
pay other debts. The Bank would not advance further funds to them because
of their bad credit rating. They chanced upon an advertisement placed by
Brusson offering easy finance (loans) provided that consumers had properties
to secure loans. The called a Brusson office and received faxed documents to
be signed in order, they thought, to procure a loan from Brusson. The
documents had not been filled in.
A few days later they went to a Brusson office and asked about the effect of
the documents. It was explained that they needed to sign the papers in order
to obtain a loan from Brusson and that their property would be subject to a
bond as security for the loan. They signed the documents believing that was
their effect. In fact, the documents purported to be a sale by the Moores of
their property to a Mr Kabini, a resale to them by Kabini, the price being
payable in instalments, but Kabini reserving ownership of the property until
the price was paid in full, and a tripartite agreement between Brusson, Kabini
and the Moores which required the Moores to pay monthly instalments and
administrative fees to it and not to Kabini.
Shortly thereafter Kabini applied for a bond over the property of the Moores,
which he had apparently bought from them and to whom it was purportedly
transferred. The Bank granted a loan of R480 000 to Kabini and registered a
bond over the property.
The Moores were required to pay monthly instalments to Brusson, which they
believed to be repayment of the loan to them of some R157 000. But they
could not afford these payments and others. They consulted a debt counsellor
who applied on their behalf for a debt review under the National Credit Act 34
of 2005 to the Magistrates’ Court Vereeniniging. The court order allowed the
Moores to pay Brusson a lesser amount each month.
When Brusson’s attorney threatened them with legal action because they
were in arrears, they consulted an attorney who wrote to the National Credit
Regulator explaining their plight, and asking for advice on how to deal with
Brusson. He referred to a decision of the Free State High Court that had
found that contracts entered into with Brusson, similar to those between it and
the Moores, were simulated and invalid. The Moores took no further steps to
clarify their position because they could not afford to pay legal fees.
In March 2011 the Bank obtained a default judgment against Kabini who was
in default of his obligations under the bond registered in his name, and the
court declared the property in Vereeniging specially executable. The Moores
did not know of this until May 2013 when they received a letter (addressed to
Kabini) from an entity known as Resque Financial Solutions advising that their
property was to be sold in execution. They then approached the Legal
Resources Centre (LRC), which had advised other victims of the Brusson
scam. The LRC, on behalf of the Moores, brought an urgent application to
prevent the sale, and later applied for orders that the contracts between the
Moores were invalid, that the bond registered in favour of the Bank was also
invalid, and that the property be restored to the Moores.
The Gauteng Division found that the contracts between Brusson, the Moores
and Kabini were all invalid, and that the bond in favour of the Bank, registered
in Kabini’s name should be set aside, subject to the Moores paying to the
Bank what it had received from Brusson and registering a bond in favour of
the Bank. The court, following several other decisions, considered that the
contracts were simulated and thus invalid.
On appeal, the SCA found that the contracts were not simulated in the sense
that all parties had attempted to disguise the real nature of their transactions.
But they were induced by the fraudulent misrepresentations made by
Brusson: the Moores had never intended to sell their property to Kabini, and
buy it back in terms of an instalment sale agreement. They had intended to
borrow money from Brusson and to provide security for repayment by granting
a bond over the property. The sale to Kabini was invalid, and the transfer of
the property to Kabini was invalid because they had not had the requisite
intention to pass ownership. And since Kabini was not the owner of the
property, the bond over it registered in favour of the Bank was likewise invalid.
The SCA upheld the order of the Gauteng Division that the contracts and the
bond granted by Kabini were invalid, but set aside the order requiring the
Moores to register a bond in favour of the Bank and to repay to it what it had
received from Brusson. The court did not have the power to make a contract
between the Bank and the Moores.
|
4056
|
non-electoral
|
2023
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 414/2022
In the matter between:
DANIEL MALEBADI MOTLADILE
APPELLANT
and
MINISTER OF POLICE
RESPONDENT
Neutral citation:
Motladile v Minister of Police (414/2022) [2023] ZASCA 94 (12
June 2023)
Coram:
MBATHA and GORVEN JJA and NHLANGULELA, KATHREE-
SETILOANE and MALI AJJA
Heard:
5 May 2023
Delivered:
This judgment was handed down electronically by circulation to the
parties’ representatives by email, publication on the Supreme Court of Appeal website
and release to SAFLII. The date and time for the hand-down of the judgment is
deemed to be 11h00 on 12 June 2023.
Summary: Damages claim – unlawful arrest and detention – award not
commensurate with damages suffered – failure of trial court to consider facts and
circumstances of case – mechanical approach adopted by following trend in the North
West Division of the High Court to award damages in the amount of R15000 a day –
principles of determining appropriate award – restated – amount substituted.
___________________________________________________________________
ORDER
On appeal from: North West Division of the High Court, Mahikeng (Mahlangu AJ,
sitting as court of first instance):
The appeal is upheld with costs including those of two counsel.
The order of the high court is set aside and replaced with an order in the following
terms:
‘(i) The defendant is ordered to pay the plaintiff the amount of R200 000 together
with interest at the prescribed rate of 7% per annum from date of service of
summons to date of payment.
(ii) The defendant is ordered to pay the plaintiff’s costs on the high court scale.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Kathree-Setiloane AJA (Mbatha and Gorven JJA and Nhlangulela and Mali AJJA
concurring)
[1] This appeal concerns the question of whether damages in the amount of
R60 000 awarded by the North West Division of the High Court, Mahikeng, per
Mahlangu AJ (the high court) to the appellant, arising from his unlawful arrest and
detention, are fair and reasonable having regard to the circumstances of the case.
Background
[2] On 23 December 2014, Mr DM Motladile (the appellant) who was, at the time, in
the business of transporting passengers, was requested by a man whom he did not
know to transport him to a farm to purchase cattle, which he did. The man purchased
the cattle, but unbeknown to the appellant the man apparently defrauded the seller of
the cattle. On reporting the incident to the police, the seller approached the appellant
for his contact details, as he considered him to be a potential witness in his criminal
case against the man who defrauded him.
[3] On 24 December 2014, the appellant travelled to Gaborone (Botswana) to attend
to the wedding arrangements of his sister-in-law. The wedding was to take place two
days later, on 26 December 2014. On the same day, Warrant Officer Ngkodi (the
investigating officer), from the Mahikeng Police Station (the police station), visited the
appellant’s home. On being advised by his wife, Mrs Motladile, that the appellant was
in Gaborone, the investigating officer provided her with his telephone number and
asked that the appellant call him on his return. On his return from Gaborone that
evening, the appellant called the investigating officer and arranged to meet him the
next morning (Christmas Day) at the police station.
[4] On Christmas morning, the appellant travelled to the police station where he
expected to be of assistance in the investigation. But instead, on his arrival at the
police station at 8h30, the investigating officer promptly arrested and detained the
appellant for the offence of theft under false pretenses. The appellant attempted to
explain his version of events to the investigating officer, but it was to no avail. The
investigating officer advised the appellant that he would not be released until he
pointed out the man who allegedly defrauded the complainant. The appellant was
unable to do this, as he did not know the man.
[5] The appellant managed to inform his wife and brother of his arrest and detention.
They attempted to visit the appellant in the police cells but were not allowed to see
him or communicate with him for the duration of his detention. The appellant’s brother
instructed a lawyer, at his own expense, to apply to court for the appellant’s release
on bail. The bail application could not be brought as the investigating officer did not
permit the appellant to consult with the lawyer.
[6] The appellant spent the following four days (and nights) in detention in the police
cells. On the morning of 29 December 2014, the appellant was taken to the
magistrates’ court, where he was detained in the holding cells for the rest of the day.
The appellant did not appear in court as the prosecutor refused to enroll the case. He,
however, remained in detention in the holding cells until 17h45 that evening, when he
was transported back to the police station. The appellant was released from detention
at around 18h00 that evening without receiving an explanation. As a result of his
detention, the appellant had remained in custody for five days and four nights.
[7] According to the appellant’s unchallenged testimony, during the period of his
detention he shared a filthy cell with five other inmates, who assaulted him and stole
his food. He did not report this to the police as he feared further assaults. He was
severely traumatised by his arrest and detention in the police cells.
[8] As a consequence of his incarceration, the appellant and his wife were unable to
attend his sister-in-law’s wedding in Gaborone. As elders, the appellant and his wife
had a particular standing at the wedding. His failure to attend the wedding due to his
arrest and detention was a source of great embarrassment to him and his family. It
was also traumatic for him not to spend Christmas with his wife and children. He broke
down and cried while in detention and was unable to eat or sleep. The appellant’s wife
and children were also traumatised by the appellant’s arrest and subsequent
detention.
[9] The appellant was a traditional healer who enjoyed the respect of his community.
Once his arrest and detention became known to his community, he lost their respect.
The appellant felt ‘undermined and degraded’ by his arrest and detention, and this has
affected him psychologically.
[10] As a result of his unlawful arrest and detention, the appellant instituted an action
against the Minister of Police (the respondent), in June 2016, for damages in the
amount of R 250 000. On 26 November 2020, the high court, after making an order in
terms of rule 33(4) of the Uniform Rules of Court separating the determination of the
merits from the quantum, made an order that the respondent is liable for the appellant’s
proven or agreed damages arising from his unlawful arrest and detention. It postponed
the determination of the quantum of damages to 5 May 2021.
[11] The appellant and his wife testified at the trial in support of his case on the issue
of quantum. The respondent elected to lead no evidence at the trial. The high court
made an order awarding the appellant damages in the amount of R60 000 plus costs
on the magistrates’ court scale. It reasoned as follows in making this award:
‘In this present matter and having due regard to the particular facts of this matter, an award of
a large amount of compensation is not called for and not warranted. The [appellant] suffered
unwarranted inconvenience, injury to his feelings and personal humiliation with no future
consequence.’
The appellant appeals against the judgment and order of the high court (on quantum)
with the leave of this Court.
The appeal
[12] The amount of damages to be awarded to a plaintiff in a deprivation of liberty
case, as we have here, is in the discretion of the trial court. That discretion must
naturally be exercised judicially. The approach of an appellate court to the question of
whether it can substitute a trial court’s award of damages is aptly summarised by the
Constitutional Court in Dikoko v Mokhatla as follows:
‘. . . [S]hould an appellate Court find that the trial court had misdirected itself with regard to
material facts or in its approach to the assessment, or having considered all the facts and
circumstances of the case, the trial court’s assessment of damages is markedly different to
that of the appellate court, it not only has the discretion but is obliged to substitute its own
assessment for that of the trial court. In its determination, the Court considers whether the
amount of damages which the trial Court had awarded was so palpably inadequate as to be
out of proportion to the injury inflicted.’1
[13] At the outset of the appeal, and in the heads of argument, the respondent
conceded that the damages the high court awarded to the appellant are so
disproportionately low, that this Court can infer that the high court did not exercise its
discretion properly. The high court found that having regard to the facts and
circumstances of the case, an adequate award would be an amount of R15 000 per
day, which amounts to R60 000 for the four days that the appellant spent in detention.
In adopting the amount of R15 000 per day, the high court followed a practice that has
developed in the North West Division of the High Court, Mahikeng (North West
Division) of applying a ‘one size fits all’ approach of R15 000 per day to damages
claims for unlawful arrest and detention. This practice is conveniently described in
Mocumi v Minister of Police and Another.2 That matter concerned a 28-year-old
plaintiff, who was arrested and detained for three days under appalling conditions. The
court awarded him damages in the amount of R45 000 calculated at R15 000 per day.
1 Dikoko v Mokhatla 2006 (6) SA 235 (CC); 2007 (1) BCLR 1 (CC) para 57.
2 Mocumi v Minister of Police and Another Case number CIV APP9/2021 (3 December 2021).
The court observed as follows in relation to the practice of the North West Division ‘to
strive for similarity’ in awarding damages for unlawful arrest and detention:
‘In Ngwenya v Minister of Police (924/2016) [2019] 3 ZANWHC 3 (7 February 2019) this Court
awarded R15 000.00 per day for unlawful arrest and detention. The same amount was
awarded in the matter of Gulane v Minister of Police, CIV APP MG 21/2019, in an appeal
which emanated from the Magistrate Court, Potchefstroom and decided by Petersen J et Gura
J. Petersen J et Gura J did also in the matter of Matshe v Minister of Police, case number CIV
APP RC 10/2020, likewise, awarded an amount of R15 000.00 per day for each of the two
days that the appellant was detained.’3
…
Much as there are also different amounts awarded by this Court as compensation or solatium,
there is of late an attempt to strive for similarity or conformity. Each case must however be
decided on its own facts, merits, and circumstances. The examples quoted above in the case
of Ngwenya v Minister of Police, Gulane v Minister of Police and Matshe v Minister of Police
underscore this. R15 000.00 per day, is a reasonable amount to be awarded.’4
[14] This practice was also followed in Tobase v Minister of Police and Another,5
which concerned a 30-year-old man who was unlawfully arrested at his place of
employment and detained for three days. The North West Division, sitting as a court
of appeal, awarded him damages calculated at R15 000 per day, amounting to
R45 000. In Nnabuihe v Minister of Police,6 also a decision of the North West Division,
the plaintiff was arrested and detained from Friday 12 April 2019 at about 12h40 and
released on Monday, 15 April 2019, without having appeared in court. The plaintiff was
assaulted by the police and the inmates. He was squeezed into a cell with one toilet.
The inmates shared a single sponge mattress. The plaintiff never took a bath for the
duration of his incarceration, nor did he eat. The court awarded an amount of R50 000
which appears to be commensurate with the practice of the North West Division.
[15] What is plain from the high court’s judgment, in the present matter, is that it
followed the trend in the North West Division to award an amount of R15 000 a day
for damages suffered as a result of an unlawful arrest and detention. The high court
cited comparable case law of other divisions of the high court, where the compensation
3 Mocumi fn 2 above para 15.
4 Ibid para 20.
5 Tobase v Minister of Police Case number CIV APP MG 10/2021 (3 December 2021).
6 Nnabuihe v Minister of Police Case number 2273/2019 NWHC (9 March 2022).
awarded was commensurate with the harm suffered by the respective plaintiffs due to
their unlawful arrest and detention. This notwithstanding, in quantifying the damages
to award, the high court relied exclusively on the approach adopted in Minister of
Police v Joubert (Joubert),7 where the North West Division awarded R15 000 for each
of the seven days the plaintiff was detained. In Joubert the plaintiff was 48 years old
when he was arrested. On a Friday morning, while the plaintiff was busy erecting a
shack in the company of two friends, two police officers arrested him and took him to
the police station at approximately 10h00. He was detained in a cell together with 14
other inmates. The inmates confiscated his food and severely assaulted him that
evening. He did not report the assault to the police. He had to share a blanket with a
fellow inmate and was not given toiletries. He was detained until his release by the
court on Monday, 31 August 2015, at approximately 11h00.
[16] More recently, in Spannenberg and Another v Minister of Police (Spannenberg)8
Hendricks DJP sought to disavow this trend in the North West Division when he said
this:
‘There is a misnomer that the High Court in the Ngwenya judgment set as a benchmark an
amount of 15 000.00 per day as the norm for unlawful arrest and detention. This is incorrect
and misplaced. Each case must be decided in its own peculiar facts and circumstances
(merits). This cannot be emphasized enough. There is no benchmarking nor is there a one
size (or amount) fits all practice that must be followed. This will most definitely erode the
judicial discretion of presiding officers.’
Notably, the court in Spannenberg awarded the two plaintiffs damages in the amount
of R18 000 each for being unlawfully detained for the duration of day. Despite deviating
from the practice of awarding R15 000 a day, the court in Spannenberg had no regard
to awards in comparable cases.
[17] The assessment of the amount of damages to award a plaintiff who was
unlawfully arrested and detained, is not a mechanical exercise that has regard only to
the number of days that a plaintiff had spent in detention. Significantly, the duration of
the detention is not the only factor that a court must consider in determining what
would be fair and reasonable compensation to award. Other factors that a court must
7 Joubert v Minister of Police and Others Case number 659/2017 NWHC (15 April 2021).
8 Spannenberg v Minister of Police Case number 2993/2019 (24 February 2022) para 20.
take into account would include (a) the circumstances under which the arrest and
detention occurred; (b) the presence or absence of improper motive or malice on the
part of the defendant; (c) the conduct of the defendant; (d) the nature of the
deprivation; (e) the status and standing of the plaintiff; (f) the presence or absence of
an apology or satisfactory explanation of the events by the defendant; (g) awards in
comparable cases; (h) publicity given to the arrest; (i) the simultaneous invasion of
other personality and constitutional rights; and (j) the contributory action or inaction of
the plaintiff.9
[18] It is as well to remember what this Court said in Tyulu v Minister of Police:10
‘In the assessment of damages for unlawful arrest and detention, it is important to bear in mind
that the primary purpose is not to enrich the aggrieved party but to offer him or her some much-
needed solatium for his or her injured feelings. It is therefore crucial that serious attempts be
made to ensure that the damages awarded are commensurate with the injury inflicted.
However our courts should be astute to ensure that the awards they make for such infractions
reflect the importance of the right to personal liberty and the seriousness with which any
arbitrary deprivation of personal liberty is viewed in our law. I readily concede that it is
impossible to determine an award of damages for this kind of injuria with any kind of
mathematical accuracy. Although it is always helpful to have regard to awards made in
previous cases to serve as a guide, such an approach if slavishly followed can prove to be
treacherous. The correct approach is to have regard to all the facts of the particular case and
to determine the quantum of damages on such facts. . ..’
[19] The high court’s award of damages in respect of the unlawful arrest and detention
of the appellant was not commensurate with the injuries suffered by him. This is largely
because the high court had scant regard to the facts and circumstances of the case
which were germane to its assessment of damages. Crucially, the high court gave no
consideration to the circumstances under which the appellant was arrested, and that
he had volunteered his name and contact details to the complainant, ostensibly to be
called upon as a witness. The high court also failed to consider that on his return from
Gaborone, the appellant readily contacted the investigating officer. And that he met
9 JM Potgieter et al, Visser & Potgieter Law of Damages 3 ed (2012) at 545-548; HB Klopper
Damages (2017) at 255-259.
10 Minister of Safety and Security v Tyulu [2009] ZASCA 55; 2009 (2) SACR 282 (SCA); [2009] 4 All
SA 38 (SCA); 2009 (5) SA 85 (SCA) para 26.
with him on Christmas day, to assist him in his investigation. Little did the appellant
know that he would be victim to an unlawful arrest and detention that would separate
him from his family over the Christmas period.
[20] The way the investigating officer dealt with the appellant was suggestive of an
improper motive and malice which justified a higher amount of damages. The
uncontested evidence of the appellant, on this aspect, was that the investigating officer
had threatened that should he not disclose the name of the perceived suspect, he
would be arrested – not as a suspect – but simply as punishment. The high court,
however, simply ignored this evidence in the assessment of the damages suffered by
the appellant. It also ignored the fact that the appellant was deprived of his
fundamental right to be assisted by a legal representative for, inter alia, the purposes
of bringing an application for his release on bail. And that he was denied access to
members of his family who were not allowed to see him or communicate with him while
in custody.
[21] Peculiarly, the high court remarked that ‘it cannot be said that the [appellant’s]
experience was harrowing’. This remark is difficult to fathom given the appellant’s
uncontested evidence on the condition of the cell and the harrowing reception from
the other inmates in the cell. It, therefore, comes as no surprise that the high court had
no regard to the humiliation and degradation that the appellant suffered at the hands
of his fellow inmates who assaulted him; stole his food; and would have assaulted him
again if he reported them to the police. As the appellant’s evidence on this aspect was
uncontested, there was simply no basis for the high court’s finding that his evidence
relating to his detention ‘was not convincing’, and that ‘[n]o evidence was proffered
that the situation and circumstances were such that it rendered the cell unfit for
occupation’.
[22] The high court held that ‘having due regard to the particular facts of this matter,
an award of a large amount of compensation is not called for and not warranted’, as
the appellant ‘suffered unwarranted inconvenience, injury to his feelings and personal
humiliation with no future consequence’. In holding as such, the high court disregarded
the unchallenged evidence of both the appellant and his wife in respect of the trauma,
mental anguish and distress suffered by him in custody and thereafter. The high court,
moreover, failed to appreciate that the unlawful deprivation of the appellant’s liberty is,
in itself, a serious injury which constituted an impermissible infringement of his
constitutional rights to freedom and security of the person, and to human dignity. To
regard the deprivation of liberty as ‘an unwarranted inconvenience’ as the high court
did, is to undermine the importance and protection that the right enjoys in our
constitutional democracy.
[23] Moreover, the high court disregarded the appellant’s standing and status in the
community as a traditional healer, and the extent to which his unlawful arrest and
detention caused mistrust in the community and diminished his good reputation and
honour. The high court also failed to take into consideration the implications of the
appellant not attending the family wedding on 26 December 2014, and the shame and
embarrassment that he and his wife had to endure consequent upon his unlawful
arrest and detention.
[24] The high court furthermore attached no weight to the fact that the appellant had
committed no crime, yet he received neither an apology nor a satisfactory explanation
for his arrest and detention from the respondent following his release from unlawful
custody. The high court, accordingly, misdirected itself by not taking all the relevant
facts and circumstances into account, in its assessment of the damages suffered by
the appellant pursuant to his unlawful arrest and detention.
[25] On consideration of the facts and circumstances of this case, as well as recent
awards made by our courts in comparable cases and the steady decline in the value
of money, I consider an award of R200 000 to be fair and reasonable compensation
for the damages arising from the appellant’s unlawful arrest and detention.
Costs
[26] The high court ordered the respondent to pay the appellant’s costs on the
magistrates’ court scale on the basis that the matter was not of such complexity that it
warranted the attention of the high court; that the amount claimed and awarded fell
within the monetary jurisdiction of the magistrates’ court; and that no special
circumstances were advanced to warrant the institution of the proceedings in the high
court. What the high court failed to grasp in arriving at this conclusion, is the
importance that our courts accord to the deprivation of a person’s liberty when
determining the scale on which to award costs. In De Klerk v Minister of Police,11 which
also concerned an unlawful arrest and detention, this Court said – regarding costs –
that although the total quantum awarded [R30 000] is far below the jurisdiction of the
high court, the appellant was justified in approaching the high court because the matter
concerned the unlawful deprivation of his liberty. For this reason, this Court is entitled
to interfere with the high court’s costs order.
[27] The appellant seeks the costs of two counsel in the appeal. I consider this to be
justified because, as submitted by counsel for the appellant at the hearing, an
enormous amount of research was necessary to unmask the ‘trend’ or ‘practice’ of the
mechanical approach, that has been followed in the North West Division to damages’
awards in unlawful arrest and detention cases. We are grateful to counsel for both
parties for the constructive assistance given to us during the hearing.
[28] In the result, the following order is made:
The appeal is upheld with costs including those of two counsel.
The order of the high court is set aside and replaced with an order in the following
terms:
‘(i) The defendant is ordered to pay the plaintiff the amount of R200 000 together
with interest at the prescribed rate of 7% per annum from date of service of
summons to date of payment.
(ii) The defendant is ordered to pay the plaintiff’s costs on the high court scale.’
________________________
F KATHREE-SETILOANE
ACTING JUDGE OF APPEAL
11 De Klerk v Minister of Police [2018] ZASCA 45; [2018] 2 All SA 597 (SCA); 2018 (2) SACR 28 (SCA)
paras 18 & 55.
Appearances
For appellant:
A B Rossouw SC and J H P Hattingh
Instructed by:
WJ Coetzer Attorneys, Mahikeng
Du Plooy Attorneys, Bloemfontein
For respondent:
M E Mmolawa
The State Attorney, Mafikeng
The State Attorney, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
12 June 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and
does not form part of the judgments of the Supreme Court of Appeal
Motladile v Minister of Police (414/2022) [2023] ZASCA 94 (12 June 2023)
Today, the Supreme Court of Appeal (SCA) handed down judgment upholding an appeal
against a decision of the the North West Division of the High Court, Mahikeng (the high court).
The issue before the SCA was whether damages in the amount of R60 000, which the high
court awarded to the appellant, arising from his unlawful arrest and detention, was fair and
reasonable having regard to the circumstances of case.
On 23 December 2014, Mr DM Motladile (the appellant) who was, at the time, in the business
of transporting passengers, was requested by a man whom he did not know to transport him to
a farm to purchase cattle, which he did. The man purchased the cattle, but unbeknown to the
appellant the man apparently defrauded the seller of the cattle. On reporting the incident to the
police, the seller approached the appellant for his contact details as he considered him to be a
potential witness in his criminal case against the man who defrauded him. On 24 December,
Warrant Officer Ngkodi (the investigating officer), from the Mahikeng Police Station (the
police station), visited to the appellant’s home. On being advised by his wife, Mrs Motladile,
that the appellant was in Gaborone, the investigating officer provided her with his telephone
number and asked that the appellant call him on his return. On Christmas morning, the appellant
travelled to the police station where he expected to be of assistance in the investigation. But
instead, on his arrival at the police station, the investigating officer promptly arrested and
detained the appellant for the offence of theft under false pretenses. The appellant spent the
following four days (and nights) in detention in the police cells at the police station.
The high court found that having regard to the facts and circumstances of the case, an adequate
award would be an amount of R15 000 per day, which amounts to R60 000 for the four days
that the appellant spent in detention.
The SCA found that in adopting the amount of R15 000 per day, the high court followed a
practice that has developed in the North West Division of the High Court, Mahikeng of
applying a ‘one size fits all’ approach of R15 000 per day to damages claims for unlawful arrest
and detention. It held that the assessment of the amount of damages to award a plaintiff who
was unlawfully arrested and detained is not a mechanical exercise that has regard only to the
number of days that a plaintiff has spent in detention. Other factors must be considered, such
as the circumstances in which the arrest and detention occurred, the presence or absence of
improper motive or malice on the part of the defendant; the conduct of the defendant; the status
and standing of the plaintiff; the simultaneous invasion of other personality and constitutional
rights etc.
The SCA held that the high court misdirected itself by not taking all the relevant facts and
circumstances into account in its assessment of the damages suffered by the appellant pursuant
to his unlawful arrest and detention. It held that the high court failed to appreciate that the
unlawful deprivation of the appellant’s liberty was, in itself, a serious injury which constituted
an impermissible infringement of his constitutional rights to freedom and security of the
person, and to human dignity. Moreover, the high court disregarded the appellant’s standing
and status in the community as a traditional healer, and the extent to which his unlawful arrest
and detention caused mistrust in the community, and diminished his good reputation and
honour. The SCA considered an award of R200 000 to be fair and reasonable compensation for
the damages arising from the appellant’s unlawful arrest and detention.
~~~~ends~~~~
|
1227
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
CASE NO: 131/07
Reportable
In the matter between:
THE MINISTER FOR JUSTICE AND
CONSTITUTIONAL DEVELOPMENT
First Appellant
THE DIRECTOR OF PUBLIC PROSECUTIONS
Second Appellant
THE MINISTER OF SAFETY AND SECURITY
Third Appellant
and
SEKELE MICHAEL MOLEKO
Respondent
Coram:
Farlam & Van Heerden JJA et Kgomo AJA
Heard:
12 March 2008
Delivered:
31 March 2008
Summary:
Malicious prosecution – requirements for –– act or omission
by magistrate in the exercise of his judicial functions –
section 60(11)(a) of Criminal Procedure Act 51 of 1977 –
release on warning of persons charged with Schedule 6
offences without any evidence being led.
Neutral citation: This judgment may be referred to as Minister for Justice
& Constitutional Development v Moleko (131/07) [2008] ZASCA 43 (31
March 2008)
VAN HEERDEN JA:
Introduction
[1] The respondent, Mr Moleko, instituted an action for damages in
the Transkei High Court against the Minister for Justice and
Constitutional Development (the first appellant), the Director of Public
Prosecutions (DPP) (the second appellant) and the Minister of Safety and
Security (the third appellant) based on his alleged malicious prosecution
by the defendants. By agreement between the parties, the trial in the court
a quo was confined to the merits of the claim, with the question of
quantum standing over for later determination if necessary.
[2] Matthee AJ held that Mr Moleko had established that he was the
victim of a malicious prosecution and that, as a result of such prosecution,
his dignity and self-respect were impaired. The learned judge ordered the
first and third appellants (the two Ministers) to pay the costs of the matter,
jointly and severally. The present appeal comes before us with leave of
this court granted on petition. (A further claim by Mr Moleko, based on
his alleged unlawful arrest, was dismissed by the trial court and no cross-
appeal has been noted against that part of the judgment.)
[3] Mr Moleko is a magistrate at Engcobo in the Eastern Cape. On 16
January 2002 whilst he was presiding as a magistrate, a case involving
three persons accused of armed robbery and ‘hijacking’ came before him.
Two of the accused (accused no’s 2 and 3) were in custody after they had
previously been refused bail by another magistrate at Engcobo in October
2001, after a fully-fledged bail hearing. Accused no 1, who appears to
have been arrested shortly before the other two, had been released by Mr
Moleko on bail of R500, with the agreement of the control prosecutor, Mr
Nogcanzi, on 13 September 2001, without any evidence being led.
[4] The other two accused were due to appear in court on 16 January
2002 in order for them to bring a renewed bail application based on new
facts. However, on that day, only one of them appeared in court, the other
apparently being ill and in hospital. The defence attorney, Mr Songo, thus
informed the prosecutor, Mr Mgudlwa, that he would request a
postponement for hearing of the bail application and a suitable date was
set. According to Mr Mgudlwa, the State was at that stage ready to
proceed to trial and was awaiting a date in the regional court.
[5] From the record before Mr Moleko, it appeared that the two
accused had been in custody since their arrest in September of the
previous year. The matter had been postponed on a number of occasions
since the accused first appeared in court. When Mr Mgudlwa called the
matter, Mr Moleko expressed his displeasure at the fact that accused no’s
2 and 3 had been in custody since September 2001 and intimated that he
was intent on releasing them on warning. According to Mr Mgudlwa, he
expressly informed Mr Moleko that the accused were charged with
Schedule 6 offences and of the provisions of s 60(11)(a) of the Criminal
Procedure Act 51 of 1977. 1 He also allegedly drew Mr Moleko’s
attention to the fact that the previous bail application by the two accused
had been rejected, that the investigation had been completed and that the
1 Section 60(11)(a) provides that:
‘(11) Notwithstanding any provision of this Act, where an accused is charged with an offence referred
to –
(a) in Schedule 6, the court shall order that the accused be detained in custody until he or she is
dealt with in accordance with the law, unless the accused, having been given a reasonable
opportunity to do so, adduces evidence which satisfies the court that exceptional circumstances
exist which in the interests of justice permit his or her release.’
(The effect of this subsection is discussed by the Constitutional Court in S v Dlamini; S v Dladla; S v
Joubert; S v Schietekat 1999 (4) SA 623 (CC) paras 61 to 65.)
matter was ready to be postponed for a regional court date, but for the
fresh bail application which had been arranged for that date (16 January
2002). In the event, however, Mr Moleko granted the request for a
postponement to a specified date, but ordered the release on warning of
both accused until such date.
[6] The State immediately brought an urgent application in the
Transkei High Court to review and set aside Mr Moleko’s order releasing
the accused on warning. On 25 January 2002, the High Court issued a rule
nisi, which rule was confirmed four days later, setting aside Mr Moleko’s
earlier order. This led to the re-arrest of the two accused and the sub-
sequent decision by the DPP to prosecute Mr Moleko for ‘defeating the
course of justice in contravention of section 40(a) and/or (c) of the
Transkei Penal Code, 1983, read with sections 17 and 32 of the Transkei
Penal Code’.2 In the charge sheet it was alleged that Mr Moleko –
‘(…) did unlawfully, with the intent to defeat and/or obstruct and/or prevent the course
of justice and mala fide, commit an act to wit
Releasing an accused person, charged with offences in terms of Schedule 6 of Act 51 of
1977, on warning contrary to the provisions of Section 60 of Act 51 of 1977 and/or;
Releasing an accused person on warning without receiving evidence contrary to section
60(11)(a); and/or
2 Section 17 reads as follows:
‘Except as expressly provided by this Code, no judge or other judicial officer shall be criminally liable for
anything he has done or omitted in good faith in the exercise of his judicial functions, even if the act so
done was in excess of his judicial authority or if he was bound to do the act omitted.’
In terms of s 40 of the Code:
‘Any person who –
(a) accuses any person falsely of any crime or does anything to obstruct, prevent, pervert or defeat
the course of justice; or
(b) . . .
(c) obstructs or in any way interferes with or knowingly prevents the execution of any legal process,
civil or criminal, shall be guilty of an offence’.
Failing to implement the relevant provisions of section 60 of Act 51 of 1977 after he
had been informed that it was applicable.’
[7] At his subsequent trial in the regional court, Mr Moleko was
eventually acquitted of the charge. This gave rise to his claim for damages
for malicious prosecution which forms the subject of the present appeal.
Claim for malicious prosecution: requirements
[8] In order to succeed (on the merits) with a claim for malicious
prosecution, a claimant must allege and prove –
(a)
that the defendants set the law in motion (instigated or instituted the
proceedings);
(b)
that the defendants acted without reasonable and probable cause;
(c)
that the defendants acted with ‘malice’ (or animo injuriandi);3 and
(d)
that the prosecution has failed. (In this case, of course, Mr Moleko
was acquitted at the end of his criminal trial and requirement (d)
need detain us no further.)
Ad (a) – Instigation or institution of proceedings
[9] The trial judge dealt with the first requirement rather perfunctorily,
finding that it was clear ‘that various servants of the appellants were all
involved in setting the law in motion which led to the prosecution of the
3 See Relyant Trading (Pty) Ltd v Shongwe [2007] 1 All SA 375 (SCA) para 5, referring to Lederman v
Moharal Investments (Pty) Ltd 1969 (1) SA 190 (A) at 196G–H; Thompson v Minister of Police 1971 (1)
SA 371 (E) at 373F-H and J Neethling, JM Potgieter & PJ Visser Neethling’s Law of Personality 2 ed
(2005) pp 124-125 (see also pp172-173 and the authorities there cited). Cf 15 Lawsa (sv ‘Malicious
Proceedings’ by DJ McQuoid-Mason) (reissue, 1999 para 441; François du Bois (General Editor) Wille’s
Principles of South African Law 9 ed (2007) pp 1192-1193; LTC Harms Amler’s Precedents of Pleadings
6 ed (2003) p 238-239.
plaintiff’. According to the trial judge, he understood counsel for the
appellants to have conceded this point.
[10] Leaving aside the fact that the court cannot be bound by an
incorrect concession by a litigant with regard to a legal issue, it was sub-
mitted before us that the trial judge erred in failing to have regard to the
fact that the prosecution occurred at the instance of the DPP and that the
role of the police was merely to gather relevant information.
[11] With regard to the liability of the police, the question is whether
they did anything more than one would expect from a police officer in the
circumstances, namely to give a fair and honest statement of the relevant
facts to the prosecutor, leaving it to the latter to decide whether to prose-
cute or not.4
[12] On behalf of the third appellant (the Minister of Safety and
Security), a certain Captain Gwayi (attached to the Serious Violent
Crimes Unit based in Mthatha) testified that, as a result of a report (‘in the
nature of a complaint’) by one of his subordinates, Inspector Didiza, he
went to Engcobo on 17 January 2002 to investigate the events giving rise
to the complaint. Inspector Didiza’s complaint related to the
abovementioned incident on 16 January 2002. Captain Gwayi interviewed
the public prosecutor involved (Mr Mgudlwa) and also spoke to the senior
public prosecutor (Mr Nogcantsi) and to the Chief Magistrate. He was
told that Mr Moleko was on leave. Mr Mgudlwa ‘echoed’ Inspector
Didiza’s complaint about how Mr Moleko had released two accused on
4 Prinsloo & Another v Newman 1975 (1) SA 481 (A) at 492C–F and 495A. See also 15 Lawsa op cit
para 445.
warning despite the fact that they were charged with Schedule 6 offences
which ‘required an enquiry about bail to be heard’. Mr Mgudlwa informed
him that he was going to report the matter to the DPP in Mthatha.
[13] It is important to note that the case docket in this matter (about
which more later) contains two affidavits deposed to by Captain Gwayi,
both of which refer to a letter (what he calls ‘an official correspondence’)
written by him to ‘both the Local Prosecutor and Magistrate of Engcobo .
. . appealing for the review of Mr Moleko’s decision /ruling of releasing
the robbery accused on warning’. This letter, dated 17 January 2002, also
forms part of the case docket (as document B.1). It is addressed by
Captain Gwayi to the Chief Magistrate and the Control Prosecutor of the
Engcobo Magistrate’s Court and purports to be a formal complaint against
‘the judicial officer, Mr Moleko’. In this letter, Captain Gwayi recounts
the report given to him by Inspector Didiza regarding the incident on 16
January 2002 during which Mr Moleko had released on warning two
persons charged with Schedule 6 offences without hearing any evidence
and ‘without making any enquiries to other role players who are very
conversant with the merits of the case nor referring to the court record that
was [available] to him as to what the reasons for such “elongated”
detention were’. He also stated that the ‘other role players’ (referring to
the public prosecutor (Mr Mgudlwa), the investigating officer (Inspector
Didiza) and the defence attorney (Mr Songo) ‘were more than ready to
proceed with the formal bail application but he (Mr Moleko) simply
[shouted] everybody down’. Captain Gwayi asked for answers to a series
of questions posed in the letter and requested the addressees of the letter
to treat it seriously. There is no indication in the case docket or in the
record that either the chief magistrate or the control prosecutor ever
responded to this letter.
[14] Captain Gwayi eventually received an instruction from Mr Lusu,
the Head of the Office of the DPP in Mthatha, to investigate the matter.
He therefore returned to the Engcobo Magistrate’s Court on 5 February
2002, that being the day on which, according to his information, Mr
Moleko was due to return from his leave. He informed Mr Moleko of the
nature of the charges which were being investigated against him, first at
the Magistrate’s Court and thereafter at the police station opposite the
court. At the request of Mr Moleko, he agreed to continue the interview
on 7 February 2002 at Mr Moleko’s office.
[15] On 7 February 2002, Captain Gwayi met with Mr Moleko at the
Engcobo Magistrate’s Court and informed him of the allegations against
him and of his constitutional rights. Mr Moleko elected to make a
‘warning statement’ and wrote it out himself. Captain Gwayi issued Mr
Moleko with a ‘provisional summons’ for trial, provisional in the sense
that the matter had to be returned to the office of the DPP for further
instructions. The Captain filed Mr Moleko’s warning statement in the case
docket which was thereafter submitted to the office of the DPP for a
decision. On 19 February 2002, the DPP’s office informed Captain Gwayi
of its decision to prosecute Mr Moleko and the latter was then arraigned
for trial at the regional court in Mthatha.
[16] Captain Gwayi testified that he had nothing to do with the decision
to prosecute Mr Moleko – he merely conducted the investigation and
collected evidence. As far as he was concerned, the decision to prosecute
was ‘the prerogative of the National Prosecuting Authority’.
[17] Based on these facts, it is clear to me that Captain Gwayi at all
times acted on the instructions and under the direction of the office of the
DPP. Neither he nor any other policeman employed by the third appellant
was responsible for the decision to prosecute the plaintiff. For this reason
alone, I am of the view that the appeal must therefore succeed in so far as
the third appellant is concerned.
[18] As far as the first appellant, the Minister for Justice and
Constitutional Development, is concerned, the National Prosecuting
Authority Act 32 of 1998 provides that the Minister exercises final
responsibility over the national prosecuting authority established in terms
of s 179 of the Constitution, but only in accordance with the provisions of
that Act (s 33(1)). Thus, the National Director of Public Prosecutions
(NDPP) must, at the request of the Minister, inter alia furnish her with
information in respect of any matter dealt with by the NDPP or a DPP,
and with reasons for any decision taken by a DPP, ‘in the exercise of their
powers, the carrying out of their duties and the performance of their
functions’ (ss 33(2)(a) and (b)). Furthermore, the NDPP must furnish the
Minister, at her request, with information regarding the prosecution policy
and the policy directives determined and issued by the NDPP (ss 33(2)(c)
and (d)). However, the prosecuting authority is ‘accountable to Parliament
in respect of its powers, functions and duties under this Act, including
decisions regarding the institution of prosecutions’ (s 35(1)). It is
therefore clear that the Minister (the first appellant) is not responsible for
the decision to prosecute Mr Moleko and the appeal must also succeed as
far as the first appellant is concerned.
[19] It follows that the remaining requirements are only relevant
insofar as they concern the potential liability of the DPP.
Ad (b): Absence of reasonable and probable cause
[20] Reasonable and probable cause, in the context of a claim for
malicious prosecution, means an honest belief founded on reasonable
grounds that the institution of proceedings is justified. The concept there-
fore involves both a subjective and an objective element5 –
‘Not only must the defendant have subjectively had an honest belief in the guilt of the
plaintiff, but his belief and conduct must have been objectively reasonable, as would
have been exercised by a person using ordinary care and prudence.’6
[21] Mr Moleko was charged with defeating or obstructing the course
of justice. The essential elements of this crime at common law 7 are
described by JRL Milton South African Criminal Law and Procedure Vol
II Common Law Crimes 3ed (1996) as follows (p 102):
‘Defeating or obstructing the course of justice consists in unlawfully doing an act
which is intended to defeat or obstruct and which does defeat or obstruct the due
administration of justice.’ (Footnote omitted.)
5 Prinsloo v Newman at 495H and the cases referred to therein. See further Relyant Trading (Pty) Ltd v
Shongwe para 14.
6 15 Lawsa op cit para 449 and the authorities there cited. See also Wille’s Principles of South African
Law pp 1193-1194.
7 Which for the purposes of this case are clearly the same under s 40 of the Transkei Penal Code (see note
2 above).
It is immaterial whether the alleged conduct has merely a tendency to
defeat or obstruct the course of justice or is capable of defeating or
obstructing the course of justice.8
[22] Counsel for the appellants pointed out that the actus reus which
forms the basis of a charge of defeating or obstructing the course of
justice may take a number of different forms,9 and contended that the
unlawful and unprocedural release by a judicial officer of an accused
person may fall within the type of conduct which may be characterised as
defeating or obstructing the course of justice. For the purposes of this
judgment, I will assume in favour of the appellants that this proposition
may well, in appropriate (and, it is to be hoped, rare) circumstances,
indeed be correct.
[23] In determining whether or not the decision by the DPP to
prosecute Mr Moleko amounted to malicious prosecution, it must also be
remembered that, in the relevant charge sheet,10 the State alleged that Mr
Moleko had acted ‘with the intention to defeat and/or obstruct and/or
prevent the course of justice and mala fide’.11
[24] Ms Neveling, the Senior State Advocate in the office of the DPP
in Mthatha who took the ultimate decision to prosecute Mr Moleko,
testified that at the time she took this decision, she had before her the
following documents:
8 JRL Milton op cit p 117.
9 JRL Milton op cit pp 118 et seq and the authorities there cited.
10 The wording of which is quoted in para 6 above.
11 Emphasis added.
• the case docket, a copy of which was, by agreement between
the parties, handed in to the court a quo at the conclusion of
the trial;12
• the ‘warning statement’ by Mr Moleko, which formed part of
the abovementioned docket; and
• affidavits by Mr Mgudlwa and by Inspector Didiza (both of
whom were present in court on 16 January 2002), which
affidavits were used in support of the urgent application
(launched in the Transkei High Court on 24 January 2002) to
set aside Mr Moleko’s order of 16 January 2002 releasing the
two accused on warning.13
[25] According to Ms Neveling, she also had before her at that time an
affidavit by the interpreter who was on duty in the Engcobo Magistrate’s
Court at the time the incident took place on 16 January 2002.14 However,
as this affidavit was only deposed to on 15 May 2002 and her decision to
prosecute was taken by no later than 19 February 2002, this was clearly
not the case.
[26] Ms Neveling testified further that her office has a manual
produced by the National Prosecuting Authority (NPA), containing policy
directives for all NPA employees dealing with, inter alia, the making of
decisions whether or not to prosecute. This NPA policy manual contains
specific provisions dealing with judicial officers. In her words:
12 The docket did not form part of the record and copies thereof were only furnished to this Court on 4
March 2008 at the request of the presiding judge.
13 These affidavits and the Notice of Motion with which they were filed were contained in the docket, but
also formed part of the record before Matthee AJ.
‘[W]e have to treat those matters with the utmost tact and . . . we have to be obviously
very sure when we take decisions against judicial officers. But also the penal code [the
Transkei Penal Code, 1983] section 17 . . . [a]lso has a specific provision in this regard
. . . the judicial officers will not be held responsible or liable for acts or omissions
committed by them in the execution of their duty if that omission or act was
committed bona fide. . . . [T]hat was obviously also one of the considerations that I
had to take into account in deciding whether to prosecute or not.’
[27] Ms Neveling stated that it appeared from the case docket that a
possible crime of defeating the ends of justice had been committed and
that Mr Moleko was ‘linked to that offence’. On the documents before her
at the relevant time, she was convinced that there was a reasonable
prospect of a ‘successful prosecution’ of Mr Moleko:
‘It was in my view from the affidavits before me, and even from the warning statement
made by Mr Moleko himself. . . clear that there [was] definitely evidence of mala
fides. I made a decision on the 19 of February to charge him with defeating the ends of
justice’.
[28] At the time of making her decision, Ms Neveling did not know
(and did not know of) Mr Moleko, had never had any dealings with him,
and had never received any complaints about him.
[29] Under cross-examination, it was put to Ms Neveling that, once the
Transkei High Court had on 29 January 2002 set aside Mr Moleko’s
order, it was not necessary for the DPP to prosecute him. Her response
was as follows:
14 Copies of which also did not form part of the record and were only furnished to this Court on 26
February 2008 at the request of the presiding judge.
‘. . . I disagree with that. It is our duty . . . I had the statements the affidavits under
oath in my possession and from that it was clear that a crime had been committed. It’s
our duty then to make decisions on those kind of things. As I have said we had to take
into consideration also the circumstances surrounding that. From the affidavit . . . it
was clear that there [was] mala fides. That we had to make a decision to prosecute. Not
only for that specific case, but also to prevent any other further cases like that
happening.’ (Emphasis added.)
[30] It appears from Ms Neveling’s evidence that, in concluding that
Mr Moleko had acted in bad faith, she had relied on three aspects of the
‘evidence’ before her at the time:
(a)
Mr Moleko had released the two accused, including the one in
hospital, despite the ‘fact’ that he had been informed by the prosecutor
that they were charged with Schedule 6 offences and that they had
previously been refused bail by another magistrate. She also relied on
the fact that, in his warning statement, Mr Moleko had said that he was
‘a seasoned magistrate, implying thereby . . . that he knows the
Criminal Procedure Act.’
(b)
Mr Moleko had said to the accused who was in court on the
relevant day ‘that he is being punished by the State without being
found guilty’. From this she had ‘gained the impression’ that Mr
Moleko had already made up his mind to release the accused from
custody.
(c)
She had also ‘gained the impression’ that Mr Moleko was ‘in
principle against’ all accused persons being held in custody.
[31] As regards point (c) above, Matthee AJ pointed out in his
judgment (in my view correctly) that no evidence was led to support this
opinion and that it was ‘puzzling how she could arrive at this opinion in
the light of her evidence that she ‘did not know the Plaintiff [Mr Moleko]
and had previously never received any report about him’.
[32] Ms Neveling’s evidence as a whole makes it clear that her
decision to prosecute Mr Moleko for the crime of defeating or obstructing
the course of justice was not based only on the fact that he had, in
contravention of s 60(11)(a) of the Criminal Procedure Act, released the
two accused on warning without any evidence being heard. When asked
by the court a quo how she drew the distinction between a judicial officer
acting inconsistently with the Criminal Procedure Act and hence
irregularly (or ‘just making a bad legal decision’), on the one hand, and
acting with mala fides, on the other, she responded as follows:
‘[M]y understanding of the difference is that once you have established whether he has
acted irregularly is then to establish whether it was a bona fide mistake, or whether
there [was] mala fides involved in that specific action. So . . . my understanding is that
the irregular acting comes first, and once that has been established, then you establish
whether it was a mala fide act, or whether it was a bona fide mistake if I can put it that
way.’
[33] In this regard, Ms Neveling also testified that:
‘I think the factors that I have mentioned to your Lordship those factors definitely
indicated mala fides to me . . . I think if it was merely a bad mistake, once the correct
facts were brought to his attention he would have acted differently . . . both the fact
that the bail had already been refused, as well as the fact that it was a Schedule 6
offence. . . if he made a mistake on one of the two. In my opinion that would still be
understandable. But the correct facts were brought to his attention, and despite that he
still released them. . . I think also in the warning statement it was never Mr Moleko’s
version that he made just a mistake that he wasn’t aware. I was in possession of his
warning statement when I made the decision.’
[34] According to Ms Neveling, Mr Moleko’s version was that:
‘[I]n his warning statement he said that he agreed that he released them out on bail.
That it was a Schedule 6 offence, he was aware of the fact that it was Schedule 6
offences. But that he had the interest of the accused at heart, as some accused had
previously died in Butterworth in holding cells at court . . . He also referred to the fact
if I remember correctly, to the effect that the police and the Prosecutors lied to him. . .
that accused are being punished . . . [T]hat explanation coupled with what happened in
court on that day to me indicated mala fides.’ (Emphasis added.)
[35] There are several serious factual inaccuracies in the abovequoted
portions of Ms Neveling’s evidence. First, Mr Moleko did not state in his
warning statement that he was aware of the fact that Schedule 6 offences
were involved. On his version as set out in the warning statement –
‘. . . the Public Prosecutor brought such a bulky roll after 4.00 pm and I was refusing
to take such cases and he appealed to me just do the “Remands” and as such [there
was no] time to read the records of such cases due to [the] lateness of [the] hour . . .
[a]fter all I did not know that such cases were at any stage heard [by] or brought
[before] any particular magistrate . . . I also [did] not undermine any rulings previously
given by Mr Nangu [the magistrate who had dismissed the previous bail application by
accused no’s. 2 and 3] as I was not even aware that a ruling regarding this case was
ever given the other way.’
This version, together with the fact that Mr Moleko referred to the case, in
his warning statement, as ‘case no. 851/2001 (Engcobo) being a charge of
Robbery [not armed robbery] – three counts’, should in my view certainly
have alerted Ms Neveling to the reasonable possibility that, at the time Mr
Moleko decided to release the two accused on warning, he was not aware
of the fact that the charges against the accused were Schedule 6 offences
or that a bail application previously brought by the two accused before
another magistrate had been refused.
[36] It is true that, at the time Ms Neveling made her decision to
prosecute, she had ‘in front of’ her the affidavits deposed to on 24 January
2002 by Mr Mgudlwa and by Inspector Didiza in support of the
abovementioned urgent application to the Transkei High Court. In his
‘founding affidavit’, Mr Mgudlwa stated the following:
‘I called the matter and as I was about to inform the first respondent [Mr Moleko] of
the arrangements, he addressed the second respondent [accused no. 2], enquiring from
him whether he had been in custody since his arrest in September [2001]. As the
second respondent replied in the affirmative, the first respondent became infuriated . . .
The first respondent then said that the prosecutor and police are punishing the second
respondent without being found guilty . . .
Mr Songo [the defence attorney for both accused] attempted to explain the position to
the first respondent but was prevented by the first respondent who ordered the
immediate release of the second respondent as well as the release of the third
respondent [accused no. 3] in his absence . . .
I informed the first respondent that the second and third respondents are charged with
Schedule 6 offences and that they had to show exceptional circumstances to the court
before release. I also drew his attention to the fact that the previous bail application by
the respondents was refused. I further informed the first respondent that all
investigation had been finalised and the matter was ready to be postponed for a
regional court date, but for the application for bail which had been arranged for that
day, to wit 16 January 2002. The first respondent did not give any attention to my
submissions.’
[37] In his ‘supporting affidavit’, Inspector Didiza stated that he had
read the affidavit deposed to by Mr Mgudlwa, and that he confirmed the
‘the contents thereof as being true and correct as [he] was present in court
at all material times’. He further stated that ‘[t]he crimes committed by the
second and third respondents are of an extremely serious nature’.
[38] While these affidavits supported Ms Neveling’s evidence to the
effect that Mr Moleko was informed by the prosecutor that the accused
were charged with Schedule 6 offences and that a previous application for
bail had been rejected by another magistrate, there were also other
documents in the case docket before her (quite apart from Mr Moleko’s
warning statement referred to above – about which more later), which
should have alerted her, as a reasonable senior state advocate in her
position, that these affidavits did not necessarily reflect what had
happened on 16 January 2002 fully and/or with complete accuracy. So, for
example, the case docket also contained (as document A.2) a so-called
‘Sworn Declaration’ by Mr Mgudlwa (although it was not in fact made
under oath). The relevant parts of this statement read as follows:
‘The presiding officer, Mr Moleko, mero motu enquired from accused no. 2 if he had
been in custody since September 2001. Upon receiving a response in the affirmative
he became angry saying that the prosecutor and the police are punishing him before he
is found guilty by the court, that it is the duty of the State to expedite the matter. He
then ordered that the accused person be released on warning. He actually ordered that
he must right away leave the court room. He said this is something that he can’t allow
unless he does not know why he is here in the first place. He went on to say it would
otherwise be better for him to leave the service.
I tried my level best to reason with him, stating that in this matter we are only awaiting
a date in the Regional Court. I also pointed out that the offence is quite serious. I told
him that a formal bail application was moved by Mr Songo before Mr Nangu and that
the State succeeded in refusing bail. All my pleas fell on deaf ears.’ (Emphasis
added.)
[39] The case docket that Ms Neveling had at her ‘disposal’ at the time
she made the decision to prosecute also contained another affidavit
deposed to by Inspector Didiza on 24 January 2002 (document A.3 in the
docket), viz the same date as that upon which Inspector Didiza deposed to
his abovementioned supporting affidavit. In the former affidavit, the
following relevant passages appear:
‘On the 2001-12-20 the case was postponed to the 2002-01-16 for [a] bail application,
the accused were supposed to give new facts. On the 2002-01-16 all parties were
present except one suspect who was at hospital for medication. This case is at regional
court for trial; at district court it was just for bail application.
The prosecutor called the case and the attorney appeared for accused no. 2 and no. 3.
Then he addressed the court explaining that he was not going to proceed with [the]
bail application. Before giving the reasons, the magistrate Mr Moleko ordered him to
sit down. The magistrate asked . . . the accused whether [he was] in custody for . . . a
long time and [he] agreed. The same question was asked to the prosecutor.
The prosecutor tried to explain what was happening to the case since the arrest of the
accused until 2002-01-16. Without listening to the PP, the magistrate ordered him to
sit down . . .
The magistrate said that police and public prosecutor were punishing the suspects
before being found guilty by the court of law. He said he would not allow their
conduct. He said he would be failing in doing his job if he allowed the conduct [cited]
above. He attacked the police and the public prosecutor in a [bad] manner. . .
He ordered the suspects to go out on warning. No bail conditions were given to them.
Necessary administration was not done on the release of suspect because Mr Moleko
was very angry. The police and public prosecutor were betrayed by the magistrate to
the suspects and the public.’
[40] To return to Mr Moleko’s warning statement, Ms Neveling, on her
own evidence, also had regard to this statement before making her
decision to prosecute Mr Moleko. As appears from the extracts from her
evidence quoted above, she testified that, in this warning statement, Mr
Moleko said that he was aware of the fact that the accused were charged
with Schedule 6 offences and that –
‘in spite of that he ordered the accused to be released not even on warning. To be
released without hearing any evidence’. (Emphasis added.)
[41] Once again, this evidence is incorrect in two material respects.
First, as indicated above, nowhere in his warning statement does Mr
Moleko state that he was on the relevant date aware of the fact that the
accused were charged with Schedule 6 offences. Second, Mr Moleko did
not order the accused to be released without a warning. Under cross-
examination, it was put to Ms Neveling that Mr Moleko had testified that
he had given the two accused a date upon which they had to return to
court. She replied that, as far as she could remember, this was not the
case. However, she later testified, in response to questions posed by
Matthee AJ, that Mr Moleko had indeed ‘released the accused on
warning’.
[42] The handwritten record of the proceedings in the case against the
three accused is contained in the case docket (as document B.4) and was
thus also before Ms Neveling at the time she made her decision to
prosecute. From this handwritten record, unfortunately sketchy though it
is,15 it appears that on 16 January 2002, Mr Moleko released accused no’s
15 In view of the fact that the magistrate’s courts are courts of record.
2 and 3 from custody and at the same time warned them to appear before
the Engcobo Magistrate’s Court on 11 February 2002, the date to which
he postponed the matter. It also appears from the handwritten record for
13 September 2001 that accused no.1, who was charged with the same
offences as accused nos. 2 and 3, was on that date released on bail of
R500, without any evidence being led. The handwritten notes for both 13
September 2001 and 16 January 2002 are in the same handwriting (thus
obviously that of Mr Moleko). On the other hand, the handwritten record
of the proceedings in respect of the previous bail application brought in
October 2001 by accused no’s 2 and 3, including the arguments advanced
by the defence attorney on 5 October 2001 in support of the bail
application and the response by the public prosecutor (again Mr
Mgudlwa), are in a different handwriting altogether.
[43] The fact that it was evident from the case docket that one of the
three accused persons, all of whom were charged with the same Schedule
6 offences, had previously been released on bail of R500, without any
evidence being led, should in my view reasonably have alerted Ms
Neveling, as a senior state advocate, to the need to make further enquiries
as to precisely what had happened in the criminal case up to 16 January
2002. She did not do so.
[44] As already stated, Ms Neveling testified that she considered Mr
Moleko’s warning statement before taking her decision to prosecute him.
(It is unfortunately necessary, for the purposes of this judgment, to quote
from this warning statement in some detail.) The statement (dated 7
February 2002) contains the following relevant passages:
‘On the day in question ie 16/01/2002 I was in the normal execution of my duties as a
Magistrate at Engcobo Magistrate’s Court. Among the cases which I presided over,
there also was a case no. 851/2001(Engcobo) being a charge of Robbery – 3 counts.
The accused were called in . . . and it appeared that, from the explanation from the
Prosecutor Mr Mgudlwa that one accused person was in absentia, due to [his] being
extremely sick and therefore only one accused person appeared before court on that
day . . .
I personally made enquiries further about the convalescence of that absentee whether
he was in . . . police custody or whereabouts [he was] and the Public Prosecutor gave a
confusing answer by saying he does not know where the sickly accused person was.
As a Presiding Judicial Officer, I was greatly concerned when the Accused could not
stand . . . trial and the Public Prosecutor could not give a direction. I further asked the
Public Prosecutor as to what he wanted the Court to do if he did not know the
whereabouts of such an extremely sick accused person.
It is at this stage that both the Public Prosecutor Mr Mgudlwa and the Accused’s Legal
Representative Mr Songo both stood up to make explanations . . . the Court ended up
not clear as to what was really taking place.
I asked Mr Mgudlwa further as to why this case was . . . not ready to be taken for trial
as it appeared that [the] Accused persons had been . . . incarcerated [since their arrest].
He then told me that he did not have the Police Docket with him. I further told Mr
Mgudlwa the PP of my concern for the long dragging [out of] the case and with no
indication as to when it would be tried . . .
I then told the Public Prosecutor that, I would come to the rescue of the State as I do
not want people to die in the hands of the Police. I further [said] that the Public
Prosecutor does not . . . indicate whether the Accused (absentia) was either
hospitalised or where he was. I further asked as to when did the man (Accused)
become sick; whether the Police have taken him to a Doctor; where is the Doctor’s
certificate. All the details that were asked by the Court (myself) to Mr Mgudlwa were
unanswered as he did not know.
The Public Prosecutor (Mr Mgudlwa) was extremely confused. Then I told the
Prosecutor that, lest the man (Accused) dies in the hands of the State, I am remanding
the Accused on warning so that the relatives could engage in taking the man [Accused]
for medical attention as a matter of [urgency] . . .
Due to such . . . confusion that was brought [about] by the Public Prosecutor, I
therefore stated that as soon as all the questions asked . . . are cleared [up] to the court,
then the “Prison Stay” can always be re-arranged. My action of the day was not in bad
faith at all but was directed at the welfare of both the State and that of the Accused
person. . . .
Responding to the allegations of . . . defeating the ends of justice, I was not at all
acting to commit such crimes. . . I remember that when telling the Prosecutor about the
plight of Accused that die in the hands of the State, I quoted to him the incident of
Butterworth, where a prisoner died in Court lock-up cells.
As a Magistrate, I feel that my actions were appropriate and aimed at the welfare of
the Accused and to safeguard the State . . . The Public Prosecutor was not helpful at all
towards the court about things which needed clarity as he (the Public Prosecutor) was
just confused.’ (Emphasis added.)
[45] On Ms Neveling’s own evidence, the documents referred to above
were before her when she took her decision to prosecute Mr Moleko. As
illustrated, these documents contained various allegations which were
contradictory in many important respects. This being so, I am of the view
that Ms Neveling should reasonably have been aware of the very real
possibility that, if Mr Mgudlwa had indeed informed Mr Moleko16 that the
two accused were charged with Schedule 6 offences, that they had to
show exceptional circumstances to the court before release, and that a
previous bail application brought by them had been refused, Mr Moleko’s
‘anger’ and ‘fury’ was such that he simply did not hear this. Indeed, Mr
Mgudlwa himself said, in his earlier statement referred to above, that ‘all
[his] pleas fell on deaf ears’.
16 As Mr Mgudlwa stated under oath in his abovementioned ‘founding affidavit’.
[46] Moreover, Inspector Didiza, in the other affidavit (not his
‘supporting affidavit’) to which he deposed on 24 January 2002, alleged
that when Mr Mgudlwa tried to explain to Mr Moleko what had happened
in the criminal case from the time of arrest of the accused up to 16
January 2002, Mr Moleko ordered Mr Mgudlwa to sit down ‘without
listening to him’.
[47] This very real possibility that, during the incident in question, Mr
Moleko – who was variously described as having been ‘infuriated’, ‘very
angry’ and ‘very disturbed’ upon being informed by accused no 2 that he
and accused no 3 had been incarcerated since their arrest in September
2001 – is further borne out by what Captain Gwayi said in his
abovementioned letter of complaint dated 17 January 2002 (document B.1
in the case docket). To reiterate, Captain Gwayi stated that, although Mr
Mgudlwa, Inspector Didiza and the defence attorney Mr Songo ‘were
more than ready to proceed with the formal bail application’, Mr Moleko
was not prepared to listen to anybody and ‘simply [shouted] everybody
down’.
[48] Upon reading Mr Moleko’s warning statement, Ms Neveling knew
that Mr Moleko was adamant that he had not acted in bad faith on the day
in question, but that all his actions had been taken in the interests of ‘the
welfare of the accused and to safeguard the State’. As appears from the
extracts quoted above, Mr Moleko twice expressed his concern that
accused no. 3 – who, he said, was ‘extremely sick’ according to the
explanation given to him by Mr Mgudlwa – might ‘die in the hands of’
the State. He also referred to an incident at Butterworth, where ‘a prisoner
had died in the Court lock-up cells’. Ms Neveling herself testified to the
effect that:
‘. . . in his warning statement he said . . . that he had the interest of the accused at
heart, as some accused had previously died in Butterworth in holding cells at court’.
[49] It is quite clear from her evidence that, although aware of these
serious allegations made by Mr Moleko, Ms Neveling made no queries in
this regard prior to taking her decision to prosecute him. She testified that
she had not been informed of, nor was she aware of, a problem of
overcrowding in cells in Engcobo, or of (to use the words of Matthee AJ
during the trial) ‘some sort of decision locally to try and address that issue
. . . that people not be kept in custody for too long’. However, she
conceded that she was aware of a big national campaign to address the
problem of overcrowding in prisons, to reduce the number of awaiting-
trial prisoners and the ‘number of cases and backlogs on rolls’. This
national campaign included the area under her jurisdiction.
[50] In respect of the requirement of ‘absence of reasonable and
probable cause’ for Mr Moleko’s prosecution, counsel for the appellants
submitted that Matthee AJ had in effect based his judgment upon a
‘central consideration of judicial independence’. Counsel contended that
the learned judge seemingly elevated this principle to ‘an almost
immutable rule’.
[51] In the relevant part of his judgement, Matthee AJ stated as
follows:
‘Section 1(c) of Act 108 of 1996 (hereafter “the constitution”) makes it clear that the
rule of law is one of the cornerstones of the constitution. Central to the implementation
of the rule of law is the role of judicial officers. Section 165 of the constitution makes
this role clear. If judicial officers are to perform the duty set out in section 165(2) it
goes without saying that they inter alia must be free from any fear whatsoever that
they might be arrested and/or prosecuted as a result of them performing their judicial
duties, even where their application of the law is completely wrong. (This obviously
cannot exempt judicial officers from criminal prosecution where for example they
have accepted a bribe to make a certain finding.) This principle is so fundamental and
obvious that anything submitted contrary to it only needs to be stated to be rejected.
Sections 165(3) and 165(4) of the constitution emphasises that there is a special
responsibility on all organs of state to help judicial officers perform their constitutional
duties.’
[52] To my mind, this is too strongly stated. It is correct that the
independence of the judiciary is enshrined in s 165 of the Constitution, the
relevant subsections of which provide as follows:
‘(1) The judicial authority of the Republic is vested in the courts.
(2) The courts are independent and subject only to the Constitution and the law,
which they must apply impartially and without fear, favour or prejudice.
(3) No person or organ of state may interfere with the functioning of the courts.’
[53] These provisions make it clear that, whilst the courts are
independent, they are nevertheless subject to the Constitution and the law.
A discussion of the principle of judicial independence, as enshrined in the
Constitution, is certainly not necessary for the purpose of this judgment.
Suffice it to say that, in De Lange v Smuts NO,17 the Constitutional Court
(per Ackermann J) stated that –
‘Judicial officers enjoy complete independence from the prosecutorial arm of the State
and are therefore well-placed to curb possible abuse of prosecutorial power.’
17 1998 (3) SA 785 (CC) para 63
[54] So too, in Van Rooyen v The State,18 Chaskalson CJ stated that:
‘In deciding whether a particular court lacks the institutional protection that it requires
to function independently and impartially, it is relevant to have regard to the core
protection given to all courts by our Constitution, to the particular functions that such
court performs and to its place in the court hierarchy. Lower courts are, for instance,
entitled to protection by the higher Courts should any threat be made to their
independence. The greater the protection given to the higher Courts, the greater is the
protection that all courts have.’
[55] Referring specifically to the magistrate’s courts, Chaskalson CJ
pointed out19 that ‘magistrates are entitled to the protections necessary for
judicial independence, even if not in the same form as higher Courts.’20
[56] All this being so, however, the provisions of s 165(2) of the
Constitution21 compel the conclusion that the fundamental principle of
judicial independence cannot simply be equated with a principle of
immunity of judicial officers from criminal prosecutions for all acts
and/or omissions in the exercise of their judicial functions, irrespective of
the circumstances of the individual case. It goes almost without saying
that the criminal prosecution of judicial officers for such acts and/or
omissions will – and must – remain an extraordinary and exceptional step.
Any decision by the office of the DPP to prosecute a judicial officer must
be taken with the utmost caution, due regard being had to the fundamental
principle of judicial independence, but also to the related principle that
judicial officers are subject to the Constitution and the law and thus
18 2002 (5) SA 246 (CC) para 23.
19 Para 28.
20 See also Travers v National Director of Public Prosecutions 2007 (3) SA 242 (T) paras 20 et seq and
the numerous authorities there cited.
21 Quoted in para 54 above.
cannot be completely immune from criminal prosecution, in appropriate
cases, for their acts and/or omissions in the exercise of their judicial
functions.
[57] In Relyant Trading (Pty) Ltd v Shongwe,22 this court stated the
following:
The requirement for malicious arrest and prosecution that the arrest and prosecution be
instituted “in the absence of reasonable and probable cause” was explained in
Beckenstrater v Rottcher and Theunissen [1955 (1) SA 129 (A) at 136A-B] as follows:
“When it is alleged that a defendant had no reasonable cause for prosecuting, I
understand this to mean that he did not have such information as would lead a
reasonable man to conclude that the plaintiff had probably been guilty of the
offence charged; if, despite his having such information, the defendant is shown
not to have believed in the plaintiff’s guilt, a subjective element comes into play
and disproves the existence, for the defendant, of reasonable and probable
cause.”
It follows that a defendant will not be liable if he or she held a genuine belief founded
on reasonable grounds in the plaintiff’s guilt. Where reasonable and probable cause for
an arrest or prosecution exists the conduct of the defendant instigating it is not
wrongful. The requirement of reasonable and probable cause is a sensible one: “For it is
of importance to the community that persons who have reasonable and probable cause
for a prosecution should not be deterred from setting the criminal law in motion against
those whom they believe to have committed offences, even if in so doing they are
actuated by indirect and improper motives” [see Beckenstrater v Rottcher and
Theunissen at 135D-E].23 (Footnotes omitted.)
[58] In this case, Ms Neveling – although by her own admission aware
of the provisions of s 17 of the Transkei Penal Code, 1983, and of the
22 [2007] 1 All SA 375 (SCA) para 14.
‘utmost tact’ and caution required in making any decision to prosecute a
judicial officer for something done or omitted in the exercise of his or her
judicial functions24 – did not in my view exercise the requisite ‘ordinary
care and prudence’25 in making the decision to prosecute Mr Moleko.
[59] It would appear that Ms Neveling did not even ascertain whether
Captain Gwayi had received any response, from either the chief magistrate
or the control prosecutor of the Engcobo Magistrate’s court to his
abovementioned letter dated 17 January 200226 (document B.1 in the case
docket) before deciding to prosecute Mr Moleko. Her decision was taken
by no later than 19 February 2002, just more than one month after the date
of the incident (16 January 2002) forming the subject of the subsequent
prosecution.
[60] It can hardly be said that, objectively, Ms Neveling took such
reasonable measures as could be expected of someone in her position to
inform herself fully of what had happened on 16 January 2002 and
whether this provided ‘reasonable and probable cause’ for Mr Moleko’s
prosecution. This means that Mr Moleko in my view discharged the onus
of proving absence of reasonable and probable cause and thus satisfied the
second requirement of a claim for malicious prosecution.
Ad (c) ‘Malice’ or animus injuriandi
23 See also 15 Lawsa op cit paras 449-450 and 452; J Neethling, JM Potgieter & PJ Visser Neethling’s
Law of Personality 2 ed (2005) pp 176-179 and the authorities cited by these authors.
24 See para 26 above.
25 See 15 Lawsa op cit para 449 and see also para 452.
26 Para 13 above.
[61] In the Relyant case,27 this court28 stated the following in regard to
the third requirement:
Although the expression “malice” is used, it means, in the context of the actio
iniuriarum, animus iniuriandi. In Moaki v Reckitt & Colman (Africa) Ltd and
another Wessels JA said:
“Where relief is claimed by this actio the plaintiff must allege and prove that the
defendant intended to injure (either dolus directus or indirectus). Save to the
extent that it might afford evidence of the defendant’s true intention or might
possibly be taken into account in fixing the quantum of damages, the motive of
the defendant is not of any legal relevance.” ’
[62] In so doing, the Court decided the issue which it had left open in
Lederman v Moharal Investments (Pty) Ltd29 and again in Prinsloo v
Newman,30 namely that animus injuriandi, and not malice, must be proved
before the defendant can be held liable for malicious prosecution as
injuria.31
[63] Animus injuriandi includes not only the intention to injure, but
also consciousness of wrongfulness:
‘In this regard animus injuriandi (intention) means that the defendant directed his will
to prosecuting the plaintiff (and thus infringing his personality), in the awareness that
reasonable grounds for the prosecution were (possibly) absent, in other words, that his
conduct was (possibly) wrongful (consciousness of wrongfulness). It follows from this
that the defendant will go free where reasonable grounds for the prosecution were
27 Para 5.
28 Referring to Heyns v Venter 2004 (3) SA 200 (T) para 12 at 208B; Moaki v Reckitt & Colman (Africa)
Ltd 1968 (3) SA 98 (A) at 104A-B (see also 103F-104A); Neethling et al op cit 124-125 (see also 179-
182).
29 1969 (1) SA 190 (A) at 196G-H.
30 1975 (1) SA 481 (A) at 491H-492B.
31 But cf 15 Lawsa op cit para 455; Wille’s Principles of South African Law 1194-1196 and Harms op cit
pp 238-239.
lacking, but the defendant honestly believed that the plaintiff was guilty. In such a case
the second element of dolus, namely of consciousness of wrongfulness, and therefore
animus injuriandi, will be lacking. His mistake therefore excludes the existence of
animus injuriandi.’32
[64] The defendant must thus not only have been aware of what he or
she was doing in instituting or initiating the prosecution, but must at least
have foreseen the possibility that he or she was acting wrongfully, but
nevertheless continued to act, reckless as to the consequences of his or her
conduct (dolus eventualis).33 Negligence on the part of the defendant (or, I
would say, even gross negligence) will not suffice.34
[65] In this case, I am of the view that Mr Moleko did prove animus
injuriandi on the part of the DPP. Ms Neveling clearly intended to
prosecute Mr Moleko and was fully aware of the fact that, by so doing, he
would in all probability be ‘injured’ and his dignity (‘comprehending also
his . . . good name and privacy’)35 in all probability negatively affected.
Despite this knowledge, she took the decision to prosecute without
making any of the enquiries which cried out to be made, thus acting in a
manner that showed her recklessness as to the possible consequences of
her conduct.
Costs
[66] It follows that the appeal by the second appellant must fail, while
the appeal by the first and third appellants succeeds. In this regard,
32 Neethling et al p 181.
33 See Heyns v Venter paras 13-14.
34 See Relyant Trading para 5; but cf Heyns v Venter para 14 at 209C-H.
35 See Relyant Trading para 5.
counsel for the appellants conceded that, if this were the outcome of this
appeal, then the second appellant must be held liable for Mr Moleko’s
costs.
Conclusion
[67] I would therefore make the following order:
1. The appeal by the first and third appellants succeeds.
2. The appeal by the second appellant is dismissed.
3. The second appellant is ordered to pay all the costs of
the appeal.
4. Paragraph 5 of the order of the court a quo to the
effect that ‘the first and third defendants jointly and
severally are liable for the costs of the matter’ is set
aside and replaced with the following:
‘The second defendant is liable for the costs of the
matter.’
B J VAN HEERDEN
JUDGE OF APPEAL
Concur:
FARLAM JA
KGOMO AJA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
31 March 2008
STATUS: Immediate
Minister for Justice and Constitutional Development and others v S. M.
Moleko
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal today dismissed an appeal by the Director of
Public Prosecutions against a judgment of the Transkei High Court holding
that the respondent had established that he was the victim of a malicious
prosecution by the DPP. The respondent was charged with defeating or
obstructing the course of justice, but was subsequently acquitted in the
regional court. This gave rise to his claim for damages for malicious
prosecution. The SCA upheld the appeal by the first and third appellants (the
Minister for Justice and Constitutional Development and the Minister of Safety
and Security, respectively) holding that neither Minister was responsible for
the decision to prosecute the respondent.
The respondent, a magistrate at Engcobo in the Eastern Cape, had released
accused persons charged with Schedule 6 offences on warning without any
evidence being led contrary to the provisions of section 60(11)(a) of the
Criminal Procedure Act 51 of 1977. Respondent submitted that he did so
because the accused had been in custody since their arrest some four
months earlier. Furthermore, one of the accused was ill and no-one could
inform the respondent whether this accused was in the holding cells or in
hospital and he did not want anybody to die in the police holding cells.
Respondent also held that his actions were not taken in bad faith but were
taken in the interests of both the state and of the accused.
The Supreme Court of Appeal held that a decision taken by the office of the
DPP to prosecute a judicial officer must be taken with the utmost caution, due
regard being had to the fundamental principle of judicial independence, but
also to the related principle that judicial officers are subject to the Constitution
and the law and thus cannot be completely immune from criminal prosecution,
in appropriate cases, for their acts and/or omissions in the exercise of their
judicial functions.
Taking into account the requirements to be proved in order to establish
malicious prosecution, the Court held that, objectively, it could not be said that
the DPP took such reasonable measures as could be expected from that
office to inform itself of the events of the day in question and whether these
provided ‘reasonable and probable cause’ for the respondent’s prosecution.
Furthermore, the respondent proved animus injuriandi (intention to injure) on
the part of the DPP. The DPP clearly intended to prosecute the respondent,
being fully aware of the fact that, by so doing, the respondent would in all
probability be injured and his dignity in all probability negatively affected.
Despite this knowledge, it took the decision to prosecute, acting in a manner
that showed recklessness as to the possible consequences of its conduct.
ends.
|
3458
|
non-electoral
|
2020
|
`
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 054/2020
In the matter between:
HORTORS PENSION FUND
APPELLANT
and
FINANCIAL SECTOR CONDUCT AUTHORITY
FIRST RESPONDENT
THE MINISTER OF FINANCE
SECOND RESPONDENT
Neutral citation:
Hortors Pension Fund v Financial Sector Conduct Authority and
Another (Case no 054/2020) [2020] ZASCA 141 (2 November 2020)
Coram:
Navsa, Zondi, Van der Merwe and Nicholls JJA and Unterhalter
AJA
Heard:
21 August 2020
Delivered:
This judgment was handed down electronically by circulation to
the parties’ representatives via email, publication on the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand-down is deemed to be
10:00 am on 2 November 2020.
Summary:
Whether regulation promulgated by Minister, in terms of which a board
of a pension fund is obliged to place calculable enhancements due to former members
who cannot be traced in a contingency reserve fund from which it cannot be released,
except as payment to such members or as a result of crediting the Guardian’s Fund
or some other fund, is beyond the Minister’s power and not in accordance with the
Pension Funds Act 24 of 1956 – Minister arrogating power at odds with the
Act – against the principle of legality.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Kollapen J, sitting as
court of first instance): judgment reported sub nom Hortors Pension Fund v Financial
Sector Conduct Authority and Another [2019] ZAGPPHC 614
The appeal is upheld with no order as to costs.
The cross-appeal is dismissed with no order as to costs.
The order of the court below is set aside and substituted as follows:
‘Regulation 35(4) of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers under the provisions of
the Pension Funds Act 24 of 1956.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Navsa JA (Zondi, Van der Merwe and Nicholls JJA and Unterhalter AJA
concurring):
[1] This is one of three related cases that were heard on the same day.1 This
appeal, like the other two, is directed against a decision of the Gauteng Division of the
1 The other two being Vrystaatse Munisipale Pensioenfonds v The Minister of Finance and another
(Case no 1161/18) and Southern Sun Group Retirement Fund v The Registrar of Pension Funds and
Others (Case no 215/2019). The unreported judgments of the courts below in these matters are cited,
respectively, as Free State Municipal Pension Fund v The Minister of Finance and Others GP 06-06-
High Court,2 in terms of which an application by a pension fund registered in terms of
s 4 of the Pension Funds Act 24 of 1956 (the PFA), to have regulation 35(4) of the
Regulations promulgated by the second respondent,3 the Minister of Finance (the
Minister), declared invalid on the basis that it exceeds the Minister’s powers under the
PFA , was dismissed. In all three cases the high court made no order as to costs.
[2] The principal issue in all three appeals, as it was in the high court, is whether
the regulation in question is ultra vires the powers assigned to the Minister in terms of
the PFA. Put differently, the question is whether the Minister has, by way of the
regulation in issue, arrogated power at odds with the PFA, thereby offending against
the principle of legality. The three appeals require consideration of the
person/functionary in whom, in terms of the PFA, the power to apportion an actuarial
surplus in a pension fund and to create contingency reserve accounts, vests. The
impugned regulation has to be viewed against the relevant provisions of the PFA.
[3] The historical path leading up to the commencement of litigation, and the
manner in which the issues were framed by the respective appellants in the three
appeals, are not identical. There is also the accusation before us, on behalf of the
Minister, that, in at least two, if not all three appeals, the respective pension funds
have departed from their initial challenge to the regulation and are now advancing
2018 case no 67954/2015 and Southern Sun Group Retirement Fund v The Registrar of Pension Funds
and Others GJ 18-12-2018 case no 21229/2015.
2 This particular appeal is against a decision of the Gauteng Division of the High Court, Pretoria
(Kollapen J, sitting as court of first instance). The other two – Vrystaatse Munisipale Pensioenfonds
(ibid) and Southern Sun Group Retirement Fund (ibid) – are appeals against decisions also of the
Gauteng Division of the High Court, first from the Provincial Division (Pretoria)(Wepener J, sitting as
court of first instance), and second from the Local Division (Johannesburg)(Siwendu J, sitting as court
of first instance).
3 See GN R98 in GG 162 of 26-01-1962. Regulation 35(4) was inserted in an amendment to the
Regulations: see GN R558 in GG 24780 of 22-04-2003.
submissions beyond those raised in their founding affidavits and before the high court.
Whether that complaint is justified and whether the appellant and the other funds ought
to have been granted the relief sought requires scrutiny of the pleadings in each case,
hence the necessity for three, separate judgments. There will, of course, in each
judgment be references, where relevant, to the other two appeals. The analysis of the
law and the conclusions reached will essentially be the same. All three appeals are
before us with the leave of the court below.
[4] The Financial Sector Conduct Authority (the FSCA), the first respondent, is a
juristic person established under s 56 of the Financial Sector Regulation Act 9 of 2017
(the FSRA). The FSCA came into existence on 1 April 2018,4 replacing the Financial
Services Board (the FSB), which owed its existence to the Financial Services Board
Act 97 of 1990 (the FSBA).5 The main objectives of the FSCA include enhancing and
supporting the efficiency and integrity of financial markets, protecting financial
customers through promoting fair treatment by financial institutions, and assisting in
maintaining financial stability.6
[5] It is necessary at the outset to have brief regard to the meaning of an actuarial
surplus, since that concept is at the centre of this appeal. Simply stated, a surplus
arises in a pension fund when an actuary determines that the pension fund’s assets
exceed its liabilities. Prior to 2001, how a fund dealt with a surplus was determined by
its rules. The Pension Funds Second Amendment Act 39 of 2001 came into effect on
7 December 2001. It was enacted to regulate the distribution of a surplus by pension
4 See GN 169 in GG 41549 of 29-03-2018; and the Regulations published in GN R405 in GG 41550
of 29-03-2018.
5 Established in terms of s 2 of the FSBA.
6 See s 57 of the FSRA.
funds. It became known as the surplus legislation. The surplus legislation inserted
definitions relating to pension funds surpluses and also introduced ss 14A and 14B,
and ss 15A to 15K into the PFA.7 This appeal turns on the interpretation and
application of relevant provisions of the surplus legislation, located within the PFA. I
shall, in due course, deal with the historical factors that gave rise to the surplus
legislation.
[6] The background culminating in this appeal is set out hereafter. The Hortors
Staff Pension Fund was established on 1 November 1950. On 1 June 1977, it changed
its name to that which the appellant now bears, Hortors Pension Fund (the Fund). In
1994 the Fund was converted from a defined benefit fund to a defined contribution
fund. Prior to 1998, the Fund was administered by Old Mutual, but from 1998 the
administration was conducted by a subsidiary of the participating employer, Caxton
and CTP Publishers and Printers (Pty) Ltd (Caxton). From 1 November 1994, the rules
of the Fund provided for bonuses to be credited annually to the members’ retirement
contribution accounts, based on the Fund’s investment performance. The bonuses
were to be declared by the Fund’s trustees, having regard to the advice of the actuary.
Due to the poor state of the Fund’s administrative records, the bonuses declared over
the period 1994 to 2001 were too conservative and well below actual investment
performance.
[7] In 2001 the Fund engaged with the FSB in relation to paying out further
bonuses, to make up for the under-declarations for the period 1994 to 2001. In a
meeting with the Fund in February 2002, FSB personnel appeared to accept that the
7 Some of these provisions were either amended or substituted in subsequent legislation.
envisaged further payments were reasonable. At that time, the Fund did not consider
the contemplated payments to be part of a surplus distribution in terms of the then
recently adopted surplus legislation, in the form of amendments to the PFA.8
[8] On 4 June 2002, preceding further engagement with the FSB, the Fund
received recommendations from the valuator of the Fund concerning the allocation of
the surplus for the period 1 November 1994 to 31 December 2001. On 5 June 2002,
the Fund submitted a proposal to the FSB for approval. On 7 June 2002, the FSB
expressed the view that the proposal appeared to amount to a distribution of a surplus,
rather than an adjustment to past bonuses, and requested that the Fund motivate why
the payment of bonuses should not be interpreted as an apportionment of actuarial
surplus. The Fund replied on 24 June 2002, setting out the reasons for its
interpretation.
[9] The Fund’s trustees met on 12 September 2002, by which time the FSB had
not yet responded to the last-mentioned communication. On that date, the trustees,
relying on the advice of the Fund’s actuaries, approved the payment of the full
investment return to those who had been historically deprived of it.
[10] In late 2002 and early 2003, the additional bonuses in respect of active
members were credited to the member accounts, and cash payments were made to
former members (the 2002 distribution). R86.7 million (plus the investment return
thereon) was distributed as follows:
8 See the Pension Funds Second Amendment Act 39 of 2001, which came into effect on 7 December
2001.
10.1 R25.2 million was paid to past members at the time (going back to 1994);
10.2 R31.5 million was credited to members who had been paid out upon leaving
the Fund, or retiring up until 30 September 2007; and
10.3 the remaining R30 million of members' credits were frozen on 30 September
2007.
[11] On 28 January 2004, more than a year later, the FSB expressed the view that
the 2002 distribution was unlawful. The Fund took legal advice and conceded that the
distribution ought to have been treated as part of a surplus apportionment in terms of
s 15B of the PFA, rather than as a bonus distribution.
[12] On 7 February 2007, the FSB appointed a specialist tribunal in terms of s 15K
of the PFA.9 On 24 February 2012, the tribunal found that the 2002 distribution had
been incorrect and unlawful. The tribunal noted that:
‘The Registrar previously accepted and still accepts that the 2002 distribution was not unlawful
to the extent that it grossed up past bonus declarations to bring them in fine with actual
investment performance over the years in question. It is the amounts of the distribution in
excess of such adjustment that the Registrar regards as unlawful and which the HPF
conceded was unlawful.’
[13] After adjusting the low bonuses for the period 1998 to 2001 to the actual
investment returns that were achieved during that period, a surplus of R83 million was
9 Section 15K provides that the Registrar may appoint a special ad hoc tribunal to make a
determination in respect of certain issues, including the situation where a fund fails to submit a
scheme for apportionment of an actuarial surplus (s 15K(1)(a)); or where the Registrar is not satisfied
that a scheme submitted by the board in terms of s15B is reasonable and equitable or that s 15B has
not been complied with (s 15K(1)(b)(i) and (iii)).
determined by the tribunal. Of the R83 million surplus, R18 million had already been
paid out as surplus topping-up benefits to persons who participated in the 2002
distribution. Consequently, an amount of R65 million, plus investment return (about
R280 million in 2012), fell to be paid out as topping-up benefits. With respect to the
frozen credits referred to in para 11 above, the tribunal found that the low bonuses
allocated to these members between 1997 and 2001 also had to be adjusted to take
account of the higher investment returns that were achieved during that period. The
effect was that those members lost the R30 million in credits but received enhanced
bonuses of about R10 million. The tribunal also found that there was a surplus of
approximately R390 million in 2012 (calculated by disregarding the 2002 distribution),
which ought to have been paid out as topping-up benefits. As a matter of fact, however,
the Fund only had a surplus of approximately R140 million as a result of the distribution
in 2002, leaving the Fund with a deficit of approximately R230 million and a funding
level of 76.17%.
[14] In its founding affidavit the Fund stated the following in relation to the deficit:
‘Notwithstanding the Tribunal's determination, the reality is that the deficit is unlikely to
materialise at all as it relates to payments due to former members who left the Fund prior to
1994 and who cannot be traced. Moreover, it is a near certainty that, if any claims should arise,
they will not be for substantial amounts. This is because the Fund has already taken extensive
steps to trace former members, without success, and it is highly unlikely that any further former
members will be traced. …
In addition to the Fund being unable to trace these former members, it is unlikely that many of
these former members are still alive. This is demonstrated through an examination of former
members' dates of exit and dates of birth. Specifically, only 12% of total potential claims are
attributable to the former members who left after 1994 and who were younger than age 65 in
October 2014. If any claims materialise, they could be expected to come from this
demographic profile. Older former members and members who exited before 1994 are
considered extremely unlikely to come forward at any time. This is significant because if the
liability towards so-called “unquantified”10 and untraced former members is reduced to a nil
value, then there would be a small surplus of some R12 million in the Fund as at 31 October
2014.’
The Fund’s actuaries took the view that there was no realistic prospect that a material
number of former members, who were untraced and un-contactable, would come
forward to submit claims in the future.
[15] The Fund contended that what is set out in the preceding paragraph provided
the context within which its actuaries submitted a valuation as at December 2013, in
terms of which ‘untraced’ and ‘unquantified’ members were excluded. Those terms will
become clearer when the applicable statutory provisions are dealt with later. The Fund
contended that if liability towards untraced and unquantifiable members were to be
reduced to a nil value, there would be a surplus of R12 million. The Fund’s perspective,
based, at least in part, on the views expressed by the actuaries, was that the Fund
was financially sound and that its assets were sufficient to meet its obligations towards
members. I shall deal with the FSCA’s response to the Funds assertions in relation to
the deficit and the valuation by the Fund’s actuaries
[16] On 9 July 2015, the Registrar accepted the Fund's revised valuation as at 31
December 2013. On the same date, the Registrar sent a letter to the Fund stating that
because the Fund's funding level was only 76.17%, it was financially unsound, and it
10 That is, members in respect of whom insufficient records are available to enable the additional
benefits that may be due to such former members to be calculated.
was required to submit a scheme, setting out the arrangements which the Fund had
taken or would take to bring itself back into a financially sound condition.
[17] On 23 September 2015, the Fund, taking the view that it was in a position to
meet its financial obligations, filed an appeal against the decision of the Registrar. The
Registrar filed her reasons for the directive referred to in the preceding paragraph, the
relevant parts of which read as follows:
‘2.5
When evaluating a report on the statutory actuarial evaluation valuation of a fund to
decide whether it properly reflects the fund's financial condition, the Registrar, with the
assistance of the chief actuary, considers, amongst other things
...
2.5.3
whether the report reflects a proper accounting of the fund's assets and liabilities in
compliance with applicable law, including, in particular, regulation 35(4) which
provides that
“Where a board is able to determine the enhancement due in respect of a
particular former member in terms of s 15B(5)(b) or (c) of the Act, but is unable
to trace that former member in order to make payment, the board shall put the
corresponding enhancement into a contingency reserve account specific for the
purpose. Notwithstanding anything in the rules of the fund, moneys may not be
released from such contingency reserve accounts except as a result of
payment to such former members or as a result of crediting the Guardian’s
Fund or some other fund established by law to include such amounts.”
…
5.1
While, in his report on the statutory actuarial valuation of the fund as at 2013, the valuator
has reflected a funding level of 76,17% and a funding shortfall in the amount of
approximately R229 million, it appears that the fund does not consider that this shortfall
is required to be addressed into a s 18 scheme approved by the Registrar because—
5.1.1
in its opinion, it is highly unlikely that it will be able to trace and pay all those to whom
the fund is liable for shares of surplus allocated to them in terms of s 15B of the PFA;
and
5.1.2
accordingly, although the fund may have made provision in its report on its statutory
actuarial valuations of the fund as at 2013 for 100% of the full face value of those
liabilities, it can expect to be allowed to release at least a part of that provision and to
use the excess to provide for the fund's other liabilities.
5.2
However, for so long as regulation 35(4) is in place, this will not be permissible and so
the fund will remain financially unsound unless measures provided for in a s 18 scheme
approved by the Registrar are adopted to address its funding shortfall. It is for this reason
that the Registrar requested the fund to prepare and submit a proposed s 18 scheme to
him for his consideration, as the Registrar was entitled, and in fact required, to do.’
(Emphasis added.)
[18] As can be seen, regulation 35(4) obliges a pension fund to place in a
‘contingency reserve account’, the total amount (liability) owing, of enhancements due
to quantifiable but untraced members, where it is to stay until claimed or transferred
to a fund identified in the regulation. It is clear that the Registrar placed reliance for
the position she adopted on regulation 35(4) and was emphatic that she and the Fund
were bound by its provisions.
[19] It was that perspective that led to a directive by the Registrar that there be
compliance with s 18 of the PFA, the relevant parts of which read as follows:
‘(1) The Registrar may prescribe criteria for financial soundness, and when any return under
this Act indicates that a registered fund is not in a financially sound condition, the Registrar
may… direct the fund to submit a scheme setting out the arrangements which have been
made, or which it intends to make, to bring the fund into a financially sound condition within
such period, and subject to such conditions, as determined by the Registrar.
(1A) When any return under this Act indicates a deficiency in a registered fund, the fund shall,
within three months from the date of such return, submit a scheme to the Registrar setting out
the arrangements which have been made or which it is intended to make to eliminate the
deficiency, together with a report thereon by a valuator.
(2) If a Registrar finds that a scheme submitted in terms of subsection (1) or (1A) is not
inconsistent with the provisions of this Act and is satisfied that the arrangements set out therein
should suffice to accomplish the objects of this section, he should approve the scheme.
(3) If the Registrar is not satisfied regarding the matters referred to in subsection (2), he shall
request the fund to make such amendments to the scheme, or to submit such new scheme,
as will enable him to be satisfied, and the fund shall comply with the request within a period
prescribed by the Registrar…’
[20] An appeal by the Fund against the Registrar’s decision to the FSB appeal board
was dismissed on the basis that it had been filed out of time. On 15 August 2016, the
Fund made a submission to the FSB, setting out why, in its view, a scheme in terms
of s 18(3), which deals with steps that a Registrar is empowered to take in respect of
a Fund that is considered to be in a financially unsound condition, was not called for.
The following was part of what appeared in the submission:
‘[T]he Fund’s actuaries considered the Fund to be financially sound, and that its assets were
sufficient to cover the obligations for the traced and paid former members. Moreover, they
considered that the probability of former members coming forward in any material numbers as
being “small”.’ This was the oft repeated refrain by the Fund.
[21] On 19 October 2016, the FSB informed the Fund that it did not accept the
submission. This prompted the Fund to make yet another submission, accompanied
by a letter from a valuator. On 14 March 2017, the FSB sent the Fund a letter, dated
28 February 2017, in which it recorded its decision to reject the s 18(1) scheme
submitted by the Fund, and reiterated its requirement that the Fund submit a new
scheme.
[22] The Fund noted an appeal against that decision. Included in the grounds of
appeal, was a challenge to the validity of regulation 35(4), it being contended that it
was ultra vires the PFA. The appeal board was not empowered to deal with such a
challenge. Consequently, the Fund launched an application in the high court seeking,
inter alia, the following relief:
‘1.
Reviewing and setting aside regulation 35(4) of the Pension Funds Regulations,
published in GN R98 in GG 162 of 26-01-1962…;
2.
To the extent necessary, granting the Applicant condonation for the late filing of this
application in terms of s 9(1) of the Promotion of Administrative Justice Act 3 of 2000...’
[23] Before dealing with the legal basis for the challenge by the Fund, as asserted
in its founding affidavit, it is necessary to set out the details provided by the Fund in
relation to former members who were potential claimants for enhanced benefits and
the steps it took in relation to them.
[24] The Fund, like the pension funds in the related appeals, set out relevant data
in relation to its former members at the time of the 2002 distribution date. The Fund
explained that at that time there were 8 792 former members who would have been
entitled to enhanced benefits. Of those, 7 022 could not be traced. And of those (who
could not be traced), there was insufficient information to calculate the benefits for
approximately 922 former members (the unquantifiable members). Benefits could be
calculated for 6 100 former members, but they remained untraced (the untraced former
members).
[25] The table hereunder is a summarised form of the Fund’s administrative records:
CATEGORY OF MEMBER
NUMBERS
‘Unquantified
members’
for
whom
there
was
insufficient information to calculate benefits
‘Untraced former members’ for whom benefits could be
calculated
6 100
Traced members for whom there was
insufficient information to calculate benefits
Traced members for whom benefits have mostly been
calculated and paid
1 573
TOTAL
8 792
[26] The Fund explained why it had been difficult to trace so many former members:
’60.
[P]rior to 1994, the Fund’s record-keeping was poor. Specifically:
60.1
for members who left between 1 January 1980 and 31 December 1981, no data
at all was available, except for that which former members could themselves
provide;
60.2
for members who left the Fund between 1 January 1982 and 31 October 1994, the
employers' records had to be relied on, as well as records of the Principal Officer
at the time; and
60.3
from May 1998 (the date on which the Fund transferred to the new administrator),
the Fund was able to produce all of the information required to calculate top-up
benefits.’
[27] It appears that it is only in respect of persons who were members prior to 1988
for whom the Fund lacked the data to be able to trace them. The Fund set out the
steps it took to compile a database of former members and the extensive efforts it
expended in tracing former members, including resorting to advertisements in local
and national newspapers and employing tracing agents.
[28] On 15 April 2011 the Fund’s actuary provided a certificate stating that the steps
taken by the board of trustees were comprehensive and reasonable and should be
expected to result in a surplus apportionment that complied with the PFA. On 13
January 2012, the Fund’s actuary provided a second certificate which contained a
more detailed summary of the steps taken by the Fund to complete its database.
[29] The Fund disclosed the measures it had put in place in the event of some former
members, for whom benefits could be calculated but who were as yet untraced and
who could come forward to make claims. It also considered the position of those for
whom benefits could not be calculated who might later be able to make claims. The
present actuarial surplus of R10.9 million could be drawn upon. If the surplus were to
become exhausted the Fund had, as a back-up, an undertaking by Caxton, given in
2012, to make a special further contribution of R5.7 million. Any further claim, beyond
that would be met by a further special contribution to be made by Caxton. The Fund
submitted that given all the available information and all the steps taken and taking
into account past experience, it was highly unlikely that there would be any further
claims by members, more particularly for the pre-1994 years.
[30] As an example of why it was unlikely, the Fund provided the following example:
‘Hence, in the Fund's view, it is unlikely that there will be any further claims by former
members, particularly for the pre-1994 years of exit and the older former members. For
example, some R153 million of the potential claim values relates to former members who
would be at least 65 years old at 31 October 2014, and who left the Fund more than 20 years
prior to 2014.’
The Fund was at pains to point out that, in the prevailing circumstances, it was justified
in not meeting the FSB’s call to make provision to reflect the contingent liability at full
value. The Fund contended that in taking the measure referred to and in valuing the
Fund in the manner described above it was adhering to international accounting
practice and relied on the expert opinion of Professor Harvey Weiner. It was contended
that the Registrar’s approach, requiring the Fund to cater for the contingent liability in
full, is at odds with international accounting practice.
[31] The legal challenge to the validity of the impugned regulation was formulated
by the Fund under the heading ‘Regulation 35(4) is ultra vires the PFA’ in the following
terms:
‘103. The Fund will argue that regulation 35(4) of the PFA Regulations is ultra vires the PFA
in the following respects:
103.1
Regulation 35(4) prescribes that the Fund must place the monies owed to the
untraced former members into a [contingency reserve account], whereas the PFA
gives the board the discretion to do so;
103.2
Section 1(1) of the PFA provides for the creation of a "contingency reserve account”
but only for the reservation of "such amounts as the board shall determine". It means
that, for purposes of the PFA, a contingency reserve account must be one for the
reservation of an amount determined in the board's discretion.
103.3
This interpretation is fortified by s 15B(5)(e) which also makes it clear that it is for the
board to determine the amount reserved for the benefit of former members.
103.4
The PFA's understanding of a [contingency reserve account] accords with generally
accepted accounting practice. The purpose of such an account is to provide for a
contingency, that is, an uncertain future event. The determination of the amount
reserved for such a contingency is necessarily a matter of judgment. That is why the
PFA says in its definition of a "contingency reserve account” that the amount must be
determined by the board "on the advice of the valuator". The amount so reserved
depends on the likelihood of the contingency occurring and its quantum if it does. It
is nonsensical to suggest that the full amount of a contingent liability should be
reserved if the likelihood of its occurrence is remote.
103.5
Regulation 35(4) directs that the Fund must place the full value of the amount
allocated to the untraced members into the [contingency reserve account], whereas
the PFA allows the Fund to place "a portion" thereof into a [contingency reserve
account]; and
103.6
It prohibits monies allocated to a [contingency reserve account] from being released
to the Fund, whereas the PFA allows the board to debit such monies from a
[contingency reserve account] as it deems fit on the advice of an expert valuator.’
[32] The Fund went on to state:
‘The PFA accordingly only contemplates and permits contingency reserve accounts for the
reservation of discretionary amounts to cater for future contingencies. The Minister thus does
not have the power to create a different kind of contingency reserve account which requires
the reservation of the full amount of a contingent liability despite the fact that the likelihood of
its occurrence is remote.’
There is thus a clear challenge to the validity of regulation 35(4), on the basis that the
Minister in promulgating it acted beyond his powers in terms of the PFA, and that the
FSCA and the Minister’s view are based on an erroneous interpretation and
application of s 15B(5)(e). For reasons that will become apparent it is unnecessary to
deal with the Fund’s further bases of challenge to the validity of the regulation.
[33] In resisting the application by the Fund the FSCA, in this and the related
appeals, adopted a neutral attitude to the long delay by the Fund in launching the
application in the high court and whether it should be condoned. Not so the Minister,
but more about that later.
[34] In relation to the merits, the FSCA disputed the Fund’s interpretation of the
regulation and the relevant provisions of the PFA. The following six paragraphs of the
FSCA’s answering affidavit sets out its perspective:
’56. The applicant's contentions are based on the premise that the liability towards former
members for whom calculations can be made (and were made), but who cannot be
traced, ie the so-called "untraced former members", is a contingent liability as opposed
to a clearly established liability (see, for example, para 105 of the founding affidavit).
However, this premise is incorrect. The regulation deals with liabilities of a fund and not
contingent liabilities because the existence of the liability for a fund with regard to the
discharging of its obligations towards stakeholders upon the approval of its surplus
apportionment scheme is not contingent at all. The liability is fixed. What is uncertain ls
whether the persons to whom the money is due will be traced and when it will be paid.
However, these uncertainties do not translate into a contingent liability for the fund.
57.
The situation contemplated by the Regulation is therefore quite different to the situation
contemplated by s 15B(4)(b) read with the proviso to s 15B(5)(e). Those provisions
envisage that a contingency reserve account may be established at the board's
discretion to cater for those former members for whom calculations could not be made
and who may come forward and establish their claims at a later stage.
58.
This is an uncertain future event for which the board may decide to make provision as a
contingency that may arise following the happening of such event, i.e. a former member
for whom calculations could not be made but who comes forward at some time In the
future to claim a surplus payment or who belatedly substantiates a claim to surplus.
59.
A fund has no liability towards former members for whom money has been set aside in
a contingency reserve account contemplated in s 15B(5)(e). This is because the former
members contemplated in that section, more specifically the proviso to the section, are
those for whom calculations could not be made and for whom money was set aside on
an aggregate and "benevolent" basis in a contingency reserve account. Because this is
a contingent liability that may arise in future, the amounts held in such contingency
reserve accounts may be released over time in line with the diminishing possibility that
the uncertain future event will materialise.
60.
In contrast, the Regulation deals with the situation that arises where benefits that were
calculated and became due and payable as enhancements to each of the former
members are quantifiable. Because the benefits can be (and were in fact) calculated,
this translates into a liability for a fund upon the approval of its surplus apportionment
scheme. In this case, the obligation to pay their unclaimed benefits is recognised as an
obligation of a fund in terms of, inter alia, the peremptory provisions of s 15B(5)(b).’
[35] The FSCA’s position was clear, namely, where benefits for former members
can and have been calculated and apportioned there is an established liability. As far
as the FSCA was concerned s15B(5)(e) applied only to unquantifiable members.
Assumptions concerning the likelihood of recovery by former members were irrelevant.
As far as the FSCA was concerned, the liability in respect of former untraced but
quantifiable members was not contingent, but absolute. The FSCA insisted that there
was no inconsistency between the Act and the regulation in question.
[36] The Minister, in opposing the Fund’s application in the court below was
adamant that there had been an unreasonable and excessive delay of more than 14
years by the Fund in launching the application. In this regard it referred to the period
between the promulgation of the regulation and the launching of the application. The
Minister took the view that the application by the Fund was one in terms of PAJA and
that the delay should not be excused. It was submitted on behalf of the Minister that
there was no proper explanation for the delay and that given that the regulation was
applied by pension funds over so many years ‘untold’ prejudice would be suffered by
former members.
[37] Like the FSCA, the Minister adopted the position that there was no conflict
between the applicable provisions of the Act and the regulations. The Minister made
common cause with the FSCA’s interpretation of the relevant provisions of the PFA
and submitted that the Fund was misinterpreting the provisions of s 15(B) of the PFA.
The Minister was emphatic in the assertion that the impugned regulation and s 15B
dealt with different periods in the life of a pension fund. Paragraph 80 of the Minister’s
answering affidavit is instructive:
‘Whilst the applicant relies heavily on the diminishing likelihood of the former members being
traced, it is apparent that such a “contingency” will be directly linked to the efforts made by the
Fund to trace those former members. Accounting practice, approach or terminology cannot
override the legislation and it is fundamentally incorrect to interpret the provisions of the
legislation in light of an accounting practice. It must be done the other way round.’
The Minister, too, was adamant that there was no conflict between the regulation and
the PFA and that the regulation was not ultra vires the Minister’s powers in terms of
the PFA.
[38] The Fund, in challenging the validity of the regulation on the basis that the
making of the promulgation of the regulation in question was ‘administrative action’ as
defined, relied, inter alia, on the following sections of the Promotion of Administrative
Justice Act 3 of 2000 (PAJA): s 6(2)(a)(i) – in that the Minister was not authorised by
the PFA to do so; s 6(2)(e)(i) – in that it was enacted for a reason not authorised by
the PFA; and s 6(2)(e)(vi) – in that the Minister’s action was arbitrary. Pre-emptively,
the Fund, appreciating that the PAJA requires that an application in terms thereof be
brought without unreasonable delay, and not later than 180 days from the date of the
action complained of,11 and that the FSCA and the Minister might resist the application
on the basis that the impugned regulation was promulgated many years before the
application was launched, contended as follows:
‘If the point is raised the Fund will submit that this review is, in substance, a collateral challenge
to the Regulations. Our courts have confirmed that the right to bring a collateral challenge can
be brought at any time and that the court has no discretion to disallow such a challenge.’
[39] The court below (Kollapen J) dealt with the question of delay in the bringing of
the application. He held that the nature of the Fund’s challenge to the validity of the
regulation was in substance a collateral challenge and that he had no discretion to
11 See s 7(1) of the PAJA. Section 9 in turn authorises a court to extend the period of 180 days ‘where
the interests of justice so require’.
disallow such a challenge. The court below dismissed the ultra vires challenge on the
basis that the Minister had wide powers to make regulations in terms of the PFA and
acted within those powers. It was also dismissive of the Fund’s contention that the
impugned regulation was inconsistent with the provisions of the PFA. The court below
agreed with the submissions on behalf of the FSA and the Minister, that the regulation
in question and ss 15A(4)(a) and 15(5)(e) dealt with different phases and subject
matter than the impugned regulation.
[40] It is against those conclusions, and the resultant orders, that the present appeal
is directed. The Minister was given leave to cross-appeal the court’s finding that the
challenge by the Fund to the validity of the regulation was a collateral challenge.
[41] The anterior question is whether, because of the long delay in bringing the
application, the application by the Fund ought to have been entertained at all by the
court below and whether this court should consequently entertain the appeal on its
merits.
[42] Before us, counsel for the respective pension funds in each of the three
appeals aligned with each other and made common cause in their quest to have the
regulations set aside or declared ultra vires the powers of the Minister. Counsel for the
FSCA and the Minister, likewise, supported each other in resisting the application
brought by each of the three pension funds. During oral argument before us it was
pointed out to counsel representing the FSCA and the Minister that, in the Southern
Sun matter,12 which is one of the related appeals, the high court, in considering
12 Southern Sun (above fn 1).
whether to overlook the delay, took into account, inter alia, the importance of the issue,
including the nature and consequence of the impugned regulation, and had concluded
that it was in the interests of justice to condone the delay; and there was no cross-
appeal in relation thereto, by either of them. It was pointed out that it would be most
peculiar to decide the merits in one case and not in the other two, because
condonation was not warranted, despite the fact that a finding in the one case would
determine the legal position in relation to all three.
[43] After conferring, counsel on behalf of the FSCA and the Minister informed this
court that delay should no longer be considered an issue between the disputants and
that the matter should be decided on the merits in all three matters. It will be recalled
that the FSA had always adopted a neutral stance on the question of delay.
[44] In my view the concession was rightly made. The high court in Southern Sun,
in condoning the delay, took into account all the relevant factors when it exercised its
discretion in favour of the pension fund in that case13. Similarly, in the present case,
considering the manner in which the dispute arose and having regard to the time when
matters came to a head, rather than the time of the promulgation of the regulation in
question, and the importance of the issues the interests of justice dictate that the delay
should be overlooked. Moreover, although courts should scrutinise asserted collateral
challenges carefully, to ensure that they qualify as such and should be countenanced,
lest that avenue becomes the new ‘go-to’ basis for justifying extensive delays, it does
13 Those factors would have been relevant whether the regulation making in the present case
constituted administrative action or not. Of course, in relation to s 9(1)(b) of the PAJA, the period to be
taken into account as a baseline, in the assessment of whether the delay should be excused, is 180
days. See Buffalo City Metropolitan Municipality v Asla Construction (Pty) Ltd [2019] ZACC 15; 2019
(4) SA 331 (CC) para 19.
appear to me that in the three appeals the respective pension funds were exposed to
the coercive force of the regulatory body, the FSCA,14 and that delay in the prevailing
circumstances consequently ought not to preclude the challenge on the basis that the
challenge by the Fund could correctly be construed to be a collateral challenge and
should be countenanced.15 Be that as it may, condonation was effectively correctly
conceded by the Minister and the FSCA. I turn, now, to address the merits.
[45] As a starting point, it must be recognised that the surplus legislation was a
milestone in pension law. Before it came into operation, as pointed out by the FSCA,
the subject that exercised the mind of many pension lawyers and administrators was
the following: Who owned the surplus in a pension fund at any given time? The debate
around this question endured for a long time before the decision of this court in Tek
Corporation Provident Fund.16 A core conclusion in that case was the following:
‘Once a surplus arises it is ipso facto an integral component of the fund.’17
This court, in Tek, acknowledged that the legislature was best placed to deal with the
manner in which surpluses should be apportioned.18 At that stage, there had already
been a consultation process concerning pension fund surpluses, involving
Government, Business and Labour. That process culminated in the surplus legislation.
14 That they faced the coercive power of the FSCA is best demonstrated by the directive from the
Registrar who disapproved of the fund, causing R83.357 million, that had stood to the credit of
members who could not be traced and whose claims could not be substantiated, to revert to the fund.
Several year thereafter the Registrar directed the board of that Fund ‘within two months of the date of
this letter’ to reverse the decision to revert the abovementioned amount and ‘to restore the fund to
financial neutrality, ie in the same position it was prior to the reversion of the said amount.’ That was a
tall order.
15 Merafong City Local Municipality v AngloGold Ashanti Ltd [2016] ZACC 35; 2017 (2) 211 (CC)
paras 27, 30 and 32.
16 Tek Corporation Provident Fund and Others v Lorentz 1999 (4) SA 884 (SCA).
17 Ibid at 895D-E.
18 Ibid at 895E-H.
[46] The surplus legislation is remedial in nature in that it was designed to redress
past abuses of surpluses by a number of employers, but its other purpose was to
ensure fairness in the distribution of a pension fund’s surplus on an ongoing basis.
The surplus legislation put paid to any notion that the employer owned a surplus in a
fund. The relevant parts of the PFA against which the impugned regulation has to be
viewed are set out hereafter.
[47] In s 1 of the PFA, as it stood at the time that the regulation in question came
into being, ‘actuarial surplus’ was defined as follows:
‘“actuarial surplus”, in relation to a fund which is—
(a) subject to actuarial valuation, means the difference between—
(i) the value that the valuator has placed on the assets of the fund less any credit balances
in the member and employer surplus accounts; and
(ii) the value that the valuator has placed on the liabilities of the fund in respect of
pensionable service accrued by members prior to the valuation date together with the value
of those contingency reserve accounts which are established or which the board deems
prudent to establish on the advice of the valuator…’ (Emphasis added).
[48] Presently, the definition of ‘actuarial surplus’ reads as follows:
‘“Actuarial surplus”, in relation to a fund which is—
(a) subject to actuarial valuation, means the difference between—
(i) the value, calculated in accordance with the prescribed basis, if any, that the valuator
has placed on the assets of the fund less any credit balances in the member and employer
surplus accounts; and
(ii) the value that the valuator has placed on the liabilities of the fund in respect of
pensionable service accrued by members prior to the valuation date plus the amounts
standing to the credit of those contingency reserve accounts which are established or which
the board deems prudent to establish on the advice of the valuator, calculated in
accordance with the prescribed basis, if any.’ (Emphasis added).
[49] The definition of ‘contingency reserve account’ at the time of the promulgation
of the regulation in question read as follows:
‘”Contingency reserve account”, in relation to a fund, means an account of the fund to which
shall be credited or debited such amounts as the board shall determine, on the advice of the
valuator where the fund is not exempt from actuarial valuations, in order to provide for explicit
contingencies…’
Section 1 of the Pension Funds Amendment Act 11 of 2007 amended the definition of
‘contingency reserve account’ by adding the following words after ‘… an account of
the fund’, as it appears in the definition immediately above:
‘… which has been amended in accordance with the requirements of the Registrar, or which
has not been disallowed by the Registrar…’
That amendment was part of a list of definitions and provisions that were deemed to
have come into operation on 7 December 2001, in terms of s 40B of the PFA, which
caters for retrospectivity. It appears to relate to those funds that were yet to obtain
approval for their surplus apportionment schemes. It does not apply to the Fund. The
Financial Services Laws General Amendment Act 45 of 2013 brought about a further
change. Presently, the definition of ‘contingency reserve account’ in s 1 of the PFA
reads as follows:
‘“contingency reserve account”, in relation to a fund, means an account provided for in the
rules of the fund, which has been amended in accordance with the requirements of the
Registrar, or which has not been disallowed by the Registrar, and to which shall be credited
or debited such amounts as the board shall determine, on the advice of the valuator where
the fund is not valuation exempt, in order to provide for a specific category of contingency.’
(Emphasis added).
[50] Because there are references to ‘valuators’ and ‘valuations’ and actuaries in
the definitions referred to above and in the applicable provisions of the PFA, it is
necessary, first, to have regard to the definition of ‘valuator’ in s 1 of the PFA. Presently
‘valuator’ means an ‘actuary who, in the opinion of the Registrar, has sufficient
actuarial knowledge to perform the duties required of a valuator in terms of this Act’.19
Second, I deal with the definitions of ‘actuary’. Presently ‘actuary’ is defined as ‘a
natural person admitted as a fellow member of the Actuarial Society of South Africa or
any other institution approved by the Registrar...’20 Third, it is necessary to appreciate
that actuaries are experts in statistics and are used to assess risks and calculate
insurance premiums, and are routinely employed in the field of pensions, as the
repeated references to actuarial valuations and actuarial surplus in the PFA
demonstrate.21 Lastly, ‘surplus apportionment date’, as defined in s 1 of the PFA,
‘means the first statutory actuarial valuation date following the commencement date’.
19 Prior to amendment by Act 45 of 2013 ‘valuator’ was defined as follows: ‘valuator means an actuary
or any other person who, in the opinion of the Registrar, has sufficient actuarial knowledge to perform
the duties required of a valuator in terms of this Act.’
20 Prior to amendment by the Financial Services Laws General Amendment Act 22 of 2008: ‘“actuary”
means any Fellow of the Institute of Actuaries of England or of the Faculty of Actuaries in Scotland or
of the Society of Actuaries of America or of any other institute, faculty, society or chapter of actuaries
approved by the Minister…’ And prior to amendment by the Financial Services Laws General
amendment act 45 of 2013: ‘“actuary” means a person admitted as a fellow member of the Actuarial
Society of South Africa or any other institution approved by the Minister.’
21 See also the definition of ‘actuary’ in the Oxford English Dictionary (OED 3 ed, 2010):
‘A person who compiles and analyses statistics of mortality, accidents, etc., and uses them to calculate
insurance risks and premiums.’
[51] As can be seen from the definitions set out above, a pension fund board
features prominently in relation to an actuarial surplus and a contingency reserve
account. The status and responsibility of a board in relation to pension funds can be
gleaned from the object of a board set out in s 7C(1) of the PFA:
‘The object of a board shall be to direct, control and oversee the operations of a fund in
accordance with applicable laws and the rules of the fund’.
In pursuing its object, the board is required, inter alia, to act in the best interests of
members and to act with ‘due care, diligence and good faith’.22
[52] As explained earlier, the surplus legislation included ss 15A to 15K. In most of
those sections of the PFA the board of a pension fund and a fund itself features
prominently. Section 15A(1), in line with the dictum from Tek cited above, reads as
follows:
‘All actuarial surplus in the fund belongs to the fund.’
[53] Section 15B(1) deals with the apportionment of an existing surplus and provides
that the board of every fund that commenced prior to March 2002, must submit to the
Registrar a proposed apportionment of an actuarial surplus. This provision was
fundamental to the new pension surplus regime introduced by the surplus legislation.
In proposing the scheme, a board had to provide details of any surplus historically
improperly utilised by an employer who participated in the fund at the time of the
improper utilisation.
22 See s 7C(2)(b) of the PFA.
[54] ‘Statutory actuarial valuation’, in relation to a pension fund, means ‘an
investigation by a valuator contemplated in s 16’. That section provides for an
investigation by a fund, at least once every three years, into its financial condition and
for a report in relation thereto by a valuator at the instance of its board. The report is
to be lodged with the Registrar.
[55] Section 15B also sets the rules of general application for all apportionments, in
favour of members, former members and employers. Section 15(2) provides that a
scheme may involve the improvement of benefits to existing members, increases to
benefits or transfer values in respect of former members, the crediting of an amount
to a member’s surplus account, the crediting of an amount to an employer’s surplus
account or any two of the aforesaid. In terms of s 15B(3) a board must appoint
someone to represent the interests of former members and such person must then be
of assistance to the board in identifying former members, communicating proposals to
them and to the funds to which they might have transferred, communicating proposals
from former members to the board and collating any objections by former members to
the scheme. The person appointed to represent former members is also required to
report in writing to the board, inter alia, on the adequacy of the steps taken to involve
former members.
[56] Section 15B(4), which, for present purposes, has to be read with the material
parts of s 15B(5), provides:
‘The board shall determine who may participate in the apportionment of actuarial surplus, and
shall include in such apportionment existing members and any former members who left the
fund in the period from 1 January 1980 to the surplus apportionment date: Provided that—
(a) the board may exclude from participation former members in respect of whom the board
satisfies the Registrar that insufficient records are available to enable the additional benefits
that may be due to such former members to be calculated, after the board has taken
reasonable steps—
(i) to obtain such records from the administrator;
(ii) to construct such records from the records of the—
(aa) employer;
(bb) any fund to which such former members transferred; or
(cc) a trade union or staff association active in the workplace during this period; or
(iii) if the steps in subparagraph (i) and (ii) do not yield sufficient information, to obtain such
records from potential claimants themselves following an advertisement—
(aa) on a national basis and in the area where the former members used to work; or
(bb) on a more limited basis as approved by the Registrar if representations by the fund
satisfy the Registrar that limited advertisement will be adequate, inviting the former
members to come forward with evidence to substantiate their claim, after which
advertisement the board should wait at least six months but no longer than nine months
before excluding any former members because of a lack of sufficient information to
enable the calculations to be performed;
(b) rather than excluding former members whose individual benefits cannot be determined,
the board may set aside a portion of the actuarial surplus in a contingency reserve account
explicitly established to satisfy claims of former members in terms of subsection (5)(e).’
(Emphasis added).
As can be seen, this subsection makes a board the determinant of which categories
of persons shall participate in the surplus apportionment. The board is obliged to
include for participation those who departed the fund in the period 1 January 1980 up
to the surplus apportionment date, including untraced members. It may exclude
unquantifiable members. Section 15B(4)(b) does, however, provide the option of
establishing a contingency reserve account in order to satisfy the potential claims of
unquantifiable members in terms of the proviso in s 15B(5)(e).
[57] Section 15B(5)(a) and (b) read as follows:
‘(5) The board shall apportion the actuarial surplus between the various classes of
stakeholders whom the board has determined shall participate in the apportionment in terms
of subsection (4), following which such portion as is due to the employer shall be credited to
the employer surplus account: Provided that—
(a) the actuarial surplus to be apportioned shall be increased by an amount of actuarial surplus
utilised improperly by the employer prior to the surplus apportionment date as determined in
terms of subsection (6);
(b) former members shall have the benefits previously paid to them, or the amounts previously
transferred on their behalf, increased to the minimum benefit determined in terms of s 14B(2)
or 14B(6) as at the date when they left the fund, with such increase adjusted to the surplus
apportionment date with fund return over the corresponding period…’
(Emphasis added).
The remainder of this subsection deals with an adjustment for pensioners and for a
proportionate downwards revision in the event that the actuarial surplus to be
apportioned is insufficient to permit such increases.
[58] Sections 15B(5)(e), which, is crucial in the determination of the appeal, reads
thus:
‘(5) The board shall apportion the actuarial surplus between the various classes of
stakeholders whom the board has determined shall participate in the apportionment in terms
of subsection (4), following which such portion as is due to the employer shall be credited to
the employer surplus account: Provided that—
…
(e) the board shall determine how, in the case of existing and former members, the allocated
portion of actuarial surplus shall be applied for their benefit, including the crediting of any
portion to the members’ surplus accounts or to the members’ individual accounts, as the case
may be: Provided further that the board may allocate a portion of the actuarial surplus to be
used for former members to a contingency reserve account which will be used to satisfy the
claims of former members—
(i) who have been identified in subsection 4(a) but who cannot be traced; or
(ii) who did not substantiate their claim during the nine-month period following the
advertisement in subsection (4)(a)(iii) but who do so after the end of the period...’
(Emphasis added)
[59] The statutory provisions referred to in the preceding paragraphs, including the
definitions referred to earlier, show that a board is the protagonist in directing and
controlling the operations of a pension fund. Of course, this is subject to such
measures as the regulator, the FSCA, might employ in terms of the PFA. It is a board’s
prerogative to determine how to apply a surplus apportionment for the benefit of former
members, including those who have not yet been be traced. Section 15B(5)(e) has to
be read with the rest of the provisions of s 15B(5). There is a cross reference to
s15B(4). These sections, read and understood contextually, make it clear that a board
determines how a surplus is to be allocated and then decides how it is to be applied
for the benefit of various categories of beneficiaries, including the establishment of
contingency reserve accounts. Its discretion is not limited by s 15B(5)(e) to the
establishment of such an account only in relation to unquantifiable members. The
submissions to the contrary advanced by the FSCA and the Minister, and the finding
by the court below that that a board is so limited, are erroneous.23
[60] It was correctly submitted on behalf of the funds in the three related appeals
that an actuarial surplus in a fund is an actuarial calculation of a fund’s assets over its
liabilities and need not be represented by an actual cash fund in the calculated
amount. When a surplus is apportioned the fund assumes liabilities to its members. It
vests in members a claim against the fund. That is how s 15A should be understood,
where it speaks of rights acquired by members, former members and employers when
a surplus is apportioned.
[61] At this stage it is necessary to turn to consider, alongside the statutory
provisions referred to above, the provisions of regulation 35(4). Before considering the
scheme of regulation 35, regard should be had to the source of Minister’s power in
terms of the PFA to make regulations. It is located in s 36, the relevant parts of which
read as follows:
‘(1) The Minister may make regulations, not inconsistent with the provisions of this Act—
(a) in regard to all matters which by this Act are required or permitted to be prescribed by
regulation…’
The introductory part of that subsection is typical and is meant to keep the regulation
making within the parameters of the authorising Act. Put differently, the regulation is
meant to be consonant with the provisions of the authorising Act, the PFA.
23 See, further, para 64 (infra).
[62] More than seventeen years ago, on 22 April 2003, the Minister, purporting to
act in terms of s 36(1) of the PFA, promulgated regulation 35 (4), which is at the centre
of this appeal. Although regulation 35(4), which is the impugned sub-regulation, is
referred to in the Registrar’s communication set out in para 17 above, for convenience
it is restated hereafter, within the full text of regulation 35. As proclaimed in the
heading, regulation 35 purports to deal with ‘contingency reserve funds’. It reads as
follows:
‘35 Establishment of Contingency Reserve Accounts—
(1) By virtue of the fact that—
(a) the Act vests powers in boards of funds to establish contingency reserve accounts; and
(b) the establishment of contingency reserve accounts reduces the actuarial surplus
available for apportionment and increases the possibility that actuarial surplus may be
insufficient to enhance benefits previously paid to former members to the level prescribed
in terms of s 15B(5)(b) of the Act,
no fund may, with effect from the date of commencement of this regulation, establish any
contingency reserve account under circumstances where a reasonable inference may be
made that the establishment of the account is contrary to the duties of the relevant board
under s 7C(2)(b) of the Act and motivated by bad faith.
(2) The establishment and magnitude of any contingency reserve account by a fund—
(a) must be motivated by the valuator in the relevant report on the statutory actuarial
valuation; and
(b) may, where the Registrar is not satisfied with any such motivation, be rejected by the
Registrar.
(3) A fund must, on any such rejection of the establishment or magnitude of the relevant
contingency reserve account, take such steps in connection therewith as the Registrar
determines and sets out in writing to the relevant fund.
(4) Where a board is able to determine the enhancement due in respect of a particular former
member in terms of s 15B(5)(b) or (c) of the Act, but is unable to trace that former member in
order to make payment, the board shall put the corresponding enhancement into a
contingency reserve account specific for the purpose. Notwithstanding anything in the rules of
the fund, moneys may not be released from such contingency reserve accounts except as a
result of payment to such former members or as a result of crediting the Guardian’s Fund or
some other fund established by law to include such amounts.’ (Emphasis added).
[63] Regulation 35 commences with the recognition that the power to create
contingency funds vests in a board. Yet, contradictorily, it goes to on dictate that the
board ‘shall’ put funds into a contingency reserve account in order to meet claims from
as yet untraced members; and that the funds may not be released except to pay such
claims or ‘crediting the Guardian’s Fund or some other fund’. How can crediting the
Guardian’s Fund or ‘some other fund’ be consonant with the provisions of the PFA?
Counsel for the Minister and the PFA were rightly constrained not to seek to justify the
potential transfer, as it were, to the Guardian’s Fund. In the Guardian’s Fund or in
some other fund the monies that were destined for former untraced members would
be lost to them and to the Fund. If it were to remain in the Fund and remained
unclaimed in perpetuity that will have the effect of sterilising the monies from which
past or present members could never benefit. It will be recalled that in terms of s 15A
all actuarial surpluses belong to a fund.
[64] The Minister arrogated the power to deal with a surplus and to establish
contingency reserve funds, to the exclusion of the board. As demonstrated above
those aspects are within a board’s prerogative. In promulgating regulation 35(4) the
Minister acted beyond the regulation making powers set by the PFA. The court below
erred in its interpretation of the relevant provisions of the PFA, especially in relation to
s 15B(5)(e). That subsection is not time bound nor does it only relate to unquantifiable
former members, namely those for whom benefits cannot be calculated. It references
s 15B(4) and together they set out the powers of a board in general terms. When a
board exercises a discretion in allocating a surplus for the benefit of former members,
thereby creating a liability, it must concomitantly decide how to cater for claims that
eventuate. The board’s decisions can be interrogated by the regulator against the
provisions of the PFA, but those decisions are within the remit of the board.
Regulation 35(4) intrudes upon the board’s wide discretion by compelling the board to
place the entire allocation in a contingency reserve account and freezing it in
perpetuity.
[65] The Minister and the FSCA’s submissions in relation to the meaning of
‘contingency reserve account’ in regulation 35(4) are without substance. The
impugned regulation itself speaks of a ‘contingency reserve fund’ but the Minister and
the FSCA then sought to disown the concept and the description. In the three related
appeals the contingency relates to the likelihood of the claims materialising. It is in
respect thereto that valuators make assumptions. It is a regular occurrence in the field
of pensions and in the insurance industry. The court below erred in its interpretation
of the relevant provisions of the PFA and of the field of operation of regulation 35(4)
and the Minister’s regulation making power.
[66] During oral argument the court directed the parties to provide post-hearing,
written submission on the possible effect of setting aside the impugned regulation. We
received those submissions. In essence the Minister and the FSCA submitted, with
reference to Bengwenyama Minerals (Pty) Ltd and Others v Genorah Resources (Pty)
Ltd and Others,24 that setting aside the regulation, without suspending the order of
invalidity, to provide the Minister with an opportunity to correct it, would result in chaos
and encourage maladministration. It was submitted that pension funds would be
incentivised to be lax in tracing former members and that boards would be free to do
as they please and build up unmanageable deficits.
[67] A pension fund in which no contingency reserve account has been established,
but where other arrangements have been made to accommodate potential claims, will
occasion no loss of regulatory oversight. In terms of the definition of ‘contingency
reserve account’, which appears in para 47 above, credits or debits can only be
entered in relation thereto on the advice of a valuator. The board will reflect on the
advice it receives from a valuator. In the periodic reports submitted to the FSCA the
advice and the provision made for claims that might eventuate. or lack of it, can be
interrogated and either approved, or rejected. Furthermore, funds are obliged, unless
exempted, to deposit annual financial statements with the FSCA. The FSCA can utilise
s 15K to refer matters to a tribunal to make certain determinations. When concerns
about the financial soundness of a fund arise, s 18 of the PFA is at its disposal. There
are a number of tools at the disposal of the FSCA to ensure compliance with the
provisions of the PFA and to secure the financial soundness of a fund.
[68] The point made on behalf of the Minister and the FSCA that the setting aside
of the regulation will lead to laxity on the part of boards in that they will be incentivised
24 Bengwenyama Minerals (Pty) Ltd and Others v Genorah Resources (Pty) Ltd and Others [2010]
ZACC 26; 2011 (4) SA 113 (CC) paras 81-84.
to expend very little or no effort to trace former members, is without substance. The
FSCA can always question the adequacy of steps taken and issue directions in relation
thereto. In addition, the provisions of s 15B(3), referred to above, come into play. It will
be recalled that the person appointed to represent former members is required to
report to the board about the adequacy of steps taken to trace former members.
[69] In the present case the board took extensive steps to trace former members. It
paid the former members it could trace. It has not, nor could it, extinguish the claims
of those that remained untraced. Its actuaries, in the conventional manner of actuaries,
calculated what it might cost the fund to pay the claims of those untraced members
that might come forward in the future. In doing so, it took into account the probability
of the claims materialising. It set out in its founding affidavit the measures that were
put in place to meet the claims, if they eventuate, including drawing on the existing
surplus and then, as a further back-up, it procured an undertaking from the employer.
If those measures were considered wanting, and if the Fund’s actuaries are shown to
have worked on the wrong assumptions, then that is what the FSCA, through the
measures available to it under the PFA, can take up with the Fund. Instead, the FSCA
took the view that it was bound by the impugned regulation and that it could thus direct
the creation of a special reserve as dictated by the regulation. The Registrar based
her directive, referred to earlier in this judgment, on the provisions of the impugned
regulation.
[70] From exchanges between the Fund and the board and from parts of the
affidavits referred to above, the complaint that the Fund’s challenge to the validity of
the regulation has changed and gone beyond the issues raised in the pleadings is
without merit. In so far as the cross appeal is concerned the concession on delay
referred to earlier must mean that it serves no purpose and it cannot be sustained.
[71] Counsel on behalf of the funds in the three related appeals after conferring,
agreed that in the event of the appeal and the cross appeal being decided in their
favour there should not be any order as to costs.
[72] For all the reasons set out above it follows that the appeal must be upheld. The
following order is made:
The appeal is upheld with no order as to costs.
The cross-appeal is dismissed with no order as to costs.
The order of the court below is set aside and substituted as follows:
‘Regulation 35(4) of the Pension Fund regulations is declared invalid and
unenforceable in that it exceeds the Minister’s powers under the Pension Funds
Act 24 of 1956.’
________________________
M S NAVSA
JUDGE OF APPEAL
APPEARANCES:
For Appellant:
W Trengove SC, with A Franklin SC, K McLean, and
N Luthuli
Instructed by:
Shepstone Wylie Attorneys
Boshoff Inc
McIntyre & VD Post, Bloemfontein
For First Respondent:
A Cockrell SC, with N Mbelle
Instructed by:
Rooth & Wessels Inc, Pretoria
Pieter Skein Attorneys, Bloemfontein
For Second Respondent: T Motau SC, with S Khumalo, and D Gondo
Instructed by:
State Attorney, Pretoria
State Attorney, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF THREE JUDGMENTS DELIVERED IN THE SUPREME
COURT OF APPEAL
Hortors Pension Fund v Financial Sector Conduct Authority and Another
(Case no 054/20) [2020] ZASCA 141;
Southern Sun Group Retirement Fund v The Registrar of Pension Funds and Others
(Case no 215/19) [2020] ZASCA 142;
Vrystaatse Munisipale Pensioenfonds v The Minister of Finance and Another
(Case no 1161/18) [2020] ZASCA 143
From:
The Registrar, Supreme Court of Appeal
Date:
02 November 2020
Status:
Immediate
The following summary is for the benefit of the media in the reporting of these cases and does not
form part of the judgments of the Supreme Court of Appeal
Today the Supreme Court of Appeal (SCA) handed down judgments in three related appeals
that were heard on the same day. All three appeals were directed against decisions of the
Gauteng Division of the High Court – Hortors Pension Fund and Vrystaatse Munisipale
Pensioenfonds of the Provincial Division (Pretoria) (Kollapen J and Wepener J, respectively
sitting as the courts of first instance) and Southern Sun Group Retirement Fund of the Local
Division (Johannesburg) (Siwendu J, sitting as court of first instance) – concerning the
distribution of actuarial surpluses and provisions that may need to be made in order to meet the
claims of former members of pension funds. All three of the appeals were upheld, with no order
as to costs.
The matters involved the interpretation and application of a regulation promulgated by the
Minister of Finance, purportedly under the powers assigned to the Minister in terms of the
Pension Funds Act 24 of 1956, governing the manner in which an actuarial surplus, ie the
surplus that arises when an actuary of a pension fund determines that its assets exceed its
liabilities, is apportioned and applied for the benefit of former members of a pension fund. The
appellants in each matter are registered pension funds, to wit: the Hortors Pension Fund, the
Southern Sun Group Retirement Fund, and the Vrystaatse Munisipale Pensioenfonds
(collectively, the Funds). The Funds had brought respective applications in the high court to
have the regulation 35(4) declared invalid.
The regulation obliges a pension fund to place in a contingency reserve account the total
amount of enhancements due to quantifiable, but as yet untraced members of that fund, where
it is to stay until claimed or transferred to a particular fund identified in the regulation. The
principal issue was thus whether the regulation in question was beyond the powers assigned to
the Minister under the PFA.
The Minister and the Financial Services Conduct Authority (FSCA) opposed the applications,
first, on the basis of delay. In their view there had been an unreasonable and excessive delay,
of between twelve and fourteen years, from the date on which the regulation was promulgated
by the Minister and the various dates on which the review applications were launched. There
was some issue with the classification of the respective reviews, as either reviews under the
Promotion of Administrative Justice Act 3 of 2000, which prescribes a maximum period of 180
days in which an application for the review of administrative action is to be brought, or
so-called collateral challenges. Nevertheless, on appeal it was pointed out that the high court
in Southern Sun (Siwendu J) had condoned the delay after considering it in the interests of
justice to do so, which finding was not cross-appealed by either the Minister or the FSCA. The
Minister and the FSCA accordingly conceded the point. The matters were decided on their
merits, on the basis that the SCA found that the point was correctly conceded and that it was in
the interests of justice that the delay be overlooked.
The SCA noted that the surplus legislation was remedial in nature, designed to redress past
abuses of surpluses by a number of employers but also to ensure fairness in the distribution of
a pension fund’s surplus on an ongoing basis. Having regard to the relevant definitions and
other provisions in the surplus legislation, and other provisions of the PFA, it found that a
pension fund board featured prominently in relation to an actuarial surplus and a contingency
reserve account. Indeed, the SCA noted, in the case of an actuarial surplus the board is the
determinant of which categories of persons shall participate in the surplus apportionment. The
SCA found that the relevant statutory provisions were clear on the fact that a board is the
protagonist in directing and controlling the operations of a pension fund. A board determines
how a surplus is to be allocated and then decides how it is to be applied for the benefit of
various categories of beneficiaries, including the establishment of contingency reserve
accounts.
The SCA held that an actuarial surplus in a fund is an actuarial calculation of a fund’s assets
over its liabilities, and did not have to be represented by an actual cash fund in the calculated
amount. By apportioning a surplus a fund assumes liabilities to its members and vests in them
a claim against the fund. This was the position found to exist under the PFA.
The SCA thereafter scrutinised the provisions of regulation 35, which purports to deal with
contingency reserve accounts. Regulation 35(4) was promulgated by the Minister, who is
empowered to make regulations on all matters required or permitted to be prescribed by
regulation, provided they are consistent with the provisions of the PFA. The SCA found that
while regulation 35 acknowledged that the board has the power to create a contingency reserve
account, it went on to provide that a board ‘shall’ put funds into such an account; and that these
funds could not be released except to pay claims or to credit the Guardian’s Fund or some other
fund established by law to include such amounts. It was held that the Minister, by promulgating
regulation 35(4), arrogated powers that vested in the board. In promulgating regulation 35(4)
the Minister had acted beyond the regulation-making powers set by the PFA.
The SCA found that when a board exercises a discretion in apportioning a surplus for the
benefit of former members, thereby creating a liability, it was to concomitantly decide how to
cater for claims that might eventuate. The board’s decisions could be interrogated by the FSCA
against the provisions of the PFA, but those decisions were within the remit of the board. In
compelling a board to place the entire allocation into a contingency reserve account and
freezing it in perpetuity, regulation 35(4) was held to be an intrusion upon the board’s wide
discretion.
Lastly, the SCA had directed the parties to provide post-hearing, written submissions on the
possible effect of setting aside the impugned regulation. The Minister and the FSCA submitted
that setting aside the regulation, without suspending the order of invalidity, to provide the
Minister with an opportunity to correct it, would result in chaos and encourage
maladministration. It was submitted that pension funds would be incentivised to be lax in
tracing former members and that boards would be free to do as they please and build up
unmanageable deficits. The SCA found these submissions to be devoid of any substance, for
there were various provisions in the PFA which allowed the FSCA to ensure compliance with
the provisions of the PFA and to secure the financial soundness of a fund.
In the result, the appeals were upheld with no order as to costs.
________________________________________
|
2386
|
non-electoral
|
2013
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 385/2012
In the matter between:
FIRST RAND BANK LIMITED
Appellant
and
BRERA INVESTMENTS CC
Respondent
Neutral citation:
First Rand Bank v Brera (385/2012) [2013] ZASCA 25
(25 March 2013)
Coram:
Lewis, Ponnan, Malan and Theron JJA and Plasket AJA
Heard:
4 March 2013
Delivered:
25 March 2013
Summary:
Construction guarantee in favour of sub-contractor –
interpretation of – liability not affected by events occurring
after due date
_________________________________________________________________________
ORDER
On appeal from: the South Gauteng High Court, Johannesburg (Nicholls J sitting as
court of first instance):
The appeal is dismissed with costs.
___________________________________________________________________
JUDGMENT
Malan JA (Lewis, Ponnan and Theron JJA and Plasket AJA concurring):
[1] This is an appeal against the judgment and order of Nicholls J that the
appellant (First Rand Bank Limited) pay a certain amount to the respondent, Brera
Investments CC, in terms of a payment guarantee issued to the latter. The
respondent had on 1 November 2007 entered into a Joint Building Contracts
Committee N/S Subcontract Agreement with Spirit of Africa Developments (Pty) Ltd
(the ‘contractor’) for the supply of materials and fittings and the installation of the
electrical reticulation of residential units forming part of the Windmill Park Extension
12 development in Boksburg.
[2] On 3 October 2007 First Rand issued a payment guarantee to the respondent
for the amount of R12 997 972,36 including VAT. The guarantee recorded in clause
1.1 that any reference to the agreement between the contractor and the respondent
was for the purpose of convenience and –
‘shall not be construed as any intention whatsover to create an accessory obligation or any
intention whatsoever to create a suretyship.’
The guarantee is thus of the same nature as a performance guarantee, performance
bond or letter of credit and consists of an undertaking to make payment of an
amount of money on the happening of a specified event (see Cloete JA in Dormell
Properties 282 CC v Renasa Insurance Co Ltd & others [2011] 1 All SA 557 (SCA),
2011 (1) SA 70 para 61). A guarantee of this nature must be paid according to its
terms and liability under it is not affected by the relationship between other parties to
the transactions that gave rise to its issue, particularly not with the question whether
the sub-contractor performed in terms of his contract with the contractor (see
Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd & others 2010 (2) SA 86
(SCA) paras 19 and 20; Loomcraft Fabrics CC v Nedbank Ltd 2010 (2) SA 86 (SCA)
para 38 and Minister of Transport and Public Works, Western Cape & another v
Zanbuild Construction (Pty) Ltd & another 2011 (5) SA 528 (SCA) paras 11-15). The
words of the guarantee under consideration make it clear that it is not a suretyship
but an independent, and not accessory, agreement that must be performed
according to its terms (see also Compass Insurance Co Ltd v Hospitality Hotel
Developments (Pty) Ltd 2012 (2) SA 537 (SCA) para 15).
[3] First Rand lent the necessary funds on mortgage bond to Spirit of Africa for
the development of the township. In terms of this loan the respondent was required
to waive in favour of First Rand any right of retention or lien that might arise from its
execution of the works on the development. The guarantee under consideration only
became effective after waiver of the lien by the respondent (clause 1.2.2.1).
[4] The sub-contract between the respondent and the developer provided for
interim payments to the respondent on the issue of payment certificates by the
principal agent (clause 31 of the sub-contract). The principal agent was obliged to
issue an interim certificate every month until the issue of the final certificate (clause
31.1) and the contractor required to apply to the principal agent for payment to be
made to a sub-contractor. The latter had to co-operate with and assist the contractor
in the preparation of the claim by providing all the relevant documents and
assessments of quantified amounts of works completed and materials and goods
supplied (clause 31.2). The principal agent thereafter furnished the interim
certificates to the contractor (clause 31.3). Within seven days of the issue of an
interim certificate the contractor had to draw up a payment advice statement to be
issued to the sub-contractor together with the amounts certified in the interim
certificate (clause 31.5). The employer was obliged to pay the contractor the amount
certified in an interim payment certificate within seven days of its issue. Payment to
the sub-contractor became due on the date of the issue of the interim certificate and
payment had to be made within seven days after the due date for payment by the
employer to the contractor (clause 31.9).
[5] The payment guarantee in this matter envisaged two situations where First
Rand could incur liability to the respondent. The first is where the sum certified in a
payment certificate was not paid by the contractor within seven days. Clause 2
provided for this eventuality:
‘2.0 Subject to the Guarantor’s maximum liability in terms of the Guaranteed Sum, the
Guarantor hereby undertakes to pay the Subcontractor the sum certified upon receipt of the
payment certificate which entitles the Subcontractor to receive payment in terms of the
Agreement of the sum certified.
2.1 A copy of the first written demand issued by the Subcontractor to the Contractor stating
that payment of the sum certified by the Principal Agent has not been made in terms of the
Agreement and failing such payment within seven (7) calendar days, the Subcontractor
intends to call upon the Guarantor to make payment in terms of 2.2.
2.2 A first written demand issued by the Subcontractor to the Guarantor at the Guarantor’s
domicilium citandi et executandi with a copy to the Contractor stating that a period of seven
(7) calendar days has elapsed since the first written demand in terms of 2.1 and that the sum
certified has still not been paid therefore the Subcontractor calls up the Payment Guarantee
and demands payment in the sum certified by the Guarantor.’
[6] The second situation arises where the contractor fails to issue a payment
certificate within seven days of a demand for it. This is the situation with which this
appeal is concerned. Clause 3 deals with it:
‘3.0 Subject to the Guarantor’s maximum liability in terms of the Guaranteed Sum, and
limitations recorded in 1.2 and 1.3, the Guarantor hereby undertakes to pay the
Subcontractor the demanded sum upon receipt of the documents identified in 3.1 and 3.2.
3.1 A copy of a first written demand issued by the Subcontractor to the Contractor stating
that the Subcontractor demands the issue of a payment certificate and failing such issue
within 7 (seven) calendar days, the Subcontractor intends to call upon the Guarantor to
make payment in terms of 3.2 of the demanded sum as set out in the demand.
3.2 A first written demand issued by the Subcontractor to the Guarantor at the Guarantor’s
domicilium citandi et executandi with a copy to the Contractor stating that a period of seven
(7) calendar days has elapsed since the first written demand in terms of 3.1 and that the
payment certificate has still not been issued therefore the Subcontractor calls up this
Payment Guarantee and demands payment of the demanded sum from the Guarantor.’
[7] The written demand referred to in clause 3.1 for the issue of a payment
certificate for R1 065 864,29 was made on 17 March 2011. The contractor was
informed that should it fail to issue the certificate within seven calendar days, the
respondent intended calling on First Rand to make payment in terms of clause 3.2.
The payment certificate demanded was not issued within seven days. On 15 April
2011 the respondent issued a first written demand to First Rand in terms of clause
3.2 demanding payment of R1 065 864,29 and stating that a payment certificate was
demanded from the contractor, that seven calendar days had elapsed from the date
of the demand and no payment certificate had been issued. Despite these demands
payment was not forthcoming and the application in the high court was launched on
14 July 2011. On 25 August 2011, however, a payment certificate for R60 909,79
was issued by a Mr R H Gardiner on behalf of the contractor. The certificate stated
that the other amounts claimed were disputed and were not certified.
[8] Nicholls J based her judgment on the unambiguous words of clause 3 in terms
of which First Rand undertook to pay ‘upon receipt of the documents identified in 3.1
and 3.2’. As it was common cause that the demands referred to in clauses 3.1 and
3.2 were made and that at the time the payment guarantee was called up the
payment certificate had not been issued, she found that the ‘trigger event’ on which
liability is based had occurred. In her judgment in the application for leave to appeal
her reasons for making the order sought were articulated more clearly: liability was
incurred because the payment certificate was not furnished timeously. I agree.
[9] On behalf of the appellant, however, it was contended that it was entitled to
rely upon events that occurred after demand had been made. In particular it was
argued that the word ‘still’ in clause 3.2 had the effect that, if at any stage after the
expiry of the seven day period referred to in clause 3.1 a payment certificate was
issued, the respondent’s entitlement to demand payment would fall away and it
would only be entitled to the certified sum, if any. Liability is thus based, so the
argument went, on the continued failure by the principal agent to issue a payment
certificate. To my mind, this construction is artificial. The event on which liability
depends is set out in clause 3.0, that is ‘upon receipt of the documents identified in
3.1 and 3.2’. The obligation to pay arises the moment the provisions of clause 3.0
are met, and not on the continued failure of the principal agent to issue the payment
certificate. The words in clause 3.2 ‘and that the payment certificate has still not
been issued’ do not detract from this conclusion. The use of the word ‘still’ in clause
3.2 simply means that the payment certificate was not issued within the seven day
period referred to in clause 3.1. The interpretation of First Rand, that it means that
liability depended, not on the conditions set out in clause 3, but on the continued
failure to provide the payment certificate at all is strained. It would mean that the
subsequent provision of a payment certificate (that is, after the seven day period set
out in clause 3.1) would extinguish or exclude the guarantor’s liability or limit it to the
amount certified. The express words used in the clause exclude such a construction.
[10] It was submitted on behalf of First Rand that the majority decision of this court
in Dormell Properties above established a party’s right to rely on events that
occurred after demand for payment was made. In that case, Bertelsmann AJA posed
the question whether a party was entitled to enforce a building guarantee
notwithstanding the fact that it was decided in arbitration proceedings that it had
repudiated the underlying construction agreement which was lawfully cancelled by
the other party. He held (para 41):
‘The arbitration has established that Dormell is in the wrong. Its repudiation of the building
contract was held to have been unlawful. As a consequence, Dormell has lost the right to
enforce the guarantee. There remains no legitimate purpose to which the guaranteed sum
could be applied.’
Because it was found that judgment in favour of the party enforcing the guarantee
(Dormell) would, in the circumstances of that case, have had no practical effect
(since any amount paid under the guarantee would have to be repaid) the appeal
was dismissed. The facts of this matter are distinguishable and concern an interim
payment under an interim payment certificate. There was no final arbitration award
as in Dormell. No question of mootness arises. In any event, I consider that the
better approach in that case is that of Cloete JA with whom Mpati P concurred:
‘Once the appellant [the beneficiary] had complied with clause 5 of the guarantee, the first
respondent [the guarantor] had no defence to a claim under the guarantee. It still has no
defence. The fact that an arbitrator has determined that the appellant was not entitled to
cancel the contract, binds the appellant – but only vis-à-vis the second respondent [the
employer]. It is res inter alios acta so far as the first respondent is concerned. As the cases
to which I have referred above make abundantly clear, the appellant did not have to prove
that it was entitled to cancel the building contract with the second respondent as a
precondition to enforcement of the guarantee given to it by the first respondent. Nor does it
have to do so now’ (para 64).
For these reasons, it is not in my view bad faith for an employer, who has made proper
demand in terms of a construction guarantee, to continue to insist on payment of the
proceeds of the guarantee, when the basis upon which the guarantee was called up has
subsequently been found in arbitration proceedings between the building owner and the
contractor to have been unjustified. I would add that the fact that the arbitrator’s award is
final as between the appellant and the second respondent does not mean that it is correct, or
that the appellant would have to set it aside before calling up the guarantee, much less that
the appellant is acting in bad faith in seeking to enforce payment under the guarantee
against the first respondent’ (para 65).
[11] The autonomy of letters of credit, demand guarantees, performance bonds
and similar documents is well recognised (see Lombard Insurance Co Ltd v
Landmark Holdings (Pty) Ltd & others 2010 (2) SA 86 (SCA) paras 19 and 20). It is
only where fraud is involved that the issuing institution may decline liability. In Sztejn
v J Henry Schroder Banking Corporation (1941) 31 NYS 2d 631, a judgment
concerning an irrevocable letter of credit, Shientag J formulated the ‘established
fraud rule’ as follows:
‘No hardship will be caused by permitting the bank to refuse payment where fraud is
claimed, where the merchandise is not merely inferior in quality but consists of worthless
rubbish, where the draft and the accompanying documents are in the hands of one who
stands in the same position as the fraudulent seller, where the bank has been given notice of
the fraud before being presented with the drafts and documents for payment, and where the
bank itself does not wish to pay pending an application of the rights and obligations of the
other parties.’
See also Phillips & another v Standard Bank of South Africa Ltd & others 1985 (3)
SA 301 (W) at 301A-J and Edward Owen Engineering Ltd v Barclays Bank
International Ltd [1978] 1 All ER 976 (CA) at 983b-d. No question of fraud arises in
this matter.
12]
In the result the appeal is dismissed with costs.
_____________
F R Malan
Judge of Appeal
APPEARANCES:
For Appellant:
F J Steyn
Instructed by:
Edward Nathan Sonnenbergs Inc
Sandton
McIntyre & Van der Post Attorneys
Bloemfontein
For Respondent:
L J Morison SC and
X Stylianou
Instructed by:
Rina Caldeira Attorneys
Johannesburg
Honey Attorneys
Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date:
25 March 2013
Status: Immediate
FIRST RAND BANK v BRERA
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal today dismissed an appeal against the judgment and
order of Nicholls J in the Johannesburg High Court that the appellant (First Rand
Bank Limited) pay a certain amount to the respondent Brera Investments CC in
terms of a payment guarantee issued to the latter. The respondent had on 1
November 2007 entered into a Joint Building Contracts Committee N/S Subcontract
Agreement with Spirit of Africa Developments (Pty) Ltd (the ‘contractor’) for the
supply of materials and fittings and the installation of the electrical reticulation of
residential units forming part of the Windmill Park Extension 12 development in
Boksburg. On 3 October 2007 First Rand issued a payment guarantee to the
respondent for the amount of R12 997 972,36 including VAT. A guarantee of this
nature must be paid according to its terms and liability under it is not affected by the
relationship between other parties to the transactions that gave rise to its issue,
particularly not with the question whether the sub-contractor performed in terms of
his contract with the contractor. In this case the contractor in breach of its
obligations under the guarantee, failed to issue a payment certificate within seven
days of a demand for it. A payment certificate was issued only later, after the period
of seven days, and for a much smaller amount. The Supreme Court of Appeal
confirmed the judgment of the court below and found for the respondent. In terms of
the guarantee First Rand undertook to pay ’upon receipt of the documents identified
in 3.1 and 3.2’ of the guarantee. As it was common cause that the demands referred
to in clauses 3.1 and 3.2 were made and that at the time the payment guarantee was
called up the payment certificate had not been issued, the ‘trigger event’ on which
liability was based had occurred. The Supreme Court of Appeal confirmed this
approach and dismissed the appeal.
|
1383
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no: 528/09
In the matter between:
No precedential significance
COMMISSIONER FOR SOUTH AFRICAN
REVENUE SERVICES
Appellant
and
COLGATE-PALMOLIVE (PROPRIETARY) LIMITED
Respondent
Neutral citation:
CSARS v Colgate-Palmolive (Pty) Ltd (528/09) [2010]
ZASCA 98 (3 September 2010)
Coram:
Harms DP, Lewis, Cachalia and Shongwe JJA and K Pillay AJA
Heard:
26 August 2010
Delivered
3 September 2010
Summary: Tariff determination under Customs and Excise Act 91 of 1964:
tetranyl, an ingredient of a fabric softener and conditioner,
imported from Spain, not dutiable under tariff heading 3402.12
of the Schedule to the Act: classifiable under heading 3809.91.
ORDER
On appeal from KwaZulu-Natal High Court (Pietermaritzburg) (Combrink J
sitting as the court of first instance).
The appeal is dismissed with costs including those of two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
LEWIS JA (HARMS DP, CACHALIA AND SHONGWE JJA AND K PILLAY
AJA concurring)
[1] The respondent, Colgate-Palmolive (Pty) Ltd (Colgate), imports a
product known as tetranyl L1-905 (tetranyl) from Spain. Tetranyl is used in
making a fabric softener and conditioner, StaSoft. It is imported in paste form
mixed with isoproponal, the sole purpose of which is to facilitate handling and
transport. The appellant, to whom I shall refer as the Commissioner, contends
that customs duty is payable on tetranyl in terms of the Customs and Excise
Act 91 of 1964. He has claimed payment of arrear duties and penalties in the
sum of R3 377 732. Colgate contends that no duty is payable.
[2] In an appeal to the KwaZulu-Natal High Court (Pietermaritzburg), in
terms of s 47(9)(e) of the Act against a tariff determination made by the
Commissioner (that tetranyl is dutiable under tariff heading 3402.12 of the
Schedule to the Act), Colgate contended that tetranyl falls under tariff heading
3809.91, and is not dutiable. The high court found for Colgate and set aside
the Commissioner’s determination. It ordered that tetranyl be classified under
tariff heading 3809.91. Thus no arrear duties were payable. The
Commissioner’s appeal to this court is with the leave of the high court.
[3] The high court dealt comprehensively with the principles of tariff
determination and considered expert evidence on the properties of tetranyl.
The principles are trite and I shall not repeat them here. In so far as the
evidence before the court is concerned, there was a perceived conflict in the
affidavits in Colgate’s appeal against the determination as to whether tetranyl
constitutes a preparation. For this – and other reasons – the judge who first
heard the appeal referred the matter to oral evidence and experts in chemistry
for each party produced expert reports and testified before Combrink J. It
became common cause that tetranyl is regarded as a preparation. Much of the
other evidence was also undisputed. It is necessary, however, to set out the
respective headings for which the parties contend and to consider briefly the
nature and functions of tetranyl.
The Commissioner’s determination: 3402.12
[4] Chapter 34 of the Schedule deals inter alia with soap, ‘organic surface-
active agents’ and washing preparations. Tariff heading 3402 reads:
‘Organic Surface-active Agents (Excluding Soap); Surface-active Preparations,
Washing Preparations (including Auxiliary Washing Preparations) and
Cleaning Preparations, whether or not Containing Soap . . . [my emphasis]
. . .
3402.12 = Cationic
. . .’.
The relevant explanatory note states that organic surface-active agents are
cationic in that they ‘ionise in aqueous solution to produce positively charged
organic ions responsible for the surface activity’.
Colgate’s contention: 3809.91
[5] Chapter 38 governs ‘miscellaneous chemical products’. Tariff heading
3809 covers ‘Finishing agents, Dye Carriers to Accelerate the Dyeing or Fixing
of Dyestuffs and Other Products and Preparations . . . of a Kind Used in the
Textile, Paper, Leather or Like Industries, Not Elsewhere Specified or
Included: [my emphasis].
. . .
3809.91 1= Of a kind used in the textile or like industries . . .’ .
The explanatory notes to the heading state that the items include ‘preparations
to modify the feel of products’ and refer to ‘softening agents’.
Approach to classification
[6] As stated by the high court (relying on Secretary for Customs and
Excise v Thomas Barlow and Sons Ltd 1970 (2) SA 660 (A) and IBM SA (Pty)
Ltd v Commissioner for Customs and Excise 1985 (4) SA 852 (A))
classification entails a three-stage process: ascertaining the meaning of the
words in the headings and section notes; considering the nature and
characteristics of the goods; and determining which heading is most
appropriate. I shall start with the nature and characteristics of tetranyl which
are not self-evident.
The nature and characteristics of tetranyl
[7] Both parties are agreed on the following: tetranyl is a finishing agent
used in the textile industry, but is confined to domestic use; it is not a separate
chemical compound but combines triethanolime (which is a separate
chemically defined compound) with ‘partially hydrogenated tallow acid’
obtained from animal fat. Tetranyl is a ‘quaternary ammonium compound’
mixed with isopropanalol to form a paste. Its main function is to improve the
softness of fabrics and to this end it is added to the rinse when fabrics have
been washed.
[8] The use of tetranyl conditions fabrics and softens them; it reduces the
build-up of static electricity in fabric and also reduces wrinkling. Tetranyl also
has water repellent properties which make drying times faster. There was an
apparent dispute between the experts as to whether it has surface-active
properties: one maintained that it accumulated next to the fabric and the other
that it adsorbs to it – it attaches to the fabric. They were agreed, however, that
tetranyl is cationic in that it has a positive molecular charge. The high court
concluded that surfactancy (having a surface-active function), while it may
occur together with adsorption, was not a prerequisite to adsorption. The court
in any event preferred the views of the expert for Colgate that surfactancy is
not the main function of tetranyl. The Commissioner was not able to show, in
this court, that this finding was wrong.
The correct classification
[9] Colgate argued – and the court below found – that tetranyl is covered
by tariff heading 3809: it is a finishing agent. The Commissioner contended,
however, that it falls also under 3402 as an organic surface-active agent. It will
be recalled that 3809 has an exclusionary proviso: even if the product fits the
description it cannot be classified under the heading if it is ‘elsewhere
specified’. The Commissioner argued, thus, that tetranyl, because it is an
organic surface-active agent, must be classified under 3402 and is therefore
excluded by 3809.
[10] But this argument fails to take into account the explanatory note to
3402, which itself excludes certain products. The note states that the heading
does not cover ‘Preparations, containing surface-active agents where the
surface-active function is either not required or is only subsidiary to the main
function of the preparation. . .’ (my emphasis). This raises the question
whether tetranyl’s surface-active function is subsidiary to its main functions,
which have been described above – the softening and conditioning of fabric
after washing.
[11] There is no contention by the Commissioner that the main function of
tetranyl is its surfactancy – the reduction of surface tension, foaming,
emulsifying, or wetting (see the explanatory note to 3402). That being so,
tetranyl must be excluded from tariff heading 3402, surfactancy being only a
subsidiary function. This conclusion is borne out by the explanatory notes to
3809 which state that the heading covers preparations of the kind used during
finishing of fabrics, which include softening agents. In my view, therefore, the
order of the high court was correct.
[12] The appeal is dismissed with costs including those of two counsel.
_______________
C H Lewis
Judge of Appeal
APPEARANCES
APPELLANTS:
C J Pammenter SC
Instructed by the State Attorney,
Durban
The State Attorney , Bloemfontein.
RESPONDENTS:
A Joubert SC (with him C McAslin)
Instructed by Bowman Gilfillan Attorneys,
Johannesburg
Honey Attorneys Inc, Bloemfontein.
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
PRESS RELEASE
3 September 2010
STATUS: Immediate
De Beer v Minister of Safety and Security (356/09) [2010] ZASCA 98 (3
September 2010)
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal today dismissed an appeal against a refusal to
award damages in a claim brought against the police by the appellant, who
was arrested for cultivating cannabis (dagga). The appellant alleged that he
had a permit to cultivate the dagga for purposes of research but was arrested
when he failed to produce the permit. He sued the police, alleging that his
prosecution was malicious.
Growing cannabis may be lawful – if done in terms of a research permit. But
a policeman who was informed that the appellant was growing cannabis
(dagga) on his farm, allegedly under the authority of a permit, thought it was
unlikely that a permit for the cultivation of dagga existed. He made enquiries
and could find nothing to indicate that a permit for the cultivation of dagga
could be issued.
He obtained a search warrant and went with colleagues to the appellant’s
farm. The appellant showed him his dagga plants and explained that he had a
permit to do research. But he could not produce it. The policeman tried to
contact someone referred to him by the appellant at the Agricultural Research
Centre to find out about the existence of the permit. He was unsuccessful, as
was a police legal adviser.
The policeman searched a house on the farm and found dagga seeds and
leaves in various places in the house. He did not believe that research was
being conducted there. On the advice of the police legal adviser he arrested
the appellant and charged him with contravening the Drugs and Drug
Trafficking Act. The appellant was detained overnight, and released on bail
the following day.
Several months later a permit was found, issued to the Agricultural Research
Centre by the Department of Health. The charges were withdrawn.
The appellant sued the Minister for damages for malicious prosecution. The
North Gauteng High Court (Mavundla J) dismissed the action. It found that the
policeman had reasonably believed that the appellant was committing
offences having regard to the absence of evidence of any research at the
farm. And he had not acted maliciously: that is, he had no intention to injure
and had not acted recklessly. He had made attempts to establish whether
there was indeed a permit, and had not been overhasty in arresting and
charging the appellant.
The SCA dismissed an appeal against this finding, confirming that the
policeman had reasonably believed that the appellant was contravening the
Act, and that he had acted without malice.
-------------
|
208
|
non-electoral
|
2018
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 308/2017
In the matter between:
MINISTER OF HOME AFFAIRS FIRST APPELLANT
DIRECTOR-GENERAL OF THE DEPARTMENT SECOND APPELLANT
OF HOME AFFAIRS
and
THE PUBLIC PROTECTOR OF THE REPUBLIC OF RESPONDENT
SOUTH AFRICA
Neutral citation: Minister of Home Affairs v The Public Protector (308/2017)
[2018] ZASCA 15 (15 March 2018)
Coram:
Lewis, Majiedt and Willis JJA and Plasket and Mothle AJJA
Heard:
28 February 2018
Delivered:
15 March 2018
Summary: Constitutional and administrative law – review of investigative, reporting
and remedial powers of the Public Protector – such powers not of an administrative
nature – may not be reviewed in terms of s 6 of the Promotion of Administrative
Justice Act 3 of 2000 – may be reviewed in terms of the principle of legality – no
ground of review established.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Prinsloo J sitting as
court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Plasket AJA (Lewis, Majiedt and Willis JJA and Mothle AJA concurring)
[1] Mr Reginald Ananius Marimi (Marimi), the second respondent in the court
below, was employed by the Department of Home Affairs (the Department) and
stationed at the South African embassy in Cuba, where he held the position of first
secretary. As a result of complaints concerning his conduct, made by the Cuban
government to the South African ambassador, he was recalled to South Africa. One
consequence of this was that his cost of living allowance (COLA) was stopped. He
was also threatened with disciplinary proceedings, which never materialised.
[2] He lodged a complaint with the Public Protector, the respondent in this appeal
and the first respondent in the court below, against the Department, alleging
maladministration on its part in relation to his transfer from Cuba to South Africa. The
Public Protector investigated Marimi’s complaint. She produced a preliminary report
which she provided to the parties for comment. Then she produced a final report in
which she found that the Department was indeed guilty of maladministration in
relation to Marimi. She directed that the Department take certain remedial action to
redress Marimi’s grievance.
[3] The political and administrative heads of the Department – the Minister of
Home Affairs and her Director-General – brought an application, as first and second
applicants, in the Gauteng Division of the High Court, Pretoria, to review and set
aside the Public Protector’s report, entitled ‘Unjust Forfeiture’, or its findings and the
remedial action that it directed the Department to take. The application was
dismissed with costs by Prinsloo J. He nonetheless granted leave to appeal to this
court.
[4] When the application was launched and when it was argued, the effect of the
Public Protector’s power to order remedial action to be taken by errant organs of
state had not been definitively decided. The only judicial pronouncement on the
issue was the judgment in Democratic Alliance v South African Broadcasting
Corporation Ltd & others.1 It had held that the Public Protector’s ‘orders’ were little
more than recommendations.
[5] This issue has now been determined in this court in the appeal from that
decision, in South African Broadcasting Corporation SOC Ltd & others v Democratic
Alliance & others,2 and by the Constitutional Court in Economic Freedom Fighters v
Speaker, National Assembly & others.3 In effect, the SABC (SCA) held, and the
Economic Freedom Fighters case confirmed, that the Oudekraal principle4 applies to
decisions of the Public Protector: her decisions cannot be ignored (or trumped by
parallel processes) and unless they are set aside on review, they must be obeyed
and given effect to. In this sense, they are binding and not mere recommendations.
[6] In what follows, I shall set out the facts; consider the powers and functions of
the Public Protector, as well as their source; determine whether the Public
Protector’s exercise of power in this case is to be reviewed in terms of the Promotion
of Administrative Justice Act 3 of 2000 (the PAJA) or the principle of legality that is
part of the founding constitutional value of the rule of law; consider the grounds of
1 Democratic Alliance v South African Broadcasting Corporation Ltd & others 2015 (1) SA 551 (WCC).
2 South African Broadcasting Corporation SOC Ltd & others v Democratic Alliance & others 2016 (2)
SA 522 (SCA); [2015] ZASCA 156. This case will be referred to below as SABC (SCA).
3 Economic Freedom Fighters v Speaker, National Assembly & others 2016 (3) SA 580 (CC); [2016]
ZACC 11.
4 Oudekraal Estates (Pty) Ltd v City of Cape Town & others 2004 (6) SA 222 (SCA); [2004] ZASCA 48
para 26.
review relied upon by the appellants and decide whether any of them have been
established; and make the appropriate order consequent on the last-mentioned
findings.
The facts
[7] On 17 February 2010, while Marimi was stationed in Cuba, the Cuban Deputy
Minister of Foreign Affairs met with the South African ambassador. He complained
about the conduct of Marimi and a second South African diplomat who occupied the
position of second secretary at the embassy. The complaints were reduced to writing
in an aide memoire dated 20 February 2010.
[8] The allegations made against the two were serious but lacked detail. In
respect of Marimi, the aide memoire stated that he had been ‘involved‘, with the
second secretary, in an incident in the city of Cienfuegos on 15 March 2009 when
the second secretary ‘in a state of intoxication, insulted a group of citizens’ and threw
a can of beer at them, refused to identify himself and was disrespectful to and
insulted two ‘patrol officers’; that Marimi had been ‘involved in other serious traffic
laws violations’; that he had ‘tried to go through an unauthorised area and he had to
be detained by State Security agents’; and that in December 2009, he had ‘attacked
physically and insulted in a disrespectful manner an Airport Customs official’.
[9] The aide memoire proceeded to record that ‘[i]n recognition of the excellent
relations between Cuba and South Africa, Deputy Minister Rodriguez informed that
the Ministry of Foreign Affairs had agreed that the Deputy Minister summon the
Ambassador with all these elements and, without requesting him to get them out of
the country or to declare them personae non grata, point out to him emphatically that
new incidents would not be tolerated’. It concluded by stating that the Cuban Ministry
of Foreign Affairs ‘hopes that measures deemed appropriate will be taken in order to
prevent the recurrence of such deplorable events’.
[10] Despite the fact that the Cuban government did not insist that action should
be taken against Marimi, he was nonetheless recalled to South Africa. The letter
informing him of his recall gave him notice that disciplinary action would be taken
against him.
[11] When, about a month after his return to South Africa, Marimi had heard
nothing further from the Department, he instructed an attorney to write to it to
ascertain progress in the disciplinary action that had been threatened. That and
further letters received no response from the Department. About four months after
his return to South Africa, however, he received a letter from the Department that
gave him five days to make representations as to why disciplinary action should not
be taken against him. He made his representations promptly. He heard nothing
further from the Department.
[12] Eventually, he lodged a complaint with the Public Protector. Essentially, his
complaint was that the process followed by the Department when he was recalled
from Cuba was unfair, the withdrawal of his COLA on his return was improper and
the Department’s failure to initiate and finalise disciplinary action against him had
caused prejudice to his reputation.
[13] In the Public Protector’s final report, she concluded that: (a) Marimi’s recall
from Cuba was procedurally flawed and constituted maladministration; (b) the delay
in taking disciplinary action against Marimi violated a provision of the Public Service
Disciplinary Code and Procedures, was unreasonable and improper, and constituted
maladministration; (c) the decision to stop paying Marimi his COLA contravened a
provision of the Foreign Service Dispensation, was improper and constituted
maladministration; and (d) Marimi had been prejudiced by the Department’s
maladministration in that he had been treated unfairly, had been unfairly denied
payment of his COLA, his name and reputation had been tarnished and his human
dignity had been impaired.
[14] The remedial action that the Public Protector directed the Department to take
was the following: (a) the Director-General was to ensure that Marimi’s COLA was
paid to him, together with interest, from the date of his recall from Cuba until the date
of his transfer from the Department to the Department of Correctional Services; (b)
the Director-General was to investigate the reasons for Marimi’s case not being dealt
with properly and was to take action against anyone who was at fault; and (c) the
Director-General was to ensure that a letter was written to Marimi to apologise to him
for the prejudice he suffered as a result of the Department’s maladministration.
The Office of the Public Protector
[15] The Office of the Public Protector was first created by the interim Constitution
of 1993.5 What was envisaged was an ombud-type institution to investigate and
report on maladministration and other similar maladies within the government and its
public service with the aim of ensuring ethical governance.6 While the institution
created by the interim Constitution certainly had more extensive powers than a
previous, similar body – the Advocate-General created after the Information Scandal
of the 1970s7 – the powers of the Public Protector were further enhanced by the
1996 Constitution.
[16] Section 181(1) of the Constitution established a number of institutions,
generally referred to as Chapter 9 institutions, which were to strengthen
constitutional democracy. They are the Public Protector, the South African Human
Rights Commission, the Commission for the Promotion and Protection of the Rights
of Cultural, Religious and Linguistic Communities, the Commission for Gender
Equality, the Auditor-General and the Electoral Commission.
[17] In terms of s 181(2) all of the Chapter 9 institutions are ‘independent, and
subject only to the Constitution and the law, and they must be impartial and must
exercise their powers and perform their functions without fear, favour or prejudice’.
Section 181(3) places an obligation on other organs of state to ‘assist and protect
these institutions to ensure the independence, impartiality, dignity and effectiveness
of these institutions’. Section 181(4) prohibits persons or organs of state from
interfering with the functioning of any Chapter 9 institution. Section 181(5) provides
that they are accountable to the National Assembly and that they are each required
to report to it on the fulfilment of their mandates annually at least.
5 Section 110.
6 Michael Bishop ‘Public Protector’ in Stuart Woolman and Michael Bishop (eds) Constitutional Law of
South Africa (2 ed) (Vol 2) at 24A-1 to 24A-2.
7 Lawrence Baxter Administrative Law at 233-235.
[18] Sections 182 and 183 of the Constitution deal specifically with the Public
Protector. Section 182(1) provides:
‘The Public Protector has the power, as regulated by national legislation-
(a)
to investigate any conduct in state affairs, or in the public administration in
any sphere of government, that is alleged or suspected to be improper or to
result in any impropriety or prejudice;
(b)
to report on that conduct; and
(c)
to take appropriate remedial action.’
[19] Section 182(2) allows for these powers to be supplemented by national
legislation. Section 182(3) places only one limit on the Public Protector’s power: she
may not investigate ‘court decisions’. Section 182(4) places an obligation on the
Public Protector: her office must be ‘accessible to all persons and communities’.
Section 182(5) requires the Public Protector’s reports to be ‘open to the public unless
exceptional circumstances, to be determined in terms of national legislation, require
that a report be kept confidential’.
[20] Section 183 prescribes the Public Protector’s tenure of office: a person may
be appointed as Public Protector for a non-renewable term of seven years.
[21] While the primary source of the Public Protector’s powers is the Constitution,
the Public Protector Act 23 of 1994 is the legislation contemplated by s 182(2) that
supplements her powers.8
[22] Section 6 is the heart of the Public Protector Act. It adds to the matters that
the Public Protector may investigate, specifies matters that she cannot investigate or
may decline to investigate and specifies the procedure for the making of complaints
to the Public Protector.
[23] Section 6(4)(a) sets out the matters that the Public Protector may investigate.
It provides:
‘The Public Protector shall, be competent-
8 SABC (SCA) (note 2) para 43.
(a) to investigate, on his or her own initiative or on receipt of a complaint, any alleged-
(i) maladministration in connection with the affairs of government at any level;
(ii) abuse or unjustifiable exercise of power or unfair, capricious, discourteous or
other improper conduct or undue delay by a person performing a public function;
(iii) improper or dishonest act, or omission or offences referred to in Part 1 to 4, or
section 17, 20 or 21 (in so far as it relates to the aforementioned offences) of Chapter
2 of the Prevention and Combating of Corrupt Activities Act, 2004, with respect to
public money;
(iv) improper or unlawful enrichment, or receipt of any improper advantage, or
promise of such enrichment or advantage, by a person as a result of an act or
omission in the public administration or in connection with the affairs of government
at any level or of a person performing a public function; or
(v) act or omission by a person in the employ of government at any level, or a
person performing a public function, which results in unlawful or improper prejudice
to any other person.’
Section 6(5) empowers the Public Protector to investigate similar misconduct within
institutions in which ‘the State is the majority or controlling shareholder or of any
public entity as defined in section 1 of the Public Finance Management Act, 1999
(Act 1 of 1999)’; and s 6(7) allows her to investigate attempts to commit the types of
misconduct specified in ss 6(4) and (5).
[24] Even if a complaint made to the Public Protector falls within her jurisdiction,
she may refuse to entertain the complaint in certain circumstances. Section 6(3)
provides:
‘The Public Protector may refuse to investigate a matter reported to him or her, if the person
ostensibly prejudiced in the matter is-
(a) an officer or employee in the service of the State or is a person to whom the provisions
of the Public Service Act, 1994 (Proclamation 103 of 1994), are applicable and has, in
connection with such matter, not taken all reasonable steps to exhaust the remedies
conferred upon him or her in terms of the said Public Service Act, 1994; or
(b) prejudiced by conduct referred to in subsections (4) and (5) and has not taken all
reasonable steps to exhaust his or her legal remedies in connection with such matter.’
In terms of s 6(9), generally speaking, a complaint that is within the Public
Protector’s jurisdiction will not be entertained ‘unless it is reported to the Public
Protector within two years from the occurrence of the incident or matter concerned’.
She has a discretion, however, where special circumstances exist, to entertain
complaints that are older than two years.
[25] Section 6(1) specifies the way in which an investigation by the Public
Protector may be initiated. It provides:
‘Any matter in respect of which the Public Protector has jurisdiction may be reported to the
Public Protector by any person-
(a) by means of a written or oral declaration under oath or after having made an affirmation,
specifying-
(i) the nature of the matter in question;
(ii) the grounds on which he or she feels that an investigation is necessary;
(iii) all other relevant information known to him or her; or
(b) by such other means as the Public Protector may allow with a view to making his or her
office accessible to all persons.’
Section 6(2) requires the Public Protector and her staff to ‘render the necessary
assistance, free of charge, to enable any person to comply with subsection (1)’.
[26] In Public Protector v Mail and Guardian Ltd & others9 Nugent JA stressed the
importance of the office of the Public Protector, which he described as an
‘indispensable constitutional guarantee’, stating that it ‘provides what will often be a
last defence against bureaucratic oppression, and against corruption and
malfeasance in public office that are capable of insidiously destroying the nation’.
The basis for the review – the PAJA or the principle of legality?
[27] Review in terms of both the PAJA and the principle of legality stems from the
rule of law. Section 33(1) and (2) of the Constitution as well as the PAJA gives effect
to the rule of law in respect of only administrative action. The principle of legality
gives effect to the rule of law in relation to all other exercises of public power, such
as executive power. Woolf, Jowell and Le Sueur make this point when they say that
as a general principle, the rule of law ‘has provided the major justification for
9 Public Protector v Mail and Guardian Ltd & others 2011 (4) SA 420 (SCA); [2011] ZASCA 108 para
6.
constraining the exercise of official power, promoting the core institutional values of
legality, certainty, consistency, due process and access to justice’.10
[28] An applicant for judicial review does not have a choice as to the ‘pathway’ to
review: if the impugned action is administrative action, as defined in the PAJA, the
application must be made in terms of s 6 of the PAJA; if the impugned action is some
other species of public power, the principle of legality will be the basis of the
application for review.11
[29] In the SABC (SCA) case,12 this court was not required to determine
definitively whether the remedial action taken by the Public Protector constituted
administrative action. It left the issue open. In the court below in this matter, Prinsloo
J held that the Public Protector’s exercises of power were subject to review in terms
of the PAJA.13 In South African Reserve Bank v Public Protector & others,14 Murphy
J concluded that the PAJA applied to a review of remedial action ordered by the
Public Protector. In the most recent pronouncement on the issue, a full court in Absa
Bank Limited & others v Public Protector & others,15 also concluded that the remedial
action ordered by the Public Protector was subject to review in terms of the PAJA.
[30] Administrative action is defined in s 1 of the PAJA to mean:
‘. . . 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)
. . .
10 Harry Woolf, Jeffrey Jowell and Andrew Le Sueur De Smith’s Judicial Review (6 ed) para 11-059.
See too William Wade and Christopher Forsyth Administrative Law (10 ed) at 29 who say: ‘Judicial
review is thus a fundamental mechanism for keeping public authorities within due bounds and for
upholding the rule of law.’
11 Minister of Health & another NO v New Clicks South Africa (Pty) Ltd & others (Treatment Action
Campaign & another as amici curiae) 2006 (2) SA 311 (CC); [2005] ZACC 14 paras 95-97; State
Information Technology Agency SOC v Gijima Holdings (Pty) Ltd 2017 (2) SA 63 (SCA); [2016]
ZASCA 143 paras 33-38.
12 Note 2.
13 Minister of Home Affairs & another v Public Protector & another 2017 (2) SA 597 (GP); [2016]
ZAGPPHC 921 para 47.
14 South African Reserve Bank v Public Protector & others 2017 (6) SA 198 (GP); [2017] ZAGPPHC
443.
15 Absa Bank Limited & others v Public Protector & others [2018] ZAGPPHC 2.
which adversely affects the rights of any person and which has a direct, external legal effect
. . .’
A number of types of public powers, such as executive, legislative, judicial and
prosecutorial powers, to name but four, are excluded from the definition.
[31] The definition refers at the outset to ‘a decision’. This term is defined, also in s
1, to mean:
‘. . . any decision of an administrative nature made, proposed to be made, or required to be
made, as the case may be, under an empowering provision, including a decision relating to-
(a)
making, suspending, revoking or refusing to make an order, award or determination;
. . .
(g)
doing or refusing to do any other act or thing of an administrative nature’.
[32] The elements of the definition contemplate (a) a decision of an administrative
nature (b) taken by an organ of state (c) when it exercises either a constitutional
power or a public power in terms of legislation (d) that adversely affects rights and
(e) has a direct, external legal effect.
[33] Section 239 of the Constitution defines an organ of state to mean:
‘(a)
any department of state or administration in the national, provincial or local sphere of
government; or
(b)
any other functionary or institution-
(i)
exercising a power or performing a function 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,
but does not include a court or a judicial officer.’
[34] The Office of the Public Protector is not a department of state or
administration and neither can it be said to be part of the national, provincial or local
spheres of government: it is an independent body that is answerable only to the
National Assembly.16 It is therefore not an organ of state as contemplated by
16 SABC (SCA) (note 2) para 24-25; Independent Electoral Commission v Langeberg Municipality
2001 (3) SA 925 (CC); [2001] ZACC 23 para 27 in which it was held that the Independent Electoral
Commission, also a Chapter 9 institution, was not an organ of state ‘within the national sphere of
government’.
subsection (a) of the definition. It is, however, an institution that exercises both
constitutional powers and public powers in terms of legislation. It is, consequently, an
organ of state as contemplated by subsection (b) of the definition.
[35] The completed process17 of an investigation by the Public Protector that has
found official misconduct and ordered remedial action will usually adversely affect
rights and have a direct, external legal effect.18 The investigative, reporting and
remedial powers of the Public Protector are public powers19 that derive from both the
Constitution and ordinary parliamentary legislation. None of the express exclusions
from the definition apply to the Public Protector.
[36] Administrative action concerns the taking of a decision. The type of decision
envisaged is a decision ‘of an administrative nature’.20 This is so because
administrative action generally involves ‘the conduct of the bureaucracy (whoever
the bureaucratic functionary might be) in carrying out the daily functions of the
State’.21 While I accept that public administration in a modern state encompasses an
extremely wide range of activities, including investigative functions and the exercise
of powers of compulsion,22 I am of the view that the factors listed below distinguish
the decisions of the Public Protector from decisions of an administrative nature.
[37] First, the Office of the Public Protector is a unique institution designed to
strengthen constitutional democracy. It does not fit into the institutions of public
administration but stands apart from them. Secondly, it is a purpose-built watch-dog
17 I express no view on whether rights may be adversely affected prior to the completion of an
investigation or whether an incomplete investigation can have an external, legal effect.
18 As to which, see Grey’s Marine Hout Bay (Pty) Ltd & others v Minister of Public Works & others
2005 (6) SA 313 (SCA); [2005] ZASCA 43 para 23.
19 As to which, see Police and Prisons Civil Rights Union & others v Minister of Correctional Services
& others 2008 (3) SA 91 (E); [2006] ZAECHC 4 paras 52-53.
20 As to which see Grey’s Marine Hout Bay (note 18) para 22; Sokhela & others v MEC for Agriculture
and Environmental Affairs & others 2010 (5) SA 574 (KZP); [2009] ZAKZPHC 30 paras 60-61.
21 Grey’s Marine Hout Bay (note 18) para 24.
22 See Beinart ‘Administrative Law’ (1948) 11 THRHR 204 AT 212-213 who said of the functions given
to state functionaries: ‘To carry out these functions, the public service has been given powers of
intervention, powers of compulsion, powers of inspection, powers of decision, usually of a wide
discretionary nature, which have a constant impact on the person, property, labour and trade of the
individual. What is more they are supplemented by powers to make rules and regulations in relation to
those powers, and often to conduct investigations and decide disputes . . ’. See too Marinus Wiechers
Administrative Law (2 ed) at 18; Wiechers ‘Administrative Law and the Benefactor State’ 1993 Acta
Juridica 248 at 251.
that is independent and answerable not to the executive branch of government but to
the National Assembly. Thirdly, although the State Liability Act 20 of 1957 applies to
the Office of the Public Protector to enable it to sue and be sued,23 it is not a
department of state and is functionally separate from the state administration: it is
only an organ of state because it exercises constitutional powers and other statutory
powers of a public nature. Fourthly, its function is not to administer but to investigate,
report on and remedy maladministration. Fifthly, the Public Protector is given broad
discretionary powers as to what complaints to accept, what allegations of
maladministration to investigate, how to investigate them and what remedial action to
order – as close as one can get to a free hand to fulfil the mandate of the
Constitution. These factors point away from decisions of the Public Protector being
of an administrative nature, and hence constituting administrative action. That being
so, the PAJA does not apply to the review of exercises of power by the Public
Protector in terms of s 182 of the Constitution and s 6 of the Public Protector Act.
That means that the principle of legality applies to the review of the decisions in
issue in this case.
The review
[38] It does not matter in this case that the application for the review is based on
the principle of legality rather than on the PAJA. No procedural differences arise24
and the grounds of review that apply in respect of both pathways to review derive
ultimately from the same source – the common law – although, in the PAJA, those
grounds have been codified.25
23 Public Protector Act, s 5(2).
24 In cases involving undue delay and the exhaustion of internal remedies, for instance, different
procedural rules apply.
25 Cora Hoexter Administrative Law in South Africa (2 ed) at 118-119. At present, in respect of the
principle of legality, not every ground of review has been defined by the courts with the precision one
finds in the PAJA. That said, however, broad grounds going to the lawfulness, procedural fairness and
reasonableness of official decisions have been recognised. See for instance President of the Republic
of South Africa & others v South African Rugby Football Union & others 2000 (1) SA 1 (CC); [1999]
ZACC 11 para 148; Pharmaceutical Manufacturers Association of SA & others: in re ex parte
President of the Republic of South Africa & others 2000 (2) SA 674 (CC); [2000] ZACC 1 paras 82-86.
The only difference in the grounds of review that I can discern at present is that those exercising
executive power have been exempted from having to act fairly (Masethla v President of the Republic
of South Africa & another 2008 (1) SA 566 (CC); [2007] ZACC 20 para 77) and disproportionality (as
an aspect of unreasonableness) has not yet been recognised as a ground of review, except in a
minority judgment in the Constitutional Court (Minister of Health & another NO v New Clicks South
[39] The appellants attack the Public Protector’s decision to entertain the
complaint made by Marimi on two principal grounds: first, that the complaint was not
made on oath; and secondly, that the Public Protector entertained the complaint
despite Marimi not having exhausted his remedies in terms of the Public Service Act
(Proclamation 103 of 1994) or other legislation. During the course of argument a
third ground was raised that attacked the remedial action of requiring the Department
to pay Marimi’s COLA.
The complaint was not made on oath
[40] In terms of s 6(1) of the Public Protector Act a complaint may be reported to
the Public Protector by means of a ‘written or oral declaration under oath’26 or by
‘such other means as the Public Protector may allow with a view to making his or her
office accessible to all persons’.27
[41] The Public Protector has a choice as to the form of the complaint. In some
instances, the nature of the complaint may be such that she takes the view that it
must be made on oath, while in other matters, a more informal procedure may be
followed. In this case, the Public Protector obviously took the view that there was no
need to take a declaration on oath from Marimi. She was entitled to hold that view
and always could have required the complaint to be made on oath at a later stage if
it became necessary. As it happened, there was no need for this because the facts
upon which the complaint was based were common cause. In any event, in terms of
s 6(4), as soon as the Public Protector heard Marimi’s version of events, she could
have instituted an investigation on her own initiative.
[42] In order to succeed, the appellants must establish that the Public Protector
acted irregularly in taking Marimi’s complaint otherwise than on oath. She had the
power to do exactly that. It does not avail the Department to say that it would have
been better or wiser to have exercised her discretion differently. That is not the test
Africa (Pty) Ltd & another (Treatment Action Campaign & another as amici curiae) (note 11) paras
633-637).
26 Section 6(1)(a).
27 Section 6(2)(b).
on review. No irregularity and hence no ground of review has been established to
justify the attack on the procedure followed by the Public Protector in taking the
complaint.
Alternative remedies
[43] The second ground of attack relates to s 6(3) of the Public Protector Act. In
terms of this provision, the Public Protector may decline to investigate a complaint of
maladministration if the complainant is ‘an officer or employee in the service of the
State or is a person to whom the provisions of the Public Service Act’ apply and who
has not ‘taken all reasonable steps to exhaust the remedies conferred’ on him or her
by that Act, or any other available remedy.
[44] This attack has two legs. The first is that because Marimi’s complaint was that
he was the victim of an unfair labour practice, he had to seek his remedy in the
Labour Relations Act 66 of 1995: in the same way as the Labour Court has exclusive
jurisdiction in labour matters at the expense of the high courts,28 so too the Public
Protector’s jurisdiction was ousted in this case. There is no merit in the argument.
The Public Protector is not a court, does not exercise judicial power and cannot be
equated with a court. Her role is completely different to that of a court and the
jurisdictional arrangements of the courts are entirely irrelevant to a determination of
the Public Protector’s jurisdiction. It is necessary to look to s 182 of the Constitution
and the Public Protector Act to ascertain the bounds of the Public Protector’s
jurisdiction. Neither excludes labour matters from her jurisdiction.
[45] I turn now to the second related attack. As with s 6(1), the Public Protector
had a discretion as to whether to take Marimi’s complaint or not. The nature of this
discretion and the way in which it is to be exercised is shaped by the nature and
scope of her mandate as provided for in the Constitution and the Public Protector
Act. Section 182 of the Constitution makes it clear that she has the mandate to
‘investigate any conduct in state affairs, or in the public administration in any sphere
of government, that is alleged or suspected to be improper or to result in any
28 Chirwa v Transnet Lt & others 2008 (4) SA 367 (CC); [2007] ZACC 23; Gcaba v Minister of Safety
and Security & others 2010 (1) SA 238 (CC); [2009] ZACC 26.
impropriety or prejudice’;29 and to report on that conduct and ‘take appropriate
remedial action’. The Public Protector Act widens this already wide mandate even
more, extending the Public Protector’s remit to investigation, on her own initiative, of
maladministration and similar maladies in respect of, for instance, ‘the affairs of
government at any level’,30 or by ‘a person performing a public function,’31 and also
in respect of state owned enterprises and other public entities.32
[46] The only express exclusion of the Public Protector’s investigative jurisdiction
is in relation to decisions of courts. For the rest, her jurisdiction is extremely wide and
her mandate is clear: she must seek out and effect the rectification of
maladministration, through directing appropriate remedial steps so as to ensure good
governance. Seen in this context, and the wide discretion vested in her to enable her
to achieve this end, the functioning of s 6(3) becomes clear: it provides an opt-out for
the Public Protector in the circumstances contemplated by that section. In other
words, it allows the Public Protector to decline to take a complaint that is within her
jurisdiction if she has reason to do so. The acceptance of a complaint, when the
circumstances envisaged by s 6(3) are present, is the default position.
[47] The appellants have failed to establish any ground of review in terms of which
the Public Protector’s decision not to opt-out, and instead to investigate Marimi’s
complaint, may be set aside.
Payment of the COLA
[48] The two points that I have dealt with above were the only issues canvassed in
the appellants’ heads of argument and in a summary of their argument handed to the
court at the hearing of the matter. During the course of his address, however, Mr
Cassim, who appeared with Ms Freese for the appellants, also submitted that the
Public Protector’s decision to order the remedial action of payment of Marimi’s COLA
was reviewable on the basis of an error of law, unreasonableness and because it
‘induced a sense of shock’. (The last ground can be left out of account, not being a
29 Emphasis added.
30 Section 6(4)(a).
31 Section 6(4)(b).
32 Section 6(5).
ground of review but a measure of misdirection when a sentence is appealed
against.)
[49] In the founding affidavit, the Director-General of the Department stated:
‘117
The Public Protector misconstrued the purpose of a cost of living allowance and
understood it to be a benefit. The cost of living allowance is not a benefit but an allowance to
an employee who is posted in a foreign country by the Department. The allowance is due to
an employee as long as that employee is resident in a foreign country as part of a foreign
mission. When an employee is in the Republic he is not entitled to COLA.
The finding by the Public Protector that the second respondent was entitled to COLA
despite that he was not in Cuba for the 6 month period between June and November 2010 is
factually and legally incorrect. It is a finding that no reasonable person in the position of the
Public Protector could have made.’
[50] The Public Protector explained her decision in detail in her final report. She
said:
‘7.4.4 In its response to the provisional report, the Department did not dispute that in terms
of Paragraph 6.2.1(iii) of the Foreign Service Dispensation, 2010, the DPSA letter dated
22/02/2006, which provides that: “if an official is recalled due to a Labour Relations action
he/she is regarded as being on official duty and hence paragraph 6.2.1(iii) of COLA will
apply”, is applicable to the complainant. (own emphasis).
7.4.5 Paragraph 6.2.1(iii) of COLA provides that a designated official absent from Mission
on official duty for a period of 1 to 60 days is entitled to 100% of the applicable COLA
amount payable whether Accompanied COLA (AC) or Unaccompanied COLA (UC). Further
that a designated official absent from the Mission on official duty for a period of 61 days and
more is entitled to 50% of the applicable COLA amount payable whether AC or UC.
7.4.6 The Department has not provided any evidence to suggest that the Complainant was
recalled or withdrawn for any other reason(s) except for a labour relations action on the
basis of his alleged misconduct. The fact that the Department contended in its response to
the provisional report that the Complainant knew or reasonably ought to have known that he
would not be sent back to Cuba, if he had to collate all his personal effects, does not detract
from the fact that he was withdrawn on account of a labour relations action.
7.4.7 On proper construction Clause 6.2.1 of the Foreign Service Dispensation does not
support the Department’s contention that once withdrawn from a Foreign Service mission as
in the circumstances of the Complainant, COLA does not become applicable, except for
providing that in the case of the Head of Mission who is absent from the mission because of
being recalled after 31 days and more and a designated official absent from duty on unpaid
leave, 0% COLA is payable. Clause 6.2.1 does not make reference to a person in the
circumstances of the Complainant other than the reference made by the DPSA letter dated
22/02/2006 as alluded above.’
[51] In the founding affidavit, no basis is laid for the assertion that the Public
Protector’s conclusion is factually and legally incorrect as well as unreasonable. As
the onus rests on an applicant in judicial review proceedings to establish the grounds
of review upon which he or she relies,33 the Director-General’s bare averments of
irregularity are insufficient.
[52] The least I would have expected to sustain the allegation of error of law is to
be provided with paragraph 6.2.1 of the Foreign Service Dispensation, so that we
could determine whether an error of law had been committed. That was not done
and in the face of that omission, the Public Protector’s interpretation of it stands
unchallenged.
[53] As for the allegation that the Public Protector committed an error of fact, I am
not sure what that error of fact might have been because it has not been identified. In
any event, it is only errors of fact (of a non-jurisdictional nature) in a very narrow
band that are reviewable (as an incidence of the principle of legality):34 generally
speaking, errors of fact are not reviewable.35
[54] Finally, no attempt has been made to identify the basis for the allegation of
unreasonableness. If it is alleged that the decision is irrational, that, in the light of the
passage in the final report that I have quoted, is unsustainable. If the
unreasonableness is said to lie in the effect of the decision, no factual foundation has
been laid for any suggestion that it is disproportional.
33 Lawrence Baxter Administrative Law at 738-739; Bangtoo Bros. & others v National Transport
Commission & others 1973 (4) SA 667 (N) at 676F-677A..
34 Pepcor Retirement Fund & another v Financial Services Board & another 2003 (6) 38 (SCA); [2003]
ZASCA 56 paras 47-49; Dumani v Nair & another 2013 (2) SA 274 (SCA); [2012] ZASCA 196 para
30.
35 De Freitas v Somerset West Municipality 1997 (3) SA 1080 (C) at 1084E-H.
[55] In the result, the challenge to the ‘award’ of Marimi’s COLA is devoid of merit
and the appellants have not established a ground of review to justify its setting aside.
Conclusion
[56] I have concluded that the constitutional and statutory powers and functions
vested in the Public Protector to investigate, report on and remedy maladministration
are not administrative in nature and so are not reviewable in terms of s 6 of the
PAJA. This being so, the Public Protector’s exercise of her core powers and
functions is reviewable on the basis of the principle of legality that stems from the
founding constitutional value of the rule of law. On the facts, however, I have found
that the appellants have failed to establish any ground of review. That being so, the
appeal must fail.
[57] I make the following order.
The appeal is dismissed with costs, including the costs of two counsel.
___________________
C Plasket
Acting Judge of Appeal
APPEARANCES
For the appellants:
N A Cassim SC and S Freese
Instructed by:
State Attorney, Pretoria
State Attorney, Bloemfontein
For the first respondent:
P Kennedy SC and L Zikalala (heads of argument drafted
by N H Maenetje SC and L Zikalala)
Instructed by:
Adams and Adams, Pretoria
Honey Attorneys, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
15 March 2018
STATUS
Immediate
Minister of Home Affairs v Public Protector (308/2017)
_____________________________________________________________________
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal (the SCA) today dismissed an appeal against a judgment that had held
that the Public Protector had committed no irregularity when she had found the Department of Home
Affairs to have been guilty of maladministration and had directed that it take certain remedial action.
Mr R A Marimi had been employed by the Department of Home Affairs at the South African embassy
in Cuba. As a result of complaints made by the Cuban government to the South African ambassador
to Cuba, Marimi was recalled from Cuba and informed that he was to face a disciplinary enquiry. This
did not materialise and payment of the cost of living allowance (COLA) that he had been paid while in
Cuba was stopped. He made a complaint to the Public Protector.
She found that the procedure followed by the Department in recalling Marimi was flawed, that a
disciplinary enquiry ought to have been held within a time specified in the Public Service Disciplinary
Code and Procedures, that, in terms of the Foreign Service Dispensation, he was entitled to be paid
his COLA and that these maladies amounted to maladministration. The Public Protector directed that
the Department pay Marimi his COLA, investigate the reasons for the maladministration and
apologise to him.
The SCA considered whether the review of the powers of the Public Protector constituted
administrative action as defined in the Promotion of Administrative Justice Act 3 of 2000 (the PAJA). It
was held that it did not because the unique powers exercised by the Public Protector were not
administrative in nature. As a result, her powers were subject to review, not in terms of the PAJA, but
in terms of the principle of legality that arises from the founding constitutional value of the rule of law.
It was argued by the Department in the appeal that the Public Protector’s findings and remedial action
ought to be reviewed and set aside for a number of reasons. First, it was argued that the complaint
had not been made on oath. This ground failed because the Public Protector Act 23 of 1994 permitted
the Public Protector to investigate a complaint that had not been made on oath. Secondly, it was
argued that, the complaint being about a labour relations matter, the Labour Court had exclusive
jurisdiction and the Public Protector’s jurisdiction had been excluded. It was held that the Public
Protector had wide powers of investigation, reporting and remedial action. The only exclusion from
her jurisdiction was decisions of courts. Thirdly, it was argued that the Public Protector should not
have entertained the complaint because Marimi had other remedies which he had not exhausted. It
was held that s 6(3) of the Public Protector Act gave the Public Protector a discretion to investigate a
complaint even though the complainant had not exhausted his or her remedies. That is precisely what
she did in this case. Finally, it was argued that directing the Department to pay Marimi’s COLA was
vitiated by an error of law and was unreasonable. It was held that no evidence established either of
these grounds.
|
2376
|
non-electoral
|
2013
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 409/12
Reportable
In the matter between:
THE STEVE TSHWETE LOCAL MUNICIPALITY
APPELLANT
and
FEDBOND PARTICIPATION MORTGAGE BOND
MANAGERS (PTY) LTD
FIRST RESPONDENT
FEDBOND NOMINEES (PTY) LTD
SECOND RESPONDENT
Neutral citation: The Steve Tshwete Local Municipality v Fedbond
Participation Mortgage Bond Managers (Pty) Ltd (409/12)
[2013] ZASCA 15 (20 March 2013)
Coram:
Malan and Shongwe JJA and Van der Merwe, Saldulker
and Mbha AJJA
Heard:
26 February 2013
Delivered:
20 March 2013
Summary:
Local authority ─ municipal charges payable by trustee or
liquidator to obtain certificate in terms of s 118(1) of Local Government:
Municipal Systems Act 32 of 2000 ─ period laid down in s 118(1) applicable
and not period in s 89 of Insolvency Act 24 of 1936 ─ stare decisis ─ court
bound by earlier decision.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (Prinsloo J sitting as
court of first instance):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
VAN DER MERWE AJA (MALAN AND SHONGWE JJA AND SALDULKER
AND MBHA AJJA CONCURRING):
[1] This is an appeal against a declaratory order and ancillary relief
granted in favour of the respondents by Prinsloo J in the North Gauteng High
Court, Pretoria. He granted leave to appeal to this court.
[2] The appeal concerns the interrelation between the provisions of
s 118(1) of the Local Government: Municipal Systems Act 32 of 2000 and
s 89 of the Insolvency Act 24 of 1936. In City of Johannesburg v Kaplan NO &
another1 this court held that, notwithstanding the longer period referred to in
s 89, liability for payment of a tax as defined in s 89(5) to a municipality in
order to obtain a certificate in terms of s 118(1) in respect of immovable
property falling in an insolvent or liquidated estate, is limited to the period
mentioned in s 118(1). The judgment of the court a quo is essentially based
on the decision in Kaplan and the real issue raised by the appellant’s
challenge thereto is whether the decision in Kaplan can be departed from.
[3] The factual background is uncomplicated and common cause. The
appellant (the Municipality) is a duly established local municipality. The
respondents, collectively referred to as Fedbond, operate a participation bond
scheme in terms of which they make loans to commercial companies based
1 2006 (5) SA 10 (SCA).
on funds they have received mostly from pensioners and widows and which
are secured by mortgage bonds registered over commercial properties. A
close corporation named TNT Trading 23 CC (TNT) was the registered owner
of four immovable properties (the properties). The second respondent granted
a loan to TNT which was secured by participation mortgage bonds registered
over the properties in favour of Fedbond.
[4] On 3 December 2008, however, TNT was placed in final liquidation.
The second respondent was the major creditor of TNT. It proved a claim in
respect of the said loan in the amount of R16 125 136.18. With the
authorisation of creditors, the liquidators of TNT sold the properties at a public
auction for the total purchase price of R5,3 million. The liquidators then
instructed Fedbond’s attorney to attend to the transfer of the properties to the
purchaser.
[5] For this purpose the attorney had to obtain a certificate in terms of
s 118(1) (clearance certificate) in respect of each of the properties from the
Municipality, certifying that all the amounts mentioned in s 118(1) have been
fully paid. It is common cause that the amounts payable to obtain clearance
certificates in respect of the properties related only to property rates and
interest thereon (rates). As TNT did not have sufficient funds to obtain
clearance certificates, Fedbond accepted that responsibility. Applications for
clearance certificates were made during December 2009.
[6] A dispute arose between the Municipality and Fedbond in respect of
the amount payable to obtain clearance certificates. The Municipality
maintained that the amount should be calculated from the date two years
immediately preceding the date of liquidation of TNT, in terms of s 89. The
contention of Fedbond was that the amount should be calculated over the
period of two years preceding the dates of application for clearance
certificates, in terms of s 118(1). In the result the Municipality required
payment of rates for a period of more than a year longer than the period for
which Fedbond was prepared to pay rates to obtain the clearance certificates.
[7] The parties reached an agreement to the effect that Fedbond would
pay the amount claimed by the Municipality, the Municipality would issue
clearance certificates to enable the liquidators of TNT to transfer the
properties to the purchaser and Fedbond would apply to the court for an order
declaring that the period in respect of which rates were payable to oblige the
Municipality to issue clearance certificates in respect of the properties is the
period mentioned in s 118(1), and for repayment by the Municipality of the
amount overpaid in the event of the declaratory order being granted. All of this
was done, and once agreement was reached in respect of the amounts
involved, the court below granted the order sought by Fedbond, with costs.
[8] Section 118(1), (2) and (3) provide as follows (subsecs (3) and (4) are
not applicable):
‘(1)
A registrar of deeds may not register the transfer of property except on
production to that registrar of deeds of a prescribed certificate─
(a)
issued by the municipality or municipalities in which that property is situated;
and
(b)
which certifies that all amounts that became due in connection with that
property for municipal service fees, surcharges on fees, property rates and other
municipal taxes, levies and duties during the two years preceding the date of
application for the certificate have been fully paid.
(1A)
A prescribed certificate issued by a municipality in terms of subsection (1) is
valid for a period of 60 days from the date it has been issued.
(2)
In the case of the transfer of property by a trustee of an insolvent estate, the
provisions of this section are subject to section 89 of the Insolvency Act, 1936 (Act 24
of 1936).
(3)
An amount due for municipal service fees, surcharges on fees, property rates
and other municipal taxes, levies and duties is a charge upon the property in
connection with which the amount is owing and enjoys preference over any mortgage
bond registered against the property.’
[9] As explained in Kaplan, the principal elements of s 118 are an
embargo provision with a time limit (s 118(1)), a security provision without a
time limit (s 118(3)), and a provision located between the two (s 118(2)) which
subjects the provisions of s 118 as a whole to the terms of s 89.
[10] Section 89 provides:
‘(1)
The cost of maintaining, conserving and realizing any property shall be paid
out of the proceeds of that property, if sufficient and if insufficient and that property is
subject to a special mortgage, landlord’s legal hypothec, pledge, or right of retention,
the deficiency shall be paid by those creditors, pro rata, who have proved their claims
and who would have been entitled, in priority to other persons, to payment of their
claims out of those proceeds if they had been sufficient to cover the said cost and
those claims. The trustee’s remuneration in respect of any such property and a
proportionate share of the costs incurred by the trustee in giving security for his
proper administration of the estate, calculated on the proceeds of the sale of the
property, a proportionate share of the Master’s fees, and if the property is immovable,
any tax as defined in subsection (5) which is or will become due thereon in respect of
any period not exceeding two years immediately preceding the date of the
sequestration of the estate in question and in respect of the period from that date to
the date of the transfer of that property by the trustee of that estate, with any interest
or penalty which may be due on the said tax in respect of any such period, shall form
part of the costs of realization.
(2)
If a secured creditor (other than a secured creditor upon whose petition the
estate in question was sequestrated) states in his affidavit submitted in support of his
claim against the estate that he relies for the satisfaction of his claim solely on the
proceeds of the property which constitutes his security, he shall not be liable for any
costs of sequestration other than the costs specified in subsection (1), and other than
costs for which he may be liable under paragraph (a) or (b) of the proviso to section
one hundred and six.
(3)
Any interest due on a secured claim in respect of any period not exceeding
two years immediately preceding the date of sequestration shall be likewise secured
as if it were part of the capital sum.
(4)
Notwithstanding the provisions of any law which prohibits the transfer of any
immovable property unless any tax as defined in subsection (5) due thereon has
been paid, that law shall not debar the trustee of an insolvent estate from transferring
any immovable property in that estate for the purpose of liquidating the estate, if he
has paid the tax which may have been due on that property in respect of the periods
mentioned in subsection (1) and no preference shall be accorded to any claim for
such a tax in respect of any other period.
(5)
For the purposes of subsections (1) and (4) “tax” in relation to immovable
property means any amount payable periodically in respect of that property to the
State or for the benefit of a provincial administration or to a body established by or
under the authority of any law in discharge of a liability to make such periodical
payments, if that liability is an incident of the ownership of that property.’
[11] In terms of s 66(1) of the Close Corporations Act 69 of 1984 read with
s 339 of the Companies Act 61 of 1973, s 89 is applicable to the liquidation of
a close corporation. Section 118(2) applies also to the transfer of property by
a liquidator of a company or a close corporation.2 In terms of s 229(1) of the
Constitution a municipality is empowered to impose rates on property. It is
common cause that property rates are taxes as defined in s 89(1).3
[12] In BOE Bank Ltd v Tshwane Metropolitan Municipality4 Brand JA held
that the veto (embargo) in s 118(1) and the charge in s 118(3) are two
separate entities and that s 118(3) is an independent, self-contained
provision. He accordingly held that the only plausible interpretation of s 118(3)
is that it is not subject to the time limit contemplated in s 118(1).5
[13] In Kaplan, Heher JA set out the historical context of s 89 and
continued:
‘21.
In this context, the logic of s 89(4) is plain: it was necessary to inform
creditors and trustees of the rights and obligations attaching to the realisation of
immovable property in an estate so that there would be no doubt as to what the
trustee must pay before being permitted to transfer the property and what statutory
restraints and claims would attach to the proceeds after transfer. In this way, the
limits of the costs of realisation of such property (in the context of s 89(1)) are also
determined. The Legislature had, in s 89(3), laid down that interest on a secured
claim would be secured as if it were part of the capital sum for two years prior to the
date of sequestration. The Legislature, having provided in the first part of s 89(4) for
a limitation on the effective duration of an embargo provision, saw the section as an
appropriate vehicle to similarly limit the duration of preferences which arose from the
quasi-liens and charges which were the vogue. Thus construed both s 89(3) and
89(4) serve a consistent purpose in providing a uniform duration (two years prior to
the date of sequestration and from that date until the date of transfer) for interest on
2 See Kaplan supra para 17.
3 See Kaplan supra at 19F-G.
4 2005 (4) SA 336 (SCA) at 341I-342B.
5 At 343F.
securities and on embargoes and claims for a tax (as defined in s 89(5)). See also
De Wet en Andere NNO v Stadsraad van Verwoerdburg 1978 (2) SA 86 (T) at 101D.
. . .
24.
It will be noted that the two-year period in s 89(1) differs from that appearing
in s 118(1): two years prior to the date of sequestration as against two years
preceding the date of application for a clearance certificate. When a trustee makes
application for a certificate, the two-year period under s 118(1) will effectively be less
than the two-year period under s 89(1), because the date of application is necessarily
later than the date of sequestration. The first part of s 89(4) means that, when an
embargo period laid down in any other law is effectively shorter than the two-year
period in s 89(1), the first-mentioned period continues to apply after sequestration.
So, the operation of s 118(1) is not affected by s 89(4). When, however, the embargo
provision in any other law is effectively longer than that in s 89(1), then, by reason of
the provisions of s 89(4), the period in s 89(1) will override the period in the other law.
. . .
27.
Once a debtor has been sequestrated or liquidated, the position is, to the
extent that the municipal debts are “taxes” within the meaning of s 89(5), (but not
otherwise) the following─
1.
No property may be transferred unless the clearance certificate certifies full
payment of municipal debts that have become due during a period of two years
before the date of application for the certificate.
2.
The preference accorded by s 118(3) in favour of the municipality over that of
a holder of a mortgage bond is limited to claims which fell during the period laid down
in s 89(1), ie two years prior to the date of sequestration or liquidation up to the date
of transfer.
3.
Interest charged on the secured claim of the municipality is secured as if it
were part of the claim.’
[14] In 1937 Stratford JA said the following in Bloemfontein Town Council v
Richter:6
‘The ordinary rule is that this Court is bound by its own decisions and unless a
decision has been arrived at on some manifest oversight or misunderstanding, that is
there has been something in the nature of a palpable mistake, a subsequently
constituted Court has no right to prefer its own reasoning to that of its predecessors
─ such preference, if allowed, would produce endless uncertainty and confusion. The
6 1938 AD 195 at 232.
maxim “stare decisis” should, therefore, be more rigidly applied in this the highest
Court in the land, than in all others.’
And in 1989 Corbett CJ in Catholic Bishops Publishing Co v State President &
another7 stated:
‘The reluctance of this Court to depart from a previous decision of its own is well-
known. Where the decision represents part of the ratio decidendi and is a considered
one (as is the position in this case) then it should be followed unless, at the very
least, we are satisfied that it is clearly wrong.’
Today it is recognised that the principle that finds application in the maxim of
stare decisis is a manifestation of the rule of law itself, which in turn is a
founding value of the Constitution.8
[15] This rule applies only to the ratio decidendi of the previous decision.
The ratio decidendi means the reasons for the order that was made,9
excluding merely factual or incidental reasoning.10
[16] In Kaplan an order was granted on the basis that the municipality’s
charge under s 118(3) enjoyed preference over the security attached to the
mortgage bond over the property in question. It is clear from para 21 of the
judgment that an essential part of the line of reasoning that led to that order
was the finding that the legislature provided in the first part of s 89(4) for a
limitation of an embargo provision and therefore, in subsequently adding the
second part of s 89(4), intended to similarly limit the preferences arising from
security provisions such as s 118(3). The finding that s 89(4) provides for a
limitation of embargo provisions therefore forms part of the ratio decidendi of
the judgment in Kaplan. From this finding it necessarily follows, as was said in
para 24 (and summarised in para 27.1) of Kaplan, that when an embargo
period laid down in any other law is effectively shorter than the two year
period in s 89(1), the shorter period continues to apply after sequestration.
Because s 89(4) is intended to limit (and not to extend) embargo provisions,
7 1990 (1) SA 849 (A) at 866H.
8 See Camps Bay Ratepayers’ and Residents’ Association & another v Harrison & another
2011 (4) SA 42 (CC) at 56A-B and True Motives 84 (Pty) Ltd v Mahdi & another 2009 (4) SA
153 (SCA) para 100.
9 Fellner v Minister of the Interior 1954 (4) SA 523 (A) at 537A-F.
10 Pretoria City Council v Levinson 1949 (3) SA 305 (A) at 317.
its effect cannot be to extend the embargo period in terms of s 118(1) to a
period longer than the period of two years preceding the date of application
for a certificate. It follows that the submission of the Municipality that in terms
of s 89(4) the period of the embargo is extended beyond the period mentioned
in s 118(1) is not consistent with the ratio decidendi in Kaplan.11
[17] In the result counsel for the Municipality was constrained to argue that
the decision in Kaplan was clearly wrong on these points. For the reasons that
follow, I am not persuaded by this argument.
[18] The words of s 89(4), namely that a law which prohibits transfer of
immovable property unless any tax due thereon has been paid shall not debar
a trustee from transferring the property if the trustee has paid the tax for the
period mentioned in s 89(1), lend themselves to the interpretation that the
object of s 89 was to provide a remedy to a trustee by limiting the impediment
created by embargo provisions. This was decided in Greater Johannesburg
Transitional Metropolitan Council v Galloway NO & others.12 In Eastern
Metropolitan Substructure of the Greater Johannesburg Transitional Council v
Venter NO13 this finding in Galloway was not criticised by this court but
effectively confirmed. In Venter the court dealt with the effect of s 89 on
s 50(1) of the Local Government Ordinance 17 of 1939 (Transvaal), which
also contained an embargo provision in respect of municipal charges. Farlam
AJA made it clear that s 89 limits the embargo provision only where the debt
is a tax as defined therein and that it imposes no limitation at all on the
periods over which other debts mentioned in such embargo provisions have
become due.14
[19] The expression ‘subject to’ has no a priori meaning.15 While it is often
used in a statutory context to establish what is dominant and what is
subservient, its meaning in a statutory context is not confined thereto and it
11 See Pretoria City Council v Levinson supra at 318.
12 1997 (1) SA 348 (W) at 357H and 359F.
13 2001 (1) SA 360 (SCA).
14 Venter supra at 369C-D.
15 See Pangbourne Properties Ltd v Gill & Ramsdan (Pty) Ltd 1996 (1) SA 1182 (A) at 1187I.
frequently means no more than that a qualification or limitation is introduced
so that it can be read as meaning ‘except as curtailed by’.16 It is the last
mentioned meaning that was ascribed to the expression ‘subject to’ in
s 118(2) by the judgment in Kaplan.
[20] In addition, the Municipality’s argument leads to a peculiar result. As I
have pointed out, no limit is placed on the duration of the security of a
municipality in terms of s 118(3) except in case of sequestration or liquidation.
In that case the security is limited, only in respect of taxes as defined, to a
period not exceeding two years before date of sequestration or liquidation.17 It
follows that taxes due in respect of the limited period remain a preferent
charge upon the property in terms of s 118(3). On the Municipality’s
argument, in order to obtain a clearance certificate, a trustee or liquidator
would be obliged to pay all debts referred to in s 118(1) and, in addition, taxes
as defined for the period from a date two years prior to date of sequestration
or liquidation to date of application for the clearance certificate, despite the
fact that the additional amount is a preferent secured charge upon the
property. No reason suggests itself for this differentiation.
[21] I am therefore not convinced that the decision in Kaplan was clearly
wrong. On the contrary, I agree with the judgment and the reasoning leading
to its conclusion.
[22] In the result the appeal is dismissed with costs.
_____________________
C H G VAN DER MERWE
ACTING JUDGE OF APPEAL
16 Premier, Eastern Cape & another v Sekeleni 2003 (4) SA 369 (SCA) para 14. See also
Standard General Insurance Co Ltd v Verdun Estates (Pty) Ltd & another 1988 (4) SA 779
(C) at 783I-784B.
17 See Kaplan supra paras 26-28.
APPEARANCES:
For Appellant:
M C Erasmus SC
Instructed by:
Van Zyl Le Roux Inc, Pretoria
Honey Attorneys, Bloemfontein
For Respondent:
S P Pincus
Instructed by:
Hilary Shaw Attorneys
c/o Helen Karsas Attorneys, Pretoria
Rossouws Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 20 March 2013
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
THE STEVE TSHWETE LOCAL MUNICIPALITY v FEDBOND PARTICIPATION
MORTGAGE BOND MANAGERS (PTY) LTD & ANOTHER
1.
TNT Trading 23 CC (TNT) was the owner of four immovable properties. Mortgage
bonds were registered over each of the properties in favour of the respondents (Fedbond) as
security for a loan granted to TNT. TNT was placed in liquidation. The liquidators of TNT
sold the properties at a public auction and gave instructions to transfer the property to the
purchaser. Section 118(1) of the Local Government: Municipal Systems Act 32 of 2000
provides that the registrar of deeds may not register the transfer of property except on
production of a certificate issued by the relevant municipality (clearance certificate) which
certifies that all amounts that became due in connection with the property for inter alia
property rates during the two years preceding the date of application for a certificate have
been fully paid. TNT did not have sufficient funds to make payment to the appellant (the
Municipality) to obtain the clearance certificates and Fedbond accepted that responsibility.
2.
A dispute arose between Fedbond and the Municipality, as the Municipality
maintained that in order to obtain the clearance certificates, property rates and interests
thereon had to be paid for the longer period mentioned in s 89 of the Insolvency Act 24 of
1936, namely the period of two years immediately preceding the date of liquidation of TNT
to date of transfer of the property. The Pretoria High Court decided this dispute in favour of
Fedbond and the Municipality appealed to the Supreme Court of Appeal. Today the SCA
held that the period referred to in s 118(1) is applicable to transfer of immovable property by
a trustee or liquidator and dismissed the appeal with costs.
--ends--
|
3703
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 479/2020
In the matter between:
CANTON TRADING 17 (PTY) LTD T/A
CUBE ARCHITECTS
APPELLANT
and
FANTI BEKKER HATTINGH N O
RESPONDENT
Neutral citation:
Canton Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker
Hattingh N O (479/2020) [2021] ZASCA 163 (1 December 2021)
Coram:
SALDULKER, MATHOPO and MOCUMIE JJA and PHATSHOANE and
UNTERHALTER AJJA.
Heard:
20 August 2021
Delivered: This judgment was handed down electronically by circulation to the
parties' legal representatives by email, publication on the Supreme Court of Appeal
website and release to SAFLII. The date and time for hand down is deemed to be
09h45 on 1 December 2021.
Summary: Arbitration – who decides whether the parties consented to refer a
dispute to arbitration when there is a dispute of fact as to their consent – separability
and competence-competence – the discretion of the high court to adjudicate the
question of the existence of an arbitration agreement – the requirements for the
application of a robust approach to adjudicate disputes of facts not met.
ORDER
On appeal from: Free State Division of the High Court, Bloemfontein (Naidoo ADJP
and Daffue and Reinders JJ sitting as court of appeal.)
1 The appeal is upheld with costs.
2 The order of the full court is set aside and substituted with the following order:
‘(a)
The appeal is upheld with costs.
(b)
The order of the high court is set aside and substituted with the following order:
“The application is remitted to the high court to determine whether the
application should be referred to evidence, and if so on what terms, or whether
the application should be dismissed”.’
JUDGMENT
Mocumie JA and Unterhalter AJA (Saldulker and Mathopo JJA concurring.)
[1] The central question in this appeal is whether the Free State Division of the
High Court (the high court) was correct to order the appellant (Canton Trading) to
submit certain disputes to arbitration.
[2] Canton Trading appealed the high court’s order to the full court of the Free State
Division of the High Court (the full court). The full court dismissed its appeal. Canton
Trading appeals that order, with the special leave of this Court.
[3] The background facts are as follows. Canton Trading is a firm of architects.
During 2011, the respondent, the Qwaha Trust (the Trust), commenced its use of the
professional services of Canton Trading. Canton Trading rendered professional
architectural services to the Trust in respect of various projects. Some seven projects
were undertaken.
[4] During 2013, the respondent wished to expand the Itau Mill on plot 47
Qwaggafontein, Bloemfontein (the project) and approached Canton Trading to engage
its services for the project. Canton Trading orally accepted the offer to do so. As the
principal agent of the Trust, on 5 February 2014, Canton Trading negotiated and
concluded a building agreement referred to as the Joint Building Contracts Committee
Series 2000 Standard Building Agreement (the JBCC agreement) with a building
contractor, Royal Anthem Investments 12 CC (the contractor). Canton Trading was
appointed as the Trust’s principal agent under clause 42.4 of the JBCC agreement.
When the JBCC agreement was concluded, Mr Johan Louw (identified as the project
manager) signed the JBCC agreement, representing Canton Trading as the principal
agent and duly appointed representative of the Trust. A document, styled the
‘Appointment of Professional Service Provider’ (PSP), was prepared by Canton
Trading’s attorneys and presented to the Trust during March 2014. The PSP was not
signed by either of the parties. Nonetheless, throughout the project, Canton Trading
rendered services and was paid by the Trust upon presentation of its invoices.
[5] Canton Trading acted as the Trust’s principal agent until 2 August 2014. The
JBCC agreement was terminated on the instructions of the Trust on the basis of
defective work performed by the contractor. The Trust took up the position that Canton
Trading had failed to perform its duties as its principal agent and issued a letter of
demand in which it invited Canton Trading to agree to the appointment of a mediator,
failing which, in terms of clause 23 of the PSP, the dispute was to be submitted for
mediation and arbitration.
[6] Correspondence was exchanged between the attorneys of the parties. In a
letter dated 15 September 2017, the attorneys acting for Canton Trading
acknowledged receipt of the demand of the Trust, and responded that they were
considering their client’s position and would revert. On 2 November 2017, the
attorneys for the Trust reminded Canton Trading’s attorneys that a dispute had been
raised in terms of clause 23.6 of the PSP and that Canton Trading had failed to confirm
that the matter was to be referred to a mediator. They afforded Canton Trading a
period of 21 (twenty-one) days, as envisaged in clause 23.6 of the PSP, to confirm the
appointment of either Judge Hancke and or Judge Cilliers (both retired judges), to act
as the arbitrator and for the matter to be referred to arbitration.
[7] On 7 November 2017, Canton Trading’s attorneys informed the Trust that their
client was not prepared to mediate and that Canton Trading was in principle prepared
to proceed with the arbitration process. On 20 November 2017, and in response to the
letter of 2 November 2017, Canton Trading’s attorneys informed the Trust that they
were satisfied with the appointment of Judge Hancke as the arbitrator and requested
that the Trust’s attorneys prepare a draft arbitration agreement. The Trust’s attorneys
responded on 29 November 2017. They indicated that Judge Hancke had agreed to
serve as arbitrator and enclosed a draft arbitration agreement to be signed by Canton
Trading, in the event that the draft was satisfactory.
[8] On 5 December 2017, Canton Trading’s attorneys responded. They indicated
that the attorney who had been working on the matter had resigned and another
attorney had been assigned to deal with the matter; they were happy with the
appointment of Judge Hancke as the arbitrator and requested a pre-arbitration
meeting on 24 January 2018. On 7 December 2017, the parties confirmed and agreed
that the pre-arbitration meeting was to be held without the arbitrator.
[9] On 24 January 2018, the pre-arbitration meeting was held. At this meeting, the
arbitration agreement was discussed and the parties agreed to the appointment of
Judge Hancke, his remuneration and their liability for payment. During the meeting,
Canton Trading specifically requested that the following paragraph be inserted into the
pre-arbitration agreement:
‘The pre-arbitration agreement is further subject to the condition that the Defendant (Canton
Trading) must obtain the approval/consent of the Defendant’s insurer (in the event of it being
the Defendant’s version that there is no signed agreement to submit to arbitration) of the
arbitration agreement.’
[10] Canton Trading’s attorneys inserted this clause on the instructions of their
client’s insurer. On 30 January 2018, Canton Trading’s attorneys informed the Trust’s
attorneys that they had consulted with their client. Their instructions were that the
parties had not signed the PSP and that the arbitration provision in the PSP was
therefore unenforceable. They invited the Trust’s attorneys to issue summons should
their client wish to proceed with the matter. The Trust then afforded Canton Trading
seven days to sign the amended pre-arbitration agreement. Canton Trading’s
attorneys responded on 26 February 2018. They indicated that Canton Trading does
not recognise the existence of the arbitration agreement.
[11] The Trust approached the high court on motion for an order in the following
terms:
‘(a) That the respondent be ordered to submit to arbitration to have the disputes set out in the
Arbitration Agreement which is attached to the applicant’s founding affidavit as annexure ‘’B’’s
adjudicated;
(b) That the Respondent be ordered to pay the costs of this application.
(c) Further and/or alternative relief.’
[12] The high court recognised that Canton Trading had set out in its answering
affidavit its version as to why no agreement had been concluded to submit any dispute
to arbitration. The high court, nevertheless, decided that it would adopt what it
considered to be the robust approach referenced in Fakie NO1. The high court
considered the issue before it to be as follows: ‘The question therefore revolves around
the veracity of the respondent’s denial, viewed in the light of the evidence as a whole.’
The high court concluded that ‘the mere fact that the document was never signed, as
has been the case in the past with several contracts since before 2011 when this one
in dispute came into existence, did not in the circumstances of this matter, necessarily,
lead to the conclusion that it did not form the basis of the agreement regulating the
relationship between the parties’. It held furthermore that, ‘the perceived disputes
raised by the respondent as to the existence and binding effect of the written document
[are] clearly untenable, palpably implausible and uncreditworthy’. The high court
consequently found that there was an arbitration agreement concluded between the
parties which had come into existence.
[13] The high court ordered Canton Trading to submit to arbitration the disputes set
out in the arbitration agreement, as amended, and that Canton Trading was to pay the
costs of the application. It granted the following order:
‘1. The arbitration agreement, annexure B to the applicant’s founding affidavit, is amended
by the deletion of the second paragraph on page 1 thereof as well as part A and the first
sentence of Part B on page 3 thereof.
1 Fakie NO v CCII Systems (Pty) Ltd [2006] ZASCA 52; 2006 (4) SA 326 (SCA).
2. The date of 10 March 2018 in paragraph 7.2 thereof is replaced by the date of 19 October
2018.
3. Prayer A of the notice of motion is granted subject to the amendments in paragraphs 1
and 2 above.
4. [The] respondent [is ordered to] pay the costs of the [application], including the costs
occasioned by the employment of senior counsel.’
[14] Canton Trading appealed to the full court and contended that, first, the high
court entered the arena between the parties and granted relief not sought. As such, it
did not exercise its discretion judicially and within the parameters prescribed by the
law. Second, the applicable legal principles in the adjudication of motion proceedings,
namely that motion proceedings are decided on the version of the respondent, was
not adhered to and the strict requirements for the application of a robust approach
were not met, especially in circumstances where neither party sought the application
of such an approach. Third, the Trust had failed to prove that there was animus
contrahendi.
[15] The full court did not agree with these contentions and found against Canton
Trading. It held that, ‘where a party relies on the provisions of Rule 6(5)(g), as the
appellant seems to have done, it is common sense, that the court is called upon to
examine the very dispute in order to determine whether it creates a genuine dispute
of fact or not.’ The full court held further that the high court, acting in terms of Rule
6(5)(g), had reasoned correctly, and exercised one of the permissible options available
to it in terms of the applicable law. The full court went on to record that ‘the appellant
conceded that a signed agreement was not a prerequisite for a written document to
have a binding effect. This concession was properly made, as it is evident from the
provisions of the Arbitration Act 42 [of] 1965, that it does call for a written agreement
to be signed in order for it to be valid and binding. The high court undertook an
extensive examination of the respective versions of the parties as they appear in the
papers and found that the appellant’s denial of the existence of an agreement was
palpably untrue and not worthy of credence, warranting the rejection of its version. I
am unable to fault the reasoning or the conclusion of the court in this respect’. The full
court went on to dismiss the appeal with costs. Thus, the appeal to this Court.
[16] Counsel for Canton Trading submitted that the case for the Trust was
delineated in paragraph 4 of its founding affidavit and later made clearer in para 2.5 of
its replying affidavit: the high court was to adjudicate upon one issue only, namely,
whether the appellant should be compelled to submit to arbitration - othing more.
Paragraph 4 of the founding affidavit reads:
‘Lest there be any confusion, the relief referred to supra does not constitute relief in terms of
which the [a]pplicant seeks to have any dispute between the parties which has arisen out of
or by virtue of any agreement between the parties adjudicated. The [a]pplicant seeks only to
compel the Respondent to submit to arbitration to have such dispute(s) adjudicated upon by
the forum agreed upon between the parties.’
Para 2.5 of the replying affidavit reads:
‘It is therefore respectfully submitted that the question whether or not a valid arbitration
agreement had been concluded between the applicant and the respondent falls squarely
within the purview and jurisdiction of the proposed arbitrator and the applicant therefore does
not move for an order in terms of which the Court is asked to make a determination in respect
of such question. What the applicant moves for is solely that the respondent be compelled to
submit to arbitration to have the question which is referred to above adjudicated by [an]
arbitrator.’
[17] In its answering affidavit before the high court at para 3 the appellant stated:
‘. . . the respondent’s case and defence [is] that there is no operative and/or binding and/or
enforceable arbitration agreement in existence between the applicant and the respondent in
terms of which the respondent can be ordered to submit to arbitration.’
Furthermore, at para 3.6 it states ‘. . . I emphasise that it is the respondent’s case and
defence that it did not enter into any written agreement with the applicant with the necessary
animus contrahendi to submit any dispute between the applicant and itself to arbitration.’
(Emphasis added.)
[18] Counsel for Canton Trading contended that initially neither of the parties
requested the high court to find whether there was a bona fide factual dispute as to
the existence of the arbitration agreement. What the Trust sought was an order
compelling Canton Trading to submit to arbitration. Instead, the high court disregarded
Canton Trading’s evidence. It decided, without being requested to do so, that there
was no real bona fide dispute of fact which could not be resolved on the papers. The
contention was made that it was common cause that there was a dispute of fact as to
whether there was an agreement to arbitrate and the only question for the high court
to decide was whether that issue should be referred to arbitration. Instead, the high
court found that an arbitration agreement existed as between the parties.
[19] To persuade this Court that the high court exceeded its powers, counsel for
Canton Trading argued that this Court in Fisher and Another v Ramahlele and Others2
set limits within which a court may exercise its discretion in motion proceedings. The
essence of this submission was to the effect that, ordinarily, a court may not mero
motu raise a new issue for adjudication not identified on the papers by the parties,
save where it was a question of law that emerged fully from the evidence, it was
necessary to decide the matter, and no party was caused prejudice.
[20] Counsel for Canton Trading further relied on Fiona Trust & Holding Corp and
others v Privalov and others3 which he contended supported the case for the appellant,
the court there stated at para 38:
‘The judge relied on Ahmed Al-Naimi v Islamic Press Agency [2000] 1 Lloyds Rep 522 to
decide as a matter of his discretion that it was more convenient for the court to decide the
question whether the charterparties and the arbitration clause were invalidated by the alleged
bribery of the owners' agents because it was best that the matter should be decided only once.
If the matter were truly a matter of his discretion that exercise of it might well be difficult to
criticise, but the discretion of the court only arises if there is truly a "question whether there is
a valid arbitration agreement". As we have sought to explain, once the separability of the
arbitration agreement is accepted, there cannot be any question but that there is a valid
arbitration agreement. Al Naimi (in which Judge Lloyd's four options are all set out and
approved) was different because in that case there was a real question as to whether any
arbitration agreement had come into existence or (perhaps more accurately) whether the
agreement that did exist under a preceding contract covered disputes that arose pursuant to
a subsequent ad hoc contract. If there is a contest about whether an arbitration agreement
had come into existence at all, the court would have a discretion as to whether to determine
that issue itself but that will not be the case where there is an overall contract which is said for
some reason to be invalid e.g. for illegality, misrepresentation or bribery and the arbitration
agreement is merely part of that overall contract. In these circumstances it is not necessary to
2 Fisher and Another v Ramahlele and Others [2014] ZASCA 88; 2014 (4) SA 614 (SCA) paras 13-15.
See also Molusi v Voges N.O and Others [2016] 6 ZACC; 2016 (3) SA 370 (CC) with reference to
Naidoo and another v Sunker [2011] ZASCA 216; [2012] JOL 28488 (SCA) and cases cited.
3 Fiona Trust & Holding Corp and others v Privalov and others [2007] 4 All ER 951 (HL).
explore further the various options canvassed by Judge Humphrey Lloyd since we do not
consider that the judge had the discretion which he thought he had.’ (Emphasis added.)
[21] In response, counsel for the Trust relied on several authorities of this Court4
and the Constitutional Court5 to make the following submission: the parties had
wrongly delineated the legal issue to be determined by the high court in their papers,
namely, to compel the appellant to submit to arbitration. For this reason, the high court
was empowered to adopt a robust approach. The presiding judge indicated his prima
facie view that the parties had it wrong on the legal issue to be determined, which view
counsel for Canton Trading had also accepted. He contended that, to indicate that the
parties accepted the course adopted by the high court, it was placed on record on
behalf of the Trust that it would abide the decision of the court. The Trust further
contended that Canton Trading had also accepted the approach which the high court
had proposed to the parties.
[22] The key issue before this Court was crystalized during argument as follows. In
the face of a dispute of fact that an agreement existed to refer disputes between the
parties to arbitration, was there any basis to find that the parties had agreed to refer
to arbitration the very dispute as to the existence of an agreement to arbitrate? If that
is not what the parties agreed to, then, was it competent for the high court to decide
the dispute as to whether there was an agreement to refer the disputes to arbitration?
[23] We proceed to consider whether the parties agreed to refer to arbitration their
dispute as to whether there existed an arbitration agreement. We shall reference this
dispute as the ‘existence dispute’. If there was a referral of the ‘existence dispute’ to
arbitration, then it follows that the high court could not decide the existence dispute,
and was in error in doing so.
[24] We have read the judgment of Phatshoane AJA (the second judgment). The
second judgment concludes that the parties indeed agreed to refer the ‘existence
dispute’ to arbitration. The second judgment places emphasis upon particular
4 Fakie NO fn 1 citing Plascon-Evans Paints (TVL) Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA
51; [1984] 2 All SA 366 (A); fn 2.
5 Fn 2.
provisions of the PSP. The Trust contended that that the PSP set out the terms of its
agreement with Canton Trading, whereas Canton Trading denied that this was so.
[25] Clause 23 of the PSP provides that certain disputes shall be referred to
mediation, failing which, the disputes shall be submitted to arbitration. Clause 23.1, in
familiar language, reads as follows:
‘Any dispute arising between any of the Parties in regard to: the interpretation of; or the effect
of; or the carrying out of; or any other matter arising directly or indirectly out of, this Agreement
(“the Dispute”) shall be referred to a mediator agreed upon between the Parties’.
Clause 23.2 goes on to state that if the parties cannot agree on a mediator or resolve
the dispute by way of mediation, then the dispute shall be submitted and decided by
arbitration. The following words are then written, ‘Save as set out herein, the arbitration
shall be conducted in accordance with the rules and regulations of the Arbitration
Foundation of South Africa Limited (AFSA), in force from time to time’.
[26] The second judgment sets out the AFSA rules, in relevant part. Sub-article
11.2.2 of the commercial rules of AFSA confer upon the arbitrator the power ‘to rule
on his own jurisdiction, including rulings on any dispute in regard to the existence or
validity of the arbitration agreement or the scope thereof.’ Since clause 23.2 of the
PSP requires that an arbitration must be conducted in accordance with the AFSA
rules, those rules grant a wide power to the arbitrator to rule on questions of
jurisdiction, including whether an arbitration agreement exists. This competence, the
second judgment finds, requires a duly appointed arbitrator and not the courts to
decide whether the PSP constitutes an agreement by the parties to arbitrate, and
hence whether an arbitration agreement exists. Therefore, the high court could not
determine the existence issue, and fell into error in doing so.
[27] This line of reasoning raises important issues as to the competence of the high
court to decide whether an arbitration agreement has come into existence, in the face
of a dispute between litigants as to whether this is so.
[28] In North East,6 this Court, following a line of English cases, recognised that
parties may agree that a dispute pertaining to the validity of an agreement is to be
determined by way of arbitration, even though the arbitration clause referring the
dispute to arbitration forms part of the agreement that is subject to the validity
challenge. There is nothing contradictory in this position. The parties enjoy autonomy
to agree that categories of dispute arising between them will be submitted to arbitration
for resolution, rather than be determined by the courts. Precisely which disputes are
to be submitted to arbitration is a question of what has been agreed, and the
interpretation of the parties’ written agreement. Generally, the parties intend that all
their disputes will be decided under a unitary jurisdiction, either by the courts or by
way of arbitration, and not under a bifurcated jurisdiction, where some disputes are
determined by the courts and others by submission to arbitration.7
[29] It follows that the parties may agree that disputes arising as to the validity or
enforceability of an agreement must be determined by way of arbitration and not
before the courts. The arbitration clause that gives expression to this agreement may
form part of the written agreement of which the validity or enforceability is disputed. If
the arbitrators uphold the challenge to the validity or enforceability of the agreement,
their decision vacates their jurisdiction to decide any further dispute arising from the
agreement. There is nothing paradoxical about this outcome. The parties agreed that
this competence was to be conferred upon the arbitrators. Their exercise of this
competence is precisely what the parties intended.
[30] This reasoning of the second judgment is predicated upon the premise that
there was an agreement between the parties as to the disputes that are to be
submitted to arbitration. Those disputes may include the enforceability and validity of
the agreement. But what if the very agreement to submit these disputes to arbitration
is itself subject to challenge? North East8 affirmed the following dictum in Heyman v
Darwins Ltd9, ‘[i]f the dispute is as to whether the contract which contains the clause
has ever been entered into at all, that issue cannot go to arbitration under the clause,
6 See North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd [2013] ZASCA 76; 2013 (5)
SA 1 (SCA).
7 Ibid para 21.
8 Ibid para 12.
9 Heyman v Darwins Ltd [1942] 1 All ER 337 (HL) at 343F.
for the party that denies he has ever entered into the contract is thereby denying that
he has ever joined in the submission.’
[31] Since the submission of a dispute to arbitration requires the consent of the
parties, if the very agreement that requires the submission is challenged on the basis
that such agreement never came into existence, a dispute exists as to whether there
was submission of the dispute to arbitration at all. The problem that then arises is this:
who decides the ‘existence dispute’, the courts or the arbitrators?
[32] The question as to who decides whether a dispute goes to arbitration or
remains in the courts is one of ever greater significance, given the enhanced role that
arbitration enjoys in the resolution of disputes, both domestically and in transnational
law. This question may arise at different stages. As the present matter illustrates,
there may be litigation at the commencement of a dispute as to whether the courts
should decide the dispute or whether it should be sent to arbitration. Sometimes,
however, the issue crystalizes for the first time before the arbitrators. They are asked
to decide whether they enjoy jurisdiction to hear the dispute. The arbitrators may
determine the issue. Finally, a court may be called upon to decide whether the
arbitrators correctly assumed jurisdiction over the dispute, if the arbitrators’ award is
taken on review or enforcement proceedings are brought.
[33] There are a large variety of issues that may be raised by a litigant opposing
arbitration at the commencement of a dispute. It may be said that the agreement
containing the arbitration agreement is invalid or unenforceable, that no arbitration
agreement came into existence, that the arbitration agreement is not in writing, that
the dispute does not fall within the scope of the arbitration agreement or that the right
to arbitration has been waived. This list, although not exhaustive, is simply illustrative.
A court faced with issues of this kind will want to steer a course between the
discouragement of time-wasting obstructionism and protecting a party from being
forced to arbitrate a dispute without their consent.
[34] Two approaches have been adopted by the courts so as to assist in deciding
challenges to arbitration that are brought by a litigant at the commencement of a
dispute. The first approach is based on separability. Ordinarily, the parties enter into
a contract that contains an arbitration clause. If the challenge is that the contract is
invalid, unenforceable, or, as here, the contract never came into existence, then it may
appear logical that the arbitration clause must fail, if the contract falls to be impugned.
But, that is not inevitably so. The arbitration clause may give expression to the intention
of the parties that the question of validity, enforceability or, indeed, the very existence
of the main contract, is to be submitted to arbitration. If that is how the arbitration
clause is properly interpreted, then the court may be inclined to conclude that the
parties concluded an arbitration agreement that is separate from the main agreement.
What the parties consented to was that the arbitrators should determine the question
of the validity or the existence of the contract, and the court should then give effect to
their consent. Absent a direct challenge to the validity or existence of the arbitration
clause, the court will in these circumstances require the parties to submit the existence
or validity dispute to arbitration.
[35] The other approach is based on the principle of competence-competence also
known as ‘Kompetenz-Kompetenz’ (referring to its German origins), or the principle of
‘compétence de la compétence’.10 This principle has a positive and a negative aspect.
The positive aspect is largely uncontroversial. Arbitrators enjoy the competence to rule
on their own jurisdiction and are not required to stay their proceedings to seek judicial
guidance. The negative aspect of the principle may be formulated as follows. Where
the dispute has already been referred to an arbitrator, the court will not rule upon the
validity, existence or scope of the arbitration agreement, but will leave these questions
10 Kompetenz-kompetenz is a jurisprudential doctrine whereby a legal body, such as a court or arbitral
tribunal, may have competence, or jurisdiction, to rule as to the extent of its own competence on an
issue before it. Regarding its German origin, see P Landolt, ‘the inconvenience or Principle: Separability
and Kompetenz-Kompetenz’. Journal of International Arbitration 30, no. 5 (2013): 511-530 at 513,
footnote 4: ‘This German name for the principle has established itself in English usage. In its original
German usage, it designated not the general notion of the arbitral tribunal’s powers to come to a
determination on its own jurisdiction but a more specific notion, i.e., a variant of the general notion.’
Furthermore, E Gaillard and J Savage (Fouchard, Gaillard and Goldman on International Commercial
Arbitration, Kluwer Law International, The Hague, 1999 at 396-397) explain: ‘German legal terminology
lends a meaning to the expression which differs substantially from that which the expression is intended
to convey when used in international arbitration. If one were to follow the traditional meaning of the
expression in Germany, “kompetenz-kompetenz” would imply that the arbitrators are empowered to
make a final ruling as to their jurisdiction, with no subsequent review of the decision by any Court.
Understood in such a way, the concept is rejected in Germany, just as it is elsewhere. From a
substantive viewpoint, the paradox is all the more marked for the fact that in Germany the question of
whether the courts should refuse to examine the jurisdiction of an arbitral tribunal until such time as the
arbitrators have been able to rule on the issue themselves (the negative effect of the ‘competence-
competence’ principle), has never
been accepted [. . .].’
of jurisdiction for the arbitrator to decide, at least initially. But, even if the dispute has
not yet been referred to arbitration, the court may be disinclined to decide the question
of jurisdiction, unless the arbitration agreement is manifestly void. Once the arbitrator
has ruled and rendered an award, the courts may finally decide any issue of
jurisdiction, if the award is brought on review or its enforcement is sought. In this
formulation, the principle of competence-competence gives effect to the principle of
judicial restraint. The jurisdiction that has most plainly adopted negative competence-
competence is the French Code of Civil Procedure.11
[36] While the principle of competence-competence is formulated in different ways
in different jurisdictions; but it has not been applied by South African courts12, the
principle recognises that courts will be inclined to allow the arbitrator to decide
questions of jurisdiction, unless the challenge before the court shows that there is a
manifest basis to resist the submission to arbitration. Ultimately, the application of the
principle is a matter of timing. It does not vacate the court’s ultimate power to
determine the question of an arbitrator’s jurisdiction, but defers its exercise in favour
of allowing the arbitrator to render an award, including an award on the issue of
jurisdiction. The principle thus favours the facilitation of arbitration and restricts pre-
emptive court challenges to the jurisdiction of an arbitrator, save in the clearest of
cases. Given the respect that South African law accords to the autonomy of parties to
agree to submit their disputes to arbitration, and in line with s 39(1)(b) and (c) of the
Constitution of South Africa, there is warrant for South African courts, in appropriate
cases, to consider the application of the principle of competence-competence13.
11 Article 1458 of the French New Code of Civil Procedure (1981) which reads as follows, ‘Whenever a
dispute submitted to an arbitral tribunal by virtue of an arbitration agreement is brought before a court
of the state, such court shall decline jurisdiction. If the arbitral tribunal has not yet been seized of the
matter, the court should also decline jurisdiction unless the arbitration agreement is manifestly void.’
12 Articles 8(1), 8(2) and 16 of the UNCITRAL Model Law, and Article II (3) of the New York Convention.
There is no reported case in South Africa yet on the application of the principle of competence-
competence despite a number of academic writings on the principle and its application in foreign
jurisdictions. See Kluwer Law International,2005, International Arbitration Agreements and
Competence-competence in International Commercial Arbitration; Park, WW, The Arbitrator’s
Jurisdiction to Determine Jurisdiction, in Van Den Berg JA(ed), International Arbitration 2006: Back to
Basics, ICCA Congress Series, Vol 13, ICCA & Kluwer Law International ,2007 and authorities cited.
13 Section 39(1)(b) and (c) of the Constitution of the Republic of South Africa, Act 108 of 1996:
(1) When interpreting the Bill of Rights, a court, tribunal or forum—
…
(b) must consider international law; and
(c) may consider foreign law.
[37] In Zhongji14, this Court found that the arbitration clause was an agreement
distinct from the terms of the agreement of which it formed part. As in the present
matter, the arbitration clause referenced the AFSA rules which permitted the arbitrator
to decide any dispute regarding the existence, validity or interpretation of the
arbitration agreement. The court held that the arbitration agreement must be given
effect to and it was for the arbitrator to determine the issues of jurisdiction that had
been raised before the high court. Zhongli thus recognised and applied the doctrine of
separability so as to enforce the arbitration agreement.
[38] What North East and Zhongji make plain is that the parties have wide-ranging
autonomy to agree that matters concerning the validity, enforceability and existence
of an agreement shall be referred to arbitration. If they have consented to such a
referral, then the courts will respect their agreement and will not decide these matters.
It will be for the arbitrators to do so. And this holds good, even though the arbitrators
will thereby be deciding upon their own jurisdiction. An arbitration clause may be found
to subsist separately from the main agreement of which it forms part, and may thus be
enforced, even if there is a challenge to the validity, enforceability or existence of the
main agreement. However, where there is a challenge to the arbitration agreement
itself, so as to put into question the consent of the parties to have any dispute
submitted to arbitration, the court will have to consider how best to deal with that
challenge. The court may decide the challenge. But, as discussed above, the court
may also decide that it would be preferable to decline the invitation to do so, and under
the guidance of the principle of competence-competence, allow the arbitrators the
opportunity to first render an award on the question of their jurisdiction.
[39] Turning then to the matter before us, we are in agreement with the second
judgment that, on the papers before the high court, there was a thorough-going dispute
of fact as to whether the parties had concluded an agreement on the terms of the PSP.
Canton’s evidence was not perfunctory, and in the face of that evidence, the high court
could not, on motion, proceed to decide the matter on the basis of its assessment of
the probabilities.
14 Zhongji Development Construction Engineering Co Ltd v Kamato Copper Co Sarl [2014] ZASCA 160;
2015 (1) SA 345 (SCA) at para 50.
[40] This difficulty is compounded by the failure of the high court to recognise the
principles that we have endeavoured to set out above. The PSP referred to the AFSA
rules, which recognise the wide jurisdiction of the arbitrator to determine the existence
dispute. Canton Trading contended that no agreement was concluded embodying the
terms of the PSP, including terms that reference the commercial rules of AFSA. The
position set out in the answering affidavit of Canton Trading is that no agreement was
reached with the Trust on the terms of the PSP. Hence, there was no submission to
arbitrate the ‘existence dispute’ on the basis of the commercial rules of AFSA that give
arbitrators the power to rule on their own jurisdiction, including any dispute as to the
existence or validity of the arbitration agreement. The reference to the commercial
rules of AFSA forms part of the PSP which Canton Trading contended was never
agreed to with the Trust. Once there is a dispute of fact between the parties on this
issue, which we find to be so for the reasons fully traversed in the second judgment,
the high court was not in a position to simply enforce the commercial rules of AFSA
and have the existence dispute determined by an arbitrator under those rules.
Whether the arbitration clause in the PSP was intended to constitute a separate
agreement that referred the existence dispute to arbitration cannot be determined on
the papers. That very matter is disputed on the basis of the contradictory evidence
marshalled by the parties. Whether the reference to the commercial rules of AFSA in
the PSP indeed constituted a separate agreement that the parties concluded to
determine the existence dispute would thus need to be referred to evidence by a court
so as to decide the issue.
[41] This is where we part company from the second judgment. The second
judgment identifies the dispute of fact between the parties as to whether agreement
was reached on the terms of the PSP, but goes on to find that this dispute falls within
the remit of the powers given to an arbitrator under the commercial rules of AFSA. We
find that where submission to those very rules is disputed, then we cannot refer the
‘existence dispute’ to an arbitrator under the commercial rules of AFSA because it is
disputed, on the basis of evidence adduced by Canton Trading that it consented to
any such submission. Put differently, the powers of an arbitrator under AFSA’s
commercial rules would permit the determination of the existence dispute, if a separate
agreement had been concluded between the parties to submit the existing dispute to
such arbitration. But, where there is a dispute on the evidence as to whether such
submission occurred, a court may not assume the consent of the parties to a referral
which is disputed.
[42] If, as we find, the high court was not in a position to find, in the face of the
dispute of fact, that the parties had concluded a separate agreement to refer the
‘existence dispute’ to arbitration, what should the high court have done then?
[43] Canton Trading contended that the high court fell into error because it
determined the dispute as to the existence of the arbitration agreement when the
parties had not moved it to do so. This, contended Canton Trading, was an
impermissible and unfair exercise of the high court’s powers. We do not agree. Once
the high court had discerned the dispute of fact as to the existence of the arbitration
agreement, provided the parties were given proper notice of the high court’s position,
there is no abuse of discretion if the court then sought to raise with the parties how
best the court should deal with the dispute. However, where the high court fell into
error was to undertake an assessment of the probabilities on the evidence before it
and then determine that there was an agreement on the terms of the PSP. What was
required was a consideration of whether the application was to be dismissed or
whether the challenge to the existence of the arbitration agreement would be better
determined by way of a referral to evidence and the consideration of the issues of
separability and the applicability of the concept of competence-competence.15 The full
court, endorsing as it did the approach of the high court, was also in error when it
dismissed the appeal.
[44] For these reasons, the following order issues.
The appeal is upheld with costs.
The order of the full court is set aside and substituted with the following order:
‘(a)
The appeal is upheld with costs.
(b)
The order of the high court is set aside and substituted with the following
order:
15 In line with what is noted in para 36 above.
“The application is remitted to the high court to determine whether the
application should be referred to evidence, and if so on what terms, or
whether the application should be dismissed”.’
_____________________
BC MOCUMIE
JUDGE OF APPEAL
______________________
D UNTERHALTER
ACTING JUDGE OF APPEAL
[45] I have read the judgment of my colleagues Mocumie JA and Unterhalter AJA
(main judgment). I am grateful for their recital of the background facts, the contentions
of the parties and the issues. It will therefore not be necessary for me to repeat them
save to the extent necessary for present purposes. The main judgment concludes that
the appeal against the decision of the full court be upheld with costs. On the view I
take, the appeal should be upheld in part.
[46] Properly distilled, two crisp questions arise for consideration in this appeal.
First, whether the high court had a discretion to determine the existence of an
arbitration agreement between the parties. Secondly, if it had the discretion, whether
that was exercised judicially.
[47] It has always been recognized that an arbitration agreement does not
necessarily oust the jurisdiction of the courts.16 In terms of s 3(2)(b) of the Arbitration
Act 42 of 1965 (the Arbitration Act) the court may, at any time on the application of any
party to an arbitration agreement, on good cause shown, order that any dispute
referred to in the arbitration agreement not be referred to arbitration. What is
immediately discernible is that there had been no application by any of the parties for
16 Universiteit Van Stellenbosch v J A Louw (Edms) Bpk 1983 (4) SA 321 (A) at 333G.
an order that any of their disputes ought not be referred to arbitration. What was before
the high court was an application by Mr Fanti Bekker Hattingh, in his capacity as the
trustee of the Qwaha Trust, the respondent (the Trust), to compel Canton Trading 17
(Pty) Ltd t/a Cube Architects, the appellant (Canton Trading), to submit to arbitration.
Being an application for injunctive relief, it is apparent that it was not founded on s
3(2)(b).
[48] The Trust elected in its papers, having been so legally advised, to formulate a
course in respect of which its dispute had to be disposed of in the high court on these
terms:
‘Lest there be any confusion, the relief referred to supra [an order to compel Canton Trading
to submit to arbitration] does not constitute relief in terms of which the applicant seeks to have
any dispute between the parties which has arisen out of or by virtue of any agreement between
the parties adjudicated. The applicant seeks only to compel the Respondent to submit to
arbitration to have such dispute(s) adjudicated upon by the forum agreed upon between the
parties.’
At para 49 Mr Hattingh, the deponent to the Trust founding papers, states:
‘Be that as it may, the enforceability of the arbitration clause constitutes a dispute which falls
within the ambit of what the parties contemplated at the time of conclusion of the Professional
Service Provider Agreement as a dispute which would be ventilated and adjudicated upon in
arbitration.’
[49] Mr Hattingh, in his iteration in reply, stated that the Trust did not move for an
order in terms of which the court was asked to make a determination in respect of the
existence of the arbitration agreement. Significantly, he said:
‘2.3 ...(I)t is generally accepted by the South African Courts that there is no rational basis upon
which parties to an agreement will wish to have questions of validity or enforceability of an
agreement determined by one tribunal (a Court of Law) and questions of performance arising
from the same agreement decided by another tribunal (an Arbitrator or Arbitration Tribunal).
2.4
Furthermore, the applicant has been advised that, in light of an arbitrator’s powers to
determine his or her own jurisdiction in respect [of] an issue that arises from a referral to
arbitration itself, there exists no reason why a dispute about whether or not a claim arising
from the Respondents performance in terms of the agreement between the Applicant and the
Respondent is indeed arbitrable should not be decided by an arbitrator.
2.5
….(T)he question whether or not a valid arbitration agreement had been concluded
between the Applicant and Respondent falls squarely within the purview and jurisdiction of the
proposed arbitrator…
95.1
….(T)he Applicant clearly and unequivocally stated that the Applicant does not seek to
have any dispute between the parties which has arisen out of or by virtue of any agreement
between the parties adjudicated in these proceedings.’
[50] In support of its application to compel, the Trust relied on the Joint Building
Contracts Committee (JBCC) Series 200 Standard Building Agreement dated 05
February 2014 which the Trust, as the employer, concluded with Royal Anthem
Investment 12 CC (Royal Anthem), the contractor (the JBCC agreement). At para 1.2
of the contract data, employer addendum code 2101-EC, Canton Trading was
employed as a principal agent. The agreement was signed by all the parties including
Canton Trading as the principal agent. In its founding papers the Trust made
prodigious recital of the dispute settlement procedures contained in clause 40 of the
JBCC agreement which includes adjudication, mediation or arbitration. In my view, the
agreement contributes little to its course. The JBCC was to be administered and or
enforced by Canton Trading against the contractor on behalf of the Trust. On Canton
Trading’s version, which is not seriously disputed, clause 40 was applicable to
disputes between the employer, the Trust, and its agents (which would include Canton
Trading), on the one hand, and the contractor on the other.
[51] More central to the parties’ opposing positions is a contract styled an
‘Agreement for the Appointment of a Professional Service Provider’ (the PSP
agreement), allegedly concluded between the Trust, as the contractor and Canton
Trading as the service provider. The PSP agreement was drafted by Canton Trading’s
attorneys and presented to the Trust during March 2014. Neither Canton Trading nor
the Trust signed this agreement. Clause 23 of this agreement stipulates, in part, that
any dispute arising between the parties with regard to the interpretation of or the effect
of or the carrying out of or any other matter arising directly or indirectly out of the
agreement (the dispute) shall be referred to a mediator agreed upon between the
parties. Where the parties are unable, either to agree on a mediator or to resolve the
dispute by way of mediation, within 60 days of the dispute having been raised in
writing, then the dispute shall be submitted to and decided by arbitration. Crucially, for
present purposes, it further provides that ‘the arbitration shall be conducted in
accordance with the Rules and Regulations of the Arbitration Foundation of Southern
Africa (AFSA), in force from time to time.’ In terms of clause 23.5 the parties shall not
be precluded from approaching any court or competent authority for an interdict or
other injunctive relief of an urgent nature.
[52] The commercial rules of AFSA, applicable to domestic arbitrations, supplement
any specific provisions of an arbitration agreement to arbitrate under the aegis of or
according to the rules of the foundation, in so far as such specific provisions are silent
on matters provided for in the rules.17 In terms of sub-article 10.1.2 of the commercial
rules:
‘(I)n cases where the party cited as defendant disputes that he was a party to the arbitration
agreement, or that the arbitration agreement is still valid and binding, or that the claim falls
within the terms of the arbitration agreement, (all of which disputes are hereinafter referred to
as "jurisdictional disputes"), then (unless the party against whom the jurisdictional dispute is
raised, informs the arbitrator that he does not wish to proceed until such dispute has been
decided by a court) first decide the jurisdictional disputes, and, if he decides them against the
party raising any or all of such disputes, then make a ruling for a period for the delivery of a
statement of defence (if not already delivered) and counterclaim, if any, in accordance with
6.1.5, and a statement of defence to any counterclaim in accordance with 6.4, and then
proceed as set out below.’
Sub-article 11.2.2 provides that the arbitrator shall have the power:
‘(T)o rule on his own jurisdiction, including rulings on any dispute in regard to the existence or
validity of the arbitration agreement or the scope thereof.’
[53] In respect of construction arbitrations, if the parties only intend that AFSA
appoint an arbitrator from its panel, the ‘Unadministered Rules’ would apply. Article
23(1) of those rules provides:
‘The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any
objections with respect to the existence or validity of the Arbitration Agreement. For that
purpose, an arbitration clause that forms part of a contract shall be treated as an agreement
independent of the other terms of the contract. A decision by the Arbitral Tribunal that the
contract is a nullity shall not automatically invalidate the arbitration clause.’
17 Article 3.3 of the Commercial rules of the Arbitration Foundation of Southern Africa (AFSA).
[54] The high court, in its enquiry, recorded that it became common cause when the
application to compel was argued, that the question whether the arbitration agreement
was extant had to be considered by the court. The court did so and came to the
conclusion that the arbitration agreement was in place. The exercise of this discretion
is a contentious issue in this appeal.
[55] When parties agree to refer a matter to arbitration, unless the agreement
provides otherwise, they implicitly, if not explicitly (and, subject to the limited power of
the high court under s 3(2) of the Arbitration Act), abandon the right to litigate in courts
of law and accept that they will be finally bound by the decision of the arbitrator.18
When confronted with a jurisdictional objection arbitrators are not obliged forthwith to
throw up their hands and withdraw from the matter until a court has clarified their
jurisdiction.19 The hallmark of arbitration is that it is an adjudication flowing from the
consent of the parties to the arbitration agreement who define the powers of
adjudication and are equally free to modify or withdraw that power at any time by way
of further agreement.20 The remarks by O'Regan ADCJ in Lufuno Mphaphuli21 having
considered the international and comparative law are apposite:
‘Courts should be careful not to undermine the achievement of the goals of private arbitration
by enlarging their powers of scrutiny imprudently…’
And at para 236:
‘…The international conventions make clear that the manner of proceeding in arbitration is to
be determined by agreement between the parties and, in default of that, by the arbitrator.
Thirdly, the process to be followed should be discerned in the first place from the terms of
the arbitration agreement itself. Courts should be respectful of the intentions of the parties in
relation to procedure. In so doing, they should bear in mind the purposes of private arbitration
which include the fast and cost-effective resolution of disputes.’
18 Amalgamated Clothing and Textile Workers Union of South Africa v Veldspun (Pty) Ltd [1993]
ZASCA 158; [1994] 1 All SA 453 (A) at 169.
19 Radon Projects (Pty) Ltd v NV Properties (Pty) Ltd [2013] ZASCA 83; [2013] 3 All SA 615 (SCA);
para 28.
20 Total Support Management (Pty) Ltd and Another v Diversified Health Systems (South Africa) (Pty)
Ltd and Another [2002] ZASCA 14; 2002 (4) SA 661 (SCA) para 25.
21 Lufuno Mphaphuli & Associates (Pty) Ltd v Andrews and Another [2009] ZACC 6; 2009 (4) SA 529
(CC) para 235.
[56] In Zhongji,22 this Court had an occasion to consider whether the high court was
correct in, inter alia, dismissing an application for a declaratory order that a particular
dispute was ‘arbitrable’, in almost similar circumstances as the present, where the
respondent disputed, amongst others, having been a party to the dispute resolution
procedures provided for in the main agreement. The parties had also concluded an
interim agreement which did not contain dispute resolution procedures. In its amended
notice of motion, the appellant sought declarators that, inter alia, the respondent was
bound by the arbitral regime catered for in the main agreement in relation to disputes
in connection with or arising out of the main agreement or the execution of the works
thereunder. The main agreement provided that, unless the parties otherwise agree,
disputes between the parties ‘shall be finally settled under the Rules for the Conduct
of Arbitrations as published by the Association of Arbitrators (Southern Africa)’. Rule
12.1 of the sixth edition of the Rules of the Arbitration Association applied. It provided
that: ‘The arbitrator may decide any dispute regarding the existence, validity, or
interpretation of the arbitration agreement and, unless otherwise provided therein, may
rule on his own jurisdiction to act.’
[57] In Zhongji this Court determined that once the arbitration tribunal had been duly
appointed in terms of the main agreement, the rules of the Arbitration Association
would give the tribunal itself jurisdiction to decide the issues which may be raised
before it, including those which had been raised both in the high court and this Court.
That in light of an arbitrator’s power to determine his or her jurisdiction there was no
reason why the dispute about whether or not the claims arising from the appellant’s
performance in terms of the interim agreement was indeed arbitrable should not be
decided by the arbitration tribunal prior to an application to the high court. It was held
that the process of arbitration had to be respected. If the high court were to have
pronounced on these issues, it would have acted contrary to the provisions of the
arbitration clause by determining issues that are within the auspices of the arbitrator
in terms of the arbitration agreement. The arbitration had to be given the opportunity
to run its course before the court considers any application relating thereto.
Accordingly, the appellant’s application to the high court was premature and perhaps
unnecessary.
22 Fn 13.
[58] Insofar as the PSP agreement was, on the face of it, valid, in particular clause
23 thereof, which expressly sets out the arbitration process, it ought to have been
given effect to by the high court. The fundamental error on the part of the high court
was to approach the application on the basis that the dispute on the existence of the
arbitration agreement meant that the arbitral tribunal had no power to determine its
own jurisdiction. In fairness to the high court and the full court, it would appear that the
courts’ attention was not drawn to the provisions of the rules because none of the
courts expressed themselves on the impact which these rules would exert upon
consideration of the key question. An arbitration clause embodies an agreement that
is distinct from the terms of the agreement of which it forms a part. Sometimes the fact
that it is embodied in another agreement may affect its validity because a challenge to
the validity of the agreement in which it is incorporated is also a challenge to the validity
of the arbitration agreement. In the absence of such a challenge, however, the
arbitration agreement must be given effect to in accordance with its terms.23
[59] Clause 23 of the purported PSP arbitration agreement read with the rules of the
AFSA delineates the powers of the arbitral tribunal, which includes the determination
of its own arbitral jurisdiction. The high court ought not to have mero motu arrogated
to itself the power assigned to the arbitrator. By so doing it interfered with the parties’
contractual autonomy allied to the notion of contractual freedom. Based on the
interspersed negation of the court’s power to interfere, as reflected in the papers, it
ought not to have decided the point. On the view I take of this matter, the question
whether the high court exercised a discretion and the nature thereof does not arise.
Otherwise stated, the high court had no jurisdiction to determine the question.
[60] The effect of an order that the high court had no jurisdiction will be that all the
proceedings and orders granted in the application are to be regarded as nullities.24 In
a footnote to MEC for Health, Eastern Cape and Another v Kirland Investments (Pty)
23 Ibid para 50.
24 Compare Moch v Nedtravel (Pty) Ltd t/a American Express Travel Service [1996] ZASCA 2; 1996 (3)
SA 1 (A) at 16A-B which concerns the effect of a recusal application.
Ltd t/a Eye & Lazer Institute25 the Constitutional Court affirmed this principle as
follows:
'In The Master of the High Court (North Gauteng High Court, Pretoria) v Motala NO and
Others 2012 (3) SA 325 (SCA) the Supreme Court of Appeal, reaffirming a line of cases more
than a century old, held that judicial decisions issued without jurisdiction or without the citation
of a necessary party are nullities that a later court may refuse to enforce (without the need for
a formal setting-aside by a court of equal standing). This seems paradoxical but is not. The
court, as the fount of legality, has the means itself to assert the dividing line between what is
lawful and not lawful. For the court itself to disclaim a preceding court order that is a nullity
therefore does not risk disorder or self-help.’
[61] The full court’s conclusion, that the high court ‘acted within the parameters of
the law’, was factually and legally misdirected. This should be dispositive of the entire
appeal. However, it would be necessary to turn attention to the second leg of the
enquiry which is a self-standing issue for adjudication. The argument and the
judgments of the high court and the full court centred around the question whether the
high court exercised its discretion judicially. The enquiry on this aspect is conducted
on the basis, accepting for argument’s sake, that the high court had jurisdiction to
determine the question of the existence of the agreement.
[62] A consideration of the question whether the high court exercised its discretion
judicially would require a brief analysis of the facts. During the early stages of 2014
the Trust wished to expand the building from which it operated its business. To put this
into effect, on 5 February 2014, the Trust concluded the JBCC agreement with Royal
Anthem. Canton Trading, a firm of architects, was appointed as the principal agent for
the project. During March 2014, a month or so following the signing of JBCC
agreement, Canton Trading’s attorneys forwarded the PSP agreement to the Trust
which, to reiterate, the parties did not sign.
[63] The Trust contends that Canton Trading was negligent in the performance of
its duties. On 2 August 2017 it invoked the arbitration clause (clause 23 of the PSP
agreement) and caused a letter of demand together with its statement of claim to be
25 MEC for Health, Eastern Cape and Another v Kirland Investments (Pty) Ltd t/a Eye & Lazer
Institute [2014] ZACC 6; 2014 (3) SA 481 (CC) at 512 fn 78.
served upon Canton Trading. In this letter the Trust notified Canton Trading that it
declared a dispute in respect of Canton Trading’s incompetent execution of its
obligations as the principal agent under the JBCC agreement. That in terms of clause
23 of the PSP agreement the dispute had to be referred to mediation failing which
arbitration.
[64] During the period stretching from 11 September 2017 to 7 December 2017 an
exchange of correspondence between the Trust and Canton Trading’s attorneys
ensued. The following can be distilled from these letters: the unsigned PSP agreement
was forwarded to Canton Trading’s attorney who promised to revert on the proposed
mediation; the Trust forwarded reminders on the proposed mediation and eventually
accepted that Canton Trading resisted mediation; the Trust accordingly suggested that
arbitration be commenced forthwith and proposed two names of prospective
arbitrators; when this was met with silence on the part of Canton Trading the Trust put
a time-frame within which Canton Trading had to revert on the appointment of the
arbitrator. Canton Trading’s attorneys advised the Trust that it was taking instructions
on the appointment and was prepared ‘in principle’ to proceed to arbitration; Canton
Trading agreed to the appointment of the arbitrator.
[65] A pre-arbitration meeting was held on 24 January 2018 out of which several
disputes of fact emerged on the papers as regards what was or was not said during
the meeting. The Trust attorneys drew-up a pre-arbitration agreement on the basis of
what was professed to have been agreed to between the parties during the pre-
arbitration meeting. Amongst the issues allegedly agreed to was that Canton Trading
would be afforded an opportunity to file its statement of response, that the arbitration
would be regulated by the uniform rules of court not those of the AFSA and that the
parties would be afforded a right to appeal. Canton Trading is said to have requested
that a conditional clause be inserted in the arbitration agreement as follows:
‘The arbitration is further subject to the condition that the defendant must obtain the
approval/consent of the defendant’s insurer (in the event of it being the defendant’s version
that there is no signed agreement to submit to arbitration) of the arbitration agreement.’
I interpose that where an offer to submit to arbitration is made, the acceptance of the
offer must be unconditional and unqualified, failing which there is no proper
acceptance and no binding agreement to go to arbitration.26
[66] On the Trust’s version, the parties performed fully in terms of the PSP
agreement and submits that a verbal agreement was reached during March 2014 on
the same terms as set out in the PSP agreement. Canton Trading had forwarded its
professional fee schedule and invoiced the Trust for services rendered in terms of the
PSP agreement. Payment was duly honoured.
[67] Canton Trading, on the other hand, put up an irreconcilable version. It
frequently rendered architectural services to the Trust on various projects since 2011
apart from the services rendered during 2014 which form the basis of the present
dispute. The relationship was governed by verbal agreements. The PSP agreement,
it says, was simply an incomplete template which was made available to the Trust in
respect of the project in issue. For instance, the documents containing personnel
schedule, the plan setting out the project, the scope of work and the pricing data were
never completed. It is undisputed that the fees were negotiated and agreed upon
through e-mails during the execution of the project. Canton Trading gainsaid that the
parties conducted themselves in accordance with the contents of the document
prepared by its attorneys.
[68] Canton Trading avers that even in respect of the previous projects the standard
template would be forwarded to the Trust without any written agreement ever being
reached between the parties. It intimates that the deponent to the Trust’s papers ‘is
simply not a man interested in paper work and as a result it was never possible to
finalise and/or complete a written document with [the Trust] even in respect of the
previous projects, [that] is to say, to agree on the terms thereof and/or to finalise and
sign same.’ No written agreement, it continued, was ever entered into, discussed or
considered including an enforceable arbitration agreement in terms of which it could
be ordered to submit to arbitration.
26 Raphaely v Stephan 1915 CPD 6 at 9.
[69] This Court restated the following trite principles in National Scrap Metal:27
Where the high court decides a matter without the benefit of oral evidence, it has to
accept the facts alleged by the respondent unless they were so far-fetched, or clearly
untenable, that the court is justified in rejecting them merely on the papers. An attempt
to evaluate the competing versions of either side is thus both inadvisable and
unnecessary as the issue is not which version is the more probable but whether that
of the respondent is so far-fetched and improbable that it can be rejected without
evidence. More onerous is that the test in that regard is 'a stringent one not easily
satisfied'. In considering whether it has been satisfied it is necessary to bear in mind
that, all too often, after evidence has been led and tested by cross-examination, things
turn out differently from the way they might have appeared at first blush.28
[70] The high court recorded that the Trust relied:
‘(O)n either verbal or tacit acceptance of the provision of the agreement thereby constituting
a verbal agreement the terms of which is reflected in the agreement or at least an oral
agreement following from the alleged fact that both parties fully gave effect to the provisions
of the written agreement.’
In various parts of its affidavit the Trust appears to be ambivalent about the nature of
the arbitration agreement it purportedly concluded with Canton Trading. In para 14 of
its founding affidavit the Trust set out the ‘salient expressed, alternatively implied,
alternatively tacit terms of the verbal PSP agreement. This is reiterated in para 47 as
follows:
‘The arbitration clause which the applicant places reliance on in casu (whether in writing or
verbal or whether explicit or implied) clearly delineates that the parties are required to submit
to arbitration “any other matter arising directly or indirectly out of, this agreement”. The any
other matter which is referred to in the applicable clause, will undoubtedly include a dispute
as to the validity or enforceability of the agreement and/or the arbitration clause.’
It did not end here, in its reply the deponent state: ‘the parties agreed to submit to
arbitration in writing in terms of clause 23 ...alternatively, parties agreed verbally to
submit to arbitration.’
27 National Scrap Metal (Cape Town) (Pty) Ltd and Another V Murray & Roberts Ltd and Others [2012]
ZASCA 47; 2012 (5) SA 300 (SCA).
28 Ibid paras 21-22.
[71] The requirement that an arbitration agreement be in writing does not mean that
it has to be signed or otherwise executed by both parties to the arbitration. All that is
required is that the parties have agreed that the dispute in question, or all disputes of
a particular character, be submitted to arbitration, and that agreement has been
reduced to writing. Thus, it matters not that the agreement is oral, provided that a
written memorial thereof is produced. An oral agreement to arbitrate not reduced to
writing is therefore not subject to the provisions of the Act nor are other forms of
dispute-resolution proceeding.29 What is remarkable is that the high court accepted
that the Trust verbally agreed or ‘at least did so tacitly by giving effect’ and performing
in terms of the agreement. It is therefore beyond comprehension that it would reject
Canton Trading’s version as a bare denial.
[72] The high court found it astonishing that Canton Trading, as a professional firm
of architects, would accept its task as the principal agent on the basis of a verbal
agreement to render services at a reasonable fee. However, on the evidence, the
contract pricing data had not been completed and indeed the fees were determined
on the basis of e-mails. The high court also questioned the absence of an explanation
from Canton Trading why its attorneys made the PSP agreement available to the Trust
and had also forwarded agreements in respect of the previous projects. It also
remarked that, in its papers, Canton Trading never alleged that the Trust raised an
objection to any of the terms of the agreements at any stage during the previous
projects.
[73] I strain to fathom how the Trust would take issue with the terms of the
agreements submitted when its deponent is said to have been indifferent to any paper
work. Canton Trading’s case that the parties acted in terms of oral agreements - that
the Trust’s deponent was ‘simply not a man interested in paper work’ and that it was
never possible to agree on the terms of the agreements and finalise them, was never
seriously disputed. It is not uncommon in the business world, particularly where there
had been a longstanding beneficial contractual relationship, as in this case, for parties
29 De Lange v Presiding Bishop, Methodist Church of Southern Africa and Another. [2014] ZASCA 151;
2015 (1) SA 106 (SCA) para 46.
to conduct their business affairs without a great degree of formality. Harms JA
observed:
'Businessmen are often content to conduct their affairs with only vague or incomplete
agreements in hand. They then tend to rely on hope, good spirits, bona fides and commercial
expediency to make such agreements work.'30
[74] Much store was set by the high court that Canton Trading’s attorney took
instructions from his client prior to directing letters to the Trust’s attorneys, which
conveyed that Canton Trading was prepared to submit to arbitration. Canton Trading
says its attorney, upon receipt of the letter of 1 August 2017, which called on parties
to submit to mediation on the basis of clause 23 of the PSP agreement, on face value
assumed and accepted the accuracy of its contents. Pursuant to this, the attorney
sought from the Trust’s attorneys and was placed in possession of the PSP
agreement. His attention was not drawn to the absence of the requisite signatures on
the agreement. At all relevant times, he says, he was under the mistaken impression
that there was an agreement entered into and duly signed by the parties. When the
attorney directed correspondence to the Trust, including the e-mail of 7 November
2017, for which he was severely criticised by the high court, to the effect that ‘Our
client is not prepared to mediate. We are taking instructions on the appointment of the
arbitrator and we are obviously in principle prepared to proceed with the arbitration
process,’ he was still labouring under the bona fide, but mistaken, belief that the
agreement was in place and had not obtained instructions from Canton Trading on the
existence of a binding arbitration agreement.
[75] Canton Trading’s attorney stated that the correspondence dispatched to the
Trust’s attorneys were provisional and pragmatic logistics regarding a possible
submission to arbitration. A day prior to the pre-arbitration meeting on 23 January
2018, it dawned on him that he had been mistaken about the existence of the
arbitration agreement. On 24 January 2018, well after the pre-arbitration meeting by
the parties’ respective legal teams, Canton Trading says it pertinently instructed its
legal team that there was no arbitration agreement entered into or agreed upon. It
therefore notified the Trust of its resistance to submit to arbitration.
30 Namibian Minerals Corporation Ltd v Benguela Concessions Ltd [1996] ZASCA 140; 1997 (2) SA
548 (SCA) at 561G.
[76] The statements and conduct of an agent affords no admissible proof of the
existence or the scope of his authority.31 From the correspondence exchanged
through the use of the words ‘in principle prepared to proceed with the arbitration
process’, one gains the impression that Canton Trading’s attorneys were cautious to
make it plain that their client consented or submitted to arbitration. Their request that
a condition be inserted in the pre-arbitration agreement that Canton Trading obtain the
approval/consent of its insurer concerning the agreement to submit to arbitration, in
my view, signifies the indecision. A general mandate by a client to his attorney to
attend to a dispute by negotiating with his adversary's attorney is not a tacit
authorisation to the attorney to submit to arbitration, nor would the attorney's
submission to arbitration be incidental to such a brief.32
[77] There is no evidence to controvert Canton Trading’s attorney’s lack of express
authority to consent to the arbitration. Neither is there any evidence to show that he
reported to his client the outcome of the negotiations between himself and the
adversary’s attorney. The criticism levelled against Canton Trading’s attorney by the
high court, that ‘it is unthinkable that an experienced attorney’ would take a decision
to submit to arbitration without the client’s instruction, while it may be justified does not
take the matter any further absent evidence showing Canton Trading’s express
consent. For acts of great prejudice an attorney needs a special mandate.33
[78] There was, in this case, intractable disputes of fact not capable of resolution by
means of motion proceedings. From the aforegoing limited analysis of the issues
raised in the affidavits, it can hardly be said that Canton Trading’s version was so far-
fetched or untenable that the high court was justified in rejecting it merely on the
papers. To reiterate, it is a rare occurrence that the courts would reject the
respondent’s version on this basis, even if it is improbable in a number of respects,
because our courts are always alive to the potential for evidence and cross-
31 Inter-Continental Finance and Leasing Corporation (Pty) Ltd v Stands 56 and 57 Industria Ltd and
Another 1979 (3) SA 740 (W) at 750B.
32 Ibid at 751H.
33 Bikitsha v Eastern Cape Development Board and Another 1988 (3) SA 522 (E) at 527I; Ras v Liquor
Licensing Board, Area No 11, Kimberley 1966 (2) SA 232 (C) at 237E - 238C.
examination to alter its view of the facts and the plausibility of evidence.34 The adoption
of a robust approach by the high court in disposing the application, in my view,
constitutes a material misdirection. Not only is it at variance with the well-established
principles applicable to motion proceedings, but it also amounted to a denial of a fair
trial of issues. Insofar as the full court found differently it erred and its decision cannot
be supported. As I see it, the issues raised would not have merited the dismissal of
the application but would have required the leading of oral evidence. In light of my
conclusion that it was not open to the high court to decide the issues that fell within
the aegis of the arbitral regime the remittal of the matter does not arise.
[79] On the question of relief: it was premature for the Trust to have approached the
high court to compel Canton Trading to submit to arbitration because s 15(2) of the
Arbitration Act and the rules of the AFSA provide adequate remedies in instances of
defaulting defendants. However, Canton Trading’s rigid stance, in flatly refusing to
submit to arbitration, is problematic. The order prayed for in the notice of motion is that
Canton Trading submit to arbitration to have the disputes as set out in the arbitration
agreement, which is attached to the Trust’s founding affidavit as annexure B,
adjudicated. Annexure B is a revised version of the arbitration agreement which the
Trust attorneys drafted following the pre-arbitration meeting of 24 January 2018 which,
as alluded to, was marred by disputes of fact. It would be undesirable to make an order
which compels the parties to attend arbitration on the basis of that agreement.
[80] Evidently, a period of four years has lapsed since the Trust declared the dispute
in terms of clause 23 of the PSP agreement with no end in sight. Section 19(d) of the
Superior Courts Act 10 of 2013 empowers this Court to render any decision which the
circumstances may require. The inherently pragmatic approach, actuated by dictates
of justice and common fairness to the parties, would be to issue an order which
compels Canton Trading to submit to arbitration. I can conceive of no prejudice.
However, it would be objectionable to attempt to define the terms of reference for the
arbitration. It lies within the domain of the arbitrator and the parties to delineate the
issues and the scope of the arbitration process.
34 Media 24 Books (Pty) Ltd v Oxford University Press Southern Africa (Pty) Ltd [2016] ZASCA 119;
2017 (2) SA 1 (SCA) para 36; see also National Scrap Metal (supra) fn 25 paras 21-22.
[81] For all the above reasons, I would uphold the appeal in part. Save for the costs
of the proceedings in the high court and the full court, which the Trust ought to bear,
insofar as both parties would have achieved partial success on appeal, I would have
made no costs order for the proceedings in this Court.
[82] Accordingly, I would have ordered that:
The appeal is upheld in part.
Canton Trading 17 (Pty) Ltd, the appellant, is ordered to submit to arbitration.
The order of the full court is set aside and in its place is substituted the following:
‘The appeal is upheld with costs.
The order of the high court is set aside and replaced with the following:
“The application is dismissed with costs”.’
_________________
M V PHATSHOANE
ACTING JUDGE OF APPEAL
Appearances:
For appellant:
G F Heyns SC
Instructed by:
VDT Attorneys, Pretoria
Honey Attorneys, Bloemfontein
For respondent:
P Zietsman SC and R van der Merwe
Instructed by:
P D Yazbek,
Lovius Block, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
01 December 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
Canton Trading 17 (Pty) Ltd t/a Cube Architects v Fanti Bekker Hattingh N O (479/2020) [2021]
ZASCA 163 (01 December 2021)
Today the Supreme Court of Appeal (SCA) upheld the appeal against an order of the Free State Division
of the High Court, Bloemfontein (Naidoo ADJP and Daffue and Reinders JJ sitting as court of appeal.)
with costs.
The appellant, Canton Trading 17 (Pty) Ltd (Canton Trading), rendered professional architectural
services to the respondent, Qwaha Trust (the Trust). After sometime, the Trust alleged that former had
failed to perform its duties and Canton Trading’s services were terminated. In terms of the (unsigned)
Professional Service Providers Agreement (PSP) concluded between the parties, the Trust proposed that
a mediator be appointed to resolve the dispute. If mediation failed, arbitration would result.
Notwithstanding the agreement, Canton Trading refused to participate in the arbitration.
Issues that the first court, the full court and this Court (respectively) had to determine are: whether the
court had the discretion to decide the question whether the parties consented to refer a dispute to
arbitration when there is a dispute of fact as to their consent, the discretion of the high court to adjudicate
the question of the existence of an arbitration agreement and whether the application of a robust
approach to adjudicate disputes of facts was necessary in the circumstances.
The SCA was of the view that the high court erred in the assessment of probabilities based on the
evidence before it and making a determination whether there had been an agreement to arbitrate. Rather,
the high court should have considered whether the application should have been dismissed or whether
a challenge to the existence agreement could not have been established through referral for evidence.
The majority judgment, upheld the appeal with costs and substituted the order of the full court with an
order that the appeal is upheld with costs and the matter is remitted to the high court for determination
whether the application should have been referred to evidence or whether it should be dismissed.
In a separate dissent, the minority held that, the PSP concluded between the parties read with the rules
of the Arbitration Foundation of Southern Africa (AFSA) delineated the powers of the arbitral tribunal,
which included the tribunal’s determination of its own arbitral jurisdiction. Accordingly, it was not open
to the high court to decide the issues that fell within the aegis of the arbitral regime. It was premature
for the Trust to have approached the high court to compel Canton Trading to submit to arbitration. 2
However, in light of Canton Trading’s rigid stance, in flatly refusing to submit to arbitration, the
inherently pragmatic approach, actuated by dictates of justice and common fairness to the parties, would
be to issue an order which compelled Canton Trading to submit to arbitration. In the result, the minority
would have upheld the appeal in part.
--------oOo--------
|
2730
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case no. 308/2011
Reportable
In the matter between
BEWEGING VIR CHRISTELIK-VOLKSEIE ONDERWYS
First Appellant
CVO SKOOL PRETORIA
Second Appellant
GYSBERT JOHANNES JANSEN VAN RENSBURG
Third Appellant
TINA VAN DEVENTER
Fourth Appellant
and
THE MINISTER OF EDUCATION
First Respondent
THE SOUTH AFRCAN QUALIFICATIONS AUTHORITY
Second Respondent
UMALUSI
Third Respondent
THE COMMITTEE OF UNIVERSITY PRINCIPALS
Fourth Respondent
THE COMMITTEE OF TECHNICON PRINCIPALS
Fifth Respondent
HIGHER EDUCATION SOUTH AFRICA
Sixth Respondent
Neutral citation:
Beweging vir Christelik-Volkseie Onderwys v Minister of
Education (308/2011) [2012] ZASCA 45 (29 March 2012)
Coram:
MPATI P, FARLAM, SNYDERS, MAJIEDT JJA and PLASKET AJA
Heard:
5 March 2012
Delivered:
29 March 2012
Summary: Practice and procedure – application for condonation for late filing
of replying affidavit refused – Sections 7(1) and 9 of Promotion of Administrative
Justice Act 3 of 2000 – application for extension of 180-day period for launching
review proceedings refused – undue delay in launching application for
declaratory orders – condonation refused.
____________________________________________________________________
ORDER
____________________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (Pretorius J sitting as court of
first instance):
The appeal is dismissed and the appellants are directed, jointly and severally, to pay
the costs of the first respondent, including the costs of two counsel.
JUDGMENT
____________________________________________________________________
PLASKET AJA (MPATI P, FARLAM, SNYDERS and MAJIEDT JJA concurring)
[1] The appellants applied, in the North Gauteng High Court, Pretoria, for three
declaratory orders concerning the binding effect on them of certain government
notices promulgated by the first respondent, the Minister of Education, setting out
curriculum policy and religious education policy for schools, as well as three orders in
which they sought the setting aside of certain aspects of these policies. I shall refer,
for convenience, to the content of these government notices as the new curriculum. In
the court below, Pretorius J dismissed the application with costs, together with an
application for an extension of time for the filing of the main application (the extension
application) and one for condonation for the late filing of the replying affidavit in the
extension application. The appellants appeal to this court with the leave of Pretorius J.
[2] The first appellant (Beweging vir Christelik-Volkseie Onderwys – BCVO) is a
section 21 company that has as its main objects the development, implementation and
promotion of a pure Christian Afrikaans ethnic education system based on the
Christian reformed faith and Afrikaner culture and to promote the establishment and
operation of Christian Afrikaans ethnic educational institutions on all levels of the
education system. The second appellant (CVO Skool Pretoria) is an independent
school affiliated to BCVO. The third appellant is the father of three children who attend
the CVO Skool Pretoria. The fourth appellant is the mother of two children of school-
going age whom she educates at home.
[3] In addition to the Minister, a further five respondents – all statutory bodies
involved in education – were cited as the second to sixth respondents. They are: the
South African Qualifications Authority; Umalusi (the Council for General and Further
Education and Training Quality Assurance); the Committee of University Principals;
the Committee of Technicon Principals; and Higher Education South Africa. No relief
was sought against the second to sixth respondents in the court below, none of them
opposed the application and none took part in these proceedings.
[4] The appellants object to the contents of three government notices. They are
Government Notice 710 of 31 May 2002 entitled ‘National Policy Regarding General
Education and Training Programmes: Approval of the Revised National Curriculum
Statement Grades R-9 (Schools)’; Government Notice 1407 of 6 October 2003 entitled
‘National Policy Regarding Further Education and Training Programmes: Approval of
the National Curriculum Statement Grades 10-12 (General) as National Policy’; and
Government Notice 1307 of 12 September 2003 entitled ‘National Policy on Religion
and Education’.
[5] In the three notices, the Minister stated that he had determined the national
policy in terms of s 3(4)(l) of the National Education Policy Act 27 of 1996. The notice
concerning the new curriculum for grades R to 9 stated that it would be phased in from
2004 to 2008 and that it replaced the previous curriculum. The notice concerning the
new curriculum for grades 10 to 12 stated that it was to be implemented incrementally
from 2006 to 2008. The third notice contains a statement of policy on religion and
education.
[6] Section 3(4)(l) of the National Education Policy Act provides:
‘Subject to the provisions of subsections (1) to (3), the Minister shall determine national policy
for the planning, provision, financing, co-ordination, management, governance, programmes,
monitoring, evaluation and well-being of the education system and, without derogating from
the generality of this section, may determine national policy for-
. . .
(l)
curriculum frameworks, core syllabuses and education programmes, learning
standards, examinations and the certification of qualifications, subject to the provisions
of any law establishing a national qualifications framework or a certifying or accrediting
body.’
[7] The appellants contend that these government notices are not binding on
independent schools because no regulations have been promulgated by the Minister
to give effect to the policy statements that they contain. They also allege that certain
provisions of the notices – such as approval for the phasing in of the curriculum – are
invalid insofar as they purport to impose legally binding obligations on the appellants.
[8] The court below did not determine the merits of the application. When Pretorius
J dismissed the extension application (brought under a different case number from
that of the main application) she dismissed the main application as well.
[9] The issues that arise in this appeal will be dealt with as follows: first, the
question whether the late filing of the reply in the extension application should have
been condoned will be determined; then the question whether the court below was
correct in dismissing the extension application will be decided; then, if the appeal on
the second issue succeeds, it will be necessary to consider the merits of the main
application; and finally, it will be necessary to decide the question of costs.
The extension application: condonation for the late filing of the reply
[10] The main application was served on 10 September 2007. In the answering
affidavit filed on behalf of the Minister (deposed to on 31 October 2007), the point was
taken that the appellants sought, in effect, to review administrative action and that the
application had been brought outside of the 180-day time limit provided for by s 7(1) of
the Promotion of Administrative Justice Act 3 of 2000 (the PAJA) with the result that
the main application fell to be dismissed on this basis alone.
[11] This induced the appellants to launch an application in which they sought an
extension of the 180-day period to the date of the launching of the main application.
This extension application was served on the State Attorney on 12 December 2007.
The answering papers were filed on 27 February 2008. The replying papers were only
filed some 18 months later, on 8 October 2009.1 The appellants applied for
condonation for this delay. The affidavit in which the delay is explained was deposed
to by a retired judge, Mr Justice I W B de Villiers, who had played the role of BCVO’s
legal advisor. (I shall refer to him in what follows as De Villiers.)
[12] In a nutshell, his excuse for the delay is that his capacity for work had
diminished with age and he was busy with another case until October 2008. He
1 There is no indication in the appeal record when the replying papers were served and filed so I have
relied on the date indicated in the judgment of the court below. There is no dispute in this regard. The
various affidavits that constitute the reply were signed between 17 and 28 September 2009.
accepts responsibility for the delay. It is not necessary to deal with the first excuse,
save to say that if De Villiers was not able to do the work promptly because of his age
he should have declined to accept the responsibility of doing the work. It is, however,
necessary to outline the detail, such as it is, in relation to the second aspect.
[13] De Villiers stated that he received the Minister’s answering papers to the
extension application towards the end of February 2008, shortly after they were
served. He sent copies to three people, Mr R E Pohl, Mr T J de Wet and Mr Leendert
van Oostrum, with a request that they revert to him with their comments. Pohl and De
Wet reverted to him within a week or two but Van Oostrum took longer to respond. All
that was said in the affidavit attached to the founding affidavit in the condonation
application was that Van Oostrum reverted to him in 2008. In the replying affidavit, all
he could say was that this was ‘heelwat later’ than the one or two weeks taken by De
Wet and Pohl.
[14] The problem that confronted De Villiers was that he had taken on legal work for
one of the CVO schools towards the end of 2007 and this had kept him busy until
October 2008. Although he received some help from the appellants’ attorney, he had
to draft the replying papers on his own, and had to do so while he was working on the
other matter. To compound his problems, he underwent an operation in July 2008 and
was out of action for two months. In addition, his personal affairs were in disarray
because he had been working so hard on that other matter. He was consequently not
in a position to give his full attention to the drafting of the replying papers. Despite all
of this, he continued to work on the replying papers from time to time, but due to the
problems that he had mentioned, he was not able to finish drafting them any sooner
than he did.
[15] The reply took more time than expected to draft because the answering papers
covered a great deal of ground. He also devoted a lot of time to the information he had
requested from Van Oostrum about the new curriculum and about education policy
prior to 2002, although he later discarded all of this because it was not relevant to the
extension application. The process of preparing the reply was a slow one because a
number of people had to depose to affidavits, some did not live in Pretoria and some
were not readily available. In addition, throughout 2008 and 2009 he was approached
for advice by a number of CVO schools. In October 2008 two office bearers of BCVO
changed, resulting in a break in continuity.
[16] Throughout the period during which he was working on the reply, De Villiers
received queries about his progress. He reported on progress from time to time, either
orally or in writing. In May 2009, after the appellants changed their attorneys, one Van
Jaarsveld of the new firm of attorneys requested De Villiers to write a report on his
progress for BCVO’s annual general meeting which was to be held the following
month. He did so.
[17] De Villiers eventually produced a draft of the replying papers in July 2009. He
e-mailed the papers to the people who were to depose to affidavits. After he received
comments, he e-mailed what I presume would have been revised papers to the
deponents in September 2009. The affidavits were signed in that month and served in
early October 2009.
[18] Apart from the occasional request for a progress report from office-bearers of
BCVO and CVO Skool Pretoria, it is evident that both they and the attorneys who
represented the appellants did precious little to ensure that the reply was filed without
undue delay. Indeed, they appear to have left matters in the hands of De Villiers. The
first contact he had with the third appellant was in July 2009 and he states in this
regard:
‘Die Derde Applikant het ek baie selde gesien. Hy het my nie gevra oor die vordering van die
saak nie. Ek neem aan dat hy gewag het dat ek hom oor verwikkelinge sou inlig. Ongelukkig
het ek dit eers gedurende Julie 2009 gedoen.’2
[19] It was only in September 2009 that De Villiers met the fourth appellant. He said
the following in relation to her:
‘Die Vierde Applikant het ek eers op 21 September 2009 ontmoet. Die tussenganger tussen
ons was gemelde Van Oostrum. Nadat hy gedurende 2008 sekere inligting oor die gebeure in
die onderwys vòòr 2002 aan my verskaf het, het ons nie meer met mekaar kommunikeer nie
2 ‘I saw the Third Applicant very seldom. He never asked me about the case’s progress. I presume that
he was waiting for me to inform him of developments. Unfortunately, I only did this during July 2009.’
(My translation.)
totdat ek gedurende Julie 2009 per e-pos konsep repliserende verklarings aan hom laat stuur
het.’3
Van Oostrum, on the other hand, stated that, having provided De Villiers with the
information he requested, he heard nothing more from him. He assumed that the
matter was, for one or other reason, no longer proceeding.
[20] The picture that emerges from these facts is one of a failure on the part of
everyone involved to ensure that the replying papers were filed without delay, or to
ensure that De Villiers did what was required of him; of neglect on the part of both the
appellants and their attorneys to take any interest in the conduct of the litigation; and
an abdication, on the part of the firms of attorneys that represented the appellants, of
their professional responsibility.
[21] What of the explanation for the delay given by De Villiers? In my view, his
explanation is far from convincing. As a retired judge he ought to understand the
importance of complying with the rules of court and, as a former practitioner, he ought
to have known that it is no excuse to rely on a reduced capacity for work, on the one
hand, and having another case to work on to the detriment of the present matter, on
the other. In these circumstances he should have told the appellants that he was
unable to do the work timeously and that other arrangements would have to be made.
[22] The delay of 18 months must be placed in context. The answering papers in the
extension application were 42 pages long, the main answering affidavit that had to be
replied to being 35 pages long. The replying papers were 56 pages long. The main
replying affidavit was 24 pages long and the supporting affidavit of De Villiers himself
was eight pages long. For the rest, the eight remaining affidavits vary between two
and four pages in length and are standard confirmatory affidavits that should literally
have taken a few minutes to draft. The issues that were raised in the answering
affidavits were not complex and I do not understand what research was required on
the part of De Villiers that could have slowed the preparation of the replying papers to
any marked extent. Of the ten deponents to the affidavits that form part of the reply,
eight (including De Villiers) lived in Pretoria while one lived in Potgietersrus and
3 I met the Fourth Applicant for the first time on 21 September 2009. Our go-between was the said Van
Oostrum. After he provided me with certain information, during 2008, about events in education before
2002, we no longer communicated with each other until, during July 2009, I had draft replying affidavits
e-mailed to him.’ (My translation.)
another lived in Orania. Even if some were not always available, it is hard to imagine
that appointments could not have been made to consult with them within a month of
the answering affidavits having been filed.
[23] When the evidence of De Villiers is analysed, it appears to me that the difficulty
in meeting with witnesses is a smoke screen: he had all he needed to draft the
replying papers sometime during 2008 but he only had a draft on which to consult with
the potential deponents in July 2009. And then it took him a further three months to
finalise the papers after he had sent them to the deponents.
[24] Finally, the affidavit of De Villiers in which he seeks to offer an explanation for
the delay is vague and it fails to account for the whole period of 18 months. It is vague,
for instance, in respect of precisely what progress he had made in drafting the papers
by October 2008 and even shorter on detail for the following year when this matter
was, it would appear, his primary concern and duty. Not one of the progress reports
that he claims to have written, including the report of May 2009, is attached to the
papers and it is difficult to imagine what he would have reported if he only had
completed a draft of the papers by July 2009.
[25] Rule 27(3) of the Uniform rules provides that a ‘court may, on good cause
shown, condone any non-compliance with these rules’. In United Plant Hire (Pty) Ltd v
Hills & others Holmes JA stated:4
‘It is well settled that, in considering applications for condonation, the Court has a discretion, to
be exercised judicially upon a consideration of all of the facts; and that in essence it is a
question of fairness to both sides.’
The various factors that are to be considered ‘are not individually decisive but are
interrelated and must be weighed one against the other’ with the effect, for instance,
that ‘a slight delay and a good explanation may help to compensate for prospects of
success which are not strong’.5
4 United Plant Hire (Pty) Ltd v Hills & others 1976 (1) SA 717 (A) at 720E-F.
5 At 720G.
[26] In Darries v Sheriff, Magistrate’s Court, Wynberg & another6 Plewman JA
distilled from the case law the guiding principles in the exercise of this discretion. He
stated:
‘I will content myself with referring, for present purposes, only to factors which the
circumstances of this case suggest should be repeated. Condonation of the non-observance
of the Rules of this Court is not a mere formality. In all cases some acceptable explanation,
not only of, for example, the delay in noting an appeal, but also, where this is the case, any
delay in seeking condonation, must be given. An appellant should whenever he realises that
he has not complied with a Rule of Court apply for condonation as soon as possible. Nor
should it simply be assumed that, where non-compliance was due entirely to the neglect of the
appellant's attorney, condonation will be granted. In applications of this sort the appellant's
prospects of success are in general an important though not decisive consideration. When
application is made for condonation it is advisable that the petition should set forth briefly and
succinctly such essential information as may enable the Court to assess the appellant's
prospects of success. But appellant's prospect of success is but one of the factors relevant to
the exercise of the Court's discretion, unless the cumulative effect of the other relevant factors
in the case is such as to render the application for condonation obviously unworthy of
consideration. Where non-observance of the Rules has been flagrant and gross an application
for condonation should not be granted, whatever the prospects of success might be.’
[27] The delay in this case – 18 months for the filing of a replying affidavit – is
excessively long. No effort was made to apply for the condonation of the delay as
soon as possible, and no explanation is given for this failure. Condonation was only
applied for when the reply was eventually filed, and De Villiers, making a virtue out of
necessity, stated that the filing of the reply was slowed down by the fact that a
condonation application had to be drafted as well. The explanation for the delay of 18
months is unacceptable. Indeed, it is no explanation at all because of its vagueness
and the long periods that remain unexplained. I consider the non-observance of the
rules to be so flagrant and gross that there is no need to consider the prospects of
success in the extension application. There are simply no factors that I can find that
favour the grant of condonation. In the result, however strong those prospects of
success could be, condonation for the late filing of the reply must be refused.
6 Darries v Sheriff, Magistrate’s Court, Wynberg & another 1998 (3) SA 34 (SCA) at 40H-41E.
(References omitted.)
[28] It follows that Pretorius J was correct in dismissing the application for
condonation for the late filing of the reply in the extension application. Consequently,
the appeal against the dismissal of that application must fail.
The extension application
[29] The extension application was brought on the basis that, if the relief that was
claimed amounted to a review of administrative action in terms of the PAJA, an
extension of the period within which the application should have been launched would
be sought. Counsel for the Minister argued that even if the PAJA did not apply, the
common law delay rule did and the applicants had delayed unreasonably in bringing
their application.
[30] Section 7(1) of the PAJA provides:
‘(1) Any proceedings for judicial review in terms of section 6(1) must be instituted without
unreasonable delay and not later than 180 days after the date-
(a) subject to subsection (2)(c), on which any proceedings instituted in terms of internal
remedies as contemplated in subsection (2)(a) have been concluded; or
(b) where no such remedies exist, on which the person concerned was informed of the
administrative action, became aware of the action and the reasons for it or might
reasonably have been expected to have become aware of the action and the reasons.’
[31] Section 9(1) provides, however, that the 180-day period ‘may be extended for a
fixed period, by agreement between the parties or, failing such agreement, by a court
or tribunal on application by the person or administrator concerned’. Section 9(2)
provides that such an application may be granted ‘where the interests of justice so
require’.7 As s 7(1) and s 9 apply only in respect of proceedings in which
administrative action is reviewed in terms of s 6(1) of the PAJA, the operation of these
sections is limited to administrative action as that term is defined in s 1 of the PAJA.
[32] Prayers 1, 4 and 5 of the notice of motion in the main application seek
declarators to the effect that the policies set out in government notices 710 of 31 May
2002, 1407 of 6 October 2003 and 1307 of 12 September 2003 are not binding on the
appellants because they are not legislation, regulations or rules.
7 In practice, s 9 is treated as a condonation provision. Usually, an applicant who is out of time applies
in the founding papers for condonation for launching the application outside of the 180-day limit, rather
than bringing a separate application, prior to the hearing of the application, for an extension of the
period. That is not to say that the appellants can be faulted for the procedure that they followed.
[33] The argument advanced by the appellants was that the Constitutional Court, in
Minister of Education v Harris,8 had made it clear that policy determinations made by
the Minister in terms of the National Education Policy Act were not binding on
independent schools. In that matter Sachs J had held:9
‘Policy made by the Minister in terms of the National Policy Act does not create obligations of
law that bind provinces, or for that matter parents or independent schools. The effect of such
policy on schools and teachers within the public sector is a different matter. For the purposes
of this case, it is necessary only to determine the extent to which policy formulated by the
Minister may be binding upon independent schools. There is nothing in the Act which
suggests that the power to determine policy in this regard confers a power to impose binding
obligations. In the light of the division of powers contemplated by the Constitution and the
relationship between the Schools Act and the National Policy Act, the Minister’s powers under
s 3(4) are limited to making a policy determination and he has no power to issue an edict
enforceable against schools and learners.’
[34] In respect of the prayers for declarators, no decision is taken on review,
whether directly or indirectly, no exercise of public power is sought to be set aside and
the PAJA has no bearing on the relief claimed because no administrative action is
implicated. That being so, s 7(1) and s 9 of the PAJA have no application. The relief
claimed being discretionary, however, the appellants were obliged to have launched
their application within a reasonable time.10 In other words, the common law delay
rule, as articulated in cases such as Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit
van Kaapstad,11 applies to determine whether the application in respect of this relief
was brought timeously and, if not, whether any unreasonable delay should be
condoned.
[35] Prayers 2, 3 and 6 seek the setting aside of aspects of the policy contained in
the three government notices insofar as they purport to impose legally binding
obligations on the appellants. The thrust of these prayers, read with the relevant
allegations in the founding papers, is that effect is being given to the policy and it is
being imposed on the appellants. The policy is, in other words, being implemented. On
the assumption that the appellants’ allegations are true (and so determining this issue
8 Minister of Education v Harris 2001 (4) SA 1297 (CC).
9 Para 11.
10 Lawrence Baxter Administrative Law (1984) at 715.
11 Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad 1978 (1) SA 13 (A).
as if on exception), I am of the view that the relief sought amounts to a review of the
implementation of the policy in terms of the PAJA.12 That appears to be the appellants’
understanding too. In paragraph 15 of BCVO’s founding affidavit the following is
stated:
‘Vir sover bedes 2, 3 en 6 van die kennisgewing van mosie op hersiening neerkom, is die
aansoek gebaseer op die bepalings van Artikel 6(2)(a)(i) en (f)(i) van Wet 3 van 2000 en is dit
nie nodig om die prosedure neergelê in Reël 53 van die Hooggeregshofreëls te volg nie
aangesien daar nie ‘n oorkonde bestaan wat ingevolge die bepalings van gemelde reël voor
die Agbare Hof geplaas moet word nie.’13
[36] From the appellants’ own categorisation of prayers 2, 3 and 6, the conclusion is
inescapable that they intended to review aspects of the policy insofar as it was being
applied to them. In Harnaker v Minister of the Interior14 Corbett J said the following of
the argument that a challenge to the validity of a proclamation under the Group Areas
Act 41 of 1950 was not a review:
‘Mr Molteno’s argument that the present action is not a review because it does not seek to
impugn the proceedings of any body but attacks the result of a certain act is, in my view, not a
sound one. As I have already indicated, the proceeding known as “review at common law” is
generally regarded as applying in the case where an individual has exceeded the statutory
powers conferred upon him or has done some act or taken some decision which is assailable
upon what are often referred to as “review grounds”.’
[37] Even though, now, the review jurisdiction of the courts is no longer a common
law jurisdiction,15 the above statement, which I consider to be correct, applies with
equal force to the facts of this case. The appellants seek to have certain provisions set
aside on the basis of two grounds of review which they identify: according to
paragraph 15 of BCVO’s founding affidavit, the grounds upon which their challenge is
mounted is that the administrator who took the action concerned was not authorised to
do so16 and the action complained of ‘contravenes a law or is not authorised by the
12 I have approached this question in the same way as Bozalek J did in Sebenza Forwarding & Shipping
Consultancy (Pty) Ltd v Petroleum Oil and Gas Corporation of SA (Pty) Ltd t/a Petro SA & another 2006
(2) SA 52 (C).
13 ‘Insofar as prayers 2, 3 and 6 of the notice of motion amount to a review, the application is based on
the provisions of Section 6(2)(a)(i) and (f)(i) of Act 3 of 2000 and it is not necessary to follow the
procedure provided for in Rule 53 of the Supreme Court Rules because a record does not exist that, in
terms of the provisions of the said rule, has to be placed before the Honourable Court.’ (My translation.)
14 Harnaker v Minister of the Interior 1965 (1) SA 372 (C) at 377H-378A.
15 Pharmaceutical Manufacturers Association of SA & another: In re ex parte President of the Republic
of South Africa & others 2000 (2) SA 674 (CC) paras 45 and 51.
16 Section 6(2)(a)(i) of the PAJA.
empowering provision’.17 In the result, the application in respect of prayers 2, 3 and 6
is, no matter what its form, an application for review in substance.
[38] The imposition of the policy created through the ‘empowering’ mechanism of s
3(4) of the National Education Policy Act amounts to the implementation of that
legislation. (In effect, it is the appellants’ contention that the policy is being imposed as
if it was legislation.) In President of the Republic of South Africa & others v South
African Rugby Football Union & others18 the Constitutional Court made it clear that
when deciding on whether an exercise of public power constitutes administrative
action the primary focus is on the function rather than the functionary exercising that
power, and that the function of implementing legislation constitutes administrative
action for purposes of s 33 of the Constitution.
[39] The next issue is whether the imposition of the policy constitutes administrative
action for purposes of the PAJA. The term is defined in s 1. Leaving aside those
aspects of the definition not relevant to this case, administrative action is any decision
taken by an organ of state when exercising a public power or performing a public
function in terms of legislation which adversely affects rights and has a direct, external
legal effect.
[40] I am of the opinion that the conduct on which prayers 2, 3 and 6 is premised
falls within the definition of administrative action in the PAJA. The imposition of the
policy on the appellants involved a decision – the imposition of a condition or the
making of a demand or requirement19 -- as envisaged by the PAJA. This would
constitute the performance of a public function by an organ of state. The appellants
allege that this would have the effect of adversely affecting their rights in terms of s
29(3) of the Constitution and the right of scholars at CVO schools to culture, religion
and language in terms of s 31 of the Constitution. The decision would have a direct,
external legal effect.20
17 Section 6(2)(f)(i) of the PAJA.
18 President of the Republic of South Africa & others v South African Rugby Football Union & others
2000 (1) SA 1 (CC) paras 141-142.
19 See subsections (d) and (e) of the definition of ‘decision’ in s 1 of the PAJA.
20 As to the meaning of these last two aspects of the definition of administrative action for purposes of
the PAJA, see Grey’s Marine Hout Bay (Pty) Ltd & others v Minister of Public Works & others 2005 (6)
SA 313 (SCA) para 23.
[41] My conclusion then is that because the application in respect of prayers 1, 4
and 5 of the notice of motion is not a review, and consequently could not have been
brought in terms of the PAJA, the common law delay rule applies to them, while the
application for prayers 2, 3 and 6 is a review in terms of the PAJA and the time limit
set out in s 7(1), read with the condonation provision in s 9, applies to them. This is a
consequence of the legislature’s decision, when enacting the PAJA, to depart from the
flexibility of the common law delay rule in respect of challenges to one species of
public power – the narrowly defined administrative action for purposes of the PAJA.
Despite the differences between the formulation of the delay rule and the time limit
and condonation provisions of the PAJA, however, the approach to the application of
both is similar and the approach to the latter is, in truth, inspired by the delay rule.
[42] It was argued by counsel for the appellants that we were required to decide the
merits before considering whether the application was brought out of time or after
undue delay and, if so, whether or not to condone the defect. Reliance was placed on
a statement made by Froneman J in Bengwenyama Minerals (Pty) Ltd & others v
Genorah Resources (Pty) Ltd & others21 to the effect (as it was framed in
supplementary heads of argument) that ‘the court should first determine the merits in
order to give full effect to a finding of invalidity before considering whether
circumstances would justify the exercise of a discretion against the granting of relief’.22
[43] When the passages in Froneman J’s judgment are read in context, however, it
is clear that they refer not to the discretion to withhold a remedy because of undue
delay or because an application is brought out of time but to the amelioration of the
logical result of a finding of invalidity – the setting aside of the unlawful action or
conduct – in order to achieve justice and equity. This refers in the first instance to s
172 of the Constitution which reads:
‘(1) When deciding a constitutional matter within its power, a court –
(a) must declare that any law or conduct that is inconsistent with the Constitution is
invalid to the extent of its inconsistency; and
(b) may make any order that is just and equitable, including –
(i) an order limiting the retrospective effect of the declaration of invalidity; and
21 Bengwenyama Minerals (Pty) Ltd & others v Genorah Resources (Pty) Ltd & others 2011 (4) SA 113
(CC).
22 Reference was made in the supplementary heads to paras 84-87 of the judgment.
(ii) an order suspending the declaration of invalidity for any period and on any
conditions, to allow the competent authority to correct the defect.’
[44] It was to these discretionary remedies and their equivalent in s 8 of the PAJA
that Froneman J was referring, and not to the delay rule or s 7(1) of the PAJA. Even
though a court exercises a discretion when deciding to condone an undue delay or
extend a time period, when it refuses to do so it does not award a remedy. The effect
is the opposite – the withholding of a remedy. It dismisses the application because of
the delay or lateness. This is borne out by Bengwenyama Minerals itself. Froneman J
dealt with the question of delay, finding that the application had not been brought out
of time, before dealing with the merits.23 As there is no need to deal with the merits
first, I proceed to consider the question of delay.
[45] In general terms, the purpose of the delay rule was, in Louw v The Mining
Commissioner, Johannesburg,24 rather quaintly intimated to be to non-suit a litigant
who ‘wishes to drag a cow which has been long dead out of the ditch’. More recently,
this court, in Gqwetha v Transkei Development Corporation Ltd & others,25 gave a
fuller explanation of its purpose and function. Nugent JA (for the majority) said the
following of the rule:
‘[22] It is important for the efficient functioning of public bodies (I include the first respondent)
that a challenge to the validity of their decisions by proceedings for judicial review should be
initiated without undue delay. The rationale for that longstanding rule - reiterated most recently
by Brand JA in Associated Institutions Pension Fund and Others v Van Zyl and Others 2005
(2) SA 302 (SCA) at 321 - is twofold: First, the failure to bring a review within a reasonable
time may cause prejudice to the respondent. Secondly, and in my view more importantly,
there is a public interest element in the finality of administrative decisions and the exercise of
administrative functions. As pointed out by Miller JA in Wolgroeiers Afslaers (Edms) Bpk v
Munisipaliteit van Kaapstad 1978 (1) SA 13 (A) at 41E - F (my translation):
“It is desirable and important that finality should be arrived at within a reasonable time in
relation to judicial and administrative decisions or acts. It can be contrary to the administration
of justice and the public interest to allow such decisions or acts to be set aside after an
unreasonably long period of time has elapsed - interest reipublicae ut sit finis litium. . . .
Considerations of this kind undoubtedly constitute part of the underlying reasons for the
existence of this rule.”
23 Paras 56-60 deal with delay while paras 61-80 deal with the merits.
24 Louw v The Mining Commissioner, Johannesburg (1896) 3 OR 190 at 200.
25 Gqwetha v Transkei Development Corporation Ltd & others 2006 (2) SA 603 (SCA) paras 22-23.See
too Associated Institutions Pension Fund & others v Van Zyl & others 2005 (2) SA 302 (SCA) para 46.
[23] Underlying that latter aspect of the rationale is the inherent potential for prejudice, both to
the efficient functioning of the public body and to those who rely upon its decisions, if the
validity of its decisions remains uncertain. It is for that reason in particular that proof of actual
prejudice to the respondent is not a precondition for refusing to entertain review proceedings
by reason of undue delay, although the extent to which prejudice has been shown is a
relevant consideration that might even be decisive where the delay has been relatively slight
(Wolgroeiers Afslaers, above, at 42C).’
[46] In the application of both the delay rule and ss 7 and 9 of the PAJA, a two stage
approach is required. That is the way the courts have always applied the delay rule
and the structure of the PAJA requires two distinct enquiries. The first question that
arises is whether the delay in launching an application was unreasonable, or whether
it was launched more than 180 days after internal remedies had been exhausted or
the applicant had been informed of, had knowledge of or ought to have had
knowledge of the administrative action under challenge.26 The second question is
whether, if the first question is answered in the affirmative, the delay ought to be
condoned or whether it is in the interests of justice that the 180-day period be
extended (or the failure to bring the application timeously should be condoned).27
[47] In both instances, once the first stage has been determined against an
applicant, the delay will only be condoned if the explanation for it is acceptable. That,
by its nature, involves the exercise of a discretion.28 The approach to the condonation
of delay in terms of the PAJA was dealt with by this court in Camps Bay Ratepayers’
and Residents’ Association v Harrison29 as follows:
‘The appellants “might reasonably have been expected to have become aware” of the
infringement when they first inspected the original plan and proceedings for review on that
ground ought ordinarily have been commenced within 180 days of that date. Section 9(2)
however allows the extension of these time frames where “the interests of justice so require”.
26 I leave aside the possibility that an applicant may be non-suited even if the delay in launching the
application is less than 180 days: s 7(1) requires proceedings to be instituted ‘without unreasonable
delay and not later than 180 days after . . .’. This issue does not arise in this case because a delay of
180 days would not have been unreasonable. See Thabo Mogudi Security Services CC v Randfontein
Local Municipality & others [2010] 4 All SA 314 (GSJ) para 59.
27 Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad (note 11) at 39C-D; Associated
Institutions Pension Fund v Van Zyl (note 25) para 47.
28 Wolgroeiers Afslaers (Edms) Bpk v Munisipaliteit van Kaapstad (note 11) at 39C-D; Associated
Institutions Pension Fund v Van Zyl (note 25) para 48.
29 Camps Bay Ratepayers’ and Residents’ Association v Harrison [2010] 2 All SA 519 (SCA) para 54
(confirmed on appeal in Camps Bay Ratepayers’ and Residents’ Association & another v Harrison &
another 2011 (4) SA 42 (CC)). See too Price Waterhouse Coopers Inc & others v Van Vollenhoven NO
& another [2010] 2 All SA 256 (SCA).
And the question whether the interests of justice require the grant of such extension depends
on the facts and circumstances of each case: the party seeking it must furnish a full and
reasonable explanation for the delay which covers the entire duration thereof and relevant
factors include the nature of the relief sought, the extent and cause of the delay, its effect on
the administration of justice and other litigants, the importance of the issue to be raised in the
intended proceedings and the prospects of success.’
[48] I turn now to the facts concerning the time taken to launch the application.
Thereafter I shall determine whether that time exceeds 180 days for the purposes of
the PAJA and if it constituted an unreasonable delay for purposes of the common law.
If so in both instances, I shall decide, finally, whether the interests of justice require an
extension of time in respect of the application for prayers 2, 3 and 6, in terms of the
PAJA, and whether condonation should be granted in respect of the application for
prayers 1, 2 and 6, for purposes of the delay rule.
[49] The first relevant government notice was published on 31 May 2002, with the
policy articulated in it being implemented from 2004 to 2008. The following two
government notices were published on 12 September 2003 and 6 October 2003.
Although the appellants claim that they only became aware of the first government
notice in 2005 and the other two in 2007, I have my doubts that this could be so. Both
BCVO and its affiliate, CVO Skool Pretoria, are involved in education and ought to
take an active interest in government policy and action in relation to education. If they
did not know of the existence of these instruments until 2005 and 2007 they have only
themselves to blame, particularly as the new curriculum for grades R to 9 was
implemented from 2004 and that for grades 10 to 12 was implemented from 2006. Ms
Penelope Vinjevold, the deponent to the answering affidavit on behalf of the Minister,
made the point that the development of the new curriculum did not occur overnight,
required a great deal of work prior to implementation and involved much consultation
and publicity aimed at those involved in education.
[50] Even if the appellants had managed to remain unaware of these developments
from 2002 until 2004, it is clear that they became aware of the second government
notice by April 2005. Mr Jacobus Fourie, an attorney who is also a director of CVO
Skool Pretoria and a parent of children who attend that school, deposed to an affidavit
on its behalf. He stated that, on 26 April 2005, the school received a letter, dated 11
April 2005, from the acting senior manager of the district of North Gauteng of the
Department of Education addressed to ‘The Principal, SMT and SGB of all Schools’.30
It extends an invitation to the principal, the members of the SMT and one parent
member of the SGB to attend a workshop on ‘the subject offerings for grade 10
learners in 2006’. The opening sentence of the letter states that, as everyone is
aware, ‘the implementation of the National Curriculum Statement (Grades 10 to 12)
will be happening in 2006’.
[51] If Fourie did not bring this development to the attention of BCVO as the body to
whom the school he represented was affiliated, someone else must have because in
mid-2005, the annual general meeting of BCVO discussed the new curriculum and
took certain decisions. BCVO decided that its affiliated schools would implement some
aspects of the new curriculum but that other parts of it would not be implemented. It
did nothing to challenge the new curriculum, even though it accepted that it applied to
its affiliated schools, and it must have been in no doubt that the Department
considered CVO schools to be bound to implement the new curriculum. Indeed,
attached to the affidavit of Fourie are seven media statements released by the
Department of Education, dated 30 September 2004, 27 May 2005, 18 July 2005, 20
July 2005, 30 May 2006, 31 August 2006 and 6 June 2007 that make it clear that the
new curriculum was going to be implemented throughout the country and that, as far
as the Department was concerned, it was to be implemented by all schools. The
appellants took no steps to investigate the lawfulness of the imposition on them of the
new curriculum until much later.
[52] Fourie complained that Umalusi, the Council for General and Further Education
and Training Quality Assurance, demanded of the school that it implement the new
curriculum, both in respect of grades R to 9 and grades 10 to 12. He referred to a
document that emanated from Umalusi entitled ‘Draft criteria for the accreditation &
monitoring of independent schools’ which is dated September 2005. Although Fourie
did not state when it came to the attention of CVO Skool Pretoria, it must have done
so in 2005. According to the document, one of the areas that would be considered for
the accreditation of independent schools was teaching and learning. The document
stated in this regard:
30 From the body of the letter, it is apparent that the acronym SMT stands for School Management
Team and SGB stands for School Governing Body.
‘This focus area includes criteria around the core business of an independent school. It
includes national curriculum, learning programmes and certification, delivery, teaching,
assessment of learning, staff expertise and development, and learner support.’
[53] Under a heading entitled ‘Criterion 4: Curricula, learning programmes and
certification’, the document states that the quality of the ‘subject mix, learning
programmes and certification’ would be measured by taking into account, inter alia,
the extent to which ‘the school complies with national policies in respect of the
curriculum’. Umalusi would expect schools, in order to meet the criteria concerning
teaching and learning, to have learning programmes based ‘on the national curriculum
as reflected in the national curriculum statements of the department of education’ and
to ‘meet all the policy requirements’. In an appendix headed ‘Summary of
Accreditation Criteria for Independent Schools’, ‘[c]ompliance with legislation and
policies’ is listed as a sub-criterion for teaching and learning. There was no doubt in
Fourie’s mind as to the import of the Department’s letter of 11 April 2005 and
Umalusi’s criteria for accreditation. He concluded his affidavit by complaining that
Umalusi considered the new curriculum to be binding on independent schools, just as
the Department did.
[54] BCVO was also concerned that Umalusi was trying to force CVO schools to
implement the new curriculum. Its concerns arose when it received a letter dated 19
September 2005 from Umalusi, dealing with the evaluation of BCVO’s application for
accreditation as a private assessment body, and which required it to submit ‘a sample
of curricula and learning programmes for scrutiny by Umalusi to evaluate the degree of
compliance with the requirements of the senior certificate core curriculum’. BCVO’s
founding affifavit concludes as follows in respect of Umalusi:
‘Aangesien Umalusi by CVO-Skole en by die Eerste Applikant aandring dat die Hersiene
Nasionale Kurrikulumstelling deur hulle toegepas moet word ten einde voorlopige akkreditasie
as verskaffers te verkry, is dit ook om hierdie rede vir die Applikante van wesenlike belang dat
die Agbare Hof die aangevraagde regshulp verleen sodat daar duidelikheid sal bestaan of
sodanige Kurrikulum bindend is al dan nie.’31
31 ‘In view of the fact that Umalusi insists that the Revised National Curriculum Statement must be
applied by CVO-Schools and the First Applicant in order to obtain provisional accreditation as providers,
it is for this reason too that it is of importance for the Applicants that the Honourable Court grants the
relief applied for so that clarity can be obtained as to whether the said Curriculum is binding or not.’ (My
translation.)
[55] During the first half of 2006, BCVO was advised by De Villiers that it was not
bound to implement the new curriculum. In mid-2006, this advice was shared with Van
Oostrum, the executive officer of a body called the Pestalozzi Trust, which describes
itself on its letterhead as ‘the legal defence fund for home education’. According to
Van Oostrum’s affidavit, the basis for the conclusion that the new curriculum was not
binding was that it had not been determined in terms of s 6A of the South African
Schools Act 84 of 1996 and no regulations in terms of s 61(c) and (d) of that Act had
been promulgated. Van Oostrum wrote a letter to the Minister, dated 26 June 2006, in
which he asked to be informed of the references of the government notices in which
the new curriculum had been determined and regulations had been promulgated. No
reply was received.
[56] Further undisclosed discussions occurred at BCVO’s annual general meeting in
mid-2006, after the letter had been sent. Nothing more appears to have happened
until 6 December 2006 when BCVO’s chairperson at the time wrote to the Minister. He
stated that the new curriculum had not been determined and the necessary
regulations had not been promulgated, that the government notices in issue in this
case had only stated policy and that in terms of the Harris case, that was not binding.
Paragraphs 11 and 12 of the letter stated:
‘11. Indien u sou toegee dat die Hersiene Nasionale Kurrikulum nie ingevolge art. 6A bepaal is
nie, dat geen regulasies daaromtrent ingevolge art. 61(c) en (d) in die Staatskoerant
afgekondig is nie, en dat gemelde Kurrikulum dus slegs beleid en nie bindend is nie, sal ons
dit waardeer indien u dit so spoedig moontlik skriftelik aan ons sal bevestig en dit natuurlik
ook, vanweë die groot nasionale belang daarvan, aan alle skole en die publiek bekend sal
maak.
12. Indien ons teen 22 Januarie 2007 nog nie ‘n antwoord op hierdie brief van u ontvang het
nie, sal ons aanvaar dat ons siening korrek is en dat u stilswyend toegee dat die Hersiene
Nasionale Kurrikulum inderdaad nie ingevolge art. 6A bepaal is nie, dat regulasies ingevolge
art. 61(c) en (d) nie afgekondig is nie, en sal ons verplig wees, om duidelikheid te verkry oor ‘n
aangeleentheid van groot nasionale belang, die Transvaalse Provinsiale Afdeling van die
Hooggeregshof by wyse van aansoek vra om ‘n verklarende bevel te verleen dat die Hersiene
Nasionale Kurrikulum slegs beleid is en nie bindend is nie. In so ‘n geval sal ons waarskynlik
‘n kostebevel teen u in u hoedanigheid as Minister van Onderwys aanvra omdat u versuim het
om te reageer op hierdie brief en ons verplig het om ‘n aansoek daaromtrent na die hof te
loods.’32
[57] The date for the expiry of the ultimatum came and went. As it happened, the
Minister replied to the letter but it went astray and was never received by BCVO. The
application was only launched on 10 September 2007 (when it was served), the notice
of motion being dated 20 August 2007. That means that the application was launched
more than nine months after the letter of demand was sent, and more than seven and
a half months after the ultimatum had expired.
[58] In order to determine whether the appellants delayed unduly the first question
that requires an answer is precisely when the clock started ticking. In Camps Bay
Ratepayers’ and Residents’ Association & another v Harrison & another33 the
Constitutional Court dealt with this issue. Brand AJ held:
‘Whether or not the Supreme Court of Appeal was correct in its approach, first raises the issue
regarding the interpretation of s 7(1)(b) of PAJA. In terms of the section, the 180-day period
starts to run when the “person concerned . . . became aware of the action and the reasons for
it”. Before “the action” nothing happens. In the final analysis it is awareness of “the action” that
sets the clock ticking. That raises the question: what “action” did the legislature have in mind?
The answer, I think, is the “administrative action”, and, according to the definition of that term
in PAJA, “the decision” that is challenged in the review proceedings. What that decision entails
is a question that cannot be answered in the abstract. It must depend on an evaluation of the
facts.’
[59] In my view the clock started ticking, at the latest, on 26 April 2005 when CVO
Skool Pretoria received a letter, sent to all schools, from the Department of Education
32 ’11. If you concede that the Revised National Curriculum Statement has not been determined in terms
of s 6A, that no regulations concerning it have been promulgated in the Government Gazette in terms of
s 61(c) and (d), and that the said Curriculum is thus only policy and is not binding, we would appreciate
it if you would confirm this in writing as soon as possible and, of course, because of the great national
importance thereof, also inform all schools and the public.
12. If we have not received an answer to this letter from you by 22 January 2007, we shall assume that
our view is correct and that you have tacitly conceded that the Revised National Curriculum Statement
has indeed not been determined in terms of s 6A, that regulations have not been promulgated in terms
of s 61(c) and (d), and we will be obliged, in order to obtain clarity concerning a matter of great national
importance, to approach the Transvaal Provincial Division of the High Court by way of an application to
ask that a declaratory order be granted that the Revised National Curriculum Statement is only policy
and is not binding. In that event we shall probably ask for a costs order against you in your capacity as
Minister of Education because your failure to respond to this letter will have obliged us to launch an
application in court.’ (My translation.)
33 Camps Bay Ratepayers’ and Residents’ Association & another v Harrison & another 2011 (4) SA 42
(CC) para 57.
to inform it of a workshop on the new curriculum and that it was going to be
implemented. That was followed by the media statements that I have referred to above
that also made it clear that the Department took the view that all schools had to
implement the new curriculum in accordance with the time frames set out in the
government notices of 31 May 2002 and 6 October 2003. In the light of this, the
decision was taken at the BCVO annual general meeting in mid-2005 to implement
those aspects of the new curriculum that it found unobjectionable and not to
implement the rest.
[60] The appellants were not entitled to adopt a supine attitude. Once they were
adversely affected by the Department’s action of imposing the new curriculum on them
they were obliged to take steps to investigate the lawfulness of that action. They did
not do so, they should have, and there is no acceptable explanation why they did not.
This court has held that delay prior to a litigant becoming aware of the reviewability of
administrative action cannot necessarily be disregarded. In Associated Institutions
Pension Fund & others v Van Zyl & others34 Brand JA held:
‘In my view there is indeed a duty on applicants not to take an indifferent attitude but rather to
take all reasonable steps available to them to investigate the reviewability of administrative
decisions adversely affecting them as soon as they are aware of the decision. These
considerations are, in my view, also reflected in both s 7(1) of PAJA and in the provisions of s
12(3) of the Prescription Act 68 of 1969. Whether the applicants in a particular case have
taken all reasonable steps available to them in compliance with this duty, will depend on the
facts and circumstances of each case.’
[61] Even after legal advice had been given to BCVO in the first half of 2006, that
the Minister could not lawfully require independent schools to implement the new
curriculum, no steps were taken to challenge the decision that the new curriculum had
to be implemented by all schools. Instead, the advice was conveyed to Van Oostrum
who wrote an inconsequential letter to the Minister requesting information. BCVO did
nothing further for the rest of the year until it wrote its letter of 6 December 2006
putting the Minister to terms and telling her, rather strangely, that if she agreed with
BCVO that the policy was not binding, it would launch proceedings for a declaratory
order. There is, in truth, no explanation for this delay. Still nothing happened from the
expiry of the ultimatum until 10 September 2007 when the application was launched.
34 Note 25 para 51.
[62] The explanation for this delay is that further research was necessary and that
BCVO had to find further applicants, apparently to bolster its case. Both explanations
are unacceptable. BCVO knew about the Harris case. This was the centrepiece of its
challenge. To the extent that research had to be undertaken into BCVO’s standing,
that could and should have been done in two days at the most. The search for any
determinations in terms of s 6A and regulations in terms of s 61(c) and (d) of the South
African Schools Act appears to have taken months. This research could have been
concluded in minutes with the aid of the internet, or perhaps a bit longer by perusing
the Department’s website. A telephone call to the Department may also have wielded
a speedy answer. The search for applicants also took months. If it was necessary at
all, it should have been done much earlier and when it was done, it was done at a
leisurely pace. The explanation for the long delay from mid-2006 until the launching of
the application – a delay of at least a year and three months – is unacceptable.
[63] The delay from 26 April 2005 until 10 September 2007 is about two years and
four and a half months. All things considered, that is an unreasonably long delay from
when the clock began to tick, and obviously the proceedings were instituted outside of
the 180-day limit provided for in s 7(1) of the PAJA.
[64] The explanation for the delay, as I have said, is unacceptable. In some
instances, no explanation at all is tendered, while in others it is so threadbare as to
amount to no explanation. Throughout, there is a dearth of detail and where
explanations were offered, they tend to indicate that the appellants dragged their heels
throughout and did not take steps to safeguard their interests with reasonable
expedition. The delay was lengthy and its cause was the laxity and indifference of the
appellants. In summary, no full and reasonable explanation has been given for the
entire period of the delay.
[65] It is not necessary to consider the appellants’ prospects of success as the
dispute has largely been overtaken by events: another curriculum has replaced the
one that the appellants object to and the appellants accept that the procedural steps
necessary to make the policy binding on independent schools have been complied
with.35 That curriculum is being implemented. In the result, an issue that is now of little
35 See Government Notices 722 and 723 of 12 September 2011.
practical import has been lingering, unfinished, for some six years at least. The
interests of justice militate against condonation for the unreasonable delay in applying
for the declarators and for the lateness of the application for the review and setting
aside of aspects of the government notices.
[66] In the result, the application for an extension of time in respect of prayers 2, 3
and 6 could not succeed and the condonation for the delay in bringing the application
in respect of prayers 1, 4 and 5 could not be granted. That means that the main
application had to be dismissed without the merits even being considered. Pretorius
J’s outcome was thus correct. The appeal against the dismissal of the extension
application and the main application must fail.
Costs
[67] It was argued on behalf of the appellants that if the appeal was to be dismissed,
they should not be required to pay the costs of the Minister, either in the court below or
in this court. Reliance was placed on the principle enunciated by the Constitutional
Court in Biowatch Trust v Registrar, Genetic Resources & others36 to the effect that in
litigation between ‘the government and a private entity seeking to assert a
constitutional right . . . ordinarily, if the government loses, it should pay the costs of the
other side, and if the government wins, each party should bear its own costs’.
[68] That principle is subject to exceptions. So, the Constitutional Court held, if ‘an
application is frivolous or vexatious, or in any other way manifestly inappropriate, the
applicant should not expect that the worthiness of its cause will immunise it against an
adverse costs award’.37 Furthermore, the issues ‘must be genuine and substantive,
and truly raise constitutional considerations relevant to the adjudication’.38 Whether
proceedings are manifestly inappropriate is a question of fact to be determined in the
light of all of the evidence. In my view, an application would be manifestly
inappropriate if an applicant had delayed unreasonably before launching it and ought
to have known that its prospects of having the delay condoned were slight.39
36 Biowatch Trust v Registrar, Genetic Resources & others 2009 (6) SA 232 (CC) para 22.
37 Para 24.
38 Para 25.
39 See by way of analogy, Wildlife and Environmental Society of South Africa v MEC for Economic
Affairs, Environment and Tourism, Eastern Cape & others 2005 (6) SA 123 (E).
[69] While I do not consider the bringing of the application in this matter to have
been frivolous or vexatious, it was, in view of the inordinately long delay, manifestly
inappropriate for the appellants to have proceeded with it in the circumstances. They
must have known that, given the long delay and the paucity of the explanation for it,
the chances of the application being dismissed on account of that delay were strong
and the chances of the matter being decided on the merits were slight. To the extent
that they held a contrary view, that view was unreasonably held.
[70] I can appreciate the basis and rationale of the Biowatch principle when a
genuine case concerning constitutional rights is decided against an applicant and in
favour of a government respondent on the merits40 and even in preliminary
proceedings in the ordinary course. The purposes it seeks to achieve are not
undermined, however, by the application of the usual rule that costs follow the result
when an application fails before the substantive issues are reached because of an
applicant’s own laxity in circumstances where it is manifestly inappropriate. In
circumstances such as those it would be unfair to expect the successful government
respondent to bear its own costs.
[71] For the above reasons, all of which apply to the appellants in this case, I am of
the view that they should be ordered, jointly and severally, to pay the costs of the
Minister in this court and that there is no justification for an interference with the costs
order made by the court below. The costs of two counsel are warranted.
The order
[72] The appeal is dismissed and the appellants are directed, jointly and severally,
to pay the costs of the first respondent, including the costs of two counsel.
________________________
C PLASKET
ACTING JUDGE OF APPEAL
40 See Biowatch Trust v Registrar, Genetic Resources & others (note 36) para 23.
APPEARANCES
Appellants:
R J Raath SC and R J Groenewald
(Heads of argument by S J Du Plessis SC and R J Groenewald)
Instructed by:
Gouws Attorneys, Pretoria
Naudes Incorporated, Bloemfontein
First Respondent: J H Dreyer SC and N Janse van Nieuwenhuizen
Instructed by:
The State Attorney, Pretoria
The State Attorney, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
29 March 2012
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form
part of the judgment.
Beweging vir Christelik-Volkseie Onderwys v Minister of Education (308/2011) [2012]
ZASCA 45 (29 March 2012)
The Supreme Court of Appeal (SCA) dismissed an appeal against an order of
the North Gauteng High Court, Pretoria. The appellants applied to the court a
quo for three declaratory orders concerning the binding effect on them of
certain government notices promulgated by the first respondent, the Minister
of Education, setting out curriculum policy and religious education policy for
schools. The appellants also applied for three orders in which they sought the
setting aside of certain aspects of these policies.
In the main application the respondents contended that the appellants sought,
in effect, the review of administrative action and as the application had been
brought outside the 180-day time limit provided for by s 7(1) of the Promotion
of Administrative Justice Act 3 of 2000 it therefore had to be dismissed. As a
result the appellants applied for an extension of the 180-day period. As the
replying papers were filed 18 months late the appellants also applied for
condonation of this delay.
In the court a quo, Pretorius J dismissed the main application with costs,
together with the extension application and the application for condonation.
In regard to the condonation application, the SCA found the explanations for
the delay of 18 months unacceptable and could find no factors which could
favour the granting of condonation. Consequently, the SCA dismissed the
appeal against the dismissal of the application for condonation.
As for the extension application, the SCA held that three of the orders sought
by the applicants amounted to applications to review administrative action and
had been brought out of time. In respect of the declaratory orders that had
been applied for, the appellants’ delay in bringing the main application was
unreasonably long. As the Court could find no acceptable explanation for
either the lateness or the delay condonation was refused.
In the result the SCA held that the appeal against the dismissal of the
application for an extension of time had to fail. The SCA further held that
consequently the main application had to be dismissed without the merits
even being considered.
|
1310
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No: 324/09
In the matter between:
R MILLER
First Appellant
A I SURMANY
Second Appellant
R M KGOSANA
Third Appellant
B K MAMOSEBA
Fourth Appellant
N Y SERITI
Fifth Appellant
and
NAFCOC INVESTMENT HOLDING COMPANY LTD First Respondent
M LEAF
Second Respondent
L BAYA
Third Respondent
T SAUL
Fourth Respondent
K H HLONGWANE
Fifth Respondent
Neutral citation: R Miller v Nafcoc Investment Holding Company (324/09)
[2010] ZASCA 25 (25 March 2010).
Coram:
CLOETE, MHLANTLA, SHONGWE JJA, GRIESEL
et MAJIEDT AJJA
Heard:
9 March 2010
Delivered:
25 March 2010
Summary:
Companies Act 61 of 1973; ss 417 and 418: Master in ordering
enquiry does not have to act on an application by a limited category of
persons, or any application at all; it is competent and sensible for the Master
to delegate to the Commissioner the decision as to who may attend the
enquiry or have access to the record; s 73: effect of deregistration of
company; liquidators: power of liquidators to delegate responsibility to third
persons.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: South Gauteng High Court (Johannesburg) (Snyders J
sitting as court of first instance):
1.
The appeal succeeds with costs, including the costs of senior counsel.
2.
The order made by the court a quo is set aside and the following order
substituted:
'The application is dismissed with costs, including the costs of the urgent application;
and the costs of senior and junior counsel where such were employed, and of senior
counsel where senior counsel alone was employed, shall be allowed at all stages of
the proceedings.'
3.
The cross-appeal is dismissed with costs, including the costs of senior
counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
CLOETE JA (MHLANTLA, SHONGWE JJA, GRIESEL et MAJIEDT AJJA
concurring):
[1] On 23 May 2006 a company known as Serveco (Pty) Ltd was finally
liquidated at the suit of its major shareholder Nafcoc Investment Holding
Company Ltd. Nafcoc and four individuals, each of whom was at some time a
director or employee of Serveco or Nafcoc or both (and to whom I shall refer
as 'the individual applicants'), brought urgent proceedings in the South
Gauteng High Court, Johannesburg. The second to fourth respondents in that
application were the joint liquidators of Serveco (to whom I shall refer as such)
and the first respondent, Mr Miller, was a professional liquidator who acted on
behalf of the joint liquidators. His authority to do so, as well as the joint
liquidators' ability to confer such authority on him, are in dispute.
[2] The relief sought by the individual applicants was aimed at preventing
their examination and that of their attorney, and also preventing the
attendance of Miller, at an enquiry into the affairs of Serveco authorised by
the Master in terms of ss 417 and 418 of the Companies Act 61 of 1973. The
application to the Master for the enquiry had been made ex parte by Miller
acting on behalf of the joint liquidators and the Master made the order on 27
March 2008. In terms of the order an attorney, Ms Rene Bekker, was
appointed as the Commissioner in terms of s 418 of the Companies Act. (The
Master and the Commissioner were respondents a quo but took no part in
those proceedings or this appeal.)
[3] The enquiry was due to resume on 29 August and continue on 3
November 2008 and the individual applicants and their attorney (who was
required to bring documents) were given notices to attend. On 26 August
2008 and by consent Mokgoatlheng J granted an interim order which inter alia
reserved the costs of the urgent application for determination by the court
hearing the application for final relief; prescribed time periods for the review of
the Master's decision to order the enquiry and the Commissioner's decision to
issue notices requiring the attendance of the individual applicants and their
attorney at the enquiry; put the parties on terms to deliver further affidavits,
and recorded that the enquiry convened by the Commissioner for 29 August
and 3 November 2008 would not take place.
[4] The matter came before Snyders J on 13 November 2008. Judgment
was reserved. On 8 December of the same year the learned judge made an
order:
1.
Setting aside the decision of the Master and the Commissioner:
(a)
to convene the enquiry;
(b)
to continue or permit the continuation of the enquiry; and
(c)
to issue the notices served on the individual applicants and their
attorney to attend the enquiry on 29 August and 3 November; and
2.
Interdicting Miller from access to the enquiry, the record thereof and
any inspection thereof 'in breach of s 417(7) of the Companies Act'.
Miller and each of the joint liquidators were ordered jointly and severally to
pay the costs of the application and the costs incurred in the enquiry out of
their own pockets. Those parties now appeal to this court against the whole of
the order made by Snyders J, and Nafcoc and the individual applicants cross-
appeal for the costs of two counsel in the court a quo. Both sides obtained the
leave of the court a quo (granted by Blieden J).
[5] On appeal counsel representing the applicants sought to justify para
1(a) of the order of the court a quo and to impugn the decision of the Master
to order the enquiry into the affairs of Serveco, primarily on the basis that
there had been material non-disclosures by Miller in his ex parte application.1
Three arguments were advanced. First, it was submitted that Miller had not
disclosed that a previous enquiry had been authorised by the Master on 7
June 2006 and that that enquiry had not yet been finalised or alternatively,
that Miller had not given reasons to the Master justifying the necessity for a
second enquiry when the earlier enquiry had not concluded. Second, it was
submitted that Miller had not disclosed that Serveco was about to be
deregistered. Third, it was submitted that Miller had not disclosed that the joint
liquidators had authorised him to bring the application and to conduct the
enquiry on their behalf.
[6] The first submission is patently untenable. Miller said in the answering
affidavit delivered on behalf of the joint liquidators and himself:
'In any event for purposes of the second enquiry the grounds on which the joint
liquidators wished to hold an enquiry into the affairs of Serveco were disclosed to the
Master in the application by the joint liquidators, represented by me, to the Master on
27 March 2008. One of these grounds was the very fact of the first enquiry and the
First Applicant's conduct in relation thereto.
. . .
It was disclosed to the Master in the joint liquidators' application that there had been
a previous commission of enquiry also ordered by the Master under Advocate
Slomowitz SC.
1 See eg Schlesinger v Schlesinger 1979 (4) SA 342 (W) at 348E-350C; NDPP v Basson
2002 (1) SA 419 (SCA) para 21.
. . .
I admit that the existence of the first commission of enquiry is material to the decision
by the Master whether to convene a second one. The existence of the first
commission of enquiry was disclosed to the Master in the application and indeed, as I
have suggested above, the manner in which the first commission of enquiry was
conducted and then left for dead by the first applicant and its attorneys was an
important element of the motivation to the Master to grant leave to convene the
second enquiry.'
[7] The Master filed two reports and refused to divulge his reasons for
granting the order at issue in the appeal. The appellants were specifically
authorised by the order of Mokgoatlheng J to launch an application for
appropriate relief if they were of the view that such records which might be
filed by the Master and the Commissioner pursuant to the review application
in terms of Uniform Rule of Court 53 were 'incomplete, deficient or in any
other manner not satisfactory in law'. They did not do so. In the circumstances
I find the remarks of James AJP in Foot NO v Alloyex (Pty) Ltd & others2
apposite, and I respectfully adopt them:
'It was also argued that it was impossible to ascertain why the appointment of the
commissioner was made, or whether the commissioner's investigations were of any
value to the ordinary shareholders because of the veil of secrecy imposed by Thirion
J's order, and that at the very least I should, at this stage, allow the respondents to
peruse the reports (and even consider the voluminous records of the evidence before
the commissioner) to see whether the company's creditors had received any
advantage from the efforts of the commissioner, and should delay the case until this
opportunity was afforded to them. I have no sympathy with this submission. Although
the commission was a secret commission and the contents of the application and the
terms of the order of Court were not to be disclosed without the leave of the Court
(and the evidence and the record of evidence was not to be disclosed without the
leave of the Court or the commission) there is no suggestion that any attempt by the
respondents (or anyone else for that matter) has to this date been made to obtain
such leave. It is true that there were provisions laid down regarding secrecy but, if a
proper case had been made for the lifting of the veil, I have no doubt that it would
have been lifted. Although the grant of the order was secret it must have been clear
2 1982 (3) SA 378 (D) at 382B-G.
to anyone concerned in this matter, and particularly for those summoned to give
evidence before the commissioner, that an order had been made and, if any of them
had grounds for believing that justice might be denied unless they were allowed to
peruse the application for the order and the reports, they should have applied for
leave to peruse them.'
Had there been any doubt whether the disclosures which Miller said he had
made to the Master, had in fact been made, the court seized with the
application could have preserved the secrecy of the proceedings by itself
looking at the application to the Master.
[8] The second submission is equally without merit. Miller said in the
answering affidavit, and there is no reason to doubt his assertion, that he and
the joint liquidators only became aware of the pending deregistration of
Serveco on 15 August 2008 ─ ie well after 27 March 2008 when the Master
ordered the enquiry. Miller obviously could not disclose what he did not know.
[9] The third submission is not maintainable in fact or in law. As a matter of
fact, Miller annexed to his application to the Master a power of attorney
authorising him to bring the application which was signed by each of the joint
liquidators. A copy of the power of attorney was annexed to the answering
affidavit. And as a matter of law, the Master did not have to act on the
application of the liquidators or, indeed, pursuant to any application; and
whether or not Miller was authorised by the liquidators to make the
application, is accordingly irrelevant. Section 417(1) of the Companies Act
reads:
'In any winding-up of a company unable to pay its debts, the Master or the Court
may, at any time after a winding-up order has been made, summon before him or it
any director or officer of the company or person known or suspected to have in his
possession any property of the company or believed to be indebted to the company,
or any person whom the Master or the Court deems capable of giving information
concerning the trade, dealings, affairs or property of the company.'
The section does not envisage an application, much less an application from
a limited category of persons ─ which is eminently sensible for otherwise the
Master would be unable to act unless he was given information from specified
persons.3 The submission that Miller had not disclosed to the Master that he
had been authorised by the liquidators to conduct the enquiry on their behalf
need not be considered as it was not raised in the papers. I shall deal later in
this judgment with the question whether it was competent for the liquidators to
have given this authority to Miller.
[10] I therefore conclude that there was no basis for the order given by the
court a quo setting aside the decision of the Master to convene the enquiry. I
refuse to consider the submission based on s 386 of the Companies Act4 that
because the liquidators did not have authority to apply for an enquiry, they
could not validly have authorised Miller to do so. This point was also not
raised in the papers ─ perhaps because there is authority in the high court5
that it is not open for persons in the position of the applicants to attack the
validity of the enquiry proceedings initiated by the liquidator. It is unnecessary
to consider the legal position as the applicants laid no factual foundation for
the argument.
[11] I turn to consider whether there was a basis for the order setting aside
the decision of the Commissioner to continue or commit the continuation of
the enquiry. Serveco was deregistered on 25 April 2008. The deregistration
was effected by an official in the Companies and Intellectual Property
Registration Office (CIPRO), purporting to act in terms of s 73 of the
Companies Act and on behalf of the Registrar of Companies. Deregistration
was incompetent in as much as Serveco had been wound-up on 23 May 2006
─ a fact which was pointed out to the official in a letter before Serveco was
deregistered ─ and the consequence of a winding-up is not deregistration but
a dissolution in terms of s 419 of the Companies Act, subsec (1) of which
provides:
'In any winding-up, when the affairs of a company have been completely wound up,
the Master shall transmit to the Registrar a certificate to that effect and send a copy
thereof to the liquidator.'
3 Venter v Williams 1982 (2) SA 310 (N) at 313-4; Lok v Venter NO 1982 (1) SA 53 (W) at 58;
Foot NO v Alloyex (Pty) Ltd above, n 2, at 383-4.
4 Which deals with the powers of liquidators.
5 Lok above, n 3, at 55H-57E.
Deregistration, on the other hand, puts an end to the existence of the
company. Its corporate personality ends in the same way that a natural
person ceases to exist on death. Once there has been deregistration there is
obviously no purpose in a corporate post mortem and no-one would have the
authority to conduct one. Serveco was restored to the register on 10 August
2008 pursuant to an order of the Johannesburg High Court made on 4
November 2008, after a rule nisi had been issued, published in newspapers
and the Government Gazette and served on inter alios the applicants,
requiring all interested persons to show cause why this should not be done.
[12] The notices requiring the attendance of the individual applicants and
their attorney before the Commissioner were authorised by the Commissioner
whilst Serveco was deregistered. They were therefore void for that reason. (I
should mention that the Commissioner was unaware of the deregistration.)
But Serveco was restored to the register on 10 August 2008, before the
application for final relief came before the court a quo on 13 November of the
same year. I do not propose analysing what effect in law the restoration of the
company to the register had on the notices served on the individual
applicants.6 That would be an academic exercise as new notices will have to
be served on them if they are to be required to attend the enquiry. It was
accordingly unnecessary for the court a quo to set the notices aside as it did
in para 1(c) of its order; and once Serveco had been restored to the register,
there was no basis for the order setting aside the decision of the
Commissioner (or the Master) to continue or permit the continuation of the
enquiry. I reject the submission on behalf of the applicants that the authority of
the joint liquidators, the Master and the Commissioner ─ all of which was
conferred before the deregistration ─ did not survive the deregistration for the
simple reason that all such authority was conferred before Serveco was
deregistered, and there is no warrant for holding that events that occurred
before that event are in any way affected by it.
6 Cf Tyman's v Craven [1952] 2 QBD 100 (CA).
[13] I shall now deal with the interdict against Miller contained in para 2 of
the order of the court a quo, which precludes him from attending the enquiry
and access to the record thereof. Section 417(7) of the Companies Act
provides:
'Any examination or enquiry under this section or s 418 and any application therefor
shall be private and confidential, unless the Master or the Court, either generally or in
respect of any particular person, directs otherwise.'
The submission on behalf of the applicants was that the interdict was justified
because Miller did not have the permission of the Master to perform any of the
acts he was interdicted from performing. The answer to this, it seems to me,
flows from the provisions of s 418(1)(b) of the Companies Act which provides:
'The Master or the Court may refer the whole or any part of the examination of any
witness or of any enquiry under this Act to any such commissioner, whether or not he
is within the jurisdiction of the court which issued the winding-up order.'
In the present matter, the Master referred the whole enquiry to the
Commissioner. The order made contains the following paragraph:
'The contents of this application and the evidence to be taken at the commission be
kept confidential and private and not be disclosed without the prior leave of the
Commissioner or the High Court or the Master having first been had and obtained.'
The power thus conferred was in my view sufficiently wide to authorise the
Commissioner to allow Miller to attend the enquiry and to have access to the
record. The Commissioner impliedly exercised the power, well knowing (as
appears from the record of the enquiry) that Miller was not one of the joint
liquidators, by permitting him to be present at the enquiry. It seems to me not
only competent but eminently sensible for the Master, having decided to
invoke s 418 and appoint a Commissioner, to delegate to the Commissioner
the power of deciding who might be allowed to attend the hearing and have
access to the record. Indeed, in such a case I would find it extraordinary if for
example every time an attorney wished to have a candidate attorney present,
or the liquidators wished to be advised by an accountant or other expert whilst
a witness was being examined, that permission for either to attend the enquiry
would have to be sought from the Master or the court.
[14] It will be convenient now to deal with an argument which is related to
the argument I have just dealt with and which was also advanced on behalf of
the applicants. The submission was that it was incompetent in law for the
liquidators to delegate the conduct of the enquiry to Miller. Reliance was
based inter alia on the following statement by Innes CJ (Bristowe and
Curlewis JJ concurring) in Goldseller v Hill7 (in regard to joint trustees in
insolvency):
'They are in law only one persona. They jointly represent the estate, and together
they are the channel through which the estate can sue or be sued, and the proper
persons to investigate all its affairs.'
But there is nothing in that statement to suggest that the liquidators cannot
have assistance in such an investigation or, put conversely, that all acts
relative to the investigation have to be performed by the liquidators
themselves. A useful judgment in the present context is Allan v Erlank's
Trustee.8 In that matter Bristow J held:
'But all the trustee was appointed to do, all his powers and discretions, the
supervision and management of the liquidation ─ all that is left to Rossouw [an
attorney]. It seems to me, therefore, that the power of attorney is a general
delegation of Hopwood's powers as trustee; and whether or not the maxim delegatus
non potest delegare applies under our law to the same extent as it applies in the law
of England ─ I think it probably does not ─ it is inconceivable to my mind that the
Insolvency Law intended that a person appointed as trustee should be at liberty to
delegate his powers to a third person. When creditors choose a trustee they choose
a person whom they can rely upon and trust, and the trustee by accepting his office
binds himself to apply his mind to bring his discretion to bear upon the various points
which arise in the course of his trusteeship. Ministerial acts he can delegate, but not
matters of discretion.'
[15] Miller said in the answering affidavit:
'I have practiced continuously as a liquidator for more than 15 years. My business
partner, the Second Respondent, has practiced continuously as a liquidator for more
than 12 years. Mr Christensen has practiced continuously as a liquidator for more
than 15 years. We all confirm that it is common practice for the administration of the
7 1908 TS 822 at 827.
8 1908 TS 1187 at 1193.
day to day affairs of a company in liquidation to be dealt with by a person who is not
necessarily one of the joint liquidators, but a colleague of one of the joint liquidators
in the legal entity used by that joint liquidator for the purposes of liquidating
companies.
. . .
Those matters in the winding up pertaining to a forensic investigation which was
conducted into the affairs of Serveco and to the application to the Master of the High
Court Johannesburg for leave to convene the insolvency enquiry and the insolvency
enquiry itself, have been handled by me. I have done so as a co-member in RMG
Trust CC and business partner of the Second Respondent.
There is nothing whatsoever unusual or improper in the division of labour I
have referred to above, which was agreed upon by the joint liquidators, shortly after
they were appointed by the Master.'
Miller also claimed to have the following authority from the joint liquidators in
terms of the power of attorney:9
'[To] attend on our behalf and represent us at all hearings of the insolvency enquiry
into the affairs of the company, in respect of which we sought and obtained in our
capacities as joint liquidators of the company an order from the Master of the High
Court Johannesburg on 27 March 2008 granting leave to convene such enquiry, to
gain access to all documents in the enquiry for the purposes of so representing us,
and to furnish instructions on our behalf to our attorneys of record in that enquiry,
Messers Knowles Husain Lindsay Inc.'
The applicants described this provision as having 'breathtaking scope'.
[16] I am not satisfied on the papers as they stand that the joint liquidators
have done anything more in this case than delegate to Miller ministerial acts,
ie acts that he is required to perform as their subordinate agent; or, put
conversely, I am unable to find that the joint liquidators have delegated to
Miller matters of discretion that their office requires them to exercise both
jointly and personally. The papers do not show that Miller has taken over the
liquidation of the company (or, for that matter, the running of the enquiry) to
the exclusion of the joint liquidators, as was the position in Allan and in Smith
9 The power of attorney annexed to the answering affidavit has been signed by only two of the
joint trustees.
& Co & others v Van Rensburg10 where Curlewis J stated (of delegation of a
trustee's powers):
'If these facts are correct ─ and, generally speaking, I take them to be correct ─ the
respondent was in effect merely a dummy trustee. He was not, and did not intend to
act the part of, a trustee, but allowed himself to be nominated through the
instrumentality of Bekker and Bekker [a firm of attorneys], and then divested himself
of all his functions as trustees by handing over to Bekker and Bekker the complete
management and control of the estate.'
[17] I accordingly conclude that there was no legitimate basis for the court a
quo to have granted the interdict against Miller. That brings me to the question
of costs.
[18] It was submitted on behalf of the applicants that they should at least be
awarded the costs in the court a quo of the urgent part of the application. On
the one hand, they and their attorney were faced with notices requiring them
to attend an enquiry on 29 August and 3 November under pain of possible
criminal sanction. On the other hand, Miller and the joint liquidators only
became aware of the deregistration of Serveco on Friday 15 August; and after
the application was served on them on 19 August, they gave an undertaking
within three days (on 22 August) that the enquiry would not proceed on 29
August. They also consented to the order given by Mokgoatlheng J on 26
August which recorded that the enquiry would not proceed on 29 August or 3
November. Furthermore, neither Miller nor the joint liquidators were
responsible for the deregistration of Serveco which was the basis for the
invalidity of the notices, nor were they remiss in not preventing it. In the
circumstances, I consider that it would be fair to make the costs of the urgent
application costs in the cause of the main application.
[19] Before making the order I should mention that counsel representing
Miller and the joint liquidators indicated that the taxing master requires an
order authorising the costs of senior counsel if such costs are to be allowed
on taxation. No submission to the contrary was made on behalf of the
10 1913 TPD 28 at 35.
applicants. This is accordingly not a proper case to examine the practice of
the taxing master, and I express no opinion on it either way.
[20] The following order is made:
1.
The appeal succeeds with costs, including the costs of senior counsel.
2.
The order made by the court a quo is set aside and the following order
substituted:
'The application is dismissed with costs, including the costs of the urgent application;
and the costs of senior and junior counsel where such were employed, and of senior
counsel where senior counsel alone was employed, shall be allowed at all stages of
the proceedings.'
3.
The cross-appeal is dismissed with costs, including the costs of senior
counsel.
_______________
T D CLOETE
JUDGE OF APPEAL
APPEARANCES:
APPELLANTS:
A Subel SC
Instructed by Knowles Husain Lindsay Inc,
Johannesburg;
McIntyre & Van der Post, Bloemfontein
RESPONDENTS:
J Suttner SC (with him Ms P M Cirone)
Instructed by Werksmans Inc, Johannesburg;
Matsepes Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From: The Registrar, Supreme Court of Appeal
Date: xx March 2010
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
R MILLER v NAFCOC INVESTMENT HOLDING COMPANY
A company, Serveco (Pty) Ltd, was finally liquidated. Directors/employees of its
major shareholder Nafcoc brought urgent proceedings aimed at preventing their
examination, and the attendance of Miller, a professional liquidator acting on behalf
of the joint liquidators, at an enquiry of Serveco’s affairs authorised by the Master in
terms of ss 417 and 418 of the Companies Act.
The court a quo set aside the Master and the Commissioner’s decisions to convene
the enquiry; to permit its continuation; and to issue the notices served on the
applicants to attend the enquiry. Furthermore, Miller was interdicted from access to
the enquiry, the record and any inspection thereof.
In upholding Miller and the joint liquidators’ appeal against the court a quo’s
decision, to set aside the Master’s decision to convene the enquiry, which had been
made by Miller (acing on behalf of the joint liquidators), the SCA held that in ordering
an enquiry, the Master does not have to act on an application by a limited category
of persons, or any application at all for otherwise the Master would be unable to act
unless he was given information from specified persons. The SCA held that as the
notices requiring the attendance of the applicants were issued by the Commissioner
during the period that Serveco was deregistered (as a result of a mistake in the
CIPRO office), they were invalid and new notices would have to be served. The SCA
further held that the Commissioner was entitled to allow Miller to attend the enquiry
as it was not only competent but also sensible for the Master, in invoking s 418 to
appoint a Commissioner, to delegate to her the power of deciding who might be
allowed to attend the hearing and have access to the record. There was therefore no
legitimate basis for the court below interdicting Miller from access to the enquiry.
Lastly, it was not incompetent in law for the liquidators to delegate the conduct of the
enquiry to Miller. The liquidators did no more than delegate to Miller acts he was
required to perform as their subordinate agent.
---ends---
|
3611
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 167/2020
In the matter between:
PETRA DAVIDAN
APPELLANT
and
DAVID NEVILLE POLOVIN N O FIRST RESPONDENT
ALAIN RENÉ JEAN PROUST N O SECOND RESPONDENT
JONATHAN PAIZEE N O THIRD RESPONDENT
Neutral citation: Davidan v Polovin N O and Others (167/2020) [2021]
ZASCA 109 (5 August 2021)
Coram:
DAMBUZA, MOCUMIE and DLODLO JJA and CARELSE
and KGOELE AJJA
Heard:
18 February 2021
Delivered: This judgment was handed down electronically by circulation
to the parties’ representatives by email, publication on the Supreme Court
of Appeal website and release to SAFLII. The date and time for hand-down
of the judgment is deemed to be 10h00 on 5 August 2021.
Summary: Application for eviction under PIE – unlawful occupation –
Consent to occupy – under an oral lease – termination – was consent
lawfully terminated.
___________________________________________________________
ORDER
___________________________________________________________
On appeal from: Western Cape Division of the High Court, Cape Town
(Hack AJ sitting as court of first instance):
The appeal is upheld with costs.
The order of the court a quo is set aside, and substituted with the
following:
‘The application is dismissed with costs.’
___________________________________________________________
JUDGMENT
___________________________________________________________
Carelse AJ (Mocumie JA and Kgoele AJA concurring):
[1] The respondents are the trustees of the Botany Bay Trust (the Trust)
that owns a house in Bantry Bay, Cape Town (the property). The appellant,
Ms Petra Davidan, Ms Elizabeth Gunta, the housekeeper, and Ms Helene
Schonees, the appellant’s 83-year-old mother, occupy the property. On 13
September 2019, the Western Cape Division of the High Court (Hack AJ)
granted an order in terms of s 4 of the Prevention of Illegal Eviction from
and Unlawful Occupation of Land Act 19 of 1998 (PIE), evicting the
appellant (respondent in the court a quo) and all those who occupied
through or under her, from the property.
[2] On 10 December 2019, the high court dismissed an application for
leave to appeal. On 6 February 2020, this Court granted leave to appeal
limited to the following issues:
‘(a) Whether any right that the appellant may have had to occupy the property had been
lawfully terminated?
(b) Whether Mrs Gunta and Mrs Schonees had a direct and substantial interest in the
relief sought in the court a quo and were therefore necessary parties who ought to have
been cited as co-respondents?’
[3] A chronology of the relevant facts is set out below. The appellant,
a real estate agent and the late Mr Mercure Paizee (Mr Paizee) met on 15
March 2002, after he had separated from his ex-wife. Mr Paizee was
residing at the property at the time. Ms Gunta moved into the property
during May 2002. Soon thereafter, the appellant and the deceased started
co-habiting at the property. The property was the matrimonial property of
the deceased and his ex-wife. In 2004 the deceased and his ex-wife
divorced.
[4] The property was registered in the name of Mr Paizee’s ex-wife.
Following an acrimonious divorce, and in terms of the settlement
agreement, the property was acquired by and registered in Mr Paizee’s
name. Compelled by dire financial distress, Mr Paizee agreed after
discussions between him and Mr Gamsu that a ‘capital realization trust’ be
created to undertake a development on the property. The development of
the property did not materialise. Instead, the Trust was created on 31
March 2004. Mr Paizee transferred the property to the Trust. Mr Paizee
had a 50% beneficial interest in the Trust, which was subsequently reduced
to 40%. In 2004 a mortgage bond was registered over the property in
favour of Absa bank for the standard period of 20 years.
[5] Sometime in 2011, the appellant took out a Discovery Life Policy
over the life of Mr Paizee. The purpose of the policy was to ensure that in
the event of the deceased’s death, their joint obligations to the Trust in
respect of the mortgaged bond and municipal charges would be covered.
The policy recorded that in the event of either one of them dying, the funds
from the policy was to be utilised in full for the purpose of running the
property and in particular, settling all outstanding municipal charges since
the bond would be settled in full. This was not disputed. In terms of the
policy, the benefit amount was reflected as R3 571 428.57 and the total
cover was for R5 000 000.00. According to the Trust, the amount
outstanding on the bond as at the 11 May 2018 was R2 160 226.15. The
appellant submits that R 1 411 202.42 would be left and that this would be
enough to settle any outstanding municipal charges. This allegation is met
with the following response by the trust:
‘[T]he first respondent has not been able to provide any proof that she arranged for the
Discovery Life Policy or that she was the one that paid the monthly premiums.’
[6] It is not disputed that on 12 July 2004, the appellant and the trustees
of the Trust entered into a one-year lease agreement for the property, which
would be subject to one months’ notice on either side. The rental payable
by the appellant was R20 000 per month. After the expiry of this lease, the
appellant alleged that she and the deceased entered into an oral agreement
with the Trust, represented by one of the trustees, Mr Gamsu. The terms of
the oral agreement were to the effect that the appellant and Mr Paizee
would be entitled to occupy the property and in return they would pay the
bond instalments and the municipal rates for the duration of the bond.
[7] On 9 March 2017, after the removal of Mr Gamsu and Mr Paizee as
trustees, Mr Polovin and Mr Proust were appointed as the new trustees of
the Trust. In 2017, tensions developed between Mr Paizee and the
appellant. On 12 September 2017, the appellant found Mr Paizee in his
study with a fatal gunshot wound.
[8] After the death of Mr Paizee, the appellant was requested to enter
into a formal lease agreement with the Trust. On 23 February 2018, the
trustees wrote to the appellant requesting payment of R40 000.00 per
month towards the bond repayments, in return for a monthly tenancy. The
trustees informed the appellant in their letter that if she refused, she would
be required to vacate the property by no later than 30 April 2018.
[9] On 24 April 2018, the trustees sent a further letter demanding that
the appellant vacate the property by no later than 30 April 2018. On 13
August 2018, the trustees sent a final (third) letter to the appellant
informing her that should she not conclude a lease agreement with the
Trust for the property within 14 days, the Trust would commence with
eviction proceedings. The appellant refused to vacate the property and
remains in occupation of the property. As a result of this refusal, the
respondents successfully launched an application in the high court for the
eviction of the appellant and all those who occupy through her.
[10] There was contestation as to whether the right that the appellant may
have had to occupy the property was lawfully terminated by the Trust. The
high court found that:
‘It was only M Paizee who had the “right” to reside on the property granted to him by
the Trust. She therefore obtained her occupancy at M Paizee’s behest as his guest or
invitee.’1
Simply put, the high court found that the appellant did not have any consent
whatsoever to reside on the property and, as a result, she was an unlawful
occupier. The allegation by the Trust was that the appellant’s consent to
reside on the farm was dependent upon Mr Paizee’s continued right to
1 Compare Klaase and Another v van der Merwe N.O.and Others para [66]: ‘The Land Claims Court’s
Findings that Mrs Klaase occupied the premises “under her husband” subordinates her rights to those of
Mr Klaase. The phrase is demeaning and is not what is contemplated by section 10(3) of ESTA. It
demeans Mrs Klaase’s rights to equality and human dignity to describe her occupation in those terms.
She is an occupier entitled to the protection of ESTA. Although Klaase was decided under ESTA, similar
conclusion could be reached under PIE.’
occupy the property. Nowhere is it alleged that it was a term of occupation
that if Mr Paizee died the appellant’s right to occupy would terminate.
[11] The jurisdictional requirement to trigger an eviction under PIE is
that the person sought to be evicted must be an unlawful occupier within
the meaning of PIE at the time when the eviction proceedings were
launched. Section 1 of PIE defines an unlawful occupier as ‘a person who
occupies land without the express or tacit consent of the owner or person
in charge or without any other right in law to occupy such land.’ Consent
is defined as ‘the express or tacit consent, whether in writing or otherwise,
of the owner or person in charge to the occupation by the occupier of the
land in question.’
[12] The starting point is to establish whether the appellant is an unlawful
occupier under PIE. The key question is whether the appellant enjoyed a
right of occupation? PIE applies not only to occupants who occupied land
without the initial consent of the owner or person in charge, it also applies
to occupants who had consent to occupy but such consent was
subsequently terminated. In both instances the occupants would be
unlawful occupiers within the meaning of PIE. Consent in eviction
applications is a valid defence.
[13] The first enquiry is whether the appellant had the necessary express
or tacit consent to reside on the property owned by the Trust. In other
words, was the oral agreement established? Whether or not someone has
the necessary consent to reside is a factual question.
[14] The Trust’s cause of action set out in the founding affidavit is that
the appellant is an unlawful occupier of the property as defined in section
1(xi) of PIE, in that she is a ‘person who occupies land without the express
or tacit consent of the owner . . . Or without any other right in law to occupy
such land. . . .’
[15] What is decisive in this appeal is the appellant’s evidence that on 12
July 2004, she and the Trust entered into a one-year lease of the property.
After the expiry of this lease, she and the deceased entered into an oral
agreement with the Trust, represented by Mr Gamsu, then a trustee of the
Trust. In terms of this agreement, they would continue to occupy the
property, but in lieu of rent they would jointly and severally pay the
monthly bond instalment on the property plus the rates and taxes levied by
the municipality. This oral agreement is corroborated by the erstwhile
trustee, Mr Gamsu. In an affidavit opposing an application for his removal,
he stated:
‘The applicant [i.e. Paizee] and Petra Davidan (the applicant’s partner) originally
occupied the Trust’s property in terms of a written lease agreement, which was
concluded with Davidan. A copy of that lease agreement is annexed hereto marked
“BG6”.
It was subsequently orally agreed between the Trust, applicant and Davidan, that, in
lieu of the rental amount, they would jointly and severally make payment of the monthly
bond instalments and the rates and municipal charges for services consumed, as
charged from time to time by the municipality. This obligation was recorded in clause
10.5 of the acknowledgment of debt that was ultimately signed between all the parties.’
(My emphasis.)
[16] The appellant’s version is met with a bare denial by the Trust,
followed by a response that the written agreement, which had expired,
cannot be varied by the oral agreement. Once again there is no denial that
an oral agreement followed after the expiry of the written agreement. It is
not disputed that although the appellant and Mr Paizee’s obligations to the
Trust were joint and several, she assumed the responsibility of paying the
bond instalments and municipal charges because he was unable to pay due
to his dire financial circumstances. The Trust did not deal with this
allegation in reply. The appellant contended that an acknowledgment of
debt provided further corroboration of the oral agreement. On 24 August
2010, the appellant and Mr Paizee signed an acknowledgment of debt in
favour of Atlantic Nominees (Pty) Ltd (Atlantic Nominees) for monies
allegedly loaned to the Trust. Pertinently clause 10.5 and 10.5.1 provide:
‘Davidan and Paizee undertake to continue to pay all bond payments due to ABSA and
all rates and taxes due to the City of Cape Town on a monthly basis henceforth.
Paizee and /or Davidan shall continue to pay all the rental payments in terms of the
lease between Botany Bay Trust and Paizee, which shall be utilized to pay the monthly
bond payments to ABSA referred to above.’ (My emphasis.)
[17] In its heads of argument, the Trust submits that para 10.5.1 of the
acknowledgment of debt supports its case that it was Mr Paizee and not the
appellant that had a lease agreement with the Trust. The acknowledgment
of debt is in favour of Atlantic Nominees, not in favour of the Trust.
According to paragraphs 10.5 and 10.5.1 of the acknowledgment of debt,
it seems to go no further than to record that the rental due under the oral
(lease) agreement would be used to pay the monthly bond instalments of
the Trust. It is not a written recordal of the terms of the oral lease or who
the tenant(s) are. The reference to ‘the lease between Botany Bay Trust and
Paizee’ is in my view nothing more than an incomplete description of the
lease, intended for identification purposes only. The fact that the appellant
assumed an obligation in terms of 10.5.1, together with Mr Paizee, to make
rental payments by way of the payment of the bond instalments, indicates
that the appellant was a co-tenant. The acknowledgment of debt was not in
respect of the bond payments but in respect of an alleged loan that was
made to the Trust by Atlantic Nominees. In any event, Mr Gamsu’s
evidence that the appellant and Mr Paizee had an oral agreement with the
Trust to pay the monthly bond and the municipal charges, has not been
challenged. To date the Trust has not attached any lease agreement that it
allegedly had with the deceased.
[18] Pertinently in reply, the Trust denies that the appellant made any
bond payments or municipal payments and alleged that if she has done so,
she has not attached any proof of such payments. Likewise, if the Trust has
made such payments, as it says, it too has not attached any proof thereof.
In any event, the appellant has attached a letter dated the 15 May 2018 to
her affidavit, which was addressed to the members of the Trust informing
them that the mortgage bond over the property has been settled in full.
[19] Mr Polovin, the deponent to the Trust’s affidavit, was not a trustee
when this oral agreement was concluded and would have had no personal
knowledge thereof.
[20] The method for resolving disputes of fact in motion proceedings has
been laid down in Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty)
Ltd [1984] ZASCA 51; [1984] 2 All SA 366 (A); 1984 (3) SA 623; 1984
(3) SA 620.2 The Trust’s reply to the appellant’s version, that she had an
2See also National Director of Public Prosecutions v Zuma [2009] ZASCA 1; 2009 (2) SA 277 (SCA);
2009 (1) SACR 361 (SCA); 2009 (4) BCLR 393 (SCA); [2009] 2 All SA 243 (SCA) where this Court,
at para 26, held that ‘[m]otion proceedings, unless concerned with interim relief, are all about the
resolution of legal issues based on common cause facts. Unless the circumstances are special, they cannot
be used to resolve factual issues because they are not designed to determine probabilities. It is well
oral agreement with the Trust, is met with a bare denial. In Wightman t/a
JW Construction v Headfour (Pty) Ltd and Another [2008] ZASCA 6;
[2008] 2 All SA 512 (SCA); 2008 (3) SA 371 (SCA) Heher JA held at para
13:
‘. . . if the fact averred lies purely within the knowledge of the averring party and no
basis is laid for disputing the veracity or accuracy of the averment. When the facts
averred are such that the disputing party must necessarily possess knowledge of them
and be able to provide an answer (or countervailing evidence) if they be not true or
accurate but, instead of doing so, rests his case on a bare or ambiguous denial the court
will generally have difficulty in finding that the test is satisfied.’
This does not create a dispute of fact and for the purposes of this appeal
the appellant’s version must be accepted. Since the appellant was the
respondent in the motion proceedings her version is the one that prevails.
In light of the above, I do not think that the appellant’s version is far-
fetched or clearly untenable. If the appellant was not a tenant under an oral
lease, why did the Trust wait five months before asking her to sign a lease
or vacate the property?
[21] If the appellant had no right to occupy the property, then
axiomatically there would be no need to terminate that right.3 The
established under the Plascon-Evans rule that where in motion proceedings disputes of fact arise on the
affidavits, a final order can be granted only if the facts averred in the applicant’s (Mr Zuma’s) affidavits,
which have been admitted by the respondent (the NDPP), together with the facts alleged by the latter,
justify such order. It may be different if the respondent’s version consists of bald or uncreditworthy
denials, raises fictitious disputes of fact, is palpably implausible, far-fetched or so clearly untenable that
the court is justified in rejecting them on the papers.’ See also Media 24 v Oxford University Press;
[2016] ZASCA 119; [2016] 4 All SA 311 (SCA); 2017 (2) SA 1 (SCA), and Malan and Another v Law
Society Northern Provinces [2008] ZASCA 90; 2009 (1) SA 216 (SCA); [2009] 1 All SA 133 (SCA).
3 In Residence of Joe Slovo Community, Western Cape v Thubelisha Homes and Others [2009] ZACC
16; 2009 (9) BCLR 847 (CC); 2010 (3) SA 454 (CC), The Constitutional Court also grappled with the
question of whether or not the applicants were unlawful occupiers for purposes of the PIE Act and, if so,
whether their occupation was lawfully terminated. Pertinently, the Court considered whether the
occupants had consent to occupy the land owned by the City of Cape Town? The Court agreed that at
the time that the eviction proceedings were launched, the applicants were unlawful occupiers. Yacoob J,
Langa CJ and Van der Westhuizen J held: ‘I conclude therefore that the occupants enjoyed no right of
occupation. It was therefore not necessary for the City to terminate their right’. Whereas, Moseneke DCJ,
judgment of the high court does not deal with the question of termination
and neither was it pleaded. The question of consent, whether it be express
or tacit, is integrally linked to whether any right that the appellant might
have had was lawfully terminated.
[22] Having established that the appellant had the necessary consent, the
next question to be determined is whether the appellant’s right to occupy
was lawfully terminated. It is significant that the high court, in its
judgment, recognised that ‘the initial founding affidavit was very brief.
After a lengthy answering affidavit was filed raising many issues the
applicants filed a lengthy replying affidavit. This elicited this application
for leave to file an additional affidavit’. The high court further stated: ‘I am
mindful of the prescripts of uniform rule 6 which intended to ensure that
an applicant makes out its case in its founding affidavit. . . .’ The question
then is whether the Trust, as applicants, made out its case in its answering
affidavit? Nowhere in the founding affidavit does the respondent aver that
such consent was terminated.4
[23] The entitlement of the appellant to reside on the property stems from
an oral agreement. Once that agreement is terminated her contractual right
to reside also terminates. The appellant goes on to state that she has
fulfilled all her obligations in terms of the oral agreement. The Trust would
have been obliged to comply with the terms of the agreement before it
could terminate the appellant’s right of residence. There is no suggestion
that this oral agreement was terminated, nor was it pleaded. An owner must
Ngcobo J, O’Regan J and Sachs J found that the applicants did have consent however, it was conditional
and subsequently revoked.
4 Director of Hospital Services v Mistry 1979 (1) SA 626 (A) at 635H-636B.
legally terminate a lease agreement or, as in this case, the oral agreement
between the parties. The underlying basis for the termination must be legal,
for example the expiration of the lease or a material breach of the terms of
the agreement.
[24] In Wormald N O and Others v Kambule [2005] ZASCA 84; [2005]
4 All SA 629 (SCA); 2006 (3) SA 562 (SCA), Maya AJA held at para 11
that ‘[a]n owner is in law entitled to possession of his or her property and
to an ejectment order against a person who unlawfully occupies the
property except if that right is limited by the Constitution, another statute,
a contract, or any legal basis’. Once the Trust, as owner of the property,
has lawfully cancelled the oral agreement the appellant will have no
contractual right to occupy the property.
[25] Presumably the reason the high court did not deal with the question
of termination of the right to occupy, even though it was argued, was
because it found that the appellant never had the necessary consent to
occupy the property. The Trust nevertheless in argument relied on the letter
of the 23 February 2018, and subsequent letters, to contend that if the
appellant did have consent to reside, her right to occupy was lawfully
terminated. The letter of 23 February 2018 merely calls upon the appellant
to vacate the property if she does not accept the offer of a monthly tenancy.
There is no notice of termination of an existing (oral) lease in the letter.
[26] In Snyders and Others v De Jager and Others [2016] ZACC 55;
2017 (5) BCLR 614 (CC); 2017 (3) SA 545 (CC), the Constitutional Court
held at paras 71 and 72:
‘The second difficulty is that no part of the letter said that Mr Snyders’ right of residence
was being terminated. The part on which Ms de Jager relies simply said that Mr Snyders
was required to vacate the house. The basis for the requirement that Mr Snyders should
vacate the house must have been that his right of residence had automatically terminated
when his contract of employment was terminated. That was not necessarily the position.
The right of residence needed to be terminated on its own in addition to the termination
of the contract of employment. Until Mr Snyders’ right of residence had been
terminated, he could not be required to vacate the house. In this case Ms de Jager has
failed to show that Mr Snyders’ right of residence had been terminated. Therefore, Ms
de Jager had no right to require Mr Snyders to vacate the house or to seek an eviction
order against Mr Snyders . . .
In any event, even if it were to be accepted that Ms de Jager terminated Mr Snyders’
right of residence, she has failed to show, as is required by section 8(1) of ESTA, that
there was a lawful ground for that termination and that, in addition, the termination was
just and equitable. At best for Ms de Jager, she purported to show no more than that
there was a lawful ground for the termination of the right of residence.’
[27] The Trust submits that Snyders dealt with ESTA and not PIE
matters. I disagree. Paragraph 71 in Snyders dealt with the common law
right of an occupier to occupy, and paragraph 72 specifically dealt with s
8(1) of ESTA.
[28] The appellant is not an unlawful occupier in terms of PIE. No case
has been made out against the appellant, her mother or Ms Gunta therefore,
the eviction sought against them must fail. It is accordingly unnecessary to
consider the second ground on which leave was granted.
[29] For the above reasons the appeal must succeed.
[30] The following order is made:
The appeal is upheld with costs.
The order of the court a quo is set aside, and substituted with the
following:
‘The application is dismissed with costs.’
_____________________________
Z CARELSE
ACTING JUDGE OF APPEAL
Dambuza JA (Dlodlo JA concurring):
[31] I have read the judgment of my colleague Carelse JA in the main
judgment. Regrettably, I am unable to agree with the reasoning and the
order granted therein. My view is that the appellant did not have consent
to occupy the property. Instead she was in occupation, as the high court
found, at Mr Paizee’s behest and as his guest. I am also of the view that the
non-joinder of Ms Gunta and Ms Schoonees, in the application for eviction,
was not fatal to that application.
[32] In seeking the appellant’s eviction from the Trust property, the
trustees alleged that she was in occupation of the property unlawfully and
had been invited, repeatedly, to negotiate a lease agreement for the property
or vacate it. The appellant pleaded three bases for her alleged right to
occupy the property. The first was a common law right. She did not,
however, explain the exact basis of that common law right. It was common
cause that Mr Paizee and the appellant were never married. When the
appellant came to join Mr Paizee on the property Mrs Paizee was the owner
thereof. And then ownership was transferred to the Trust.
[33] The second basis for the appellant’s occupation of the Trust property
was an alleged oral lease agreement. The appellant contended that there
was a partnership agreement between herself and Mr Paizee to acquire the
property for development. Towards this end, in July 2004 a 12 months’
written lease was concluded between the Trust and the appellant. When
that lease expired an oral lease agreement was concluded between her and
Mr Paizee as lessees, and the Trust, the appellant contended. The identity
of the trustee(s) with whom the oral agreement was not divulged. In terms
the oral lease the appellant and Mr Paizee, in lieu of the rental amount,
would jointly and severally make payment of the monthly bond instalments
payable to Absa Bank in respect of the property. They would also pay the
rates and Municipal charges for services consumed as charged from time
to time by the municipality.
[34] As set out in the main judgment, in support of her contention the
appellant relied on an acknowledgement of debt which she and Mr Paizee
executed in favour of Atlantic Nominees, in relation to a loan that they had
obtained in the previous years. However, the acknowledgement of debt
belies the allegation of an oral agreement concluded with the appellant.
Instead the contents thereof support the trustee’s contention that the lease
agreement was between the Mr Paizee and the Trust (or the trustees).
[35] The background to the acknowledgment of debt is this: the loan of
R2 million was obtained from the Hatobeda Trust to enable Mr Paizee to
meet his obligation to acquire the property from his wife in whose name it
was registered prior to the divorce. Ownership of the property was then
registered in the name of the (Botany Bay) Trust, with Mr Paizee holding
40% beneficial interest therein. The 60% beneficial interest was held in the
Trust for the benefit of such persons as the trustees would nominate.
[36] Subsequent thereto, all right, title and interest in relation to the loan
advanced by the Hatobeda Trust to the Botany Bay Trust was ceded to the
Atlantic Nominees. Hence the acknowledgement of debt in favour of the
Atlantic Nominees. By the time of execution of the acknowledgment of
debt the amount outstanding on the loan had increased to R5 million which
the appellant and Mr Paizee undertook to repay in two instalments of
R2 500 000.00 each. They also provided further security to cover the
outstanding amount. It is in this context that the lease for occupation of the
Trust property was referred to in the acknowledgement of debt.
Importantly, therein the lease was recorded as having been concluded
‘between the Botany Bay Trust and [Mr] Paizee’. As recorded in the
acknowledgement of debt the appellant’s involvement only went as far as
the undertaking to pay, as a co-debtor together with Mr Paizee, the
principal debt and mortgage bond instalments together with the municipal
rates and other charges.
[37] More specifically, Clause 10.5 of the acknowledgement of debt
dated 24 August 2010 provided that:
‘10.5 Davidan and Paizee undertake to continue to pay all bond payments to Absa and
all rates and taxes due to the City of Cape Town on a monthly basis henceforth.
10.5.1 Paizee and/or Davidan shall continue to pay all the rental payments in
terms of lease between Botany Trust and Paizee, which shall be used to
pay the monthly bond payments to Absa referred to above.’ (My
emphasis.)
[38] The fact that Mr Gamsu may have said, in separate proceedings, that
the appellant was also a lessee, is irrelevant. Those were mere allegations
and not proved facts or findings of a court. As the appellant herself alluded,
in those proceedings Mr Paizee disputed the allegation that the appellant
was a lessee. The contents of the acknowledgement of debt provide
objective evidence in relation to the identity of the lessee of the Trust
property during the relevant period. Mr Gamsu tendered no evidence in
these proceedings. Consequently, the alleged oral lease agreement
advanced as the second basis for the right of occupation or the alleged
consent was disproved.
[39] The third basis for the right of occupation was a reliance on the
expansive meaning of tacit consent as applied in the ESTA cases and by
the minority in Residents of Joe Slovo.5 The appellant contended that the
trustees had tacitly consented to her occupation of the property because
they never objected thereto. As I will show below, this contention is
untenable. Apart from the alleged acquiescence on the part of the Trust, the
appellant referred to no other conduct that could be reasonably interpreted
as demonstrating consensus to a lease contract between her and the
trustees. There was also no evidence as to identity of the trustee(s) who
acquiesced to her occupation or whether all of the trustees acquiesced.
[40] Under the PIE Act an “unlawful occupier” is defined as:
‘[A] person who occupies land without the express or tacit consent of the owner or
person in charge, or without any other right in law to occupy such land, excluding a
person who is an occupier in terms of the Extension of Security of Tenure Act, 1997,
and excluding a person whose informal right to land, but for the provisions of this Act,
would be protected by the provisions of the Interim Protection of Informal Land Rights
Act, 1996 (Act No. 31 of 1996).’
[41] In Residents of Joe Slovo Community the Constitutional Court had
to determine whether members of the appellant community were unlawful
occupiers under the PIE Act. The Court affirmed the traditional
interpretation of ‘tacit consent’. Yacoob J, writing for the majority, held
that tacit consent was a species of actual consent and that in terms thereof
bilateral conduct was required from the relevant parties. The Court held
that there was no basis for a broad meaning for the expression, and that: ‘If
5 See para 21 of main judgment. Residents of Joe Slovo Community, Western Cape v Thubelisha Homes
and Others (CCT 22/08) [2009] ZACC 16; 2009 (9) BCLR 847 (CC); 2010 (3) SA 454 (CC) (10 June
2009).
the purpose of the lawmaker was to confer a right of occupation consequent
upon ostensible consent it would have certainly said so’.
[42] The submission on behalf of the Joe Slovo community, that a broad
meaning should be given to ‘tacit consent’, namely, that the term included
acquiescence by the owner or person in charge of the property to
occupation, was firmly rejected by the Court. Instead the Court held that
any impression created by the municipality that it had consented to
occupation of its property by the appellants was no bar to it denying the
absence of consent. The minority judgment penned by Moseneke J would
have upheld a broader meaning of tacit consent. But it does not appear that
even Moseneke J envisaged as wide a meaning as advocated by the
appellant in this case. At para 144 the Learned Judge held:
‘The consent required is of an owner or the person in charge. It may be express or tacit
and it may be in writing or otherwise. The definition is cast in wide terms. It envisages
explicit consent but it also contemplates consent that may be tacit or, put otherwise, that
may be unsaid but capable of being reasonably inferred from the conduct of the owner
in relation to the occupier.’ (emphasis supplied)
As stated earlier, the appellant pleaded no conduct from which consent to
occupation could reasonably be inferred.
[43] The broad definition of ‘tacit consent’ has been applied by the
Constitutional Court in the determination of lawfulness or otherwise of
occupation of land or termination of residence under the Extension of
Security of Tenure Act 62 of 1997(ESTA).6 ESTA is intended to provide
measures to facilitate long-term security of land tenure for the benefit of
land occupiers in mainly rural areas and on farms. Contrary to the PIE Act
6 See for example Klaase and another v Van der Merwe NO and others (Women on Farms Project as
amicus curiae) 2016 (9) BCLR 1187 (CC).
ESTA becomes applicable on the basis that consent was granted for
occupation of land. ESTA then regulates termination of consent previously
granted or deemed to have been granted to occupiers of or residents on
land.7
[44] Section 3 (4) of ESTA regulates the presumption of consent to reside
on land where a person has ‘continuously and openly resided on [the] land’
for a period of one year. Section 3 (5) is a deeming provision, applicable
where a person has resided on land with the knowledge of the owner or the
person in charge once residence thereon exceeds a period of three years.
[45] Again, contrary to the PIE Act in ESTA the legislature expressly
provided for implied consent based unilateral conduct or acquiescence.
Therefore, the broad interpretation of tacit consent in the ESTA cases
accords with the words used in that Act and the specific objectives and
purpose thereof. It is in this context that tacit consent has been given a
broad interpretation in the ESTA cases.
[46] The objective or purpose of the PIE Act was explained by Yacoob J
in Residents of Joe Slovo as follows:
‘It is evident that the purpose of the PIE Act and its Preamble say nothing at all about
the broadening of the definition of “consent” or the narrowing of the definition of
“unlawful occupiers”. These parts of the Act do not evince the purpose of ensuring that
occupiers who would have been regarded as unlawful in the past should be regarded, in
terms of the PIE Act, as having a right of occupation. The objective in relation to
unlawful occupiers is not to define them differently from the way in which they were
defined before but “to provide for procedures” for their eviction. The way in which the
purpose is expressed begins to herald the notion that what the PIE Act purports to
7 Section 3 (2) and (4).
achieve is fair procedures to be followed when unlawful occupiers are evicted. The idea
is that an unlawful occupier, despite the absence of tacit consent of the owner, is a
human being and must be treated as a human being. A person in occupation of property
without the tacit or express consent of the owner must be treated fairly.
. . .
There is nothing new about the definition of “unlawful occupier. It is the traditional
definition. Anyone who occupies without consent of the owner or without any right
other than to occupy is, and has always been, an unlawful occupier. Anyone with a right
to occupy is and had always been a lawful occupier. There is nothing earthshaking about
the inclusion of the phrase “tacit consent”’. 8
[47] In Residents of Joe Slovo Community the Constitutional Court held
that the occupation of members of the community was unlawful, even
when the municipality had provided certain services to them and had
reached certain agreements with them regarding occupancy of a proposed
development on the land they were occupying. The reason was that those
services had not been extended voluntarily by the municipality to the
community. It had done so only out of a sense of duty, for ‘humanitarian
purposes.’
[48] Similarly in this case there is no evidence that the trustees gave
actual consent to the appellant’s occupation. Even if one or more of the
trustees acquiesced to her presence thereon (which the trustees deny) and
acknowledged her financial contribution to payments due in respect of the
Trust property, that cannot be interpreted as tacit consent to her occupation.
The anomaly of the appellant’s case is that whereas Mr Paizee had always
accepted the obligation to pay for his occupation of the property, she insists
on free occupation thereof. Be that as it may, on a conspectus of all the
8 At para 65 and para 67.
evidence the appellant had no consent or any other right to occupy the trust
property.
[49] The trustees therefore had no obligation to terminate any right of
occupation in relation to the appellant. However, they still had a
responsibility to act fairly in evicting her from the house. They had to treat
her and those occupying through her with dignity. In my view they did.
[50] Approximately four months after Mr Paizee’s death, on
23 February 2018, the trustees addressed the letter in which they demanded
that the appellant pay R40 000 per month towards repayment of the bond
over the property, the rates and utilities. The tone of the letter was
conciliatory. It read:
‘You are undoubtedly aware that the trust has significant monthly expenses to meet
connected to the property at 56 De Wet Road. They include bond repayments and
municipal accounts. If these debts are not serviced, the property is put at risk and so is
the Trust and its beneficiaries.
You are presumably aware too that the trust has no other source of income with which
to service the debts and the only prospect of earning any is to recover a rental from
letting the property. You are in occupation of the property however, and have resisted
all polite hints and requests to contribute to the monthly expenses or to vacate the
property in order to make way for a paying tenant. The unfortunate result is that your
occupation is a problem rather than a solution but you do have the power and the choice
to change that by deciding to pay.
We now request you to make a monthly contribution of R40 000 in return for which we
will offer you monthly tenancy on such further terms as may be negotiated and agreed
upon in due course. If you decline this request, then we have no alternative but to give
you notice to vacate the property by no later than 30 April 2018.’
It is evident from the reference to ‘resist[ing] all polite hints and requests
to contribute . . .’ that this was not the first invitation extended to the
appellant to legitimize her occupation of the property.
[51] The trustees therefore made the appellant an offer similar, in terms,
to Mr Paizee’s tenancy of the property. They gave her two months to vacate
the property if she was not prepared to accept the offer. When she rejected
it, the trustees, in a letter dated 24 April 2018, advised her that it was most
unfortunate that she had refused their offer. They advised her that in the
interests of protecting the beneficiaries they were compelled to insist that
she vacate the property by 30 April 2018. She still did not accept the offer.
[52] In yet another letter dated 13 August 2018 the trustees invited the
appellant again to negotiate a lease. They gave her a further notice that
should she not accede to the final invitation to enter into negotiations to
secure a lease within 14 days or agree to voluntarily vacate the property
within a fair and reasonable period, eviction proceedings would be
instituted against her.
[53] The letters clearly alerted the appellant that she had no right of
occupation of the property. It is difficult to understand the appellant’s
rejection of the invitation to live on the property on the same conditions as
Mr Paizee had done. It appears that her view was that she had right to
occupy the property free of any obligation because of the financial
assistance she had given to Mr Paizee, including her contributions to the
bond repayments, the municipal charges and premiums to the Discovery
Life insurance policy. In terms of the insurance policy contract, a copy of
which forms part of the record, the insurance was taken in 2011 by the
Trust as the owner on the life of Mr Paizee, with a ‘natural person as
beneficiary’. Contrary to this objective evidence the appellant insisted that
she took the insurance policy with the aim that the proceeds thereof would
be utilized to settle the balance of the bond account. There is no evidence
however that she contested the payment of the proceeds thereof to Mr
Paizee’s son as the beneficiary.
[54] The appellant’s reliance on settlement of the Trust property bond
account from proceeds of the insurance policy is misplaced. It was
common cause that after receiving the proceeds of the insurance policy
(sometime during the early part of 2018, it would appear) the beneficiary,
Mr Jonathan Paizee advanced a loan to the Trust for settlement of the
outstanding balance on the bond and municipal accounts. As the trustees
stated in their correspondence to the appellant, they still had a legal
obligation to manage the affairs of the Trust responsibly, in the interests of
the Trust beneficiaries. The appellant’s rejection of their offer left them no
choice but to evict her from the property. Any financial contributions she
made in relation to the Trust property or to the insurance premiums did not
entitle her to a right to live in the house.
[55] With regard to the non-joinder the appellant’s mother and Ms Gunta,
it is significant, as a starting point, that the defence is not raised by the
alleged interested parties. In the founding papers the trustees alleged only
that the appellant’s parents might be residing with her as their property had
been rented out. They previously lived on their own in the Waterkant
suburb of Cape Town and came to live with the appellant after Mr Paizee’s
death. The appellant’s father had since died. Given that the appellant’s
mother occupied the property through an unlawful occupier she too were
in unlawful occupation. The appellant accepted that the trustees were
entitled to evict the appellant and those who occupied the property through
her. In the circumstances the notice by the trustees to those occupying the
property through the appellant was reasonable. Counsel for the trustees
confirmed that there was no intention to evict Ms Gunta who has lived on
the property with the Paizee family for decades.
[56] In Residents of Joe Slovo Community the Constitutional Court
highlighted that the fairness required in the eviction of unlawful occupiers
is not the only factor stipulated in the Act. The Act also recognizes the right
of the landowners to apply to a court for an eviction order ‘in appropriate
circumstances’. In my view an eviction order was just and equitable in this
case. The appellant was not destitute. The Mongoose Rock Trust of which
she was a beneficiary, was a registered owner of three sectional title
property units. The home of the appellant’s parent was occupied on lease.
I find no reason why the appellant and her mother would not be able to
secure alternative accommodation.
[57] For these reasons I would have dismissed the appeal with costs.
_____________________________
N DAMBUZA
JUDGE OF APPEAL
Appearances
For appellant:
L Wilkin SC
Instructed by:
Van Rensberg & Co, Cape Town
Symington & De Kok, Bloemfontein
For respondent:
A du Toit SC
Instructed by:
BBP LAW INC, Cape Town
McIntyre van der Post, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
5 AUGUST 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Davidan v Polovin N O and Others (167/2020) [2021] ZASCA 109 (5 August 2021)
Today the Supreme Court of Appeal (SCA) handed down judgment upholding the appeal
against the Western Cape Division of the High Court, Cape Town (the high court).
The issue before the SCA was whether any right that the appellant may have had to occupy the
property had been lawfully terminated.
The respondents are the trustees of the Botany Bay Trust (the Trust), which owns a house in
Bantry Bay, Cape Town (the property). The appellant, Ms Petra Davidan, Ms Elizabeth Gunta,
the housekeeper, and Ms Helene Schonees, the appellant’s 83-year-old mother, occupy the
property.
The appellant and the late Mr Mercure Paizee (Mr Paizee) met on 15 March 2002. Mr Paizee
was residing at the property at the time. Soon thereafter, the appellant and the deceased started
co-habiting at the property. On 31 March 2004, the trust was created and Mr Paizee transferred
the property to the Trust. In 2004, a mortgage bond was registered over the property in favour
of Absa bank for the standard period of 20 years. It is not disputed that on 12 July 2004, the
appellant and the trustees of the trust entered into a one-year lease agreement for the property,
which would be subject to one months’ notice on either side. The rental payable by the
appellant was R20 000 per month. After the expiry of this lease, the appellant alleged that she
and the deceased entered into an oral agreement with the trust, represented by one of the
trustees, Mr Gamsu. The terms of the oral agreement were to the effect that the appellant and
Mr Paizee would be entitled to occupy the property and in return they would pay the bond
instalments and the municipal rates for the duration of the bond. On 23 February 2018, the
trustees wrote to the appellant requesting payment of R40 000.00 per month towards the bond
repayments, in return for a monthly tenancy. The trustees informed the appellant in their letter
that if she refused, she would be required to vacate the property by no later than 30 April 2018.
The appellant refused to vacate the property and remains in occupation of the property. As a
result of this refusal, the respondents successfully launched an application in the high court for
the eviction of the appellant and all those who occupy through her.
The SCA held that the jurisdictional requirement to trigger an eviction under the the Prevention
of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE) is that the
person sought to be evicted must be an unlawful occupier within the meaning of PIE at the time
when the eviction proceedings were launched. The SCA accepted the appellant’s version that
the appellant was a tenant under an oral lease. Furthermore, the SCA found that there was no
suggestion that the oral lease agreement was terminated, nor was it pleaded. The SCA therefore
held that the appellant was not an unlawful occupier in terms of PIE and as a result, the eviction
order sought against the appellant failed. In a separate dissenting judgment, it was held that the
appellant did not have the consent to occupy the property. It was on this basis that the dissenting
judge would have dismissed the appeal and upheld the high court’s eviction order.
~~~~ends~~~~
|
45
|
non-electoral
|
2017
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 490/2016
In the matter between:
POLOKWANE LOCAL & LONG
DISTANCE TAXI ASSOCIATION
APPELLANT
and
LIMPOPO PERMISSIONS BOARD
FIRST RESPONDENT
THE PROVINCIAL TAXI REGISTRAR,
LIMPOPO PROVINCE
SECOND RESPONDENT
MEC: DEPARTMENT OF ROADS
AND TRANSPORT, LIMPOPO PROVINCE
THIRD RESPONDENT
RSA TAXI ASSOCIATION
FOURTH RESPONDENT
Neutral citation:
Polokwane Taxi Association v Limpopo Permissions Board and
others (490/2016) ZASCA 44 (30 March 2017)
Coram:
Maya AP and Willis, Mbha and Mocumie JJA and Fourie AJA
Heard:
23 February 2017
Delivered:
30 March 2017
Summary:
Court Practice: locus standi: whether appellant could bring the application:
whether appellant had direct and substantial interest in the subject matter.
____________________________________________________________________
ORDER
____________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Mavundla J, Pretorius
and Phatudi JJ sitting as court of appeal):
1. The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel, where employed.
2. The order of the full court is set aside and substituted with the following order:
‗(a) The appeal is upheld with costs
(b) The order of the court a quo is substituted with the following order –
i)
The applicant has the necessary locus standi in iudicio to institute the
application.
ii)
The point in limine is dismissed with costs.
(c) The application is referred back to the court a quo for consideration of its merits.‘
______________________________________________________________________
JUDGMENT
______________________________________________________________________
Mbha JA (Maya AP and Willis, Mbha, Mocumie JJA and Fourie AJA concurring):
[1] This appeal is against the judgment of the full court of the Gauteng Division of
the High Court, Pretoria (Mavundla J with Pretorius and Phatudi JJ concurring) made on
29 January 2016, upholding the finding of the high court of the same division (AA Louw
J), that the appellant lacked the necessary locus standi to have instituted the application
proceedings in question. Special leave to appeal to this court against the
aforementioned judgment and order of the full court was granted by this court on 3 May
2016.
[2] During 2012 the appellant, a taxi association duly registered in terms of the
Limpopo Interim Passenger Transport Act, 4 of 1999 (the Act), instituted urgent
application proceedings in the high court. The appellant sought certain interim relief
pending review, and the setting aside of a ruling made by the first respondent, the
Limpopo Permissions Board (the Board), on 2 March 2012. In terms of this ruling, which
was conveyed to the appellant on 2 April 2012, the appellant‘s members who are taxi
owners and operators, who wished to operate on the route from Polokwane to
Johannesburg and return, could do so only if they became members of the fourth
respondent, the RSA Taxi Association, a taxi association registered in terms of the Act.
[3] The appellants sought to review and set aside the above ruling on the basis that
it compelled the appellant‘s members to join the fourth respondent, should they wish to
operate the aforesaid route, in violation of the appellant‘s members‘ right to freedom of
association which is guaranteed in s 18 of the Constitution of the Republic of South
Africa, 1996 (the Constitution).
[4] The application proceeded as an opposed matter. The high court, having raised
the issue of the appellant‘s standing mero motu, dismissed the application after finding
that the appellant failed to make out a case for the relief it sought because it lacked the
necessary standing. In arriving at this conclusion, the high court reasoned that as an
operating licence is a personal right which is issued to a specified person and in respect
of a specific vehicle and time, only the owner or operator of an operating licence has an
inalienable direct and substantial personal legal interest in any issue or dispute arising
from that operating licence. Accordingly, it is such owner or operator only who can
enforce the rights conferred by such licence.
[5] The high court then concluded that the appellant, a universitas, which is a
separate legal entity, could not enforce the rights of its members which they possess by
reason of their membership to the association, and did not institute the proceedings to
protect or enforce an interest which it had as an association. Instead, it had sought
rather to protect or enforce rights acquired and held by its members in their personal
capacities. The high court also held that all of the appellant‘s members mentioned in the
annexure to the founding affidavit should have been cited as applicants and, not only be
required to individually prove their operating licences, but also fully set out why relief in
respect of their specific licences should be granted.
[6] Unhappy with the outcome the appellant appealed, with leave of the high court,
to the full court. The sole issue for determination by the full court was whether the
appellant had locus standi to litigate on behalf of its members in circumstances where
the individual members have not in their individual capacity instituted the action nor filed
verifying affidavits.
[7] In determining the appeal, the full court agreed with the high court that the
appellant, being a universitas, was a legal entity capable of suing and being sued in its
own name, and possessed rights independent of its members. It also held that in order
to bring the application on behalf of its members, the appellant had to show that it had a
direct and substantial interest in the outcome of the proceedings. In other words, what
was required was that it had a legal interest in the subject matter of the action which
would be prejudicially affected by the judgment.
[8] The full court relied on the matter of Ex-TRTC United Workers Front & others v
Premier, Eastern Cape Province1, to find that the appellant lacked a direct and
substantial interest in the subject matter Van Zyl J stated that:
‗The second consideration … is whether there exists a sufficient nexus between the individual
members in their capacities as members of the association, and the right that forms the subject
matter of the litigation. Applied to the present matter, the first plaintiff did not, in my view institute
these proceedings to protect or enforce an interest which it had as a body or organisation.
Stated otherwise, it does not propose to enforce the rights of its members which they possess
by reason of their membership of the association. As stated earlier, the right to claim damages
from the defendant for the alleged breach of contract is a personal right that vests in each one
of the members of the association individually. The right which they pursue in these proceedings
1 Ex-TRTC United Workers Front & others v Premier, Eastern Cape Province 2010 (2) SA 114 (ECB)
para 25.
therefore exists independently of their membership of the first plaintiff… It did not arise by virtue
of their membership of the first plaintiff.‘
[9] The full court went on to find that the appellant did not institute the proceedings
with a view to assert or protect an interest which vested in it as an association.
Furthermore, the full court held that the granting of a licence to an individual was not
dependent on his membership to the appellant and, as the latter had not alleged any
right in respect of the licences of its members, it could not assert any such right to any
particular route in its individual capacity nor could it do so on behalf of its members.
[10] In relation to s 38(e) of the Constitution, the full court held that a party seeking to
rely on this section had the onus of persuading the court that it possessed such a right
and must make specific averments, buttressed with facts, that this right was threatened
and required protection. However, in this matter the appellant did not acquit itself of the
onus resting on it to show that the rights of its members were so intertwined with its
rights and that as such, that it had a legal interest in bringing these proceedings and
possessed the standing to do so.
[11] Although it is so that this appeal concerns only the rulings and findings in respect
of the judicial review, in which both the high court and the full court agreed that the
appellant was not possessed of standing, before us the fourth respondent attempted,
however, to raise a preliminary point in limine namely, that the appeal is moot. This
point was raised on the basis that since the appellant does not appeal the second
ground upon which the high court dismissed the review application, namely that the
relief sought was vague, the dismissal of the review must in fact stand even if this court
were to uphold the appeal on the issue of locus standi.
[12] This point which the fourth respondent‘s counsel, quite correctly, did not pursue
with much vigour is clearly misconceived and cannot succeed. First, a simple reading of
Louw J‘s judgment reveals that no such order was in fact made. Furthermore, reference
to any vague, relief was clearly no more than a remark made in passing. Secondly, both
the high court and the full court clearly discerned that the only issue for determination
related to the appellant‘s standing to institute the proceedings. Likewise, this remains
the single issue for determination in this appeal.
[13] The point of mootness raised fails on another ground. S 16(2)(a)(i) of the
Superior Courts Act 10 of 2013 provides that:
‗When at the hearing of an appeal the issues are of such a nature that the decision sought will
have no practical effect or result, the appeal may be dismissed on this ground alone‘.
It is trite that this court has a discretion which must be exercised according to what
justice requires, deciding issues on appeal even where they no longer present existing
or live controversies.2 A prerequisite for the exercise of this discretion is that any order
which the court may make will have some practical effect on the parties or on others.
2 Independent Electoral Commission v Langeberg Municipality 2001 (3) SA 925 (CC) para [9] – [11];
South African Broadcasting Corporation SOC Ltd & others v Democratic Alliance & others 2016 (2) SA
522 (SCA); Legal Aid South Africa v Magidiwana & others 2015 (6) SA 494 (CC); Minister of Local
Government, Western Cape v Lagoonbay Lifestyle Estate Pty (Ltd) & others 2014 (1) SA 521 (CC).
[14] The full court‘s decision that a duly registered taxi association in the appellant‘s
position, lacks standing to bring proceedings on behalf of its members holds potentially
prejudicial future repercussions for the entire taxi industry as a whole, should the import
of the decision remain unchallenged.
[15] The question whether or not the appellant was possessed of standing to institute
the proceedings must first be determined with reference to the specific relief it had
sought. The relevant paragraphs of the Notice of Motion read as follows:
‗5. That the decision of first respondent to force those members of applicant who are entitled to
travel on the route from Polokwane to Johannesburg and return, to become members of the
fourth respondent prior to being entitled to operate such mini-bus taxi service, is declared to be
invalid and set aside;
6. That the first respondent is ordered to issue to applicant an amended route registration to
include to route from Polokwane to Johannesburg and return;
7. That the first respondent is ordered to issue licences to applicant‘s members who have
previously operated a mini-bus taxi service on the route from Polokwane to Johannesburg and
return, to include the route in its operating licences, without having to register with the fourth
respondent as members;
8. Alternatively to prayers 6 and 7, that the decision that applicant‘s members who have
previously operated a mini-bus service on the route from Polokwane to Johannesburg and
return, have to join the fourth respondent as members, before being able to do so in future, be
referred back for reconsideration with the instruction that the first respondent may not impose a
condition to force members of applicant to join fourth respondent, prior to operating a mini-bus
taxi service.‘
[16] As has been mentioned earlier, it is not disputed that the appellant is a duly
registered taxi association. Both the high court and the full court found that it is a
universitas with legal standing distinct from its members, and with the capacity to sue
and be sued in its own name. This categorisation of the appellant was not challenged by
any of the parties. It is also common cause that one of the Board‘s functions is to
register a taxi association to a specific allocated route through a register referred to as
―RAS‖ (Route Allocation System).
[17] In light of the aforegoing, it is clear that the full court did not give weight to the full
import of the relief sought in paragraph 6 of the Notice of Motion, in which the appellant
sought an order compelling the first respondent to register and allocate to appellant an
amended route from Polokwane to Johannesburg. This is self-standing relief that was
sought by the appellant in its own right without any reference whatsoever to its
members.
[18] Clearly, the appellant has a direct and substantial interest in the outcome of the
relief sought in this paragraph, which accords fully with the reasoning in the matter of
AAIL (SA) v Muslim Judicial Council,3 where Tebbutt J explained the concept of a direct
and substantial interest in a matter, in the following terms:
‗It is clear that in our law a person who sues must have an interest in the subject-matter of the
suit and that such interest must be a direct one (see Dalyrymple & Others v H Colonial
3 Ahmadiyya Anjuman Ishaati-Islam Lahore (South Africa) & another (SA) v Muslim Judicial Council
(Cape) and others 1983 (4) 855 (C) at 863H-864A.
Treasurer 1910 TS 372). In P E Bosman Transport Works Committee & Others v Piet Bosman
Transport (Pty) Ltd 1980 (4) SA 801 (T) at 804B, ELOFF J states that:
"It is well settled that, in order to justify its participation in a suit such as the present, a party... has to
show that it has a direct and substantial interest in the subject-matter and outcome of the application‖.
The learned Judge cited with approval the view expressed in Henri Viljoen (Pty) Ltd v
Awerbuch Brothers 1953 (2) SA 151 (O), approved by CORBETT J in United Watch &
Diamond Co (Pty) Ltd & Others v Disa Hotels Ltd & Another 1972 (4) SA 409 (C), that
the concept of a "direct and substantial interest" connoted "an interest in the right which is the
subject-matter of the litigation". Corbett J went on to say at 415H:
‗This view of what constitutes a direct and substantial interest has been referred to and adopted in a
number of subsequent decisions, including two in this Division... and it is generally accepted that what is
required is a legal interest in the subject-matter of the action which would be prejudicially affected by the
judgment of the Court‘.
[19] Regard being had to the content of paragraph 6 in the Notice of Motion, it cannot
be disputed that the appellant has a direct and substantial interest in the order it seeks
in terms of this paragraph. In other words, the appellant had the right to institute the
proceedings. On this ground alone, this appeal ought to succeed.
[20] With regard to the relief the appellant sought on behalf of its members as
contained in paragraphs 5, 7 and 8 of the Notice of Motion, it is significant that the
appellant‘s averment in the founding affidavit, that it was duly authorised to institute the
proceedings on behalf of its members by virtue of a special power attorney duly signed
by the members and attached thereto, was neither challenged nor disputed. The full
court ignored this important fact and did not pronounce itself in any way on the
significance of such authorisation. This authorisation cried out for attention by the full
court. Clearly, this authorisation vested the appellant with the necessary standing to
institute the proceedings on behalf of its members.
[21] The full court‘s finding that the appellant lacked locus standi on the basis that the
granting of a licence to an individual was not dependent on his membership of the
appellant, and that the right to a particular route arose from the allocation of that licence,
is wrong on two fronts. First, in terms of s 39(11) of the Act ‗[n]o permission may be
granted unless the applicant is a member of an association that has been registered by
the Registrar under s 29 and the application is supported in writing by the association,
or the Registrar certifies in writing that the applicant qualifies as a registered non-
members under that section and has applied for registration as such‘. To this extent the
issuing of a taxi licence is dependent on membership of an association. Secondly, the
appellant in its application for judicial review, relies upon the fact that this is a decision
that affects its members. The focus of the enquiry by the full court should therefore have
been the standing of the appellant and should not have been on ancillary issues.
[22] The full court overlooked the fact that the relief relating to the setting aside of the
Board‘s decision compelling the appellant‘s members to join and belong to the fourth
respondent if they wished to operate on the aforementioned route, was predicated on
an alleged infringement of the appellant‘s members‘ right to freedom of association as
contained in the Bill of Rights. This right, contained in s 18 of the Constitution, provides
that everyone has the right to freedom of association and the founding affidavit makes
specific allegations and references to the first respondent‘s actions thwarting the
appellant‘s members‘ rights to freedom of association.
[23] The full court further erroneously failed to recognise that the appellant was, in
terms of s 38(e)4 of the Constitution, within its rights to approach a competent court as
an association acting in the interest of its members, alleging that their constitutionality
guaranteed right to freedom of association has been infringed or threatened. In terms of
these provisions an association acting in the interest of its members has the right to
approach a competent court, alleging that a right in the Bill of Rights has been infringed
or threatened, and the court may then grant appropriate relief.
[24] The relief of review sought by the appellant to set aside the impugned decision
which prejudicially affects the rights of its members falls squarely within the ambit of s
38(e). Accordingly, the appellant had the necessary standing to have instituted the
proceedings on behalf of its members to protect their constitutional rights.
[25] The full court misdirected itself by ignoring the import of s 38(e) of the
Constitution which refers specifically to cases in which a right in the Bill of Rights is
infringed or threatened. It instead relied on the matter of Ex-TRTC United Workers Front
4 Section 38(e) of the Constitution provides:
‗Anyone listed in this section has the right to approach a competent court, alleging that a right in the Bill of
Rights has been infringed or threatened, and the court may grant appropriate relief, including a
declaration of rights. The persons who may approach a court are—
…
…
…
…
(e) an association acting in the interest of its members.‘
v Premier, E Cape by requiring that the appellant show that it has a direct and
substantial interest in the outcome of the proceedings to wit, a legal interest in the
subject matter of the application that would be prejudicially affected by the judgment. In
my view, Ex-TRTC United Workers Front v Premier, E Cape is distinguishable. The full
court did not consider the full import of s 38(e) of the Constitution as a mechanism
conferring statutory standing on an association similar to the appellant, acting on behalf
of its members. Moreover, the Constitutional Court has cautioned against the adoption
of a narrow approach to the issue of standing in constitutional cases. In Ferreira v Levin
NO & others,5 Chaskalson P explained as follows in relation to s 7(4)(b) of the interim
Constitution (the precursor to s 38):
‗whilst it is important that this court… should devote its scarce resources to issues that are
properly before it, I can see no good reason for adopting a narrow approach to the issue of
standing in constitutional cases. On the contrary, it is my view that we should rather adopt a
broad approach to standing‘.
The courts are impelled to adopt a broad and liberal approach to standing when
interpreting s 38(e) of the Constitution.
[26] The full court adopted too restricted an approach in determining standing. The
appeal must therefore succeed. As the merits of the review remains extant, it follows
that this matter must be referred back to the high court for finalisation. It is not
necessary to consider the alternative ground of appeal namely, whether the appellant
could rely on the provisions of s 38 of the Constitution in asserting for judicial review
under PAJA.
5 Ferreira v Levin No & others; Vryenhoek & others v Powell NO & others 1996 (1) SA 984 (CC).
[27] I accordingly make the following order:
‗1. The appeal is upheld with costs, including the costs consequent upon the
employment of two counsel, where employed.
2. The order of the full court is set aside and substituted with the following order:
‗(a) The appeal is upheld with costs.
(b) The order of the court a quo is substituted with the following order –
(i) The applicant has the necessary locus standi in iudicio to have instituted the
application.
(ii) The point in limine is dismissed with costs.
(c) The application is referred back to the court a quo for consideration of its merits.‘
________________
B H Mbha
Judge of Appeal
APPEARANCES:
For Appellant:
S G Gouws (with him L W De Beer)
Instructed by:
De Bruin Oberholzer Attorneys, Polokwane
c/o Symington & De Kok, Bloemfontein
For Respondents:
R Bedhesi (with him A Lapan)
Instructed by:
Bhika Inc, Johannesburg
c/o Webbers Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY - JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM :
The Registrar, Supreme Court of Appeal
DATE
30 March 2017
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
Polokwane Taxi Association v Limpopo Permissions Board (490/2016) [2017] ZASCA 44 (30
March 2017)
MEDIA STATEMENT
The Supreme Court of Appeal (SCA) today upheld an appeal against a judgment by the full court of
the Gauteng Division of the High Court, Pretoria in terms of which it was found that the appellant
lacked the necessary standing to have instituted application proceedings.
The issue at the heart of this appeal pertained to the question whether the appellant, a legal entity
capable of suing and being sued in its own name, could show that the rights of its members were
intertwined with its own and that as a result, it had a legal interest in bring the application and
possessed the standing to do litigate on behalf of its members. Moreover,
The Supreme Court of Appeal held that the full court’s decision that a duly registered taxi association
in the appellant’s position lacked the requisite standing to bring proceedings on behalf of its members
had potentially prejudicial future repercussions for the taxi industry as a whole. Moreover, the SCA
noted that the full court had overlooked the full import of the relief sought by the appellant which had
the effect that it indeed established a clear direct and substantial interest in the constitutional rights
and interests of its members and that such interest clothed the appellant with the necessary standing
to institute the proceedings on behalf of its members. Consequently, the appeal was upheld.
.
--- ends ---
|
3834
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 169/2021
In the matter between:
EXXARO COAL MPUMALANGA (PTY) LTD APPLICANT
and
TDS PROJECTS CONSTRUCTION AND
NEWRAK MINING JV (PTY) LTD FIRST RESPONDENT
ABSA BANK LIMITED SECOND RESPONDENT
Neutral citation: Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects
Construction and Newrak Mining JV (Pty) Ltd and
Another (Case no 169/2021) [2022] ZASCA 76 (27 May
2022)
Coram:
SCHIPPERS, NICHOLLS, GORVEN and MABINDLA-
BOQWANA JJA and MEYER AJA
Heard:
6 May 2022
Delivered: 27 May 2022
Summary: Civil Procedure – interdict to stop payment of demand guarantee
– whether requirements for a final interdict satisfied – injury not established
– alternative satisfactory remedy available.
ORDER
On appeal from: Gauteng Division of the High Court, Johannesburg
(Lamont J, sitting as a court of first instance):
The application for leave to appeal is granted with costs.
The appeal is upheld with costs.
The order of the high court is set aside and replaced with the following
order:
‘The application is dismissed with costs.’
JUDGMENT
Mabindla-Boqwana JA (Schippers, Nicholls and Gorven JJA and Meyer
AJA concurring)
[1] This is an application for leave to appeal by the applicant, Exxaro Coal
Mpumalanga (Pty) Ltd (Exxaro) against the judgment of the Gauteng Division
of the High Court, Johannesburg (the high court) and, if successful, the
determination of the appeal itself. The application was referred for oral
argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013.
[2] The facts of this case are uncomplicated. On 12 July 2018, Exxaro and
the first respondent, TDS Projects Construction and Newrak Mining JV (Pty)
Ltd (TDS), entered into a written agreement for the construction of the
mechanical and electrical plant, civil, building and engineering works in
respect of a project described as the ‘Tunnel Development (Drill and Blast)
and Infrastructure Development’ concerning Exxaro’s Matla Coal Mine North
West Access Project (the contract).
[3] TDS procured a performance guarantee for the due fulfilment of its
obligations in the amount of R32 082 012.90, as required by the contract. The
guarantee was issued by the second respondent, ABSA Bank Ltd (ABSA), on
22 August 2018, subject to the following material terms: (a) the guaranteed
amount would be paid to Exxaro on receipt by ABSA of a written demand
stating that such an amount was due and payable; (b) written demands would
be signed by a person who warranted that he/she was duly authorised to do
so; (c) the guarantee would expire on 19 June 2020 (the expiry date) and any
claim and statement would have to be received by ABSA before the expiry
date; and (d) after the expiry date, the guarantee would lapse and any
statement received thereafter would be ineffective.
[4] On 9 June 2020, Exxaro sent a letter to TDS terminating the contract
with immediate effect on the basis that TDS had committed breaches which it
failed to remedy. TDS denies having committed those breaches. The nature of
those alleged breaches need not be dealt with in this judgment. On 10 June
2020, Exxaro sought to invoke its rights under the guarantee by sending a
demand to ABSA claiming that the guaranteed amount had become payable
as a result of TDS’s failure to perform in terms of the contract (the first
demand). In response, ABSA advised Exxaro that the demand was ‘deemed
unfit for processing’ by ABSA on various bases, which are also not necessary
to state. This was followed by a letter from Exxaro suspending the first
demand. On 19 June 2020, Exxaro sent another letter to ABSA retracting the
suspension and claiming a lesser amount of R22 165 055.66 (the second
demand). Save for this lesser amount, the second demand was identical to the
first.
[5] On 25 June 2020, TDS applied to the high court for an interim order
interdicting Exxaro from demanding, and ABSA from making payment of any
amount under the guarantee to Exxaro, pending determination of the relief
sought in Part B of the application. In Part B, TDS sought an order declaring
that the demands made by Exxaro for payment of the guarantee were invalid,
and a final interdict preventing ABSA from making payment of any amount
under the guarantee. Exxaro opposed the application and lodged a counter-
application to compel TDS to provide a new or revised guarantee on the basis
of an alleged agreement TDS had allegedly reneged on. The high court was
only called upon to determine Part B of the application. Although ABSA
abided the court’s decision, it filed an affidavit to state its position.
[6] The grounds for the interdict were as follows. TDS alleged that ‘the
first and second demands were fraudulently made’ and that it had ‘a clear right
to prevent [Exxaro] from unlawfully benefiting under the guarantee’. It further
alleged that the demands did not comply with the terms of the guarantee in
that they were not signed by a person warranting that they had authority to do
so; they failed to state that the amount claimed was due and payable; and they
did not indicate the respects in which TDS had breached the contract. As such,
ABSA was not legally obliged to honour the guarantee since its terms
governing the demand had not been met.
[7] The harm or injury that TDS allegedly would suffer if the interdict was
not granted, was stated as follows:
‘[T]he second respondent [ABSA] will make payment of the full amount under the
guarantee to the first respondent [Exxaro], notwithstanding the absence of any entitlement
whatsoever on the part of [Exxaro];
the applicant [TDS], having been subject to a fraudulent call, will suffer severe financial
prejudice in relation to the trigger of counter-guarantees and immediate liability under
circumstances where there would otherwise be none (and ought to be none having regard
to the absence of an entitlement on the part of [Exxaro]);
the foregoing would trigger events of default in respect of [TDS’s] various facilities and/or
contracts, the dire consequences of which would include the cancellation of such contracts
and/or immediate calling up of such facilities when they would not otherwise have been an
immediate liability…’
This was all that was said. These assertions were not based on any evidence
as to the consequences, if any, that the honouring of the demand by ABSA
would have on TDS.
[8] TDS then alleged that it had no other satisfactory remedy. It claimed
that its damages, which were not confined to the amount paid under the
guarantee, were impossible alternatively extremely difficult, to quantify and
would in all likelihood be recovered well into the distant future, whilst its
business would be crippled or destroyed in the interim.
[9] The high court stated that it was unnecessary to deal with the allegations
that the demand for payment of the guarantee was fraudulently made, because
the non-compliance with the terms of the guarantee was dispositive of the
matter. Relying on State Bank of India and Another v Denel SOC Limited and
Others (State Bank of India),1 the high court held that TDS was entitled to
raise the issue of non-compliance with the demand, on the basis of a contract
of mandate (the banker-client relationship). Consequently, the high court
granted an order declaring the demands to be invalid and of no force or effect.
It refused Exxaro’s counter-application on the basis that there were disputes
of fact which could not be resolved on the papers and further, that there was
an arbitration provision in the contract to deal with the dispute concerning the
counter-application.
[10] It was common cause between the parties that the performance
guarantee issued by ABSA is a demand guarantee. As was held in Loomcraft
Fabrics CC v Nedbank Ltd and Another (Loomcraft)2 and numerous cases that
followed it, a demand guarantee is akin to an irrevocable letter of credit, which
establishes a contractual obligation on the part of the bank to pay the
beneficiary on the occurrence of a specified event, and is wholly independent
of the underlying contract of sale between the buyer and the seller. The bank
will escape liability only upon proof of fraud on the part of the beneficiary.3
1 State Bank of India and Another v Denel SOC Limited and Others [2014] ZASCA 212; [2015] 2 All SA
152 (SCA) para 27.
2 Loomcraft Fabrics CC v Nedbank Ltd and Another [1996] 1 All SA 51 (A); 1996 (1) SA 812 (A) at 815G-
J; Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd and Others 2010 (2) SA 86 (SCA) para 20;
Coface South Africa Insurance Co Ltd v East London Own Haven t/a Own Haven Housing Association 2014
(2) SA 382 (SCA) paras 10-13.
3 Loomcraft fn 2 above.
The importance of allowing banks to honour their obligations under
irrevocable credits without judicial interference, was stressed in Loomcraft,
where it was stated that an interdict by the buyer to restrain a bank from paying
under a letter of credit would not be granted save in the most exceptional
cases.4
[11] Counsel for TDS conceded that no case of fraud was made out in the
founding affidavit. In its supplementary founding affidavit, TDS alleged that
the focal point of the application was ‘whether there exists a compliant
demand for payment under the guarantee’. Thus, the case made out by TDS
was non-compliance by Exxaro with the terms of the guarantee.
[12] The question, therefore, is whether TDS was entitled to an interdict on
this basis. The requisites for the grant of a final interdict are trite: a clear right;
an injury actually committed or reasonably apprehended; and the absence of
another adequate remedy.5
[13] In my view, TDS failed to establish any injury ie ‘something actually
done which is prejudicial to or interferes with the applicant’s right’.6 The
alleged injury was firstly, founded on ‘a fraudulent call’ on the guarantee,
which – it was conceded – had not been established. Secondly, the terms of
the banker-customer relationship between TDS and ABSA, the content of the
counter-guarantees that allegedly would have resulted in ‘immediate liability’
4 Loomcraft fn 2 above at 816D-H.
5 Setlogelo v Setlogelo 1914 AD 221.
6 V & A Waterfront Properties (Pty) Ltd and Another v Helicopter & Marine Services (Pty) Ltd and Others
2006 (1) SA 252 (SCA) para 21.
to TDS, and the ‘default in respect of various facilities’ that would be
triggered, were not pleaded. In short, no evidence was presented as to the
existence or nature of the relationship between TDS and ABSA, or what
obligations would arise if ABSA honoured the performance guarantee.
[14] More fundamentally, however, if ABSA were to honour the guarantee
when the demand to do so did not comply with the terms of the guarantee,
TDS would have a complete defence to a claim by ABSA based on its having
done so. The only basis on which any liability of TDS might arise, whether to
ABSA or any other party, would be if ABSA was lawfully obliged to honour
the guarantee. The entire argument before us was that the demand made of
ABSA was not lawful since it did not comply with the terms of the guarantee.
Consequently, non-compliance with the terms of the guarantee by Exxaro in
making its demand is not a violation of any right of TDS. Neither will payment
of the guarantee by ABSA result in a violation of a right of TDS. Indeed, this
was conceded by counsel for TDS. That being the case, TDS could not show
that it would sustain any injury if ABSA honoured the guarantee when not
obliged to do so.
[15] What is more, any contractor that has given a performance guarantee
and which is in the same position as TDS, ‘. . . would have its ordinary
contractual remedy against [the guarantor]’.7 In this matter, the remedy is a
complete defence to any claim founded on the honouring of the guarantee
when ABSA was not obliged to do so. This accords with the principle stated
7 Loomcraft fn 2 above at 823H-823I.
in State Bank of India8 that ‘South African courts, like their international
counterparts, should jealously guard the international practice that banks
honour the obligations they have assumed in terms of guarantees issued by
them’ save in exceptional cases where fraud is involved. Otherwise viewed, it
would mean that every contractor in the position of TDS, could simply seek
an interdict in circumstances where it has a satisfactory remedy available to
it. This is a further reason why the interdict ought not to have been granted.
In this regard the high court erred.
[16] By reason of the conclusion to which I have come, it is unnecessary to
consider the counter-application. There is no reason why costs should not
follow the result.
[17] For those reasons, the following order is made:
The application for leave to appeal is granted with costs.
The appeal is upheld with costs.
The order of the high court is set aside and replaced with the following
order:
‘The application is dismissed with costs.’
_________________________
N P MABINDLA-BOQWANA
JUDGE OF APPEAL
8 State Bank of India fn 1 above paras 6-7.
Appearances:
For applicant:
F G Barry SC
Instructed by:
DLA Piper South Africa (RF) Inc, Sandton
Webbers Attorneys, Bloemfontein.
For first respondent:
A Bester SC (with him D Hodge)
Instructed by:
Tiefenthaler Attorneys, Johannesburg
Honey Attorneys, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
27 MAY 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Exxaro Coal Mpumalanga (Pty) Ltd v TDS Projects Construction and Newrak Mining JV (Pty) Ltd and
Another (Case no 169/2021) [2022] ZASCA 76 (27 May 2022)
Today the Supreme Court of Appeal (SCA) delivered a judgment granting the application for leave to
appeal brought by the applicant, Exxaro Coal Mpumalanga (Pty) Ltd (Exxaro) and upholding the appeal
with costs against a decision of the Gauteng Division of the High Court, Johannesburg (the high court).
The first respondent, TDS Projects Construction and Newrak Mining JV (Pty) Ltd (TDS), sought an
order in the high court, interdicting Exxaro from demanding payment and the second respondent, ABSA
Bank Ltd (ABSA), from making payment under a demand guarantee it had procured for due fulfilment
of its obligations, in terms of a contract it had with Exxaro. The grounds for the interdict were that the
demands made by Exxaro were: (a) fraudulently made; and (b) non-compliant with the terms of the
guarantee.
Having been conceded on behalf of TDS that a case of fraud was not made out on the papers, the
question before the SCA was whether TDS was entitled to a final interdict on the basis that Exxaro’s
demands were non-compliant with the terms of the guarantee.
The SCA restated the principle that a demand guarantee is akin to an irrevocable letter of credit, which
establishes a contractual obligation on the part of the bank to pay the beneficiary on the occurrence of
a specified event, and is wholly independent of the underlying contract of sale between the buyer and
the seller. The bank will escape liability only upon proof of fraud on the part of the beneficiary, which as
conceded on behalf of TDS, was not established in this case.
As to whether the requisites of a final interdict were met, the SCA held that TDS failed to establish any
injury. No evidence was presented as to the existence or nature of the relationship between TDS and
ABSA or what obligations would arise if ABSA honoured the performance guarantee. More
fundamentally, if ABSA were to honour the guarantee when the demand to do so did not comply with
the terms of the guarantee, TDS would have a complete defence to a claim by ABSA based on its
having done so. The only basis on which any liability of TDS might arise, whether to ABSA or any other
party, would be if ABSA was lawfully obliged to honour the guarantee. Consequently, non-compliance
with the terms of the guarantee by Exxaro in making its demand was not a violation of any right of TDS.
Neither would payment of the guarantee by ABSA result in a violation of a right of TDS. Furthermore,
like any contractor in its position, TDS would have a contractual remedy available to it, against the
guarantor. The SCA accordingly found that the high court erred in granting the interdict in TDS’s favour.
~~~~ends~~~~
|
2771
|
non-electoral
|
2012
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 473/2011
Reportable
In the matter between:
DR R RAATH
APPELLANT
and
J J G NEL
RESPONDENT
Neutral citation: Raath v Nel (473/2011) [2012] ZASCA 86 (31 May 2012)
Coram:
FARLAM, PONNAN, MALAN, MAJIEDT JJA and KROON
AJA
Heard:
11 MAY 2012
Delivered:
31 MAY 2012
Summary:
Damages – loss of income and earning capacity – proof of
actual patrimonial loss in personal capacity – trust sole shareholder in
company suffering loss – trust separate legal entity and not axiomatic that its
loss is necessarily that of the plaintiff .
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (Rabie J, sitting as
court of first instance):
The appeal is upheld to the limited extent set out below.
The respondent is ordered to pay the appellant’s costs of appeal.
Paragraph 1 of the order of the court below is set aside and substituted
with the following:
‘The defendant is ordered to pay the amount of R1 187 934.44 to the
plaintiff as well as interest thereon at 15.5% per annum from date of
judgment to date of payment’.
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (FARLAM, PONNAN, MALAN JJA and KROON AJA
concurring):
[1] This is an appeal against an award of damages by Rabie J, sitting as
court of first instance in the North Gauteng High Court, Pretoria. The appeal is
with his leave and is limited to the following awards of damages: an amount of
R42 366 for future medical and hospital expenses; the sum of R1 642 774 for
loss of income and of earning capacity and an amount of R200 000 for
general damages.
[2] The respondent, a businessman and game farmer of Mokopane
(formerly known as Potgietersrus), sued the appellant, an anaesthetist, for
damages in respect of the sequelae of a failed intubation prior to a back
operation which the respondent was scheduled to undergo. As a result of the
failed intubation the respondent spent more than a month in the intensive care
unit of the Pretoria East hospital. His recovery, both physically and mentally,
after his discharge from hospital, was slow and problematic. The claim for
damages is for: (a) the loss allegedly suffered as a consequence of the
respondent’s inability, due to the failed intubation and its sequelae, to attend
to the same extent as before to the affairs of one of his companies, Koos Nel
Auto (Pty) Ltd, resulting in the company making reduced profits for the period
1 May 2000 (when the failed intubation occurred) and March 2003 (when the
respondent had recovered sufficiently to attend fully to the business again),
(b) future medical and hospital expenses and (c) general damages. The
appellant accepted liability for such damages which the respondent proved or
as agreed ‘arising out of the complications experienced by the [respondent] in
the course of the intubation of 1 May 2000’. Rabie J upheld the claim and
made the awards set out above as well as an award of R300 000 for past
hospital and medical expenses, which is not appealed against.
[3] The respondent is by all accounts the quintessential ‘self made man’.
He rose from humble beginnings to become a highly successful entrepreneur
and businessman. He is a director of several companies, one of them Koos
Nel Auto (in which he was the sole shareholder), primarily engaged in the
motor vehicle retail sector. The business philosophy underlying his success is
to maintain a hands-on approach in respect of all his businesses. It became
common cause at the trial that the respondent is a dynamic, hardworking
businessman and the driving force behind his successful business ventures.
The springboard to the respondent’s success was his ability to acquire ailing
businesses at very low prices, turning them around into successful enterprises
and then selling them off at prices which provided handsome profits to
himself.
[4] There can hardly be any doubt that the failed intubation and
subsequent hospitalisation had a dramatic impact on the respondent’s life. He
was bedridden at home for a considerable period of time after his discharge
from hospital and suffered severely from bedsores for over a year. He virtually
had to learn again how to walk unaided and he struggled to fend for himself.
He was heavily dependent on others during the initial stage of recuperation to
assist him with elementary tasks such as eating, ablutions and brushing his
teeth. The respondent’s travails were not only physical, but psychological as
well. He suffered from depression which deepened after his marriage failed,
resulting in him divorcing his first wife in mid 2002. During this time the
respondent fled to his remote Bushveld farm where he lived as a recluse with
alcohol as his primary (and often, sole) solace. If anything, the rampant
alcohol abuse aggravated the respondent’s depression so that by the end of
2002 he had completely given up on life and not only contemplated but also
attempted suicide. One such failed attempt caused him to be admitted to a
psychiatric clinic during December 2002. The treatment there and the use of
prescribed medication for his depression stabilised the respondent’s mental
condition and put him on the road to recovery. It is plain from the evidence,
however, that the respondent’s gradual physical recovery was not matched by
a concomitant psychological recovery; on the contrary, his psychological
condition worsened.
[5] The respondent’s physical and psychological impairment had the result
of his severely neglecting his businesses, particularly that of Koos Nel Auto.
Initially he was completely absent but even when, later, he made occasional
attendances there his hands-on approach was completely lacking and his
short temper, raised irritability, poor levels of concentration and poor
interaction with others, particularly customers, did more harm than good. In
summary, the respondent became a shell of the vibrant, dynamic, forceful
individual he had been before the failed intubation.
[6] The respondent’s business interests were primarily centred around a
property company, Noordex (Pty) Ltd, motor vehicle dealerships, Koos Nel
Auto, and a game farm, Bivack Game Lodge. For present purposes only the
business of Koos Nel Auto requires mention. Two dealerships, EI Auto and
Bonus Motors, were conducted under this entity. The respondent was the sole
shareholder in Koos Nel Auto until 1 April 2001 when he sold his shares and
loan account in that company and all his other business assets to the Koos
Nel Trust. The respondent’s claim for loss of income is, as stated, confined to
losses allegedly suffered by Koos Nel Auto, due to the respondent’s absence.
Extensive evidence was led on this aspect and reliance was placed in
particular on the evidence of a forensic auditor, Mr Regenass, who, with
reference to Koos Nel Auto’s financial statements for March 2001 to March
2003 (the relevant period), sought to demonstrate the loss of profits of the
business.
Causation
[7] Before turning to the substantive issue in this appeal, it is necessary to
dispose briefly of an argument raised by counsel for the appellant. He
submitted that as a matter of legal causation the appellant should not be held
liable for the future medical expenses claimed. I fail, however, to understand
the basis on which these consequences should not be imputed to the
appellant. They are certainly not too remote. In my view the trial judge cannot
be faulted in his finding that the evidence overwhelmingly established that
although the respondent experienced emotional setbacks later because of his
failed marriage and due to his son’s death, he did not develop depression as
a result thereof, but as a consequence of the failed intubation. I am satisfied
that the failed intubation is factually a cause of the respondent’s depression.
In my view sufficient evidence was led to establish that the depression caused
the respondent to neglect the business of Koos Nel Auto, resulting in losses to
that entity.
Loss of income and earning capacity
[8] The thrust of the appellant’s case is that any loss that may have been
suffered was not suffered by the respondent personally. For estate planning
and estate duty considerations, the respondent sold all his assets, including
his shares and loan account in Koos Nel Auto, on 1 April 2001 to the Koos Nel
Trust. It was contended with some force on behalf of the appellant in this
court, as at the trial, that any loss suffered by the respondent’s businesses
was not the respondent’s personal loss. The argument was that any loss that
may have been suffered by Koos Nel Auto or by the trust after its
establishment on 1 April 2001 pertained, not to the respondent, but to those
entities. In this regard, the appellant placed strong reliance on this court’s
decision in Rudman v Road Accident Fund.1 The court below distinguished
Rudman on the facts.
[9] Rudman, a mohair and game farmer and professional hunter, operated
his business through a ‘family’ company. It was common cause that Rudman
was the driving force behind the company. Rudman restructured his affairs for
estate planning and income tax reasons by establishing a family trust with
himself, his wife, attorney and accountant as trustees and his two sons as
beneficiaries. Rudman was neither a capital nor an income beneficiary of the
trust. The trust held 3900 shares in the family company and Rudman the
remaining 100 shares. Rudman sued for damages resulting from injuries
sustained in a motor vehicle collision. Two of the heads of damages were in
respect of past loss of earnings and loss of earning capacity on the basis that,
due to Rudman’s incapacity, the family company suffered loss and would
continue to do so in future. According to the claim such losses pertained to a
reduction in the income generated. This court upheld the trial court’s central
finding that any loss suffered was a loss of the company, and not of Rudman
personally.
1 Rudman v Road Accident Fund 2003 (2) SA 234 (SCA).
[10] In delivering judgment in Rudman Jones AJA stated:2
‘For present purposes I am prepared to accept the proposition (without pronouncing
finally upon it) that in appropriate circumstances a farmer in Rudman’s position, who
operates through a ‘family’ company, may be able to prove and quantify his personal
loss in a delictual claim with reference to the loss of income suffered by the company,
provided that he does not fall into the trap of regarding the loss to the company as
automatically and necessarily equivalent to his personal loss… [T]here is no proof
that this produces loss to Rudman. There is no evidence, for example, that the value
of his shares in the company is less, or even that he received less from the company
by way of dividends or fees or drawings because of the company’s reduced income,
or that he will do so in the future.’ (My emphasis.)
In this instance, the question is whether the loss suffered by Koos Nel Auto
prior to 1 April 2001 and by the trust thereafter over the relevant period can be
characterised as the respondent’s loss.
[11] As I have said, the respondent as sole shareholder and director in
Koos Nel Auto, sold all his shares and his loan account in it to the trust on 1
April 2001. The trust was established on 19 January 2001 with the first
trustees being the respondent, his late (first) wife and his auditor. After the
death of his first wife, the respondent’s daughter was appointed as trustee in
her stead. The trust was established on his auditor’s advice for estate
planning and estate duty tax purposes. As the respondent himself put it in
evidence:
‘Die grootste rede was vir boedelbeplanning, want ek het begin ‘n boedelbelasting
probleem in die gesig staar. Die rede vir die oprigting van die trust sou dan wees dat
die kapitaalgroei van my bates in die trust vestig om sodoende eendag
boedelbelasting te bekamp.’
The respondent is not a capital beneficiary of the trust but he is, in the
discretion of the trustees, a potential income beneficiary thereof.
2 Para 13.
[12] Clause 5 of the trust deed provides that there must at all times be at
least three trustees in office. The respondent has the right to remove a trustee
and to appoint someone else in his or her place. Decisions of the trustees are,
in terms of clause 8.2, taken by ordinary majority vote, save that a unanimous
decision is required for, inter alia, the distribution of income or capital. The
trustees are clothed with the requisite powers to deal with the trust assets
according to what they, in their sole discretion, deem necessary to control the
trust’s funds to the best advantage of the beneficiaries.3 A trustee may not
dispose of any trust assets for his benefit or that of his estate and a fiduciary
duty is imposed on him or her in dealing with trust assets.4 Lastly, clause 28
provides that decisions concerning the trust must be taken at meetings,
provided that a written resolution signed by all the trustees has the same force
and effect as one taken at a meeting.
[13] It is plain from the above that the trust is of the type which has become
very popular for estate planning and tax purposes (as was the case in
Rudman). It is undoubtedly a convenient and useful tax and estate planning
vehicle, but the caution sounded by this court in the past is apposite here. In
Nieuwoudt & another NNO v Vrystaat Mielies (Edms) Bpk,5 Harms JA raised a
concern about business trusts where a trust is formed for estate planning
purposes, or to escape the constraints of corporate law, and yet everything
else remained as before. A similar concern was raised in Land and
Agricultural Bank of South Africa v Parker & others.6 There, as is the case
here, the dispute revolved around a family trust. This court reaffirmed that a
trust estate, comprising of an accumulation of assets and liabilities, is a
separate entity, albeit bereft of legal personality. It emphasized that the core
concept of a trust is the separation of ownership or control from enjoyment, ie
that even though ‘a trustee can also be a beneficiary, the central notion is that
3 Clause 11.2.
4 Clause 16.7.
5 Nieuwoudt & another NNO v Vrystaat Mielies (Edms) Bpk 2004 (3) SA 486 (SCA) paras 16
and 17.
6 Land and Agricultural Bank of South Africa v Parker & others 2005 (2) SA 77 (SCA).
the person entrusted with control exercises it on behalf of and in the interests
of another’.7 And Cameron JA pointed out that:
‘The courts will themselves in appropriate cases ensure that the trust form is not
abused. The courts have the power and the duty to evolve the law of trusts by
adapting the trust idea to the principles of our law… This power may have to be
invoked to ensure that trusts function in accordance with principles of business
efficacy, sound commercial accountability and the reasonable expectations of
outsiders who deal with them.’8
[14] Applied to the present matter, the separateness of the trust estate must
be recognised and emphasised, however inconvenient and adverse to the
respondent it may be. What the respondent seeks, in effect, is the advantage
of both a reduction in estate duty (which is perfectly legitimate) but also the
continued retention of control and advantages of ownership of the trust
assets. The respondent is by virtue of the common law and statute9
compelled to keep the trust assets separate from that of his own personal
estate. He has an obligation in law to preserve the trust assets. He is not a
capital beneficiary. He qualifies as a potential income beneficiary by virtue of
his relationship to the children of his late son, Jacques. But even then a
unanimous resolution of the trustees is required in terms of clause 13 to
allocate to the respondent income from the trust.
[15] Counsel for the respondent contended that the loss to the respondent’s
personal estate consists of his loss of the power to dispose of an asset in his
estate, namely the right to dispose of money to either himself (as a potential
income beneficiary) or to his grandchildren (as income beneficiaries). But the
rudimentary flaw in this argument is that such a power does not form part of
the respondent’s patrimony. I know of no authority to this effect, nor could
counsel point us to any. The respondent’s patrimony consists of the
universitas of his rights and duties.10 The power to dispose of a right or other
7 Para 19.
8 Para 37.
9 Section 12 of the Trust Property Control Act 57 of 1988.
10 Union Government (Minister of Railways and Harbours) v Warneke 1911 AD 657 at 665.
asset is not part of a person’s universitas. Much was made of the iniquity and
unreasonableness of the conclusion that the trust, and not the respondent
personally, had suffered a loss. The answer is twofold, first, nothing prevented
the trustees from suing in their representative capacities for the damages
suffered. And, secondly, the respondent could quite simply have accessed his
loan account in the trust if, as he lamented in evidence, the trust was meant to
provide for his ‘oudag’. He could have done so without violating the legal
principles pertaining to a trust outlined in the preceding paragraph, particularly
in respect of the separateness of the trust estate.
[16] The trial judge regarded as artificial the approach that the loss to the
trust is not in reality that of the respondent. He found that the business and
the trust were in reality built up by the respondent for his old age and for
posterity and that he had lawful control over the trust. The fact that no
dividends had been declared and paid out, held Rabie J, had no relevance
when the bigger picture was considered. These findings are, for the reasons
enunciated above, legally untenable. They are symptomatic of the very
misconception which Jones AJA warned against in Rudman.
[17] No evidence was led concerning the respondent’s personal loss in the
nature of, for example, a reduction in drawings or dividends or a reduced
salary after 1 April 2001. The court below therefore erred in distinguishing
Rudman and in upholding the claim for this particular period. I must add that
we were forcefully reminded by the respondent’s counsel that Rudman has
been distinguished on several occasions by our courts. But that is hardly
surprising, nor does it prove any point. As Jones AJA correctly pointed out in
Rudman, it is not axiomatic in these circumstances that the company’s loss is
the individual’s personal loss, even if he is the sole shareholder and/or the
driving force behind the company. Proof of the individual’s personal loss is still
required. It is therefore not necessary to embark on an excursus on the cases
in which Rudman has been distinguished. The appeal in respect of the claim
for loss of earning capacity after 1 April 2001 (until March 2003) must
consequently be upheld.
[18] The claim for loss of income and earning capacity prior to 1 April 2001
(ie from 1 May 2000 until 31 March 2001), however, stands on a different
footing. Regenass’s brief was to calculate only the losses sustained by Koos
Nel Auto. At the trial his results were shown in table form for each of the
financial years, starting with the year ending in March 2001 and concluding
with the one ending in March 2003. He also produced a graph depicting the
loss. He used 2000 as base year for his calculation, when the company’s
profit was R1 013 519. Taking into account the profit in 2004, he established
the average growth rate to have been 20.848% over the relevant period, a
figure regarded as realistic when compared with the figures for motor vehicle
sales as supplied by Statistics South Africa. His calculations show the
expected or anticipated income as opposed to the actual income, the
difference being the loss suffered for each year during the relevant period. For
the financial year ending at the end of March 2001, the difference between
expected and actual income, ie the loss, was R645 568.44. I am satisfied that
this figure can be accepted as realistic, since it was computed in applying
reliable figures and a growth rate consonant with the prevailing growth rate for
the motor vehicle retail sector. It also accords with the overall figures over the
relevant period.
[19] It was contended on behalf of the appellant that the respondent had to
establish what the value of his shares and loan account was before the failed
intubation and what they were worth thereafter and that he would have sold
them to the Koos Nel Trust on 1 April 2001 for the reduced value. The
agreement in terms of which the respondent sold his shares and loan account
in Koos Nel Auto was concluded on 18 March 2002 but with its effective date
being 1 April 2001. The price for both the shares and loan account was R4
831 590 of which R300 represented the purchase price for the shares and the
balance of R4 831 290 the price for the loan account. It follows that, had no
loss been suffered by Koos Nel Auto in 2001, the respondent’s shares would
have been worth more. The trust did not make actual payment of the
purchase price as agreed, but instead a loan account was created in the trust
in the respondent’s favour. But for the failed intubation and his concomitant
absence from and neglect of Koos Nel Auto’s business, the respondent’s loan
account in the trust would have been worth R645 568.44 more. This is a loss
suffered by the respondent in his personal estate, ie a reduction in his
patrimony. In this respect therefore, unlike the post 1 April 2001 period, the
respondent had succeeded in proving his personal loss in the court below and
the claim was correctly upheld to this extent.
Future hospital and medical expenses
[20] The award in this respect is for the cost of the respondent’s treatment
in future for depression. Dr David Shevel, a psychiatrist, concluded that the
respondent suffered from post-operative depression and from ongoing
cognitive deficits. According to him, the respondent will require anti-
depressant medication on a lifelong basis. He quantified the cost of future
hospital and medical expenses at R42 366 which includes the cost of
medication, follow-up psychiatric consultations and which made provision for
two relapses. I can find no fault with the award and with the trial judge’s
finding that Dr Shevel’s forecasts and approach were rather conservative and
that his evidence can be accepted. A joint minute between Dr Shevel and the
appellant’s expert psychiatrist, Prof Vorster, largely confirmed Dr Shevel’s
own observations and conclusions. Prof Vorster did not testify, but I am in
any event satisfied that Dr Shevel’s viewpoint is to be preferred in those
instances where they disagree. The award for future hospital and medical
expenses must therefore be upheld.
General damages
[21] Rabie J awarded an amount of R200 000 for general damages. If
anything, this amount is somewhat on the conservative side, bearing in mind
the catastrophic effect which the failed intubation had on the respondent’s life.
He had been a successful, dynamic businessman and an avid hunter and
game farmer. The devastating loss to his self-esteem and of his dignity and of
the amenities of life as well as the pain and suffering he endured are
unquestionable. No cogent reasons were advanced justifying the lesser
amount of R150 000 proposed by the appellant and no interference on appeal
is warranted.
Costs
[22] The appellant has been substantially successful on appeal in respect of
the claim for loss of income and loss of earning capacity and he is
consequently entitled to his costs on appeal. But the respondent was
compelled to litigate and he succeeded in proving his damages. The costs
order in the court below should therefore remain unchanged.
Conclusion
[23] There is lastly an aspect which regrettably requires mention. The trial
was adjourned on 18 August 2009. Judgment was reserved but delivered only
some 21 months later, on 17 May 2011. No reasons for this lengthy delay
appear from the judgment. Where good reasons exist for a delay of this
duration, they should be set out in the judgment. As matters stand, in the
absence of any reasons one can only deprecate the delay. Litigants are
entitled to expeditious adjudication, even more so in a case of this nature
where a man has been left devastated by an act of a professional person who
had admitted liability for damages proved or agreed.11
11 See: Exdev (Pty) Ltd & another v Pekudei Investments (Pty) Ltd 2011 (2) SA 282 (SCA)
para 25.
[24] The following order is issued:
1 The appeal is upheld to the limited extent set out below.
2 The respondent is ordered to pay the appellant’s costs of appeal.
3 Paragraph 1 the order of the court below is set aside and substituted with
the following:
‘The defendant is ordered to pay the amount of R1 187 934.44 to the plaintiff
as well as interest thereon at 15.5% per annum from date of judgment to date
of payment’.
___________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for appellant
:
Adv. P P Delport SC
Instructed by
:
MacRobert Ingelyf, Pretoria
:
Claude Reid Ingelyf, Bloemfontein
Counsel for respondent
:
J F Mullins SC & R van Reyneveld
Instructed by
:
Herman Potgieter & Vennote, Pretoria
:
Naudes Ingelyf, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
31 May 2012
STATUS: Immediate
DR R RAATH v J J G NEL (473/11)
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal (the SCA) today upheld to a limited extent an appeal
against a judgment in the North Gauteng High Court, Pretoria, which had awarded
damages suffered by the respondent, a Mokopane businessman, in respect of the
sequelae of a failed intubation performed by the appellant, an anaesthetist. The SCA
held that the trial court erred in distinguishing the present matter on the facts from
the judgment of this court in Rudman v Road Accident Fund 2003 (2) SA 234 (SCA).
The SCA held that Rudman applied in respect of the respondent’s damages incurred
for the period until the respondent had sold all his shares and loan account in one of
his companies, Koos Nel Auto (Pty) Ltd, to his family trust, the Koos Nel Trust. In
respect of that period the respondent had proved that, but for the failed intubation
and his resultant depression which caused him to neglect the business of Koos Nel
Auto, resulting in it incurring losses, his loan account in the trust would have been
worth more. In respect of the period after the shares and loan account had been sold
to the family trust, however, the loss suffered was that of the trust and not
axiomatically that of the respondent. Absent any evidence as to the respondent’s
loss in his personal estate, his claim in respect of damages for that particular period
had to fail, as was decided in Rudman. The SCA dismissed the appeal against the
awards for future medical and hospital expenses and for general damages.
-- ends --
|
220
|
non-electoral
|
2018
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 550/2017
In the matter between:
SOBAHLE MACINEZELA (aka MACIMELA)
APPELLANT
and
THE STATE
RESPONDENT
Neutral citation:
Macinezela v The State (550/2017) [2018] ZASCA 32 (26 March
2018)
Coram:
Navsa, Majiedt, Dambuza and Mocumie JJA and Hughes AJA
Heard:
15 February 2018
Delivered:
26 March 2018
Summary:
Criminal Procedure – before a witness testifies in a criminal trial in
appropriate circumstances an inquiry must be held into whether he or she
understands the nature and import of the oath or affirmation as provided in ss 162(1)
and 163 of the Criminal Procedure Act 51 of 1977 – where a witness is found not to
understand the nature and import of the oath or affirmation due to intellectual
incapacity an inquiry must be held in terms of s 164 of that Act into whether he or she
understands the difference between truth and falsehood ─ failure of trial court to hold
an inquiry into whether a mentally ill witness understands the difference between
truth and falsehood renders the evidence of that witness inadmissible.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Eastern Cape Local Division, Mthatha (Brooks and Alkema JJ
sitting as court of appeal).
The following order is made:
1.
The appeal succeds.
2.
The order of the high court is set aside and replaced with the following:
„(a) The appeal is upheld.
(b) The conviction and sentence are set aside.‟
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Dambuza JA (Navsa, Majiedt and Mocumie JJA and Hughes AJA concurring)
[1] This appeal, against a conviction of rape and a consequent sentence of life
imprisonment, is with the leave of this court. The appellant was convicted and
sentenced by the Regional Court, Mount Frere, Eastern Cape. He had pleaded not
guilty to the charge of rape in terms of s 3 of the Criminal Law (Sexual Offences and
related matters) Amendment Act 32 of 2007 (the Act). His appeal against the
conviction and sentence was dismissed by the full bench of the Eastern Cape Local
Division, Mthatha. The central issue in this appeal is the admissibility of the evidence
of the complainant who was alleged to be „mentally unstable‟.1
1 Different expressions, such as „mentally unstable, not mentally sound and mentally retarded‟, were
used at the trial to describe the complainanat‟s mental condition.
[2] The complainant and the appellant are relatives. At the time of the incidents
which gave rise to the charge against the appellant, he was married to the
complaint‟s maternal aunt. The complainant, who was 28 years old at the time,
resided with the appellant and his wife at Cwalinkungu in Mount Frere, Eastern Cape.
It was common cause at the trial that on a number of occasions during March 2015,
the appellant and complainant had sexual intercourse.
[3] The appellant was charged with having raped the complainant on more than
one occasion. His defence was that there was a love relationship between himself
and the complainant and that the complainant had consented to sexual intercourse
with him. Before the trial commenced, the prosecutor asked that the charge sheet be
amended to reflect that the complainant was „not mentally stable‟. The amendment
was effected and the trial proceeded.
[4] At the trial the complainant and her maternal uncle testified on behalf of the
State. The complainant testified that she and the appellant had sex on a number of
occasions and that she had not consented to it. The uncle testified that the
complainant was not mentally sound. The appellant was the only defence witness. In
convicting the appellant, the magistrate reasoned, amongst other things, that the
appellant had been aware that the appellant was „not mentally sound‟, and that even
if „she may have consented to sexual intercourse such consent was not recognised
by virtue of her mental illness or mental retardness‟. The magistrate also remarked
that he had also observed that the complainant was „not completely sane‟, citing the
fact that she appeared not to know her age and that she had read incorrectly the date
on which she was alleged to have sent a text message to the appellant.
[5] Although the magistrate made no express credibility findings in relation to
those who testified, it is evident from his judgment that he accepted the evidence of
both State witnesses, particularly the complainant, and rejected the appellant‟s
evidence that the complainant had consented to sexual intercourse.
[6] On appeal, the high court confirmed the findings of the trial court that the
complainant was „mentally retarded‟ or „intellectually challenged‟, referring, as the trial
court had also done, to her simplistic responses to questions and her inability to tell
her date of birth. The high court also found that, given the period of more than a year
during which the appellant had stayed with the complainant, he must have been
aware of the complainant‟s mental condition. It found the complainant‟s evidence to
be satisfactory in all material respects and was of the view that the complainant
would not have made reports of sexual intercourse to her maternal uncle and the
appellant‟s wife, and would not have testified in court if it had not occured. That court
also confirmed the magistrate‟s finding that no substantial and compelling
circumstances existed to justify a departure from the statutorily prescribed minimum
sentence of life imprisonment.
[7] This appeal is founded, broadly, on two grounds. The first is that the trial is
tainted by a material irregularity emanating from the manner in which the
complainant‟s mental condition was introduced into the proceedings. The complaint is
that the appellant was never given an opportunity to make submissions on the
proposed amendment to the charge sheet to that effect. There was also no ruling by
the court on the proposed amendment. Consequently, the trial court‟s finding that the
charge sheet was duly amended and that the complainant‟s „mental disability‟ was
established is wrong. The second ground is that both the trial court and the high court
failed to properly consider whether the complainant was in fact „mentally disabled‟ as
envisaged in the Act.
[8] For a proper perspective of the issues that arise in this appeal, a closer
account of the proceedings at the start of the trial is required. After the appellant had
pleaded to the charge, the prosecutor called the complainant as the first witness for
the State. When the complainant took the witness stand, the prosecutor addressed
the court as follows:
„Your Worship, there is something that I have just missed regarding to complainant. When I
consulted with her, Your Worship, I found that she is not mentally stable, to a certain extent,
Your Worship. May I apply, Your Worship, to also insert same on the charge sheet, Your
Worship?‟.
[9] The magistrate remarked that the amendment sought would have „no effect‟
(presumably on the charge against the appellant and the applicable sentencing
regime). He said:
„[T]he facts will still be the same if the basis for invoking Section 512 was the fact that it was
more than once, you have the same effect. In other words if for instance it was just a
question of mental illness, it will still fall under that category, whether it was more than once
or not. So it doesn‟t make much of a difference.‟
[10] The magistrate then explained to the appellant that it had been „placed on
record by the State that during consultation it transpired that the complainant was not
mentally sound‟. Immediately thereafter the complainant was sworn in in the usual
course and she proceeded to testify. The trial proceeded to finality and the appellant
was found „guilty as charged‟.
[11] As already stated, in his evidence the complainant‟s uncle described the
complainant as „not mentally sound‟. His opinion was based on the fact that the
complainant had not passed Sub A at school and was receiving a social grant. On
cross examination he explained that:
„When you are looking at her you would think that she is mentally sound, but if you are
staying with her you would observe from her conduct that what she is doing is not supposed
to be done by somebody her age.‟
[12] This being the only evidence that was led before the trial court on the
complainant‟s mental capacity, it is clear that the pertinent antecedent issue of
whether the complainant‟s evidence would be admissible arose. The primary issue
that arises is whether the proper procedure was followed when it became apparent at
the outset that the complainant might not understand the nature and import of the
oath or affirmation as provided for in s164 of the Act. Regrettably, that issue was not
identified by the magistrate, the prosecutor and the defence.
2 This is a reference to the Criminal Law (Sexual Offences and related matters) Amendment Act 32 of
2007.
[13] It is trite that the principal method of adducing evidence in a trial is by oral
evidence of a competent witness.3 Section 192 of the Criminal Procedure Act 51 of
1977 (CPA) provides that:
„Every person not expressly excluded by this Act from giving evidence shall, subject to the
provisions of section 206, be competent and compellable to give evidence in criminal
proceedings‟.4
[14] The general rule, therefore, is that everyone is presumed to be a competent
and compellable witness. In terms of s 194 of the CPA, persons who suffer from
mental disorder and intoxication are not competent to give evidence in certain
circumstances.5 Importantly, that section does not decree a blanket exclusion of the
evidence of people suffering from intellectual incapacity. It is only where the
intellectual capacity results in an inability to reason properly that the affected person
is disqualified from testifying. In S v Katoo 2005 (1) SACR 522 (SCA), at para 11 this
court set out the parameters for assessing whether an affected person may give
evidence. It said:
„The first requirement of the section is that it must appear to the trial court or be proved that
the witness suffers from (a) mental illness or (b) that he or she labours under imbecility of
mind due to intoxication or drugs or the like. Secondly, it must also be established that as a
direct result of such mental illness or imbecility, the witness is deprived of the proper use of
his or her reason. Those two requirements must collectively be satisfied before a witness can
be disqualified from testifying on the basis of incompetence‟.
[15] In this case there is no indication from the record whether, apart from the
allegation by the prosecutor at the start of the trial, the magistrate had himself formed
a view in respect of the complainant‟s mental capacity. The application made by the
prosecutor for amendment of the charge sheet on account of the complainant‟s
3 D T Zeffert and A P Paizes The South African Law of Evidence 2 ed (2009) at 805.
4 Section 206 of the Criminal Procedure Act 51 of 1977 refers to the law relating to express exclusions
from the generally accepted competency and compellability provided as it was on 30 May 1960.
5 Section 194 provides that: „No person appearing or proved to be afflicted with mental illness or to be
labouring under any imbecility of mind due to intoxication or drugs or the like, and who is thereby
deprived of the proper use of his reason, shall be competent to give evidence while so afflicted or
disabled.‟ (My Emphasis.)
mental condition clearly called for vigilance in considering the proper approach to her
evidence.
[16] A court confronted with the difficulty of a potentially mentally ill witness may
opt to seek expert medical evidence on the effect thereof on the witness‟ cognitive
faculties, or it may allow the witness to testify in order to assess his or her
competency. Where, as in this case, the court allows the witness to testify, the
provisions of ss 162, and 163 of the CPA come into play. Section 162(1)6 commands
that all witnesses must testify under oath. Section 163 provides for administration of
affirmation in lieu of oath in certain circumstances. These sections must be read with
s 164 which provides that:
„(1) Any person, who is found not to understand the nature and import of the oath or
affirmation, may be admitted to give evidence in criminal proceedings without taking the oath
or making the affirmation: Provided that such person shall, in lieu of the oath or affirmation,
be admonished by the presiding judge or judicial officer to speak the truth.
(2) If such person wilfully and falsely states anything which, if sworn, would have amounted
to the offence of perjury or any statutory offence punishable as perjury, he shall be deemed
to have committed that offence, and shall, upon conviction, be liable to such punishment as
is by law provided as a punishment for that offence‟.
[17] In S v Matshivha 2014(1) SACLR (SCA) 29 at paras 10 and 11 this court set
out clearly the material determinants for admissibility of evidence under ss 162, 163
and 164. It said that:
„The reading of s162(1) makes it clear that, with the exception of certain categories of
witnesses falling under either s163 or s164, it is peremptory for all witnesses in criminal trials
to be examined under oath. And the testimony of a witness who has not been placed under
oath properly, has not made a proper affirmation or has not been properly admonished to
speak the truth as provided for in the Act, lacks the status and character of evidence and is
inadmissible.
6 Section 162 of the CPA provides: „Subject to the provisions of section 163 and 164, no person shall
be examined as a witness in criminal proceedings unless he is under oath, which shall be
administered by the presiding judicial officer or, in the case of a superior court, by the presiding judge
or the registrar of court, and which shall be in the following form:
“I swear that the evidence I shall give, shall be the truth, the whole truth and nothing but the truth, so
help me God”.‟
Section 164(1) is resorted to when a court is dealing with the admission of evidence of a
witness who, from ignorance arising from youth, defective education or other cause, is found
not to understand the import of the oath or affirmation. Such a witness, must, instead of
being sworn in or affirmed, be admonished by the judicial officer to speak the truth. It is clear
from the reading os s164(1) that for it to be triggered there must be a finding that the witness
does not understand the nature and import of the oath. The finding must be preceded by the
form of enquiry by the judicial officer, to establish whether the witness understands the
nature and import of the oath. If the judicial officer should find after such an enquiry that the
witness does not possess the required capacity to understand the nature and import of the
oath, he or she should establish whether the witness can distinguish between truth and lies,
and if the inquiry yields a positive outcome, admonish the witness to speak the truth‟.
(footnotes omitted)7
[18] Although these remarks were made in respect of child witnesses, they are
equally applicable in respect of mentally ill witnesses. The inquiry ordered under s
164(1) applies to any person who is found not to understand the nature and import of
the oath or affirmation for the reasons stated in that section, including defective
education or other cause. It is for that reason that this Court, in Motsisi v S [2012]
ZASCA 59 (2 April 2012), set aside a conviction of rape. There the trial court had
failed to establish that the complainant who was allegedly mentally retarted was able
to distinguish between truth and falsehood.
[19] An inquiry into whether a potential witness can distinguish between truth and
falsity goes to whether the witness is competent in the first place. On the other hand,
a question directed to a witness on whether he or she understands the nature and
import of the oath and affirmation goes to whether the witness should be caused to
take the oath or affirmation, or should be admonished to speak the truth in terms of s
164(1).8
[20] In this case the oath or affirmation could not, in the circumstances, be
administered in the ordinary course. At the very least an inquiry in terms of s164
7 See also other authorities cited in 7 Du Toit et al Commentary on the Criminal Procedure Act (Service
58, 2017) at 22-67.
8 Du Toit (supra) at 22-70.
should have been conducted. Clearly, none of these considerations occupied the
mind of the magistrate in this matter. As a result, he never conducted an inquiry into
whether the complainant could distinguish between truth and falsehood. The failure
to hold such inquiry is fatal.
[21] This appeal and many other similar cases illustrate the injustice that can be
suffered by both complainants and accused as a result of failure by courts to properly
ascertain whether a witness is able to disnguish between truth and falsehood. In S v
Nondzamba 2013(2) SACR 333 (SCA) this court highlighted the sensitivity of our
courts to victims of sexual violence and the courts‟ determination to ensure that such
victims are afforded the full protection of the law.9 Such pronouncements are
undermined when proper care is not taken to ensure that evidence led is admissible.
[22] The following order is therefore issued:
1.
The appeal succeeds.
2.
The order of the High Court is set aside and replaced with the following:
„(a) The appeal is upheld.
(b) The conviction and sentence are set aside.‟
___________________
N Dambuza
Judge of Appeal
9 At para 13, with reference to the remarks made by the Constitutional Court in S and Another v Acting
Regional Magistrate, Boksburg and Another 2011(2) SACR 274 (CC) paras 22 and 23.
APPEARANCES
For the Appellant:
E Crouse
Instructed by:
Mthatha Justice Centre
Legal Aid South Africa, Bloemfontein
For the Respondent:
M F Mzila
Instructed by:
The Director of Public Prosecutions, Mthatha
The Director of Public Prosecutions, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
26 March 2018
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.
Macinezela v The State (550/2017) [2018] ZASCA 32 (26 March 2018)
Today the Supreme Court of Appeal (SCA) upheld an appeal against the Eastern Cape Local
Division, Mthatha. The central issue on appeal concerned the admissibility of the evidence of
an allegedly mentally unstable complainant.
The appellant was charged with having raped the complainant, to whom he was related, on
more than one occasion. Prior to the commencement of the trial, the prosecutor asked that
the charge sheet be amended to reflect that the complainant was ‘not mentally stable’. The
amendment was effected, and the trial proceeded. Although the magistrate made no express
credibility findings in relation to those who testified, it is evident that he accepted the
allegations regarding the complainant’s mental status. However, he failed to hold an inquiry
into whether the complainant understood the difference between truth and falsehood, given
her alleged mental condition. On appeal, the high court confirmed the magistrate’s finding that
the complainant was ‘mentally retarded’ and confirmed the magistrate’s finding in respect of
conviction and sentence.
The SCA held that the appeal raised the question whether the proper procedure was followed
when it became apparent that the complainant might not understand the nature and import of
the oath or affirmation as provided for in s164 of the Criminal Procedure Act 51 of 1977
(CPA). It found that this issue was regrettably not identified by the magistrate, the prosecutor
and the defence. The SCA affirmed the general rule that before a witness testifies in a
criminal trial, in appropriate circumstances, an inquiry must be held into whether he or she
understands the nature and import of the oath or affirmation as provided in ss 162(1) and 163
of the CPA. Where a witness is found not to understand the nature and import of the oath or
affirmation due to mental incapacity, an inquiry must be held in terms of s 164 of the CPA into
whether he or she understands the difference between truth and falsehood. The SCA
concluded that in the present matter, the magistrate’s failure to hold an inquiry into whether
the mentally ill complainant understood the difference between truth and falsehood rendered
her evidence inadmissible.
|
2406
|
non-electoral
|
2013
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 692/12
In the matter between
JUSTICE KHAKHATHI NEVHUTALU
APPELLANT
and
THE STATE
RESPONDENT
Neutral citation: Nevhutalu v S (692/12) [2013] ZASCA 44 (28 March 2013)
Coram:
PONNAN, TSHIQI, MAJIEDT, PILLAY and PETSE JJA
Heard:
15 MARCH 2013
Delivered:
28 MARCH 2013
Summary:
Sentence – pointing of firearm – contravention of s 39(1)(i) read
with ss 1 and 12 of Act 75 of 1969 as amended – sentence of 6 months
imprisonment, warranting interference on appeal.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: North Gauteng High Court, Pretoria (van der Merwe J and Vilakazi
J sitting as court of appeal):
1. The appeal against sentence is upheld.
2. The order of the court below is set aside and is substituted by the following:
‘(a) The appeal against conviction is dismissed.
(b) The appeal against sentence succeeds.
(c) The sentence of 6 months’ imprisonment imposed on the appellant is set
aside and substituted with the following:
‘The accused is sentenced to 6 months’ imprisonment, wholly suspended for a
period of 5 years, on condition that the accused is not convicted of a
contravention of sections 120(3), (4), (5), (6), (7) or (8) of the Firearms Control
Act 60 of 2000, committed during the period of suspension.’
3. The order declaring the appellant unfit to possess a firearm pursuant to the
provisions of s (12)(1) of the Arms and Ammunition Act, 75 of 1969 is set
aside.
________________________________________________________________
JUDGMENT
________________________________________________________________
MAJIEDT JA:
[1] This is an appeal against a sentence of 6 months’ imprisonment, imposed by
the Regional Court for Limpopo, sitting at Polokwane, confirmed on appeal by the
North Gauteng High Court, Pretoria (van der Merwe J, Vilakazi AJ concurring)
imposed in consequence of a contravention of the provisions of s 39 (1) (i) of the
Arms and Ammunition Act, 75 of 1969 (the Act). The appeal is with the leave of the
court below. The appellant was charged under the Act, since the offence was
committed when that Act was still in operation.
[2] The factual matrix underlying the appellant’s conviction and sentence is briefly
as follows:
(a)
The appellant, a member of the Military Police at the time of the
incident, was a passenger in a motor vehicle (‘the appellant’s vehicle’) when
an altercation ensued between him and the complainant, Mr Thomas Rilefe
who, in turn, was a passenger in another motor vehicle, driven by his brother,
Mr Alfeus Rilefe (‘the complainant’s vehicle’). The quarrel emanated from
what appears to have been the inconsiderate driving of one or both of the
motor vehicles.
(b)
The trial court accepted the State’s version of events and rejected that
of the appellant. On the proven facts the appellant’s vehicle overtook the
complainant’s vehicle twice on the N1 national road between Louis Trichardt
and Polokwane. On the second occasion the appellant uttered an obscenity at
the Rilefe brothers relating to their mode of driving and pointed a small black
object at them that, according to them, resembled a firearm. The appellant’s
vehicle drove in a haphazard fashion in front of the complainant’s vehicle,
after having overtaken it for the second time.
(c)
Their vehicles stopped at road works. The appellant alighted from his
vehicle to urinate some distance away. Upon his return he approached the
complainant’s vehicle and again swore and pointed a firearm at them. Both
vehicles drove off, with the appellant’s vehicle continuing to zigzag across the
road. The Rilefe brothers’ employer, Mr Nico Venter, who had been driving
ahead of them and behind the appellant’s vehicle, called the police to report
the driving and the appellant’s pointing of a firearm. The appellant was
arrested shortly thereafter. The police recovered the magazine from the
appellant’s pistol and confiscated both the magazine and the pistol. The
appellant was off duty at the time and dressed in civilian clothing.
[3] The appellant’s personal circumstances can be succinctly summarized as
follows: he was 30 years’ old at the time of sentencing, a first offender, with 4 minor
children. As stated, he was employed at the South African National Defence Force
(SANDF) as a military policeman.
[4] In its judgment on sentence, the trial court alluded to the following aggravating
circumstances: the appellant’s lack of remorse and the fact that the appellant had
intimidated the Rilefe brothers by ‘wielding’ his firearm and thereafter by pointing it at
them, causing them to be petrified. In addition to the sentence of 6 months’
imprisonment, the appellant’s firearm was declared forfeited to the State in terms of s
39(3)(a) of the Act and he was declared unfit to possess a firearm in terms of s 12(1)
thereof.
[5] On appeal, the court below rejected the contentions advanced on behalf of
the appellant, namely that the appellant’s aforementioned mitigating personal
circumstances were largely underemphasized, resulting in a shockingly inappropriate
sentence. Appellant argued further that the trial court had erred in not suspending a
portion of the period of imprisonment or, alternatively, by not imposing a fine. The
court below concluded that the trial court had properly exercised its sentencing
discretion and that the sentence did not warrant interference on any of the well-
established grounds.
[6] The maximum competent sentence for this particular offence, in terms of s
39(1)(i), read with s 39(2)(d) of the Act, at that time was a fine not exceeding
R4 000.00 or 1 year imprisonment or both such fine and imprisonment.
[7] The magistrate misdirected himself on sentence in the following material
respects:
(a)
Firstly, made reference to the Criminal Law Amendment Act, 105 of
1997 (the Criminal Law Amendment Act). Whilst he did not specifically
invoke its provisions he appears to have been influenced by it in his
approach during the sentencing process. This is manifested by his
consideration of a custodial sentence as the only suitable sentence,
without considering alternative sentencing options.
(b)
Secondly, the magistrate took the appellant’s lack of remorse into
account as an aggravating circumstance. But the record does not bear
this out. It is trite that the fact that an accused person pleads not guilty
and contests his or her guilt at a trial is not, without more, indicative of a
lack of remorse.
(c)
Lastly, the magistrate also took into account the fact that the appellant
had ‘intimidated the witnesses by driving next to them and wielding this
firearm as an aggravating feature.’ As indicated in para 3(a) above, the
appellant was in fact not the driver, but a passenger in his vehicle.
[8] In view of these material misdirections, this court is at large to consider the
sentence afresh. Mention must be made at the outset of an important consideration,
namely that the penal provisions in the present Firearms Control Act, 60 of 2000 (the
Firearms Control Act) have been increased substantially in respect of this particular
offence, compared to those in the Act. Section 121 of the present Act, read with s
120 and Schedule 4 thereof, provides for a maximum sentence of 10 years’
imprisonment.
[9] The appellant’s personal circumstances, set out above, are strongly
mitigating. He is a first offender, gainfully employed and a useful member of society.
He also had to care for his 4 minor children. The aggravating factors are the fact that
he is a member of the SANDF, which is tasked with the protection of the people of
this country. His conduct on the day in question does not behove his occupation as a
military policeman. Furthermore, the Rilefe brothers were justifiably petrified by the
appellant’s conduct, to the extent that they locked their vehicle’s doors.
[10] In a relatively brief judgment of some two pages the magistrate, as stated,
appears to have started from the premise that a custodial sentence is the only
suitable sentence. He gave no consideration whatsoever to alternative non-custodial
sentencing options. I fail to understand what useful purpose a short term of
imprisonment will serve in this case. On the contrary, it will only cause the appellant
grave jeopardy in his work and family situation. Imprisonment should generally be
imposed in instances where there is a need to remove the offender from society.
Nienaber JA pointed out in S v Lister 1993 (2) SACR 228(A) at 232g that ‘a prison is
primarily an institution of punishment, not cure’. And it is trite that punishment must
fit the crime, the criminal and the needs of society.
[11] The question which arises next is what the benchmark sentences have been
for similar offences in the past. An analysis of sentences passed under the Act
shows that non-custodial sentences are usually imposed for this particular offence,
although each case must of course be decided on its own merits. Thus in S v van
Heerden, 1990 (2) SACR 579 (E) at 585c-d, a sentence of a fine of R800.00 or 200
days’ imprisonment was imposed on appeal. In that matter a taxi driver was charged
in the magistrates’ court with pointing a firearm in contravention of s 39(1)(i) of the
Act. He had forced the complainant, a rival taxi driver, to bring his taxi to a halt and
had gone to the complainant’s vehicle and had pointed an object, which to the state
witnesses appeared to be a firearm, at the passengers. The magistrate was not
satisfied that the state had proved that what had been pointed was indeed a firearm,
and accordingly convicted the accused of common assault and imposed a fine of
R800.00 or 400 days’ imprisonment. On appeal the court found that the magistrate
had erred and that the appellant should have been convicted as originally charged.
The court, per Kannemeyer J P (Kroon J concurring) made the following observation:
‘In all the circumstances. . . whether the appellant is to be punished in this case for pointing
a firearm or for common assault, his moral blameworthiness is of a similar degree. The
sentence that the magistrate considers appropriate for assault is, in my view, also one which
would be appropriate for the offence originally charged’.
The court altered the sentence to a fine of R800.00 or 200 days’ imprisonment, since
the magistrate had exceeded his sentencing jurisdiction in imposing 400 days as an
alternative.
[12] In S v Sam 1980 (4) SA 289 (T), a 67 year old café owner was convicted of a
similar offence and sentenced to a fine of R100.00 or 25 days’ imprisonment. The
appeal unsurprisingly did not concern the sentence, but the conviction, more
particularly the question of dolus in the context of error iuris and error facti.
In S v Hodgkinson 2010 (2) SACR 511 (GNP), the appellant was convicted in the
Magistrates’ Court of the unlawful pointing of a firearm in terms of s 120 (6)(b) of the
Firearms Control Act and he was sentenced to payment of a fine of R2000.00 or 90
days’ imprisonment, wholly suspended on certain conditions. I must point out that the
incident concerned a toy water pistol, hence the nature of the sentence imposed.
In Van Heerden the incident emanated from taxi rivalry and not road rage as is the
case in the instant matter, but the facts and circumstances as set out in para 12
above are fairly analogous to that in the present matter.
[13] There is to my knowledge only one reported judgment where a custodial
sentence had been imposed for an offence such as the present one. In Modungwe v
S, [2003] 1 All SA 235(T), the appellant had been convicted of the unlawful
possession of a firearm and ammunition, as well as the unlawful pointing of a
firearm. He was sentenced to 5 years’ imprisonment on each of counts 1 and 3, and
3 years’ imprisonment on count 2. The appeal concerned the Magistrate’s imposition
of the minimum sentences prescribed in the Criminal Law Amendment Act. The court
held that these offences do not fall within the ambit of the section of that Act which
attracts the prescribed minimum sentence. In respect of count 3, the unlawful
pointing of a firearm, the court imposed a sentence of one year imprisonment. The
problem is that no facts concerning the commission of the offence can be gleaned
from the judgment and no reasons are furnished for the imposition of the maximum
permissible sentence in terms of s 39(2)(d). The case is therefore of no assistance in
the present matter and it does not detract at all from my views, enunciated above,
that a custodial sentence is not justified in the present matter.
[14] In my view a custodial sentence is grossly disproportionate to the facts and
circumstances relating to the offence. But a severe non-custodial sentence should
nonetheless be imposed to convey clearly the message that conduct such as this,
particularly from a member of the armed forces, will not be tolerated. A sentence of 6
months, wholly suspended on appropriate conditions, would in my view meet the
well-established sentencing objectives.
That, as I see it, will better achieve the traditional aims of sentencing such as
retribution and deterrence - and also be blended with a measure of mercy. It seems
to me that, with a suspended sentence hanging over his head the appellant is hardly
likely to resort to his firearm as readily as he did in this instance. Had the magistrate
properly applied his mind to the task which confronted him I have little doubt that he
ought to have concluded – as I have done – that on the facts here present a
custodial sentence was unjustified.
[15] As stated in para 5 above, an order was also issued to the effect that the
appellant be declared unfit to possess a firearm in terms of s 12(1) of the Act. No
enquiry whatsoever was, however, held prior to the issuing of that order. On the
contrary, immediately following upon the prosecutor’s argument on sentence (the
appellant’s legal representative having by then concluded his address), the
magistrate made the startling remark that ‘(t)he defence also did not convince me in
terms of s 12 (of the Act) why if not I declared him unfit to possess a firearm’. The
appellant’s legal representative was thereupon asked to make submissions on this
aspect, to which the magistrate replied ‘(r)ather late’, but nonetheless permitted
further submissions to be advanced. Those submissions related primarily to the fact
that the appellant was employed as a military policeman and to the adverse effect
such an order would have on his employment. The magistrate then simply made the
declaratory order of unfitness, without furnishing any reasons. This is a further
misdirection. I can think of no good reason why such an order should have been
made, which would be gravely prejudicial to the appellant in the discharge of his
work related duties. It therefore ought to be set aside.
[16] The following order is made:
1. The appeal against the sentence is upheld.
2. The order of the court below is set aside and is substituted by the following:
‘(a) The appeal against conviction is dismissed.
(b) The appeal against sentence succeeds.
(c) The sentence of 6 months’ imprisonment imposed on the appellant is set
aside and substituted with the following:
‘The accused is sentenced to 6 months’ imprisonment, wholly suspended for a
period of 5 years, on condition that the accused is not convicted of a
contravention of sections 120(3), (4), (5), (6), (7) or (8) of the Firearms Control
Act, 60 of 2000, committed during the period of suspension.’
3. The order declaring the appellant unfit to possess a firearm pursuant to the
provisions of s (12)(1) of the Arms and Ammunition Act, 75 of 1969 is set
aside.
________________________
S A MAJIEDT
JUDGE OF APPEAL
PONNAN JA (TSHIQI, PILLAY and PETSE JJA CONCURRING):
[17] I have read the judgment of Majiedt JA and, whilst I concur in the order, I
deem it necessary to pass certain observations with respect to the matter.
[18] The ready resort to a firearm that one encounters in this case, which has
become all too pervasive in our country, is to be deprecated. What is worse is that
here we are dealing with a member of this country’s armed forces whose conduct
was the very antithesis of that to be expected of someone who is sworn to protect.
No doubt public outrage would be warranted at conduct of this kind and it follows that
the public interest would have to be properly served in the determination of an
appropriate sentence. But we need to remind ourselves that:
‘An enlightened and just penal policy requires consideration of a broad range of sentencing
options from which an appropriate option can be selected that best fits the unique
circumstances of the case before the court. It is trite that the determination of an appropriate
sentence requires that proper regard be had to the well-known triad of the crime, the
offender and the interests of society. After all, any sentence must be individualised and each
matter must be dealt with on its own peculiar facts. It must also in fitting cases be tempered
with mercy. Circumstances vary and punishment must ultimately fit the true seriousness of
the crime. The interests of society are never well served by too harsh or too lenient a
sentence. A balance has to be struck.'
(State v Samuels 2011 (1) SACR 9 (SCA) para 9.)
[19] It is not clear to me why it was thought that direct imprisonment was the only
appropriate punishment in this case. Sentencing courts would be well advised to
differentiate between those offenders who ought to be removed from society and
those who, although deserving of punishment, should not be removed. In my view
the appellant falls into the latter of the two categories. I cannot imagine that he is
ever likely to repeat what he did. Personal deterrence thus hardly comes into the
reckoning. In any event to the extent that it may be thought necessary that personal
deterrence be addressed, the sword of a suspended sentence hanging over his head
for a period of five years adequately does so. To uphold the sentence imposed on
the appellant would, in my view, be to overemphasise the interests of society and
conversely under-emphasise the interests of the appellant. After all he was a useful
member of society with an unblemished record and his first foray into criminal
conduct of any kind was at the relatively advanced age of 30. In those circumstances
it can hardly be concluded that direct imprisonment was imperatively called for.
[20] Where I part company with my colleague Majiedt is the invocation by him of
various authorities to identify what he describes as the benchmark for an offence of
this kind. To trawl through the cases as an aid to the determination of an appropriate
sentence may well be ‘an idle exercise’ (S v Fraser 1987 (2) SA 859 (A) at 863). For
as Centlivres JA put it in R v Wells 1949 (3) SA 83 (A) at 87 – 88:
'Decided cases are... of value not for the facts but for the principles of law which they lay
down. In this connection I cannot do better than quote the remarks of Lord Finlay in
Thomson v Inland Revenue (1919 SC (HL) 10): "No enquiry is more idle than one which is
devoted to seeing how nearly the facts of two cases come together: the use of cases is for
the propositions of law they contain, and it is no use to compare the special facts of one
case with the special facts of another for the purpose of endeavouring to ascertain what
conclusion you ought to arrive at in the second case."'
That is not to suggest that courts should not strive for consistency (S v Xaba 2005
(1) SACR 435 (SCA)). But as it was put by this court in Jimenez v S [2003] 1 All SA
535 (SCA) para 6:
‘. . . [W]hile it may be useful to have regard to sentences imposed in other similar
cases, each offender is different, and the circumstances of each crime vary. Other
sentences imposed can never be regarded as anything more than guides taken into
account together with other factors in the exercise of the judicial discretion in
sentencing.’
However, the desire to achieve uniformity cannot be allowed to interfere with the free
exercise of a judicial officer’s discretion in determining an appropriate sentence in a
particular case in the light of the relevant facts in that case and the circumstances of
the person charged (S v Moloi [1987] 1 All SA 249 (A)).
[21] Both S v van Heerden and S v Sam were decided over two decades ago.
Those two cases thus hardly prove fertile ground as a comparator for the present.
Hodgkinson, although of more recent vintage, involved a toy water pistol and is
therefore clearly distinguishable from the present. That leaves Modungwe - which my
learned colleague asserts is of no assistance. It follows, in my view, that no
discernible trend can be said to emerge - certainly not one that can culminate in the
conclusion that ‘non-custodial sentences are usually imposed for this particular
offence’. For, as R v Karg 1961 (1) SA 231 (A) at 236H made plain: ‘. . . no
countenance should be given to any suggestion that a rule may be built up out of a
series of sentences which it would be irregular for a Court to depart from’.
________________________
V M PONNAN
JUDGE OF APPEAL
APPEARANCES
For Appellant:
H L Alberts
Instructed by:
Pretoria Justice Centre
Bloemfontein Justice Centre
For Respondent:
A G van Rensburg
Instructed by:
Director of Public Prosecutions, Pretoria
Director of Public Prosecutions, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
28 March 2013
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
Nevhutalu v The State (692/12)
Media Statement
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal (SCA) today upheld an appeal from the North
Gauteng High Court, Pretoria, sitting as a court of appeal. The high court had
dismissed an appeal from the regional court in Polokwane which had imposed a
sentence of 6 months’ direct imprisonment on the appellant, Justice Khakhathi
Nevhutalu, for the unlawful pointing of a firearm. The SCA held that, given the
appellant’s strongly mitigating personal circumstances, a sentence of direct
imprisonment was unwarranted. It concluded that the appellant is a useful member
of society and that a totally suspended sentence subject to certain conditions for a
period of 5 years, would better serve the traditional aims of punishment. The SCA
also set aside the order declaring the appellant to be unfit to possess a firearm, for
which no reasons had been given by the trial court. The SCA held that there is no
justification on the evidence for such an order.
--- ends ---
|
1897
|
non-electoral
|
2011
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 837/2010
In the matter between
GERT JAKOBUS VAN DER WATT
FIRST APPELLANT
MARTHA JACOBA VAN DER WATT
SECOND APPELLANT
and
CHRISTIAAN JACOBUS JONKER
FIRST RESPONDENT
AGRIWEN (EDMS) BPK
SECOND RESPONDENT
AGRIGEN PETROLEUM (EDMS) BPK
THIRD RESPONDENT
AGRIGEN DIESEL BULTFONTEIN
(EDMS) BPK
FOURTH RESPONDENT
Neutral citation: Van der Watt v Jonker (837/2010) [2011] ZASCA 140
(23 September 2011)
Coram:
HARMS AP, LEWIS, PONNAN, CACHALIA and MAJIEDT JJA
Heard:
5 SEPTEMBER 2011
Delivered:
23 SEPTEMBER 2011
Summary:
Contract – Sale of business including goodwill – effect of – locus
standi in enforcing contract.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: Free State High Court (Bloemfontein) (Kruger J, sitting as
court of first instance):
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
MAJIEDT JA (HARMS AP, LEWIS, PONNAN and CACHALIA JA
concurring):
[1] This is an appeal against the judgment and order of Kruger J, sitting as
court of first instance in the Free State High Court, Bloemfontein, enforcing
the terms of a restraint of trade agreement. Leave to appeal was granted by
this court.
[2] In terms of the order of the court below, the appellants, as
respondents, were restrained for a period of 10 years from being involved in a
business entailing the trading, storage, handling, sale, marketing or
distribution of fuel, oil and/or related products in the areas serviced by the
second, third and fourth respondents (as applicants below). They were each
also restrained from providing financial support or acting as a consultant,
adviser or agent of any person or entity conducting business in the
abovementioned respects.
[3] The first respondent, Mr Christiaan Jacobus Jonker (Jonker), started
the business of the second respondent, Agriwen (Pty) Ltd (Agriwen), third
respondent, Agrigen Petroleum (Pty) Ltd (Agri-petroleum) and the fourth
respondent, Agrigen Diesel Bultfontein (Pty) Ltd (Agri-diesel) in 1991, 2000
and 2001 respectively. Agriwen‟s predecessor was Kuiltjie Landbou (Pty) Ltd
trading as Agri-Mekka Koppies1 and its business was primarily the sale of
agricultural products to farmers, similar to the type of business usually
conducted by agricultural co-operatives. In 1998, Agriwen‟s business was
expanded to include the distribution of Engen petroleum products in certain
areas of the Free State province. Agri-petroleum was involved in the sale and
distribution of Engen petroleum products under the Zenex brand2 in certain
other circumscribed areas of the Free State, with three distribution depots at
Bothaville, Bultfontein and Virginia. Agri-diesel was established as a black
economic empowerment entity, also for the sale and distribution of Engen
petroleum products in certain other areas in the Free State (ie different to the
areas serviced by Agriwen and Agri-petroleum). I shall refer to these three
businesses collectively as „the Agri group‟. It bears mention at the outset that
the businesses were indeed conducted as one large, diverse entity. Jonker
was not a shareholder in the Agri group companies in his own name; his trust,
the Chris Jonker Trust, held these shares.
[4] The first appellant, Mr Gert Jakobus van der Watt, was a close family
friend of Jonker until their business relationship turned sour. Van der Watt
started working for Jonker in 1997 as shop manager of Agri-Mekka Koppies
and he later became Agriwen‟s marketing manager until September 2000.
Thereafter Van der Watt served as marketing manager for Agri-petroleum
until 2005. Van der Watt held a 30 per cent shareholding in Agri-petroleum
and a 21 per cent shareholding in Agri-diesel. He is married to the second
appellant, Mrs Martha Jacoba van der Watt, who was not a shareholder or
employee of any of the businesses in the Agri group. In 2005, by agreement
with Jonker, Van der Watt terminated his services with Agri-petroleum and
started a new business in Randfontein selling and distributing Sasol
petroleum products, mostly to industrial clients (the Agri group businesses
1 The name was changed to Agriwen in 2004.
2 Engen took over the Zenex businesses countrywide at about the time when Agri-petroleum
had been established, first as a shelf company, just before 2000.
distributed Engen petroleum products, mostly to farmers). The Randfontein
business was purchased in the name of the erstwhile third respondent in the
court below, Big Red Investments (Pty) Ltd, a company owned in equal parts
by Van der Watt and Jonker. Despite this equal shareholding, Van der Watt
was reflected as the only shareholder on the company documents, to protect
Jonker‟s business relationship with Engen. For the same reason a similar
arrangement regarding the purchase and shareholding was reached between
them in respect of the filling station business at Randfontein, which was
purchased in the name of the erstwhile fourth respondent, Turquoise Moon
(Pty) Ltd. Mrs van der Watt is the sole shareholder and director of this last
mentioned company. The filling station business was conducted under the
trade name „Dynamic Fuels‟.
[5] It is common cause that the Randfontein and Agri group businesses all
did very well. However, Van der Watt wanted to operate separately and
independently. Jonker acquiesced to a separation of the Randfontein and Agri
group businesses, culminating in a written agreement on 25 April 2007 (the
restraint agreement). This agreement is the kernel of the dispute between the
parties and it is therefore necessary to set out its salient features. The
restraint agreement was between Jonker on the one part and the two van der
Watts on the other. It contained a recordal that the parties do business in the
Randfontein companies and in the Agri group companies and that they agree
to separate these businesses. The agreement provided that the Van der
Watts became the sole shareholders of the two companies in which the
Randfontein business was conducted, while Jonker in turn became the sole
shareholder in the Agri group companies. It was agreed further that, in order
to effect a fair and equitable settlement, Jonker would pay to the Van der
Watts R2 million in cash - a point that assumes particular significance in this
case. Clause 6 contains restraints in respect of both the Van der Watts and
Jonker in respect of a 10 year period in the petroleum business for the
geographical areas serviced by the Agri group businesses (for the Van der
Watts) and for a radius of 80 kilometres from Randfontein (for Jonker). It was
recorded further in clause 6 that the parties agree that the restraints of trade
are fair and reasonable in respect of their nature, extent and period and that
they do not extend further than is reasonably necessary to protect the
businesses of the respective companies.
[6] Jonker and the Agri group companies sought and obtained relief in the
high court in terms of the restraint agreement on the basis that the Van der
Watts were proved to have solicited customers of the Agri group and were
trading in contravention of their restraint under the trade name Dynamic Fuel
on both the distribution and retail sides. It was not seriously in issue that the
Van der Watts were trading in the Agri group‟s service areas contrary to the
restraint provisions. To the extent that Van der Watt sought to create a
factual dispute on this aspect in the papers, the high court correctly found for
Jonker and the Agri group that there was indeed a breach if the restraint was
enforceable. In this court counsel for the Van der Watts sensibly argued the
matter on the basis that the Van der Watts were in fact trading in the
petroleum business in the affected areas. Their attack was directed against
the enforceability of the restraint. Three main issues were raised in argument
on behalf of the appellants, namely Jonker and the Agri group‟s locus standi,
the unenforceability of the restraints due to the absence of a protectable
interest on the part of Jonker and the Agri group and lastly the 10 year period
of the restraint. As will presently appear, this appeal stands to be decided on
a somewhat different basis to the one advanced by the parties and decided by
the high court. In this regard, this court drew the parties‟ attention prior to the
hearing to its decision in A Becker & Co (Pty) Ltd v Becker & others.3 I shall
deal with that decision in due course.
[7] It is convenient to deal first with the locus standi issue. Appellants‟ counsel
argued the point not on the legal standing per se, but on the question whether
Jonker had the right to sue in the absence of a protectable interest. He
contended that Jonker himself does not have a protectable interest since he is
3 A Becker & Co (Pty) Ltd v Becker & others 1981 (3) SA 406 (A).
not the owner of the goodwill in the Agri group. Such goodwill, counsel
submitted, was held by the companies themselves. It was contended further
that Jonker is not a shareholder in any of the Agri group companies.
Reference was made to a dictum of Botha JA in Botha & another v Carapax
Shadeports (Pty) Ltd 4 which reads as follows:
„What I have been referring to as “the benefit” of an agreement in restraint of trade, pertaining
to a business, is, in the eyes of the law, the contractual right to enforce the restraint. It rests in
the owner of the business. He is the creditor in respect of it.‟
These contentions are misconceived. Jonker was a party to the contract. It is
in that capacity that he seeks to enforce the restraint. The restraint agreement
stipulates that Jonker himself became the sole shareholder in the Agri group.
And clause 4 of the restraint agreement provided that Jonker must pay the
sum of R2 million in cash to the Van der Watts. His protectable interest plainly
arises from the restraint agreement itself and there can be no ambiguity about
this at all.
[8] This court‟s decision in Basson v Chilwan & others5 fortifies the
aforementioned conclusion. The Chilwans owned Chilwans Bus Services, a
large transport company based in Cape Town with countrywide operations.
Basson had acquired vast experience in the design and construction of
busses. After he had built a bus for the Chilwans with which they were very
satisfied, they negotiated successfully with Basson to jointly set up a bus
construction business. This resulted in a written agreement to form a close
corporation, named Coach-Tech, with the Chilwans and Basson holding equal
interests in it. A restraint clause, which formed the subject of the dispute
between the parties, was included in the agreement in respect of Basson‟s
employment and the confidentiality of the agreement.
Of importance for present purposes is that the parties to the restraint
agreement were the four Chilwans, Basson and Coach-Tech. Both Nienaber
JA6 and Van Heerden JA7 held that the Chilwans were entitled to seek
4 Botha & another v Carapax Shadeports (Pty) Ltd 1992(1) SA 202 (A) at 214B.
5 Basson v Chilwan and others 1993 (3) SA 742 (A).
6 At 768J–769B.
7 At 774G-H.
enforcement of the restraint against Basson as embodied in the agreement. In
the words of Van Heerden JA (supra):
„Tweedens het die Chilwans net so seer as Coach-Tech „n belang by die beperking gehad.
Enige handeling wat tot nadeel van Coach-Tech sou strek, sou onvermydelik nadelig op hul
ledebelange inwerk. Bowendien was hulle partye tot die kontrak waarin die beperking op
Basson gelê is . . .‟ (Emphasis supplied.)
Jonker therefore, as a contracting party like the Chilwans, plainly has a
protectable interest affording him the right to sue for enforcement of the
restraint. The startling contention was made in the appellants‟ heads of
argument (although not persisted with in oral argument) that the Agri group
companies lack a protectable interest since they had not been parties to the
contract. This circuitous argument is self-evidently destructive of the one or
the other proposition. But cadit quaestio – as indicated in Chilwan, both the
companies and Jonker clearly have a protectable interest and they have a
right to sue on the restraint agreement.
[9] I turn next to a discussion of the application of Becker to this case. In
that matter Becker had sold his jewellery business which he conducted in a
company, the appellant, A Becker & Co, to one Akoodie. The assets sold
included goodwill and certain restraints of trade were set out in the written
agreement of sale. The restraint of trade was for a period of five years and
extended to the entire Republic of South Africa. Becker and his companies, to
which the restraint applied, complied in full with it until the expiry of the
restraint period. After the restraint had fallen away, Becker through his
companies approached his old customers in order to solicit business from
them. Circulars were distributed reminding former customers of Becker‟s
previous jewellery business and announcing that Becker was back in that
business. Akoodie, through the appellant company which he had bought from
Becker, sued for an interdict to restrain Becker and his wife (who had been in
the business with Becker) from canvassing or soliciting business from their old
customers. In upholding the appeal against an order of absolution this court
held that while the express restraint in respect of competition had fallen away,
the sale of the company‟s goodwill meant that Becker and his wife were
prohibited from soliciting business from their former customers. Muller JA
referred with approval to the speech of Lord Macnaghten in Trego v Hunt 8
and held as follows:9
„In my opinion the judgement in the English case of Trego v Hunt . . . is correct. If a seller
disposes of the goodwill of a business he is not allowed thereafter to act contrary to the sale‟.
In a separate, concurring judgment Van Heerden AJA analysed in detail the
origin and nature of the right to goodwill in a business. He pointed out that it is
an incorporeal property right usually based on two components, namely
locality of the business and the personality of the driving force behind the
business.10 In alienating the goodwill of a business, a vendor commits himself
not to perform any act adverse to the granting of the right. In this regard Van
Heerden AJA cited the well established English law notion that „a vendor is
not entitled to derogate from his grant‟, as espoused by Lord Herschell in
Trego v Hunt.11 It is by now also firmly established in our law that, absent a
restraint provision, the seller of goodwill is permitted to trade in competition
with the purchaser, but he may not solicit his old customers for business.12
[10] The present matter falls squarely within the Becker principles. Van der
Watt seeks to take back that which he has sold for a consideration of R2
million in cash, namely the old customers with whom he did business while
part of the Agri group. It is plain from Becker and the authorities cited there
that the present matter concerns the protection of goodwill as well as the
restraint of trade. Harms JA described goodwill in Caterham Car Sales &
Coachworks Ltd v Birkin Cars (Pty) Ltd13 as follows:
„Goodwill is the totality of attributes that lure or entice clients or potential clients to support a
particular business.‟
8 Trego v Hunt [1896] AC 7 at 22-25.
9 At 414H.
10 See also Receiver of Revenue, Cape v Cavanagh 1912 AD 459 at 461–462.
11 At 19-20.
12 A Becker & Co (Pty) Ltd v Becker & others at 417F-G and 418G-H; see also: Corbin on
Contracts vol. 6A s1386: „When a business is sold with its goodwill, but without any express
promise not to compete, the seller is privileged to open a new business in competition with
the buyer; but he is under obligation not to solicit his former customers or to conduct his
business under such a name and in such a manner as to deprive the buyer of the “goodwill”
that he paid for.‟
13 Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd 1998 (3) SA 938 (SCA) para
15.
In The Commissioners of Inland Revenue v Muller & Co’s Margarine Ltd14
Lord Macnaghten defined goodwill thus:
„What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit
and advantage of the good name, reputation and connection of a business. It is the attractive
force which brings in custom.‟
[11] It is plain on the undisputed facts that van der Watt had built up strong
business relationships with Agri group‟s existing customers through his
previous employment there. He had also formed strong personal associations
with some of them through his family and that of his wife. This is particularly
so in the case of the Parys, Koppies and Bothaville areas15. It is significant
that Van der Watt, on his own version, focused Dynamic Fuels‟ business
entirely on those areas of the Free State where the Agri group operates. This
suggests, to my mind, that he targeted customers in those areas for his new
business. The uncontroverted facts demonstrate that Van der Watt actively
solicited those Agri group customers by marketing his petroleum products at
the Koppies club, where a number of them were in attendance, at a golf day
where he actively marketed Dynamic Fuels‟ business and through a direct
approach to at least one Agri group customer, Mr Taljaard. There is in my
view no difference between this type of general canvassing, that is, at a club
or during a golf day and that employed in Becker, namely the distribution of
circulars to erstwhile customers. It is not necessary to prove direct overtures
to Agri group customers by Van der Watt. In any event, as the court below
correctly found, the Taljaard case amply demonstrates that direct canvassing
and solicitation was undertaken by Van der Watt. It was admitted in Van der
Watt‟s answering affidavit that he had personally informed Jonker that he
intended resuming his business activities in the Agri group‟s service areas.
His defence was that the restraint of trade was unenforceable and that he
might consequently trade with his old Agri group customers in competition
with Jonker and the Agri group.
14 The Commissioners of Inland Revenue v Muller & Co’s Margarine Ltd [1901] AC 217 at
223-224.
15 The Van der Watts live in Parys and had opened a filling station there. Mrs van der Watt
hails from Bothaville and Van der Watt‟s family live in the Koppies area.
[12] In summary: Jonker and the Van der Watts separated their businesses
through their written agreement as mentioned. The businesses were sold as
going concerns. It is trite that such a sale of business as going concern
includes that business‟ goodwill. A restraint of trade against a seller forms part
of the goodwill of a business.16 In order to determine all the components
contained in the merx in a sale of a business one must have regard to the
contract and those components will normally, if not invariably, include the
goodwill of the business.17 There can be no doubt that the parties intended to
and did in fact sell the goodwill in the respective businesses to each other.
The appellants‟ counsel did not contend otherwise. The legal consequences
of such sale were apparently not emphasized in the high court and, as stated,
the parties were alerted to Becker’s case by this court prior to the hearing. But
in the papers, Jonker, on behalf of the respondents, repeatedly complained
that the goodwill was being eroded by the Van der Watts‟ conduct. The issue
was therefore raised pertinently in the papers and referred to in the judgment
of the high court. As stated, the Van der Watts‟ answer was that the restraint
is unenforceable. But in a supplementary answering affidavit an auditor of the
Van der Watts undertook, on their instructions, a calculation of the price of the
various businesses, including goodwill. Implicitly therefore, the appellants had
been alive to the fact that goodwill formed part of the businesses purchased
and sold respectively. The legal consequences of trading in contravention of
the alienation of the goodwill appear, however, to have eluded them. For
these reasons Jonker and the Agri group have the right to assert their rights to
goodwill in terms of the restraint agreement.
[13] The position of the second appellant, Mrs van der Watt, requires brief
consideration. It was contended on her behalf that no relief should have been
granted against her, since she was neither an employee nor a shareholder of
16 Botha & another v Carapax Shadeports (Pty) Ltd at 212D
17 Slims (Pty) Ltd v Morris NO 1988 (1) SA 715 (A) at 727E; Shoprite Checkers (Edms) Bpk v
Grobbelaar [2011] ZASCA 11 paras 18-19.
any of the Agri group companies. The contention cannot be upheld. First, Mrs
van der Watt was a signatory to the restraint agreement. Second, it is
abundantly clear on the papers that Van der Watt is using his wife‟s company,
Turquoise Moon (Pty Ltd, as a front to conduct the retail business (the filling
stations) with Agri group customers as a target market. Lastly, she was a co-
recipient of the R2 million cash consideration in terms of the agreement. She
is therefore also in breach of the agreement.
[14] Having reached this conclusion, it is not necessary to deal at length
with the restraint of trade issue. It would suffice to uphold the findings of the
high court, that the Van der Watts were in breach of the restraint and that the
ten year period was not unreasonable. I agree with the high court that the
following features of the restraint were conclusive – the reciprocity of the
restraint (i.e. binding both the Van der Watts and Jonker), the fact that the
Van der Watts were paid R2 million in cash as part of the deal, the success
attained by Van der Watt with the Randfontein business even with the
restraint in operation, Van der Watt‟s special relationship with the Agri group
customers while he worked for the group as a marketer, the Taljaard incident,
the fact that Van der Watt is specifically targeting the areas where the Agri
group operates and lastly the fact that this is a commercial, not an employer-
employee restraint agreed upon when the parties parted ways in their
business relationship and at a stage when they were fully conversant with
their respective businesses‟ extent and potential.
[15] The appeal is dismissed with costs.
___________
S A MAJIEDT
JUDGE OF APPEAL
APPEARANCES:
Counsel for appellants
:
C E PUCKRIN SC (with him AJP ELS)
Instructed by
:
Thomas & Swanepoel, Tzaneen
Symington & de Kok, Bloemfontein
Counsel for respondents
:
J Y CLAASEN SC
Instructed by
:
Thabo Grimbeek Attorneys, Kroonstad
Naude‟s, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
23 September 2011
STATUS: Immediate
VAN DER WATT V JONKER
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal (SCA) today dismissed an appeal against a judgment
of the Free State High Court, Bloemfontein.
The high court had granted the respondents’ application to enforce a restraint of
trade against the appellants in respect of trading in the petroleum industry in certain
circumscribed areas of the Free State Province. The SCA decided the matter on a
different basis as the high court, while upholding that court’s findings on the breach
of the restraint of trade by the appellants. The SCA held that, since the appellants
had sold goodwill in the businesses to the respondents, for which the first
respondent paid the sum of R2 million in cash to the appellants, they were not
permitted to solicit customers of the second, third and fourth respondents to do
business with them. The SCA found that such canvassing and solicitation of
business had been proved by the respondents and the appeal was consequently
dismissed with costs.
-- ends --
|
3400
|
non-electoral
|
2020
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 1423/2018
In the matter between:
HLUMISA INVESTMENT HOLDINGS (RF) LTD First Appellant
EYOMHLABA INVESTMENT HOLDINGS (RF) LTD
Second Appellant
and
LEONIDAS KIRKINIS First Respondent
NITHIANANTHAN NALLIAH
Second Respondent
MOJANKUNYANE FLORENCE GUMBI
Third Respondent
MORRIS MTHOMBENI
Fourth Respondent
MUTLE CONSTANTINE MOGASE
Fifth Respondent
NOMALISO LANGA-ROYDS
Sixth Respondent
NICHOLOAS ADAMS
Seventh Respondent
SAMUEL SITHOLE
Eighth Respondent
ANTONIO FOURIE
Ninth Respondent
ROBERT JOHN SYMMONDS
Tenth Respondent
DELOITTE & TOUCHE
Eleventh Respondent
Neutral citation:
Hlumisa Investment Holdings (RF) Ltd and Another v Kirkinis and
Others (Case no 1423/2018) [2020] ZASCA 83 (03 July 2020)
Coram:
NAVSA, MAKGOKA and SCHIPPERS JJA and MOJAPELO and
KOEN AJJA
Heard:
9 March 2020
Delivered:
This judgment was handed down electronically via e-mail to the parties’
legal representatives on 03 July 2020. It has been published on the Supreme Court
of Appeal website.
Summary: Company Law – s 218(2) of the Companies Act 71 of 2008 – claim by
shareholders of company against directors and auditors for damages related to
diminution in value of shares – directors alleged to have acted in bad faith, for ulterior
purposes and without the requisite degree of care, skill and diligence, in breach of
provisions of the Act – company, rather than shareholders, proper plaintiff in respect
of claim against directors – essentially a claim for reflective loss – claim against
auditors based on alleged negligence in the manner in which they conducted an audit
of the company, in breach of their legal duty – proper plaintiff the company – claim for
pure economic loss – wrongfulness requirement not met – exceptions rightly upheld
by court below – appeal dismissed.
ORDER
On appeal from: Gauteng Division of the High Court, Pretoria (Molopa-Sethosa J
sitting as court of first instance): judgment reported sub nom Hlumisa Investment
Holdings RF Limited and Another v Kirkinis and Others [2018] ZAGPPHC 676; 2019
(4) SA 569 (GP).
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Navsa JA and Schippers JA (Makgoka JA and Mojapelo and Koen AJJA
concurring):
[1] This appeal, with the leave of the Gauteng Division of the High Court, Pretoria
(Molopa-Sethosa J, sitting as court of first instance), concerns principally the question
whether s 218(2) of the Companies Act 71 of 2008 (the Companies Act) enables a
claim by a shareholder in relation to the diminution in the value of shares due to
misconduct by directors. The appeal also concerns the viability of a shareholder’s
claim based on a diminution in share value related to alleged misconduct by auditors
in auditing the company’s financial statements. It follows on the upholding of
exceptions to the appellants’ particulars of claim in an action for damages, brought
against the respondents in the court below.
[2] The first appellant, Hlumisa Investment Holdings (RF) Ltd (the first plaintiff in
the court below), and the second appellant, Eyomhlaba Investment Holdings (the
second plaintiff in the court below), are shareholders in African Bank Investments
Limited (ABIL), which is listed on the Johannesburg Securities Exchange. The first
appellant owns 1.73%, and the second appellant 3.24%, of the issued share capital of
ABIL. African Bank Limited (African Bank or ‘the Bank’), which carries on the business
of a bank under the Banks Act 94 of 1990, is a wholly-owned subsidiary of ABIL. The
first to tenth respondents are all either former or current directors of ABIL and African
Bank (the directors). At all material times they were all directors of both. The eleventh
respondent, Deloitte & Touche (Deloitte), was the auditor of both ABIL and African
Bank.
[3] In the action instituted by the appellants in the court below in 2015, they sued
the directors and Deloitte, jointly and severally, for damages allegedly suffered as a
result of the diminution in the value of their shares in ABIL, on account of the directors’
alleged misconduct in relation to the affairs of both African Bank and ABIL and on
account of Deloitte failing to conduct audits in accordance with generally recognised
auditing standards.
[4] In their claim against the directors (Claim A), the appellants alleged that
between 2012 and 2014, and in breach of s 76(3) of the Companies Act, the directors
had failed to exercise their powers in good faith and in the best interests of ABIL and
African Bank, which ‘resulted in the business of ABIL and African Bank being carried
out recklessly or with gross negligence in contravention of the provisions of section
22(1) of the Act’. This caused the Bank and ABIL to suffer significant losses, which, in
turn, caused the ABIL share price to drop from R28.15 per share as at April 2013 to
R0.31 per share as at August 2014, a total diminution in the price per share of R27.84.
The appellants’ damages, according to the pleadings, arose from this diminution in
value of the ABIL shares, multiplied by the number of shares that they held, which
resulted in the first appellant allegedly suffering a loss of R721 384 512, and the
second appellant, a loss of R1 341 224 294.
[5] The particulars of claim set out numerous instances of the directors’ alleged
misconduct. They include the publication of false financial statements in respect of
both entities; the authorisation of the publication, in relation to a rights issue, of a
prospectus containing false financial statements and other financial information that
was misleading; the authorisation of a loan, at meetings or in terms of s 74 of the
Companies Act, in contravention of s 45 in circumstances where it could be foreseen
that the loan would not be repaid; the appointment of an executive director who did
not possess the necessary skills and expertise; failing to make provision for losses
sustained as a result of bad business decisions; utilising flawed credit provisioning
models; pursuing aggressive and reckless accounting practices; and pursuing a rights
offer on behalf of ABIL on false premises. In para 24 of the particulars of claim the
appellants locate the statutory basis for their claim against the directors:
‘In the circumstances, and by reason of section 218(2) of the Act, the directors are liable to
compensate the first and second plaintiffs for the damages they have suffered. . . .’
[6] The directors excepted to the particulars of claim on three bases, the relevant
parts of which are reproduced hereunder:
‘EXCEPTION 1
The plaintiffs’ claim is premised on the defendants, in their capacities as directors of ABIL and
African Bank, having conducted themselves in a particular manner . . . .
The directors’ conduct is alleged to have resulted in losses on the part of African Bank and
ABIL “which in turn caused the share price of the ABIL shares . . . to drop. . .”.
The loss which the plaintiffs claim is the reduction in the value of the shares in ABIL.
On the basis advanced by the plaintiffs the entities which suffered loss as a result of the
directors’ conduct were African Bank and ABIL . . . .
The loss in respect of which the plaintiffs claim is a loss which is reflected in the share price
of ABIL, as a result of the loss sustained by ABIL and African Bank in consequence of the
directors’ conduct.
The plaintiffs have not set out facts, or alleged any basis, entitling them to recover the losses
suffered by them in consequence of the diminution in the share price of ABIL.
In the result the plaintiffs’ claim against the defendants lack averments necessary to sustain a
cause of action.
EXCEPTION 2
The plaintiffs rely on section 218(2) of the Companies Act . . .
Section 218(2) of the Companies Act provides:
“Any person who contravenes any provision of this Act is liable to any other person for any
loss or damage suffered by that person as a result of that contravention.”
The only provisions of the Companies Act identified by the plaintiffs are section 76(3) and
section 22(1) . . . and sections 74 and 45.
The plaintiffs have not alleged that the damages which they claim were suffered “as a result
of” the contravention of sections 45, 74, 76(3) or section 22(1) of the Companies Act. Instead
the plaintiffs allege that the damages which they suffered are the consequence of a diminution
in the value of the ABIL shares, which diminution resulted from losses sustained by African
Bank and ABIL.
In the result the amended particulars of claim do not contain allegations entitling the plaintiffs
to rely on section 218(2) of the Companies Act and the particulars of claim are accordingly
excipiable.
EXCEPTION 3
In the amended particulars of claim the plaintiffs allege that the defendants authorised the
publication of a prospectus containing false or misleading information . . . .
In the amended particulars of claim the plaintiffs set out certain details in respect of the false
and misleading information in the prospectus . . . .
The authorisation of the prospectus is alleged to be a misrepresentation . . . .
The plaintiffs do not allege that they relied on the representation allegedly made by the
defendants, or that they acted on the strength of the representation . . . or that they have
suffered damages as a result of the representation . . . .
In the result the plaintiffs’ particulars of claim do not contain sufficient averments to sustain a
cause of action based on the representations . . . and the particulars of claim are accordingly
excipiable.’
[7] In respect of the claim against Deloitte (claim B), the appellants alleged that
during the period between December 2012 and December 2014, Deloitte was tasked
by ABIL to audit and report on the financial standing of ABIL and African Bank. The
appellants alleged that Deloitte had, in respect of African Bank’s annual financial
statements for the years ending December 2012 and December 2013, reported that
the financial statements fairly presented the Bank’s financial position. The reports were
‘false’, so the appellants said, in that the financial statements did not reveal the true
state of affairs at the Bank. The falsity arose, so it was alleged, as a result of:
‘[T]he deliberate, alternatively, negligent failure on the part of the auditors to take sufficient
steps to rectify and disclose to the investors and shareholders of African Bank and ABIL,
including the plaintiffs (the plaintiffs constituting third parties as contemplated in section 46(3)
of the [Auditing Profession Act 26 of 2005]) the true state of affairs at African Bank in the
financial statements.’
The appellants went on to state that Deloitte deliberately failed to qualify the financial
statements.
[8] The appellants alleged that Deloitte knew, or could reasonably have been
expected to know that the audit reports would induce them to act or refrain from acting
in some way, as contemplated in s 46(3) of the Auditing Profession Act 26 of 2005 (the
APA).1 Had Deloitte performed proper audits, the appellants would have convened a
meeting of the shareholders of ABIL and caused the removal of the errant directors.
That would have put an end to their mismanagement of African Bank and prevented
further losses. As a result of Deloitte’s audit reports, so it was asserted, the appellants
did not take these preventive measures, the directors continued to mismanage the
Bank and it continued to suffer loss. The ongoing losses suffered by the Bank caused
ABIL to suffer loss in that its shares in the Bank diminished in value; and in turn, the
plaintiffs suffered losses in the amounts set out at the end of para 4 above.
[9] Deloitte, like the directors, excepted to the particulars of claim. Its exceptions
read as follows:
‘FIRST EXCEPTION: THE ALLEGED WRONG WAS COMMITTED AGAINST AFRICAN
BANK, NOT AGAINST THE PLAINTIFFS
The plaintiffs are shareholders of ABIL, the holding company of African Bank.
According to the plaintiffs, ABIL “tasked” Deloitte to audit and report on the financial standing
of ABIL and African Bank . . . .
ABIL’S shareholders have no claim over any assets of ABIL and/or African Bank and merely
have a personal right to participate in ABIL on the terms of its memorandum of incorporation.
1 Section 46(3) of the Auditing Profession Act provides:
‘Despite subsection (2), a registered auditor incurs liability to third parties who have relied on an opinion,
report or statement of that registered auditor for financial loss suffered as a result of having relied
thereon, only if it is proved that the opinion was expressed, or the report or statement was made,
pursuant to a negligent performance of the registered auditor’s duties and the registered auditor—
(a)
knew, or could in the particular circumstances reasonably have been expected to know, at the
time when the negligence occurred in the performance of the duties pursuant to which the opinion was
expressed or the report or statement was made-
(i)
that the opinion, report or statement would be used by a client to induce the third party to act
or refrain from acting in some way or to enter into the specific transaction into which the third party
entered, or any other transaction of a similar nature, with the client or any other person; or
(ii) that the third party would rely on the opinion, report or statement for the purpose of acting or
refraining from acting in some way or of entering into the specific transaction into which the third
party entered, or any other transaction of a similar nature, with the client or any other person; or
(b)
in any way represented, at any time after the opinion was expressed or the report or statement
was made, to the third party that the opinion, report or statement was correct, while at that time the
registered auditor knew or could in the particular circumstances reasonably have been expected to
know that the third party would rely on that representation for the purpose of acting or refraining from
acting in some way or of entering into the specific transaction into which the third party entered, or any
other transaction of a similar nature, with the client or any other person.’
Consequently, any culpable failure by Deloitte to discharge its duties pursuant to its
appointment as African Bank’s statutory auditor:
Constitutes a breach of its duties to ABIL and/or African Bank, not to individual shareholders
of ABIL in their capacity as such; and
May have caused a loss for African Bank – not for ABIL or for ABIL’S shareholders, in their
capacity as such.
Shareholders of ABIL have no claim in law against a third party which caused any loss which
African Bank may have suffered. The diminution of the value of the shares held by ABIL in
African Bank and by the plaintiffs in ABIL is merely a reflection of the loss suffered by African
Bank.
In the premises, [the claim against Deloitte] lacks allegations necessary to sustain a cause of
action.
SECOND EXCEPTION: DELOITTE OWED NO LEGAL DUTY TO THE PLAINTIFFS AS
INDIVIDUAL ABIL SHAREHOLDERS
The plaintiffs’ claim against Deloitte is a delictual claim for pure economic loss.
The plaintiffs’ claim is based upon negligent misstatements allegedly made by Deloitte in
expressing audit opinions in respect of the financial statements of African Bank.
At common law, a statutory auditor of a company owes its legal duties to the company itself
and to the shareholders in general meeting; it owes no legal duty to individual shareholders in
their capacity as such.
Further, the purpose of statutory audit of financial statements is to enable shareholders acting
as a collective to oversee management; not to enable individual shareholders from acting or
refraining to act in any way, whether in connection to their oversight over management or
otherwise.
The plaintiffs rely on section 46(3) of [the APA] to found a legal duty to them, based on the
alleged knowledge of Deloitte that the directors would use the [annual financial statements] to
induce them to refrain from exercising their rights as shareholders in a specific way.
Section 46 – the heading of which is “limitation of liability” – does not change the common-law
position and provides in subsection (4) that:
“Nothing in subsections (2) or (3) confers upon any person a right of action against a registered
auditor which, but for the provisions of those subsections, the person would not have had.”
In the premises, [the claim against Deloitte] lacks allegations necessary to sustain a cause of
action.’
[10] In short, the directors and Deloitte adopted the position that the claims by the
appellants – which, if proven, enured only to the company – were unsustainable at
common law, at the instance of shareholders in their capacity as such, and could also
not be brought in terms of s 218(2) of the Companies Act. Deloitte was adamant that
it owed a legal duty to the company but not to the appellants in their capacities as
individual shareholders in the company.
[11] The court below, in adjudicating the exceptions in relation to Claim A, had
regard to s 218(2) of the Companies Act which, although appearing in the exceptions
set out above, we restate for convenience:
‘Any person who contravenes any provisions of this Act is liable to any other person for any
loss or damage suffered by that person as a result of that contravention.’
Alongside this provision, Molopa-Sethosa J considered s 76(3) of the Act, which the
appellants contended the directors had contravened in conducting the affairs of the
company as alleged. Section 76, which concerns the standards of conduct expected
from company directors . . . is, in essence, a codification of the common law on
fiduciary duties. Section 76(3) essentially provides that directors must exercise their
powers and perform their functions in good faith and for a proper purpose; in the best
interests of the company; and with the degree of skill, care and diligence reasonably
expected of directors. Section 76(3) reads as follows in relevant part:
‘(3)
Subject to subsections (4) and (5), a director of a company, when acting in that
capacity, must exercise the powers and perform the functions of a director—
(a)
in good faith and for a proper purpose;
(b)
in the best interests of the company; and
(c) with the degree of care, skill and diligence that may reasonably be expected of a person—
(i) carrying out the same functions in relation to the company as those carried out by
that director; and
(ii) having the general knowledge, skill and experience of that director.’
[12] At para 26 of the judgment, the following appears concerning s 218(2) of the
Companies Act:
‘Section 218(2) is worded widely in respect of individuals who fall within its ambit; however, it
is restricted in its application and applies only to “damage suffered by that person as a result
of that contravention”. This restriction requires a particular person to have suffered damage
as a result of a particular contravention. What this means is that the particular person who has
suffered damage must be a person who is able to invoke a claim for damages as a result of a
particular contravention of the Companies Act. In para 21 of the amended particulars of claim,
the plaintiffs’ recourse to s 218(2) is articulated as follows:
“21
The directors’ conduct as aforesaid:
21.1
constituted a breach of the provisions of section 76(3) of the Companies Act and
resulted in the business of ABIL and African Bank being carried out recklessly or with gross
negligence, in contravention of the provisions of section 22(1) of the Act . . . .’
Noting that s 76(3) sets the standard of conduct expected of a director, the court below
stated that the subsection does not, however, ‘deal with the liability of a director’. That
subject, said the court below, is dealt with in s 77 of the Companies Act, which reads
as follows:
’77
Liability of directors and prescribed officers—
. . .
(2) A director of a company may be held liable—
(a) in accordance with the principles of the common law relating to breach of a fiduciary duty,
for any loss, damages or costs sustained by the company as a consequence of any breach
by the director of a duty contemplated in section 75,2 76(2) or 76(3)(a) or (b) . . . .’
[13] Molopa-Sethosa J reached the following conclusion:
‘Therefore, a claim that alleges that directors are liable for damages as a result of a breach of
s 76(3) must be brought in terms of s 77(2), which specifically creates the liability for a breach
of s 76(3).’3
The court went on to state the following:
‘Where a statute expressly and specifically creates liability for the breach of a section, then a
general section in the same statute cannot be invoked to establish a co-ordinate liability; see
Gentiruco AG V Firestone SA (Pty) Ltd 1972 (1) SA 589 (A) at 603. This is the result of the
generalia specialibus non derogant maxim in terms of which general provisions do not
derogate from special provisions.’4
[14] The court below stated that if s 218(2) had the breadth ascribed to it by the
appellants, it ‘would be a drastic departure from a core principle of company law’.5
2 Section 75 deals with the personal financial interests of directors and is of no relevance in relation to
the present dispute.
3 Hlumisa Investment Holdings RF Limited and Another v Kirkinis and Others [2018] ZAGPPHC 676;
2019 (4) SA 569 (GP) para 29.
4 Ibid para 30.
5 Ibid para 31.
Molopa-Sethosa J then embarked on an extensive examination of case law, dealing
with the well-established principle of statutory interpretation that a statute should not
be taken to alter the common law unless it is clear that that is what was intended; and
even then, no more than what is necessary. She dealt with the qualification that
statutes must be interpreted in the context of constitutional values and that the
common law must be developed to promote the spirit, purport and objects of the Bill
of Rights and referred to Constitutional Court authority in that regard. The court below
proceeded to hold as follows:
‘It cannot be said that there is anything in s 218(2) to indicate that the legislature intended to
alter the common law and allow reflective-loss claims to be brought under that section.’6
It was emphasised that s 77(2) required claims for a breach of s 76(3) to be brought
‘in accordance with the principles of the common law’.7 Molopa-Sethosa J concluded
on this score by holding that ‘a reflective-loss claim cannot be brought under s 77(2),
because the common law does not permit such a claim. What the plaintiffs’ argument
involves is a finding that the Companies Act allows a reflective-loss claim which the
common law prohibits if the claim is brought under s 76(3)’.8
[15] In respect of the appellants’ reliance on s 22 of the Companies Act the court
below referred to the provisions of s 77(3)(b),9 which deal explicitly with losses suffered
by a company as a consequence of a director having acquiesced in the carrying on of
the company’s business, despite knowing that it was being conducted in a manner
prohibited by s 22. Thus, it held, as in the case of their reliance on s 76, the appellants’
reliance on s 22 was misconceived.
[16] Dealing with the contention on behalf of the appellants that the words ‘as a
result of’ in s 218(2) do not import a legal causative requirement, the court below held
as follows:
6 Ibid para 39.
7 Ibid para 40.
8 Ibid para 41.
9 Section 77(3)(b) reads as follows: ‘A director of a company is liable for any loss, damages or costs
sustained by the company as a direct or indirect consequence of the director having—
. . .
(b) acquiesced in the carrying on of the company’s business despite knowing that it was being
conducted in a manner prohibited by section 22(1) . . .’
‘Basically, what the plaintiffs suggest in their interpretation of s 218(2) is that all the
requirements of the common law relating to fault, foreseeability, causation and the proper
plaintiff should be discarded, and this cannot be so.’10
In arriving at that conclusion, the court below rejected the appellants’ reliance on the
decision of the Constitutional Court in Department of Land Affairs and Others v
Goedgelegen Tropical Fruits (Pty) Ltd [2007] ZACC 12; 2007 (6) SA 199 (CC). The
Constitutional Court was there dealing with causation in relation to the application of
the Restitution of Land Rights Act 22 of 1994 and the meaning of the phrase ‘as a
result of’ in s 2(1) of that Act. It gave that expression an extended meaning because it
was considering a remedial measure to redress past imbalances and the effects of
historical dispossession of rights in land.11 The court below held that the comparison
with s 218(2) of the Companies Act was untenable.12
[17] Late in its judgment,13 the court below considered the judgment of this court in
Itzikowitz v Absa Bank Ltd [2016] ZASCA 43; 2016 (4) SA 432 (SCA) where there is
a discussion of the principle against reflective loss in relation to companies and their
shareholders.14 The underlying principles that find application are, first, that a
company has a distinct legal personality. Secondly, holding shares in a company
merely gives shareholders the right to participate in the company on the terms of the
memorandum of incorporation, which right remains unaffected by a wrong done to the
company and, in the light thereof, a personal claim by a shareholder against a
wrongdoer who caused loss to the company is misconceived.15 Thus, the court below
was fortified in its view that the appellants could not rely on s 218(2) of the Companies
Act for their reflective-loss claim.
[18] The court below went on to consider the appellants’ claim against Deloitte and
the related exceptions. It considered the appellants’ ‘pivotal’ allegation to be the
following: ‘In consequence of ABIL being the sole shareholder of African Bank, any
10 Hlumisa Investment Holdings above fn 3 para 44.
11 Department of Land Affairs and Others v Goedgelegen Tropical Fruits (Pty) Ltd [2007] ZACC 12;
2007 (6) SA 199 (CC) para 47.
12 Hlumisa Investment Holdings above fn 3 paras 47-48.
13 Ibid para 50.
14 See especially paras 9-20 of Ponnan JA’s judgment in Itzikowitz v Absa Bank Ltd [2016] ZASCA
43; 2016 (4) SA 432 (SCA).
15 Ibid paras 9-12.
acts or omissions by third parties causing patrimonial loss to African Bank would
consequently result in ABIL suffering patrimonial loss’.16 It held as follows:
‘It is clear that the plaintiffs sue for a loss caused by a third party (Deloitte) to African Bank
which allegedly resulted in an equivalent loss to ABIL. By parity of this reasoning, ABIL’s
minority shareholders would then also have suffered patrimonial loss due to ABIL’s loss.
This analysis is not correct. African Bank suffered the loss and it is the proper plaintiff. In
circumstances where African Bank has a claim against the third party, the shareholders of
African Bank (or of its shareholder) have no claim in their own name.’17
[19] Consequently, the court below upheld the exceptions by the directors and
Deloitte in respect of both Claims A and B with costs, and granted the plaintiffs an
opportunity to amend their particulars of claim, if so advised. It is against the order
based on the conclusions set out above, that the present appeal is directed.
[20] Deloitte was given leave to cross-appeal conditionally, ostensibly on the basis
that if this court found that liability attached to the directors in terms of s 218(2), it did
not follow that there was liability on the part of Deloitte, located either statutorily or
otherwise. It must be borne in mind that in their claim against Deloitte, the appellants
did not rely expressly on s 218(2).
[21] In considering whether the essential conclusions of the court below are correct
it is necessary, at the outset to deal with the contention by the appellants, near the
commencement of their heads of argument, that the directors’ reliance on the legally
recognised bar against a reflective loss claim is nowhere to be found in their
exceptions and, consequently, the court below erred in having regard to submissions
in that regard. This was all the more so, it was contended, if regard is had to rule 23(3)
of the Uniform Rules of Court, which provides that the grounds upon which an
exception is founded ‘shall be clearly and concisely stated’. That contention can be
disposed of briefly. The rule against claims for reflective loss will be examined in some
detail later in this judgment. For present purposes it suffices to state its essentials:
Where a wrong is done to a company, only the company may sue for damage caused
to it. This does not mean that the shareholders of a company do not consequently
16 Hlumisa Investment Holdings above fn 3 para 68. (Emphasis original.)
17 Ibid paras 69-70.
suffer any loss, for any negative impact the wrongdoing may have on the company is
likely also to affect its net asset value and thus the value of its shares. The
shareholders, however, do not have a direct cause of action against the wrongdoer.
The company alone has a right of action. In their exceptions, the directors contended
that ABIL and/or African Bank ought to have brought an action, if one was sustainable,
and not the appellants as shareholders in ABIL. The exceptions accordingly
encompassed the no reflective loss principle. There is thus no merit in this point.
[22] In deciding an exception a court must take the facts alleged in the pleading as
being correct. It is for the excipient to satisfy the court that the conclusion of law set
out in the particulars of claim is unsustainable. The court may uphold the exception
only if it is satisfied that the cause of action or conclusion of law cannot be sustained
on every interpretation that can be put on those facts.18 As Harms JA noted in
Telematrix, exceptions are a useful tool to ‘weed out’ bad claims at an early stage and
an unnecessarily technical approach is to be avoided.19 The facts are what must be
accepted as correct; not the conclusions of law.
[23] In the present case one must therefore accept that there was a diminution in
value of the shares held by the appellants; that losses were caused to both ABIL and
African Bank; and that these losses were due to the alleged misconduct on the part of
the directors. What is in issue, is whether s 218(2) of the Companies Act provides a
basis for a claim by the appellants, in their capacity as individual shareholders in ABIL,
against the directors based on contraventions by the directors of ss 22(1), 45 and 74
and breaches of s 76(3) of the Companies Act. In respect of the auditors the issue is
whether, in the circumstances pleaded, they owed the appellants, as individual
shareholders in ABIL, legal duties not to have made misrepresentations in African
Bank’s financial statements and to have qualified the audit; and whether, in that
regard, reliance could be placed on s 46(3) of the APA and s 218(2) of the Companies
Act to sustain a cause of action. To that end one must accept that there were
18 Children’s Resource Centre Trust and Others v Pioneer Food (Pty) Ltd and Others [2012] ZASCA
182; 2013 (2) SA 213 (SCA) para 36, cited with approval in H v Fetal Assessment Centre [2014] ZACC
34; 2015 (2) SA 193 (CC) para 10.
19 Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA [2005] ZASCA
73; 2006 (1) SA 461 (SCA) para 3, obtaining the Constitutional Court’s imprimatur in Pretorius and
Another v Transport Pension Fund and Others [2018] ZACC 10; 2019 (2) SA 37 (CC) para 15.
misrepresentations by Deloitte relating to African Bank’s financial statements, as well
as a failure to qualify the financial statements, and that this commission and omission
caused loss to African Bank and consequently a diminution in value of the appellants’
shares.
[24] A good starting point in considering whether the exceptions were correctly
upheld, is a revisiting of the rule against claims by shareholders for reflective loss. In
Itzikowitz20 this court restated, with reference to the prevailing authorities, the following
established principle:
‘The notion of a company as a distinct legal personality is no mere technicality – a company
is an entity separate and distinct from its members and property vested in a company is not
and cannot be regarded as vested in all or any of its members. . . . A shareholder’s general
right of participation in the assets of the company is deferred until winding-up, and then only
subject to the claims of creditors.’
[25] Ponnan JA then went on to consider the following statement in Lawsa21
concerning our law on the rights of shareholders to sue personally when a wrong is
perpetrated against a company:
‘Since the shareholder’s shares are merely the right to participate in the company on the terms
of the memorandum of incorporation, which right remains unaffected by a wrong done to the
company, a personal claim by a shareholder against the wrongdoer to recover a sum equal to
the diminution in the market value of his or her shares, or equal to the likely diminution in
dividend, is misconceived.’
[26] Ponnan JA recognised that for that proposition in Lawsa reliance was placed
on Prudential Assurance Co Ltd v Newman Industries Ltd (No 2),22 where the following
was stated at 222-223:
‘[W]hat [a shareholder] cannot do is to recover damages merely because the company in
which he is interested has suffered damage. He cannot recover a sum equal to the diminution
in the market value of his shares, or equal to the likely diminution in dividend, because such a
“loss” is merely a reflection of the loss suffered by the company. The shareholder does not
20 Itzikowitz above fn 14 para 9. (Citations omitted.)
21 4(1) Lawsa 2 ed (2012) para 67. (Citations omitted.)
22 Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] 1 Ch 204; [1982] 1 All ER 354
(HL).
suffer any personal loss. His only “loss” is through the company, in the diminution in the value
of the net assets of the company, in which he has . . . shareholding.’
[27] Itzikowtiz also referred to the more recent judgment of the House of Lords in
Johnson v Gore Wood & Co (a firm) [2000] UKHL 65; [2001] 1 All ER 481; [2002] 2
AC 1 (HL), where Lord Bingham observed:
‘(1) Where a company suffers loss caused by a breach of duty owed to it, only the company
may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity
and no other to make good a diminution in the value of the shareholder’s shareholding where
that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to
make good a loss which would be made good if the company’s assets were replenished
through action against the party responsible for the loss, even if the company, acting through
its constitutional organs, has declined or failed to make good that loss. . . . (2) Where a
company suffers loss but has no cause of action to sue to recover that loss, the shareholder
in the company may sue in respect of it (if the shareholder has a cause of action to do so),
even though the loss is a diminution in the value of the shareholding. . . . (3) Where a company
suffers loss caused by a breach of duty to it, and a shareholder suffers a loss separate and
distinct from that suffered by the company caused by breach of a duty independently owed to
the shareholder, each may sue to recover the loss caused to it by breach of the duty owed to
it but neither may recover loss caused to the other by breach of the duty owed to that other.’23
[28] Dealing with the first principle, Lord Millett stated that the rationale for the rule
was to avoid double recovery:
‘The position is, however, different where the company suffers loss caused by the breach of a
duty owed both to the company and to the shareholder. In such a case the shareholder’s loss,
in so far as this is measured by the diminution in value of his shareholding or the loss of
dividends, merely reflects the loss suffered by the company in respect of which the company
has its own cause of action. If the shareholder is allowed to recover in respect of such loss,
then either there will be double recovery at the expense of the defendant or the shareholder
will recover at the expense of the company and its creditors and other shareholders. Neither
course can be permitted. This is a matter of principle; there is no discretion involved. Justice
to the defendant requires the exclusion of one claim or the other; protection of the interests of
23 Johnson v Gore Wood & Co (a firm) [2000] UKHL 65; [2001] 1 All ER 481; [2002] 2 AC 1 (HL) at
35E-36B.
the company’s creditors requires that it is the company which is allowed to recover to the
exclusion of the shareholder.’24
He went on to say the following:
‘It is of course correct that the diminution in the value of the plaintiffs’ shares was by definition
a personal loss and not the company’s loss, but that is not the point. The point is that it merely
reflected the diminution of the company’s assets. The test is not whether the company could
have made a claim in respect of the loss in question; the question is whether, treating the
company and the shareholder as one for this purpose, the shareholder’s loss is franked by
that of the company. If so, such reflected loss is recoverable by the company and not by the
shareholders.’25
[29] More recently, in Novatrust Limited v Kea Investments Limited and Others
[2014] EWHC 4061 (Ch), with reference to Johnson v Gore Wood & Co,26 Day v Cook
[2003] BCC 256 para 39 and Gardner v Parker [2004] EWCA Civ 781; [2004] 2 BCLC
554 para 49, the rule against a claim by a shareholder that was purely reflective of a
loss suffered by the company was reaffirmed in paras 54 and 55.
[30] In 2018 the Court of Appeal considered the scope of the rule against reflective
loss in Garcia v Marex Financial Ltd [2018] EWCA Civ 1468; [2018] 3 WLR 1412;
[2019] QB 173. Flaux LJ observed that the justification for the rule is fourfold:
‘The four aspects or considerations justifying the rule which emerge from the authorities, in
particular Lord Millett’s speech in Johnson v Gore Wood & Co [2002] 2 AC 1, are: (i) the need
to avoid double recovery by the claimant and the company from the defendant …;
(ii) causation, in the sense that if the company chooses not to claim against the wrongdoer,
the loss to the claimant is caused by the company’s decision not by the defendant’s
wrongdoing …; (iii) the public policy of avoiding conflicts of interest particularly that if the
claimant had a separate right to claim it would discourage the company from making
settlements …; and (iv) the need to preserve company autonomy and avoid prejudice to
minority shareholders and other creditors.’27
24 Ibid at 62D-G.
25 Ibid at 66B-D.
26 Ibid.
27 Garcia v Marex Financial Ltd [2018] EWCA Civ 1468; [2018] 3 WLR 1412; [2019] QB 173 at 188-
189.
[31] Blackman, Jooste and Everingham provide a slightly different rationale for the
rule against reflective loss in their Commentary on the Companies Act,28 which is
perhaps more convincing. On the ‘double recovery’ justification for the rule, and the
view that allowing a personal action would subvert the rule in Foss v Harbottle,29 the
authors say the following:
‘This explanation is misleading. When the value of shares is depreciated or destroyed as a
consequence of harm done to the company, the shareholders suffer harm, albeit that the harm
is “indirect”. A person who suffers indirect harm, suffers harm. And there is no principle of law
that denies a person a claim for damages, merely because the harm he suffered was “indirect
harm”, although of course the question of remoteness of damage may arise.
The principle is that where harm is wrongfully caused directly to A (eg the company) and
indirectly to B (eg the company’s shareholders), the law gives the right of action to claim
compensation to A. It does so because if, instead, the right were given to B, A and A’s creditors
would be prejudiced. What is more, B’s action would involve a determination of A’s loss. In the
case of a company, each shareholder would have an action, and consequently there would
be a multiplicity of actions, many of which would be for very small sums. If, instead, the cause
of action is given to A, the law will not only ensure that A suffers no loss: it will also ensure
that B suffers no loss. This is not because B will, then, merely suffer “indirect” or “incidental”
harm. It is because B suffers no harm at all. A’s right of action is an asset which, itself,
compensates A for his loss. If A (eg the company) is able to obtain full compensation from the
wrongdoer, A’s financial position is unaffected. And therefore B’s financial position (eg the
value of the company’s shareholders’ shares) is also unaffected.’
And, in a later paragraph:
‘It is usually said that if both the company and the shareholder were given the right to recover,
the wrongdoer would suffer “double jeopardy” and the shareholder might receive “double
compensation”. If the shareholder sued first, the wrongdoer would be placed in double
jeopardy because, after paying the shareholder, he would still be liable to the company; and
if, then, the company obtained recovery, the shareholder would receive double
compensation. However, despite the frequency with which this argument has been advanced,
it is mistaken. If the company has the right of action, the wrong done to it causes its
shareholders no harm. Hence the shareholder can have no action. The problem of “double
jeopardy” and “double compensation” simply does not arise. Thus, it is not merely the
company's existence as a separate legal person that deprives the shareholder of an action
28 ‘Remedies of Members’ in MS Blackman, RD Jooste & GK Everingham Commentary on the
Companies Act (RS 9 2012) at 9-67 – 9-68-1. (Citations omitted; emphasis original)
29 Foss v Harbottle (1843) 67 ER 189; (1843) 2 Hare 461.
against the wrongdoer. What deprives the shareholder of a right of action is the fact that the
company has a right to recover damages for the loss it has suffered.’
There can however be no doubt that there are sound policy and jurisprudential reasons
for the rule.
[32] We pause to note that Novatrust also dealt with derivative claims. In a situation
where wrongdoers themselves control the company, so that they can prevent the
taking of the necessary steps, any one or more of its members may bring what is
known as a derivative action, that is, an action by an individual shareholder, in own
name, against the wrongdoers for relief to be granted to the company, the action being
one on the company’s behalf.30 In England and Wales derivative actions are
comprehensively regulated by Part 11 of Chapter 1 of the Companies Act 2006. In
South Africa it is regulated by s 165 of the Companies Act. In both statutes there are
requirements that must be met before such a claim may be brought. Derivative claims
are not in issue in this appeal.
[33] In Giles v Rhind [2002] 4 All ER 977; [2002] EWCA Civ 1428, the Court of
Appeal gave effect to the third policy consideration set out by Lord Bingham in
Johnson, referred to in para 27 above. It held that the rule against claims for reflective
loss did not operate to exclude a shareholder’s personal action for reflective loss
against a wrongdoer who had deprived the company of funds and who successfully
obtained security for costs against the company, essentially stifling the company’s
claim so that its directors discontinued the company’s action against him. The
shareholder then moved to litigate in the company’s stead. In those circumstances the
Court of Appeal permitted a shareholder’s personal claim, notwithstanding the
shareholder’s loss being, in part, a reflection of the loss suffered by the company.
Waller LJ (paras 33-35) justified the exception as follows:
‘In Johnson v Gore Wood & Co there was no difficulty about the company having a cause of
action and being able to recover on the cause of action. I also think that in the light of Lord
Bingham's observation that it is important for the “court to be astute to ensure that the party
30 See ‘Derivative actions’ in PA Delport (ed) Henochsberg on the Companies Act 71 of 2008 (SI 21
2019) 587-593 for a useful discussion on the proper plaintiff rule in Foss v Harbottle (above fn 29) and
the progression to derivative actions. Foss v Harbottle was the genesis of the rule against claims for
reflective loss and is referred to in subsequent cases, such as Prudential Assurance (above fn 22), in
terms of which the principle was refined, exceptions were developed and the rule was also relaxed as
against the development of the law in general.
who has in fact suffered loss is not arbitrarily denied compensation”, it is clear that he had the
particular facts in Johnson v Gore Wood & Co in mind, ie that there had been nothing to stop
the company continuing with its action if it had so chosen.
One situation which is not addressed is the situation in which the wrongdoer by the breach of
duty owed to the shareholder has actually disabled the company from pursuing such cause of
action as the company had. It seems hardly right that the wrongdoer who is in breach of
contract to a shareholder can answer the shareholder by saying “the company had a cause of
action which it is true I prevented it from bringing, but that fact alone means that I the
wrongdoer do not have to pay anybody”.
In my view there are two aspects of the case which [Giles] seeks to bring which point to [him]
being entitled to pursue his claim for the loss of his investment. First, as it seems to me, part
of that loss is not reflective at all. It is a personal loss which would have been suffered at least
in some measure even if the company had pursued its claim for damages. Secondly, even in
relation to that part of the claim for diminution which could be said to be reflective of the
company's loss, since, if the company had no cause of action to recover that loss the
shareholder could bring a claim, the same should be true of a situation in which the wrongdoer
has disabled the company from pursuing that cause of action. I accept that on the language
of Lord Millett's speech there are difficulties with this second proposition, but I am doubtful
whether he intended to go so far as his literal words would take him. Furthermore it seems to
me that on Lord Bingham's speech supported by the others, it would not be right to conclude
that the second proposition is unarguable.’
[34] The approach taken in Giles v Rhind was, of course, to mitigate the inflexible
proper plaintiff rule set out more than 175 years ago in Foss v Harbottle.31 Prudential
Assurance set that case, which is the genesis of the rule against claims for reflective
loss by shareholders, in historic perspective and in relation to derivative claims. In
Prudential Assurance (at 210-212), the Court of Appeal stated the following:
‘A derivative action is an exception to the elementary principle that A cannot, as a general
rule, bring an action against B for to recover damages or secure other relief on behalf of C for
an injury done by B to C. C is the proper plaintiff because C is the party injured, and, therefore,
the person in whom the cause of action is vested. This is sometimes referred to as the rule in
Foss v Harbottle (1843) 2 Hare 461 when applied to corporations, but it has a wider scope
and is fundamental to any rational system of jurisprudence. The rule in Foss v Harbottle also
embraces a related principle, that an individual shareholder cannot bring an action in the
31 Above fn 29.
courts to complain of an irregularity (as distinct from an illegality) in the conduct of the
company’s internal affairs if the irregularity is one which can be cured by a vote of a company
in general meeting.
The classic definition of the rule in Foss v Harbottle is stated in the judgment of Jenkins LJ in
Edwards v Halliwell [1950] 2 All ER 1064 at 1066-7 as follows. (1) The proper plaintiff in an
action in respect of a wrong alleged to be done to a corporation is, prima facie, the corporation.
(2) Where the alleged wrong is a transaction which might be made binding on the corporation
and on all its members by a simple majority of the members, no individual member of the
corporation is allowed to maintain an action in respect of that matter because, if the majority
confirms the transaction, cadit quaestio; or, if the majority challenges the transaction, there is
no valid reason why the company should not sue. (3) There is no room for the operation of the
rule if the alleged wrong is ultra vires the corporation, because the majority of members cannot
confirm the transaction. (4) There is also no room for the operation of the rule if the transaction
complained of could be validly done or sanctioned only by a special resolution or the like,
because a simple majority cannot confirm a transaction which requires the concurrence of the
greater majority. (5) There is an exception to the rule where what has been done amounts to
fraud and the wrongdoers are themselves in control of the company. In this case the rule is
relaxed in favour of the aggrieved minority, who are allowed to bring a minority shareholders’
action on behalf of themselves and all others. The reason for this is that, if they were denied
that right, their grievance could never reach the court because the wrongdoers themselves,
being in control, would not allow the company to sue.’
[35] As indicated above, there has been statutory and judicial intervention to
address concerns against injustices resulting from the rule against claims for reflective
loss being applied inflexibly. Commentators, whilst also voicing concerns that an
inflexible application of the rule might lead to injustice, have not suggested that it be
abolished. In P Koh’s contribution on ‘The Shareholder’s Personal Claim: Allowing
Recovery for Reflective Losses’32 she concludes as follows at 888-889:
Undoubtedly, the no reflective loss principle, as laid down in Prudential Assurance and as
clarified in Johnson, is driven by sound policy reasons. However, these policy reasons are not
always applicable nor are they in themselves unassailable. As the task of any court should be
to achieve justice and fairness on the particular facts before it, there is much to be said for
retaining discretion over whether to allow a personal suit or not. Justice is necessarily context-
32 P Koh ‘The Shareholder’s Personal Claim: Allowing Recovery for Reflective Losses’ (2011) 23
Singapore Academy of Law Journal 863-889.
driven. To apply a rigid rule regardless of context, therefore, raises the real risk of denying the
wronged party appropriate remedy. …
However, to ensure that the cause brought by a shareholder is indeed genuine, the asserted
claim must, in the first place, be one that can properly be classified as a personal one, taking
account of the source and nature of the right asserted. Only then should the court entertain
the shareholder’s claim and proceed to consider whether the policy concerns that support the
rule may be adequately dealt with in the particular case.’33
[36] In New Zealand, the legislature has provided for shareholders to bring an action
in instances where there is a duty owed to them. It also set out, though not
exhaustively, duties of directors that are owed to shareholders and not to the company,
and conversely, those owed to the company and not to shareholders (which include
the instances relied on by the appellants in the present case). It was emphatic that an
action may not be brought to recover any loss in the form of a diminution in the value
of shares in the company by reason of loss suffered by the company. Thus, s 169 of
the Companies Act 1993 (New Zealand) provides:
‘169 Personal actions by shareholders against directors
(1) A shareholder or former shareholder may bring an action against a director for breach of a
duty owed to him or her as a shareholder.
(2) An action may not be brought under subsection (1) to recover any loss in the form of a
reduction in the value of shares in the company or a failure of the shares to increase in value
by reason only of a loss suffered, or a gain forgone, by the company.
(3) Without limiting subsection (1), the duties of directors set out in—
(a)
section 90 (which relates to the duty to supervise the share register); and
(b)
section 140 (which relates to the duty to disclose interests); and
(c)
section 148 (which relates to the duty to disclose share dealings)—
are duties owed to shareholders, while the duties of directors set out in—
(d)
section 131 (which relates to the duty of directors to act in good faith and in the best
interests of the company); and
(e)
section 133 (which relates to the duty to exercise powers for a proper purpose); and
(f)
section 135 (which relates to reckless trading); and
(g)
section 136 (which relates to the duty not to agree to a company incurring certain
obligations); and
33 Emphasis original. See also the views of R Samuel in ‘Reflective loss reconsidered (Pt 1)’ (2019) NLJ
17-18, and ‘Reflective loss reconsidered (Pt 2)’ (2019) NLJ 17-18.
(h)
section 137 (which relates to a director’s duty of care); and
(i)
section 145 (which relates to the use of company information)—
are duties owed to the company and not to shareholders.’
[37] There can be no doubt that when the Companies Act became operative on 1
May 2011, and thereafter, our law recognised the rule against claims for reflective loss,
more particularly, in respect of claims by shareholders for compensation for a
diminution in the value of their shares due to loss occasioned to the company by a
wrongdoer. That much is clear from what is set out in paras 24 to 27 above. Our courts
applied the law as applied by English courts over time. See, in addition to the South
African judgments already referred to, Gihwala and Others v Grancy Property Ltd and
Others [2016] ZASCA 35; (SCA) 2017 (2) 337 (SCA) paras 107-112 and Off-Beat
Holiday Club and Another v Sanbonani Holiday Spa Shareblock Ltd and Others [2016]
ZASCA 62; 2016 (6) SA 181 (SCA) para 41 and the cases there cited.
[38] The appellants’ claims against the directors are quintessentially reflective loss
claims. The essentials of the particulars of claim are that:
(a)
The plaintiffs are shareholders of ABIL.
(b)
The directors were at all material times directors of ABIL.
(c)
African Bank was a wholly owned subsidiary of ABIL.
(d)
African Bank carried out the business of a bank.
(e)
The directors in their capacity as directors of ABIL conducted the business of
ABIL and African Bank recklessly and in contravention of ss 22(1), 74 and 45 of the
Companies Act and in breach of s 76(3) of that Act.
(f)
The breach of the aforesaid provisions resulted in significant losses on the part
of African Bank and consequently ABIL.
(g)
As a result of the loss suffered by ABIL, the appellants suffered a diminution in
the value of their ABIL shares. The losses ‘in turn caused the share price… to drop
from R28.15 ... to ... 31 cents ... being a total diminution of R27.84 per share’.
Simply put, the wrong done to the company (ABIL) is the basis of the appellants’ claim
and the diminution in share value is directly correlated to the losses suffered by ABIL.
The belated attempt in a submission before us, namely, that the diminution in value of
the appellant’s shares, although arising from a chain of events which includes the
losses suffered by African Bank and ABIL, is a loss distinct from the losses suffered
by African Bank and ABIL, is fallacious. Linked to that submission is one concerning
the manner in which listed shares are valued, that is, the price a willing buyer is
prepared to pay to a willing seller. That ignores the very basis of the rule referred to in
the first principle stated by Lord Bingham in Johnson and captured in the passage
from Lawsa, cited in para 25 above. In any event, that is not how the loss and its cause
were pleaded by the appellants. There can be no doubt, on the appellants’ version of
events, that ABIL would have a claim against the directors and that at common law,
the existence and viability of that claim precluded a personal claim by the
shareholders. In the present case there is no hint by the appellants of a derivative
claim and no assertion of oppression by the majority of shareholders, or that ABIL was
in some way, hindered or obstructed in pursuing a claim against the directors.
[39] There is no independent cause of action as submitted on behalf of the
appellants and no justification of any kind as to why the appellants’ claim fell within
any of the recognised exceptions, or why it would be unjust to deny the claim or why
allowing it would not do violence to the sound policy reasons for the retention of the
rule, including a multiplicity of claims by aggrieved shareholders.
[40] There is simply no basis in fact for the contention on the part of the appellants
that the claim against the directors falls with the second or third principles set out by
Lord Bingham in Johnson, cited in para 27 above. We repeat them here for
convenience:
‘(2) Where a company suffers loss but has no cause of action to sue to recover that loss, the
shareholder in the company may sue in respect of it (if the shareholder has a cause of action
to do so), even though the loss is a diminution in the value of the shareholding. . . . (3) Where
a company suffers loss caused by a breach of duty to it, and a shareholder suffers a loss
separate and distinct from that suffered by the company caused by breach of a duty
independently owed to the shareholder, each may sue to recover the loss caused to it by
breach of the duty owed to it but neither may recover loss caused to the other by breach of
the duty owed to that other.’34
The appellants’ claim against the directors do not even begin to approximate the
claims envisaged in (2) and (3).
34 Johnson above fn 23 at 35G-36B.
[41] Does s 218(2) save the day for the appellants in relation to the claim against
the directors? The short answer is no. The reasons are set out hereafter. It is
necessary first to have regard to the purposes of the Companies Act within which
s 218(2) is located. The Act came into effect on 1 May 2011.The purposes of the Act
are, inter alia, to promote compliance with the Constitution; to provide for the creation
and use of companies in a manner that enhances the economic welfare of South Africa
as a partner within the global economy; to promote the development of the South
African economy by encouraging transparency and high standards of corporate
governance; and to re-affirm the concept of the company as a means of achieving
economic and social benefits. It was also enacted to balance the rights and obligations
of shareholders and directors within companies. The full list of the purposes of the Act
are set out in s 7. Whilst the Act was structured to deal with South African conditions,
the legislature was conscious of the global economy. In the interpretation of the Act
regard is also to be had to foreign law, to the extent that this would be appropriate. In
this regard see s 5(2) of the Act.
[42] A company is defined in s 1 of the Act as a distinct juristic person. This distinct
personality is no mere technicality.35 It is foundational to company law. As observed
in Itzikowitz, referred to in para 24 above, property vesting in the company does not
vest in any or all of its members. It is the basis of the rule against the claim for reflective
loss, as referred to in Prudential, Johnson, Itzikowitz and captured in the statement in
Lawsa, referred to in para 25 above.
[43] Importantly, the legislature must have been aware of the need to retain those
principles of the common law that had been applied under preceding legislation that
were consonant with our constitutional values and in line with international company
law. The following statement in a policy paper published by the Department of Trade
and Industry, entitled ‘South African Company Law for the 21st Century – Guidelines
for Corporate Law Reform’,36 which is quoted in the Companies Bill,37 is elucidating:
‘It is not the aim of the [Department of Trade and Industry] simply to write a new Act by
unreasonably jettisoning the body of jurisprudence built up over more than a century. The
35 Itzikowitz above fn 14 para 9.
36 See GN 1183 in GG 26493 of 23-06-2004.
37 See the Companies Bill B 61-2008, an explanatory summary of which was published in GG 31104
of 30-05-2008.
objective of the review is to ensure that the new legislation is appropriate to the legal, economic
and social context of South Africa as a constitutional democracy and an open economy. Where
the current law meets these objectives, it should remain as part of company law.’
[44] A further factor to bear in mind is the presumption that statutory provisions are
not intended to alter or exclude the common law unless they do so expressly or by
necessary implication.38 Where possible, statutes must be read in conformity with the
common law.39 This enhances legal certainty and recognises the value of the common
law, which has developed systematically over time.40
[45] It is in that context that s 218(2) falls to be considered. Section 218(2) reads
as follows:
‘Any person who contravenes any provision of this Act is liable to any other person for any
loss or damage suffered by that person as a result of that contravention.’
When a wrongdoer ‘contravenes’ the Act and causes loss to a person, the wrongdoer
is liable to that person. The ordinary meaning of ‘contravene’ is ‘to go counter to; to
transgress, infringe (a law, provision, etc); to act in defiance or disregard of’.41 The
decriminalisation of company law sanctions was one of the principles of the policy
underlying the Act.42 This indicates that the contravention envisaged in s 218(2) need
not be a criminal offence.43 It suffices to say that the word ‘contravenes’ in s 218(2)
includes a breach or an infringement of any provision of the Act, ‘which is by nature
prescriptive or which in some way regulates conduct’.44 Sections 22(1), 74, 45 and
76(3), which in the present case the appellants contend trigger the operation of s
218(2), clearly fall into this category.
38 Casserley v Stubbs 1916 TPD 310 at 312; Dhanabakium v Subramanium 1943 AD 160 at 167;
Attorney-General, Transvaal v Botha 1994 (1) SA 306 (A) at 330I-J.
39 Ngqukumba v Minister of Safety and Security and Others [2014] ZACC 14; 2014 (5) SA 112 (CC)
para 16
40 25(1) Lawsa 2 ed para 340.
41 Oxford English Dictionary (2008).
42 See para 4.7 of the policy paper, South African Company Law for the 21st Century – Guidelines for
Corporate Law Reform, at 44.
43 Henochsberg op cit fn 28 at 642.
44 R Stevens and P De Beer The Duty of Care and Skill, and Reckless Trading: Remedies in Flux?
(2016) 28 SA Merc LJ 250 at 274.
[46] Section 22(1)(a) provides that ‘[a] company must not carry on its business
recklessly, with gross negligence, with intent to defraud any person or for any
fraudulent purpose.’ Section 76(3) provides:
‘Subject to subsections (4) and (5), a director of a company, when acting in that capacity, must
exercise the powers and perform the functions of a director—
(a) in good faith and for proper purpose;
(b) in the best interests of the company; and
(c) with the degree of care, skill and diligence that may reasonably be expected of a person—
(i)
carrying out the same functions in relation to the company as those carried out by
that director; and
(ii)
having the general knowledge, skill and experience of that director.’
Section 45 is another section of the Companies Act on which the appellants relied.
That section regulates loans or other financial assistance to directors or prescribed
officers of the company or of a related or inter-related company, or to a related or inter-
related company or corporation, or to a member of a related or inter-related
corporation, or to a person related to any such company, corporation, director,
prescribed officer or member. In the appellants’ particulars of claim it was alleged that
the directors failed to vote against the granting of loans to certain corporations and
that these loans were in contravention of section 45. In not resisting the granting of the
loans the directors were said to have acted in contravention of s 22(1) of the Act and,
consequently, the appellants were entitled to bring a claim against them in terms of s
218(2) of the Act.
[47] Henochsberg,45 in the commentary on s 76(3) of the Companies Act, states the
following:
‘The common law position is that a director has to act bona fide and in the best interests of
the company. This is the fundamental duty which qualifies the exercise of any powers which
the directors in fact have . . . . The duties to act bona fide and in the best interests of the
company are now entrenched in the Act . . . . With regard to the duty to act in the best interests
of the company and who the beneficiary of a director’s duty is, the common law position is as
follows: At common law directors owe fiduciary duties to the company . . . . Such duties are
owed even by non-executive directors . . . . Where, therefore, a director acts in breach of a
45 ‘In good faith, in the best interests of the company for a proper purpose’ in Henochsberg op cit fn
28 at 298-9 – 298-11, 298-15 – 298-16, and 298-17.
fiduciary duty he may, depending on the circumstances, also act in breach of his duty of care,
skill and diligence . . . .
. . .
The duty of good faith and the duty to act for the benefit/interests of the company are two
separate duties . . . . The “interests”, in this context, are only those of the company itself as a
corporate entity and those of its members as such as a body (Alexander v Automatic
Telephone Co [1900] 2 Ch 56 (CA) at 67, 72; Coronation Syndicate Ltd v Lilienfeld 1903 TS
489 at 497; Parke v Daily News Ltd [1962] Ch 927 at 963; [1962] 2 All ER 929 at 948 . . . .
. . .
The “proper purpose” duty entails in the first instance that the director must not exceed the
limitations of his own authority and must not exceed the limitations of the company . . . .
In the second instance a director must exercise the duties only for the purpose for which they
were conferred and not for an “improper” purpose . . . .
Directors as such owe no fiduciary duty to the members/shareholders individually (Percival v
Wright [1902] 2 Ch 421; Pergamon Press Ltd v Maxwell [1970] 2 All ER 809 (Ch) at 814), not
even to a member who is the majority shareholder (Bell v Lever Brothers Ltd [1932] AC 161
(HL) at 228); their fundamental duty is to act only in the bona fide interests of the company
and its shareholders as a body (SA Fabrics Ltd v Millman NO 1972 (4) SA 592 (A); Minister of
Water Affairs and Forestry v Stilfontein Gold Mining Co Ltd 2006 (5) SA 333 (W) para 16 . . .’
(Emphasis added and some authorities omitted.)
[48] Returning to the provisions of s 218(2) of the Companies Act, the duties owed
by directors in terms of s 76(3) are owed to the company, not to individual
shareholders. The company, in the event of a wrong done to it in terms of any of the
provisions of that subsection, can sue to recover damages. The company would be
the proper plaintiff. It is no coincidence, then, that s 77(2)(a) provides that a director of
a company may be held liable for breaches of fiduciary duties resulting in any loss or
damage sustained by the company. Similarly, in respect of the particular wrongdoer
and claimant, s 77(2)(b) of the Act provides that:
‘A director of a company may be held liable—
. . .
(b) in accordance with the principles of the common law relating to delict for any loss,
damages or costs sustained by the company as a consequence of any breach by the
director of—
(i) a duty contemplated in section 76(3)(c);
(ii) any provision of this Act not otherwise mentioned in this section; or
(iii) any provision of the company’s Memorandum of Incorporation.’
[49] Even more significant are the provisions of s 77(3)(b), which read as follows:
‘A director of a company is liable for any loss, damages or costs sustained by the company
as a direct or indirect consequence of the director having—
. . .
(b) acquiesced in the carrying on of the company’s business despite knowing that it was
being conducted in a manner prohibited by section 22(1) . . .’
[50] These provisions of the Companies Act make it clear that the legislature
decided where liability should lie for conduct by directors in contravention of certain
sections of the Act and who could recover the resultant loss. It is also clear that the
legislature was astute to preserve certain common law principles. It makes for a
harmonious blend.
[51] There is no need to give the words ‘as a result of that contravention’ in s 218(2)
an extended meaning, as submitted on behalf of the appellants, so as to ignore the
conventional meaning of a consequence flowing from the misconduct. The provisions
referred to in the preceding paragraphs abound with recovery of loss resulting from
misconduct on the part of directors. There is no indication in the scheme of the
Companies Act or any of its relevant provisions that the words quoted at the beginning
of this paragraph should carry a different meaning. On the contrary, all indications lead
to the ineluctable conclusion that it was meant to have the conventional meaning and
that the person who can sue to recover loss is the one to whom harm was caused.
Simply put, there must be a link between the contravention and the loss allegedly
suffered. In the present case, loss was occasioned to the company and the company
is the entity with the right of action.
[52] From what is set out above it is clear that the rule against claims for reflective
loss has not expressly been abolished by s 218(2), nor does it follow by necessary
implication. Section 218(3) does not assist the appellants. It reads as follows:
‘The provisions of this section do not affect the right to any remedy that a person may
otherwise have.’
The provision thus provides a statutory remedy to ‘any person’ who can bring
themselves within its ambit. Subsection (3) does not detract from any existing rights
to sue but is, rather, an affirmation of those rights. The remedy is available to avoid
injustice where that would otherwise ensue. It is not necessary in this case to make
any findings in relation to the precise contours of this remedy and we deliberately
eschew doing so. However, we must accept that allowing individual shareholders in
their capacities as such to bring claims against miscreant company directors for a
diminution in the value of their shareholding may very likely prejudice companies
(and/or its creditors and/or other shareholders). Furthermore, we are constrained to
accept that a company has an established right to claim damages from its directors
for any losses sustained as a result of those directors’ breach of a duty owed to the
company. It follows that s 218(3) entrenches also the company’s right. If one were to
accede to the appellants’ claim based on a diminution in the value of their shares, it
would impinge on the company’s right preserved by s 218(3). This proves the fallacy
of the appellants’ claim.
[53] Finally, in relation to the directors’ third exception, it will be recalled that the
appellants alleged that the directors had authorised the publication of a prospectus
containing false or misleading information. In the exception the directors pointed out
that the appellants did not allege that they had acted on or relied on the
misrepresentations or the falsehoods and that they suffered loss in consequence of
such reliance. One cannot tell from the particulars of claim whether the appellants
were already shareholders at the time that the prospectus was published. It is no
answer to contend, as the appellants do, that the misrepresentation was pleaded in
support of their assertion that the directors had breached s 76(3) of the Companies
Act. The appellants’ claim based on the breach of s 76(3) has, in any event, been
demonstrated to be unsustainable.
[54] It follows that the essential findings of the court below in relation to the
exceptions by the directors cannot be faulted. They were correctly upheld. It is to the
claim against Deloitte and the related exceptions that we now turn.
[55] It is necessary to revisit the basis of the appellants’ claim against Deloitte. As
already recorded, the appellants were shareholders in ABIL, which was African Bank’s
sole shareholder. The directors, so the appellants said, mismanaged the affairs of the
Bank which caused it to sustain significant losses. Deloitte was the Bank’s auditor and
was obliged to perform its function with reasonable care and skill. Deloitte, in its
presentation of the Bank’s 2012 and 2013 annual financial statements, reported that
they fairly represented the Bank’s financial position. The audit reports were false in
that the financial statements did not reveal the losses the bank had sustained as a
result of the directors’ mismanagement. The false reports were due to the failure to
perform the audit with the requisite reasonable care and skill. The appellants stated
that Deloitte’s negligent audit caused the appellants to suffer loss as follows:
(a)
If Deloitte had performed proper audits, it would have withheld or qualified the
audit reports.
(b)
Had Deloitte withheld or qualified the reports, the appellants would have
convened a meeting of ABIL’s shareholders, and caused ABIL to remove the Bank’s
directors from office, which would have put an end to the mismanagement of the Bank
and would have prevented further losses.
(c)
Because of Deloitte’s false audit reports, the preventative measures were not
taken, the mismanagement of the Bank continued and it continued to suffer loss,
(d)
The ongoing losses suffered by the Bank caused ABIL to suffer loss in that its
shares in the Bank diminished in value, which then led to ABIL’s own share price
diminishing in the amounts stated above and the appellants suffering a total loss as
calculated above.
[56] The basis of the appellants’ claim reveals that the Bank suffered the primary
loss. Against that, one must accept that Deloitte wrongfully and negligently or
deliberately caused the loss. In the ordinary course, the Bank would have had statutory
and contractual claims against the directors and Deloitte for the recovery of the loss.
As pleaded, ABIL suffered loss in the second degree. Its loss is a reflection of the
Bank’s loss. ABIL did not suffer any loss of its own. The appellants, as shareholders
of ABIL, thus suffered loss in the third degree. They suffered loss only because of
ABIL’s loss.
[57] As pointed out by Deloitte’s counsel, this ‘cascade’ of reflective losses on which
the claim is based does not end with the appellants. They were minority shareholders
of ABIL, holding 1.73% and 3.24% of ABIL’s shares, respectively. The reflective losses
sustained by the appellants would have been suffered by everyone else who held
shares in ABIL. There must have been thousands of shareholders, if not more, who
suffered the same third-degree losses as the appellants. And these reflective losses
would be reversed if the Bank enforced its claim against the directors and was thereby
compensated for its loss.
[58] As was discussed earlier, in relation to claims against directors, a claim for
reflective loss by a shareholder is generally untenable. Furthermore, what has to be
borne in mind is that the claim against Deloitte is one for pure economic loss. As a
general rule our law does not allow for the recovery of pure economic loss. In Country
Cloud Trading CC v MEC, Department of Infrastructure Development,46 the
Constitutional Court said the following:
‘Wrongfulness is generally uncontentious in cases of positive conduct that harms the person
or property of another. Conduct of this kind is prima facie wrongful. However, in cases of pure
economic loss – that is to say, where financial loss is sustained by a plaintiff with no
accompanying physical harm to her person or property – the criterion of wrongfulness
assumes special importance. In contrast to cases of physical harm, conduct causing pure
economic loss is not prima facie wrongful. Our law of delict protects rights and, in cases of
non-physical invasion, the infringement of rights may not be as clearly apparent as in direct
physical infringement. There is no general right not to be caused pure economic loss.
So our law is generally reluctant to recognise pure economic loss claims, especially where it
would constitute an extension of the law of delict. . . .
In addition, if claims for pure economic loss are too freely recognised, there is the risk of
“liability in an indeterminate amount for an indeterminate time to an indeterminate class”.’
[59] In Home Talk Developments (Pty) Ltd and Others v Ekurhuleni Metropolitan
Municipality [2017] ZASCA 77; 2018 (1) SA 391 (SCA) para 1, the following appears:
‘The first principle of the law of delict, as Harms JA pointed out in Telematrix, is that everyone
has to bear the loss that he or she suffers. And, in contrast to instances of physical harm,
conduct causing pure economic loss is not prima facie wrongful. Accordingly, a plaintiff suing
for the recovery of pure economic loss, is in no position to rely on an inference of wrongfulness
flowing from an allegation of physical damage to property (or injury to person), because “the
negligent causation of pure economic loss is prima facie not wrongful in the delictual sense
46 Country Cloud Trading CC v MEC, Department of Infrastructure Development [2014] ZACC 28; 2015
(1) SA 1 (CC) paras 22-24. (Citations omitted.)
and does not give rise to liability for damages unless policy considerations require that the
plaintiff should be recompensed by the defendant for the loss suffered”.’ (Emphasis added
and citations omitted.)
[60] Some categories of liability for pure economic loss have, as pointed out on
behalf of Deloitte, crystallised. However, the categories do not in general terms include
the liability of auditors. In Axiam Holdings Ltd v Deloitte & Touche [2005] ZASCA 61;
2006 (1) SA 237 (SCA) para 18, the following appears:
‘It is universally accepted in common-law countries that auditors ought not to bear liability
simply because it might be foreseen in general terms that audit reports and financial
statements are frequently used in commercial transactions involving the party for whom the
audit was conducted (and audit reports completed) and third parties. In general, auditors have
no duty to third parties with whom there is no relationship or where the factors set out in the
Standard Chartered Bank case are absent.’47
[61] In Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747
(A) this Court had regard to the context in which the alleged negligent misstatement in
that case was made, the purpose for which it was sought and made, the reliance
placed on it by the third party, the relationship between the parties and, finally, and
significantly for present purposes, public policy and fairness. It is true that in Axiam,
having regard to those factors, it was held that the question of wrongfulness could not
be decided at exception stage. The minority in Axiam held that the exception ought to
have been upheld. As in Standard Chartered Bank, this Court in Axiam did not find
any policy factors that militated against a finding at that stage against the auditors
being held liable. The facts in Standard Chartered and Axiam are far removed from
the facts in this case. In Axiam the question was whether the auditors of one company
owed legal duties to other companies, who were in the process of negotiating
agreements for share purchases and business financing and for this purpose relied on
the audit statements and opinion which allegedly misrepresented the company’s
financial position. In both cases there was no claim by shareholders based on a
diminution in share value.
47 (Citations omitted.) See also Cape Empowerment Trust Ltd v Fisher Hoffman Sithole [2013] ZASCA
16; 2013 (5) SA 183 (SCA) para 21.
[62] Wrongfulness is an element of delictual liability. The test for wrongfulness was
set out in Le Roux and Others v Dey, as follows:
‘[I]n the context of the law of delict: (a) the criterion of wrongfulness ultimately depends on a
judicial determination of whether – assuming all the other elements of delictual liability to be
present – it would be reasonable to impose liability on a defendant for the damages flowing
from specific conduct; and (b) that the judicial determination of that reasonableness would in
turn depend on considerations of public and legal policy in accordance with constitutional
norms.’48
[63] The test for wrongfulness should not be confused with the fault requirement.
The test assumes that the defendant acted negligently or wilfully and asks whether, in
the light thereof, liability should follow.49
[64] The appellants submitted that it would not be appropriate to decide
wrongfulness on exception. In this case, as in all cases in which a plaintiff claims
damages for pure economic loss, it is incumbent that the facts upon which such a
plaintiff relies for its contention that the loss was wrongfully caused be pleaded. The
pleadings are thus the high-water mark of its case on wrongfulness. In Telematrix (Pty)
Ltd t/a Matrix Vehicle Trading v Advertising Standards Authority [2005] ZASCA 73;
2006 (1) SA 461 (SCA) para 2 this court noted that it has often determined
wrongfulness on exception.50
[65] In Telematrix, para 3, Harms JA said that ‘[s]ome public policy considerations
can be decided without a detailed factual matrix, which by contrast is essential for
deciding negligence and causation’. In AB Ventures Ltd v Siemens Ltd [2011] ZASCA
58; 2011 (4) SA 614 (SCA) para 5, Nugent JA noted that in a case such as this, the
issue of wrongfulness is ‘quintessentially a matter that is capable of being decided on
exception’. In the present case all the policy factors upon which a decision would rest
are known.
48 Le Roux and Others v Dey [2011] ZACC 4; 2011 (3) SA 274 (CC) para 122. (Citations omitted.)
49 See Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd [2005] ZASCA 109; 2006
(3) SA 138 (SCA) para 12.
50 See Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A); Indac
Electronics (Pty) Ltd v Volkskas Bank Ltd 1992 (1) SA 783 (A); and Minister of Law and Order v Kadir
1995 (1) SA 303 (A). See also Fourway Haulage SA v National Roads Agency [2008] ZASCA 134; 2009
(2) SA 150 (SCA).
[66] The question to be addressed on the issue of wrongfulness is whether public
and legal policy considerations dictate that the auditors of African Bank be held liable
to the shareholders of ABIL for the reflective losses they sustained as a result of the
underlying losses suffered by the Bank. As the extensive discussion on the rule
against claims for reflective losses above reveals, the appellants’ claims are barred by
the rule. Moreover, as noted in para 60 above, in general, auditors have no duty to
third parties with whom there is no relationship. In 4(3) Lawsa 2 ed para 4 the following
appears:
‘If the auditors perform their work negligently, it is the company, and not its members, that is
the proper plaintiff to sue for any loss caused to it by that negligence.’
[67] Auditors are accountable to shareholders collectively, as a body, ie as the
company. Put differently, when auditors make negligent misstatements concerning the
company’s financial statements, individual shareholders do not have claims against
the auditors, because financial statements are not prepared for the benefit of
shareholders’ individual investment decisions. Instead, the primary purpose of auditing
accounts is to report on the stewardship of the directors to the shareholders as a body,
in order ‘to provide shareholders with reliable intelligence for the purpose of enabling
them to scrutinise the conduct of the company’s affairs and to exercise their collective
powers to reward or control or remove those to whom that conduct has been confided’
(Caparo Industries plc v Dickman [1990] 2 AC 605 at 630). The purpose of audit
reports is neither to protect the interests of investors nor individual shareholders.
[68] Imposing a legal duty on auditors in a case such as this raises the spectre of
indeterminate liability. Policy considerations require that liability in delict be confined
to reasonably predictable limits (15 Lawsa 3 ed para 87). Limitation of liability is
therefore a key policy consideration in deciding whether pure economic loss should
be actionable. This court, citing Gaudron J in Perre v Apand (Pty) Ltd (1999) 198 CLR
180 (HC of A) para 32, in Fourway Haulage,51 said that ‘[t]he first policy consideration
is the law’s concern to avoid the imposition of liability in an indeterminate amount for
an indeterminate time to an indeterminate class’; and that liability would be more
51 Ibid paras 23-24.
readily imposed for ‘a single loss of a single identifiable plaintiff occurring but once and
which is unlikely to bring in its train a multiplicity of actions’.
[69] If the appellants’ claims were to be recognised despite the fact that their loss is
merely a reflection of the underlying loss suffered by the Bank and ABIL, there is no
reason to prevent all others who suffered reflective losses from pursuing similar
claims. They would include all other shareholders of both the Bank and ABIL (of whom
there are likely to be many) and, in the case of corporate shareholders like the
plaintiffs, their shareholders up the corporate chain who ultimately include natural
persons. This would expose the auditors to ‘liability in an indeterminate amount for an
indeterminate time to an indeterminate class’. The courts have frequently held that this
risk disqualifies the recognition of a new category of claim.52 (). And, if an action were
granted to shareholders to claim compensation directly from the wrongdoers, the
Bank’s creditors would demand the same facility, particularly if it is insolvent.
[70] In the latter circumstances, if only the Bank is allowed to claim from the
wrongdoers for the loss sustained the amount recovered is, in the ordinary course,
distributed amongst its creditors pro rata to their claims. ABIL and its shareholders do
not share in the recovery unless there is a residue after all the bank’s creditors have
been paid in full. However, if ABIL and its shareholders are also allowed to sue the
wrongdoers, the ranking of claims gets distorted. Questions of undue preferences
might arise. This consideration is part of the policy reasons for the retention of the rule
against claims for reflective losses as set out in Johnson at 14C-D. Under insolvency
law, any damages recovered from the wrongdoers should in the first place go to
creditors before there is any distribution to shareholders. But what if ABIL or its
shareholders have already recovered the full amount of the loss: does it mean that
they circumvented the order of distribution to the prejudice of other creditors? To allow
the claim would have a result that cannot be countenanced.
52 Delphisure Group Insurance Brokers Cape (Pty) Ltd v Dippenaar and Others [2010] ZASCA 85;
2010 (5) SA 499 (SCA) para 25; Country Cloud above fn 46 para 24; Fourway Haulage above fn 50
paras 23-24; South African Hang and Paragliding Association and Another v Bewick [2015] ZASCA
34; 2015 (3) SA 449 (SCA) para 32.
[71] In addition to the aforesaid factors, it is so that the plaintiffs are not vulnerable to
the risk of harm, and have another remedy. In Cape Empowerment Trust,53 this Court
held that the extent to which a plaintiff was vulnerable to the risk of harm was an
important indicator in determining whether liability should be imposed on the
defendant; and considered the extent to which a plaintiff, which pursued a delictual
claim against auditors, was able to recover its loss by means of a contractual claim. In
the present matter the plaintiffs could protect themselves against the risk of harm by
way of a derivative action under s 165 of the Companies Act. If Deloitte is indeed guilty
of professional misconduct, it might be subject to sanction by the relevant regulatory
body. But that is not what this appeal is about.
[72] We turn, now, to deal with the appellants’ reliance on s 46(3) of the APA. In
para 28 of their particulars of claim, they cite the following parts of that subsection:
‘(3)
Despite subsection (2), a registered auditor incurs liability to third parties who have relied
on an opinion, report or statement of that registered auditor for financial loss suffered as
a result of having relied thereon, only if it is proved that the opinion was expressed, or
the report or statement was made, pursuant to a negligent performance of the registered
auditor’s duties and the registered auditor—
(a)
knew, or could in the particular circumstances reasonably have been expected to know,
at the time when the negligence occurred in the performance of the duties pursuant to
which the opinion was expressed or the report or statement was made—
(i)
that the opinion, report or statement would be used by a client to induce the
third party to act or refrain from acting in some way or to enter into the specific
transaction into which the third party entered, or any other transaction of a similar nature,
with the client or any other person; or
. . .
(b)
in any way represented, at any time after the opinion was expressed or the report or
statement was made, to the third party that the opinion, report or statement was correct, while
at that time the registered auditor knew or could in the particular circumstances
reasonably have been expected to know that the third party would rely on that representation
for the purpose of acting or refraining from acting in some way or of entering into the specific
transaction into which the third party entered, or any other transaction of a similar nature, with
the client or any other person.’(Emphasis added.)
53 Cape Empowerment Trust above fn 47 paras 28 and 30.
Nothing further is said by the appellants about the significance of these provisions, with
the appellants going on to state that the omission to qualify the Bank’s financial
statements was deliberate and that Deloitte negligently misrepresented the Bank’s
financial position and ‘had a duty’ not to make the statements, thus incurring liability
towards the appellants. A third party might be able to rely on this subsection in
circumstances such as those in Standard Chartered or in Axiam. The third party would
have to state facts that would bring it within the subsection’s field of operation. The
appellants did not say how or why their claims fell within the ambit of the subsection.
s 46(4) of the APA is of significance. It reads as follows:
‘Nothing in subsections (2) or (3) confers upon any person a right of action against a
registered auditor which, but for the provisions of those subsections, the person would not
have had.’
This means that ss 46(2) and 46(3) do not found a claim where none existed before.
The discussion above shows why, in the circumstances of this case, a claim should
not be held to exist. For the aforesaid reasons, the appellants have not established
wrongfulness. The high court thus correctly upheld Deloitte’s exception to the
appellants’ particulars of claim.
[73] In their pleaded case against Deloitte, the appellants did not rely on the
provisions of s 218(2) of the Companies Act. Before us, however, they contended that
they were entitled to rely on that subsection if such reliance could be inferred. For this
proposition they referred to s 30(2)(a) of the Act, which provides that the annual
financial statements of companies like ABIL and African Bank must be audited and, if
read with the definition of ‘audit’ in s 1 of the Act, it must mean in accordance with
prescribed or applicable auditing standards. It was contended on behalf of the
appellants that the auditors contravened s 30(2)(a). Thus, so they argued, they were
entitled to rely on s 218(2). This is fallacious. The duty to have its annual financial
statements audited rests on the company. In relation to liability on the part of Deloitte
for contraventions of the Act, the discussion earlier in this judgment applies. The duty
of the auditors is owed primarily to the company. For all the stated reasons, liability by
Deloitte to shareholders in the circumstances of this case is untenable.
[74] For all the aforesaid reasons, the following order is made:
The appeal is dismissed with costs, including the costs of two counsel.
___________________
M S Navsa
Judge of Appeal
___________________
A Schippers
Judge of Appeal
Appearances
For Appellants
A Subel SC with D Mahon
Instructed by
Faber, Goertz, Austen Inc
Johannesburg
McIntyre
&
Van
der
Post,
Bloemfontein
For First to Tenth Respondents
C D A Loxton SC, I P Green SC and
N K Nxumalo
Instructed by Clyde and Company,
Johannesburg
Webber Attorneys, Bloemfontein
For Eleventh Respondent
W Trengove SC, M du P van der Nest
SC, D J Smit and L Zikalala
Instructed by
Webber Wentzel, Johannesburg
Honey Attorneys Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
Hlumisa Investment Holdings (RF) Ltd and Another v Kirkinis and Others (Case no 1423/18)
[2020] ZASCA 83 (3 July 2020)
From:
The Registrar, Supreme Court of Appeal
Date:
03 July 2020
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgment of the Supreme Court of Appeal
Today the Supreme Court of Appeal (SCA) handed down judgment in an appeal against an order of the
Gauteng Division of the High Court, Pretoria (Molopa-Sethosa J, sitting as court of first instance). The
appeal was dismissed with costs.
The matter concerned, principally, the question whether shareholders have a claim against directors for
damages in relation to a diminution in the value of their shares under s 218(2) of the Companies Act 71
of 2008. It also concerned the viability of a shareholder’s claim based on a diminution in share value
related to alleged misconduct by auditors in auditing the company’s financial statements.
The first appellant, Hlumisa Investment Holdings (RF) Ltd, and the second appellant, Eyomhlaba
Investment Holdings (RF) Ltd, the first and second plaintiffs in the court a quo, were shareholders in
African Bank Investments Limited (ABIL). They owned, respectively, 1.73% and 3.24% of the issued
share capital of ABIL. The first to tenth respondents were at all material times directors of ABIL and
African Bank Limited (African Bank), a wholly-owned subsidiary of ABIL. The eleventh respondent,
Deloitte & Touche (Deloitte), was the auditor of both ABIL and African Bank.
The appellants sued the directors and Deloitte, jointly and severally, for damages allegedly suffered as
a result of the diminution in the value of their shares in ABIL, on account of the directors’ alleged
misconduct in relation to the affairs of both African Bank and ABIL (Claim A) and on account of Deloitte
failing to conduct audits in accordance with generally recognised auditing standards (Claim B). In
respect of Claim A the appellants submitted that, between 2012 and 2014, the directors had breached
their fiduciary duties in that they failed to exercise their powers in good faith and in the best interests of
ABIL and African Bank. This, they alleged, resulted in the business of ABIL and African Bank being
carried out recklessly or with gross negligence, in contravention of s 22(1) of the Companies Act. It also
caused African Bank and ABIL to suffer significant losses, which, in turn, caused the ABIL share price
to drop from R28.15 per share as at April 2013 to R0.31 per share as at August 2014. The alleged
misconduct of the directors included, amongst others, the publication of false financial statements in
respect of both entities, the authorisation of a loan in contravention of s 45 of the Companies Act, and
pursuing reckless and aggressive accounting practices.
The directors excepted to the appellants’ particulars of claim on three bases. First, because the loss in
respect of which the plaintiffs sought to claim was merely reflective of the loss sustained by ABIL and
African Bank, which meant that the claim lacked the necessary averments to sustain a cause of action.
Secondly, because the appellants had not alleged that their losses were suffered as a result of the
contravention of ss 45, 74, 76(3) or 22(1) of the Companies Act, and s 218(2) only made provision for
liability to any person who had suffered loss ‘as a result of’ a contravention of the Companies Act. And
thirdly, in respect of the prospectus which the directors had authorised to be published, and which was
alleged to be a misrepresentation, because the appellants had not alleged that they relied on the
misrepresentation, nor that they acted on the strength thereof, nor that they suffered loss in
consequence.
In respect of Claim B the appellants submitted that, during the period between December 2012 and
December 2014, Deloitte reported that African Bank’s financial statements fairly represented the Bank’s
financial position when, according to the appellants, the financial statements did not reveal the true
state of affairs at the Bank. It was further alleged that Deloitte knew, or could reasonably have been
expected to know, that this would induce investors to act or refrain from acting in a certain way. Deloitte
also excepted to the particulars of claim – for one, because the alleged wrong was committed against
the company and not against the appellants; and two, because Deloitte owed no legal duty to the
appellants in their capacity as individual shareholders. The case of the directors and Deloitte was that
the appellants’ claims were unsustainable at common law and could also not be brought under s 218(2)
of the Companies Act.
The claim was dismissed by Molopa-Sethosa J. It was held that a claim for damages for the alleged
breach of s 76(3) was to be brought in terms of s 77(2), which specifically created the liability for such
a breach. The high court found that a general provision could not be invoked in the event of a specific
provision being available in the same statute. It also confirmed a well-established principle of statutory
interpretation, viz. that a statute is not intended to alter the common law unless it does so expressly or
by necessary implication. It then referred to cases on the principle against reflective loss and concluded
that the appellants could not rely on s 218(2) of the Companies Act for their claim. The exceptions by
the directors and Deloitte were upheld.
The SCA considered whether the exceptions were correctly upheld. It did so by looking, firstly, at the
present position of the rule against claims for reflective loss in South Africa. This involved a careful
analysis of the leading authorities both locally and in the United Kingdom, from where the rule originates.
The SCA concluded that the rule against claims for reflective loss remains good law, particularly in
relation to claims of shareholders based on diminution in share value. The appellants had not been able
to prove an independent cause of action, as they had submitted. They were also not successful in
showing that their claim fell within one of the recognised exceptions to the rule.
The SCA then considered whether the appellants’ claim could nevertheless be allowed under s 218(2)
of the Companies Act. After having regard to all of the relevant provisions of the Companies Act, it held
that the Legislature had clearly decided where liability should lie for conduct by directors in
contravention of certain provisions, and who could recover the resultant loss. Section 218(2) had not
abolished the rule against claims for reflective loss expressly, nor did it follow by necessary implication.
The SCA concluded that the essential findings of the high court in relation to the directors’ exceptions
could not be faulted.
In relation to the claim against Deloitte, the SCA found that the appellants had in fact suffered loss only
in the third degree. It was African Bank who suffered the primary loss. ABIL’s loss was a reflection of
that primary loss, which was in turn reflected in the appellants’ loss. Couched in delict, the claim against
Deloitte had a further hurdle in that conduct causing pure economic loss is not prima facie wrongful.
The SCA noted that the question to be addressed on the issue of wrongfulness was whether public and
legal policy considerations dictated that the auditors of African Bank be held liable to the shareholders
of ABIL for the reflective losses they sustained. On this score it held that the imposition of a legal duty
on auditors in a case such as this would raise the spectre of indeterminate liability. Recognition of the
appellants’ claims would open the door to all others who suffered reflective losses to pursue similar
claims. This would, in turn, expose the auditors to ‘liability in an indeterminate amount for an
indeterminate time to an indeterminate class’. It might also detract from the rights of creditors in the
event of insolvency. This disqualified the recognition of a new category of claim.
In the result, the appeal was dismissed with costs, including the costs of two counsel.
|
1300
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No: 173/09
In the matter between
KWIKSPACE MODULAR BUILDINGS LIMITED
Appellant
and
SABODALA MINING COMPANY SARL
First Respondent
NEDBANK LIMITED
Second Respondent
Neutral citation: Kwikspace Modular Buildings v Sabodala Mining Company
(173/09) [2010] ZASCA 15 (18 March 2010).
Coram: CLOETE, LEWIS, SHONGWE JJA, GRIESEL
et THERON AJJA
Heard:
23 February 2010
Delivered:
18 March 2010
Summary:
Building contracts; performance guarantees; whether a building
contractor can rely on a term of the building contract to interdict the other
contracting party from presenting unconditional performance guarantees to
the issuing bank.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: South Gauteng High Court (Johannesburg) (Victor J sitting
as court of first instance):
The appeal is dismissed, with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
CLOETE JA (LEWIS, SHONGWE JJA, GRIESEL et THERON AJJA
concurring):
[1] The present appeal concerns the right of a building contractor to
interdict the other party with whom it contracted for the performance of the
building works, from presenting a performance guarantee unconditional in its
terms and furnished by a financial institution to the other party.
[2] On or about 30 December 2006 Kwikspace Modular Buildings Ltd, a
South African company which is the appellant in these proceedings and to
which I shall refer as the Contractor, entered into a written contract with
Sabodala Mining Company SARL, a company incorporated in terms of the
laws of Senegal which is the first respondent in these proceedings and to
which (taking my cue from the contract between the parties) I shall refer as
the Principal. The contract was for the supply and installation of an
accommodation village at the Sabodala Gold Project Site in Senegal. The
contract documents comprised a formal instrument of agreement; the special
conditions of contract (SCs) and Appendix A thereto (the site specific
conditions); the general conditions of contract (GCs), being the Australian
Standard General Conditions of Contract AS 2124 ─ 1992, and annexures
thereto; the contract schedules; the contract specification (Scope of Work);
appendices, and drawings (to take precedence in that order). GC 23 provided
that the Principal was obliged to ensure that at all times there was a
Superintendent and GC 24 made provision for the appointment by the
Superintendent of representatives to exercise any of the functions of the
Superintendent under the contract. Annexure A to the GCs provided that the
law applicable to the contract would be that of the State of Western Australia.
[3] The appeal turns on the interrelationship of GC 5 and the guarantees
provided pursuant thereto. It is necessary to quote extensively from both. GC
5 dealt with security, retention moneys and performance undertakings. It
provided inter alia (amended as aforesaid) as follows:
'5.1
Purpose
Security, retention moneys and performance undertakings are for the purpose of
ensuring the due and proper performance of the Contract.
. . .
5.3
FORM OF SECURITY
The security shall be in the form of cash or an approved unconditional irrevocable
undertaking given by an approved financial institution. The costs (including stamp
duty and other taxes) of and incidental to the provision of the security shall be borne
by the party providing the security.
The party having the benefit of the security shall have the discretion to
approve or disapprove the form of an unconditional undertaking from the financial
institution giving the undertaking. The form of unconditional undertaking attached as
Attachment 1 to the General Conditions of Contract is approved.
. . .
5.5
Recourse to Retention Moneys and Conversion of Security
A party may have recourse to retention moneys and/or cash security and/or may
convert into money security that does not consist of money where ─
(a)
the party has become entitled to exercise a right under the Contract in respect
of the retention moneys and/or security; and
(b)
the party has given the other party notice in writing for the period stated in the
Annexure [which was two days] of the party's intention to have recourse to the
retention moneys and/or cash security and/or to convert the security; and
(c)
the period stated in the Annexure [two days] has or have elapsed since the
notice was given.'
[4] Two performance guarantees, each in identical terms (save for their
numbers and that one was dated 28 March 2007 and the other, 2 April 2007)
and each for a maximum amount of R2 651 254, were issued by Nedbank
Ltd, a well-known South African bank (which was cited as the second
respondent in this appeal and in the court below, but which took no part in the
proceedings in either court). The undertaking attached to the GCs was not
used. In terms of the guarantees issued the Bank bound itself to the Principal
for the due performance by the Contractor of all the Contractor's obligations in
terms of the contract:
'and for the payment of all damages or other amount including interest due by the
Contractor to the Principal whether in terms of the contract or consequent upon
determination thereof, and also all charges and expenses of whatsoever nature,
including, but without derogating from the generality of the aforesaid attorney and
client legal costs incurred by the Principal in endeavouring to secure fulfilment of the
obligations.'
There were 13 further clauses in the performance guarantees of which the
following are relevant for present purposes:
'2.
The Principal shall have the absolute right to arrange his affairs with the
Contractor in any manner he deems fit and without advising the Bank, and the Bank
shall not have the right to claim release on account of conduct alleged to be
prejudicial to the Bank. Without derogation from the generality of the foregoing, no
compromise, extension of time, indulgence, release, waiver of security, release of co-
sureties or variation of the Contractor's obligation shall, in any manner, affect the
Bank's liability under this guarantee.
3.
The Bank undertakes to be bound to effect payment of the above-mentioned
amount, or any lesser portion thereof, to the Principal upon receipt by the Bank at the
abovestated address of the Principal's first written demand that the Contractor has
committed a breach of the contract and/or has defaulted thereunder and/or has been
provisionally or finally sequestrated or liquidated or placed under judicial
management.
4.
The Bank shall be bound by any admission of liability by the Contractor and
by an award or judgement in arbitration proceedings or litigation between the
Principal and the Contractor.
7.
Notwithstanding anything to the contrary contained herein, the Bank's
obligations hereunder shall be construed as principal and not as accessory to the
obligations of the Contractor and compliance with any demand for payment received
by the Bank in terms hereof shall not be delayed, nor shall the Bank's obligations in
terms hereof be discharged, by the fact that a dispute may exist between the
Contractor and the Principal.
13.
This guarantee shall be governed by South African Law and subject to the
jurisdiction of South African Courts.'
[5] Various disputes arose between the parties during the performance of
the contract. Matters came to a head when on Friday afternoon 24 October
2008 the Principal sent a notice to the Contractor in the following terms:
'Sabodala Gold Project
CONTRACT NO. 1519/520 – Supply & Installation of Accommodation Village
Notice of Conversion of Security
Notice is hereby given under clause 5.5 of the General Conditions of Contract of the
Principal's intention to convert into money the security (Performance Guarantees No
288/27805905 and 288/27918718) lodged by the Contractor under the Contract.'
A request addressed on behalf of the Contractor to the Principal's attorney for
an undertaking that the guarantees would not be presented to the Bank prior
to an urgent application for an interdict preventing such presentation, was
refused. The Contractor then approached the Johannesburg High Court as a
matter of urgency for such an interim interdict pending an application for a
final interdict. An interim interdict was granted by consent by Victor J on
Monday 27 October 2008 that (apart from providing for dates for filing of
further affidavits) interdicted the Principal 'from presenting a first written
demand for payment for any amounts in terms of the performance guarantees
. . . and from claiming or receiving payment from' the Bank 'in terms of the
guarantees or pursuant to the presentation thereof' and interdicted the Bank
from making any payments to the Principal pursuant to the guarantees ─ all
pending the outcome of the Contractor's application for final relief. The final
relief was refused by the same learned judge on 18 December 2008, but
leave to appeal to this court was subsequently granted by her. Makhanya J
thereafter issued an interdict in the same terms as the interim interdict save
that the relief granted was pending the finalisation of all appeals. This appeal
is against the order of Victor J refusing a final interdict.
[6] The argument on behalf of the Contractor before this court involved
three propositions: (1) that the underlying building contract between the
Contractor and the Principal could, as a matter of law, qualify the right of the
Principal to present the guarantees for payment to the Bank, despite the
unconditional wording of the guarantees; (2) that the building contract did
indeed contain such a qualification, in particular, in GC 5.5(a); and (3) that GC
5.5 contained a tacit term so that GC 5.5(b) should be read as follows:
'The party has given the other party notice in writing for the period stated in the
annexure [two days] of the party's intention to have recourse to the retention moneys
and/or cash security and/or to convert the security, setting out the grounds on which
the demand will be made.'
[7] Counsel on both sides were content to submit that there is a
presumption1 that the law of a foreign State is, in the absence of evidence to
the contrary, presumed to be the same as the law of South Africa.2 But as I
believe the law in Australia on the points in issue in this appeal can be
ascertained readily and with sufficient certainty, as contemplated in s 1(1) of
the Law of Evidence Amendment Act 45 of 1988,3 I propose applying
Australian law to the interpretation of the building contract and in particular,
GC 5. The High Court of Australia has not, so far as I have been able to
ascertain, yet pronounced on the first proposition advanced by counsel for the
Contractor. It was left open in Wood Hall Ltd v Pipeline Authority & another.4
Gibbs J, with whom Barwick CJ and Mason J concurred, said:5
'For the reasons I have given, it seems to me clear that the Bank was obliged to the
Authority to make payment when demand was made. It is unnecessary to consider
whether it would be possible to grant to the contractor any relief against the Bank if it
were established that the making of a demand by the Authority was a breach of its
duty to the contractor, because, for the reasons which I am about to state, I consider
1 See the authorities collected in Harnischfeger Corporation & another v Appleton & another
1993 (4) SA 479 (W) at 486A-D.
2 This view is challenged in The South African Law of Evidence by D T Zeffertt, A P Paizes
and A Skeen (2003) p 313; and see also Kahn (1970) 87 SALJ 145.
3 'Any court may take judicial notice of the law of a foreign state . . . so far as such law can be
ascertained readily and with sufficient certainty . . . .'
4 24 ALR 385.
5 At 393 lines 1 to 8.
that the Authority was entitled, as between itself and the contractor, to make the
demands when it did.'
Stephen J said:6
'Had the construction contract itself contained some qualification upon the Authority's
power to make a demand under a performance guarantee, the position might well
have been different. In fact the contract is silent on the matter.'
However, it seems well-established in Australian law that the first proposition
advanced on behalf of the Contractor is correct. In Clough Engineering Ltd
(ACN 009 093 869) v Oil and Natural Gas Corporation Ltd & others7 the
Federal Court of Australia said:
'[75]
The principles under which a court will construe the terms of a bank's
undertaking in a performance guarantee, and the contract between a contractor and
an owner, have been stated in a series of authorities over the last 30 years. The
seminal decision is that of the High Court in Wood Hall Ltd v Pipeline Authority
(1979) 141 CLR 443, 24 ALR 385 (Wood Hall).
[76] Reference was made in Wood Hall to the commercial purpose of the
guarantees, which in that case was that they be equivalent to cash . . .
[77] Nevertheless, the authorities have recognised three principal exceptions to
the rule that a court will not enjoin the issuer of a performance guarantee, or bond,
from performing its unconditional obligation to make payment. The exceptions were
succinctly stated, with references to relevant authorities, by Austin J in Reed
Construction Services Pty Ltd v Kheng Seng (Aust) Pty Ltd (1999) 15 BCL 158 at
164-5 (Reed):
First ─ the court will enjoin the party in whose favour the performance guarantee has
been given from acting fraudulently: see, for example, Wood Hall per Gibbs J (at
CLR 451; ALR 391-2). As the primary judge observed at [36] Clough does not assert
that ONGC has made a fraudulent claim. Accordingly, the first exception has no
application in the present case.
Second ─ the party in whose favour the performance bank guarantee has been given
may be enjoined from acting unconscionably in contravention of s 51AA of the TPA
[Trade Practices Act 1974]: Olex Focas Pty Ltd v Skodaexport Co Ltd [1998] 3 VR
380 (Olex Focas). On this point, different views have been expressed about the
reach of s 51AA. The High Court has not determined which of these views is correct:
Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd
6 At 398 lines 18 to 23.
7 249 ALR 458.
(2003) 214 CLR 51; 197 ALR 153; [2003] HCA 18 at [44]-[45] (CG Berbatis
Holdings). In any event, none of the categories of unconscionable conduct
recognised in Australian Competition and Consumer Commission v Samton Holdings
Pty Ltd (2002) 117 FCR 301; 189 ALR 76; [2002] FCA 62 at [48] (Samton Holdings)
apply in this case. Accordingly, the second exception has no application.
Third ─ the most important exception for present purposes, is that, while the court will
not restrain the issuer of a performance guarantee from acting on an unqualified
promise to pay (Reed Construction Services at 164 per Austin J):
. . . if the party in whose favour the bond has been given has made a contract
promising not to call upon the bond, breach of that contractual promise may be
enjoined on normal principles relating to the enforcement by injunction of negative
stipulations in contracts.
It may be preferable not to describe this as an exception but rather as an over-riding
rule because it emphasises that the "primary focus" will always be the proper
construction of the contract: Bateman Project Engineering Pty Ltd v Resolute Ltd
(2000) 23 WAR 493; [2000] WASC 284 per Owen J at [30]. Stephen J recognised
this in Wood Hall at CLR 459; ALR 398-9 by observing that the provisions of the
contract may qualify the right to call on the undertaking contained in a performance
guarantee.
[78] Numerous authorities have accepted the third proposition. Many were
referred to in Reed at 165. Others include Fletcher Construction at 826-7;8 Bachman
Pty Ltd v BHP Power New Zealand Ltd [1999] 1 VR 420; [1998] VSCA 40 at [28]
(Bachmann); Baulderstone Hornibrook Pty Ltd v Qantas Airways Ltd [2000] FCA 672
at [10]; Rejan Constructions Pty Ltd v Manningham Medical Centre Pty Ltd [2002]
VSC 579 at [37].'
[8] In Bachmann (Pty) Ltd v BHP Power New Zealand Ltd9 the Supreme
Court of Victoria Court of Appeal dealt with a building contract that contained
a GC 5.510 in very similar terms to the contract which is the subject of this
appeal, and two letters of credit issued to the party who corresponds to the
Principal in this appeal. Brooking JA (with whom Tadgell and Ormiston JJA
concurred) said:
8 Fletcher Construction Australia Ltd v Varnsdorp Pty Ltd 1998 3 VR 812.
9 [1998] VSCA 40 (11 September 1998).
10 Quoted in n 23 below.
'28.
It is plain that clause 5.5 of the general conditions of the contract before us is
an express, albeit qualified, contractual prohibition on the conversion of a security
into cash. It is also plain that it is competent to the holder of a security provided by
the other contracting party to promise as part of the contract under which the security
is provided ─ the underlying contract ─ not to do some act in relation to the security
except in a certain event. Such a contractual promise is efficacious, not in the sense,
when the security is constituted by the obligation of a third person, that the third
person can rely by way of defence as against the security-holder on a term of the
underlying contract, to which he was not a party, but in the sense that relief can be
afforded to the person who procured the security in an action brought against the
security-holder on the promise contained in the underlying contract. No principle or
rule of law would deny that a promise forming part of the underlying contract is in this
sense efficacious, and the cases recognise this: Wood Hall Ltd v Pipeline Authority
[1979] HCA 21; (1979) 141 CLR 443 at 452-4 per Gibbs J (with whom Mason J
agreed) and at 459 per Stephen J; the Pearson Bridge case;11 Washington
Constructions Company Pty Ltd v Westpac Banking Corporation (1983) Qd.R. 179;
Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1
NSWLR 545 AT 554; Tenore Pty Ltd v Roleystone Pty Ltd (unreported, Supreme
Court of New South Wales, Giles J 14 September 1990, at p 31); J H Evins
Industries (N.T.) Pty Ltd v Diano Nominees Pty Ltd (unreported, Supreme Court of
the Northern Territory, Kearney J, 30 January 1989); Hughes Bros Pty Ltd v Telede
Pty Ltd (1989) 7 Building and Construction Law 210; Barclay Mowlem Construction
Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451 at 457; Malaysia
Hotel (Aust) Pty Ltd v Sabemo Pty Ltd (1993) 11 Building and Construction Law 50;
the Fletcher Construction case.12
29.
I do not overlook the critical distinction between the effect of the underlying
contract as between the parties to it and its effect (if any) as between the holder of
the security and the third person whose obligation constitutes the security. One can
for brevity speak of a contractual qualification upon the owner's powers in relation to
the security where the underlying agreement between the owner and the contractor
or supplier contains a term which restricts the exercise of those powers in some way.
30.
In the present case the supplier, in trying to stop the purchaser demanding
payment under the letter of credit, did not try to make any case of fraud on the
purchaser's part: it relied solely on the contractual qualification upon the purchaser's
11 Pearson Bridge (NSW) (Pty) Ltd v State Rail Authority of New South Wales (1982) Aust
Const LR 81.
12 Above, n 8.
powers constituted by clause 5.5 of the general conditions. The present case
appears to be novel so far as this country is concerned, in that it is clear, and is
conceded, that clause 5.5 does constitute a contractual qualification on the
purchaser's powers in relation to the security. In all the other Australian cases of
which I am aware, the initial question was whether the underlying contract, on its
proper construction, did contain a qualification on the owner's powers as regards the
security. In particular, the question arose in other cases whether a stipulation not
negative in form was negative in substance, in that it laid down the only
circumstances in which something might be done. See: the Pearson Bridge case;
Selvas Pty Ltd v Hansen & Yuncken (SA) Pty Ltd (1987) 6 Aust. Const. L.R. 36; the
Barclay Mowlem case; J H Evins Industries (N.T.) Pty Ltd v Diano Nominees Pty Ltd;
Hughes Bros Pty Ltd v Telede Pty Ltd; the Fletcher Construction case. But the
present stipulation is negative in form; there is undoubtedly a contractual qualification
on the purchaser's powers in relation to the security; the only question is that of the
content of the qualification. This is the point of this appeal.'
[9] In Fletcher Construction Australia Ltd v Varnsdorf Pty Ltd13 Callaway
JA, in a concurring judgment in the Supreme Court of Victoria Court of
Appeal, said:
'In Group Josi Re v Walbrook Insurance Co Ltd [1996] 1 WLR 1152 at 1161-2
Staughton L J said that the effect on the lifeblood of commerce is precisely the same
whether the guarantor, typically a bank, is restrained from paying or the beneficiary is
restrained from asking for payment. There is nevertheless an important difference
between restraining a bank from honouring a guarantee and restraining the
beneficiary from calling upon it. In the former case the moving party seeks to prevent
the bank from performing its contract; in the latter case the moving party seeks to
prevent the beneficiary from breaching a provision of the underlying contract. A
moment's reflection will show that the beneficiary, unlike the bank, may be restrained
if there is an express prohibition in the underlying contract against calling upon the
guarantee. In theory an implicit or implied prohibition is just as good. The practical
problem is that it is much harder to establish. That is not because of a requirement
that an implicit or implied prohibition against calling upon a guarantee must be clear.
It is because the implication cannot be made if it would stultify, or even if it would be
inconsistent with, the purpose for which the guarantee was taken.'
13 Above, n 8.
[10] Other cases to the same effect as the three from which I have quoted
are collected in Ewing International LP v Ausbulk Ltd 2008 WL 353205, [2008]
SASC 25, a decision of Layton J given in the Supreme Court of South
Australia on 8 February 2008.
[11] It therefore seems to me that it can be said with sufficient certainty that
Australian law is to the following effect: a building contractor may, without
alleging fraud, restrain the person with whom he had covenanted for the
performance of the work, from presenting to the issuer a performance
guarantee unconditional in its terms and issued pursuant to the building
contract, if the Contractor can show that the other party to the building
contract would breach a term of the building contract by doing so; but the
terms of the building contract should not readily be interpreted as conferring
such a right.
[12] I expressly refrain from considering whether, in view of the decision of
this court in Loomcraft Fabrics CC v Nedbank Ltd & another14 (which dealt
with a letter of credit) and the English decisions referred to therein, in
particular the decision of the English Court of Appeal in Edward Owen
Engineering Ltd v Barclays Bank International Ltd15 (where Lord Denning
MR16 and Browne LJ17 both said that a performance guarantee is akin to a
letter of credit), there is any room for a contention that the position in South
Africa should be the same as in Australia. So far as Australian law is
concerned, English authority to the contrary notwithstanding, the Federal
Court of Australia held as recently as 2008 in Clough Engineering:18
'[81]
In determining whether the underlying contract confers an unfettered right to
call upon the performance guarantee, the importance of such instruments in the
construction industry, both nationally and internationally, is a factor which bears upon
the question of construction of the contract. A number of authorities support this
proposition:
14 1996 (1) SA 812 (A), and see also Lombard Insurance Co Ltd v Landmark Holdings (Pty)
Ltd & others 2010 (2) SA 86 (SCA) especially para 20.
15 [1978] QB 159; [1978] 1 All ER 976 (CA).
16 At 171A-B (QB); 983b-c (All ER).
17 At 172F (Ch); 984d-e (All ER).
18 Above, n 7.
(1)
In Wood Hall at CLR 457-8; ALR 396-7, Stephen J referred to English
authority which described the performance guarantee as standing on a similar footing
to a letter of credit.
(2)
In the passage from the judgment of Callaway JA in Fletcher Construction at
827 quoted above, his Honour emphasised the importance of commercial practice in
construing the contract. The reference in the judgment of Charles JA at 822 to the
passage from Hudson's Building and Engineering Contracts, is to similar effect.
(3)
In Bachmann, Brooking JA referred at [51] to the practice in the United
States. He said that the generally accepted view in that country is that standby letters
of credit (and hence, performance guarantees) are intended by the parties to the
underlying contract to require the supplier or contractor to:
[51] ... stand out of the amount of the credit in favour of the buyer pending
resolution of the underlying dispute.
(4)
This approach is supported by the observations of Hobhouse LJ in Toomey v
Eagle Star Insurance Co Ltd [1994] 1 Lloyd's Law Rep 516 at 520, that parties to a
commercial contract are to be taken to have contracted against a background which
includes the earlier authorities on the construction of similar contracts.
[82] Notwithstanding the importance of commercial practice, the statements in
these authorities do not suggest that the court should depart from the task of
construing the terms of the contract in each case. What the authorities emphasise is
that the commercial background informs the construction of the contract . . . .'
[13] The next question is whether the Contractor is correct in asserting that
GC 5.5 in fact qualified the Principal's right to present the guarantees. The
Contractor submitted that the clause required that an actual enforceable right
be vested in the Principal before it would be entitled to present the guarantees
for payment, and that it was not sufficient for the Principal to assert that it
bona fide believed that it did have such a right; and accordingly, the right
could only be enforced, if it were disputed, once the dispute had been finally
settled by arbitration or a court. This contention is wrong in fact and in
Australian law. As a matter of law, it is contrary to the decisions in Clough
Engineering,19 Fletcher Construction20 and Bachmann.21 In Bachmann the
19 Above, n 7 paras 85-112.
20 Above, n 8 para 53.
21 Above, n 9 particularly in the judgments of Charles JA and Callaway JA.
court held22 (in respect of general conditions indistinguishable in their terms
from GC 5.5 and GC 42.11 in the contract at issue in this appeal):
'53.
In the present case the matters of conversion of and recourse to the security
are dealt with by two general conditions, which should if possible be construed so as
to work in harmony. Clause 5.523 prohibits conversion into money until the purchaser
becomes entitled to exercise a right under the contract in respect of the security.
Clause 22.424 entitles the purchaser to deduct from moneys otherwise due to the
supplier any moneys due from the supplier to the purchaser and, if those moneys are
insufficient, entitles the purchaser to have recourse to the security. Like clause
3.13(b) in Fletcher, it confers a right of recourse against the security to obtain the
balance if the exercise of the right of set-off which it also confers leaves a balance
outstanding in favour of the purchaser. It would, as Charles JA said in Fletcher, be
strange if the clauses concerned in that case and this ─ clause 3.13(b) and clause
22.4 ─ conferred the practical right of recourse only where moneys were "due" from
the supplier to the purchaser in some such sense as actually or indisputably due. I
would treat clauses 5.5 and 22.4 of the present contract, read in conjunction, as
entitling the purchaser, as between itself and the supplier, to have recourse to the
security where according to a bona fide claim made by the purchaser moneys are
due to it from the supplier which exceed any moneys due from it to the supplier.
54.
The fact that one of the forms of security recognised by clause 5.3, when
regard is had to the approved undertaking which is attached, is cast in the now
familiar form of an unconditional promise to pay on demand without reference to the
supplier and notwithstanding any notice by it not to pay supports the view that the
parties contemplated that it was the supplier who should be out of pocket pending the
resolution of any dispute.'
The cases to which I have just referred, although they come to the same
conclusion, are not harmonious in their reasoning. I therefore propose dealing
with the Contractor's contention on the facts. In order to explain why the
Contractor cannot succeed on the facts either, it is necessary to examine
several provisions in the GCs.
22 In paras 53 and 54.
23 'A party shall not convert into money security that does not consist of money until the party
becomes entitled to exercise a right under the Contract in respect of the security.' Cf GC 5.5
in para 3 above.
24 'The Purchaser may deduct from monies otherwise due to the Supplier any monies due
from the Supplier to the Purchaser and if those monies are insufficient, the Purchaser can
have recourse to the security under the Contract.' Cf GC 42.11 quoted in para 14 below.
[14] GC 42 deals with certificates and payments. GC 42.1 begins:
'Payment claims, certificates, calculations and time for payment
At the times for payment claims stated in the Annexure and upon issue of a
Certificate of Practical Completion and within the time prescribed by Clause 42.7, the
Contractor shall deliver to the Superintendent claims for payment supported by
evidence of the amount due to the Contractor and such information as the
Superintendent may reasonably require. Claims for payment shall include the value
of work carried out by the Contractor in the performance of the Contract to that time
together with all amounts then due to the Contractor arising out of or in connection
with the Contractor or for any alleged breach thereof.
Within 14 days after receipt of a claim for payment, the Superintendent shall issue to
the Principal and to the Contractor a payment certificate stating the amount of the
payment which, in the opinion of the Superintendent, is to be made by the Principal
to the Contractor or by the Contractor to the Principal. The Superintendent shall set
out in the certificate the calculations employed to arrive at the amount and, if the
amount is more or less than the amount claimed by the Contractor, the reasons for
the difference. The Superintendent shall allow in any payment certificate issued
pursuant to this Clause 42.1 or any Final Certificate issued pursuant to Clause 42.8
or a Certificate issued pursuant to Clause 44.6 [adjustment on completion of the work
taken out of the hands of the Contractor], amounts paid under the Contract and
amounts otherwise due from the Principal to the Contractor and/or due from the
Contractor to the Principal arising out of or in connection with the Contract including
but not limited to any amount due or to be credited under any provision of the
Contract.
If the Contractor fails to make a claim for payment under Clause 42.1, the
Superintendent may nevertheless issue a payment certificate.
Subject to the provisions of the Contract, within 28 days after receipt by the
Superintendent of a claim for payment or within 14 days of issue by the
Superintendent of the Superintendent's payment certificate, whichever is the earlier,
the Principal shall pay to the Contractor or the Contractor shall pay to the Principal,
as the case may be, an amount not less than the amount shown in the Certificate as
due to the Contractor or to the Principal as the case may be, or if no payment
certificate has been issued, the Principal shall pay the amount of the Contractor's
claim. A payment made pursuant to this Clause shall not prejudice the right of either
party to dispute under Clause 47 [the dispute resolution clause] whether the amount
so paid is the amount properly due and payable and on determination (whether under
Clause 47 or as otherwise agreed) of the amount so properly due and payable, the
Principal or Contractor, as the case may be, shall be liable to pay the difference
between the amount of such payment and the amount so properly due and payable.
. . .'
GC 42.11 provides:
'Recourse for Unpaid Moneys
Where, within the time provided by the Contract, a party fails to pay the other party
an amount due and payable under the Contract, the other party may, subject to
Clause 5.5, have recourse to retention moneys, if any, and, if those moneys are
insufficient, then to security under the Contract and any deficiency remaining may be
recovered by the other party as a debt due and payable.'
GC 47.1 provides inter alia:
'Notwithstanding the existence of a dispute, the Principal and the Contractor shall
continue to perform the Contract, and subject to Clause 44 [default or insolvency of
either party], the Contractor shall continue with the work under the Contract and the
Principal and the Contractor shall continue to comply with Clause 42.1.'
[15] The Superintendent on 3 October 2008 issued a certificate, certificate
10, which was in part based on variations 17 to 20 ordered by him (which the
Contractor's counsel accepted in oral argument had been competently
ordered)25 and the amount certified in this regard considerably exceeded the
total amount of the guarantees. No part of the amount certified has been paid.
Accordingly, unless the Contractor can advance some valid reason for not
doing so, the Principal would (in the words of GC 5.5) have 'become entitled
to exercise a right under the contract in respect of the . . . security', the right
being that envisaged in GC 42.11 to 'have recourse to . . . security under the
contract' (the guarantees) because the Contractor 'failed to pay . . . an amount
due and payable under the contract', in terms of GC 42.1; and the existence
of a dispute is not a valid reason because of the provisions of GC 47.1.
[16] Several reasons were advanced in argument as to why the Contractor
was not obliged to make any payment under certificate 10. The first was that
the person who issued it, Mr Patterson, was not the Superintendent's
25 I do not seek to imply that there was anything wrong with the remainder of the certificate
which dealt with liquidated damages arising from the Contractor's failure to reach practical
completion by the required (extended) date; it is simply unnecessary to have regard thereto,
or the disputes that have arisen in this regard, for the purposes of the appeal.
representative at the time he did so. That argument is not open to the
Contractor because the allegation by the Principal in the answering affidavit
filed on its behalf and deposed to by Patterson, that the latter was indeed the
Superintendent's representative at all material times, was not disputed by the
Contractor in its replying affidavit;26 and lack of authority of an agent must be
specifically alleged: Durbach v Fairway Hotel Ltd.27
[17] The second argument was that it would be improper for the Contractor
to rely on certificate 10 because it did not contain a valuation of the works
performed subsequent to the previous certificate. Reliance was placed on GC
23 which provides inter alia:
'The Principal shall ensure that at all times there is a Superintendent and that in the
exercise of the functions of the Superintendent under the Contract, the
Superintendent ─
(a)
acts honestly and fairly;
. . .
(c)
arrives at a reasonable measure or value of work, quantities or time.'
The short answer to this argument is that after the previous certificate had
been issued, the Contractor made no claim for payment as required by the
first paragraph of GC 42.1 (quoted in para 14 above) and the Superintendent
was accordingly not obliged to value the work.
[18] The final submission on this point was that reliance on the certificate
would be fraudulent. As appears from the quotation in para 7 above from para
77 of the judgment of the Federal Court of Australia in Clough Engineering,
fraud (in the sense of lack of good faith) is a recognised exception in Australia
(as it is in other countries)28 to the rule that a court will not enjoin the issuer of
a performance guarantee (in this case, Nedbank) from performing its
unconditional obligation to make payment. But it would not be fraud for the
Principal to present the guarantees based on the Contractor's failure to pay
26 Transnet Ltd v Rubenstein 2006 (1) SA 591 (SCA) para 28.
27 1949 (3) SA 1081 (SR) at 1082.
28 See Loomcraft Fabrics, above n 14, at 823C-D for the position in South Africa and Team
Telecom International Ltd & another v Hutchinson 3G UK Ltd [2003] 1 All ER (Comm) 914,
[2003] EWHC 762 (TCC) paras 29–37 for the position in England and Singapore. It is not
necessary for the purposes of this appeal to consider other exceptions.
certificate 10, which the Superintendent validly and properly issued (at least in
regard to variations 17 to 20), when the Principal knows that the Contractor
might or even did have other claims that would have reduced the amount
payable under the certificate had they been made, but which the Contractor
had not advanced to the Superintendent, which had accordingly not been
certified and which were therefore not due for payment. The Principal was
fully entitled to rely on the indebtedness created in its favour by certificate 10
and to look to the guarantees when this debt was not paid. In other words, it
has not been demonstrated that the Principal would be acting in bad faith
were it to present the guarantees for payment.
[19] I accordingly find that the Contractor has no defence to its failure to pay
at least that part of certificate 10 which depends upon variations orders 17 to
20, and that its failure to pay entitles the Principal to present the guarantees
for payment ─ unless the notice it gave the Contractor in terms of GC 5.5 was
invalid because there was a tacit term of the nature for which it contended, the
question to which I now turn.
[20] I see no good reason for incorporating the tacit term for which the
Contractor contends (set out in para 6 above), that would require the Principal
to furnish to the Contractor its grounds for converting the guarantee into cash.
First, to do so would run contrary to the position adopted in the last part of the
passage quoted in para 9 above from the judgment of Callaway JA in Fletcher
Construction. Second, the term is not necessary to give the contract business
efficacy. The law in this regard was succinctly stated by the High Court of
Australia in Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur
Insurance (Australia) Ltd, Elastic Rail Spike Co (Aust) Pty Ltd v Norwich
Winterthur Insurance (Australia) Ltd.29 In that matter the court rejected the
argument that terms for which one of the parties contended were incorporated
into the contract by custom or usage, and then dealt with the argument that
similar terms should be implied to give business efficacy to the contract. The
court said in this latter regard:
29 64 ALR 481 at p 489.
'The appellant suggested that an alternative basis on which to imply terms of the kind
just described is that they are necessary to give business efficacy to the contract. For
this argument to succeed, the term sought to be implied must be necessary to make
the contract work and must be so obvious that it goes without saying: The Moorcock
(1889) 14 PD 64 at 68; Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at
227; Reigate v Union Manufacturing Co (Ramsbottom) [1918] 1 KB 592 at 605; BP
Refinery Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26; 16 ALR 363 at
376; Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd
(1979) 26 ALR 567; 144 CLR 596 at 605-6; Codelfa Construction Pty Ltd v State Rail
Authority of NSW (1982) 41 ALR 367; 149 CLR 337 at 354, 404.
Neither of the implied terms alternatively urged by the appellant satisfy these
requirements. Neither term is so obvious that both the insurer and the assured would
clearly have agreed to its inclusion in the contract of insurance had they directed their
minds to it at the time they concluded their bargain. This will commonly be the
situation where the term sought to be implied is adverse to the interests of one of the
parties, as they are adverse to the interests of the insurer here. An implication which
may be regarded as obvious to one party may not be so regarded by the party
detrimentally affected: Scanlan's New Neon Ltd v Tooheys Ltd (1943) 67 CLR 169 at
197; Treitel: The Law of Contract (1983) 6th ed, at 159. Unless it can be said that
both parties would have consented to its inclusion, a term cannot be implied.'30
In the present appeal it may be convenient to include the term for which the
Contractor contends; but it is not necessary to do so. If a contractor really was
unaware of the basis on which the principal would rely to present the
guarantee and the contractor was of the view that there could not be any valid
basis, it could swear an affidavit to this effect ─ and, absent an undertaking by
the principal, it could obtain an interim interdict to prevent presentation of the
guarantee pending determination of the application. The principal's case
would then have to be made out in its answering affidavit to which the
contractor would be able to reply. This may necessitate an application by the
principal for leave to file a fourth set of affidavits. But it is not unusual for a
party to be unaware of the details of the case of its adversary. In an
application to restrain publication of a defamatory article, the applicant will
seldom be able to attach a copy of what a newspaper intends publishing. In
30 See also Codelfa Construction (Pty) Ltd v State Rail Authority of New South Wales 41 ALR
367, a decision of the High Court of Australia, at 370-1 (per Mason J); 392-3 (per Aickin J)
and 417-8 (per Brennan J).
applications for the enforcement of a restraint of trade, the applicant is not
obliged to set out in its founding affidavit the reason why it contends the
restraint is necessary for its protection. And certainly at least before the
advent of the Prevention of Illegal Eviction from and Unlawful Occupation of
Land Act 19 of 1998 when an owner brought a rei vindicatio, it was not
obliged to say why it alleged that the defendant/respondent was in unlawful
occupation of its property. Therefore although the term sought to be
incorporated would lead to efficiency in litigation, it is not essential and it is
therefore not necessary to provide business efficacy to the contract.
[21] And finally on this point, the term is not so obvious that both the
Contractor and the Principal would clearly have agreed to its inclusion in the
contract had they directed their minds to it at the time that the contract was
concluded. All that the purchaser was obliged to inform the issuing Bank was
that 'the Contractor has committed a breach of the contract and/or has
defaulted thereunder' (or has been declared insolvent or put under judicial
management). It is not obvious at all that the Principal would have agreed to
the inclusion of a term in the building contract requiring it to give sufficient
details to the Contractor of the basis on which it intended presenting the
guarantee, to enable the Contractor to challenge that basis before the
guarantee was presented ─ which is the ambit of the tacit term for which
counsel for the Contractor contended. Nor is it necessary for the term to be
included so as to enable the Contractor to remedy its breach (the alternative
reason relied upon for including the term) both because two days is manifestly
too short a time for this purpose and because the term would be irreconcilable
with GC 5.5(a).
[22] To sum up: as a matter of law in Australia, a building contract can
contain provisions enforceable at the suit of the contractor which amount to
preconditions to, and therefore limit, the right of the beneficiary of an
unqualified performance guarantee to present it to the issuer. But even
assuming in favour of the Contractor in this case that GC 5.5 requires the
Principal to have an enforceable right under the contract before it is entitled to
present the guarantees issued by Nedbank, it had such a right which it was
entitled to assert; and no tacit term is to be incorporated into GC 5.5 obliging
the Principal, in its notice to the Contractor required by that clause, to set out
the grounds on which the demand will be made.
[23] The appeal is dismissed, with costs.
_______________
T D CLOETE
JUDGE OF APPEAL
APPEARANCES:
APPELLANTS:
P H J van Vuuren
Instructed by Honey Attorneys, Johannesburg;
Honey Attorneys, Bloemfontein
FIRST RESPONDENT:
A J Daniels
Instructed by Routledge Modise t/a Eversheds,
Johannesburg;
Lovius Block, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From: The Registrar, Supreme Court of Appeal
Date: 18 March 2010
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal
KWIKSPACE MODULAR BUILDINGS LTD v SABODALA MINING COMPANY SARL
& ANOTHER
A South African company, Kwikspace Modular Buildings Ltd, entered into a building
contract with a Senegalese company, Sabodala Mining Co SARL, for the erection of an
accommodation village in Senegal. It was a term of the building contract that Kwikspace
would provide Sabodala with an unconditional performance guarantee for the due
performance of its obligations under the contract. The guarantee was provided by Nedbank.
The building contract had to be interpreted according to Australian law.
Kwikspace sought to interdict Sabodala from presenting the guarantee. The court a quo
refused the application. The appeal by Kwikspace was dismissed by the SCA which held that
although in Australian law a building contract could contain conditions which would have to
be fulfilled before the guarantee was presented, the conditions were fulfilled and Sabodala
was entitled to present the guarantee to Nedbank..
--ends--
|
1849
|
non-electoral
|
2011
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 541/10
In the matter between:
EEDENPROP (PTY) LTD Appellant
and
THE KOUGA MUNICIPALITY Respondent
Neutral citation: Eedenprop v Kouga Municipality (541/10) [2011]
ZASCA 92 (31 May 2011)
Coram:
CLOETE, HEHER, MAYA, SNYDERS JJA and PETSE
AJA
Heard:
11 May 2011
Delivered:
31 May 2011
Summary: Land Use Planning Ordinance 15 of 1985(C) ─ whether the
conditions of sub-division and re-zoning were waived ─ whether a
contract for reimbursement to developer of cost of provision of essential
services for a development, by a municipality from rates generated by
that development, constitutes a sharing of rates which is unlawful and
impermissible ─ whether there has been non-compliance with the
provisions of ss 172 and 173 of the Municipal Ordinance 20 of 1974(C).
___________________________________________________________
ORDER
On appeal from: Eastern Cape High Court (Port Elizabeth) (Sangoni J
sitting as court of first instance):
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and in its place the
following order is substituted:
‘(a)
The agreement concluded between the appellant and the Jeffreys
Bay Transitional Local Council (the predecessor in title of the
respondent) on 24 October 2000 is declared to be of full force and effect.
(b)
The respondent is ordered to pay to the appellant all amounts due
in terms of chapter VI of such agreement, including interest at the legal
rate from the date upon which such amounts were due and payable, to the
date of payment thereof.
(c)
The respondent is ordered to pay the costs occasioned by this
application, including interest on such costs at the legal rate calculated as
from the date of taxation to the date of payment.’
___________________________________________________________
JUDGMENT
PETSE AJA (CLOETE, HEHER, MAYA and SNYDERS JJA
concurring)
[1] This appeal concerns the question whether an agreement concluded
between the appellant and the Jeffreys Bay Transitional Local Council,
the predecessor-in-title of the respondent, the Kouga Municipality, is
valid and thus enforceable. On 24 October 2000 the appellant entered into
a written agreement (the agreement) with the Jeffreys Bay Transitional
Local Council in terms of which the appellant undertook, subject to the
terms and conditions spelt out in the agreement, to develop a retirement
village on a portion of land. It is common cause that the respondent is the
successor-in-title to the rights and obligations arising from the said
agreement. I shall, for the sake of convenience, as counsel have done in
their heads of argument, refer to both the Jeffreys Bay Transitional Local
Council and the Kouga Municipality as the respondent.
[2] The appellant was the registered owner of the land, being portion
13 (a portion of portion 8) of the farm Kabeljauws River No 328 (the
farm) in the district of Humansdorp in the Eastern Cape Province,
measuring 34,9201 hectares. The appellant desired to develop a portion of
that land comprising 16,4797 hectares as a retirement village. To
accomplish this objective the appellant made an application for re-zoning
and sub-division of the land to the Western District Council, in whose
jurisdiction the land fell at that stage, in terms of the Land Use Planning
Ordinance 15 of 1985 (LUPO). The application was approved on 14
September 2000, subject to conditions to which I shall return. The
retirement village would include in the first phase of the development 82
freehold stands, a sectional title scheme consisting of 161 units, a service
centre comprising community and frail care facilities and an additional
100 freehold stands during the second phase of the development. The
appellant undertook to construct ‘internal services’ which were to be
transferred to the Homeowners Association, which the appellant was
required to form in accordance with an associated tripartite written
agreement entered into between the respondent and the Eedenglen
Homeowners Association when such services were finalised and
approved by the respondent. The appellant also undertook to erect bulk
water and electricity supply systems and to connect such infrastructure to
the respondent’s infrastructure at its own cost, in addition to payment of
the sum of R406 244 as a bulk services contribution to the respondent. It
was also agreed that both the internal services installation and internal
reticulation would, upon completion to the satisfaction of the respondent,
become the property of the respondent. It is not in dispute that the
appellant fulfilled its contractual obligations in terms of the agreement
and expended substantial costs in excess of R11 million in doing so.
[3] It is appropriate, at this point, to mention that the sub-divided
portion of the land excised from portion 13 of the farm was incorporated
into the area of jurisdiction under the control of the respondent with the
consequence that the ownership of the infrastructure laid on the land by
the appellant became vested in the respondent, as was envisaged in the
parties’ agreement.
[4] Chapter VI of the agreement provides:
‘VI. COST LIABILITY AND THE PROVISIONS OF SERVICES
It is a basic principle of local government that any development such at (sic) this,
should not in any way be to the detriment of the local rate payers but that it should
rather be to the advantage of both the rate payer and the Developer. In view of the fact
that the Developer personally carry the burden of all the development costs and
interest thereon in order to provide the internal services and the connector services
(external), the council undertakes to annually pay as from completion of the
development as envisaged in par. VIII to the Developer 60% of the assessment rate
income levied in respect of the development area as well as all the availability charges
levied, provided that the payments thus to be made to the Developer shall in any one
year not exceed 12.5% of the total cost of the scheme, which payments will in any
event terminate 15 years from the date of completion of the construction work
pertaining to the services envisaged herein or as soon as the cost of the services has
been fully paid whichever is the earlier. The Developer shall on demand submit to the
Council’s Town Treasurer, such as may be required documentary proof (certified by
it’s Engineer) of the total cost of the internal services i.e. roads, stormwater, water and
electricity reticulation and sewerage, and the annual loan costs, before any of the
payment contemplated in this paragraph shall be made. It is a condition hereof that the
Developer shall not be entitled to cede or make over in any way monies thus payable
by the Council to the Developer.’
[5] Upon completion of the construction of the development and its
approval by the respondent, the appellant wrote to the respondent on 27
October 2006 advising it of this fact and also submitting certificates by
various consultants certifying that the construction work had been
undertaken to their satisfaction. Simultaneously the appellant advised the
respondent of the total cost of the project and called upon the respondent
to implement the terms of chapter VI of the agreement. The respondent
commenced with making payments to the appellant in accordance with
the formula agreed upon in terms of that chapter until January 2009 when
it questioned the lawfulness of the payments by contending that the
agreement was ‘unenforceable’.
[6] When the appellant’s best endeavours ─ following a futile
exchange of correspondence ─ to resolve the impasse amicably, came to
naught, it instituted proceedings in the Port Elizabeth High Court seeking
first, a declarator that its agreement with the respondent was of full force
and effect and second, an order directing the respondent ‘to comply fully
with its obligations arising from the agreement including the obligations
imposed upon it by virtue of the provisions of chapter VI . . .’. The
appellant’s application was dismissed by Sangoni J and this appeal
against his judgment is now before us with the leave of the court a quo.
[7] On appeal the respondent relied on three principal grounds. It
contended that there had been no compliance by the appellant with the
conditions of sub-division and rezoning imposed by the Western District
Council nor proof that such conditions had been waived; that the formula
provided for in the agreement in relation to the repayment of the amount
expendable by the appellant in the provision of ‘internal services’ and
infrastructure in terms of which the respondent was entitled to receive the
rates collected from the development and was obliged to pay over 60 per
cent thereof, to the appellant, in effect meant that the appellant was
receiving a share in taxes collected by an organ of state, something that, it
was submitted, is inimical to good governance; and that there had been
non-compliance with the provisions of ss 172 and 173 of the Cape
Municipal Ordinance 20 of 1974. I now turn to deal with each of the
above contentions in turn.
Non-compliance with conditions of sub-division and rezoning
[8] In support of its contention that the conditions imposed by the
Western District Council were neither complied with nor waived, the
respondent argued that as such conditions were in extant at the time of the
conclusion of the agreement the only remedy that the appellant had, if it
were of the mind that such conditions were for whatever reason
unacceptable to it, is that it should either have appealed against their
imposition in terms of the Promotion of Administrative Justice Act 3 of
2000, or have had them judicially reviewed. As neither of these options
was exercised by the appellant the administrative act of the Western
District Council must perforce stand. The respondent relied on the
judgment of this court in Oudekraal Estates (Pty) Ltd v City of Cape
Town 2004 (6) SA 222 (SCA) at 242A-C. Whilst the respondent is
correct on the principle it is, however, my view that its reliance on the
Oudekraal case is misplaced. The simple answer to it is that the
appellant’s case proceeds entirely from the premise that the respondent,
in signing the agreement, in effect waived the condition under
consideration in this appeal imposed by the Western District Council.
[9] When the Western District Council approved the appellant’s
subdivision and re-zoning application by letter dated 14 September 2000
it did so, as I have said, subject to certain conditions. The letter of
approval expressly stipulated that ‘this approval is subject to the
conditions imposed in terms of section 42 as set out in the annexures
hereto’. One of the annexures, annexure B, provides (in part):
‘The following further conditions shall be applicable:
(a)
services such as water reticulation, electricity, sewerage reticulation, refuse
removal, storm water disposal and any accesses to private thoroughfares from public
roads shall be provided by the developer at his cost . . . .’
[10] Section 42 of LUPO referred to in the letter just quoted provides, to
the extent relevant, as follows:
‘42 Conditions
(1)
When . . . a council grants . . . an application . . . he may do so subject to such
conditions as he may think fit.
(2)
Such conditions may, having regard to ─
(a)
the community needs and public expenditure which in its opinion may arise
from the authorisation, exemption, application or appeal concerned and the public
expenditure incurred in the past which in . . . its opinion facilitates the said . . .
application . . . and
(b)
the various rates and levies paid in the past or to be paid in the future by the
owner of the land concerned,
include conditions in relation to . . . or the payment of money which is directly related
to requirements resulting from the said . . . application in respect of the provision of
necessary services to the land concerned.
(3)
Subject to the provisions of the Removal of Restrictions Act, 1967 (Act 84 of
1967), . . . a council, . . .may in relation to a condition imposed under subsection (1),
after consideration of objections received in consequence of an advertisement in terms
of subsection (4)
and after consultation with the owner of the land concerned . . .
(a)
waive or amend any condition, . . .
(b)
. . .
(4)
The . . . town clerk or secretary, where a council may so act . . . shall, if he is
of the opinion that the waiver or amendment of conditions under subsection (3)
adversely affects the interest that any person has in land, advertise the proposed
waiver or amendment of conditions . . .’.
[11] In addition to chapter VI, quoted above, the contract between the
appellant and the respondent provided:
‘1.5
The Developer shall be obliged and undertakes to give effect to all the
conditions upon which the subdivisional and rezoning applications have been
approved such as conditions laid down in terms of section 42 of Ordinance 15 of
1985.’
The letter from the Western District Council dated 14 September 2000
together with annexures comprises chapter VII of the agreement.
[12] There is a potential conflict between Clause 1.5 and chapter VII on
the one hand and chapter VI on the other: The first two provisions
contemplate an absolute obligation on the appellant as contemplated in s
42(2) of LUPO to pay for the cost of services, but the latter obliges the
respondent to pay for this. The obvious way to resolve the potential
conflict is to interpret the former provisions as imposing a temporary
obligation on the appellant to pay for the costs of the services in full and,
once this has been completed, to the satisfaction of the respondent, an
obligation on the respondent to reimburse the appellant according to the
provisions of chapter VI.
[13] The respondent’s counsel submitted that such an interpretation
would require a waiver or an amendment by the respondent of conditions
imposed by the Western District Council, which would be void for want
of compliance with s 42(3) and (4) of LUPO in as much as there had been
no publication of an intention to waive the condition imposed by the
Western District Council. The argument is without merit. In terms of
subsec (3), before a council may waive or amend a condition imposed
under subsec (1), it must consider objections in terms of subsec (4) and
consult with the owner of the land concerned. The owner of the land
concerned was the appellant. The respondent obviously consulted with
him. And there was no other person who had any interest in land as
contemplated in subsec (4). There was therefore no necessity to advertise.
Share in local government taxes (rates)
[14] The case sought to be made out by the respondent on this score is
predicated on the provisions of ss 151, 156, 217 and 229 of the
Constitution of the Republic of South Africa, 1996 and a whole host of
Acts all of which define the powers, functions and duties of
municipalities in relation to the sphere of local government. (See Local
Government: Municipal Finance Management Act 56 of 2003, Local
Government: Municipal Systems Act 32 of 2000; Local Government
Transition Act 209 of 1993 (since repealed by the Local Government
Laws Amendment Act 19 of 2008)). It was argued that the fundamental
theme manifest in all these legislative prescripts is that every municipality
is enjoined: to conduct its affairs in an effective, economical and efficient
manner to optimise one of its resources in addressing the needs of the
community; to conduct its financial affairs in an accountable and
transparent manner; and to structure and manage its budgeting and
planning processes to give priority to the basic needs of the community. It
was therefore contended that the real effect of the agreement is that the
respondent’s power to determine rates payable by the owners within the
development is compromised, because a large proportion of such rates is
allocated to the appellant thereby advancing the appellant’s commercial
interests.
[15] This argument cannot be upheld. That it is the respondent alone
that determines the rates and collects them (albeit through the agency of
the Homeowners Association), is beyond doubt. The fact that the
respondent employs funds generated through rates, which after all are a
major source of revenue for a municipality, does not, in my view, detract
from this. The agreement benefits both parties. The appellant, although
being obliged to lay out the expenditure necessary for the provision of
essential services, will be reimbursed therefor and will be able to sell the
units in the development. The respondent, although being obliged to
make the reimbursement, became the owner of the infrastructure and
received the benefit in perpetuity of the rates from the development, and
payment for services used by the occupants of the units in the
development. What the respondent seeks to do is to renege on its
obligation to make the reimbursement, which was an essential term of the
agreement without which the appellant would not have undertaken the
development, on the basis that rates should be employed for the benefit of
all, when it would never have had the income from such rates had it not
entered into the agreement in the first place.
Applicability of ss 172 and 173 of the Municipal Ordinance 20 of 1974
[16] Section 172(1) reads as follows:
‘(1)
A council shall, by notice published in the press, invite tenders before entering
into any contract which is for ─
(a)
the execution of any work for or the supply or sale of any goods or materials
to the council and which involves or is likely to involve an amount exceeding such
amount as the Administrator may from time to time either generally or specially
determine in respect of contracts entered into by such council, and
(b)
the sale of any goods or materials by the council.’
[17] Thus s 172(1) enjoins a (municipal) council to invite tenders by
notice published in the press before entering into any contract which is
for the execution of any work for the supply or sale of any goods or
material to the council which exceeds or is likely to exceed an amount as
determined from time to time in respect of such contracts; and the sale of
any goods or materials by the council. The court a quo found that these
legislative prescripts were not complied with and consequently held that
such non-compliance rendered the agreement unlawful and of no force
and effect. In reaching this conclusion it relied on a host of judgments of,
inter alia, this court. (See City of Tshwane Metropolitan Municipality v
RPM Bricks (Pty) Ltd 2008 (3) 1 (SCA); Municipal Manager: Qaukeni
Local Municipality v FV General Tracking CC 2010 (1) SA 356 (SCA);
Premier, Free State v Firechem Free State (Pty) Ltd 2000 (4) SA 413
(SCA); Eastern Cape Provincial Government v Contractprops 25 (Pty)
Ltd 2001 (4) SA 142 (SCA)).
[18] To my mind the court a quo was incorrect in finding that s 172(1)
was relevant to the determination of the dispute raised on the papers. The
terms of chapter VI of the agreement clearly fell outside the purview of s
172 as they were neither ‘for the execution of any work’ nor ‘for the
supply or sale of any goods or materials’ to the council.’ What in fact
chapter VI plainly envisaged, in my view, was the provision of
infrastructure and ‘internal services’ by the appellant at its own cost on
land not belonging to the respondent to the satisfaction of the respondent
which, after completion thereof, would become the property of the
respondent. In that event the respondent was contractually bound to re-
imburse the appellant for such cost as it, upon becoming the owner of the
infrastructure and internal services, and, as I have said, acquired an
additional revenue base that it would, but for the agreement, not
otherwise have had.
[19] The court a quo also found that the respondent was obliged to
comply with s 173(4) of the Municipal Ordinance 20 of 1974 which
reads:
‘(1)
. . .
(2)
. . .
(3)
. . .
(4)
No contract contemplated by subsection (1) or (2) and no amendment to any
such contract shall come into force until ─
(a)
The council has by publication in the press given notice of its intention to
enter into such contract or to make such amendment, and
(b)
The Administrator has approved such contract or amendment.’
This conclusion by the court a quo was misconceived because the
reference in s 173(4) to a ‘contract’ is, as was submitted by counsel for
the appellant, a reference to contracts with other local authorities or with
any other ‘person for the exercise or performance, whether jointly or by
any of the contracting parties, of any power, duty or function whatsoever
which the council is from time to time by law authorised or required to
exercise or perform.’ The contract between the parties was not such a
contract for the reasons already given in para 18 above.
[20] For all the aforegoing reasons I am satisfied that the belated
attempt by the respondent to resile from the agreement, was untenable.
[21] In the result the following order is made.
1.
The appeal is upheld with costs.
2.
The order of the court a quo is set aside and in its place the
following order is substituted:
‘(a)
The agreement concluded between the appellant and the Jeffreys
Bay Transitional Local Council (the predecessor in title of the
respondent) on 24 October 2000 is declared to be of full force and effect.
(b)
The respondent is ordered to pay to the appellant all amounts due
in terms of chapter VI of such agreement, including interest at the legal
rate from the date upon which such amounts were due and payable, to the
date of payment thereof.
(c)
The respondent is ordered to pay the costs occasioned by this
application, including interest on such costs at the legal rate calculated as
from the date of taxation to the date of payment.’
___________________
XM Petse
Acting Judge of Appeal
APPEARANCES
APPELLANT:
RG Buchanan SC
Instructed by Pagdens, Port Elizabeth;
McIntyre & van der Post, Bloemfontein.
RESPONDENT: A Beyleveld SC
(Ms) M Beneke
Instructed by McWilliams & Elliot, Port Elizabeth;
Webbers, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
MEDIA SUMMARY – JUDGMENT DELIVERED IN COURT OF
APPEAL
31 May 2011
STATUS: Immediate
EEDENPROP (PTY) LTD V THE KOUGA MUNICIPALITY (541/10)
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal
The Supreme Court of Appeal (the SCA) today upheld the appeal with costs.
The appellant entered into a written agreement with the Jeffreys Bay Transitional
Council, the respondent’s predecessor-in-title, in terms of which the appellant
undertook, subject to the terms and conditions spelt out in the agreement, to develop
a retirement village on a portion of the land. Upon completion of the construction of
the development and its approval by the respondent, the appellant wrote to the
respondent advising it of this fact and also submitting certificates by various
consultants certifying that the construction work had been undertaken to their
satisfaction. The respondent commenced with making payments to the appellant in
accordance with the formula agreed upon until January 2009, when it questioned the
lawfulness of the payments by contending that the agreement was ‘unenforceable’.
The appellant instituted proceedings in the Eastern Cape High Court (Port Elizabeth)
seeking first a declarator that its agreement with the respondent was of full force and
effect and second, an order directing the respondent ‘to comply fully with its
obligations arising from the agreement including the obligations imposed upon it by
virtue of the provisions of chapter VI. . .’. The appellant’s application was dismissed
by Sangoni J.
Before the SCA, the respondent relied on three principal grounds. It contended that
there had been no compliance by the appellant with the conditions of sub-division
and rezoning imposed by the Western District Council, nor had such conditions been
waived; that the appellant was receiving a share in taxes collected by an organ of
state, which was inimical to good governance; and that there had been non-
compliance with the provisions of ss 172 and 173 of the Cape Municipal Ordinance
20 of 1974. As to the first ground the SCA stated that there was a potential conflict
with the conditions imposed by the Western Cape District and the contract. On the
one hand there was an absolute obligation on the appellant to pay for costs of
services, on the other there was an obligation on the respondent to do so. The SCA
stated that the obvious way to resolve the potential conflict was to interpret the
provisions as imposing a temporary obligation on the appellant to pay for the costs
of the services in full and, once this has been completed to the satisfaction of the
respondent, an obligation on the respondent to reimburse the appellant. The
respondent’s counsel submitted that such an interpretation would require a waiver or
an amendment by the respondent of conditions imposed by the Western District
Council, which would be void for want of compliance with ss 42(3) and 42(4) of the
Land Use Planning Ordinance 15 of 1985 in as much as there had been no
publication of an intention to waive the condition imposed by the Western District
Council. The SCA held that the argument was without merit, as in terms of subsec
(3), before a council may waive or amend a condition imposed under subsec (1), it
must consider objections in terms of subsec (4) and consult with the owner of the
land concerned. The owner of the land concerned was the appellant. The
respondent obviously consulted with him and there was no other person who had
any interest in land as contemplated in subsec (4), consequently there was no
necessity to advertise. As to the respondent’s second ground: the respondent
contended that the real effect of the agreement was that the respondent’s power to
determine rates payable by the owners within the development was compromised,
because a large portion of such rates was allocated to the appellant thereby
advancing the appellant’s commercial interests. The SCA held that this argument
could not be upheld. The respondent alone determined the rates and collected them.
The fact that the respondent employs funds generated through rates does not
detract from this. The agreement benefits both parties. The appellant, although
being obliged to lay out the expenditure necessary for the provision of essential
services, will be reimbursed therefore and will be able to sell the units in the
development. The respondent, although being obliged to make the reimbursement,
became the owner of the infrastructure and received the benefit in perpetuity of the
rates from the development, and payment for services used by the occupants of the
units in the development. What the respondent sought to do was to renege on its
obligation to make the reimbursement, which was an essential term of the
agreement without which the appellant would not have undertaken the development,
on the basis that rates should be employed for the benefit of all, when it would never
have had the income from such rates had it not entered into the agreement in the
first place. As to the respondent’s third ground: the SCA held that the court a quo
was incorrect in finding that s 172(1) was relevant to the determination of the dispute
raised on the papers. The conclusion by the court a quo that the respondent was
obliged to comply with s 173(4) was misconceived because the contract between the
parties was not a contract as envisaged by s 173(4). For all the afore-going reasons,
the SCA was satisfied that the belated attempt by the respondent to resile from the
agreement, was untenable.
|
3216
|
non-electoral
|
2007
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 242/2006
NAME OF SHIP: OLYMPIC COUNTESS
In the matter between:
FORTIS BANK (NEDERLAND) N V
APPELLANT
and
ORIENT DENIZCILIK TURIZM
SANAYI VE TICARET A S
RESPONDENT
______________________________________________________________
Coram:
SCOTT, FARLAM, HEHER, COMBRINCK JJA et
HURT AJA
Date of hearing:
23 August 2007
Date of delivery: 21 September 2007
Summary: Ranking of claims in terms of s 11 of Act 105 of 1983 – s 11(4)(c)(v) does
not include the claim of the person who pays the person who renders services to the
ship
Citation: This judgment may be referred to as The Olympic Countess [2007] SCA 115
RSA
SCOTT JA/….
SCOTT JA:
[1] On 8 January 2004 the passenger liner, Olympic Countess, was
arrested at the instance of numerous creditors in the port of Durban. She was
subsequently sold in pursuance of an order in terms of s 9(1) of the Admiralty
Jurisdiction Regulation Act 105 of 1983 (‘the Act’). A fund was constituted with
the proceeds and a referee appointed to investigate claims. Both the
appellant, to which I shall refer as ‘the Bank’ and the respondent, to which I
shall refer as ‘Orient’, submitted claims. The Bank’s claim was in respect of a
mortgage over the vessel and consequently ranked as a claim in terms of s
11(4)(d) of the Act. Orient contended that its claim ranked as a claim in terms
of s 11(4)(c)(v). If its contention were to be upheld its claim would enjoy
priority over the Bank’s claim. But for Orient’s claim and a costs order in
favour of another creditor for which provision had been made, the Bank would
be entitled to the entire proceeds of the fund. It is not disputed that the Bank’s
claim is valid and that it is a claim ranking in terms of s 11(4)(d). The Bank,
however, disputed the ranking claimed by Orient; it also disputed that Orient’s
claim was a ‘maritime claim’ within the meaning of s1(1) of the Act.
[2] Orient applied to the High Court, Durban, for an order for the payment
of its claim out of the fund on the basis of its claimed ranking. The first
respondent was the fund. The Bank intervened as second respondent and
opposed the relief claimed. It not only disputed many of the material
allegations made by Orient in its founding papers but contended that in any
event and even on Orient’s own version the latter was in law not entitled to
payment. It contended that on Orient’s own version, one part of the claim was
not a ‘maritime claim’ and the other part, at best for Orient, ranked as a claim
in terms of s 11(4)(f) of the Act and hence below that of the mortgagee’s
claim. The parties accordingly agreed that the court would be asked to decide
first the two legal issues based on Orient’s version of the facts and only in the
event of their being decided in favour of Orient would the matter be referred
for the hearing of oral evidence. The matter came before Balton J who
acceded to the request to separate the issues and decided both legal issues
in favour of Orient. The learned judge granted leave to appeal on one, ie the
issue whether one part of the claim was a maritime claim, but not on the
other. However, leave to appeal on the latter issue was subsequently granted
by this court.
[3] As the decision on appeal hinged exclusively on specific issues of law,
the parties prepared a truncated record of the proceedings in the court below
as well as an agreed statement in terms of SCA Rule 8(8)(a) reflecting the
facts alleged by Orient and the issues arising therefrom. The facts so agreed
are shortly as follows. On 20 March 2003 Orient and Royal Olympic Cruise
Lines Limited (‘ROC’), the owner and operator of the Olympic Countess,
entered into a written agreement in terms of which Orient was appointed as
port agent for the former’s vessels at the port of Istanbul for a minimum period
of 5 years. In terms of clause 3.2 of the agreement, Orient undertook to pay
the sum of US$517 000 on behalf of ROC ‘in partial settlement of debts
previously incurred’ in respect of various vessels including the Olympic
Countess. In pursuance of this undertaking Orient made the following
payments:
‘(i)
US$21,558.43 to Kiyi Emniyet for light services furnished by Kiyi Emniyet to the
Olympic Countess between August and October 2001;
(ii)
US$501,500.24 to Turkiye Den Isletmeleri (TDI) for port services rendered by TDI
to the Olympic Countess in 2001;
(iii)
US$17,109.87 to TC Saglik Bak for sanitary services rendered to the Olympic
Countess by TC Saglik Bak in the period June to September 2001;
(iv)
US$10,060.17 to International Turizim Servis (ITS) for sanitary services provided
to the Olympic Countess by TC Saglik Bak in the period June to September 2001
and paid for by ITS as the then agent of the vessel;
TOTAL US$550,228.71’
ROC failed to pay certain instalments due to Orient in terms of the agreement
or to maintain the agreement for a period of 5 years as it was obliged to do.
As a result, so Orient alleged, an amount in excess of the sums advanced
aforesaid became repayable to it by ROC. Orient caused the vessel to be
arrested and lodged a claim with the referee. The claim was confined to the
amounts paid by it as set out above.
[4] It is necessary to quote the first eight subsections of s 11 of the Act.
‘11.
Ranking of claims. – (1) (a) If property mentioned in section 3 (5) (a) to (e) is sold in
execution or constitutes a fund contemplated in section 3 (11), the relevant maritime claims
mentioned in subsection (2) shall be paid in the order prescribed by subsections (5) and (11).
(b)
Property other than property mentioned in paragraph (a) may, in respect of a
maritime claim, be sold in execution, and the proceeds thereof distributed, in the ordinary
manner.
(2) The claims contemplated in subsection (1) (a) are claims mentioned in
subsection (4) and confirmed by a judgment of a court in the Republic or proved in the
ordinary manner.
(3)
Any reference in this section to a ship shall, where appropriate, include a
reference to any other property mentioned in section 3 (5) (a) to (e).
(4)
The claims mentioned in subsection (2) are the following, namely –
(a)
a claim in respect of costs and expenses incurred to preserve the property in
question or to procure its sale and in respect of the distribution of the
proceeds of the sale;
(b)
a claim to a preference based on possession of the property in question,
whether by way of a right of retention or otherwise;
(c)
a claim which arose not earlier than one year before the commencement of
proceedings to enforce it or before the submission of proof thereof and which
is a claim –
(i)
contemplated in paragraph (s) of the definition of “maritime claim”;
(ii)
in respect of port, canal, other waterways or pilotage dues, and any
charge, levy or penalty imposed under the South African Maritime
Safety Authority Act, 1998, or the South African Maritime Safety
Authority Levies Act, 1998;
(iii)
in respect of loss of life or personal injury, whether occurring on land
or on water, directly resulting from employment of the ship;
(iv)
in respect of loss of or damage to property, whether occurring on
land or on water resulting from delict, and not giving rise to a cause
of action based on contract, and directly resulting from the operation
of the ship;
(v)
in respect of the repair of the ship, or the supply of goods or the
rendering of services to or in relation to a ship for the employment,
maintenance, protection or preservation thereof;
(vi)
in respect of the salvage of the ship, removal of any wreck of a ship,
and any contribution in respect of a general average act or sacrifice
in connection with the ship;
(vii)
in respect of premiums owing under any policy of marine insurance
with regard to a ship or the liability of any person arising from the
operation thereof; or
(viii)
by any body of persons for contributions with regard to the protection
and indemnity of its members against any liability mentioned in
subparagraph (vii);
(d)
a claim in respect of any mortgage, hypothecation or right of retention of, and
any other charge on, the ship, effected or valid in accordance with the law of
the flag of a ship, and in respect of any lien to which any person mentioned in
paragraph (o) of the definition of “maritime claim” is entitled;
(e)
a claim in respect of any maritime lien on the ship not mentioned in any of
the preceding paragraphs;
(f)
any other maritime claim.
(5)
The claims mentioned in paragraphs (b) to (f ) of subsection (4) shall rank
after any claim referred to in paragraph (a) of that subsection, and in accordance with the
following rules, namely ─
(a)
a claim referred to in the said paragraph (b) shall, subject to paragraph (b) of
this subsection, rank before any claim arising after it;
(b)
a claim of the nature contemplated in paragraph (c) (vi) of that subsection,
whether or not arising within the period of one year mentioned in the said
paragraph, shall rank before any other claim;
(c)
otherwise any claim mentioned in any of the subparagraphs of the said
paragraph (c) shall rank pari passu with any other claim mentioned in the
same subparagraph, irrespective of when such claims arose;
(d)
claims mentioned in paragraph (d) of subsection (4) shall, among
themselves, rank according to the law of the flag of the ship;
(e)
claims mentioned in paragraph (e) of subsection (4) shall, among
themselves, rank in their priority according to law;
(f)
claims mentioned in paragraph (f) of subsection (4) shall rank in their order of
preference according to the law of insolvency;
(g)
save as otherwise provided in this subsection, claims shall rank in the order
in which they are set forth in the said subsection (4).
(6)
For the purposes of subsection (5), a claim in connection with salvage or the
removal of wreck shall be deemed to have arisen when the salvage operation or the removal
of the wreck, as the case may be, terminated, and a claim in connection with contribution in
respect of general average, when the general average act occurred.
(7)
A court may, in the exercise of its admiralty jurisdiction, on the application of
any interested person, make an order declaring how any claim against a fund shall rank.
(8)
Any person who has, at any time, paid any claim or any part thereof which, if
not paid, would have ranked under this section, shall be entitled to all the rights, privileges
and preferences to which the person paid would have been entitled if the claim had not been
paid.’
[5] It will be observed that the claims participating in a fund are listed in
s 11(4). The order of their ranking is given in s 11(5). The claims listed in
s 11(4)(c), save for the claim referred to in s 11(4)(c)(vi) (salvage) which is
given preference, rank pari passu. Significantly, they rank ahead of the claim
of the mortgagee, which is dealt with in s 11(4)(d). But if a claim referred to in
s 11(4)(c)(i)-(v) or s 11(4)(c)(vii) and (viii) is ‘a claim which arose’ earlier than
one year before the commencement of proceedings to enforce it or before the
submission of its proof, it falls to be ranked under s 11(4)(f). The words ‘a
claim which arose’ have been held to mean ‘a claim which came into
existence’ and not ‘a claim which became enforceable’. (See the MV Forum
Victory 2001 (3) SA 529 (SCA).)
[6] In the case of the first three of Orient’s four claims listed in para 3
above, the entities paid by Orient were the entities that actually rendered the
services to the vessel. It was common cause that those entities enjoyed
maritime claims within the meaning of s1(1)(m) of the Act; that is to say, they
were claims ‘for, arising out of or relating to . . . the supplying of goods or the
rendering of services for the employment, maintenance, protection or
preservation of a ship’. In the case of the fourth claim, the entity paid by Orient
was the entity that had paid the entity that had rendered the services. The
Bank contended in the court a quo that even on Orient’s own version its fourth
claim was not a ‘maritime claim’ under any of the paragraphs in s 1(1).
Whether it was or not was the first of the two legal issues the court was asked
to decide. In this court, however, Orient conceded that the claim would in any
event rank after that of the mortgagee. For reasons that will become apparent
when dealing with the other claims the concession was well made and it is
unnecessary to say anything more about this claim.
[7] Counsel for the Bank, relying on dicta in Weissglass NO v Savonnerie
Establishment 1992 (3) 928 (AD) at 941 D-F, submitted that notwithstanding
the wide meaning of the words ‘any claim for, arising out of or relating to’
which preceded paragraph (m) in s 1(1), Orient’s remaining three claims were
not claims within the meaning of that paragraph. In view, however, of the
conclusion to which I have come regarding the construction of s 11(4)(c)(v), it
is unnecessary to decide the point and I shall assume, without deciding, that
Orient’s claims are, indeed, maritime claims within the meaning of s 1(1)(m). I
shall also assume in Orient’s favour that ROC’s indebtedness to Orient arose
directly as a result of Orient’s payments to the entities rendering the services
to the Olympic Countess.
[8] Counsel for Orient submitted that, having regard to the wide meaning
of the phrase ‘in respect of’ in s 11(4)(c)(v), the section was to be construed
as including not only the claims of the person who actually renders the
services, but also the claims of the person who pays the person rendering the
services. The latter claims, so it was argued, come into existence only when
the person who renders the services is paid and as Orient in the present case
paid the entities who rendered the services less than one year prior to
submitting proof of the claims to the referee, the claims fell within the ambit of
s 11(4)(c)(v) and ranked ahead of the mortgagee’s claim.
[9] Counsel for the appellant drew attention to the distinction between the
phrase ‘in respect of’ in s 11(4)(c)(v) and the phrase ‘for, arising out of or
relating to’ in the definition of ‘maritime claim’ and submitted that the former
conveyed a different and narrower meaning than the latter and that this was
indicative of a change of intention on the part of the legislature. In Mak
Mediterranee SARL v The Fund Constituting the Proceeds of the Judicial Sale
of the MC Thunder (S D Arch, Interested Party) 1994 (3) SA 599 (C) at
609G-J it was said that given the indefinite meaning of expressions such as
‘in respect of’ and ‘for, arising out of or relating to’ overmuch weight ought not
to be attached to this change of language and that more important when
construing s 11(4)(c)(v) was the need to consider the provision in its context in
the section and in particular in the light of s 11(8). However, as counsel
emphasized, the definition of ‘maritime claim’ is ‘a gateway provision’ into
admiralty jurisdiction and its object is to set the outer limits of that jurisdiction.
The claims listed are accordingly couched in wide terms and many clearly
overlap. By contrast, the ranking provisions seek to distinguish between
different claims in order to establish their order of preference. Section 11 must
therefore as far as possible be construed so as to avoid any overlapping
between the different categories of claims listed.
[10] Section 11(8) makes it clear that the person who pays any claim of
another which would have ranked under s 11 is entitled to all ‘the rights,
privileges and preferences’ to which the person paid would have been entitled
if the claim had not been paid. In other words, it is clear that the expression
‘any claim’ in s 11(8) must be understood as referring to the claim of the
person who would in the first instance be the claimant under one of the
categories listed under s 11(4). The claims of the entities who actually
rendered the services in the present case would undoubtedly fall within the
scope of s 11(4)(c)(v). But those claims arose earlier than ‘one year before
the commencement of proceedings to enforce [them] or before the
submission of proof thereof’. They would accordingly not have ranked under
s 11(4)(c)(v) but under s 11(4)(f). It is implicit in s 11(8) that the person who
pays the claim of another cannot acquire a better right, privilege or preference
than the person paid. Section 11(8) makes it clear therefore that the claim
referred to in s 11(4)(c)(v) was not intended to extend to the claim of the
person who pays the actual repairer, supplier or the person rendering the
services. If the position were otherwise, the one-year limitation in s 11(4)
could be defeated by the simple expedient of the claimant ‘selling’ the claim to
another and thereby conferring on the claim an elevated ranking. Such a
construction would be wholly inconsistent with s 11(8) and could never have
been the intention of the legislature.
[11] It follows that in my view Orient is a ‘person’ who paid the claim of
another within the meaning of s 11(8). Its claims accordingly ranked no higher
than the claims of the entities it paid. Those claims fall to be ranked under
s 11(4)(f) and Orient’s claims must likewise be so ranked.
[12] The appeal is upheld with costs. The order of the court a quo is set
aside and the following substituted in its stead:
‘The application is dismissed and the applicant is to pay the intervening
respondent’s costs.’
__________
D G SCOTT
JUDGE OF APPEAL
CONCUR:
FARLAM
JA
HEHER
JA
COMBRINCK JA
HURT
AJA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
NAME OF SHIP: OLYMPIC COUNTESS
FORTIS BANK (NEDERLAND) N V / ORIENT DENIZCILIK TURIZM SANAYI VE
TICARET A S CASE NO 242/2006
From :
The Registrar, Supreme Court of Appeal
Date:
21 September 2007
Status:
Immediate
Please note that the media summary is for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal today upheld an appeal against a
judgment of the High Court, Durban, concerning the ranking of claims
under s 11 of the Admiralty Jurisdiction Regulation Act. The question
was whether the claim of a creditor who had paid the person who had
rendered services to a ship at Istanbul more than a year before the
creditor instituted proceedings in Durban ranked ahead of the claim of a
Dutch mortgagee. The Supreme Court of Appeal held that on a proper
construction of the section the claim of the mortgagee enjoyed priority.
- ends -
|
1555
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case number: 580/07
In the matter between:
LETSENG DIAMONDS LIMITED
APPELLANT
and
JCI LIMITED
FIRST RESPONDENT
INVESTEC BANK LIMITED
SECOND RESPONDENT
JCI INVESTMENT FINANCE (PTY) LIMITED
THIRD RESPONDENT
Neutral citation:
Letseng Diamonds Ltd v J C I Limited (580/07) [2008] ZASCA
157 (27 November 2008).
CORAM:
FARLAM, MTHIYANE, JAFTA, MAYA et CACHALIA JJA
HEARD:
25 AUGUST 2008
DELIVERED:
27 NOVEMBER 2008
SUMMARY:
Companies – shareholders – accuracy in circular convening
meeting regarding validity of contract to which company is party – locus standi of
shareholder to obtain declarator as to accuracy of circular.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from:
Johannesburg High Court (Blieden J sitting as court of
first instance).
1.
The appeal succeeds with costs, including those occasioned by the
employment of two counsel.
2.
The order of the court below in so far as it relates to the appellant’s
application in that court is set aside and replaced by an order in the following
terms:
‘In the Letseng application:
1.
It is declared that the applicant does have locus standi to raise the issues referred to
in the Investec separation application dated 20 April 2007 (as quoted in paragraph 9 of the
judgment in this application).
2.
The main application is postponed sine die in order for the other issues stated
therein to be adjudicated.
3.
Investec is ordered to pay the applicant’s costs in regard to the separation
application, such costs are to include the costs of two counsel.’
______________________________________________________________
JUDGMENT
______________________________________________________________
FARLAM JA (Mthiyane, Maya et Cachalia JJA concurring)
[1] This is an appeal from a judgment of Blieden J, sitting in the
Johannesburg High Court, who held that the appellant, Letseng Diamonds
Ltd, did not have locus standi to raise certain issues which he had ordered, in
terms of Rule 33(4) of the Uniform Rules, should be separated from the other
issues in an application brought by the appellant against the three
respondents, JCI Ltd, Investec Bank Ltd and JCI Investment Finance (Pty)
Ltd.
[2] The relief originally sought by the appellant, which is a shareholder in
the first respondent, was for an order interdicting a general meeting of the first
respondent’s shareholders from considering two resolutions in which they
were asked to ratify certain agreements between the first and second
respondents and also interdicting the first respondent from paying what was
described as a ‘raising fee’ to the second respondent pursuant to the main
agreement between them. In what follows I shall call this agreement ‘the loan
agreement’.
[3] Subsequently the appellant amended its notice of motion, inter alia, to
claim a declaration that the loan agreement and seven other agreements
between the first and second respondents were void and of no effect. At the
hearing of the application the prayer for the declaration was amended by the
addition of the words ‘alternatively voidable’ after the word ‘void’.
[4] On the same day that the appellant amended its notice of motion to
introduce its prayer for the declaratory relief, three other shareholders in the
first respondent, Trinity Asset Management (Pty) Ltd, Trinity Endowment Fund
(Pty) Ltd and Eljay Investments Incorporated, brought an urgent application
against the respondents, seeking, inter alia, a declaration that the loan
agreement was void for vagueness and/or impossibility of performance,
alternatively that the suspensive conditions to which it was subject had not
been fulfilled. In what follows I shall call the application brought by these
shareholders ‘the Trinity application’.
[5] The applications brought by the appellant and by the other three
shareholders were heard together in the court a quo and in this court they
were argued on consecutive days.
[6] At the start of the hearing in the court a quo the learned judge heard an
application brought by the second respondent for an order separating the
question whether the appellant had locus standi to raise certain issues from
the other issues in the application. There were five issues in respect of which
the appellants’ locus standi was challenged. They all related to the validity of
the loan agreement and the other agreements linked thereto. One of them,
relating to the contention that the loan agreement had lapsed due to non-
fulfilment of suspensive agreements in it and another agreement linked to it,
also arose in the Trinity application.
[7] Blieden J granted the order for the separation of issues and after
hearing further argument he decided the issues in favour of the respondents.
As he considered the issue which arose in both the appellant’s application
and the Trinity application to be dispositive of the latter, he dismissed it with
costs. As far as concerned the appellant’s application he declared that the
appellant had no locus standi to raise the five issues set out in the order he
made in terms of Rule 33(4) and he postponed what he called the main
application sine die in order for the other issues to be adjudicated. He also
ordered the appellant to pay the first and second respondents’ costs in regard
to the separation applications, including the costs of two counsel. His
judgment has been reported: see Letseng Diamonds Ltd v JCI and Others;
Trinity Asset Management (Pty) Ltd and Others v Investec Bank Ltd and
Others 2007 (5) SA 564 (W).
[8] At 570C-E (para [7.14]) of his judgment Blieden J said:
‘In short, the present proceedings are concerned with the right of two shareholders of JCI,
being Letseng [the appellant in this case] and Trinity [for the purposes of his judgment he
referred collectively to the three applicants in the Trinity application as ‘Trinity’: there were
thus in reality four shareholders altogether, not two], to have a suite of agreements, including
the [loan agreement], to which neither of them is a party, declared invalid one and a half years
after their implementation, apart from the raising fee. The parties to the agreements, JCI and
Investec, have at all times regarded all the agreements to be binding on them.’
[9] In the judgment I have prepared in the Trinity matter, which is being
delivered at the same time as this judgment, I consider the question as to
whether the question arising for decision is quite as simple as that and uphold
the contention that the judge mischaracterised the question to be decided. I
proceed to give my reasons for being of the view that the Trinity applicants
had locus standi to raise the separated issue and that their application was
wrongly dismissed on the ground of their alleged lack of locus standi. For
those reasons, which apply with equal force in this appeal, I am satisfied that
this appeal must, like the appeal in the Trinity matter, succeed.
[10] The following order is made:
1.
The appeal succeeds with costs, including those occasioned by the
employment of two counsel.
2.
The order of the court below in so far as it relates to the appellant’s
application in that court is set aside and replaced by an order in the following
terms:
‘In the Letseng application:
1.
It is declared that the applicant does have locus standi to raise the issues referred to
in the Investec separation application dated 20 April 2007 (as quoted in paragraph 9 of the
judgment in this application).
2.
The main application is postponed sine die in order for the other issues stated
therein to be adjudicated.
3.
Investec is ordered to pay the applicant’s costs in regard to the separation
application, such costs are to include the costs of two counsel.’
………………
IG FARLAM
JUDGE OF APPEAL
JAFTA JA dissenting
[11] I have had the opportunity of reading the judgment of my colleague
Farlam JA. I am unable to agree with the conclusion that the appeal ought to
succeed and the reasons given therefor. In my view the appeal must be
dismissed on the basis that the appellant – as a shareholder – had no locus
standi to raise any of the issues relevant to the determination of the validity of
agreements between JCI Limited (JCI) and Investec Bank Limited (Investec).
[12] During the period between September 1997 and August 2005 JCI had
experienced financial difficulties. It was unable to pay its creditors. It was
facing litigation against a number of creditors and had been served with a writ
of execution for the payment of more than R60 million. As a result it was on
the verge of bankruptcy. Its directors had tried to raise loans from financial
institutions in this country and abroad, without success. Due to lack of
credibility in the market place and the negative reputation JCI had, none of the
financial institutions was willing to lend it money. Eventually Investec agreed
to lend it an amount in excess of R1.1 billion on condition that the loan would
be repaid with interest plus a ‘raising fee’ which exceeded R400 million.
[13] On 19 August 2005 the Johannesburg Stock Exchange (the JSE) on
which JCI was listed, suspended its listing for failure to produce audited
financial statements. The JSE’s Listing Requirements obliged listed
companies to obtain approval of their shareholders before implementing a
certain category of transactions. In terms of these requirements the
companies were required to include, as a condition for implementing such
transactions, prior approval of the shareholders.
[14] To regulate the loan between JCI and Investec, the parties signed a
suite of agreements. Some of those agreements fell within the category for
which approval of shareholders was needed in terms of the Listing
Requirements. As JCI urgently required cash to stave off liquidation, it
requested the JSE to exempt its transactions from shareholder approval. The
JSE permitted the parties to implement the agreements subject to ratification
by JCI’s shareholders. The appellant is one such shareholder.
[15] Investec advanced the money JCI required and the latter’s financial
fortunes improved to the extent that it was able to repay the entire loan with
interest. The raising fee had not become payable by September 2006 when
the appellant launched an urgent application to interdict a general meeting of
JCI’s shareholders. The meeting was called specifically to consider two
resolutions in terms of which shareholders were asked to ratify agreements
referred to above. The appellant also sought an order interdicting JCI from
paying the raising fee. When the matter came before the court a quo, the
interdict was granted by consent.
[16] Further papers were later filed and the appellant amended its relief and
asked that, in addition to the interdict, the relevant agreements be declared
invalid. Since the interdict had already been granted, the declaratory relief
was the only aspect of the appellant’s case which required consideration by
the court.1
[17] Meanwhile, Investec launched an interlocutory application in terms of
which it challenged the appellant’s locus standi to seek the declaratory relief.
It listed the issues in relation to which it claimed that the appellant had no
locus standi. Those issues are (para 9 of the court a quo’s judgment):
‘1.
That the question whether Letseng has locus standi to raise the following
issues be separated from and heard in advance of any other issue in the
Letseng application:
1.1
That the JCI directors at all relevant times constituted a “rogue board”
or a “supine board”, which, to the knowledge of Investec was not
capable of performing and did not perform its fiduciary duties, hence
the ILA [Investec Loan Agreement] and disposal agreement are void.
1.2
That the resolution of the JCI Board which was quorate on 23
August 2005 is invalid and in any event did not in its terms authorise
the signatories of the ILA and Disposal Agreement to sign such
agreements on behalf of JCI.
1.3
That the resolution of the JCI board which was quorate on
23 February 2006 is invalid.
1.4
That the ILA lapsed due to non-fulfilment of suspensive conditions in
the ILA and the disposal agreement.
1 Letseng Diamonds Ltd v JCI Ltd and Others; Trinity Asset Management (Pty) Ltd and Others v
Investec Bank Ltd 2007 (5) SA 564 (W) para 7 (at 569J-570A).
1.5
That the implementation of the ILA would breach the provisions of the
Competition Act, 1988.
2.
That the question whether Trinity has locus standi to raise the issue set out in
1.4 above be separated from and heard in advance of any other issue in the
Trinity application.’
[18] By agreement between the parties the court a quo was asked to
determine only the question of locus standi and to defer the other issues for
consideration at a later date. Having reviewed the relationship between the
company and its shareholders, in the context of contracts concluded by the
company with other parties, the court a quo held that, as a stranger to the
impugned agreements, the appellant did not have locus standi to seek the
declaratory relief. In this regard the court a quo said:
‘To put it another way: a third party cannot interfere in the terms and conditions
contained in an agreement between two other parties. It is between them and them
alone, and the terms of the agreement only operate between them and no one
else…. In the world of company law the above principle is sometimes described as
the rule in Foss v Harbottle (1843) 2 Hare 461 (67 ER 189) when referring to the
relationship between shareholders and a company. This rule preventing strangers
from interfering in contracts is fundamental to any rational system of jurisprudence.
From what has already been said, save for the specified and limited exceptions
mentioned above, a shareholder is a stranger to the company in its dealings with
third parties.
The consequence of the rule is that an individual shareholder cannot bring an action
to complain of an irregularity (as distinct from illegality) in the conduct of the
company’s internal affairs provided that the irregularity is one which can be cured by
a vote of the company in general meeting.’2
[19] The issue in this appeal is whether a shareholder, who has been
2 Above n 1 paras 19-21.
invited to a general meeting of a company for the purpose of ratifying an
agreement entered into by the company and another party, is entitled to seek
an order declaring the concerned agreement invalid. Being a stranger to the
agreement, as was observed by the court a quo, such shareholder cannot
base its right to seek a declarator on the agreement itself.
[20] Counsel for the appellant argued that a shareholder who has been
invited to ratify an agreement in a general meeting is entitled not only to full
disclosure of the relevant facts, but also to accurate information relating to the
agreement to be ratified. Invoking the JSE Listing Requirements, counsel
submitted that the duty to make full disclosure is buttressed by the Listing
Requirements which stipulate that a notice of a meeting must contain all
information necessary to allow the shareholders to make an informed
decision. The circular inviting JCI shareholders to a meeting, argued counsel,
omitted to mention facts relating to the rogue board; non-compliance with
suspensive conditions contained in the agreements in question; the inquoracy
of the board and its impact on the suite of agreements and the requirements
of the Competition Act. Therefore the appellant was, he concluded, entitled to
enforce compliance with the duty.
[21] On the assumption that the omitted facts were established, there can
be no doubt that the above submissions are sound. A shareholder whose right
or entitlement to full and accurate information is infringed, is entitled to
enforce compliance with the duty. But this argument cannot avail the appellant
in circumstances of the present case because the relief sought here is not
enforcement of compliance with the breached duty. Instead the issue here is
whether the appellant is entitled to seek an order declaring the impugned
agreements to be invalid, on the grounds mentioned in para [17] above. It
would be entitled to do so only if it had a direct and substantial interest in
those agreements. But since it was not a party thereto and the agreements
were not concluded for its benefit, it did not have such interest. As a stranger
to the agreements it could therefore not impugn them.3
3 Hillock and Another v Hilsage Investments (Pty) Ltd 1975 (1) SA 508 (A) and Absa Bank Bpk v
C L von Abo Farms BK 1999 (3) SA 262 (O).
[22] The fact that the appellant was invited to ratify the concerned
agreements does not change its status in relation thereto. When it came to
those agreements, the appellant was not a contracting party and
consequently it was a stranger, albeit with limited rights concerning full
disclosure. These rights could, however, entitle the appellant to an order
instructing JCI directors to comply with the requirement of full disclosure by
including the omitted information in the circular. The breach of the duty to
make full and accurate disclosure cannot found a claim for a declaration that
the agreements are invalid. We were not referred to any authority that says it
can nor could I find one.
[23] The general rule is that if two parties enter into an agreement and there
has been non-compliance with its terms, it is only the contracting parties who
can challenge the validity of the agreement. In Hillock4 this court rejected
argument by a third party to the effect that a particular agreement was invalid
because of non-compliance with a condition in another agreement to which it
was not a party. In that case Muller JA said:
‘In my judgment this argument has no merit. The object of clause 8 of the lease was
to render an assignment concluded by the lessee (Hirba) with a third party, without
the prior written consent of the lessor, not binding on the lessor. It is unnecessary to
decide whether, as was contended before us, the provisions of clause 8 were
inserted also for the benefit of the lessee. For present purposes I shall assume,
without deciding, that they were. What is clear, however, is that those provisions, and
indeed also provisions of clause 31, were intended to operate only as between the
parties to the agreement, namely, the lessor and lessee. A third party, such as
National Exposition in the present case, cannot seek to rely on the provisions in
question, unless it has become a party to the agreement, for example by
assignment.’5
4 Above n 3.
5 Hillock above n 3 at 515 A-E.
[24] Relying on Claude Neon Ltd v Germiston City Council6, counsel for the
appellant argued that courts in our law do permit litigants to challenge the
validity of contracts to which they were not parties. The reliance placed on
Claude Neon is clearly misplaced. That case dealt with a different situation:
the application of administrative law to contracts based on administrative
decisions such as an award of a tender. The primary focus of the challenge in
such cases is the validity of the tender award which constitutes administrative
decision. Such decision, in turn, is a precondition for the conclusion of
contracts between the state and other parties. Once the tender is set aside,
the foundation of the contract is removed and the court granting the order
setting aside the tender may, if it is just and equitable to do so, cancel the
agreement concluded in consequence of the tender concerned. In this
instance a challenge based on illegality or irregularity is directed solely at the
tender award and not the subsequent contract.
[25] In Claude Neon the court was asked to review and set aside a tender
and a contract concluded pursuant to the tender concerned. The applicant
challenged the validity of the tender on the ground that it was unfairly awarded
following the wrongful exclusion of its proposal on the basis that it was lodged
late. It contended that the city council had undertaken to inform it about the
tender and that it had a legitimate expectation to be advised of the closing
date for lodging tenders. The city council failed to advise it of the closing date
and as a result its tender proposal was submitted after the deadline. Relying
on s 24 of the interim Constitution, the applicant argued that its right to
procedurally fair administrative action, where its legitimate expectations were
affected, was infringed. Upholding this argument Zulman J said:
‘As a matter of law, the first respondent [the city council], having created a “legitimate
expectation” in favour of the applicant in accordance with s 24(b) of the Constitution
to have “procedurally fair administrative action”, the first respondent did not have the
power to ignore the right given to the applicant by the Constitution and then to award
the tender to the second respondent as it did. Put differently, I believe that the
6 1995 (3) 710 (W). See also Hencor SA Ltd v Transitional Council for Rustenburg and Environs 1998
(2) SA 1052 (T).
applicant is correct in its contention that, until such time as the applicant’s tender was
duly and properly considered by the first respondent, it had no right to enter into any
binding contractual arrangements pursuant to the award of the tender with the
second respondent. In considering the tender submitted to it by the second
respondent and in refusing to consider the tender of the applicant on its merits, the
first respondent exercised a “purely administrative function”. … The conduct of the
first respondent, which the applicant complains of in this regard, amounted to a
failure of “administrative justice” within the meaning of s 24 of the Constitution. Such
failure justifies this Court in setting aside the contract entered into between the first
and second respondents. This is so even although the second respondent may be an
innocent party in this regard’.7
[26] The dictum above makes it clear that Zulman J relied on the
infringement of the right to procedurally fair administrative action to set aside
the contract. Since the tender award which formed the foundation
underpinning the contract was set aside, the learned Judge held the view that
the contract itself ought to be set aside. This was done in order to enable the
city council to call for fresh tenders and to enter into a new contract with the
successful tenderer, without any uncertainty which could arise if the first
contract was left intact. This provides no authority for the proposition that a
stranger to a contract can seek a declaration for its invalidity. Nor does
Claude Neon and similar cases confer legal standing on such strangers to
challenge the validity of a contract. The applicant’s legal standing in Claude
Neon was based on its right to procedurally fair administrative action and not
on the contract concluded pursuant to the tender award. Without challenging
the tender award, the applicant was not entitled to the relief it sought.
[27] In a further attempt to find support for the proposition that a stranger
can impugn the validity of a contract, counsel for the appellant invoked cases
dealing with contracts of suretyship. He argued that a surety who is permitted
to raise defences available to the principal debtor is also allowed to impugn
the validity of the contract between the creditor and the principal debtor even
though the surety was not a party to such contract. There is no merit in this
7 Ibid at 720H-721B.
submission. Although the surety’s liability arises out of the suretyship
agreement and not the main agreement, to some extent the suretyship
agreement introduces the surety as a debtor in relation to the main debt. The
surety becomes a co-principal debtor jointly liable with the principal debtor for
the latter’s debt. The suretyship contract is accessory to the main agreement.8
[28] Counsel for the appellant further argued that a stranger is permitted to
seek an order invalidating an employment contract on the basis that it violates
a restraint of trade covenant. The reference to restraint of trade contracts is
not helpful. Ordinarily in cases involving the restraint of trade agreement, the
covenantee seeks to enforce the restraint against the covenantor. If enforced,
the restraint has the effect of nullifying the subsequent agreement entered into
by the covenantor and another party. The convenantee’s legal standing is not
based on the agreement between the covenantor and the other party, but on
the restraint of trade agreement to which he or she was a party.
[29] As regards the alleged impropriety by the directors of JCI pertaining to
the conclusion of the impugned agreements, the court below reasoned that
the company’s articles vested the management and control of the business of
the company in the directors and such control included the power to enter into
the impugned agreements. Accordingly, the court found, if the company’s
directors had conducted its business improperly by entering into the impugned
agreements, it was the company itself, and not the individual shareholders,
which was entitled to seek relief arising from the improper conduct of the
directors. If individual shareholders were allowed, concluded the court, to
interfere and impugn contracts concluded by a company with third parties,
there would be chaos.
[30] Counsel for the appellant criticised the above reasoning. He submitted
that a shareholder may institute a personal action to enforce its individual right
as a member of a company. I agree with this proposition. But counsel went
further to argue that the rule that says the company itself is the only person
8 See Kilroe Daley v Barclays National Bank Ltd 1984 (4) SA 609 (A) at 623 and the authorities there
cited.
who can sue does not apply to the present matter because the appellant was
suing as a shareholder to protect its personal rights. Relying on Petersen and
Another v Amalgamated Union of Building Trade Workers of SA9 counsel
submitted that where a shareholder is seeking to prevent an ultra vires
transaction or seeking to enforce its personal rights, the wrong committed is
against the shareholder itself and not the company. Consequently the rule in
Foss v Harbottle has no application in such a case.
[31] I accept that where a company enters into an agreement which is ultra
vires its articles of association, a shareholder has a right to institute
proceedings in its own name. The conclusion of such agreement violates the
contractual relationship between the company and the shareholder as
evidenced by the articles of association.10 I agree also that where an
individual right of a particular shareholder is breached by the company in
which it is a shareholder, such shareholder has a right to sue in its own name
to protect its right. This was the position in Petersen. In that case the
applicants, members of the respondent trade union, were expelled from the
union. They brought an application for their reinstatement and an interdict
against the union. Invoking the rule in Foss v Harbottle, the union argued that
the applicants could not seek the relief claimed. Kannemeyer J held that the
expulsion did not constitute a wrong committed against the union but was an
act which violated the applicants’ personal rights and as a result they were
entitled to sue in their own names to protect those rights.11
[32] In this case, however, it was common cause that in entering into the
impugned agreements, the directors of JCI acted intra vires. For the
declaratory relief, the appellant relied on the breach of the duty to make full
and accurate disclosure. I have already found that such breach cannot
constitute a basis for the declarator sought.
[33] Regarding the claim for a declaratory order, the court below held that
9 1973 (2) 140 (E).
10 See Gohlke & Schneider v Westies Minerale (Edms) Bpk and Another 1970 (2) SA 685 (A) at 692.
11 Petersen above n 4 at pp 144-5.
the requirements therefor were not established. It concluded correctly in my
view, that the appellant had no substantial and direct interest in the
agreements in question and that a declaratory order will not be binding in the
circumstances of this case. The court relied, among others, on decisions of
this court in Ex parte Nell12 and Cordiant Trading CC v Daimler Chrysler
Financial Services (Pty) Ltd.13 In Cordiant Trading this court said:
‘Although the existence of a dispute between the parties is not a prerequisite for the
exercise of the power conferred upon the High Court by the subsection, at least there
must be interested parties on whom the declaratory order would be binding.’
[34] For these reasons I would dismiss the appeal with costs, including
costs of two counsel.
________________
C N JAFTA
JUDGE OF APPEAL
12 1963 (1) SA 754 (A).
13 2005 (6) A 205 (SCA).
APPEARANCES:
FOR APPELLANT:
M D Kuper SC
A Cockrell
Instructed by
Tugendhaft,
Wapnick
Banchetti
&
Partners,
Johannesburg
Honey Attorneys, Bloemfontein
FOR FIRST AND THIRD
RESPONDENTS:
A L Williamson
Instructed by
Mervyn Tabacks Inc, Johannesburg
McIntyre & Van Der Post, Bloemfontein
FOR SECOND
RESPONDENT
S A Cilliers SC
A P Rubens SC
J Blou
A Rowan
Instructed by
Werksmans Inc, Johannesburg
Matsepe Inc, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM:
The Registrar, Supreme Court of Appeal
DATE:
28 November 2008
STATUS:
Immediate
Please note that the media summary is intended for the benefit of the
media and does not form part of the judgment of the Supreme Court of
Appeal.
Letseng Diamonds Ltd v JCI Limited & Others and Trinity Asset
Maganagement (Pty) Ltd & Others v Investec Bank Ltd & Others
The Supreme Court of Appeal yesterday granted appeals by shareholders in JCI
Limited against a judgment delivered in the Johannesburg High Court by Mr Justice
Blieden in which he held that they had no locus standi to ask for a declaratory order
as to whether an agreement concluded between JCI Ltd and Investec Bank Limited
was binding.
Under the agreement Investec Bank Ltd lend and advanced amounts totalling over R1
billion to JCI Ltd, which were repaid with interest. The agreement provided that in
addition to interest on the sums advanced JCI Ltd had to pay to Investec Bank Ltd
what was described as a 'raising fee', amounting to R50 million or 30 per cent of the
aggregate increase in the value of the assets which JCI Ltd furnished as security for its
indebtedness, whichever was the greater. At the time of the application before the
Johannesburg High Court the 'raising fee' amounted to a sum substantially in excess
of R400 million.
In two separate applications which were argued before Mr Justice Blieden
shareholders of JCI Ltd, Letseng Diamonds Ltd and Trinity Asset Management (Pty)
Ltd and two other associated companies sought among other things orders declaring
that the agreement between JCI Ltd and Investec Bank Ltd was not binding for
various reasons. A general meeting of JCI Ltd had been convened to consider a
proposal that the agreement be ratified.
The Supreme Court of Appeal in a majority decision delivered by Appeal Justice IG
Farlam, with whom Appeal Justices Mthiyane, Maya and Cachalia concurred, held
that the applicants did have locus standi to ask for the declaratory orders they sought
because they had the right as shareholders to have accurate information furnished to
them and their fellow shareholders and the right to an order stooping the meeting if
inaccurate information was granted in the circular convening the meeting. It was held
that the Johannesburg High Court had incorrectly held that they lacked locus standi to
seek the declaratory orders. This was because the applicants were entitled to attempt
to show that the circular was inaccurate. In his minority judgment Appeal Justice Jafta
held that the applicants' right to a full and accurate disclosure of information they
needed to exercise their vote either for or against ratification of the agreement did not
give them legal standing to challenge the validity of the agreements as only the
contracting parties could raise that challenge.
|
3909
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 1296/2021
In the matter between:
NYAMUKAMADI MUKUMELA DENGA (MABIRIMISA)
(born MUDAU)
FIRST APPELLANT
MATIDZA KUTAMA
SECOND APPELLANT
MABIRIMISA RUDZANI POLINAH
THIRD APPELLANT
MABIRIMISA NDITSHENI OZIOUS
FOURTH APPELLANT
MABIRIMISA MASINDI CONSTANCE
FIFTH APPELLANT
MABIRIMISA MAWIHANGWISI ELSINA
SIXTH APPELLANT
MABIRIMISA MUVHULAWA
SEVENTH APPELLANT
and
MABIRIMISA TSHILILO ANORLD N N O
FIRST RESPONDENT
ESTATE OF THE LATE DENGA (MABIRIMISA)
MUDZIELWANA JOSIA
SECOND RESPONDENT
MABIRIMISA BUS SERVICES (Pty) Ltd
THIRD RESPONDENT
MABIRIMISA NDIVHUDZANNYI SILAS
FOURTH RESPONDENT
DENGA DENGA
FIFTH RESPONDENT
MATSHEKETSHEKE MUNYADZIWA GLORIA
SIXTH RESPONDENT
RAPHALALANI TSHILILO SALPHINA
SEVENTH RESPONDENT
RAMUSWANA ANNA
EIGHTH RESPONDENT
MABIRIMISA FRANS
NINTH RESPONDENT
ESTATE OFFICER, DZANANI MAGISTRATE’S
COURT
TENTH RESPONDENT
MAGISTRATE DZANANI
ELEVENTH RESPONDENT
MINISTER OF JUSTICE & CONSTITUTIONAL
DEVELOPMENT N O
TWELFTH RESPONDENT
MASTER OF THE HIGH COURT OF SOUTH
AFRICA, LIMPOPO DIVISION,
THOHOYANDOU N O
THIRTEENTH RESPONDENT
REGISTRAR OF COMPANIES
FOURTEENTH RESPONDENT
Neutral Citation:
Nyamukamadi Mukumela Denga (Mabirimisa) & Others v
Mabirimisa Tshililo Arnold N N O & Others (1296/2021) [2022]
ZASCA 148 (31 October 2022)
Coram:
VAN DER MERWE; MOLEMELA, HUGHES JJA and DAFFUE
and CHETTY AJJA
Heard:
15 August 2022
Delivered:
31 October 2022
Summary: Deceased estate – whether the administration of deceased had been
finalised – administration of the estate finalised in terms of the Black Administration
Act 38 of 1927 read with regulations framed in terms of s 23(10) – appeal dismissed.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: The Limpopo Division of the High Court, Thohoyandou (Makgoba
JP sitting as court of first instance):
The appeal is dismissed and there is no order as to costs.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Molemela JA (Van der Merwe and Hughes JJA and Daffue and Chetty AJJA
concurring):
[1] This appeal arises from proceedings instituted by the appellants in the Limpopo
Division of the High Court, Thohoyandou (the high court) in October 2019, seeking an
order declaring that the estate of the late Mudzielwana Josiah Denga Mabirimisa (the
deceased) be administered in terms of the Administration of Estates Act 66 of 1965
(the Administration of Estates Act), and that the appellants be declared the heirs in the
deceased estate.1 The basis of the opposition of the application was that the relief
sought was impermissible as the estate of the deceased had already been
1 The order sought, in relevant parts, was couched as follows:
‘4.1. That it be and is hereby declared that the 1st, 2nd, 3rd 4th, 5th, 6th, and 7th Applicants are the heirs in
the deceased estate of the late, Denga (Mabirimisa) Mudzielwana Josiah, registered at Dzanani
Magistrate under estate file no.44/98, forthwith;
4.2. That it be and is hereby declared that the estate of the late, Denga (Mabirimisa) Mudzielwana
Josiah, registered at Dzanani Magistrate under estate file no.44/98 was not administered and wound-
up under Black Administration Act, forthwith;
4.3. That it be and is hereby declared that the estate of the late, Denga (Mabirimisa) Mudzielwane
Josiah, registered at Dzanani Magistrate under estate file no.44/98 falls to be wound-up and
administered by the Master(13th Respondent) under the provisions of the Administration of Estates Act,
forthwith;
4.4. An order directing the Master (13th Respondent) to summon and conduct an enquiry with the
beneficiaries (family) of the late, Denga (Mabirimisa) Mudzielwane Josiah for the purpose of appointing
an executor for the administration and finalization of the deceased estate, forthwith;
4.5. An order directing the 1st Respondent to handover/deliver all the deceased estate properties,
including the shares in Mabirimisa Bus Services (Pty) Ltd to the executor to be appointed in the estate
late, Denga (Mabirimisa) Mudzielwane Josiah, for the purpose of administering and winding-up the
deceased estate.’
administered and finalised in terms of the Black Administration Act 38 of 1927 (the
Black Administration Act). The application was heard on 30 March 2021. In a judgment
delivered on 12 May 2021, the high court held that it was impermissible to grant the
relief sought as the administration of the estate in question had already been finalised
in terms of the provisions of the Black Administration Act, which had since been
repealed.2 This appeal is with the leave of the high court.
[2] It is common cause that the deceased died intestate on 19 April 1998. The
deceased had, during his lifetime, concluded three customary marriages, thus
constituting three houses, in terms of custom. The deceased first wife was Denga
Denga (the fifth respondent). Two children were born from that marriage, namely the
first and sixth respondents, respectively. The first appellant was the deceased second
wife. Seven children were born out of the second marriage. They were cited as the
second to the seventh appellant, as well as the fourth respondent. Three children were
born from the deceased third marriage, and they were cited as the seventh, eighth and
ninth respondents, respectively. The third wife, Alilali Denga predeceased the
deceased. The deceased was a businessman and owned a 50 per cent shareholding
in Mabirimisa Bus Service (Pty) Ltd (the bus company), which was operated in the
Vhembe District of Limpopo Province. The bus company was cited as the third
respondent in this matter.
[3] On 29 April 1998, a firm of attorneys acting on behalf of the first respondent
reported the estate to the estates department at the Magistrate’s Court of Dzanani
(Magistrate). The estate was registered under estate number 44/98 (the deceased
estate). The estate officer was cited as the tenth respondent, while the Magistrate was
cited as the eleventh respondent. On 30 April 1998, the Magistrate appointed the first
respondent as the representative of the deceased estate in terms of s 23(10) of the
Black Administration Act. The first respondent was the first-born son of the deceased.
His appointment as the representative of the estate appears to have been based on
the application of the principle of male primogeniture.3
2 The Black Administration Act 38 of 1927 was repealed on 30 September 2007.
3 The general rule of primogeniture provided that only a male who was related to the deceased qualified
as an intestate heir. In terms of that rule, women did not participate in the intestate succession of
[4] Following his appointment as the representative of the estate, the first
respondent compiled an inventory of the estate and submitted it to the Magistrate. The
items listed in the inventory were as follows:
‘5.6.1. Cattle (5) valued at R5 000-00
5.6.2. Goats (10), valued at R3 000-00
5.6.3. Orchard, valued at R20 000-00
5.6.4. 1983 model, Mercedes Bens Motor Car, valued at R10 000-00
5.6.5. 1982 model, Massy Ferguson tractor, valued at R5 000-00
5.6.6. 2 x Transport Certificates, valued at R10 000-00
5.6.7. Household furniture, valued at R3 000-00
5.6.8 Standard Bank Current Account with R9 000-00
5.6.9. 50% share interest in Mabirimisa Bus Service (Pty) Ltd, valued at R10-00.’
[5] The first appellant averred that she did not benefit anything from the estate and
was struggling financially, as she was a pensioner. She contended that instead of
finalising the administration of the estate, the first respondent collected all the assets
of the estate for the benefit of himself and members of the first house, with no regard
for the appellants as the members of the second house. She alleged that up to the day
on which she deposed to the founding affidavit; she did not know what had become of
the deceased estate.
[6] Although the state respondents (ie the tenth to the thirteenth respondents) and
the first, third, fifth and sixth respondents were represented by different legal
representatives, the defence raised by all the respondents was basically the same. It
amounted to this: that the relief sought by the appellants was impermissible in law in
the light of the fact that the administration of the deceased estate had been finalised
in terms of section 23 of the now repealed Black Administration Act; that the finalisation
of the estate was in terms of a settlement agreement which was made an order of
deceased estates. In a monogamous family, the eldest son of the family head was his heir. In the event
that the deceased was not survived by any male descendants, his father would succeed him. In the
event that the deceased father did not survive him, an heir was sought among the father’s male
descendants related to him through the male line. See Bhe and Others v Khayelitsha Magistrate and
Others 2005 (1) SA 580 (CC); 2005 (1) BCLR 1 (CC) para 77.
court made by the Magistrate on or about 7 March 2006; and that the order granted
by the Magistrate on 7 March 2006 was never challenged by the appellants and
remains valid and effective until set aside or rescinded. The high court essentially
found for the respondents on this basis.
[7] The appellants contended on appeal that the deceased estate had not been
finalised under the Black Administration Act. They also asserted that given the fact
that the Black Administration Act had been repealed in 2007, the estate ought to be
placed under the control of the Master of the High Court, so that it could be wound up
in terms of the provisions of the Administration of Estates Act. The crisp issue for
determination is whether the estate of the deceased, reported at the Magistrate Court
under file number 44/98 was finalised. Should the answer be in the affirmative, then
cadit quaestio. However, should the answer be in the negative, the ancillary question
is whether the estate should be administered by the Master (the thirteenth respondent)
in terms of the Administration of Estates Act or be finalised by the Magistrate.
[8] This matter turns on the facts. It is self-evident from the correspondence
emanating from the office of the Magistrate that the process of administering the
deceased estate started soon after the first respondent’s appointment as the
representative of the deceased estate. A letter authored by the Magistrate dated 30
April 1998 and addressed to First National Bank, notified the bank that the first
respondent had been appointed as the representative of the estate and directed the
bank to allow the first respondent to sign cheques on behalf of the bus company (third
respondent). It is undisputed that following the deceased passing, the bus company
was de facto in the first respondent’s control.
[9] In her founding affidavit, the first appellant inter alia asserted as follows:
‘I am a pensioner and I am depending on pension for survival . . . I submit that I have not
received any maintenance from the 1st Respondent or from the estate. . . What I heard was
that the widows were to receive maintenance monthly, but that never happened.’
[10] The first respondent put up a comprehensive version in response thereto. He
said that the Magistrate had authorised the transfer of the Mercedes Benz motor
vehicle to him on 24 August 1999. This took place in terms of reg 3(1) of the regulations
that had been promulgated under the Black Administration Act. This regulation
provided that the estate shall be administered under the supervision of the relevant
magistrate, who was empowered to give directions as seen fit. The first respondent
explained that the orchard had by mutual agreement been divided into three equal
portions of 1,6 hectares and that each house was placed in possession of a portion.
[11] In respect of the remainder of the estate assets, particularly the shares in the
bus company, the first respondent said the following. At the time of the death of the
deceased, the business of the bus company was virtually worthless. He invited
members of the second and third houses to become involved in the business, but they
declined. As a result of his own efforts, the first respondent turned the business
around, so that it flourished. During 2006, however, a settlement agreement was
entered into between the first respondent and the appellants. The fourth respondent,
who had appointed attorney SO Ravele, represented the appellants. In terms of the
settlement agreement the total amount of R1,4 million was paid to the Madzielwana
Trust created by the appellants or a bank account in that name operated by them. It
was a necessary implication of the first respondent’s evidence that the settlement
agreement was in full and final settlement of all remaining issues in respect of the
deceased estate. The Magistrate had made the settlement agreement an order of
court at the instance of SO Ravele acting for the appellants.
[12] This evidence was not only corroborated by the affidavits of the State
respondents but supported by contemporaneous documents. The court order was
produced. It read as follows:
‘Having heard legal representative on behalf of the Applicant, submission by the Respondent
representative and having read the papers the following order is made:-
1. That the respondent to pay an amount of R1.4 million to the applicant [deceased first and
second house] as follows:
1.1. Deposit of R 50 000-00 payable on or before the 7th March 2006;
1.2. Thereafter; monthly instalment of R15 000-00 payable to the applicant attorneys of record
until the applicant furnish the respondent with written confirmation of their account.
2. That the respondent to pay applicant representative cost on attorneys own client scale as
from 21st November 2005 to date of judgment including cost of drafting this Court Order.
3. Parties agree that the aforesaid amount will be interest free unless the defendant breached
the agreement, wherein the applicant may approach court to enforce their claim for amount
due.’
[13] That the Magistrate may in the absence of a lis not have had the power to make
the settlement agreement an order of court is, in my view, of no moment; its mere
existence is strongly supportive of the first respondent’s version.
As I have said,
the first respondent averred that he had fully complied with his obligations under the
settlement agreement. Proof of cheque payments was attached to the answering
affidavit. Also attached was the following letter authored by the Magistrate:
‘RE: ESTATE LATE MUDZIELWANA JOSIA DENGA (ID NO ………
OUR CLIENT MR S MABIRIMISA
1. Your letter dated 1/6/18 has reference.
2. After having drawn the record I concluded that the estate has been finalized due to the fact
that a settlement agreement by the parties was made a Court order in terms of which Mr S
Mabirimisa and those who sided with him were to receive R 1.4 Million payable in instalments.
The first instalment being R 50 000 on monthly basis.
3. The record does not have a final liquidation and distribution account and there is no proof
of payment to all the beneficiaries.
4. If your client is not satisfied with the manner in which the estate was dealt with I will suggest
that you cause the decision of the magistrate who dealt with the matter to be reviewed by the
Master of the High Court.
5. Hoping that you will find this to be in order.’
[14] In her replying affidavit, the first appellant for the first time acknowledged that a
Trust was formed on the appellants’ behalf. She stated that an amount of R15 000
was to be paid monthly from 7 March 2006. She however denied that the appellants
were parties to the Deed of Settlement. Curiously, she went on to mention that the rest
of the averments were ‘neither admitted nor denied’ and put the respondent to the
proof thereof. Having done so, she proceeded to explain that the amount of R15 000
represented maintenance ‘pending the administration and finalisation of the estate’.
She further mentioned that ‘[t]he aforesaid contribution was only made sixteen (16)
times and since then, nothing was ever received from the 1st Respondent, let alone
the administration of the estate which the [appellants] maintain that it was not
maintained and finalised’. The appellants averred that the cheque counterfoils showed
that only an amount of R240 000 was paid and not R1.4 million. They challenged the
first respondent to prove that the amount of R1.4 million had been paid.
[15] It is evident that there is a dispute of fact pertaining to the issue of finalisation
of the winding up of the deceased estate. The appellants contend that the deceased
estate was merely reported to the Magistrate but was never administered by the first
respondent, as the representative of the deceased estate. Had the estate been wound
up, documents like the liquidation and distribution account, all vouchers of payments
made, proof of claims lodged, and proof of estate account opened would have been
furnished, so it was argued. On the other hand, the respondents contended that the
estate had been finalised in terms of a settlement agreement, which was made an
order of court. The estate was therefore wound up in accordance with the provisions
of the Black Administration Act, which did not require the drawing of a liquidation and
distribution account in the estate.
[16] The approach to the resolution of a dispute of facts on the papers was laid down
in the well-known judgment of Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty)
Ltd.4 That approach (the so-called Plascon-Evans principle) was aptly summarised by
this Court as follows in Wightman t/a JW Construction v Headfour & Another:5
‘. . . [T]he courts have said that an applicant who seeks final relief on motion must in the event
of conflict, accept the version set up by his opponent unless the latter’s allegations are, in the
opinion of the court, not such as to raise a real, genuine or bona fide dispute of fact or are so
far-fetched or clearly untenable that the court is justified in rejecting them merely on the
papers . . ..’
[17] The respondents’ version was canvassed earlier in the judgment. In my view,
the respondents’ detailed version cannot be described as far-fetched or untenable. It
was a detailed version supported by correspondence issued by the Magistrate.
4 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] 2 All SA 366 (A); 1984 (3) SA 623
(A) at 634E-635C.
5 Wightman t/a JW Construction v Headfour (Pty) Ltd & Another [2008] ZASCA 6; 2008 (3) SA 371
(SCA); [2008] 2 All SA 512 (SCA) para 12.
Moreover, it was supported by a court order which reflected the settlement agreement.
There was also a letter sent to Le Roux Attorneys, attaching the last cheque payment.
This letter’s reference number is the same as that of the deceased estate.
[18] The appellants laid much emphasis on the fact that on 15 October 2004, the
Black Administration Act was declared unconstitutional in the seminal judgment of Bhe
and Others v Khayelitsha Magistrate and Others (Bhe).6 Section 23 of the Black
Administration Act was declared to be inconsistent with the Constitution and invalid,
and the Regulations for the Administration and Distribution of the Estates of Deceased
Blacks (R200), published in Government Gazette No. 10601 dated 6 February 1987,
as amended, were declared to be invalid. Furthermore, the principle of male
primogeniture, which was central to the customary law of succession, was declared
inconsistent with the Constitution and invalid to the extent that it excluded or hindered
women and extra-marital children from inheriting property. It must be borne in mind
that the orders granted did not summarily halt the administration of deceased estates
which had not yet been finalised on the date of the granting of the orders. The following
passage of that judgment is apposite:
‘It will be necessary, however, that estates that are currently being wound up under section
23 of the Act and its regulations, continue to be so administered to avoid dislocation. The order
will accordingly provide that the provisions of the Act and its regulations shall continue to be
applied to those estates in the process of being wound up. All estates that fall to be wound up
after the date of this judgment shall be dealt with in terms of the provisions of the
Administration of Estates Act.’7
It is clear from this passage that nothing precluded the finalisation of this matter in
terms of the Black Administration Act, as it was reported and registered in the
Magistrate’s Court in 1998.
[19] Importantly, in Bhe, the Constitutional Court said the following regarding the
conclusion of settlement agreements in relation to deceased estates:
‘The order made in this case must not be understood to mean that the relevant provisions of
the Intestate Succession Act are fixed rules that must be applied regardless of any agreement
6 Bhe and Others v Khayelitsha Magistrate and Others 2005 (1) SA 580 (CC); 2005 (1) BCLR 1 (CC).
7 Ibid para 133.
by all interested parties that the estate should devolve in a different way. The spontaneous
development of customary law could continue to be hampered if this were to happen. The
Intestate Succession Act does not preclude an estate devolving in accordance with an
agreement reached among all interested parties but in a way that is consistent with its
provisions. There is, for example, nothing to prevent an agreement being concluded between
both surviving wives to the effect that one of them would inherit all the deceased immovable
property, provided that the children’s interests are not affected by the agreement. Having
regard to the vulnerable position in which some of the surviving family members may find
themselves, care must be taken that such agreements are genuine and not the result of the
exploitation of the weaker members of the family by the strong. In this regard, a special duty
rests on the Master of the High Court, the magistrates and other officials responsible for the
administration of estates to ensure that no one is prejudiced in the discussions leading to the
purported agreements.’8
It suffices to say that on the first respondent’s version, which, as I have said, must be
accepted for the purpose of the determination of the appeal, an agreement as
envisaged in this passage had been entered into.
[20] I agree with the respondents’ submission that, the estate in question was
administered and wound up under the Black Administration Act in 1998 and cannot be
administered anew in terms of the Administration of Estates Act. To the extent that the
appellants hold the view that the first respondent breached his fiduciary duties while
administering the estate, it is open to them to institute the relevant action against the
first respondent, should they be so advised.
[21] For all the reasons mentioned above, I find that the high court’s judgment is
unassailable. It follows that the appeal falls to be dismissed. The high court ordered
that there should be no order of costs. The general rule is that costs must follow the
result. Having considered all the circumstances of this case, I am of the view that it
would not be in the interests of justice to make an adverse order of costs in this appeal.
[22] In the result, the following order is made:
The appeal is dismissed and there is no order as to costs.
8 Ibid para 130.
__________________________
M B MOLEMELA
JUDGE OF APPEAL
Appearances
Counsel for appellants:
M. Coetsee (with him S. Neuland)
Instructed by:
Mulovhedzi
&
Nelamvi
Attorneys
Inc,
Thohoyandou
EG Cooper Majiedt Inc, Bloemfontein
Counsel for first, third,
fifth and sixth respondents:
AM Mahafha (with him B Matlhape)
Instructed by:
T N Ramashia Attorneys, Thohoyandou
Molefi Thoabala Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
31 OCTOBER 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Nyamukamadi Mukumela Denga (Mabirimisa) & Others v Mabirimisa Tshililo Arnold N N O &
Others (1296/2021) [2022] ZASCA 148 (31 October 2022)
Today the Supreme Court of Appeal (SCA) handed down judgment dismissing an appeal against a
decision of the Limpopo Division of the High Court, Thohoyandou (the high court).
The issue before the SCA was whether the estate of the deceased, reported at the Magistrate Court
under file number 44/98 was finalised.
This appeal arises from proceedings instituted by the appellants in the high court, seeking an order
declaring that the estate of the late Mudzielwana Josiah Denga Mabirimisa (the deceased) be
administered in terms of the Administration of Estates Act 66 of 1965 (the Administration of Estates
Act), and that the appellants be declared the heirs in the deceased estate.
The deceased died intestate on 19 April 1998. The deceased had, during his lifetime, concluded three
customary marriages, thus constituting three houses, in terms of custom. The deceased’s first wife was
Denga Denga (the fifth respondent). The first appellant was the deceased’s second wife. The third wife,
Alilali Denga predeceased the deceased. The deceased was a businessman and owned a 50 per cent
shareholding in Mabirimisa Bus Service (Pty) Ltd (the bus company), which was operated in the
Vhembe District of Limpopo Province.
On 29 April 1998, a firm of attorneys acting on behalf of the first respondent, reported the estate to the
estates department at the Magistrate’s Court of Dzanani (the magistrate). The estate was registered
under estate number 44/98 (the deceased estate). On 30 April 1998, the magistrate appointed the first
respondent as the representative of the deceased estate in terms of s 23(10) of the Black Administration
Act. The first respondent was the first-born son of the deceased. His appointment as the representative
of the estate appeared to have been based on the application of the principle of male primogeniture.
The first appellant averred that she did not benefit anything from the estate and was struggling
financially, as she was a pensioner. She contended that instead of finalising the administration of the
estate, the first respondent collected all the assets of the estate for the benefit of himself and members
of the first house, with no regard for the appellants as the members of the second house. The
respondents submitted that the relief sought by the appellants was impermissible in law in the light of
the fact that the administration of the deceased estate had already been finalised in terms of section 23
of the now repealed Black Administration Act 38 of 1927 (the Black Administration Act); that the
finalisation of the estate was in terms of a settlement agreement which was made an order of court
made by the Magistrate on or about 7 March 2006; and that the order granted by the Magistrate on 7
March 2006 was never challenged by the appellants and remains valid and effective until set aside or
rescinded.
The SCA found that the respondents’ detailed version could not be described as far-fetched or
untenable. It was a detailed version supported by correspondence issued by the magistrate. Moreover,
it was supported by a court order which reflected the settlement agreement. Applying the principles
enunciated in Bhe and Others v Khayelitsha Magistrate and Others, the SCA held that nothing
precluded the finalisation of this matter in terms of the Black Administration Act, as it was reported and
registered in the Magistrate’s Court in 1998, before that Act was repealed. It therefore found that estate
was administered and wound up under the Black Administration Act in 1998 and could not be
administered anew in terms of the Administration of Estates Act.
~~~~ends~~~~
|
4019
|
non-electoral
|
2023
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 1136/2021
1137/2021
1138/2021
1139/2021
1140/2021
In the matters of:
THE ROAD ACCIDENT FUND
Appellant in SCA Case No. 1139/2021
MARILYN DORIS TAYLOR
First Appellant in SCA Case No. 1140/2021
HLENGANI VICTOR MATHONSI Second Appellant in SCA Case No. 1140/2021
DE BROGLIO ATTORNEYS INC. First Appellant in SCA Case No. 1136/2021
ZANDELEE DE SWARDT
Second Appellant in SCA Case No. 1136/2021
IVAN BARRY KRAMER
Appellant in SCA Case No. 1138/2021
MICHAEL VAN DEN BARSELAAR Appellant in SCA Case No. 1137/2021
In re GJ Case No. 37986/2018:
MARILYN DORIS TAYLOR
Plaintiff in the Court a quo
and
THE ROAD ACCIDENT FUND
Defendant
And in re GJ Case No. 13753/2019:
HLENGANI VICTOR MATHONSI
Plaintiff in the Court a quo
and
THE ROAD ACCIDENT FUND
Defendant
Neutral citation:
The Road Accident Fund v Taylor and other matters (1136-
1140/2021) [2023] ZASCA 64 (8 May 2023)
Coram:
SALDULKER, VAN DER MERWE and MEYER JJA and KATHREE-
SETILOANE and OLSEN AJJA
Heard:
20 February 2023
Delivered:
8 May 2023
Summary:
Practice and procedure – final settlement of claim against Road Accident
Fund – compromise – extinguishes disputed rights and obligations and puts end to
litigation – has effect of res iudicata – court has no jurisdiction to enquire into whether
compromise justified on merits or validly concluded – power of court to make
compromise order of court on request.
ORDER
On appeal from: Gauteng Division of the High Court, Johannesburg (Fisher J, sitting
as court of first instance): Judgment reported sub nom Taylor v Road Accident Fund
2021 (2) SA 618 (GJ)
The appeals are upheld.
Paragraphs 1a to 1c and 1e of the order of the court a quo are set aside and
replaced with the following:
‘By agreement the matter is removed from the roll’.
Paragraphs 2a to 2c and 2e of the order of the court a quo are set aside and
replaced with the following:
‘By agreement the draft order presented to the court is made an order of court’.
JUDGMENT
Van der Merwe JA (Saldulker and Meyer JJA and Kathree-Setiloane and Olsen
AJJA concurring):
[1] This judgment deals with a number of extraordinary appeals. The appeals are
against the order of the Gauteng Division of the High Court, Johannesburg (Fisher J)
in respect of two actions against the Road Accident Fund (the RAF), after each of the
actions had been settled without proceeding to trial. Aspects of the order are appealed
by all the parties concerned, as well as by other persons affected by the order. The
appeals raise mainly two legal issues. The principal issue concerns the consequences
of the settlement of disputed issues in litigation and the powers of a court in relation
thereto. A subsidiary issue relates to the rights of a person who is not a party to legal
proceedings, but whose conduct is referred to the statutory body or institution
responsible for oversight over the members of the profession that the person belongs
to. The appeals came to this court in the manner set out below.
The RAF
[2] The RAF is a juristic person established under s 2 of the Road Accident Fund
Act 56 of 1996 (the RAF Act). In terms of s 3 of the RAF Act, the object of the RAF is
the payment of compensation for loss or damage wrongfully caused by the driving of
motor vehicles. The RAF is publicly funded in accordance with ss 5 and 6 of the RAF
Act. Section 10 of the RAF Act provides for a board of the RAF. Its powers and
functions, in terms of s 11, are to exercise overall authority and control over the
financial position, operation and management of the RAF, subject to the powers of the
Minister of Transport. The board is also empowered to appoint a chief executive
officer, to whom it may delegate any of its powers or duties.
[3] Section 4(1) of the RAF Act provides:
‘The powers and functions of the Fund shall include-
(a)
. . .
(b)
the investigation and settling, subject to this Act, of claims arising from loss or damage
caused by the driving of a motor vehicle whether or not the identity of the owner or the driver
thereof, or the identity of both the owner and the driver thereof, has been established;
(c)
the management and utilisation of the money of the Fund for purposes connected with
or resulting from the exercise of its powers or the performance of its duties; and
(d)
. . .’
In terms of s 15(1)(a) the RAF may institute and defend legal proceedings. Section
15(1)(b) provides that the RAF may ‘commence, conduct, defend or abandon legal
proceedings in connection with claims investigated and settled by it’.
The Taylor matter
[4] During September 2018, Ms Marilyn Doris Taylor, represented by De Broglio
Attorneys Incorporated (De Broglio Inc), instituted an action against the RAF. She
alleged that she had sustained injuries in a motor vehicle accident, which entitled her
to compensation under the RAF Act in respect of, inter alia, future loss of earnings,
pain and suffering, disfigurement, inconvenience and loss of amenities of life (general
damages). The RAF entered an appearance to defend the action. In due course, De
Broglio Inc therefore delivered various expert reports. These included reports
assessing the seriousness of Ms Taylor’s injuries prepared by a general practitioner
(Dr Kevin Scheepers), as well as the medico-legal reports of an orthopaedic surgeon,
occupational therapist and industrial psychologist. It also delivered the report of an
actuary, Mr Ivan Kramer. This report typically reflected actuarial calculations of future
loss of earnings based on information that had been provided to the actuary.
[5] The matter was enrolled for trial for 12 October 2020. By then negotiations for
a settlement had commenced. De Broglio Inc assigned a candidate attorney in its
employ, Ms Zandelee de Swardt, to deal with the matter and briefed counsel, Mr
Michael van den Barselaar, to represent Ms Taylor at the trial. On 13 October 2020,
the matter was allocated to Fisher J. Subsequently, however, Ms Taylor accepted an
offer by the RAF in full and final settlement of her claims. The settlement inter alia
provided that the RAF would pay compensation to Ms Taylor in the amount of R1.3
million.
[6] In the light hereof, the parties approached Fisher J on 14 October 2020, for an
order removing the matter from the roll. At the insistence of Fisher J, the senior claims
manager of the RAF, who had approved the settlement, attended the hearing. In
answer to questions by Fisher J, he told the court that he was an admitted attorney
with 19 years’ experience in the field and explained how the settlement came about.
Despite a valiant effort by Mr Van den Barselaar to obtain the order that both parties
sought, the court was unmoved. It appeared that this stance was motivated by
concerns about the propriety of the settlement amount of R1.3 million.
[7] Ultimately Fisher J postponed the matter to 3 November 2020 and directed
that argument be presented on that day on four questions, formulated as follows:
‘(a)
Is there a settlement in this case of the claim on behalf of the Plaintiff?
(b)
Is the RAF entitled to settle a matter with a plaintiff without judicial approval of a
settlement?
(c)
If the answer to (b) is yes then are there any limitations or requirements in relation to
such settlement?
(d)
Is the fact that the matter is on the roll before a judge an indicator that the Court may
exercise judicial oversight to determine if a settlement is proper?’
The Mathonsi matter
[8] Mr Hlengani Victor Mathonsi also sustained injuries caused by the driving of a
motor vehicle. He accordingly issued summons against the RAF for payment of
compensation in respect of, inter alia, future loss of earnings and general damages.
Mr Mathonsi was also represented by De Broglio Inc. The RAF defended the action.
De Broglio Inc proceeded to deliver serious injury assessment reports prepared by Dr
Scheepers, as well as the medico-legal reports of an orthopaedic surgeon,
occupational therapist and industrial psychologist. It also delivered an actuarial report
prepared by Mr Kramer, similar to the one in the Taylor matter.
[9] The matter was set down for trial on 14 October 2020. On 15 October 2020, it
was also allocated to Fisher J. By that time, however, the matter had become settled.
The parties prepared a draft order that reflected the settlement of the action. It, inter
alia, provided for payment of compensation in the amount of R1 775 360.35 to Mr
Mathonsi. The parties agreed that the court be requested to make the draft order an
order of court. When the matter was called before Fisher J on 15 October 2020,
counsel for Mr Mathonsi (Mr Motala) asked for such an order.
[10] The court did not, however, address the request of the parties. Instead, it raised
certain procedural issues. These were: why the discovery affidavit had not been
‘commissioned’; whether the particulars of claim had been properly amended; and why
the affidavit of a general practitioner had been signed but not ‘commissioned’. Fisher
J postponed this matter to 3 November 2020 as well, for argument on these procedural
issues.
Hearing and judgment
[11] At the hearing of the Taylor matter on 3 November 2020, senior counsel for Ms
Taylor and the RAF respectively, were in agreement on all four of the questions that
had been referred for argument. They agreed that:
(a)
There had been a settlement of the Taylor matter and there was no longer a lis
between the parties;
(b)
The RAF was entitled to settle with a plaintiff without judicial approval of such
settlement;
(c)
There were no statutory limitations or requirements in relation to the settlement
of a claim by the RAF; and
(d)
It was irrelevant whether a matter had been on the roll before a particular judge
when it became settled.
In the result, both parties asked for an order removing the matter from the roll.
However, Fisher J had ‘secured the appointment of an amicus curiae’ (Ms Hassim
SC), who put forward opposing contentions.
[12] After the hearing of the Taylor matter on 3 November 2020, the court reserved
judgment and the Mathonsi matter was called. Only Mr Matolo appeared in the
Mathonsi matter. He addressed the aforesaid procedural issues and moved for the
draft order to be made an order of court. He was not called upon to address any other
issue. The court reserved judgment in this matter as well.
[13] On 16 November 2020, Fisher J handed down a single judgment dealing with
both the Taylor and Mathonsi matters. The wide-ranging judgment paid scant attention
to the questions that had been referred to argument in the Taylor matter and did not
mention those in the Mathonsi matter. Instead, it addressed two broad themes.
[14] The first concerned the viability of the RAF as such. The court held that: the
RAF was unable to pay its debts when they fell due and was thus bankrupt; the present
system was ‘unworkable, unsustainable and corrupt’; and a viable alternative had to
be found if the RAF was to perform its statutory function. This led Fisher J to offer the
following advice:
‘In my view, the fund should be liquidated and/or placed under administration as a matter of
urgency. This is the only way that this haemorrhage of billions of rands in public funds can be
stemmed and proper and valid settlement of the plaintiff’s claims be undertaken in the public
interest. I have asked that this judgment be brought to the attention to the Minister of Transport,
the Acting Chief Executive Officer of the Road Accident Fund, and the National Director of
Public Prosecutions.’
[15] The second, more pertinent, theme was that the Taylor and Mathonsi matters
were but instances of widespread exploitation of the RAF. In this regard the court
concluded:
‘From these two cases, and others which I have heard, a modus operandi emerges as follows:
A relatively modest claim is brought and the Case Management Court process is
undertaken on these pleadings.
In the actuarial calculation, the income of the plaintiff pre-accident is inflated and/or the
aspirations of the plaintiff are exaggerated or even fabricated in order to suggest a
career progression when there is none.
These fallacious assumptions are used by the actuary to calculate a loss of earning
capacity which yield significantly inflated figures because of the exponential nature of
the calculation.
This actuarial report is then used as a basis for an amendment of the claim without any
oversight.
The RAF is not represented and is overwhelmed by the sheer volume of cases and/or
the officials are pliable. They thus place undue reliance on the representations of the
plaintiff’s attorney as to the loss.
As to general damages, under-qualified and sometimes pliable doctors are used to
suggest the injuries are more serious than they, in fact, are.’
[16] Part of this general modus operandi, so the court said, was to avoid judicial
scrutiny of the settlement agreements. It stated:
‘What is of most concern, is that these two cases are not isolated instances, but are examples
of a general approach which most courts are met with daily in their attempts at fostering and
maintaining judicial oversight in the RAF environment. These cases expose defiant attempts
by legal representatives to avoid judicial scrutiny of settlements entered into with the RAF
under circumstances which are strongly suggestive of dishonesty and/or gross incompetence
on the part of those involved.’
[17] The court said that De Broglio Inc did not stand alone in its approach consisting
of ‘tactics’ that had to be contrasted with behaving ‘in a manner which embraces
openness and honesty’. It also said:
‘Whilst De Broglio might believe that it has served the interests of its clients and itself in
achieving a settlement agreement for a grossly inflated amount in circumstances where it has
avoided this Court’s jurisdiction, in fact it has placed them in jeopardy.’
In relation to the Mathonsi matter, the court said that the reports of Dr Scheepers and
Mr Kramer had been ‘employed to dubious end’ and that its general sense was that
the matter had been dealt with in a ‘dishonest and cavalier manner’. In their context
these remarks could only relate to De Broglio Inc.
[18] With regard to the conduct of the legal representatives of Ms Taylor, the court
stated that the proposal that had been made to the RAF, ‘constituted, on the face of it,
a deliberate misrepresentation of the claim and the evidence available to prove it’. It
held:
‘There can, in my view, be no doubt that Mr van den Barselaar and Ms de Swardt were both
well aware of the force of the contents of the Proposal in the context of the settlement
engagement and the representations made therein.’
It proceeded to say:
‘To my mind the approach adopted by the plaintiff’s legal representatives is nothing more than
sleight of hand. There is no evidence that Ms Taylor lost her job as a result of the accident;
the use of Mr Kramer’s actuarial calculation as a basis of the amended claim bears no scrutiny;
and Ms Taylor does not qualify for general damages on her own case. And yet, through the
machinations of Ms de Swardt of De Broglio and Mr van den Barselaar an offer of R1 300 000
was extracted from the RAF.’
[19] Fisher J thus held that De Broglio Inc, Ms De Swardt and Mr Van den Barselaar
had: dishonestly misrepresented the facts of the Taylor matter to the RAF; thus
extracted a grossly inflated settlement offer from the RAF; and sought to avoid judicial
scrutiny of the consequent settlement agreement.
[20] Even the actuary, Mr Kramer, was not spared. Fisher J said that Mr Kramer’s
calculations in the Taylor matter had been made on the basis of a ‘patently false’
assumption as to Ms Taylor’s income. The implication of the judgment was that this
was deliberate. This is evidenced by the court’s reference to ‘Mr Kramer’s contrived
report’.
[21] Under the heading ‘The effect of the purported settlements’, the court said:
‘The commencement, defence and conduct of litigation by organs of state constitutes the
exercise of public power. It must be done in a constitutionally compliant manner upholding
legality and the rule of law. The RAF has chosen to ignore this Court’s pointed concerns and
instead of insisting on an order of Court as a precondition to its settlement, which would be
the rational approach it has chosen to acquiesce in the tactic adopted by De Broglio on behalf
of the plaintiff. That the RAF is conducting its business in this reckless manner under insolvent
circumstances is of great concern to this Court.
What is clear in relation to these two cases is that the RAF officials did not act lawfully to
conclude the settlements and for this reason they are void ab initio. Thus on this issue, I agree
with Ms Hassim that there is no settlement.’
[22] The judgment nevertheless concluded as follows:
‘To the extent that the settlements are unconstitutional they are unenforceable. And if payment
is made pursuant thereto this would constitute irregular expenditure by the RAF and potentially
make those approving such payments vulnerable to personal scrutiny by the Courts. The RAF
is a public entity, as contemplated in Part A of Schedule 3 of the Public Finance Management
(PFMA) and is therefore subject to the onerous prescripts relating to public expenditure set
out in the PFMA. Thus, without further collusion by the RAF in relation to payment, the
settlements are, in effect, worthless.’
[23] The following order was issued:
‘1.
In case 37986/2018 Taylor v RAF the following order is made:
a. The matter is postponed sine die.
b. This judgment is to be brought to the attention of any court called upon to enforce the
purported settlement agreement.
c. The conduct of De Broglio Inc, Ms de Swardt, and Mr van den Barselaar is referred to
the Legal Practice Counsel.
d. The conduct of Dr Kevin Scheepers in this matter is referred to the Health Professions
Council of South Africa (HPCSA).
e. The conduct of Mr Ivan Kramer is referred to the Actuarial Society of South Africa.
2.
In case 13753/2019 Mathonsi v RAF the following order is made:
a. The matter is postponed sine die.
b. This judgment is to be brought to the attention of any court called upon to enforce the
purported settlement agreement.
c. The conduct of De Broglio Inc is referred to the Legal Practice Counsel.
d. The conduct of Dr Kevin Scheepers in this matter is referred to the HPCSA.
e. The conduct of Mr Ivan Kramer is referred to the Actuarial Society of South Africa.
3.
A copy of this judgment is to be delivered to:
a. the Minister of Transport;
b. the Acting Chief Executive Officer of the Road Accident Fund; and
c. the National Director of Public Prosecutions.
4. Each party shall pay their own costs.’
Appealability
[24] Ms Taylor applied for leave to appeal against paras 1a and 1b of the order. Mr
Mathonsi applied for leave to appeal against paras 2a and 2b of the order. The RAF
applied for leave to appeal against all of these paras of the order (collectively the
postponements). De Broglio Inc, Ms De Swardt, Mr Van den Barselaar and Mr Kramer
(the affected persons) separately applied for leave to intervene and for leave to appeal
against the respective paragraphs of the order that affected them (collectively the
referrals). (Dr Scheepers did not challenge the orders that affected him).
[25] The court dismissed the applications for leave to appeal of Ms Taylor, Mr
Mathonsi and the RAF, on the ground that it had made no appealable order in respect
of these parties. The court also dismissed the applications for intervention. On this
basis, the applications of the affected persons for leave to appeal, fell away. It is not
easy to fathom the reasons for refusing leave to intervene. It would appear, however,
that the court reasoned that the affected persons purported to attack findings and not
orders and that the referrals were not final orders. Subsequently, however, this court
granted each of the parties and affected persons the leave to appeal to this court that
they had sought.
[26] That leave to appeal was granted, is only one of the two requirements for this
court to have jurisdiction to entertain an appeal. The other requirement is that the order
sought to be appealed against is a ‘decision’ within the meaning of s 16(1)(a) of the
Superior Courts Act 10 of 2013. Not only traditional final judgments are such decisions.
It has become settled law that an order could qualify as an appealable decision if it
has a final and definitive effect on the proceedings or if the interests of justice require
it to be regarded as an appealable decision. What the interests of justice require is not
determined by a closed list of considerations, but depends on the facts and
circumstances of each case. However, whether an appeal would lead to a just and
expeditious determination of the essence of the matter, is an important consideration
in deciding whether an order should be regarded as an appealable decision. See
DRDGOLD Limited and Another v Nkala and Others [2023] ZASCA 9 paras 17-27.
[27] For the reasons that follow, I have no doubt that the postponements are
appealable decisions. First, one must have regard to three factors:
(a)
The finding that the settlement agreements are void ab initio;
(b)
The finding that, ‘without further collusion by the RAF in relation to payment,
the settlements are, in effect, worthless’; and
(c)
The terms of the postponements, namely that each matter is postponed sine
die with the directive that the judgment of the court a quo is to be brought to the
attention of any court called upon to enforce ‘the purported settlement agreement’.
[28] The combined effect of these factors is that the parties are unable to execute
the settlement agreements that they firmly regard as binding on them. They cannot
move forward or backward in this regard and are stuck in no-man’s land, as it were. In
substance, the postponements therefore have a final and definitive effect on the
respective proceedings. Secondly, successful appeals would bring these matters to
finality. Thus it is in any event in the interests of justice to entertain these appeals.
[29] As to the appealability of the referrals, it suffices to say that the facts and
circumstances that I shall allude to shortly, indicate that the interests of justice require
that they be corrected forthwith and that the affected persons should not be required
to await the outcome of the proceedings before the respective professional bodies.
See Beinash v Wixley 1997 (3) SA 721 SCA at 729H-730E.
Analysis
[30] Before I turn to the legal issues that I have identified at the outset, I am
constrained to say the following. Whilst Fisher J’s industry cannot be faulted, it
regrettably has to be said that not a single finding that she made had been open for
her to make. Moreover, these findings were made without any admissible evidence.
The findings in respect of the viability of the RAF, were mainly based on an affidavit of
the acting chief executive officer of the RAF in another matter and the 2019 annual
report of the RAF. The findings in respect of the settlement agreements and the
conduct of the affected persons, were based on the unspecified knowledge of the
judge of the facts and circumstances of other matters and the pleadings and expert
reports in the court files. It is trite that none of this constituted evidence before the
court. Therefore it is unnecessary to consider whether the judgment in any event
disclosed tenable reasoning in respect of any of these findings. Thus, the judge
decided non-issues without evidence, to the detriment of all concerned. This
injudicious overreach has to be strongly deprecated.
[31] Where the misappropriation of public funds is properly raised before a court, it
must, of course, deal with it decisively and without fear, favour or prejudice. But a court
has no general duty or power to exercise oversight over the expenditure of public
funds. This is so for three main reasons. The first is the constitutional principle of
separation of powers. The second is that the exercise of such a duty or power would
infringe the constitutional rights of ordinary citizens to equality and to a fair public
hearing. The third is the principle that the law constrains a court to decide only the
issues that the parties have raised for decision. See Magistrates Commission and
Others v Lawrence [2021] ZASCA 165; 2022 (4) SA 107 SCA para 78-79. A perception
that a system of state administration is broken, is not a licence to disregard
fundamental principles of procedural or substantive law.
The referrals
[32] It is convenient to commence with a consideration of the appeals against the
referrals. They were based on the findings of dishonesty and impropriety on the part
of the affected persons that I have referred to. The referrals are inextricably linked to
these findings. The judgment of the court a quo was forthwith made available
electronically and subsequently published in the law reports. In the nature of things, it
would have spread like wildfire in the relevant communities. There can be no doubt
that the referrals had and continue to have grave reputational and practical
consequences for the affected persons.
[33] In the circumstances, the age-old principle of audi alteram partem required that
the affected persons be afforded reasonable prior notice and opportunity to state their
cases. In De Beer NO v North-Central Local Council and South-Central Local Council
and Others (Umhlatuzana Civic Association intervening) 2002 (1) SA 429 (CC) para
11, the following was said with particular reference to s 34 of the Constitution:
‘This s 34 fair hearing right affirms the rule of law which is a founding value of our Constitution.
The right to a fair hearing before a court lies at the heart of the rule of law. A fair hearing before
a court as a prerequisite to an order being made against anyone is fundamental to a just and
credible legal order. Courts in our country are obliged to ensure that the proceedings before
them are always fair. Since procedures that would render the hearing unfair are inconsistent
with the Constitution courts must interpret legislation and rules of court, where it is reasonably
possible to do so, in a way that would render the proceedings fair. It is a crucial aspect of the
rule of law that court orders should not be made without affording the other side a reasonable
opportunity to state their case. . .’
[34] The affected persons were not afforded any such notice or opportunity. It
follows that the findings and referrals were made in complete disregard of the rights of
the affected persons. The referrals are manifestly unjust, cannot stand and must be
set aside at this stage.
The postponements
[35] The settlement agreements in the Taylor and Mathonsi matters are final and
unconditional compromises. There is no indication that a contingency fee agreement
was involved in these matters. Thus, the general principles relating to a compromise
are applicable to them.
[36] The essence of a compromise (transactio) is the final settlement of disputed or
uncertain rights or obligations by agreement. Save to the extent that the compromise
provides otherwise, it extinguishes the disputed rights or obligations. The purpose of
a compromise is to prevent or put an end to litigation. Our courts have for more than
a century held that, irrespective of whether it is made an order of court, a compromise
has the effect of res iudicata (a compromise is not itself res iudicata (literally ‘a matter
judged’) but has that effect).
[37] Because, as I shall show, the majority in Maswanganyi v Road Accident Fund
[2019] ZASCA 97; 2019 (5) SA 407 SCA (Maswanganyi), did not follow these
principles, it is necessary to make rather extensive reference to the judgments which
have enunciated these principles. A convenient starting point is Cachalia v Harberer
& Co 1905 TS 457 (Innes CJ and Solomon and Mason JJ). There a settlement of an
action in the magistrate’s court was not entered upon the record. The plaintiff’s
subsequent claim against the defendant on the original contract, was met by the
defence that it was precluded by the settlement agreement. The court upheld the
defence in these terms:
‘Now does it make any difference that no judgment was entered at the time, and that this
settlement was merely a settlement between the parties which was not entered in the records
of the court? The authorities seem to me clear that this does not make any difference, that a
transactio may be either a judicial one, which is entered in the records of the court, or may be
extra-judicial, but that the effect is the same. A compromise whether embodied in a judgment
of the court or extra-judicial has the effect of res judicata, and is an absolute defence to an
action on the original contract.’
[38] In Western Assurance Co v Caldwell’s Trustee 1918 AD 262 at 270, Innes CJ
referred to the common law and proceeded to say:
‘According to that law a transactio, if established and valid, is an absolute defence to the action
compromised. It has the effect of res judicata.’
The next important case is Estate Erasmus v Church 1927 TPD 1. The full bench (at
25-26) extensively referred to common law authorities, had regard to Cachalia v
Harberer and Western Assurance and concluded:
‘The object therefore of a compromise is to end, or to destroy, or to prevent a legal dispute.
The effect of a compromise is res judicata; and, according to Domat, the effect is even stronger
than that of a judgment inasmuch as, unlike in the case of judgments, the parties have
consented to the terms on which they intend to compromise.’
[39] These dicta have repeatedly been approved by this court. See Van Zyl v
Niemann 1964 (4) SA 661 AD at 669H and, in particular, Gollach & Gomperts (1967)
(Pty) Ltd v Universal Mills & Produce Co (Pty) Ltd and Others 1978 (1) SA 915 AD at
921A-D and 922C. See also Moraitis Investments (Pty) Ltd and Others v Montic Dairy
(Pty) Ltd and Others [2017] ZASCA 54; 2017 (5) SA 508 SCA para 14 and Watson
NO v Ngonyama and Another [2021] ZASCA 74; 2021 (5) SA 559 (SCA) para 60. In
Hlobo v Multilateral Motor Vehicle Accidents Fund 2001 (2) SA 59 (SCA) para 10, it
was stated that our courts encourage parties to deal with their disputes by way of
compromise. This court proceeded to say, with reference to Estate Erasmus v Church,
that when concluded, such a compromise disposes of the proceedings. The
culmination of all of this, for purposes of this judgment, as stated in Legal-Aid South
Africa v Magidiwana and Others [2014] ZASCA 141; 2015 (2) SA 568 SCA para 22, is
that once ‘the parties have disposed of all disputed issues by agreement inter se, it
must logically follow that nothing remains for a court to adjudicate upon or determine’.
[40] When requested to do so, a court has the power to make a compromise, or
part thereof, an order of court. This power must, of course, be exercised judicially, that
is, in terms of a fair procedure and with regard to relevant considerations. The
considerations for the determination of whether it would be competent and proper to
make a compromise an order of court, are threefold. They are set out in Eke v Parsons
[2015] ZACC 30; 2016 (3) SA 37 (CC) paras 25-26 (Eke v Parsons).
[41] The first consideration is whether the compromise relates directly or indirectly
to the settled litigation. An agreement that is unrelated to litigation, should not be made
an order of court. The second is whether the terms of the compromise are legally
objectionable, that is, whether its terms are illegal or contrary to public policy or
inconsistent with the Constitution. Such an agreement should obviously not be made
an order of court. The third consideration is whether it would hold some practical or
legitimate advantage to give the compromise the status of an order of court. If not, it
would make no sense to do so.
[42] The relevant issue in Eke v Parsons was whether a settlement agreement that
had been made an order of court, was final in its terms and whether the other party
was entitled to approach a court for the enforcement of the order in accordance with
the procedure set out therein. The Constitutional Court therefore did not consider the
nature and effect of a compromise and did not bring about any change to the law in
that regard. Importantly, however, the judgment makes clear (paras 8, 19-24 and 27-
28) that the power to make a compromise an order of court, is derived from a long-
standing practice aimed at assisting the parties to give effect to their compromise. The
clear import of Eke v Parsons therefore is that this power is not derived from the
jurisdiction of the court over the issues that had been raised before it, but were
subsequently settled. In making a compromise an order of court, the court plainly does
not determine the issues that the compromise settled. Unless a compromise is
conditional upon it being made an order of court, the fact that a court declines to do
so, in itself, has no effect on the enforceability of the compromise inter partes.
[43] This brings me back to Maswanganyi. In that matter, the appellant sued the
RAF on behalf of her minor child for loss of support. She alleged that the death of the
child’s father had been caused by the negligence of the driver of a vehicle that collided
with the vehicle driven by the deceased. The RAF defended the action and the matter
was set down for trial. Prior to the commencement of the trial, the parties settled the
action. They accordingly requested the judge to whom the trial had been allocated, to
make their settlement agreement an order of court.
[44] The judge refused to do so, on the basis that the pleadings and certain witness
statements (which must have been in the court file), did not indicate any negligence
on the part of the other driver. The judge required witnesses to testify and a witness
commenced his testimony before the trial was postponed. Prior to the date on which
the trial was to resume, the appellant launched an application for, essentially, a
declarator that the lis between the parties had been fully and finally settled and for an
order making the settlement agreement an order of court. The court refused the
application. The appellant unsuccessfully appealed to the full court. Her further appeal
came to this court with its special leave.
[45] On appeal the minority (Zondi JA, Mocumie JA concurring) would have upheld
the appeal and would have granted the relief that the appellant had sought. On the
issue that is relevant to this judgment, the minority held that the views of the trial judge
as to the merits of the action, were irrelevant and that, on an application of the
guidelines in Eke v Parsons, the settlement agreement should have been made an
order of court.
[46] The majority differed. It stated that there were two issues for decision in the
appeal. The first was whether it was procedurally permissible to challenge the court’s
decision (to refuse to make the settlement agreement an order of court and to direct
that the trial proceed) in the aforesaid manner. The second issue, concerning the
permissibility of the approach of the trial court to the settlement agreement, so the
majority said, would only be reached should the first issue be decided in favour of the
appellant. Although it proceeded to decide the first issue against the appellant, it found
it necessary to make ‘some remarks’ about the second issue. The majority expressly
recognised, however, that these remarks (paras 25-37) were obiter. I therefore need
not say anything about them.
[47] Nevertheless, the rationes decidendi of the majority in respect of the first issue,
included the following dicta (paras 15-16):
‘When the parties arrive at a settlement, but wish that settlement to receive the imprimatur of
the court in the form of a consent order, they do not withdraw the case from the judge, but ask
that it be resolved in a particular way. The grant of the consent order will resolve the pleaded
issues and possibly issues related “directly or indirectly to an issue or lis between the parties”.
. . . the jurisdiction of the court to resolve the pleaded issues does not terminate when the
parties arrive at a settlement of those issues. If it did, the court would have no power to grant
an order in terms of the settlement agreement.
The correct position is that the grant of an order making a settlement agreement an order of
court necessarily involves an exercise of the court’s jurisdiction to adjudicate upon the issues
in the litigation. Its primary purpose is to make a final judicial determination of the issues
litigated between the parties.’
[48] It is apparent that this passage contradicts:
(a)
The common law principles that a compromise extinguishes disputed issues
and puts an end to litigation;
(b)
The decisions of this court that a compromise has the effect of res iudicata; and
(c)
The import of Eke v Parsons, namely that the power to make a compromise an
order of court arises from a long-standing practice and not ‘from the jurisdiction of the
court to resolve the pleaded issues’ or ‘the court’s jurisdiction to adjudicate upon the
issues in the litigation’.
[49] The majority had no regard to these common law principles. In the absence of
development of the common law, the court was bound to apply them. Unless it
determined that they were clearly wrong, the court was bound by the decisions of this
court that I have referred to. See Steve Tshwete Local Municipality v Fedbond
Participation Mortgage Bond Managers (Pty) Ltd and Another [2013] ZASCA 15; 2013
(3) SA 611 SCA para 14. The majority also did not consider any of these decisions.
Although it referred to Eke v Parsons, it failed to have regard to its impact on the issues
under consideration. On these issues, I regret to say, the judgment of the majority in
Maswanganyi is clearly wrong and should not be followed.
[50] The court a quo referred to a practice directive that had been issued on 2
October 2019, which appears to run contrary to this judgment, in that it provides for a
judge to ‘interrogate’ the circumstances under which a settlement agreement was
entered into. The meaning of the portion of the practice directive, as quoted in the
judgment of the court a quo, is quite unclear. As we have insufficient evidence in
respect of its status, scope of application and context, I am loath to express a firm view
on this practice directive. It suffices to say that to the extent that this (or any other)
practice directive is in conflict with this judgment, it is invalid. See Mhlongo and Others
v Mokoena NO and Others [2022] ZASCA 78; 2022 (6) SA 129 (SCA) para 14.
[51] To sum up, when the parties to litigation confirm that they have reached a
compromise, a court has no power or jurisdiction to embark upon an enquiry as to
whether the compromise was justified on the merits of the matter or was validly
concluded. When a court is asked to make a settlement agreement an order of court,
it has the power to do so. The exercise of this power essentially requires a
determination of whether it would be appropriate to incorporate the terms of the
compromise into an order of court.
[52] It follows that the court a quo should have removed the Taylor matter from the
roll. There was no legitimate reason for refusing to make the draft order in the Mathonsi
matter an order of court. The appeals of the RAF, Ms Taylor and Mr Mathonsi must
therefore also succeed.
[53] In the result the following order is issued:
The appeals are upheld.
Paragraphs 1a to 1c and 1e of the order of the court a quo are set aside and
replaced with the following:
‘By agreement the matter is removed from the roll’.
Paragraphs 2a to 2c and 2e of the order of the court a quo are set aside and
replaced with the following:
‘By agreement the draft order presented to the court is made an order of court’.
________________________
C H G VAN DER MERWE
JUDGE OF APPEAL
Appearances
For the RAF:
M Antonie SC with M V J Chauke
Instructed by:
Mpoyana Ledwaba Inc Attorneys,
Pretoria
Modisenyane
Attorneys
Inc,
Bloemfontein
For Ms Taylor & Mr Mathonsi:
A P Joubert SC with J M Killian
Instructed by:
De
Broglio
Attorneys
Inc,
Johannesburg
Matsepes Inc, Bloemfontein
For De Broglio Inc & Ms de Swardt:
J G Wasserman SC with E F
Serfontein
Instructed by:
De
Broglio
Attorneys
Inc,
Johannesburg
Matsepes Inc, Bloemfontein
For Mr Kramer:
A P Joubert SC with N J Horn
Instructed by:
Bove Attorneys Inc, Johannesburg
Lovius Block, Bloemfontein
For Mr Van den Barselaar:
P Stais SC
Instructed by:
RFI Attorneys, Johannesburg
Honey Attorneys Inc, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
8 May 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgments of the Supreme Court of Appeal
The Road Accident Fund v Taylor and other matters (1136-1140/2021) [2023] ZASCA 64 (8 May
2023)
Today the Supreme Court of Appeal (SCA) upheld appeals against a decision of the Gauteng Division
of the High Court of South Africa, Johannesburg (the high court).
The SCA judgment dealt with a number of extraordinary appeals. The appeals were against the order
of the high court in respect of two actions against the Road Accident Fund (the RAF) namely Taylor v
RAF (the Taylor matter) and Mathonsi v RAF (the Mathonsi matter), after each of the actions had been
settled without proceeding to trial. Aspects of the order were appealed by all the parties concerned, as
well as by other persons affected by the order. The appeals raised mainly two legal issues. The principal
issue concerned the consequences of the settlement of disputed issues in litigation and the powers of
a court in relation thereto. A subsidiary issue related to the rights of a person who was not a party to
legal proceedings, but whose conduct was referred to the statutory body or institution responsible for
oversight over the members of the profession that the person belonged to.
In both matters, the parties were represented by De Broglio Attorneys Incorporated (De Broglio Inc) and
in support of their claims against RAF they delivered various expert reports. These included reports
assessing the seriousness of Ms Taylor’s and Mr Mathonsi’s injuries prepared by a general practitioner,
as well as the medico-legal reports of orthopaedic surgeons, occupational therapists and industrial
psychologists. They also delivered the reports of an actuary, Mr Ivan Kramer. These reports typically
reflected actuarial calculations of future loss of earnings based on information that had been provided
to the actuary. The Taylor matter was enrolled for trial for 12 October 2020 and the Mathonsi matter
was enrolled for trial on 14 October 2020, however in both matters settlement agreements were
concluded. During the hearing of the Taylor matter, counsel for both parties were in agreement that a
compromise had been reached, that as a result there was no longer a dispute necessitating trial and
requested the court to remove the matter from the roll. In the Mathonsi matter counsel by agreement
asked the court to make the settlement agreement an order of court.
The high court in both matters, refused to accede to the requests of the parties and instead reserved
judgment. Then on 16 November 2020, the high court handed down a single judgment dealing with
both the Taylor and Mathonsi matters. The wide-ranging judgment paid scant attention to questions that
had been referred to argument in the Taylor matter and did not mention those in the Mathonsi matter.
The court instead ordered that: (a) the matters be postponed sine die; (b) that its judgment be brought
to the attention of any court called upon to enforce the purported settlement agreements; (c) that the
conduct of De Broglio Inc and the legal practitioners of Ms Taylor be referred to the Legal Practice
Council; (d) that the conduct of the general practitioner be referred to the Health Professions Council of
South Africa (HPCSA); (e) that the conduct of Mr Ivan Kramer be referred to the Actuarial Society of
South Africa and (f) that a copy of the judgment was to be delivered to the Minister of Transport; the
Acting Chief Executive Officer of the Road Accident Fund; and the National Director of Public
Prosecutions.
As a result of the high court order, leave to appeal was sought by the RAF, Ms Taylor and Mr Mathonsi,
as well as the affected persons. However, the high court dismissed these applications. Subsequently,
however, the SCA granted each of the parties and affected persons the leave to appeal that they had
sought. On appeal, the SCA firstly held that the referrals of the conduct of the affected persons were
made in complete disregard of their rights to be heard and were manifestly unjust.
The SCA proceeded to hold that a compromise puts an end to litigation, has the effect of res iudicata
and that a court has no power or jurisdiction to embark upon an enquiry as to whether a compromise
was justified on the merits of the matter or was validly concluded. It further held that a court asked to
make a settlement agreement an order of court, has the power to do so. The exercise of that power
essentially required a determination of whether it would be appropriate to incorporate the terms of the
compromise into an order of court. It followed that the high court should have removed the Taylor matter
from the roll. There was no legitimate reason for refusing to make the draft order in the Mathonsi matter
an order of court. The appeals must therefore succeed.
~~~~ends~~~~
|
2553
|
non-electoral
|
2014
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case No: 482/13
In the matter between
GERHARDUS ADRIAAN ODENDAL & ANOTHER
APPELLANT
and
STRUCTURED MEZZANINE
INVESTMENTS (PTY) LTD
RESPONDENT
Neutral citation: G A Odendal v Structured Mezzanine Investments (482/13)
[2014] ZASCA 89 (30 May 2014)
Coram:
Ponnan, Maya, Leach, Saldulker and Swain JJA
Heard:
13 May 2014
Delivered:
30 May 2014
Summary:
General Law Amendment Act 50 of 1956 - s 6 – deed of
suretyship - validity of.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: Western Cape High Court (Gamble J sitting as court of first
instance)
The appeal is dismissed with costs.
______________________________________________________________
JUDGMENT
______________________________________________________________
PONNAN et SALDULKER JJA (MAYA, LEACH and SWAIN JJA
concurring):
[1] This appeal, with the leave of the court below, concerns the validity of a
suretyship. Judgment was granted by the Western Cape High Court (Gamble
J) in the sum of R16 631 071,41, together with interest and costs, in favour
of the respondent, Structured Mezzanine Investments Limited (SMI), against
the first appellant, Gerhardus Adriaan Odendal (Odendal) and the second
appellant, Gabriel Joshua Jordaan (Jordaan) in terms of that deed of
suretyship (the suretyship) which had been signed by the appellants and
Francois Basson (Basson), who were the trustees of FXT Property Trust (the
Trust), as security for a loan to the Trust.
[2] On 18 February 2008, SMI, a bridging financier, approved an
application by the Trust for a loan facility in the amount of R10 million to partly
fund a sectional title development by the Trust in Hermanus. In its letter of
approval, SMI recorded, inter alia, that as security for the loan a second
mortgage bond would have to be registered over erf 10965 Hermanus (the
property), the trustees would have to bind themselves as sureties for all of the
Trust‟s obligations, and an irrevocable guarantee would have to be furnished
on behalf of the Trust to SMI. The terms and conditions recorded in the facility
letter were accepted by Basson on behalf of the Trust by appending his
signature thereto on 7 March 2008. On 16 April 2008 Basson, duly authorised
by the Trustees, signed a power of attorney authorising the registration of a
mortgage bond over the property in favour of SMI as security for the loan. On
the same day Basson signed the suretyship, as a surety and co-principal
debtor in respect „of any sum of money‟ which the Trust may „now owe or in
the future owe‟ to SMI arising from the loan agreement concluded between
SMI and the Trust in April 2008.
[3] On 24 April 2008 the trustees adopted a resolution authorising the
Trust to borrow R10 million from SMI. Basson was authorised in his capacity
as trustee of the Trust to settle the terms and conditions applicable to the loan
and sign all documentation relating thereto. On the same day the appellants
signed the suretyship, which provided in clause 1:
„The payment on demand of any sum of money together with all costs and charges
including legal costs as between attorney and own client which the Debtor may now
or in the future owe to SMI arising from the Loan agreement concluded between SMI
and the Debtor on or about April 2008 (a true copy which (sic) is annexed hereto).‟
A further material term of the suretyship was, inter alia:
„4. This suretyship shall remain in force and effect as a continuing covering
suretyship for the present and future indebtedness and obligations of the debtor to
SMI, notwithstanding any interim fluctuation in the extinction (for any period) or of
indebtedness and subsequent incurring of any new indebtedness or obligation by the
Debtor to SMI and nothwithstanding the death or other legal disability of any of us
until terminated in accordance with the terms hereof.‟
[4] On 25 April 2008 Basson, on behalf of the Trust signed a
Memorandum of Agreement (the loan agreement), which recorded the
undertaking by SMI to lend and advance R10 million to the Trust. The further
material terms of the loan agreement were, inter alia:
„3.1.1 the registration of a First or Second Covering Mortgage Bond by the Borrower
in favour of SMI over the property to the value of R10 000 000.00 (ten Million Rand)
. . .
3.1.2 A Deed of Suretyship signed by Francois, Gabri and Gerhard in terms whereof
they shall jointly and severally have guaranteed the obligations of the Borrower under
this agreement in such form and subject to such terms and conditions as SMI may
reasonably require; which shall continue to constitute security for all the Borrower‟s
obligations to SMI from time to time including its obligations arising out of this Loan
Agreement.
. . .
4.2 Receipt and approval of a Special Power of Attorney signed by Francois
authorizing the registration of a First or Second Covering Mortgage Bond in favour of
SMI by the Borrower ranking as second charge over the property to the value as set
out in clause 3.1.1 above, upon terms and conditions as registered by the attorneys;
4.3 Receipt and approval of resolution by the Borrower [the Trust] authorizing the
entering into of this agreement and authorizing Francois to sign all documentation
relating hereto on its behalf;
4.4 Receipt of an irrevocable undertaking by the transferring attorneys attending to
the transfer of the Units in the development, to guarantee payment of the net
proceeds of the sale of the Units immediately on date of registration of transfer of the
Units to first transferees, to SMI in settlement of the outstanding capital sum due to
SMI. . .‟
[5] On 8 May 2008 attorneys Jordaan & Associates (per Jordaan)
furnished the irrevocable guarantee sought by SMI in these terms:
„1. We have been instructed that you have agreed to loan and advance an
amount of R10 000 000.00 (Ten Million Rand) plus costs and interest to [the
Trust] on the terms and conditions set out in the Loan Agreement [the loan
Agreement] to be entered into between, inter alia, our client and yourselves.
2. We confirm that we have received a written and irrevocable appointment by
[the Trust] to attend to the opening of the abovementioned sectional title
scheme and to attend to the transfer of the units in the Development from our
client to the purchasers thereof.
. . .
4. We confirm that this undertaking may not be revoked.‟
[6] On 25 May 2008 the loan agreement was signed on behalf of SMI. On
29 May 2008 SMI advanced the capital sum of R10 million to the Trust. A
further sum of R1.4 million was advanced by SMI to the Trust on 27 October
2008. When the Trust defaulted in making payments under the loan
agreement, SMI launched application proceedings against it, as well as the
sureties, seeking judgment jointly and severally, for payment in the sum then
outstanding of R16 631 071,41.
[7] In an answering affidavit filed on behalf of the appellants, neither the
existence of the loan agreement nor the suretyship was disputed. The
appellants restricted themselves to two defences, namely, that: „Applicant
[SMI] would be repaid from the development and, although we bound
ourselves as sureties, stood no real risk of being called upon to pay‟; and,
„[t]he interest rate of 1,25% per week, stipulated in the loan agreement,
escalated to 1,5% per week in the event of default, is against public policy and
should . . . not be enforced‟. When the matter came before Van Staden AJ
both of those defences were abandoned, and for the first time the validity of
the deed of suretyship was placed in issue. Van Staden AJ, who it would
appear entertained some reservations as to the validity of the suretyship,
entered judgment against the Trust but postponed the application against the
appellants and granted leave to the parties to supplement their papers if so
advised. SMI duly supplemented its papers. The appellants filed answering
affidavits in response, stating that when they signed the suretyship the loan
agreement was not then in existence. The matter ultimately came to be
argued before Gamble J. By that stage, Basson, whose estate had been
sequestrated, had fallen out of the picture. Gamble J found in favour of SMI
and entered judgment against the appellants.
[8] The gist of the argument advanced on behalf of the appellants on
appeal is that the deed of suretyship did not comply with the requirements of s
6 of the General Law Amendment Act 50 of 1956 (the Act), inasmuch as: first,
the principal debt was not in existence at the time of the conclusion of the
suretyship; and, second, clause 1 of the suretyship was not a reference to the
loan agreement that in due course came to be concluded between the parties.
Section 6 is in these terms:
„No contract of suretyship entered into after the commencement of this Act, shall be
valid, unless the terms thereof are embodied in a written document signed by or on
behalf of the surety:‟ (The proviso which is not here relevant has been omitted)
As to the first:
[9] As far as the parties in the present proceedings are concerned, the
suretyship in essence amounts to a promise by each of the appellants to SMI
to guarantee any indebtedness which the Trust may now or in the future incur
to SMI. It is indeed so that a contract of suretyship is accessory in the sense
that it is of the essence of suretyship that there be a valid principal obligation
(that of the debtor to the creditor). But, that the loan agreement between the
Trust and SMI had not yet been concluded, is in and of itself no barrier to the
potential validity of the suretyship contract. As was pointed out by Corbett JA
in Trust Bank of Africa Ltd v Frysch 1977 (3) SA 562 (A) at 584G-H, „…it is not
essential that the principal obligation exists at the time when the suretyship contract
is entered into. A suretyship may be contracted with reference to a principal
obligation which is to come into existence in the future.‟
As to the second:
[10] In this instance, in terms of the suretyship, the appellants are potential
principal debtors and potential sureties. As sureties, they are liable to SMI for
the principal debt created by the suretyship, namely the debt arising from the
loan agreement between SMI and the Trust. But, contend the appellants, that
agreement, being the one giving rise to the principal debt, is not the one to
which reference is made in the suretyship. The suretyship refers to an already
concluded loan agreement. But it is undisputed that at the time of the signing
of the suretyship and despite the reference therein to an already concluded
agreement no such agreement had in fact been concluded. In Sapirstein &
others v Anglo African Shipping Co (SA) Ltd 1978 (4) SA 1(A) at 12B-D,
Trengove AJA stated:
„What s 6 requires is that the “terms” of the contract of suretyship must be embodied
in the written document. It was contended by counsel for plaintiff that this meant that
the identity of the creditor, of the surety and of the principal debtor, and the nature
and amount of the principal debt, must be capable of ascertainment by reference to
the provisions of the written document, supplemented, if necessary, by extrinsic
evidence of identification other than evidence by the parties (ie the creditor and the
surety) as to their negotiations and consensus. I agree with this contention. In my
view, there can be no objection to extrinsic evidence of identification being given,
either by the parties themselves, or by anyone else, unless the leading of such
evidence can be said to amount to an attempt to supplement the terms of the written
contract “by testimony as to some negotiation or consensus between the parties
which is not embodied in the written agreement” (see Van Wyk v Rottcher’s Saw
Mills (Pty) Ltd 1948 (1) SA 983 (A) at 991).‟
[11] It is contended by SMI that what saves the suretyship, despite its
deficiency, from extinction, was the reference to the loan agreement ultimately
concluded, which, it was said, was incorporated by reference into the deed of
suretyship. Incorporation by reference, as the name implies, occurs when one
document supplements its terms by embodying the terms of another. It is now
settled that a deed of suretyship that omits essential terms may nonetheless
be saved from invalidity by virtue of the doctrine of incorporation by reference.
(See Fourlamel (Pty) Ltd v Maddison 1977 (1) SA 333 (A); Industrial
Development Corporation of SA v Silver 2003(1) SA 365 (SCA).) Scott JA
observed in Industrial Development Corporation, para13 that: „Extrinsic
evidence identifying the loan agreements as the one referred to is all that
would be required and is therefore admissible.‟
[12] The deed of suretyship in this case identifies the principal obligation by
direct reference to the loan agreement. Much evidence was placed before the
high court as forming part of the background facts relevant to and proper for
consideration in relation to the question now being considered, namely,
whether the requirements of s 6 were met. All of that evidence served,
moreover, to identify the acknowledgement of debt referred to in the
suretyship. Thus in his supplementary affidavit filed on behalf of SMI, Du
Plessis stated (as summarised by Gamble J):
„27.1
On 16 April 2008 Basson attended on the offices of SMI‟s attorneys in Cape
Town.
27.2
At a meeting with SMI‟s attorney that day, Basson “signed all the documents,
including the loan agreements and the deed of suretyship” in the presence of the
attorney.
27.3
Basson explained to SMI‟s attorney that he would meet with Odendal and
Jordaan (who could not make the meeting) for purposes of procuring their signatures
on the various documents, including the loan agreement and the suretyship.
27.4
Sometime between 16 and 24 April 2008 Basson contacted a director of SMI
and proposed three minor amendments to the draft loan agreement. It is contended
that these were not contentious and that SMI agreed thereto. SMI also instructed its
attorneys to make the necessary amendment to the draft loan agreement.
27.5
A copy of the loan agreement in its form prior to these three amendments,
and as signed by Basson on 16 April 2008, was annexed by Du Plessis to the
supplementary affidavit.
27.6
On 25 April 2008 SMI‟s attorney met Basson at the latter‟s office and was
handed a number of documents by Basson. These included the signed deed of
suretyship, the loan agreement as already signed by Basson on 16 April 2008 (in its
unamended form), and the unsigned amended loan agreement.
27.7
During the aforesaid meeting with SMI‟s attorney Basson informed the latter
that Jordaan had informed him, when signing the deed of suretyship the previous
day, that he wanted a further amendment to be made to the draft agreement viz.to
clause 9.1.1 thereof which governs the procedure to apply on default by the debtor.
27.9
Du Plessis says that according to Basson SMI‟s attorney was amenable to
that amendment and a manuscript alteration was made to clause 9.1.1 of the
amended draft of the loan agreement. This alteration is visible on the signed loan
agreement filed with the founding affidavit.
27.10 On the same day (25 April 2008) Basson handed to SMI‟s attorney the
trustees‟ resolution referred to above, which also bore the signatures of Odendal and
Jordaan. Du Plessis draws attention, once again, to the fact that the resolution
identified both the nature and the amount of the principal debt.‟
[13] Earlier in that affidavit, Du Plessis asserted (para 23):
„From the above it is evident that, although the loan agreement in its final signed form
as attached to the founding affidavit was not in possession of Odendal and Jordaan
at the time they signed the deed of suretyship, they were in fact in possession of a
copy of the loan agreement in the exact same terms save for the four amendments
referred to above, which amendments were effected subsequently. It is further
evident that the four amendments did in no way whatsoever affect the principal debt.
Accordingly, the document which was attached to the deed of suretyship at the time it
was signed by Odendal and Jordaan properly and sufficiently identified the principal
debt for which they signed surety. Furthermore, the four amendments which were
effected were in fact proposed by Basson and Jordaan, ostensibly after consultation
with Odendal. I reiterate that those amendments did not in any way whatsoever affect
the extent or nature of the principal debt.‟
The supplementary answering affidavit filed by the appellants in response, like
its predecessor, was scant. Odendal, who deposed to that affidavit stated:
„The Suretyships and resolution were signed by Jordaan and myself at Jordaan‟s
offices on 24 April 2008 after Basson handed it to Jordaan for signature. The loan
agreement was definitely not handed to us nor attached to any document we signed.
We were asked to sign the suretyships at that stage and were told that the loan
agreement would be concluded later. I did not even read the terms of the suretyship
due to the factors set out above. 6th Respondent and I are not aware what happened
at the meetings between the meetings between Applicant and First Respondent nor
what was said between them.‟
[14] Gamble J observed:
„I am satisfied that Du Plessis‟s summary of events in the supplementary affidavit,
and the conclusions to be drawn therefrom as set out in the said paragraph 23, are a
correct and accurate reflection of the state of play at the time the suretyship was
signed. To the extent that there are disputes of fact put up by Odendal in the
supplementary answer, I do not believe that such disputes survive the test in
Plascon-Evans: they are fanciful and designed to be apparent rather than real. The
question that then arises is whether this additional evidence is admissible in light of
the parole evidence and integration rules.‟
The learned judge accordingly concluded:
„I have already found that the denial by Odendal and Jordaan that the partially
signed, unamended agreement was annexed to the suretyship is not worthy of
serious credence. But even if I am wrong in this regard, it matters little to my mind
that the document was not attached: it was readily capable of identification by the
parties, was in existence at the time the suretyship was signed, had been signed by
Basson on behalf of the trust and the material terms thereof had been agreed upon.‟
[15] In our view this evidence is decisive with regard to the identification of
the loan agreement referred to in the suretyship. Moreover, the appellants
were not strangers to either transaction - qua trustees, they had: resolved to
borrow the money from SMI on behalf of the Trust; authorised various actions
to secure the loan, including, but not limited to, the signing of the suretyship
agreement, the registration of a mortgage bond over the property and the
furnishing of an irrevocable guarantee. In addition, the terms of the loan
facility approval of February 2008, which Basson signed on behalf of the
Trust, mirrored in material respects those of the loan agreement. Tellingly, in
Jordaan‟s application for the sequestration of the Trust, he recorded that he
and Odendal regarded themselves as indebted to SMI by virtue of the deed of
suretyship that they had concluded in respect of the Trust‟s indebtedness to
SMI. That was consistent with their initial approach in these proceedings,
when the validity of the suretyship was not placed in issue. It is thus difficult to
resist the conclusion that the defence, which came to be raised midstream in
these proceedings, was contrived.
[16] It must follow that the defence raised that the deed of suretyship is
invalid for lack of compliance with s 6 of the Act must fail, for reading the
written loan agreement as incorporated into the suretyship, which expressly
refers to it, the requirements of that section are satisfied. In the result the
appeal must fail.
[17] The appeal is dismissed with costs.
_________________
VN PONNAN
JUDGE OF APPEAL
_________________
HK SALDULKER
JUDGE OF APPEAL
APPEARANCES
For appellant:
L M Olivier SC
Jordaan & Associates, Somerset West
Rossouw & Conradie, Bloemfontein
For respondent:
J F Pretorius
Sim & Botsi Attorneys, Johannesburg
Smit Rowan Attorneys, Cape Town
Symington & De Kock, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
30 May 2014
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Odendal & another v Structured Mezzanine Investments (Pty) Ltd
The Supreme Court of Appeal (SCA) today dismissed an appeal against a judgment of the
Western Cape High Court ordering Gerhardus Adriaan Odendal (Odendal) and Gabriel
Joshua Jordaan (Jordaan) (the appellants) to honour the terms of a deed of suretyship which
they had signed together with Francois Basson, in their capacity as trustees of FXT Property
Trust (the Trust), as security for a loan from Structured Mezzanine Investments Limited
(SMI) in favour of the Trust. SMI, a bridging financier approved an application by the Trust
for a loan facility in the amount of R10 million to partly fund a sectional title development by
the Trust in Hermanus. In its letter of approval, SMI recorded, inter alia, that as security for
the loan: a second mortgage bond would have to be registered over ERF 10965 Hermanus
(the property); that the trustees would have to bind themselves as sureties for all of the
Trust’s obligations; and, that an irrevocable guarantee would have to be furnished on behalf
of the Trust to SMI. The terms and conditions recorded in the facility letter were accepted by
Basson on behalf of the Trust. On 16 April 2008 Basson, duly authorised by the Trustees,
signed a power of attorney authorising the registration of a mortgage bond over the property
in favour of SMI as security for the loan. On the same day Basson signed the suretyship, as a
surety and co-principal debtor in respect ‘of any sum of money’ which the Trust may ‘now
owe or in the future owe’ to SMI arising from the loan agreement concluded between SMI
and the Trust in April 2008.
The appellants contended on appeal that the deed of suretyship did not comply with the
requirements of s 6 of the General Law Amendment Act 50 of 1956 (the Act), inasmuch as:
firstly, the principal debt was not in existence at the time of the conclusion of the suretyship;
and, secondly, clause 1 of the suretyship was not a reference to the loan agreement that in due
course came to be concluded between the parties. It was contended by SMI that what saves
the suretyship, despite its deficiency from extinction was the reference to the loan agreement
ultimately concluded which it was said was incorporated by reference into the deed of
suretyship.
The SCA held that the suretyship in essence amounted to a promise by each of the appellants
to SMI to guarantee any indebtedness which the Trust may now or in the future incur to SMI.
It is indeed so that a contract of suretyship is accessory in the sense that it is of the essence of
suretyship that there be a valid principal obligation (that of the debtor to the creditor). But,
that the loan agreement between the Trust and SMI had not yet been concluded was held, in
and of itself, to be no barrier to the potential validity of the suretyship contract. The SCA
held further that the appellants are potential principal debtors and potential sureties, and as
sureties, they were liable to SMI for the principal debt created by the suretyship, namely the
debt arising from the loan agreement between SMI and the Trust.
The SCA held that the deed of suretyship in this case identifies the principal obligation by
direct reference to the loan agreement. The appellants were not strangers to either
transactions-qua trustees, they had resolved to borrow the money from SMI on behalf of the
Trust, authorised various actions to secure the loan, and the terms of the loan facility approval
mirrored in material respects those of the loan agreement. Tellingly, in Jordaan’s application
for the sequestration of the Trust, he recorded that he and Odendal regarded themselves as
indebted to SMI by virtue of the deed of suretyship that they had concluded in respect of the
Trust’s indebtedness to SMI. The SCA held that it must follow that the defence raised that the
deed of suretyship was invalid for lack of compliance with s6 of the Act must fail, for
reading the written loan agreement as incorporated into the suretyship, which expressly refers
to it, the requirements of that section were satisfied.
|
3780
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 103/2021
In the matter between:
THABO SINDISA KWINANA
FIRST APPELLANT
DALIKHAYA RAIN ZIHLANGU NO SECOND APPELLANT
UNATHI MDODA NO THIRD APPELLANT
and
LULAMA SMUTS NGONYAMA
FIRST RESPONDENT
NOKWAZI NOKWAZELELA
NGONYAMA NO
SECOND RESPONDENT
KHANYA MALUNGELO
NGONYAMA NO THIRD RESPONDENT
QHAWE HLOMELO
NGONYAMA NO FOURTH RESPONDENT
and
EYABANTU CAPITAL
CONSORTIUM (PTY) LTD FIRST INTERVENING PARTY
EYABANTU CAPITAL
(PTY) LTD SECOND INTERVENING PARTY
Neutral citation: Thabo Sindisa Kwinana and Others v Lulama Smuts
Ngonyama and Others (Case no 103/2021) [2022]
ZASCA 48 (8 April 2022)
Coram:
VAN DER MERWE, NICHOLLS and CARELSE JJA
and TSOKA and MATOJANE AJJA
Heard:
24 FEBRUARY 2022
Delivered:
This judgment was handed down electronically by
circulation to the parties’ legal representatives by email,
publication on the Supreme Court of Appeal website and
release to SAFLII. The date and time for hand-down is
deemed to be 10h00 on 8 April 2022.
Summary: Civil procedure – application for intervention on appeal – no
legal interest in subject matter of litigation – application for rescission of
default judgment – sole ground relied upon had been raised in replying
affidavit that was rightly not admitted.
ORDER
On appeal from: Gauteng Division of the High Court, Johannesburg, (Grenfell
AJ sitting as court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Matojane AJA (Van der Merwe, Nicholls and Carelse JJA and Tsoka AJA
concurring)
[1] The appellants in this matter are Mr Thabo Sindisa Kwinana and the
(substituted) trustees of the Eyabantu Development Trust (the Eyabantu Trust). For
convenience, I refer to the appellants collectively as the Kwinana parties. They were
the unsuccessful applicants in a rescission application before Grenfell AJ in the
Gauteng Division of the High Court, Johannesburg (high court), and appealed
against its decision refusing to rescind and set aside two default judgments
previously granted by Dosio AJ in favour of the respondents. They are Mr Lulama
Smuts Ngonyama and the trustees of the Khululekile Family Trust (the Khululekile
Trust), collectively referred to as the Ngonyama parties.
Background
[2] During 2018, the Ngonyama parties instituted action in the high court against
the Kwinana parties. Their particulars of claim essentially alleged the following:
during or about 2005, the Ngonyama parties entered into an oral agreement with
Mr Kwinana (the 2005 agreement), in terms of which the latter would act as agent
and attorney for the Ngonyama parties in order to procure a 6,5% shareholding in
Eyabantu Capital Consortium (Pty) Ltd (Eyabantu Consortium). In the execution
of his obligations in terms of the 2005 agreement, Mr Kwinana advised that the
shareholding should be held for the Khululekile Trust by another trust. Mr Kwinana
thus caused the Eyabantu Trust to hold 6,5% shareholding in Eyabantu Consortium
as the agent and for the benefit of the Khululekile Trust. At the time, Mr Kwinana
was one of the trustees of the Eyabantu Trust. The Eyabantu Trust also held a further
6,5% shareholding in Eyabantu Consortium.
[3] Pursuant hereto, so it was alleged, the Eyabantu Trust orally agreed with the
Khululekile Trust during November 2006 that the former would transfer 50% of all
income derived from its 13% shareholding in Eyabantu Consortium to the
Khululekile Trust (the 2006 agreement). The particulars of claim also alleged that
as agents for the Ngonyama parties, the Kwinana parties owed the former a duty to
fully account for all income that accrued to them pursuant to the 2006 agreement.
On the back of these allegations, the Ngonyama parties claimed that the Kwinana
parties render an account for debatement ‘in respect of their shareholding interest’
in Eyabantu Consortium, and the Khululekile Trust claimed transfer of the said
6,5% holding to it from the Eyabantu Trust.
[4] The Kwinana parties filed a notice of intention to oppose the action on 11
January 2019. Despite a notice of bar filed on 21 January 2019, they failed to file a
plea within the period provided for in the notice of bar. Dosio AJ granted default
judgment in terms of the particulars of claim on 15 April 2019 against the first and
second appellants and on 17 April 2019 against the third appellant. The Eyabantu
Trust took a decision ‘not to contest the default judgment’ but to seek to resolve the
matter amicably through dialogue. No doubt the same applied to Mr Kwinana. Six
months later, however, the Kwinana parties launched the rescission application
against the Dosio AJ orders. As I have said, the application failed, hence the appeal.
[5] Two parties filed an application in this Court to be joined as parties in the
appeal (the intervening parties). They were Eyabantu Consortium and Eyabantu
Capital (Pty) Ltd (Eyabantu Capital). Eyabantu Capital holds 46,56% shareholding
in Eyabantu Consortium. The Ngonyama parties opposed the application. After
hearing counsel on 24 February 2022, we dismissed the application for intervention
with costs, including the costs of two counsel. We indicated that reasons for this
order would be furnished in due course. In what follows, I firstly give reasons for
the dismissal of the intervention application and thereafter consider the appeal.
Intervention application
[6] The intervening parties principally averred that in terms of the written
shareholders agreement between Eyabantu Consortium and its shareholders,
including the Eyabantu Trust, Eyabantu Capital held a right of pre-emption in
respect of the shares in question and Eyabantu Consortium had an obligation to see
to the enforcement of that right. This constituted direct and substantial interests, so
it was contended, that afforded the intervening parties the right to be joined and to
seek relief in the appeal.
[7] In Pheko and Others v Ekurhuleni City1, Nkabinde J set out the test for
joinder as follows:
‘The test for joinder requires that a litigant have a direct and substantial interest in the subject-
matter of the litigation, that is, a legal interest in the subject matter of the litigation which may be
affected by the decision of the Court. This view of what constitutes a direct and substantial interest
has been explained and endorsed in a number of decisions by our courts.’2
These decisions include Amalgamated Engineering Union v Minister of Labour,3
Aquataur (Pty) Ltd v Sack and Others4 and Bowring NO v Vrededorp Properties
CC and Another.5
[8] Therefore, the intervening parties had to show a legal interest in the subject
matter of the appeal that could be prejudiced by the order on appeal. The subject
matter of the appeal was whether the Kwinana parties had made a case for the
rescission of the Dosio AJ orders in the court a quo. The intervening parties had no
legal interest therein. They only had an indirect interest, in the sense that for the
appeal of the Kwinana parties to succeed would suit their interests.
[9] What the intervening parties sought to do, was to obtain a rescission of the
Dosio AJ orders at their own instance and on their own grounds, without ever
having applied for that relief. That constituted an impermissible attempt to have this
Court determine a matter as court of first instance. The remedy of the intervening
parties was to institute proceedings for the rescission of these orders, in which the
1 Pheko and Others v Ekurhuleni Metropolitan Municipality (Socio-Economic Rights Institute of South Africa as
Amicus Curiae) [2015] ZACC 10; 2015 (5) SA 600 (CC); 2015 (6) BCLR 711 (CC).
2 Ibid para 56.
3 Amalgamated Engineering Union v Minister of Labour 1949 (3) SA 637 (A) at 659.
4 Aquataur (Pty) Ltd. v Sack and Others [1988] ZASCA 86; 1989 (1) SA 56 (A) at 62.
5 Bowring NO v Vredendorp Properties CC [2007] ZASCA 80.
reasons for their delay and their grounds for the rescission would be ventilated and
the Ngonyama parties would be afforded a proper opportunity to respond thereto.
For these reasons, we dismissed the application for intervention with costs,
including the costs of two counsel.
The appeal
[10] I turn to the consideration of the appeal. The sole submission of the Kwinana
parties before us was that the Dosio AJ orders should have been set aside under
Uniform rule 42(1)(a), on the basis that the particulars of claim did not disclose a
cause of action against any of them. Rule 42(1)(a) provides:
‘(1) The court may, in addition to any other powers it may have, mero motu or upon the
application of any party affected, rescind or vary:
(a) an order or judgment erroneously sought or erroneously granted in the absence of any party
affected thereby.’
In Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd6 this Court
held that where a plaintiff is procedurally entitled to a judgment in the absence of
the defendant, that judgment cannot be said to have been granted erroneously in the
light of the subsequently disclosed defence. The existence or non-existence of a
defence on the merits was found to be an irrelevant consideration and, if
subsequently disclosed, cannot transform a validly obtained judgment into an
erroneous judgment.7
[11] Mr Kwinana argued that the particulars of claim did not disclose a legal basis
upon which he could be ordered to account or to transfer the shares. The Eyabantu
6 Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd [2007] ZASCA 85; 2007 (6) SA 87 (SCA)
(Lodhi).
7 Lodhi paras 25 and 27. See also Freedom Stationery (Pty) Limited and Others v Hassam and Others [2018]
ZASCA 170; 2019 (4) SA 459 (SCA) para 18.
Trust contended that ex facie the registration number of the Khululekile Trust as
reflected in the particulars of claim, it was only registered during 2007, that is, after
the 2005 and 2006 agreements had been entered into.
[12] None of this, however, was raised in the founding affidavit in the rescission
application. The Kwinana parties only purported to do so in their replying affidavit,
which the court a quo refused to admit, for sound reasons. The replying affidavit
was filed seven months out of time. The Kwinana parties ignored a notice under
Uniform rule 30 to have the replying affidavit set aside, and also failed to submit
an application for condonation for the late filing of the replying affidavit. Moreover,
it contained what the court a quo aptly termed ‘an entirely new rescission
application’, to the prejudice of the Ngonyama parties. There is no basis to interfere
with the exercise of the discretion of the court a quo in this regard. It follows that it
was not permissible to raise the rule 42(1)(a) argument on appeal.
[13] In the result, the appeal is dismissed with costs, including the costs of two
counsel.
________________________
K E MATOJANE
ACTING JUDGE OF APPEAL
APPEARANCES
For the First Appellants:
D J Combrink
Instructed by:
Du Toit Attorneys
Webbers Attorneys, Bloemfontein
For the Second and Third Appellants:
E van Vuuren SC
Instructed by:
Erasmus de Klerk Incorporated
Webbers Attorneys, Bloemfontein
For the Respondent:
L J Morrison SC and T Scott
Instructed by:
Knowles Husain Lindsay Inc
Claud Reid Attorneys, Bloemfontein
For the Intervening Parties:
R Stockwell SC
Instructed by:
Erasmus de Klerk Incorporated
Webbers Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
8 April 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Thabo Sindisa Kwinana and Others v Lulama Smuts Ngonyama and Others (Case no
103/2021) [2022] ZASCA 48
Today the Supreme Court of Appeal dismissed an appeal from the Gauteng Division of the
High Court, Johannesburg (high court).
The appellants in this matter were Mr Thabo Sindisa Kwinana and the trustees of Eyabantu
Development Trust (the Kwinana parties). They were the unsuccessful applicants in an
application in the high court to rescind and set aside two default judgment previously granted
in favour of the respondents, Mr Lulama Smuts Ngonyama and the trustees of the Khululekile
Family Trust (the Ngonyama parties).
In 2005, the Ngonyama parties entered into an oral agreement with Mr Kwinana in terms of
which the latter acted as agent and attorney for the Ngonyama parties in order to procure a
6.5% shareholding in Eyabantu Capital Consortium, the latter having been the agent and for
the benefit of the Khululekile Trust. Another agreement was entered into in 2006 where it was
held that Eyabantu Trust would transfer 50% of all income derived from its 13% shareholding
in Eyabantu Capital Consortium to the Khululekile Trust. It was also alleged that the Kwinana
parties owed the Ngonyama parties a duty to account for all income that had accrued pursuant
to the 2006 agreement. The high court granted default judgment against the appellants to
which the Kwinana parties launched a subsequent rescission application.
Eyabantu Consortium and Eyabantu Capital (Pty) Ltd filed an application to be joined in the
appeal, as the latter was a significant shareholder of the former. This application was opposed
by the Ngonyama parties. This Court, after having heard counsel for the parties, dismissed
the application for intervention because this Court found that the intervening parties intended
to obtain a rescission of the high court’s orders at their own instance, without ever having
applied for that relief. This would have required this Court assuming the role of a court of first
instance.
The sole submission of the Kwinana parties before this Court was that the high court orders
should have been set aside under Uniform rule 42(1)(a), on the basis that the particulars of
claim did not disclose a cause of action against any of them. Mr Kwinana argued that the
particulars of claim did not disclose a legal basis upon which he could be ordered to account
or to transfer the shares. The Eyabantu Trust contended that ex facie the registration number
of the Khululekile Trust as reflected in the particulars of claim, had only been registered in
2007, after the 2005 and 2006 agreements had been entered into. However, none of this
information had been raised in the rescission application. The Kwinana parties only sought to
do so in their replying affidavit which the high court refused to admit as it was filed seven
months out of time. This Court found that the Kwinana parties ignored a notice under Uniform
rule 30 to have the replying affidavit set aside and also failed to apply for condonation for the
late filing of the replying affidavit. Accordingly, this Court found no basis to have interfered with
the discretion of the high court and indicated that it was impermissible to have raised the rule
42(1)(a) argument on appeal.
In the result, the SCA dismissed the appeal.
--------oOo--------
|
3226
|
non-electoral
|
2007
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
NOT REPORTABLE
CASE NO 598/2006
In the matter between
OSWALD DISSEL
Appellant
And
THE STATE
Respondent
Coram:
Farlam, Van Heerden JJA and
Kgomo AJA
Date of Hearing:
17 AUGUST 2007
Date of Delivery:
28 September 2007
Summary: Criminal law – Conviction and sentence – murder – 15 years’
imprisonment – whether appellant acted in self-defence – substantial and compelling
circumstances justifying imposition of lesser sentence than prescribed minimum –
sentence imposed by High Court set aside and appeal and sentence imposed by
regional magistrate reinstated.
Neutral citation: This Judgment may be referred to as Dissel v
The State [2007] SCA 125 (RSA)
KGOMO AJA:
[1] In May 2004 the appellant, then aged 39 years, was charged in the
Graaff-Reinett Regional Court on a charge of murder, read in conjunction with
the provisions of ss 51 and 52 of the Criminal Law Amendment Act 105 of
1997 (the Act). He pleaded not guilty, but was ultimately convicted as
charged on 22 July 2005. He was sentenced to 15 years’ imprisonment, five
of which were conditionally suspended. He appealed against the conviction
only to the Eastern Cape High Court.
[2] Before the High Court the State sought, by way of a point in limine, to
have the sentence declared a nullity and set aside and to have the appellant
committed to the High Court for sentencing as contemplated in s 52(1)(b)(i) of
the Act. The State contended that the regional magistrate should have found
the appellant guilty of planned or premeditated murder. Thus, according to
the State, the matter fell within the ambit of s 51(1), read with part 1 of
schedule 2, of the Act and was beyond the Regional Court’s sentencing
jurisdiction.
[3] The High Court refused the State’s request mainly on the ground that it
was impermissible for the State to seek, by way of a point in limine, to appeal
on a question of law or against sentence without complying with the
requirements of ss 310 and 310A of the Criminal Procedure Act 51 of 1977.
The High Court dismissed the appeal against conviction. However, exercising
its inherent powers, and after giving due notice to the parties, the High Court
increased the appellant’s sentence to 15 years’ direct imprisonment (see eg,
S v Kirsten 1988 (1) SA 415 (A) at 421F). In effect, the 5 years’ suspended
portion of the sentence imposed by the regional magistrate was deleted. With
the leave of the High Court, the appellant now appeals against the conviction
and sentence.
[4] In argument before us regarding the conviction, counsel for the
appellant argued that he was guilty only of assault with the intent to do
grievous bodily harm because he had exceeded the bounds of self-defence.
However, counsel was constrained to concede that the appellant was guilty of
murder on his own version. He urged upon us to accept the appellant’s
version, and interfere with the sentence imposed by the High Court. Counsel
for the State submitted that the appellant’s version was contrived and fell to
be rejected as false. It is therefore necessary to deal in some detail with the
merits of the case because the version which the court accepts will have a
bearing on the appropriate sentence.
[5] The deceased, Dick Swartz, a teacher, had been married to his former
wife, Phyllis Swartz (born Koeberg), for about nine years when they divorced
in August 2002. During about April 2003 the appellant became involved in a
relationship with the deceased’s ex-wife. It was common cause that the
appellant played no part in the breakdown of the deceased’s marriage to Mrs
Swartz.
[6] On the fateful day, Monday 23 June 2003, the deceased was walking
along Breë Street, Graaff-Reinet, in the company of his cousin Anthony
Swartz, on the way to ‘Aunt Mollie’s’ house at 11 Breë Street. The house
situated at 25 Breë Street used to be the matrimonial home of the deceased
and Mrs Swartz. Anthony Swartz testified that he and the deceased were
outside house No 25 when they encountered the appellant in his vehicle. The
appellant stopped the vehicle of his own accord when he reached them.
There was a conversation between the appellant, who remained seated in his
vehicle, and the deceased. Nothing untoward happened at that stage; the
deceased was not armed with a knife and no fight or stabbing incident
occurred between the appellant and the deceased. After the appellant had
driven off, he (Anthony Swartz) and the deceased went to Aunt Mollie’s house
where they sat on the steps leading up to the verandah or on the verandah
and drank beer.
[7] On the other hand the appellant testified that the first encounter
between himself and the deceased that day took place in Breë Street about
100 metres from the gate of house No 25. The deceased, who was with
Anthony Swartz, stopped him. There was a brief but non-confrontational
conversation which terminated with the deceased telling him that he had an
axe to grind with him. (‘Hy het `n appeltjie met my te skil’.) They parted on
that note. The appellant was on his way to Mrs Swartz’s house at that time
because she had asked him to collect her and the deceased’s eleven year old
daughter for some extra-mural school activity.
[8] According to the appellant, as he was reversing his vehicle out of the
yard of house No 25, the deceased approached the car and, without saying
anything, began stabbing at the appellant through the driver’s window. Mrs
Swartz had apparently warned him of the deceased’s approach. The
appellant later pointed to a hole low down in the back-rest of the seat of his
vehicle as having been caused by the deceased. The magistrate found it
highly improbable that the appellant could have leaned out of the way of the
knife, as he demonstrated. Mabel Japhta, a State witness, denied that this
initial stabbing incident had ever occurred. The magistrate and the High Court
found that the stabbing incident described never happened and was a
fabrication by the appellant to somehow try to justify the next encounter which
proved fatal. I cannot fault this conclusion.
[9] According to another State witness, the deceased’s brother Johnny
Swartz, he had co-incidentally met Mrs Swartz at Clicks on the afternoon in
question (after the appellant had dropped her off in the town) and she had
warned him, that ‘ek moet my broer Dick keer want Ossie [the appellant] gaan
hom seermaak’. Mrs Swartz, who testified in the appellant’s defence,
admitted the encounter at Clicks and her cordial relationship with Johnny
Swartz, but denied that she uttered the words ascribed to her by him. The
latter’s evidence was simple, brief and straight to the point. He was not
discredited under cross-examination.
[10] As regards the encounter between the appellant and the deceased
which led to the latter’s death, the state witnesses Anthony Swartz, Johnny
Tromp, Bertus Marlow and Grace Somana between them testified that the
appellant was armed with a long knife. Having entered Aunt Mollie’s yard, he
ran towards the deceased who, on seeing him, fled with the appellant in
pursuit. The deceased slipped and fell on the flight of steps leading up to
Aunt Mollie’s house. The appellant then stabbed him repeatedly. The
deceased remained sprawled on the steps and later bled to death. The post–
mortem examination report, compiled by Dr Willem Pieterse, revealed nine
stab wounds.
[11] Three of the witnesses mentioned in para 10 denied, as suggested to
them by the defence, that the deceased exited Aunt Mollie’s premises to
accost the appellant. They all testified that the appellant returned to Breë
Street, stopped his vehicle at Aunt Mollie’s gate (on the wrong side of the
road), alighted from the vehicle, entered the yard through the gate and ran up
to the deceased. Grace Somana and Johnny Tromp also testified that, after
getting out of his car, the appellant swore at the deceased and shouted that
he should repeat what he had said earlier on, or words to that effect. Each
one of them observed the events from a different vantage point.
[12] The appellant’s version on how and why he arrived on the scene of the
fatal stabbing is that, when he dropped Mrs Swartz in town that afternoon, she
had asked him to drive past her house (No 25 Breë Street) to check whether
the deceased had not damaged it in some way. On his way back to Breë
Street, he picked up his friend, Mr Koeberg. They drove back to Mrs Swartz’s
house. As they were passing Aunt Mollie’s gate, the deceased unexpectedly
emerged from the gate and darted in front of the appellant’s car with a knife in
hand. The appellant slammed on his brakes to avoid running the deceased
over. In the process the car’s engine stalled. The deceased then wordlessly
started stabbing at him again, but did not succeed in stabbing him.
[13] According to the appellant, after stopping his vehicle he opened the
driver’s door and rammed it into the deceased. He grabbed a pocket knife
which he used to cut biltong and which was in his vehicle, and got out of the
vehicle. The deceased again ran at the vehicle and stabbed at him
repeatedly, but managed to miss him altogether. The deceased then turned
and ran back through the gate, with the appellant in pursuit. He stumbled and
fell on the stairs leading to the verandah. The appellant then stabbed the
deceased repeatedly, including while the latter was lying on his back. He then
walked off the property and threw his pocket knife away when he saw it had
blood on it. He drove to the local police station to lay a charge of attempted
murder against the deceased. It was while doing so that he heard of the
deceased’s death.
[14] It should be noted that the appellant changed the details of his version
several times. Both the magistrate and the High Court rejected the
appellant’s version on the aforegoing aspects as not being reasonably
possibly true, pointing out that it was not supported either by the objective
evidence or by the evidence of the other eye-witnesses. Thus, for example,
no knife was found on the deceased or anywhere near him. Moreover, the
appellant’s knife was also not found, although the police searched for it. The
deceased suffered grievous knife wounds, losing more than 50% of his blood,
while the appellant was totally unharmed. The deceased was also heavily
under the influence of alcohol, as revealed by his blood alcohol count, and as
a result in all probability not in a physical state to fend off a knife attack.
[15] Both courts dealt with some discrepancies in the state witnesses’
evidence but regarded them as immaterial or even understandable. Because
of the overwhelming weight of evidence against the appellant and his
fabricated evidence, I find it unnecessary to deal with these inconsistencies.
In any event the magistrate accepted the eye witnesses’ evidence that the
deceased was unarmed; was accosted and attacked by the appellant on Aunt
Mollie’s premises; that the appellant was the aggressor and at no stage acted
or was called upon to act in self-defence.
[16] From what had gone before the regional magistrate and the High Court
concluded that the appellant had not gone to check on the state of Mrs
Swartz’s house, but that he was in fact looking for the deceased to harm him.
This conclusion is, in my view, correct.
[17] The High Court found that the magistrate had misdirected himself by
finding that there were substantial and compelling circumstances warranting a
sentence of less than the prescribed minimum of 15 years. According to the
High Court the magistrate, having rejected the appellant’s version as not
reasonably possibly true at the conviction stage, erred in finding that
provocation by the deceased was a substantial and compelling circumstance.
It was for this reason that the High Court interfered with the Regional Court’s
sentence and imposed a sentence of 15 years’ direct imprisonment. I am
satisfied that the appeal against the appellant’s conviction has no merit and
must accordingly fail. The appeal against sentence is, however, a different
matter.
[18] Counsel for the State submitted that no substantial and compelling
circumstances existed and that the regional magistrate was not justified in
imposing a lesser sentence than the prescribed minimum period of 15 years.
On the other hand, counsel for the appellant contended that the High Court
was not justified in interfering with the trial court’s sentence because no
misdirection on the part of the latter court was shown to have been
committed.
[19] In State v Kibido 1998 (2) SACR 213 (SCA) at 216g-j this Court stated:
‘Now, it is trite law that the determination of a sentence in a criminal matter is pre-eminently a
matter for the discretion of the trial court. In the exercise of this function the trial court has a
wide discretion in (a) deciding which factors should be allowed to influence the court in
determining the measure of punishment and (b) in determining the value to attach to each
factor taken into account (See S v Fazzie and others 1964 (4) SA 673 (A) at 684A-B, S v
Pillay 1977 (4) SA 531 (A) at 535A-B). A failure to take certain factors into account or an
improper determination of the value of such factors amounts to a misdirection, but only when
the dictates of justice carry clear conviction that an error has been committed in this regard (S
v Fazzie and others (supra) at 684B-C; S v Pillay (supra) at 535E).
Furthermore, a mere misdirection is not by itself sufficient to entitle a court of appeal to
interfere with the sentence; it must be of such a nature, degree, or seriousness that it shows,
directly or inferentially, that the court did not exercise its discretion at all or exercised it
improperly or unreasonably (see Trollip JA in S v Pillay (supra) at 535E G)’.
[20] The evidence reveals that there had been longstanding rivalry and
animosity between the appellant and the Swartz family. First, some members
of the Swartz family had attempted to acquire the tavern now owned by the
appellant from its previous owner but appellant had apparently outsmarted
them. This did not go down well. Secondly, the Swartz family disapproved
very strongly of a relationship between the appellant and one of the younger
women in the Swartz family. Thirdly, the appellant commenced a relationship
with the deceased’s wife after they had gone through what appears to have
been a fairly acrimonious divorce following a stormy marriage. This did not
help the already strained relationship. Fourthly, there was an altercation
between the deceased and the appellant (testified to by Mabel Japhta) when
the appellant collected Mrs Swartz and the deceased’s daughter from their
home in Breë Street that afternoon.
[21] The regional magistrate further found that something offensive must
have been said or done by the deceased to the appellant on the fateful day to
have put the latter into a rage. This must be so having regard to: (a) Mabel
Japhta’s aforesaid evidence of a heated exchange between the two of them
earlier that afternoon; (b) the evidence of the appellant that the deceased had
said to him that he had an axe to grind with him; (c) Mrs Swartz’s warning to
Johnny Swartz that very afternoon to control the deceased because otherwise
the appellant would harm him; and, (d) the evidence of Johnny Tromp and
Grace Somana that the appellant challenged the deceased to repeat what he
had said earlier. The appellant was certainly not an angel. He had assaulted
and molested Mrs Swartz on several occasions during their marriage as a
result of which she obtained several interdicts against him. This could not
have helped to allay an already tense situation and would have merely served
to worsen tensions and emotions.
[22] Whilst the appellant has several previous convictions, none of them
involved violence. In addition his last previous conviction was already some
seven years old when the murder was committed.
[23] I am not persuaded that the magistrate misdirected himself in any way
in imposing sentence. To my mind, the High Court erred in so finding. There
is no evidence that the murder weapon, irrespective of its size, was
specifically fetched elsewhere by the appellant to commit the crime and had
not been in the vehicle all along. The possibility cannot be excluded that the
appellant merely wanted to harm (‘seermaak’) the deceased. As the
magistrate puts it: ‘dat die gebeure die dag die laaste strooi was, dat iets
uitgehaak het, dat beskuldigde totaal beheer verloor het’.
[24] A careful reading of the magistrate’s reasons for imposing sentence
reveals that he took all relevant factors alluded to and others not pertinently
mentioned here properly into account. I am not convinced that there were no
substantial and compelling circumstances, nor am I persuaded that the
sentence imposed by the magistrate was so lenient as to call for its increment.
[25] The following order is made:
1.
The appeal against conviction is dismissed.
2.
The appeal against sentence succeeds. The sentence imposed by the
High Court is set aside and substituted with the following:
‘The accused is sentenced to 15 (fifteen) years’ imprisonment, of which
5 (five) years is suspended for a period of 5 (five) years on condition
that he is not convicted of murder, attempted murder or culpable
homicide (involving violence) committed during the period of
suspension.’
3.
In terms of s 282 of the Criminal Procedure Act 51 of 1977 the
sentence is antedated to 23 August 2005.
_____________________
F D KGOMO
ACTING JUDGE OF APPEAL
CONCUR:
)
FARLAM JA
)
VAN HEERDEN JA
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
September 2007
Status:
Immediate
Please note that the media summary is intended for the benefit of
the media and does not form part of the judgment of the Supreme
Court of Appeal.
OSWALD DISSEL v THE STATE
The Supreme Court of Appeal today dismissed the application for
leave to appeal against conviction brought by the appellant, Mr
Oswald Diessel, but upheld his appeal against sentence. The
appellant had been convicted in the Graaff–Reinett Regional Court
of the murderer of his girlfriend’s ex-husband and was sentenced
to 15 years imprisonment, five of which were conditionally
suspended. The Eastern Cape High Court had, on appeal to it,
confirmed the conviction but increased the sentence to an effective
15 years imprisonment, after due notice to the appellant.
In dismissing the application for leave to appeal to the SCA against
the conviction, the SCA pointed out that the conclusions reached
by the regional magistrate, with which the High Court agreed, were
based largely on factual findings depending on the credibility of
various witnesses who testified during the trial, including the
appellant.
In upholding the appellant’s appeal against sentence the SCA
pointed out that a careful scrutiny of the regional magistrate’s
reasons for imposing the sentence that it did reveal that he took all
relevant factors pertaining to sentence into account and that the
High Court erred in having found that no substantial and
compelling circumstances existed. The SCA accordingly re-
instated the regional magistrate’s sentence (Suspending five of the
15 years imprisonment).
|
3798
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1088/2020
In the matter between:
RALPH FARREL LUTCHMAN N.O. FIRST APPELLANT
CLOETE MURRAY N.O. SECOND APPELLANT
TANIA OOSTHUIZEN N.O.
THIRD APPELLANT
MARIANNE OELOFSEN N.O.
FOURTH APPELLANT
In their capacities as the joint provisional liquidators of African Global Operations (Pty)
Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. FIFTH APPELLANT
CLOETE MURRAY N.O. SIXTH APPELLANT
SELBY MUSAWENKOSI NTSIBANDE N.O. SEVENTH APPELLANT
ANDRE BOTHA OCTOBER N.O. EIGHTH APPELLANT
In their capacities as the joint provisional liquidators of Bosasa Properties (Pty) Ltd (in
liquidation)
RALPH FARREL LUTCHMAN N.O. NINTH APPELLANT
CLOETE MURRAY N.O. TENTH APPELLANT
NURJEHAN ABDOOL GAFAAR OMAR N.O. ELEVENTH APPELLANT
In their capacities as the joint provisional liquidators of Global Technology Systems
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWELFTH APPELLANT
CLOETE MURRAY N.O. THIRTEENTH APPELLANT
ROYNATH PARBHOO N.O. FOURTEENTH APPELLANT
LIZETTE OPPERMAN N.O. FIFTEENTH APPELLANT
In their capacities as the joint provisional liquidators of Leading Prospect Trading 111
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. SIXTEENTH APPELLANT
CLOETE MURRAY N.O. SEVENTEENTH APPELLANT
OFENTSE ANDREW NONG N.O. EIGHTEENTH APPELLANT
TSHEPO HARRY NONYANE N.O. NINETEENTH APPELLANT
In their capacities as the joint provisional liquidators of Bosasa Youth Development
Centres (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTIETH APPELLANT
CLOETE MURRAY N.O. TWENTY-FIRST APPELLANT
TARYN VALERIE ODELL N.O. TWENTY-SECOND APPELLANT
GORDON NOKHANDA N.O. TWENTY-THIRD APPELLANT
In their capacities as the joint provisional liquidators of Black Rox Security Intelligence
Services (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTY-FOURTH APPELLANT
CLOETE MURRAY N.O. TWENTY-FIFTH APPELLANT
MILANI BECKER N.O. TWENTY-SIXTH APPELLANT
In their capacities as the joint provisional liquidators of Bosasa Supply Chain
Management (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTY-SEVENTH APPELLANT
CLOETE MURRAY N.O. TWENTY-EIGHTH APPELLANT
MARC BRADLEY BEGINSEL N.O. TWENTY-NINTH APPELLANT
In their capacities as the joint provisional liquidators of Bosasa IT (Pty) Ltd (in
liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTIETH APPELLANT
CLOETE MURRAY N.O. THIRTY-FIRST APPELLANT
MARIETTE BENADE N.O. THIRTY-SECOND APPELLANT
In their capacities as the joint provisional liquidators of Rodcor (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTY-THIRD APPELLANT
CLOETE MURRAY N.O. THIRTY-FOURTH APPELLANT
JACOLIEN FRIEDA BARNARD N.O. THIRTY-FIFTH APPELLANT
In their capacities as the joint provisional liquidators of Watson Corporate Academy
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTY-SIXTH APPELLANT
CLOETE MURRAY N.O. THIRTY-SEVENTH APPELLANT
DEIDRE BASSON N.O. THIRTY-EIGHTH APPELLANT
In their capacities as the joint provisional liquidators of ON-IT-1 (Pty) Ltd (in liquidation)
PARK VILLAGE AUCTIONEERS AND
PROPERTY SALES (PTY) LTD THIRTY-NINTH APPELLANT
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICES FORTIETH APPELLANT
and
AFRICAN GLOBAL HOLDINGS (PTY) LTD FIRST RESPONDENT
SUN WORX (PTY) LTD SECOND RESPONDENT
KGWERANO FINANCIAL SERVICES (PTY) LTD THIRD RESPONDENT
Case No: 1135/2020
In the matter between:
AFRICAN GLOBAL HOLDINGS (PTY) LTD FIRST APPELLANT
SUN WORX (PTY) LTD SECOND APPELLANT
KGWERANO FINANCIAL SERVICES (PTY) LTD THIRD APPELLANT
and
RALPH FARREL LUTCHMAN N.O. FIRST RESPONDENT
CLOETE MURRAY N.O. SECOND RESPONDENT
TANIA OOSTHUIZEN N.O.
THIRD RESPONDENT
MARIANNE OELOFSEN N.O.
FOURTH RESPONDENT
In their capacities as the joint provisional liquidators of African Global Operations (Pty)
Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. FIFTH RESPONDENT
CLOETE MURRAY N.O. SIXTH RESPONDENT
SELBY MUSAWENKOSI NTSIBANDE N.O. SEVENTH RESPONDENT
ANDRE BOTHA OCTOBER N.O. EIGHTH RESPONDENT
In their capacities as the joint provisional liquidators of Bosasa Properties (Pty) Ltd (in
liquidation)
RALPH FARREL LUTCHMAN N.O. NINTH RESPONDENT
CLOETE MURRAY N.O. TENTH RESPONDENT
NURJEHAN ABDOOL GAFAAR OMAR N.O. ELEVENTH RESPONDENT
In their capacities as the joint provisional liquidators of Global Technology Systems
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWELFTH RESPONDENT
CLOETE MURRAY N.O. THIRTEENTH RESPONDENT
ROYNATH PARBHOO N.O. FOURTEENTH RESPONDENT
LIZETTE OPPERMAN N.O. FIFTEENTH RESPONDENT
In their capacities as the joint provisional liquidators of Leading Prospect Trading 111
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. SIXTEENTH RESPONDENT
CLOETE MURRAY N.O. SEVENTEENTH RESPONDENT
OFENTSE ANDREW NONG N.O. EIGHTEENTH RESPONDENT
TSHEPO HARRY NONYANE N.O. NINETEENTH RESPONDENT
In their capacities as the joint provisional liquidators of Bosasa Youth Development
Centres (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTIETH RESPONDENT
CLOETE MURRAY N.O. TWENTY-FIRST RESPONDENT
TARYN VALERIE ODELL N.O. TWENTY-SECOND RESPONDENT
GORDON NOKHANDA N.O. TWENTY-THIRD RESPONDENT
In their capacities as the joint provisional liquidators of Black Rox Security Intelligence
Services (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTY-FOURTH RESPONDENT
CLOETE MURRAY N.O. TWENTY-FIFTH RESPONDENT
MILANI BECKER N.O. TWENTY-SIXTH RESPONDENT
In their capacities as the joint provisional liquidators of Bosasa Supply Chain
Management (Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. TWENTY-SEVENTH RESPONDENT
CLOETE MURRAY N.O. TWENTY-EIGHTH RESPONDENT
MARC BRADLEY BEGINSEL N.O. TWENTY-NINTH RESPONDENT
In their capacities as the joint provisional liquidators of Bosasa IT (Pty) Ltd (in
liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTIETH RESPONDENT
CLOETE MURRAY N.O. THIRTY-FIRST RESPONDENT
MARIETTE BENADE N.O. THIRTY-SECOND RESPONDENT
In their capacities as the joint provisional liquidators of Rodcor Corporate Academy
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTY-THIRD RESPONDENT
CLOETE MURRAY N.O. THIRTY-FOURTH RESPONDENT
JACOLIEN FRIEDA BARNARD N.O. THIRTY-FIFTH RESPONDENT
In their capacities as the joint provisional liquidators of Watson Corporate Academy
(Pty) Ltd (in liquidation)
RALPH FARREL LUTCHMAN N.O. THIRTY-SIXTH RESPONDENT
CLOETE MURRAY N.O. THIRTY-SEVENTH RESPONDENT
DEIDRE BASSON N.O. THIRTY-EIGHTH RESPONDENT
In their capacities as the joint provisional liquidators of ON-IT-1 (Pty) Ltd (in liquidation)
PARK VILLAGE AUCTIONEERS AND
PROPERTY SALES (PTY) LTD THIRTY-NINTH RESPONDENT
THE COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICES FORTIETH RESPONDENT
Neutral citation:
Lutchman N.O. and Others v African Global Holdings (Pty) Ltd
and Others; African Global Holdings (Pty) Ltd and Others v Lutchman N.O. and Others
(1088/2020 and 1135/2020) [2022] ZASCA 66 (10 May 2022)
Coram:
Saldulker, Molemela and Gorven JJA and Meyer and Smith AJJA
Heard:
07 March 2022
Delivered: 10 May 2022
Summary: Company law – business rescue – Companies Act 71 of 2008 – s 131(6) –
interpretation – s 131(6) provides for the suspension of liquidation proceedings at the
time a business rescue application is made – meaning of when business rescue
application is ‘made’ – business rescue application must be issued, served by the
sheriff on the company and the Commission, and each affected person must be
notified of the application in the prescribed manner, to meet the requirements of s
131(6) in order to trigger the suspension of the liquidation proceedings – practice –
judgments and orders – interpretation of order – applicable principles – determining
the manifest purpose of the order – to be determined by also having regard to the
relevant background facts which culminated in it being made.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from: The Gauteng Division of the High Court, Johannesburg (De Villiers
AJ sitting as court of first instance):
1.
The auction appeal (case no. 1088/2020) is upheld with costs, including those
of two counsel for the first to thirty-ninth appellants and the fortieth appellant.
2.
Paragraphs 7, 8, 9, 10 and 11 of the order of the high court are set aside and
replaced with the following:
‘The application under case no. 44827/19 is dismissed with costs, including
those of two counsel for the first to thirty-ninth respondents and the first
intervening party, the Commissioner for the South African Revenue Services.’
3.
Save to the extent reflected in paragraph 3.1 hereof, the first, second and third
appellants’ business rescue appeal (case no. 1135/2020) against paragraphs 16, 17
and 18 of the high court’s order is dismissed with costs, including those of two counsel
for the first to thirty-ninth respondents and the fortieth respondent.
3.1
Paragraph 16 of the order of the high court is set aside and replaced with the
following:
‘The business rescue application is struck from the roll.’
3.2
The first to thirty-ninth and the fortieth respondents’ appeals against paragraph
17 of the high court’s order are upheld.
3.3
Paragraph 17 of the order of the high court is set aside and replaced with the
following:
‘The applicants are ordered to pay the respondents’ costs of the business
rescue application, such costs are to include the costs of two counsel.’
______________________________________________________________
JUDGMENT
______________________________________________________________
Meyer AJA (Saldulker, Molemela and Gorven JJA and Smith AJA concurring):
[1] The sensational revelations made during the Zondo Commission of Enquiry into
Allegations of State Capture, inter alia by the former COO of Bosasa, Angelo Aggrizzi,
shocked the country. Bosasa is now known as Global Holdings (Pty) Ltd (Holdings).
This prompted the bankers of African Global Operations (Pty) Ltd (Operations) - a
wholly-owned subsidiary of Holdings that performed all the treasury functions of the
Bosasa Group of companies, including receiving payments and making payments on
behalf of the various operating companies in the Bosasa Group - to indicate that they
would be withdrawing Operations’ banking facilities and closing the banking accounts,
which was catastrophic for its continued business operations.
[2] After the Bosasa Group had failed to find another bank that would provide
Operations with banking facilities, the directors of Holdings and of Operations resolved
to place Operations and its ten wholly-owned subsidiaries1 under voluntary winding-
up in terms of section 351 of the Companies Act 61 of 1973 (the 1973 Companies
Act).2 However, when the joint provisional liquidators3 (the liquidators) started to
exercise their statutory powers, Holdings attempted to have the resolutions in which
the Bosasa companies were placed under voluntary winding-up (the special
1 The subsidiaries are Global Technology Systems (Pty) Ltd (GTS), Bosasa Properties (Pty) Ltd
(Properties), Rodcor Corporate Academy (Pty) Ltd (Rodcor), Watson Corporate Academy (Pty) Ltd
(WCA), On-IT-1 (Pty) Ltd (On-IT), Bosasa IT (Pty) Ltd (BIT), Bosasa Supply Chain Management (Pty)
Ltd (BCSM), Leading Prospect Trading 111 (Pty) Ltd (Leading Prospect), Bosasa Youth Development
Centres (Pty) Ltd (Youth Centres) and Black Rox Security Intelligence Services (Pty) Ltd (Black Rox),
all in liquidation.
2 I refer to Operations and its ten subsidiaries as ‘the Bosasa companies’, and to the directors of
Holdings, Operations and the Bosasa companies jointly as ‘the directors’.
3 They are: Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O.,Ms Tania Oosthuizen N.O. and Ms
Marianne Oelofsen N.O. in their capacities as the joint provisional liquidators of African Global
Operations (Pty) Ltd; Mr Ralph Farrel Lutchman N.O, Mr Cloete Murray N.O, Mr Selby Musawenkosi
Ntsibande N.O. and Mr Andre Botha October N.O. in their capacities as the joint provisional liquidators
of Bosasa Properties (Pty) Ltd; Mr Ralph Farrel Lutchman N.O, Mr Cloete Murray N.O and Mr Nurjehan
Abdool Gafaar Omar N.O. in their capacities as the joint provisional liquidators of Global Technology
Systems (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O., Mr Roynath Parbhoo N.O.
and Ms Lizette Opperman N.O. in their capacities as the joint provisional liquidators of Leading Prospect
Trading 111 (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O., Mr Ofentse Andrew
Nong N.O. and Mr Tshepo Harry Nonyane N.O. in their capacities as the joint provisional liquidators of
Bosasa Youth Development Centres (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O.,
Ms Taryn Valerie Odell N.O. and Mr Gordon Nokhanda N.O. in their capacities as the joint provisional
liquidators of Black Rox Security Intelligence Services (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr
Cloete Murray N.O. and Ms Milani Becker N.O. in their capacities as the joint provisional liquidators of
Bosasa Supply Chain Management (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O.
and Mr Marc Bradley Beginsel N.O. in their capacities as the joint provisional liquidators of Bosasa IT
(Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr Cloete Murray N.O. and Ms Mariette Benade N.O. in their
capacities as the joint provisional liquidators of Rodcor (Pty) Ltd; Mr Ralph Farrel Lutchman N.O., Mr
Cloete Murray N.O. and Ms Jacolien Frieda Barnard N.O. in their capacities as the joint provisional
liquidators of Watson Corporate Academy (Pty) Ltd; and Mr Ralph Farrel Lutchman N.O., Mr Cloete
Murray N.O. and Ms Deidre Basson N.O. in their capacities as the joint provisional liquidators of On-Lt-
1 (Pty) Ltd (in liquidation). It will be noted that Messrs Lutchman N.O. and Murray N.O. are amongst the
joint provisional liquidators of Operations and each of its ten subsidiaries.
resolutions) declared null and void. In addition, and as a consequence of the
aforementioned, Holdings attempted to have the appointment of the liquidators
declared null and void and of no force and effect. That was the beginning of a litigious
battle between the liquidators and Holdings.
[3] Holdings did that by initiating an application as a matter of extreme urgency in
the Gauteng Division of the High Court, Johannesburg (the high court). The case was
argued before Ameer AJ on 13 March 2019. The following day judgment was
delivered, granting Holdings the relief it had sought and ordering the liquidators to pay
the costs of the proceedings in their personal capacities. However, the high court
granted the liquidators leave to appeal to this Court against that order. On 22
November 2019, this Court delivered its judgment, upholding the appeal and altering
the Ameer AJ order to one dismissing the application with costs, including those of two
counsel.4 Therefore, the effect of this Court’s order is that the Bosasa companies
remained in a creditor’s voluntary winding-up. On 3 December 2019, Holdings5 caused
an application to be issued by the Registrar of the high court. This was for an order
placing six of the eleven Bosasa companies6 (the six Bosasa companies) under
supervision and commencing business rescue proceedings in terms of s 131(1) of the
Companies Act 71 of 2008 (the Companies Act). During 4-6 December 2019, the
liquidators caused most of the assets of the six Bosasa companies to be sold by public
auction.
[4] Holdings7 responded by launching what is referred to as the ‘auction
application’.8 Therein they sought an order against the liquidators: (a) interdicting them
from selling any further assets owned by the six Bosasa companies before the final
4 Murray and Others NNO v African Global Holdings (Pty) Ltd and Others [2019] ZASCA 152; [2020] 1
All SA 64 (SCA); 2020 (2) SA 93 (SCA).
5 Sun Worx (Pty) Ltd (Sun Worx) and Kgwerano Financial Services (Pty) Ltd (Kgwerano) were cited as
the second and third applicants.
6 They are Operations, GTS, Properties, Leading Prospect, Youth Centres and Black Rox.
7 Again with Sun Worx and Kgwerano as the second and third applicants.
8 The liquidators of the eleven Bosasa companies in liquidation are cited as the first to thirty-eighth
respondents, the auctioneer, Park Village Auctioneers and Property Sales (Pty) Ltd (the auctioneer) as
fortieth respondent, and the Commissioner for the South African Revenue Services (SARS), the largest
third-party creditor of the Bosasa companies, was permitted to intervene as the first intervening party
in both the auction and business rescue applications. were cited as the respondents in the auction and
business rescue applications. was permitted to intervene. The business rescue and auction applications
only concern the six Bosasa companies in liquidation:
adjudication of the business rescue application and/or before the second meeting of
creditors, without the written consent of Holdings; (b) a declaration that the sale of
assets before the final adjudication of the business rescue application and/or before
the second meeting of creditors, without the written consent of Holdings, to be null and
void; and (c) interdicting them from delivering the movable assets to, and cause
transfer and registration of ownership of the immovable assets into the names of,
anyone who had purchased the assets of the six Bosasa companies before the final
adjudication of the business rescue application and/or the second meeting of creditors,
without the written consent of Holdings.
[5] The auction and business rescue applications (and another application which
is presently not relevant) were argued before the high court (De Villiers AJ) in a
consolidated hearing. In one judgment, the high court granted the relief sought in the
auction application and dismissed the business rescue application. It gave the
liquidators and SARS leave to appeal its order in the auction application. It also gave
Bosasa, Sun Worx, and Kgwerano leave to appeal its order in the business rescue
application. The liquidators and SARS were also granted leave to appeal one of the
costs awards made in the business rescue application. In each case, leave was given
to appeal to this Court.
[6] I now return to the pertinent contextual background facts from when the
liquidators were given leave to appeal the Ameer AJ order.9 Holdings sought and was
granted an order: (a) that the special resolutions placing the Bosasa companies in a
creditor’s voluntary winding-up had not been lawfully passed and were thus ‘null and
void ab initio and of no force and effect’; (b) that; as a result, the appointments of the
liquidators were not validly and lawfully made and were thus also ‘null and void ab
initio and of no force and effect’; and (c) for the liquidators to deliver control of the
Bosasa companies and all their assets to the directors.
9 As I have mentioned, the liquidators and SARS were the respondents in both the auction and business
rescue applications. The facts alleged by them, therefore, must be accepted ‘unless they constituted
bald or uncreditworthy denials or were palpably implausible, far-fetched or so clearly untenable that
they could safely be rejected on the papers’ and a ‘finding to that effect occurs infrequently because
courts are always alive to the potential for evidence and cross-examination to alter its view of the facts
and the plausibility of evidence’ (see Media 24 Books (Pty) Ltd v Oxford University Press Southern
Africa (Pty) Ltd 2016] ZASCA 119; [2016] 4 All SA 311 (SCA); 2017 (2) SA 1 (SCA) para 36 and
National Scrap Metal (Cape Town) (Pty) Ltd and Another v Murray & Roberts Ltd and Others [2012]
ZASCA 47; 2012 (5) SA 300 (SCA) para 22). That test was not satisfied in both applications.
[7] Notwithstanding the pending appeal against the Ameer AJ order, the directors
did not accept that there had been a concursus creditorum in respect of any of the
Bosasa companies or that the liquidators held any rights or powers as ‘provisional
liquidators’. They maintained that the suspension of the Ameer AJ order as a result of
the pending appeal did not resolve the disputes between them and the liquidators,
whether the Bosasa companies had indeed been placed into liquidation and whether
the liquidators had the powers of provisional liquidators to take control of the assets
and affairs of the Bosasa companies. They asserted that they (and not the liquidators)
remained in control of the assets and affairs of the Bosasa companies, and they
refused to relinquish their control to the liquidators. The liquidators, on the other hand,
maintained that because of the appeal and through the operation of s 18 of the
Superior Courts Act 10 of 2013, the order setting aside the special resolutions and
their appointments as provisional liquidators was suspended pending the outcome of
the appeal and that the Bosasa companies, therefore, remained in liquidation and
under their control (the dispute).
[8] However, the liquidators and the directors agreed to implement a mechanism
through which they could, in consultation with one another, attend to the affairs of the
Bosasa companies despite the dispute between them to avoid further unnecessary
skirmishes and costly litigation pending the outcome of the appeal. That mechanism
included joint and mostly monthly meetings between them when they discussed
matters arising in connection with the affairs of the Bosasa companies and took joint
decisions in relation to the conduct of the Bosasa enterprise (the interim arrangement).
[9] On 2 April 2019, the high court (Tsoka J) granted an interim order extending
the powers of the liquidators in terms of s 386(5), read with s 388, of the 1973
Companies Act, authorising them to: (a) transact on the banking accounts of the
Bosasa companies; (b) continue to conduct their businesses; (c) institute or defend
legal proceedings; and (d) reach reasonable settlements with debtors and accept
payment of any such debts. Once the Tsoka J interim order had been made, Holdings
and the directors intervened in that first application to extend the liquidators’ powers.
The directors and the liquidators then agreed on inserting the following paragraphs 6
and 7 in the final order to be made:
‘6. The powers in paragraphs 4 and 5 above shall be exercised by the Applicants in
consultation with the board(s) of directors of the specific company or companies involved in
the transaction(s) and decisions and the Applicants shall at all times be obliged to give the
directors in question reasonable notice of the meeting at which it is sought to consult and of
the subject matter thereof.
7. This order shall lapse and be of no further force and effect immediately upon the grant of
an order by the Supreme Court of Appeal that the appeal against the order granted under
case number 2103/2019 has been successful. However, if the appeal is successful, then the
provisions in paragraph 6 shall lapse and be of no force or effect.’
[10] On 14 May 2019, Mudau J made the Tsoka J interim order final with the addition
of the above-quoted paragraphs 6 and 7. In support of such additional relief, the
directors stated the following in their founding affidavit in the intervention application:
‘25. None of Holdings or the Directors were included as Respondents but some of the latter
were given notice. The directors of Holdings and the Directors had considerable concerns
regarding the relief which was sought given that the Applicants were essentially seeking the
sanction of the Court of powers beyond those which vest in provisional liquidators in the
ordinary course and effectively to enable the Applicants to proceed post-haste with the winding
up of the companies in advance of the consideration of the appeal in the Supreme Court of
Appeal.
26. If that appeal is unsuccessful (and Holdings and the Directors have every reason to believe
that it will be), the effect will be that the resolutions implementing the winding up of the
companies will be declared to be void and the [liquidators] be directed to hand control of the
companies back to the Directors with all of their assets as at 21 February 2019.
27. The intention of the Applicants in seeking the relief they did, was to give them sole control
with extensive powers without the need to engage or consult with the Directors.
Notwithstanding that the Registrar of the Supreme Court of Appeal has been requested to
expedite the appeal, the final grant of the orders sought may well result in the winding up of
the companies being a fait accompli before that appeal is finalised.
. . .
30. In the event, from the perspective of Holdings and the Directors, the interim arrangement
whereby the powers granted to the Applicants in the interim Order and exercised in
consultation with the board(s) of directors of the specific company or companies involved in
the transaction(s) and decisions in question has been working well, and agree to the
continuation of that arrangement pending the outcome of the appeal.’
[11] The liquidators and the directors realised that the six Bosasa companies had
lost their substratum and that there was a need to dispose of their assets expeditiously.
The founding affidavit fully explained the need to support a further application to the
high court to extend the liquidators’ powers (the second application to extend the
liquidators’ powers). In short, the liquidators were advised that Cabinet decided that
‘all service level agreements between Departmental and State Owned Companies and
any companies related to African Global Operations (Bosasa) group of companies’
must be terminated. The six Bosasa companies were awarded lucrative income-
generating contracts, inter alia with the Department of Correctional Services, Airports
Company of South Africa and the Department of Social Development. Most such
agreements had already been terminated by the time the founding affidavit was
deposed. Those contracts were ‘the proverbial backbone of the group of companies’,
and their termination had significantly impacted the ability of the Bosasa companies to
continue with their business operations. The majority of the significant assets, movable
and immovable, of the six Bosasa companies were acquired to provide services in
terms of the then cancelled contracts. Their substantial but then redundant, movable
assets had to be kept in a safe location, guarded, under surveillance and insured. The
monthly insurance charges alone amounted to R150 000. Without the power to sell
the redundant assets, the situation would continue, and the six Bosasa companies
that no longer generated an income would have to keep on paying those substantial
expenses. The upkeep of the immovable properties also drained the financial
resources of Operations and Properties.
[12] The dilemma the liquidators and directors faced was thus articulated in the
founding affidavit of the liquidators in the second application to extend their powers:
‘87. In ordinary liquidation proceedings the Master of the High Court will convene a first
meeting of creditors, members and contributories to, amongst other things, enable creditors
to prove their claims and vote on the final appointment of liquidators. I stress the fact that in
accordance with section 364 of the Companies Act only the Master may convene a first
meeting and that it is beyond the powers of provisional liquidators to do so.
88. As soon as liquidators are finally appointed, they are empowered to convene a second
meeting of creditors. It is only at this second meeting where creditors are asked to consider
and adopt resolutions authorising liquidators to generally act in their best interest (by, for
example, appointing attorneys or selling assets).
89. Typically it takes anywhere between two to eight months for a second meeting of creditors
to take place. In the companies involved in this application this position is unfortunately much
worse, as the first creditors’ meetings will only be convened when the afore-mentioned
pending appeal is finalised.
90. I wish to point out that section 386(2B) of the Companies Act entitles the Master of the
High Court to authorise the sale of assets in situations like this. In the present instance the
Master indicated that it would prefer not to take a decision itself, and indicated that it regarded
an approach to court (i.e. the current application) as more appropriate. A true copy of the
Master’s relevant email is annexed hereto as “FA17”. In light thereof, the applicants have no
choice other than to seek an extension of our powers in terms of this application.’
[13] The founding affidavit inter alia deals with the dispute between the directors
and the liquidators and the interim arrangement they reached pending the finalisation
of the appeal; and the background to and the purpose of the Tsoka J interim order,
the intervention application and the interim arrangement reached between the
liquidators and the directors, which interim arrangement is reflected in paragraphs 6
and 7 of the Mudau J final order.
[14] It is necessary to refer to certain specific paragraphs in the founding affidavit of
the second application to extend the liquidators’ powers:
‘39. In acknowledgment of the interests which African Global Operations (Pty) Ltd (in
liquidation) (represented by the first to third applicants mentioned above), and the ultimate
holding company (African Global Holdings (Pty) Ltd, a solvent company to which reference is
made in paragraph 48 that follows) have in the outcome of the sale of assets of the relevant
companies, the co-provisional liquidators have, [as was envisaged in the 2 April order (referred
to in paragraph 51 that follows) and the 14 May 2019 order (referred to in paragraph 53 that
follows)], agreed that the assets referred to in paragraphs 37 and 38 above will not be sold
other than in consultation with and with the consent of the boards of African Global Operations
(Pty) Ltd (in liquidation) and African Global Holdings (Pty) Ltd. The applicants are accordingly
supported in this application by the boards of directors of each of the seven companies
referred to above and by African Global Holdings (Pty) Ltd.
. . .
46. As a result of the appeal, and through the operation of section 18 of the Superior Courts
Act, 10 of 2013, the order setting aside the special resolutions is suspended pending the
outcome of the appeal. The Applicants are advised that the eleven companies remain in
liquidation and remain under the control of their respective co-provisional liquidators. As
appears more fully what I say here under, the boards of the companies in question and African
Global Holdings (Pty) Ltd hold a different view which has necessitated agreement on the
practical solution in terms of which the companies have been managed until now.
. . .
51. Substantial exchanges between Standard Bank and the co-provisional liquidators followed
but, notwithstanding attempts to explain our position, Standard Bank adopted the stance that
they would not allow the provisional liquidators to transact on the accounts unless a court
order was obtained, authorising us to do so. In consequence of the above the applicants
launched an urgent application for an interim order under case number 11954/2019. On 1 April
2019 the Applicants’ attorney received a letter from the attorneys representing African Global
Holdings (Pty) Ltd and the directors of the companies in respect of which the extensions of
powers were being sought. A copy of the letter is attached as “FA8” (“the Letter”). The said
attorneys recorded in the Letter that their client did not accept that there had been a concursus
creditorum in respect of any of the companies within the African Global Group or that the
applicants therein then held any rights or powers as “provisional liquidators”. The said
attorneys however made certain proposals in paragraphs (a) - (c) thereof, agreement to which
would preclude the necessity for their clients to intervene urgently and to oppose the
application. As a matter of practicality the Applicants agreed to the proposals, and on 2 April
2019 obtained a court order incorporating them and authorising us to, inter alia, transact on
the bank accounts. A true copy of the court order is annexed hereto as “FA9” (the 2 April
order).
. . .
53. The application for leave to intervene referred to in paragraph 6 of the 2 April order was
launched and an order granting leave to thirteen parties to intervene in the pending
proceedings was granted on 14 May 2019. However, given that the interim agreement
whereby the powers granted to the Applicants in the 2 April order are exercised in consultation
with the board(s) of directors of the specific company or companies involved in the
transaction(s) and decisions in question has been working well, agreement was reached upon
the continuation of that agreement pending the outcome of the appeal. A true copy of the order
reached by agreement is annexed hereto as “FA10” (the May order). Although the May order
substituted the April order, for all intents and purposes it had the same effect.’
[15] Once the draft second application to extend the liquidators’ powers had been
considered by Holdings and the directors, their attorneys, on 4 September 2019,
advised the liquidators’ attorneys as follows:
‘We refer to the correspondence exchanged between our respective offices regarding the
proposed application for the extension of the powers of your clients.
We represent African Global Holdings Proprietary Limited, the directors of that company as
well as the directors of the African Global Operations Proprietary Limited as well as those of
the various subsidiary companies of African Global Operations Proprietary Limited mentioned
in the proposed application as having supposedly been placed in provisional liquidation during
February 2019.
We refer to amongst others paragraph 51 of the draft affidavit and confirm the said paragraph
correctly records the position of our clients as does our letter of 1 April 2019 (attached to the
founding affidavit as annexure FA 8) regarding the status of the companies as well as the
basis upon which our clients agreed to both the April order and the May order.
We also confirm that by virtue of your clients agreeing that they will not exercise their powers
other than:
1. in consultation with our clients; and
2. without the consent of our clients,
and as a matter of practicality (without conceding the legal position or rights) our clients
consent to the relief claimed in the notice of motion.’
[16] On 28 October 2019, Bhoola AJ granted the consent order sought for the
extension of the liquidators’ powers. It reads:
‘1. The applicants’ powers are extended in terms of section 386(5), read with section 388, of
the Companies Act, 61 of 1973 (the Companies Act), authorising them to sell all the movable
assets belonging to African Global Operations (Pty) Ltd, Global Technology Systems (Pty)
Ltd, Bosasa IT (Pty) Ltd, Leading Prospect Trading 111 (Pty) Ltd, Bosasa Development
Centres (Pty) Ltd, and Black Rox Security Intelligence Services (Pty) Ltd (all in liquidation), by
way of public auction, public tender or private contract, as contemplated in section 386(4)(h)
of the Companies Act.
2. The applicants’ powers are extended in terms of section 386(5), read with section 388, of
the Companies Act authorising them to sell all of the immovable properties belonging to
Bosasa Properties (Pty) Ltd (in liquidation), by way of public auction, public tender or private
contract, as contemplated in section 386(4)(h) of the Companies Act.10
3. The assets referred to in paragraphs 1 and 2 above shall be sold in consultation with and
with the consent of the board of African Global Holdings (Pty) Ltd, African Global Operations
10 Paragraph 2 of the Bhoola AJ order was subsequently varied by the insertion of the words ‘and
African Global Operations (Pty) Ltd (in liquidation)’ after the words ‘Bosasa Properties (Pty) Ltd (in
liquidation)’.
(Pty) Ltd (in liquidation) and the respective boards of its subsidiaries referred to in paragraphs
1 and 2 above.’
[17] The liquidators initially instructed the auctioneer to sell the majority of the six
Bosasa companies’ assets by way of public auction on 26 and 27 November 2019.
The dates of the intended auction sale were then changed to 4-6 December 2019.
Other than for the sale of certain movable assets,11 Holdings and the directors
objected to the sale of the other assets by public auction at the end of November or in
December, maintaining that they had not consented to the sale thereof as required in
terms of the Bhoola AJ order. The liquidators’ attorneys advised their attorneys that
there was no reason for the sale by public auction not to proceed and that they would
be proceeding with the advertisement and sale of the assets. The appeal was argued
in the Supreme Court of Appeal on 15 November 2019.
[18] On 20 November 2019, Holdings’ attorneys addressed a lengthy and
comprehensive letter to the liquidators’ attorneys, commencing by stating that they
‘address this letter on the instructions of the directors of African Global Holdings (Pty)
Ltd (“Holdings”)’. They referred to the Mudau J, and Bhoola AJ orders extending the
liquidators’ powers and the letter continued thus:
‘We are instructed that there is no plausible reason to rush the disposal of the remaining
assets. The liquidators first engaged our clients on the application for the extension of powers
in the first half of 2019. It was only after the master refused to grant his or her consent to the
extended powers by virtue of the pending SCA appeal that the liquidators approached the
directors for their consent granting such extension. The first drafts of the proposed application
only surfaced in July 2019 and the application itself was only issued on 12 September 2019.
The remaining assets have been preserved and secured since February 2019 and the
liquidators have given rational reasons for the sudden need to urgently dispose of the
remaining assets.
The appeal brought by the liquidators against the Order of Ameer AJ was heard by the
Supreme Court of Appeal on Friday 15 November 2019. In all likelihood, judgment will be
given by the appeal court before the end of this year. Once the judgment is handed down
either the liquidators, alternatively the directors, will be permitted to take control of the various
11 The directors consented to the sale of the firearms, equipment and furniture in respect of the
repatriation and youth centres, equipment to the Department of Correctional Services and the
shareholding in Ntsimbintle.
companies and make decisions regarding the disposal of the assets of those companies. The
liquidators may be permitted to dispose of the assets without the consent of the directors or
vice versa. The directors may be inclined to sell the assets in a different manner to that which
the liquidators have proposed (by way of auction) if the appeal is dismissed (such as sale to
private buyers and not by way of auction at a forced sale value). For this reason alone, it would
be unreasonable to insist that the sale take place this year before the judgment is handed
down.’
[19] On 22 November 2019, this Court delivered its judgment, upholding the appeal
and altering the Ameer AJ order to one dismissing the application with costs, including
those of two counsel, with the effect that the Bosasa companies remain in a creditor’s
voluntary winding-up. Holdings nevertheless demanded that the liquidators do not
proceed with the three-day public auction of the assets of the six Bosasa companies
scheduled to take place from 4 to 6 December 2019, maintaining that paragraph 3 of
the Bhoola AJ order remains operative and that it and the directors had not consented
to the scheduled public auction. The liquidators refused to accede to its demand. On
3 December 2019, Holdings, Sun Worx and Kgwerano caused the business rescue
application to be issued. Holdings still demanded that the public auction be cancelled,
also maintaining that that application had suspended the liquidation proceedings,
including the scheduled public auction in terms of s 131(6) of the Companies Act, but
the liquidators steadfastly refused to accede to the demand.
[20] The public auction commenced on 4 December 2019 and continued until 6
December 2019. The total value realised pursuant to the auction and sale of most of
the six Bosasa companies’ assets amounted to R113,048,407.00 in circumstances
where the estimated forced sale market value of the realised assets amounted to
R89,803,295.00. Holdings, Sun Worx and Kgwerano then brought the auction
application, wherein they sought and obtained the relief set out in paragraph 4 supra.
[21] The auction application and appeal are premised on two grounds: First, the
liquidators were statutorily prohibited from proceeding with the auction and any
subsequent sales of the assets of the Bosasa companies due to a suspension of the
Bosasa liquidation proceedings in terms of s 131(6) of the Companies Act, because
the application for business rescue was ‘made’ on 3 December 2019, which was prior
to the commencement of the auction on 4 December 2019. This ground raises two
questions: (a) when is a business rescue application ‘made’ within the meaning of s
131(6); and (b) whether the business rescue application in casu was indeed ‘made’
within the meaning of s 131(6). These questions raise the proper interpretation of s
13(6). The findings in respect of these questions may well be dispositive of the
business rescue appeal. The second ground upon which the auction application and
appeal are premised is that the liquidators were not clothed with the requisite power
or authority to sell the assets on auction at the time when the auction was held or
thereafter, because they were provisional liquidators, the directors have not consented
to the public auction as contemplated in paragraph 3 of the Bhoola AJ order and the
second meeting of creditors has not yet been held. This ground raises the
interpretation of paragraph 3 of the Bhoola AJ order.
[22] The high court held that the liquidators were legally prevented from proceeding
with the auction and any subsequent sales of the Bosasa assets due to the business
rescue application having been ‘made’ on 3 December 2019 prior to the auction, which
triggered the suspensions of the Bosasa companies’ respective liquidation
proceedings in terms of s 131(6) of the Companies Act. It also held that Holdings and
the directors did not consent to nor, on a proper interpretation of paragraph 3 of the
Bhoola AJ order, were the liquidators clothed with the requisite power or authority to
sell the assets on auction at the time when it was held. It accordingly granted the relief
sought in the auction application. The business rescue application was dismissed on
its merits.
[23] Section 131(1) of the Companies Act provides that ‘[u]nless a company has
adopted a resolution contemplated in section 129, an affected person may apply to a
court at any time for an order placing the company under supervision and commencing
business rescue proceedings’. Section 131(2) provides that ‘[a]n applicant in terms of
subsection (1) must – (a) serve a copy of the application on the Company and the
Commission; and (b) notify each affected person of the application in the prescribed
manner’.12 In addition, s 131(3) provides that ‘[e]ach affected person has a right to
12 The ‘Commission’ referred to is the Companies and Intellectual Property Commission established by
s 185. Affected persons are defined in s 128(1)(a)(i), (ii) and (iii) as a shareholder or creditor of that
company and include any registered trade union representing employees or each of the individual
participate in the hearing of an application in terms of this section’. Furthermore, s
131(6) provides that ‘[i]f liquidation proceedings have already been commenced by or
against the company at the time an application is made in terms of subsection (1), the
application will suspend those liquidation proceedings until (a) the court has
adjudicated upon the application; or (b) the business rescue proceedings end, if the
court makes the order applied for’. Moreover, s 132(1) provides that ‘[b]usiness 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); (b) an affected person applies to the court for
an order placing the company under supervision in terms of section 131(1); or (c) a
court makes an order placing a company under supervision in terms of section
131(7).13
[24] There are conflicting high court judgments on when a business rescue
application is ‘made’ within the meaning of s 131(6) of the Companies Act. What some
considered constituting the ‘making’ of a business rescue application are the issue,
service and prescribed notification thereof,14 and others the mere lodging of the
business rescue application with the registrar and the issue thereof.15 For the reasons
that follow, I subscribe to the interpretation that a business rescue application must be
issued, served on the company and the Commission, and each affected person must
be notified of the application in the prescribed manner, to meet the requirements of s
131(6) in order to trigger the suspension of liquidation proceedings that have already
commenced.
employees. Regulation 124 of the Company Regulations, 2011, published under GN 351 in GG 34239
of 26 April 2011 provides that ‘[a]n applicant in court proceedings, who is required, in terms of either
section 130(3)(b) or 131(2)(c), to notify affected persons that an application has been made to a court,
must deliver a copy of the court application, in accordance with regulation 7, to each affected person
known to the applicant.
13 Emphasis added.
14 ABSA Bank Ltd v Summer Lodge (Pty) Ltd 2013 (5) SA 444 (GNP) para 16, Taboo Trading 232 (Pty)
Ltd v Pro Wreck Scrap Metal CC; Joubert v Pro Wreck Scrap Metal CC and Others 2013 (6) 141 (KZP)
paras 8-11, ABSA Bank Ltd v Summer Lodge (Pty) Ltd 2014 (3) SA 90 (GP) para 19, Standard Bank
of South Africa Ltd v Gas 2 Liquids (Pty) Ltd 2017 (2) SA 56 (GJ).
15 Blue Star Holdings (Pty) Ltd v West Coast Oyster Growers CC 2013 (6) SA 540 (WCC) para 29,
which was followed by the high court in this instance.
[25] Section 131(6), read with the provisions of ss 131(1) to (4) and 132(1)(b), must
be interpreted in accordance with the well-known principles of interpretation.16 Those
principles were recently thus summarised in Commissioner for the South African
Revenue Service v United Manganese of Kalahari (Pty) Ltd (264/2019) ZASCA 16 (25
March 2020):17
‘It is an objective unitary process where consideration must be given to the language used in
the light of the ordinary rules of grammar and syntax; the context in which the provision
appears; the apparent purpose to which it is directed and the material known to those
responsible for its production. The approach is as applicable to taxing statutes as to any other
statute. The inevitable point of departure is the language used in the provision under
consideration.’
[26] This Court elaborated further on the context for the interpretation of statutes,
thus:18
‘The difference in the genesis of statutes and contracts provides a different context for their
interpretation. Statutes undoubtedly have a context that may be highly relevant to their
interpretation. In the first instance there is the injunction in s 39(2) of the Constitution of the
Republic of South Africa, 1996 . . . that statutes should be interpreted in accordance with the
spirit, purport and objects of the Bill of Rights. Second, there is the context provided by the
entire enactment. Third, where legislation flows from a commission of enquiry, or the
establishment of a specialised drafting committee, reference to their reports is permissible and
may provide helpful context. Fourth, the legislative history may provide useful background in
resolving interpretational uncertainty. Finally, the general factual background to the statute,
such as the nature of its concerns, the social purpose to which it is directed and, in the case
of statutes dealing with specific areas of public life or the economy, the nature of the areas to
which the statute relates, provides the context for the legislation.’
[27] The word ‘made’ is the past participle of the word ‘make’. The dictionary
meaning of the verb ‘make’ includes ‘bring about or perform; cause’.19 But, as was
16 Natal Joint Municipality Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18, and
approved by the Constitutional Court in inter alia Airports Company South Africa v Big Five Duty Free
(Pty) Ltd and Others 2019 (5) SA 1 (CC) para 29. Also see Bothma-Batho Transport (Edms) Bpk v S
Bothma & Seun Transport (Edms) Bpk 2014 (2) SA 494 (SCA) para 12.
17 Commissioner for the South African Revenue Service vv United Manganese of Kalahari (Pty)
Ltd ZASCA 16 (25 March 2020), para 8. (Footnote omitted.)
18 Ibid para 17. (Footnotes omitted.)
19 Concise Oxford English Dictionary (Twelfth Edition).
said in Natal Joint Municipality Pension Fund v Endumeni Municipality,20 ‘[m]ost words
can bear several different meanings or shades of meaning and to try to ascertain their
meaning in the abstract, divorced from the broad context of their use, is an unhelpful
exercise’. And in Plaaslike Oorgangsraad, Bronkhortspruit v Senekal,21 ‘. . . dat mens
jou nie moet blind staar teen die swart-op-wit woorde nie, maar probeer vasstel wat die
bedoeling en implikasies is van dit wat gesê is. Dit is juis in hierdie proses waartydens die
samehang en omringende omstandighede relevant is’.22
[28] That is also true of the words ‘application is made’ in s 131(6), ‘apply’ in s 131(1)
and ‘applies’ in s 132(1)(b) of the Companies Act. However, on a proper interpretation
of the word ‘made’ in isolation, in the context of s 131 as a whole (especially
subsections 131(1) to (3)), in the context of the Companies Act as a whole (especially
the nature and purpose of business rescue proceedings vis-à-vis those of winding up
proceedings as well as s 132(1)(b)), and the apparent purpose to which s 131(6) is
directed, its meaning becomes clear: The business rescue application must be issued,
served on the company and the Commission, and all reasonable steps must have
been taken to identify affected persons and their addresses and to deliver the
application to them, to meet the requirements of s 131(6) in order to trigger the
suspension of the liquidation proceedings.
[29] Liquidation proceedings are strictly proceedings to constitute a concursus
creditorum. The liquidation process continues until the company's affairs have been
finally wound up, and the company is dissolved.23 Whereas, ‘[b]usiness rescue is a
process aimed at avoiding the liquidation of a company if it is feasible. There are two
routes through which a company may enter business rescue, namely, by way of a
resolution of its board of directors (s 129(1)) or by way of a court order (s 131(1))’.24
The purpose to which s 131(6) is directed is to suspend liquidation proceedings until
20 Natal Joint Municipal Pension Fund v Endumeni Municipality 2012] ZASCA 13; [2012] 2 All SA 262
(SCA); 2012 (4) SA 593 (SCA) para 25.
21 Plaaslike Oorgangsraad van Bronkhortspruit v Senekal 2001 (3) SA 9 (SCA) para 11.
22 See the case of Elan Boulevard (Pty) Ltd v Fnyn Investments (Pty) Ltd [2018] ZASCA 165; 2019 (3)
SA 441 (SCA) para 16 footnote 6 where it has been loosely translated as: ‘One should not stare blindly
at the black-on-white words, but try to establish the meaning and implication of what is being said. It is
precisely in this process that the context and surrounding circumstances are relevant.’
23 Richter v ABSA Bank Limited [2015] ZASCA 100; 2015 (5) SA 57 (SCA) para 10.
24 Panamo Properties (Pty) Ltd and Another v Nel N.O. and Others [2015] ZASCA 76; 2015 (5) SA 63
(SCA); [2015] 3 All SA 274 (SCA) para 8.
the court has adjudicated upon the business rescue application or the proceedings
end.
[30] Significant consequences ensue upon the commencement of liquidation
proceedings. As was said in Standard Bank of South Africa Ltd v Gas 2 Liquids (Pty)
Ltd:25
‘[22] Provisional liquidators have, in terms of the Act, those powers statutorily granted to them,
those which the Master may specially confer and those which they are granted by the court.
They cover a wide range of activities. These may include the carrying on of a business,
institution or defence of legal proceedings and the sale (or even the acquisition) of assets.
Pursuant to the exercise of such powers, the provisional liquidator may operate banking
accounts, receive and disburse funds, remunerate employees, conclude contracts and
generally carry out the duties of the directors of the company in liquidation.
[23] Where there is no service upon the provisional liquidator of the application for business
rescue, the provisional liquidator may have absolutely no knowledge of that business-rescue
application. In fact, knowledge alone would be insufficient. The provisional liquidator is entitled
to service in terms of section 131 of the Act. Absent such service, the provisional liquidator
does not officially know that he or she is “suspended” in his or her duties and powers, if such
suspension of the liquidation proceedings were to eventuate solely by reason of lodgement of
papers at court and the issue of a case number.
[24] It may be that service upon the company/liquidator, upon the Commissioner and
notification to affected parties may take quite some time. In fact, respondent’s counsel
informed me that such service and notification need only take place “in due course”. And while
the course time ebbs and flows, the provisional liquidator is carrying out his or her duties and
exercising his or her power in ignorance. Money may go in and out, employees may report for
duty or be sacked, and legal proceedings may be commenced or terminated. All this should
not be permitted or implemented by a provisional liquidator who is suspended because the
liquidation proceedings are suspended. . . . He or she may not do anything which may impact
upon the business rescue application. But the provisional liquidator would continue to carry
out his or her duties and exercise his or her powers where there has been no service of the
business rescue application upon the provisional liquidator. Lodgement of papers at court and
issue of a case number does not mean that anyone other than the applicant, the messenger
and the individual clerk in the office of the registrar has knowledge that the provisional
liquidator should do nothing further because the liquidation proceedings are suspended.
25 Standard Bank of South Africa Ltd v Gas 2 Liquids (Pty) Ltd 2017 (2) SA 56 (GJ).
[25] Such a situation cannot be allowed to eventuate. It cannot be that mere lodgement of
papers and issue of a case number is sufficient to trigger a suspension. As I have pointed out,
if that were the case, a provisional liquidator may be acting without authority (and perhaps
unlawfully) in a multiplicity of respects. That cannot have been the intention of the legislature.
The question would then also arise as to when. . . where. . . why and by whom these
unauthorised actions of a provisional liquidator are to be undone and with what consequences
to third parties or to the company whose liquidation is suspended but which is not yet (and
may never be) in business rescue.’26
[31] In Republikeinse Publikasies (Edms) Bpk v Afrikaanse Pers Publikasies (Edms)
Bpk,27 it was held that the purpose of a summons or notice of motion is to involve a
respondent in a lawsuit. Only when a provisional liquidator and the Commission are
served with a business rescue application and affected persons have been notified
thereof will they thus be involved in or drawn into the business rescue application
proceedings. Until then, they remain unaffected in law. It will give effect to the purpose
of s 131(6) to suspend liquidation proceedings only where the application for business
rescue has been publicly and formally (by its issue, service on the company and the
Commission, and notification to each affected person) been ‘made’. An interpretation
that the word ‘made’ in s 131(6) is used to denote the mere issuing of the business
rescue proceedings and thereby triggering the suspension of the liquidation
proceedings, in my view, results in absurdity, militates against logic, leads to an
insensible or unbusinesslike result, and undermines the purpose of the section.
[32] By analogy, in Tjeka Training Matters (Pty) Ltd v KPPM Construction (Pty) Ltd
and Others28 and in Pan African Shopfitters (Pty) Limited v Edcon Ltd and Others,29
the word ‘initiated’ used in s 129(2)(b) of the Companies Act, which provides that a
resolution to begin business rescue proceedings and place a company under
supervision ‘may not be adopted if liquidation proceedings have been initiated by or
against the company’, was interpreted to mean that the liquidation proceedings must
be served on the company, not merely issued, to meet the requirements of the section.
26 See also Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC; Joubert v Pro Wreck Scrap Metal
CC and Others 2013 (6) 141 (KZP) para 11.
27 Republikeinse Publikasies (Edms) Bpk v Afrikaanse Pers Publikasies (Edms) Bpk 1972 (1) SA
773 (A) at 780E-F.
28 Tjeka Training Matters (Pty) Ltd v KPPM Construction (Pty) Ltd and Others 2019 (6) SA 185 (GJ).
29 Pan African Shopfitters (Pty) Ltd v Edcon Limited and Others [2020] ZAGPJC 158 (10 July 2020).
[33] In Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd
and Others,30 this Court interpreted the word ‘initiate’ used in a court order granting an
interdict pending certain review proceedings that were intended to be launched on
condition that it be initiated by no later than a certain date, to mean not only the filing
of the review application papers with the registrar and the issue thereof but also service
thereof. In reaching that conclusion, this Court inter alia placed reliance on Mame
Enterprises (Pty) Ltd v Publications Control Board,31 wherein it was held that it was
manifest from rule 6 of the Uniform Rules of Court and from the contents of Form 2(a)
thereof that the giving of notice to the respondent in a case in which relief is claimed
against him is an essential first step in an application on notice of motion; and on Tladi
v Guardian National Insurance Co Ltd,32 wherein it was held that an application, which
was required to have been made within a period of 90 days as contemplated in s 14(3)
of the Motor Vehicle Accidents Act 84 of 1986, could not be considered to have been
made if it had merely been issued but not served.
[34] In Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC; Joubert v Pro
Wreck Scrap Metal CC and Others,33 it was held that the reasoning in judgments,
which held that applications contemplated in similar legislation governing claims for
damages arising from personal injuries caused by motor vehicle accidents could only
be considered to have been made within the time periods prescribed in such legislation
if such applications had been filed with the registrar and served, ‘is both relevant and
apposite to a consideration and interpretation of the words “apply”, “application is
made” and “applies” in s 131(1), s 131(6) and s 132(1)(b) of the Companies Act, with
reference to when a business rescue application may be considered to have been
made’.34
30 Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd and Others [2012] ZASCA
49; 2013 (2) SA 204 (SCA) paras 14-20.
31 Mame Enterprises (Pty) Ltd v Publications Control Board 1974 (4) SA 217 (W) at 220B.
32 Tladi v Guardian National Insurance Co Ltd 1992 (1) SA 76 (T) at 80B.
33 Taboo Trading 232 (Pty) Ltd v Pro Wreck Scrap Metal CC; Joubert v Pro Wreck Scrap Metal CC and
Others 2013 (6) 141 (KZP) para 9.
34 The authorities referred to are Fisher v Commercial Union Assurance Co Of SA Ltd, 1977(2) Sa 499
(C); Peters v Union and National South British Insurance Co Ltd, 1978(2) SA 58 (D) and Tladi v
Guardian National Insurance Co Ltd, 1992(1) SA 76 (T).
[35] This brings me to the question whether the business rescue application was
indeed ‘made’ within the meaning of s 131(6) as set out above, on 3 December 2019,
thereby suspending the liquidation proceedings prior to the auction. The answer is no.
[36] In Van Staden NO and Others v Pro-Wiz Group (Pty) Ltd,35 this Court said:
‘[10] Starting with basic principles, in terms of s 131(2)(a) of the Act an application for
business rescue must be served on the company or closed corporation. Where it is
already being wound up, whether provisionally or finally, that means that the persons
on whom it must be served, as representing the company, are its liquidators. That
necessarily follows from the fact that, upon the compulsory winding-up of a company,
its directors (read members in the case of a close corporation) are deprived of their
control of the company, which is then deemed to be in the custody or control of the
Master until the appointment of liquidators. Thereafter it is in the custody or control of
the liquidators.
[12] It is apparent from the provisions of s 131 that the company that is the subject of the
business rescue application is entitled to oppose it. At the time the application is made in
relation to a company under provisional or final winding-up, its affairs will be in the hands of
the liquidators. On ordinary principles it seems obvious that liquidators, whether provisional or
final, faced with such an application should be entitled either to support or oppose the
application depending upon their judgment as to the interests of the company and its creditors.
[13] Furthermore, as a matter of principle, when a party is cited in legal proceedings it is
entitled without more to participate in those proceedings. The fact that it was cited as a party
gives it that right. . . . ’
[37] The auction application and the business rescue application needed to have
been served on each of the joint liquidators of each of the six Bosasa companies. They
represent the Bosasa company in liquidation in respect of which they were appointed.
Furthermore, each of them was cited as a respondent in the auction application and
business rescue applications. They, in terms of s 382(1) of the 1973 Companies Act,
‘shall act jointly in performing their functions as liquidators and shall be jointly and
severally liable for every act performed by them’. Knowledge of the business rescue
application would be insufficient. The Commission is one of the regulatory agencies
35 Van Staden NO and Others v Pro-Wiz Group (Pty) Ltd [2019] ZASCA 7; 2019 (4) SA 532 (SCA).
(Footnote omitted.)
established under Ch 8 of the Companies Act and ‘has a direct and substantial interest
in any order that the court might make’.36 Hence, there is a statutory obligation on an
applicant to cause a business rescue application to be served on it.
[38] Each affected person – a shareholder or creditor of the company in liquidation,
any registered trade union representing employees of that company or each of the
individual employees – is entitled to oppose or support the business rescue
application. That necessarily follows from the right afforded to each of them in terms
of s 131(3) to participate in the hearing of the business rescue application. Each should
have been notified of the business rescue application in terms of s 131(1)(b) in the
prescribed manner.
[39] The service and notification requirements set out in s 131(2) of the Companies
Act are not merely procedural steps. According to Taboo, [t]hey are substantive
requirements, compliance with which is an integral part of making ‘an application for
an order in terms of s 131(1) of the Companies Act’.37 Strict compliance with those
requirements is required because business rescue proceedings can easily be abused.
As this Court noted in Pro-Wiz, ‘[i]t has repeatedly been stressed that business rescue
exists for the sake of rehabilitating companies that have fallen on hard times but are
capable of being restored to profitability or, if that is impossible, to be employed where
it will lead to creditors receiving an enhanced dividend. Its use to delay a winding-up,
or to afford an opportunity to those who were behind its business operations not to
account for their stewardship, should not be permitted’.38
[40] On a proper conspectus of the papers, it cannot be said that there has even
now been compliance, or even substantial compliance, with the service and
notification prescripts s 131(2) of the Companies Act and the Regulations. First, the
business rescue application ought to have been served by the sheriff on each joint
liquidator of each of the six Bosasa companies in the manner provided for in rule
4(1)(a) of the Uniform Rules of Court.39 It is a substantive Form 2(a) application, and
36 Engen Petroleum (Pty) Ltd v Multi Waste (Pty) Ltd and Others 2012 (5) SA 596 (GSJ) para 15.
37 Taboo, para 11.3.
38 Pro-Wiz para 22.
39 Rule 4(1)(a) of the Uniform Rules of Court provides that ‘[s]ervice of any process of the court directed
to the sheriff and subject to the provisions of paragraph (aA) any document initiating application
not an ancillary or interlocutory application, which, in terms of rule 4(1)(aA),40 may be
served upon an attorney representing a party in proceedings already instituted. In
general, rule 4(1)(aA) applies to proceedings already instituted so that it in effect
applies to ancillary and interlocutory applications.41 On 3 December 2019, the sheriff
only served it on Mr Cloete Murray, and a candidate attorney delivered it by hand to
Mr Ralph Lutchman, who are joint liquidators of each of the six Bosasa companies.
The sheriff did not serve it on the many other joint liquidators. Furthermore, it is not
the directors’ or Holdings’ case that Mr Murray N.O. (or Messrs Murray and Lutchman
N.N.O.) were authorised by each other liquidator to accept service of the business
rescue application on their behalf.
[41] Second, it is common cause that the Bosasa Group had approximately 4 500
employees as of 12 February 2019, when the directors of Holdings and the Bosasa
companies passed the special resolutions, which were filed with the Commission on
14 February 2019, when the creditors’ voluntary winding-up of each of the Bosasa
companies commenced. Its workforce was thereafter reduced to 50 employees as at
29 November 2019. On 3 December 2019, only 29 employees were notified by
electronic means of the business rescue application. It is not stated that all the
employees of the Bosasa companies have been notified of the business rescue
application, nor is any explanation proffered why the full staff compliment of 50
employees was not notified. Third, it is not stated what steps, if any, were taken to
identify affected persons and their addresses and to deliver the business rescue
application to them in order for the high court to have considered whether all
reasonable steps had been taken to identify affected persons and their addresses and
to deliver the application to them.
[42] I conclude, therefore, that the business rescue application was not ‘made’ within
the meaning of s 131(6) of the Companies Act, and the suspension of the liquidation
proceedings shall be effected by the sheriff . . ..’ It continues to provide ways in which this is to be
achieved (Rule 4(1)(a)(i)-(ix).
40 Rule 4(1)(aA) provides that ‘[w]here the person to be served with any document initiating application
proceedings is already represented by an attorney of record, such document may be served upon such
attorney by the party initiating such proceedings.’
41 BHP Billiton Energy Coal South Africa Limited v Minister of Mineral Resources and Other 2011 (2)
SA 536 (GNP) para 25; Finishing Touch para 24; ABM Motors v Minister of Minerals and Energy and
Others 2018 (5) SA 540 (KZP) para 26.
proceedings, including the public auction and any subsequent sales, was not triggered
in terms of the section. My findings and conclusions thus far are dispositive of the
business rescue appeal. Instead of dismissing it, the high court ought to have struck
the business rescue application from the roll; it was not made.
[43] I now turn to the second ground upon which the auction application is premised.
That is the contention that the liquidators did not have the consent of the directors or
were not clothed with the requisite power or authority to sell the assets of the six
Bosasa companies by public auction at the time when the auction was held or at any
time thereafter. As I have mentioned, this question calls for the proper interpretation
of the Bhoola AJ order.
[44] Very recently, this Court in HLB International (South Africa) v MWRK
Accountants and Consultants,42 held that the now well established test on the
interpretation of court orders is that the starting point is to determine the manifest
purpose of the order, and that in interpreting the order the court’s intention is to be
ascertained primarily from the language of the order in accordance with the usual well-
known rules relating to the interpretation of documents. As in the case of a document,
the order and the court’s reasons for giving it must be read as a whole in order to
ascertain its intention. The manifest purpose of the order is to be determined by also
having regard to the relevant background facts which culminated in it being made.
[45] The proper interpretative analysis leads to the inevitable conclusion that,
although the Bhoola AJ order did not expressly state that its paragraph 3 shall lapse
and be of no further force and effect immediately upon the granting of an order by the
Supreme Court of Appeal in the liquidators’ appeal against the Ameer AJ order, the
intention of the high court in granting the Bhoola AJ order by consent between the
liquidators and the directors was to extend the powers of the liquidators by authorising
them to sell the movable and immovable assets of the six Bosasa companies, but
subject to consultation with and the consent of the directors pending the outcome of
the appeal. The order and the high court’s reasons for giving it cannot be read as a
42 HLB International (South Africa) v MWRK Accountants and Consultants [2022] ZASCA 52 paras 26-
27.
whole to ascertain its intention since it was a consent order. But its manifest purpose
becomes crystal clear when the order is placed in proper perspective, and the context
in which it was made is considered.43
[46] When the purpose of and the context within which the Bhoola AJ order was
made is considered - the dispute between the directors the liquidators and the interim
arrangement pending the finalisation of the appeal agreed upon as a result thereof;
the Tsoka J interim order; the directors’ own version set out in their founding affidavit
in the intervention application; the Mudau J order; the consensus reached amongst
the liquidators and the directors that the assets of the six Bosasa companies should
be sold expeditiously and that the sale thereof could not await the final appointment of
liquidators and the second meeting of creditors should the liquidators’ appeal be
successful; the liquidators’ approach to the Master to extend their powers and to
authorise them to sell the assets of the six Bosasa companies and the Master’s refusal
to entertain their request by virtue of the pending appeal; the liquidators’ subsequent
approach to the directors for their consent to such an order being obtained from the
high court (which they gave subject to the assets being sold in consultation with them
and subject to their consent); the liquidators’ assertions in their affidavit in support of
the second application to extend their powers which were met with the approval of the
directors; and the letter of the attorneys representing the directors of Holdings dated
20 November 2019 setting out the purpose and intention of the order - it becomes
manifestly clear that paragraph 3 of the Bhoola AJ order was at all material times
intended to lapse when the Supreme Court of Appeal gave judgment in the appeal,
which it did on 22 November 2019. The fundamental raison d’être for paragraph 6 of
the Mudau J order and paragraph 3 of the Bhoola AJ order had then fallen away.
[47] Clearly, it could never have been the intention of the high court, as the directors
would have it, to have ordered the liquidators never to sell the assets of the six Bosasa
companies without consultation with and without obtaining the directors’ consent
should the liquidators be successful in their appeal. Indeed, such a conclusion would
43 Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd and Others [2012] ZASCA
49; 2013 (2) SA 204 (SCA) para 14; Van Rensburg and Another NNO v Naidoo and Others NNO;
Naidoo and Others NNO v Van Rensburg NO and Others [2010] 4 All SA 398 (SCA); 2011 (4) SA 149
(SCA) paras 43 et seq.
be absurd. It would ignore the extended powers granted to the liquidators and the
statutory prescripts applicable to the liquidation process that ultimately results in the
company's demise. The auction appeal, therefore, should be upheld.
[48] What remains to decide is the award of costs made by the high court in the
business rescue application. It awarded the successful respondents (first to thirty-ninth
respondents in this appeal) only 50% of their costs. In doing so, the high court stated
that ‘they crossed the line in the litigation and they acted unlawfully in two major
respects (disregarding the Bhoola AJ order and the business rescue application)’. In
departing from the general rule that costs should follow the event and that the
successful party is awarded costs as between party and party44 and depriving them of
50% of their costs, the high court failed to exercise its discretion judicially. First, the
liquidators attempted to establish that the sudden business rescue application was
issued merely to stifle the liquidation proceedings and thus constitutes abuse. Second,
they did not act unlawfully in either of the two respects mentioned by the high court;
their interpretation of the Bhoola AJ order turned out to be correct, and the business
rescue application was not ‘made’ and, therefore, did not trigger the suspension of the
liquidation proceedings as contemplated in s 131(6) of the Companies Act. Therefore,
the high court should not have deprived the liquidators of 50% of their costs of
opposing the business rescue application.
[49] In the result, the following order is made:
1.
The auction appeal (case no. 1088/2020) is upheld with costs, including those
of two counsel for the first to thirty-ninth appellants and the fortieth appellant.
2.
Paragraphs 7, 8, 9, 10 and 11 of the order of the high court are set aside and
replaced with the following:
‘The application under case no. 44827/19 is dismissed with costs, including those of
two counsel for the first to thirty-ninth respondents and the first intervening party, the
Commissioner for the South African Revenue Services.’
3.
Save to the extent reflected in in paragraph 3.1 hereof, the first, second and
third appellants’ business rescue appeal (case no. 1135/2020) against paragraphs 16,
44 See LAWSA 2 (ed) Vol 3 Part 2 paras 292 and 320.
17 and 18 of the high court’s order is dismissed with costs, including those of two
counsel for the first to thirty-ninth respondents and the fortieth respondent.
3.1
Paragraph 16 of the order of the high court is set aside and replaced with the
following:
‘The business rescue application is struck from the roll.’
3.2
The first to thirty-ninth and the fortieth respondents’ appeals against paragraph
17 of the high court’s order are upheld.
3.3
Paragraph 17 of the order of the high court is set aside and replaced with the
following:
‘The applicants are ordered to pay the respondents’ costs of the business rescue
application, such costs are to include the costs of two counsel.’
________________________
P.A. MEYER
ACTING JUDGE OF APPEAL
Appearances:
Appeal (case no. 1088/2020)
1st to 39th Appellants’ counsel:
KW Lüderitz SC (assisted by P Lourens)
Instructed by:
MacRobert Attorneys, Brooklyn, Pretoria
C/o Lovius Block Inc., Bloemfontein
40th Appellant’s counsel:
HGA Snyman SC (assisted by K Kollapen)
Instructed by:
VZLR Inc., Pretoria
C/o MacIntire Van der Post, Bloemfontein
1st to 3rd Respondents’ counsel: F Joubert SC (assisted by J de Vries)
Instructed by:
Goodes & Seedat Attorneys,
Sandton, Johannesburg
C/o Honey Attorneys, Bloemfontein
Appeal (case no. 1135/2020)
1st to 3rd Appellants’ counsel:
F Joubert SC (assisted by J de Vries)
Instructed by:
Goodes & Seedat Attorneys,
Sandton, Johannesburg
C/o Honey Attorneys, Bloemfontein
1st to 39th Respondents’ counsel: KW Lüderitz SC (assisted by P Lourens)
Instructed by:
MacRobert Attorneys, Brooklyn, Pretoria
C/o Lovius Block Inc., Bloemfontein’
40th Respondent’s counsel:
HGA Snyman SC (assisted by K Kollapen)
Instructed by:
VZLR Inc., Pretoria
C/o MacIntire Van der Post, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
10 May 2022
Status:
Immediate
The following Summary is for the benefit of the media in the reporting of this case and
does not form part of the judgments of the Supreme Court of Appeal.
Lutchman N.O. and Others v African Global Holdings (Pty) Ltd and Others; African
Global Holdings (Pty) Ltd and Others v Lutchman N.O. and Others (1088/2020 and
1135/2020) [2022] ZASCA 66 (10 May 2022)
Today the Supreme Court of Appeal (SCA) handed down judgment in three appeals that were
heard together: One has been referred to by all the parties as the ‘auction’ appeal; one as the
‘business rescue’ appeal; and one as the ‘liquidators’ and SARS’ costs’ appeal. The SCA
upheld the auction appeal with costs, including those of two counsel, it dismissed the business
rescue appeal with costs, including those of two counsel, and it upheld the liquidators’ and
SARS’ costs appeal.
The sensational revelations made during the Zondo Commission of Enquiry into Allegations
of State Capture, inter alia by the former COO of Bosasa, Angelo Aggrizzi, shocked the
country. Bosasa is now known as Global Holdings (Pty) Ltd (Holdings). This prompted the
bankers of African Global Operations (Pty) Ltd (Operations), a wholly-owned subsidiary of
Holdings that performed all the treasury functions of the Bosasa Group of companies, to
indicate that they will be withdrawing Operations’ banking facilities and closing the banking
accounts, which was catastrophic for its continued business operations. After the Bosasa
Group had failed to find another bank that would provide Operations with banking facilities,
the directors of Holdings and of Operations resolved to place Operations and its ten wholly-
owned subsidiaries (the Bosasa companies), under voluntary winding-up in terms of section
351 of the Companies Act 61 of 1973 (the 1973 Companies Act). However, when the joint
provisional liquidators of the Bosasa companies (the liquidators) started to exercise their
statutory powers, Holdings attempted to have the resolutions in which the Bosasa companies
were placed under voluntary winding-up (the special resolutions) declared null and void and
to have the appointments of the liquidators declared null and void and of no force and effect.
That was the beginning of a litigious battle between Holdings and the liquidators. It did that by
initiating an application as a matter of extreme urgency in the high court. On 14 March 2019
judgment was delivered, granting Holdings the relief it had sought and ordering the liquidators
to pay the costs of the proceedings in their personal capacities (the Ameer AJ order).
However, the high court granted the liquidators leave to appeal to the SCA against that order.
Notwithstanding the pending appeal against the Ameer AJ order, Holdings and the directors
of the Bosasa companies (the directors) did not accept that there had been a concursus
creditorum in respect of any of the Bosasa companies or that the liquidators held any rights or
powers as ‘provisional liquidators’. They maintained that the suspension of the order as a
result of the pending appeal did not resolve the disputes between them and the liquidators
whether the Bosasa companies had indeed been placed into liquidation and whether the
liquidators had the powers of provisional liquidators to take control of the assets and affairs of
the Bosasa companies. They asserted that they (and not the liquidators) remained in control
of the assets and affairs of the Bosasa companies, and they refused to relinquish their control
to the liquidators. The liquidators, on the other hand, maintained that because of the appeal
and through the operation of s 18 of the Superior Courts Act 10 of 2013, the Ameer AJ order
setting aside the special resolutions and their appointments as provisional liquidators was
suspended pending the outcome of the appeal. The Bosasa companies, according to them,
remained in liquidation and under their control (the dispute). However, the liquidators,
Holdings, and the directors agreed to implement a mechanism through which they could, in
consultation with one another, attend to the affairs of the Bosasa companies despite the
dispute between them to avoid further unnecessary skirmishes and costly litigation pending
the outcome of the appeal. That mechanism included joint and mostly monthly meetings
between them when they discussed matters arising in connection with the affairs of the Bosasa
companies and took joint decisions in relation to the conduct of the Bosasa enterprise (the
interim arrangement).
By agreement between them, the high court (Mudau J) granted an order on 14 May 2019,
extending the powers of the liquidators in terms of s 386(5), read with s 388, of the 1973
Companies Act, authorising them to: (a) transact on the banking accounts of the Bosasa
companies; (b) continue to conduct their businesses; (c) institute or defend legal proceedings;
and (d) reach reasonable settlements with debtors and accept payment of any such debts.
Paragraphs 6 and 7 of the consent order read as follows:
‘6. The powers in paragraphs 4 and 5 above shall be exercised by the Applicants in consultation with
the board(s) of directors of the specific company or companies involved in the transaction(s) and
decisions and the Applicants shall at all times be obliged to give the directors in question reasonable
notice of the meeting at which it is sought to consult and of the subject matter thereof.
7. This order shall lapse and be of no further force and effect immediately upon the grant of an order by
the Supreme Court of Appeal that the appeal against the order granted under case number 2103/2019
has been successful. However, if the appeal is successful, then the provisions in paragraph 6 shall
lapse and be of no force or effect.’ (The Mudau J order.)
The liquidators, Holdings and the directors realised that six of the Bosasa companies had lost
their substrata and that there was a need to dispose of their assets expeditiously. By
agreement between them, the high court (Bhoola AJ) granted an order on 28 October 2019,
extending the powers of the liquidators and authorising them to sell the assets of the six
Bosasa companies. The consent order reads thus:
‘1. The applicants’ powers are extended in terms of section 386(5), read with section 388, of the
Companies Act, 61 of 1973 (the Companies Act), authorising them to sell all the movable assets
belonging to African Global Operations (Pty) Ltd, Global Technology Systems (Pty) Ltd, Bosasa IT (Pty)
Ltd, Leading Prospect Trading 111 (Pty) Ltd, Bosasa Development Centres (Pty) Ltd, and Black Rox
Security Intelligence Services (Pty) Ltd (all in liquidation), by way of public auction, public tender or
private contract, as contemplated in section 386(4)(h) of the Companies Act.
2. The applicants’ powers are extended in terms of section 386(5), read with section 388, of the
Companies Act authorising them to sell all of the immovable properties belonging to Bosasa Properties
(Pty) Ltd (in liquidation), by way of public auction, public tender or private contract, as contemplated in
section 386(4)(h) of the Companies Act.
3. The assets referred to in paragraphs 1 and 2 above shall be sold in consultation with and with the
consent of the board of African Global Holdings (Pty) Ltd, African Global Operations (Pty) Ltd (in
liquidation) and the respective boards of its subsidiaries referred to in paragraphs 1 and 2 above.’ (The
Bhoola AJ order.)
Paragraph 2 of the Bhoola AJ order was subsequently varied by the insertion of the words
‘and African Global Operations (Pty) Ltd (in liquidation)’ after the words ‘Bosasa Properties
(Pty) Ltd (in liquidation)’.
On 22 November 2019, the SCA delivered its judgment, upholding the appeal against the
Ameer AJ order and replacing it with an order dismissing the application with costs, including
those of two counsel. The effect of the SCA’s order is that the Bosasa companies remain in a
creditor’s voluntary winding-up. Holdings nevertheless demanded that the liquidators do not
proceed with the three-day public auction of the assets of the six Bosasa companies
scheduled to take place from 4 to 6 December 2019, maintaining that paragraph 3 of the
Bhoola AJ order remained operative and that the liquidators still required its consent and that
of the directors to sell the assets of the six Bosasa companies, and they had not consented to
the scheduled public auction. The liquidators refused to accede to Holdings’ demand. On 3
December 2019, Holdings and two other companies (Holdings) caused an application for an
order placing the six Bosasa companies under supervision and commencing business rescue
proceedings in terms of s 131(1) of the Companies Act 71 of 2008 (the Companies Act) to be
issued by the Registrar of the high court. It still demanded that the scheduled public auction
be cancelled, also maintaining that the issue of the business rescue application had
suspended the liquidation proceedings in terms of s 131(6) of the Companies Act, including
the scheduled public auction, but the liquidators steadfastly refused to accede to the demand.
During 4-6 December 2019, the liquidators caused most of the assets of the six Bosasa
companies to be sold by public auction. Holdings responded by launching the auction
application. Therein it sought an order against the liquidators: (a) interdicting them from selling
any further assets owned by the six Bosasa companies before the final adjudication of the
business rescue application and/or before the second meeting of creditors, without the written
consent of Holdings; (b) a declaration that the sale of assets before the final adjudication of
the business rescue application and/or before the second meeting of creditors, without the
written consent of Holdings, was null and void; and (c) interdicting the liquidators from
delivering the movable assets to, and causing the transfer and registration of ownership of the
immovable assets into the names of, anyone who had purchased the assets of the six Bosasa
companies before the final adjudication of the business rescue application and/or the second
meeting of creditors, without the written consent of Holdings.
The auction and business rescue applications were argued before the high court in a
consolidated hearing. In one judgment, the high court granted the relief sought in the auction
application and dismissed the business rescue application. It gave the liquidators and SARS,
an intervening creditor, leave to appeal its order in the auction application. It gave Holdings
leave to appeal its order in the business rescue application. It also gave the liquidators and
SARS leave to appeal one of the costs awards made in the business rescue application. In
each case, leave was given to appeal to the SCA. The primary issues before the SCA concern:
(a) the interpretation of the word ‘made’ in s 131(6) of the Companies Act, which section
provides for the suspension of liquidation proceedings at the time a business rescue
application is ‘made’; and (b) the interpretation of paragraph 3 of the Bhoola AJ order.
The SCA held that a business rescue application must be issued, served by the sheriff on
each joint liquidator of each of the six Bosasa companies and on the Commission in the
manner provided for in rule 4(1)(a) of the Uniform Rules of Court, and each affected person
must be notified of the application in the prescribed manner, to meet the requirements of
section 131(6) of the Companies Act in order to trigger the suspension of the liquidation
proceedings. It held that on a proper conspectus of the papers it cannot be said that there had
even then been compliance, or even substantial compliance, with the service and notification
prescripts of section 131(2) of the Companies Act and the Regulations. First, on 3 December
2019 the sheriff only served it on one of the joint liquidators and a candidate attorney delivered
it by hand to another joint liquidator, who are both joint liquidators of each of the six Bosasa
companies. The sheriff did not serve it on the many other joint liquidators. Second, it is
common cause that the Bosasa Group had approximately 4 500 employees as at 12 February
2019, when the directors of Holdings and the Bosasa companies passed the special
resolutions, which were filed with the Commission on 14 February 2019, when the creditors’
voluntary winding-up of each of the Bosasa companies commenced. Its workforce was
thereafter reduced to 50 employees as at 29 November 2019. On 3 December 2019, only 29
employees were notified by electronic means of the business rescue application. It is not
stated that all the employees of the Bosasa companies have been notified of the business
rescue application, nor is any explanation proffered why the full staff compliment of 50
employees was not notified. Third, it is not stated what steps, if any, were taken to identify
affected persons and their addresses and to deliver the business rescue application to them
in order for the high court to have considered whether all reasonable steps had been taken to
identify affected persons and their addresses and to deliver the application to them. The SCA
concluded that the application had not been ‘made’ as envisaged in s 131(6) of the 2008
Companies Act. Accordingly, the issue of the business rescue application did not suspend the
liquidation proceedings. Instead of dismissing it, the high court ought to have struck the
business rescue application from the roll; it was not made.
The SCA held that in departing from the general rule that costs should follow the event and
that the successful party is awarded costs as between party and party, by depriving the
successful liquidators of 50% of their costs of opposing the business rescue application, the
high court failed to exercise its discretion judicially. It should not have deprived them of 50%
of their costs.
The SCA re-affirmed the now well established test on the interpretation of court orders: The
starting point is to determine the manifest purpose of the order. In interpreting the order, the
court’s intention is to be ascertained primarily from the language of the order in accordance
with the usual well-known rules relating to the interpretation of documents. As in the case of a
document, the order and the court’s reasons for giving it must be read as a whole in order to
ascertain its intention. The manifest purpose of the order is to be determined by also having
regard to the relevant background facts which culminated in it being made.
The SCA held that a proper interpretative analysis leads to the inevitable conclusion that,
although the Bhoola AJ order extending the powers and authorising the liquidators to sell the
assets of the Bosasa companies did not expressly state that its paragraph 3 shall lapse and
be of no further force and effect immediately upon the granting of an order by the SCA in the
liquidators’ appeal against the Ameer AJ order, the intention of the high court in granting the
Bhoola AJ order by consent between the liquidators, Holdings and the directors was to extend
the powers of the liquidators by authorising them to sell the movable and immovable assets
of the six Bosasa companies, but subject to consultation with and the consent of the directors
pending the outcome of the appeal. The Bhoola AJ order and the high court’s reasons for
giving it cannot be read as a whole to ascertain its intention since it was a consent order. But,
the SCA held, its manifest purpose becomes crystal clear when the order is placed in proper
perspective, and the context in which it was made is considered. The SCA held that paragraph
3 of the order was at all material times intended to lapse when the Supreme Court of Appeal
gave judgment in the appeal, which it did on 22 November 2019. The fundamental raison
d’être for paragraph 6 of the Mudau J order and paragraph 3 of the Bhoola AJ order had then
fallen away. Clearly, the SCA held, it could never have been the intention of the high court, as
Holdings and the directors would have it, to have ordered the liquidators never to sell the
assets of the six Bosasa companies without consultation with and without obtaining the
consent of Holdings and the directors should the liquidators be successful in their appeal.
Indeed, the SCA held, such a conclusion would be absurd. It would ignore the extended
powers granted to the liquidators and the statutory prescripts applicable to the liquidation
process that ultimately results in the company's demise. It concluded that the liquidators were
thus clothed with the requisite power or authority to sell the assets of the six Bosasa
companies by public auction at the time when the auction was held and thereafter. The auction
application ought accordingly to have been dismissed.
~~~~ends~~~~
|
562
|
non-electoral
|
2016
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Case No: 395/15
Reportable/Not reportable
In the matter between:
XO AFRICA SAFARIS CC
APPELLANT
and
THE COMMISSIONER FOR THE SOUTH AFRICAN
REVENUE SERVICE
RESPONDENT
Neutral Citation:
XO Africa Safaris v CSARS (395/15) [2016] ZASCA 160
(3 October 2016)
Coram:
Navsa, Wallis, Saldulker and Mathopo JJA and Dlodlo
AJA
Heard:
5 September 2016
Delivered:
3 October 2016
Summary:
Value Added Tax (VAT) – local company assembling
package tours for foreign tour operators and individuals – whether supply of
services attracting VAT at standard rate or whether zero rated in terms of
s 11(2)(l) of Value Added Tax Act 89 of 1991 – services supplied to person
not a resident of the Republic but supplied directly to other persons who were
in the Republic at the time the services were rendered – VAT payable at
standard rate.
______________________________________________________________
ORDER
______________________________________________________________
On appeal from the Tax Court, Johannesburg (Le Grange J) sitting as court of
first instance):
The appeal is dismissed with costs including the costs of two counsel.
______________________________________________________________
JUDGMENT
______________________________________________________________
Mathopo JA (Navsa, Wallis and Saldulker JJA and Dlodlo AJA concurring):
[1] The appellant, XO Africa Safaris CC (XO), assembled tour packages
for foreign tour operators (FTO‘s) arranging for group and individual foreign
tours to this country. These packages included accommodation, travel,
restaurant bookings and recreational activities, such as golf, safaris, whale
watching and the like (local services). Some of the tour groups were in South
Africa partly for business and partly for social purposes, in which event the
packages included arranging meeting facilities and the like. XO accepted that
this involved a supply of services to the FTO, but claimed that it was a supply
that was zero rated in terms of s 11(2)(l) of the Value Added Tax Act 89 of
1991 (the Act). The Commissioner: South African Revenue Services (SARS)
contended that these services did not fall within s 11(2)(l), but were subject to
the standard rate of VAT of 14% in terms of s 7(1) of the Act.
[2] On 22 November 2010, after an audit, SARS gave a letter of audit
findings to XO, indicating its intention to raise VAT at the standard rate on the
supply of ‗tour packages and services‘ to FTO‘s during the tax periods to
February 2008 and 2009 and April 2010. XO‘s attorneys responded indicating
that XO would object to any assessment raised on that basis. A letter of
assessment to VAT, together with penalties and interest, was issued on 4
March 2011 and the promised letter of objection came on 25 March 2011. The
objection was upheld in regard to penalties and, interest, but disallowed in
relation to the assessment to VAT. Aggrieved by this decision, XO took the
decision of SARS on appeal to the Western Cape Tax Court (Le Grange J),
which dismissed XO‘s case and held that XO directly supplied the local
services to the FTO‘s and/or their customers on their behalves and
accordingly VAT was payable at the standard rate. This appeal is with the
leave of that court.
[3] At this stage it is necessary to set out in brief, in the paragraphs that
follow, the relevant factual background. In doing so I borrow largely from the
court a quo‘s judgment.
Background facts
[4] XO is a registered VAT vendor in terms of the Act. It operates a
business involving the supply of services to FTO‘s which are non-resident in
the Republic of South Africa. The accommodation would be used, the meals
eaten and the other activities enjoyed, by the members of the tour groups
assembled by the FTO‘s. They or, in some cases involving commercial
groups, their employers would pay the FTO for the right to enjoy these
services and activities. These individuals had no direct contractual connection
with XO, which contracted with the FTO.
[5] According to SARS, XO contracted local suppliers to provide local
services to itself and thereafter XO supplied the local services to the FTO or
the FTO‘s customers when they were in the Republic. It did this, according to
SARS, by concluding contracts for the supply of the local services with the
hotels, restaurants and other providers of such services and contracting
separately with the FTO‘s to provide those services to the members of the
tour parties when they were in South Africa. When the agreements were
concluded with the FTO‘s, neither the FTO‘s nor their customers were in the
Republic. Once an agreement between XO and an FTO was concluded, XO
arranged the local services with the local supplier if, it had not already done
so, as was often the case. If prior arrangements had been made these would
be confirmed. XO then invoiced the FTO for a lump sum which included the
local service provider‘s costs and its own mark-up. The FTO‘s were not
advised and had no knowledge of the prices charged by the local suppliers.
[6] It is apparent that the mark-up set by XO was not fixed nor disclosed to
the FTO‘s. The FTO‘s and their customers could not demand that the local
supplier disclose the price it had charged. XO did not account to the FTO for
the amounts which it received from them. The amounts charged by XO to the
FTO were determined by reference to what the FTO was willing to pay for the
local services. In its books of account, XO included the amounts invoiced to
the FTO as sales and treated the costs invoiced to it by the local suppliers as
expenses. In its annual financial statements the value of the services supplied
by it to the FTO‘s was reflected in its gross revenue. XO‘s position in its books
of account was therefore that it was acquiring services from the local service
providers, which constituted its cost of sales, and included in its income
amounts which it charged to the FTO‘s.
[7] In terms of the agreements with the FTO‘s it was the responsibility of
XO to ensure that the local services were properly provided during the tours.
XO employed consultants to make sure that the hotels and conference
facilities were properly booked and set up. In the event of a problem with the
local supplier it was incumbent upon XO to rectify the problem. The FTO and
its customers played no role in this regard. This was because XO had a
contract with the local supplier and FTO and its customers had no contract
with them.
The evidence
[8] XO called three witnesses, Mr Charrieras, Ms Kimmich and Ms Mignot.
Their evidence related to five group and individual leisure tours selected as
typical.
[9] The documents in relation to these tours indicated that XO contracted
with local suppliers to provide local services to XO. XO arranged for the local
services to be made available to the FTO‘s customers. It is common cause
that not all agreements between XO and the FTO‘s were reduced to writing.
The case was dealt with on the basis of these five inbound tours because they
were accepted to be representative of XO‘s business operations and could be
applied to all its dealings with FTO‘s.
[10] Mr Charrieras testified that although written contracts were not always
concluded with an FTO, the contractual relationship between XO and an FTO
was that XO would provide the local services listed in the itinerary, budget or
programme provided to it, and that the FTO would purchase such services. It
was his evidence that the local services were provided in the Republic. He
further testified that XO‘s consultants were normally posted at the hotels to
deal with any problems raised by the FTO‘s or their customers. In cross-
examination he conceded that the consultants were necessary because ‗that‘s
what [XO] are paid for‘, to ensure that the local services were provided during
the tours. It was his evidence that amongst the duties of the consultants would
be to make sure that the conference facilities were correctly set up. At no
stage were the complaints of the customers attended to by the hotel
personnel. In relation to corporate tours the staff of XO were, on occasion,
involved in checking that local suppliers were properly prepared to provide
certain of the services. He said that XO had purchased the local services from
the local supplier. Based on that he stated that XO was entitled to deduct
input VAT charged by the local suppliers. Furthermore, his evidence
continued, that in addition to the profit comprising its mark-up, XO made a
further profit equivalent to 14% of the charges, because XO would claim an
input VAT deduction in circumstances where XO did not pay output VAT.
This, in other words, meant that if XO was not liable for output VAT charged at
14%, it was making profit at the expense of the fiscus.
[11] In cross-examination he conceded that the services were provided to
the customers of the FTO when they were in the Republic, but denied that
they were provided by XO.
[12] Ms Kimmich gave evidence about how XO entered into agreements
with local suppliers for the services to be supplied to XO. According to her no
other entity or party was involved in the agreement. The unchallenged
evidence of Ms Mignot centred mainly around her role with regard to the
preparation of the documents and emails in respect of the tours arranged for
an FTO called Preference Events.
[13] The emails reveal that XO was approached by Preference Events, and
FTO‘s, to formulate a tour programme for a commercial entity, Total
Lubrifiants. The programme included both business meetings and social
events. It appears that Preference Events had to tender for the project
because an email dated 11 November 2009 addressed to Ms Mingot by the
FTO said that ‗we have been selected for the Total tour‘ and she replied: ‗I am
delighted that we have won this great project together.‘ There was a good
deal of correspondence thereafter concerning the different elements of the
tour. Ms Mingot, on behalf of XO, contacted various local suppliers to arrange
accommodation, restaurants and entertainment for the tour. As one might
expect the programme was adjusted from time to time as the date of the tour
drew near and more details emerged of the people in the tour party.
[14] On 11 November 2009 XO sent to Preference Events a detailed
proposed itinerary for the tour, which was to take place from 28 March 2010 to
1 April 2010. It specified in great detail the entire programme for each day and
the cost of each element of the package. On arrival in Cape Town XO would
assist at the airport and greet the tour party. The first item for which a charge
would be levied was porterage at the airport. Provision was then made for a
French speaking guide and transport in a coach to the hotel. The extent of the
detail is apparent from the inclusion of an optional item of a bottle of water for
each passenger on the bus to the hotel. The itinerary went on to detail gifts on
arrival at the hotel, porterage, and transport in the coach to the Waterfront in
Cape Town. This was to be followed by a Sundowner Cruise and dinner at a
restaurant in the Waterfront complex. Various options were offered under that
head. Each item was separately charged for, some, such as the dinner, at a
per person rate and some, such as the cruise, on a group basis. Finally, for
that day, provision was made for the accommodation of the members of the
touring party on a sharing basis (with the possibility of paying a single room
supplement) in a hotel.
[15] The itinerary continued on that basis for each day of the proposed
tour. Its closing entries are relevant. After dealing with the return of the party
to Europe and what are described as ‗Global services throughout the
program‘, the notation ‗End of our services‘ appears. The final portion deals
with the cost and records that the ‗Total for services quoted in ZAR‘ is R792
669. If the reader wanted more information about XO‘s general terms and
conditions they were referred to XO‘s website.
[16] The itinerary was updated from time to time during the preparation of
the tour with the final version being dated 5 May 2010, after the tour was over.
It was always in the same form. Also forming part of the trial bundle before the
Tax Court were the supporting invoices from the local suppliers, that is, the
hotel, the restaurants and the providers of entertainment. They were all
addressed to XO and were payable by XO, not the FTO. An examination of
the invoices shows no consistent relationship between the prices set out in
the itinerary, that is, the prices XO was charging Preference Events and the
prices charged to XO by the local suppliers.
[17] In the case of the Total Lubrifiants tour a written contract was
concluded on XO‘s standard general terms and conditions. It was accepted in
argument that all the contracts giving rise to the appeal were on the same
terms. They are revealing. The Letter of Agreement commences by saying
that and Preference Events:
‗Have agreed that XO Africa will provide and PREFERENCE EVENTS will purchase
materials and services for the Programme or referred to therein …‘
The group‘s name is given as Total Lubrifiants and the Programme is
identified as being annexed to the letter of agreement as ‗annex 1 – Budget B‘
That is the document already described. Under the heading ‗Budget‘ it was
said that:
‗The fully itemised Budget specifying all fares, prices and fees for all materials and
services purchased in relation with the Programme has been attached to the present
Letter of Agreement. See annex 1 – Budget B.‘
Lastly, in the letter of agreement, a payment schedule was set out under
which 30 percent of the initial budget was payable upon signature of the letter
of agreement; a second deposit of 40 percent was payable three months before the
group‘s departure; a deposit of 95 percent of the estimated land arrangements and
air travel and charter arrangements would be paid at the latest thirty days before
departure, and the final billing would be eight days after completion of the
programme, that is, by 9 April 2010.
[18] Under the heading, ‗General Terms and Conditions‘ the following
appears:
‗XO Africa and PREFERENCE EVENTS have agreed that for the consideration
described herein, XO Africa will provide and PREFERENCE EVENTS will purchase
materials and services described in the attachments for the Programme described or
referred to therein (the ―Programme‖) on the following conditions:
1.
Services: XO Africa shall perform services listed. Services will be limited to
those outlined, unless otherwise agreed to in writing.
. . .
3.
Prices: Payment and consideration to XO Africa for services described herein
shall be in accordance with prices listed herein, subject to terms and conditions
hereof:
a.
Prices stated herein have been quoted by XO Africa with respect to the
Programme described herein and shall not bind XO Africa with respect to any other
Programme.
b.
Prices are subject to compliance with timelines outlined.
c.
Prices have been based on the specified number of people and travel dates
shown on this letter of agreement, and will be adjusted accordingly if the number of
participants and/or dates change.
d.
The quoted land prices for this Programme is based on negotiated tariffs and
applicable taxes. In the event that these rates are revised by XO Africa‘s suppliers
(transportation, carriers, hotels, guides, sightseeing contractors, etc.) or destination
government prior to the operation of this Programme, XO Arica will notify
PREFERENCE EVENTS of any necessary price deviations.
e.
XO Africa‘s services are labelled in specific currencies being the South
African Rand (ZAR), the Euro (€) or the US Dollar ($) applicable to the destination of
travel or the type of services to be provided. The different parts of the budgets will be
invoiced in their respective applicable currencies and payment should be received as
such. [On Programmes to foreign destinations, the pricing has been calculated on a
specific currency exchange rate (listed on the attached budget spread sheet), which
may change prior to travel dates. As a result, XO Africa will notify PREFERENCE
EVENTS of any necessary price revisions. Note that only average exchange rates
will be applied. XO Africa can also offer PREFERENCE EVENTS the benefit of
advance purchase options on currencies. It will however be PREFERENCE
EVENTS‘s full responsibility to make use or not of this service.]
. . .
XO Africa: acts as agent or intermediary to arrange the means of
transportation, lodging and other services as described . . .‘
[19] All XO‘s dealing with FTO‘s followed the pattern set out above. That
was all undisputed. It is in the light of those facts that I turn to consider the
applicable law and the contentions of XO and SARS.
The law
[20] The issue in this case is primarily concerned with the application of
s 11(2)(l) to XO‘s activities. The cardinal consideration in determining the
intention of the legislature is to interpret the provision in the context of the Act
as a whole, and its history and the explanatory memoranda in the event of
any uncertainty. See for example Natal Joint Municipal Pension Fund v
Endumeni Municipality [2012] ZASCA 13 593 (SCA) para 18, where this court
set out the relevant principles to be used in interpreting statutes. Those
principles are equally applicable to taxing statutes. Commissioner, South
African Revenue Service v Bosch and Another 2015 (2) SA 174 (SCA) para 9.
[21] Section 7(1)(a) of the Act imposes value added tax and applies to the
whole of the Republic. It provides as follows:
'(1) Subject to the exemptions, exceptions, deductions and adjustments provided for
in this Act, there shall be levied and paid for the benefit of the National Revenue
Fund a tax, to be known as the value-added tax —
(a) on the supply by any vendor of goods or services supplied by him on or after the
commencement date in the course or furtherance of any enterprise carried on by
him;
(b) on the importation of any goods into the Republic by any person on or after the
commencement date; and
(c) on the supply of any imported services by any person on or after the
commencement date,
calculated at the rate of 14 per cent on the value of the supply concerned or the
importation, as the case may be.'
[22] It was submitted on behalf of XO that the services rendered by XO
were not subject to VAT at the standard rate in terms of s 7(1)(a), of the Act,
but that such services should have been zero rated in terms of s 11(2)(l) of
the Act. Section 11(2)(l) provides as follows:
‗(2) Where, but for this section, a supply of services . . . would be charged with tax at
the rate referred to in section 7(1), such supply of services shall, subject to
compliance with subsection (3) of this section, be charged with tax at the rate of zero
per cent where —
. . .
(l) the services are supplied to a person who is not a resident of the
Republic, not being services which are supplied directly —
(i) in connection with land or any improvement thereto situated inside the
Republic; or
(ii) in connection with movable property (excluding debt securities, equity
securities or participatory securities) situated inside the Republic at the
time the services are rendered, except movable property which —
(aa)
is exported to the said person subsequent to the supply of such
services; or
(bb)
forms part of a supply by the said person to a registered vendor
and such services are supplied to the said person for purposes
of such supply to the registered vendor; or
(iii) to the said person or any other person, other than in circumstances
contemplated in subparagraph (ii)(bb), if the said person or such other
person is in the Republic at the time the services are rendered.‘ (My
emphasis).
[23] Before us, XO contended that its services should be zero rated
because it did not supply or render the local services directly to the FTO or its
customers. XO submitted that it entered into a back-to-back agreement with
the FTO in terms whereof the local supplier would give XO an undertaking
that it would render the local services to the customers identified to it by XO.
According to XO the local supplier would then supply the customer with local
supplies when the customer arrived in the Republic, thereby discharging its
obligations to XO by performance in favour of the adjectus solutionis gratia
nominated by it. On this basis it was contended that the local suppliers
rendered services to XO by performing their contracts in favour of the tourists;
that XO rendered the service of organising the package to the FTO and the
FTO had a contract with the foreign tourists to ensure that they would receive
services while in South Africa from the local suppliers
[24] The argument was that there needed to be, a direct connection
between the party that supplied the services i.e. XO and the recipient thereof,
and since there was no direct relationship or connection between XO and the
FTO or its customers in relation to the local services, these services were not
directly supplied by XO. The nub of XO‘s case was that the local services
were rendered by the local supplier directly to the FTO or its customers
because XO had no direct relationship with the customers. It was XO‘s case
that the service which it provided to the FTOs in terms of the back-to-back
agreement was not a local service and attracted VAT at zero per cent,
because it was a service supplied to a person who was neither resident nor
present in South Africa.
Discussion
[25] It is clear that the resolution of this dispute requires consideration of the
following: (a) what services did XO supply? (b) to whom did XO supply such
services? (c) were the parties to whom such services were supplied, residents
of, or present in the Republic when such services were supplied? To resolve
this regard should be had to the applicable statutory provisions as well.
[26] A subsidiary issue which can be disposed of summarily relates to the
argument raised by XO in its heads of argument that SARS sought to widen
its grounds of assessment in para 16.4 of its statement of assessment. XO‘s
objection was that SARS was bound by its amended grounds of assessment
when it stated that the local services were rendered by the hotel to the
customers, and could not widen its grounds by stating that XO directly
supplied the local services to the customers. SARS contended that XO
misconstrued the context in which the averment was made and denied that
the paragraph introduced a new ground. Paragraph 16.4 read as follows
‗[XO] arranged the tours, including inter alia the Local Services. [XO] did so by
entering into agreements with the local service suppliers (the ―Local Service
Suppliers‖) in terms of which the Local Service Suppliers agreed to supply the Local
Services to the Customers when they undertook the tours in the Republic.‘
[27] In my view para 16.4 was clearly foreshadowed in the notice of findings
and the notice of assessment, as well as the responses to these in the letter
of objection by XO‘s attorneys and described the manner in which XO
performed its contractual obligations vis-à-vis the local service suppliers.
There was no merit in this point. At all stages the issue was whether XO
admitted the supply of services to the FTO‘s fell within s 11(2)(l) of the Act.
[28] Turning to the factual issues referred to in para 26 above, the difficulty
confronting XO‘s argument was that it was wholly inconsistent with the facts
as they emerged from the evidence and the documents. It was correct insofar
as it said that XO contracted with local suppliers to provide local services to
foreign tourists, whom XO would identify. It was wholly incorrect when it said
that the only services XO supplied to the FTO‘s were the organisational
services involved in assembling the tour package and nothing else.
[29] The letter of agreement, standard terms and conditions of contract and
the itinerary attached to the letter of agreement proclaimed unequivocally that
XO was providing materials and services consisting of accommodation,
meals, entertainment, gifts, transport and the like as specified in the itinerary.
That is what XO undertook to provide to the FTO‘s; that is what it was paid to
provide and that is what it provided. The fact that in order to perform its
obligations towards the FTO‘s it in turn had to acquire those goods and
services from local suppliers was neither here nor there. Its contract was to
provide those goods and services. How it did so was no concern of the FTO.
And it provided those goods and services, not directly to the FTO, but to other
persons who were in the Republic at the time that the goods and services
were provided. That served to exclude these services from the class of
services that enjoy zero rating under s 11(2)(l). SARS was accordingly correct
in saying that the supply of the services attracted VAT at the standard rate.
[30] We were taken to the various amendments of this section which led to
the current version of the section around which the dispute between the
parties revolves. That history showed that the statutory purpose underlying
s 11(2)(l) was to ensure that where services were rendered to a foreigner by a
person liable to pay VAT, but the services themselves were rendered in South
Africa and the benefit of them was enjoyed in the Republic, they would not
enjoy the benefit of zero rating. VAT would be payable at the standard rate.
[31] The argument of XO is unsustainable because, if is followed, it would
mean that notwithstanding the fact that the services were consumed in the
Republic and XO would have a claim for input VAT in relation thereto, the
fiscus would forego the 14% output tax levied on the supply of local services
by XO. This court has already held that the purpose of this provision is to
ensure that when services are consumed in South Africa VAT is payable at
the standard rate (see Master Currency v CSARS 2014 (6) SA 66 (SCA)).
[32] In the result the appeal is dismissed with costs including the costs of
two counsel.
________________________
R S MATHOPO
JUDGE OF APPEAL
APPEARANCES:
For appellant:
S A Cilliers SC (and T S Emslie SC and M W Janisch SC)
Instructed by:
Webber Wentzel, Cape Town
Honey Attorneys, Bloemfontein
For respondent:
P A Solomon SC (and J Boltar)
Instructed by:
Mothle Jooma Sabdia, Pretoria
Symington & De Kok, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
3 October 2016
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
XO Africa Safaris v CSARS (395/15) [2016] ZASCA 160 (3 October 2016)
MEDIA STATEMENT
Today, the Supreme Court of Appeal (SCA) dismissed an appeal by XO Africa Safaris CC (XO)
against an order of the Tax Court, Johannesburg, and affirmed the interpretation of the Value Added
Tax Act 89 of 1991 contended for by the Commissioner of the South African Revenue Service
(SARS).
The issue before the SCA was whether the rate of value added tax (VAT) applicable to the operations
of XO, a tour operator, was the standard rate of 14% or the zero rate applicable in terms of s 11(2)(l).
XO was a South African company which arranged tour packages in South Africa for foreign tour
operators, which would then on-sell those packages to their own customers. Neither the foreign tour
operators nor their customers were South African residents.
XO argued that the payments it received from the foreign tour operators should be zero-rated in terms
of s 11(2)(l) on the basis that they were payments for booking services supplied to foreign tour
operators, and therefore for services supplied to persons who were not resident in South Africa and
not present at the time that the services were rendered.
The SCA rejected this argument. It held that XO had not only provided a booking service to foreign
tour operators. In the various contracts XO had entered into with the foreign tour operators, it had
undertaken to provide the local services themselves. It had ensured that the services were properly
rendered by the local service providers. And, it treated the payments it had made to the local service
providers as expenses and deducted input vat from those payments, while treating the total invoiced
amounts to the foreign tour operators as sales. This was not consistent with its version that it had only
provided a booking service to the foreign tour operators. In addition, while the foreign tour operator
may have been the party contracting with XO, the services were ultimately for the benefit of the
foreign tour operator’s customers, and the services were rendered to those customers while they
were present in South Africa.
Accordingly, the SCA held that s 11(2)(l) did not apply to XO’s operations, and dismissed the appeal.
--- ends ---
|
3579
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 227/2020
In the matter between:
BLENDRITE (PTY) LTD
FIRST APPELLANT
MANIVASAN PALANI
SECOND APPELLANT
and
DHRAMALINGUM MOONISAMI FIRST RESPONDENT
GLOBAL NEWORK SYSTEMS (PTY)LTD SECOND RESPONDENT
Neutral citation: Blendrite (Pty) Ltd and Another v Moonisami and
Another (Case no 227/2020) [2021] ZASCA 77 (10 June 2021)
Coram:
NAVSA, MOCUMIE and DLODLO JJA and LEDWABA and
GORVEN AJJA
Heard:
25 May 2021
Delivered: This judgment was handed down electronically by circulation to
the parties' representatives by email, publication on the Supreme Court of
Appeal website and release to SAFLII. The date and time for hand-down is
deemed to be 10h00 on 10 June 2021.
Summary: Property Law – spoliation – access to server and use of email
address of director terminated – neither servitutal use nor use as an incident
of possession of corporeal property – not quasi-possession for which
mandament van spolie available.
ORDER
On appeal from: KwaZulu-Natal Division of the High Court, Durban
(Chetty J, sitting as court of first instance):
The appeal is upheld with costs, including the costs of two counsel
where so employed.
The order of the High Court is set aside and substituted with an order
dismissing the application with costs, including the costs of two counsel,
where so employed.
JUDGMENT
Gorven AJA (Navsa, Mocumie and Dlodlo JJA and Ledwaba AJA
concurring):
[1] The first appellant (Blendrite) has two listed directors, the first
respondent (Mr Moonisami) and the second appellant (Dr Palani). Disputes
have arisen between them. These prompted Mr Moonisami to launch an
application (the liquidation application) to liquidate the appellant (Blendrite).
The basis of the liquidation application is that, due to the deadlock between
the two listed directors, it is just and equitable that Blendrite be wound up by
the court. The liquidation application is opposed and not yet finalised. The
second respondent (Global) is a web hosting entity which hosts the server and
email addresses of Blendrite.
[2] It is common ground that Mr Moonisami and Dr Palani jointly funded
the formation of Blendrite in 2008. The former functioned as the managing
director and the latter as the financial director until the disputes arose. Dr
Palani claims that Mr Moonisami has resigned as a director of Blendrite. This,
too, is contested and remains unresolved. At a factual level, Dr Palani is in
control of Blendrite. By letter dated 11 July 2019, an attorney purporting to
represent Blendrite wrote to one Greg Lock, the managing director of Global.
The letter stated that Mr Moonisami had resigned as a director of Blendrite
and instructed Global to terminate the ‘email and company network/server
access’ of Mr Moonisami with immediate effect. Global did so on
17 July 2019.
[3] As a result, Mr Moonisami approached the KwaZulu-Natal Division of
the High Court, Durban by way of an urgent application. The relief sought by
Mr Moonisami was spoliatory in nature, seeking a rule nisi with interim relief
as follows:
‘That [Global] be and is hereby directed to ante omnia restore [Mr Moonisami’s] access to
the email and company network/server in respect of Blendrite [. . .] forthwith.’
The case made out by Mr Moonisami was that he was in peaceful and
undisturbed possession of his access to Blendrite’s internet server and his
email address [email protected] and that he had been denied this access by
Global.
[4] Only Blendrite and Dr Palani opposed the application. After various
adjournments it was heard as an opposed motion for final relief by Chetty J.
He granted the relief mentioned above as well as a punitive costs order against
those opposing. An application by Blendrite and Dr Palani for leave to appeal
was dismissed with costs. The present appeal is with the leave of this court.
As with the application in the high court, Global takes no part in the appeal.
[5] The mandament van spolie remedy relates to possession. Possession is:
‘[M]ost commonly defined as the combination of a factual situation and of a mental state
consisting in the factual control or detention of a thing (corpus) coupled with the will to
possess the thing (animus possidendi).’1
In Nino Bonino v De Lange,2 Innes CJ explained the nature of spoliation:
‘[S]poliation is any illicit deprivation of another of the right of possession which he has,
whether in regard to movable or immovable property or even in regard to a legal right.’
The remedy is a possessory suit based on the maxim spoliatus ante omnia
restituendus est. In simple terms, this means that possession must be restored
to the dispossessed person before enquiring into anything else.
[6] The mandament van spolie is designed to be a robust, speedy remedy
which serves to prevent recourse to self-help.3 The sole requirements are that
the dispossessed person had ‘possession of a kind which warrants the
protection accorded by the remedy, and that he was unlawfully ousted’.4 All
that must be proved is the fact of prior possession and that the possessor was
deprived of that possession unlawfully. Unlawfully here means without
agreement or recourse to law.
[7] The mandament provides for the immediate restoration of possession
regardless of, and before determining, the rights of the parties to the thing
1 27 Lawsa 2 ed para 70.
2 Nino Bonino v De Lange 1906 TS 120 at 122.
3 Painter v Strauss 1951 (3) SA 307 (O) at 31-H4A – B.
4 Yeko v Qana 1973 (4) SA 735 (A) at 739G.
possessed. As indicated, it is the fact of possession which is material not the
basis of possession. As Innes CJ held:
‘It is a fundamental principle that no man is allowed to take the law into his own hands; no
one is permitted to dispossess another forcibly or wrongfully and against his consent of the
possession of property, whether movable or immovable. If he does so the Court will
summarily restore the status quo ante and will do that as a preliminary to any inquiry or
investigation into the merits of the dispute.’5
The prior lawfulness or otherwise of the possession is of no moment. This was
trenchantly stated by Van Blerk JA in Yeko v Qana:6
‘[T]he injustice of the possession of the person despoiled is irrelevant as he is entitled to a
spoliation order even if he is a thief or a robber. The fundamental principle of the remedy
is that no one is allowed to take the law into his own hands’.
Likewise, and importantly, the respective legal rights of the parties to possess
the property in question do not enter into consideration.7
[8] As mentioned, what is protected must be ‘possession of a kind which
warrants the protection accorded by the remedy’. It is on this issue that the
present appeal turns.
[9] In general, the factual possession of movable and immovable property
does not give rise to conceptual difficulties. There the physical thing (corpus)
5 Nino Bonino at 122.
6 Yeko v Qana at 739F-G.
7 Mankowitz v Loewenthal 1982 (3) SA 758 (A) at 763A. See also Ngqukumba v Minister of Safety and
Security and Others 2014 (5) SA 112 (CC). Section 68(6)(b) of the National Road Traffic Act prohibited
lawful possession of motor vehicles whose engine or chassis number had been falsified, destroyed, or
tampered with. The Constitutional Court held at para 21 that the mandament van spolie entailed restoration
of possession of the vehicle in question before all else and directed that possession be restored. The question
of whether the erstwhile possessor had lawful cause to possess was a matter to be dealt with after restoration
of possession under the mandament had taken place.
is possessed. But the law also recognises that the remedy lies where
incorporeal property is spoliated:
‘However, the law also recognises so-called quasi-possession or juridical possession
(possessio iuris) which consists in the exercise of control over an incorporeal coupled
with animus to exercise such control.’8
[10] The mandament was recognised early in Roman-Dutch law to apply to
the exercise of actions usually flowing from servitudes.9 This, and other
incorporeals relating to possession of property, are protected even if exclusive
use or occupation is not alleged. In the case of servitudes, for example, the
owner of the servient tenement has use of the property subject to the servitude.
The approach to the factual purported use of a servitude has been taken up
into our law. Some debate ensued in South African law as to what needs to be
proved in such a case. Is it necessary to prove the servitude or only that use
normally arising from a servitude has been exercised?
[11] In Bon Quelle (Edms) Bpk v Munisipaliteit van Otavi,10 this court dealt
with the termination by the appellant of a flow of water to the respondent. The
respondent municipality had for decades pumped water from a particular
farm. It had done so claiming to hold a servitude entitling it to such use. The
appellant acquired the farm on which the fountain was located and, after some
time, prevented the municipality from using the water. The municipality was
granted a spoliation order requiring the status quo ante to be restored. On
appeal, the appellant, which had disputed the servitude, argued that the
8 27 Lawsa 2 ed para 70.
9 J Voet Commentarius ad Pandectas 43 16 7.
10 Bon Quelle (Edms) Bpk v Munisipaliteit van Otavi [1988] ZASCA 123; 1989 (1) SA 508 (A); [1989] 1 All
SA 416 (A).
municipality was obliged to prove that it held a servitude in order to be entitled
to spoliatory relief.
[12] Obviously, the specific water which the municipality was prevented
from obtaining had never been possessed by it. The purported exercise of a
servitude to obtain the water was thus incorporeal property. Hefer JA
disagreed that possession of only corporeal property is protected by the
mandament.11 He went on to hold that, in that matter, it was unnecessary to
prove the servitude, concluding:
‘Prior to the interference, the respondent, under the impression that he was doing so on the
basis of a servitude, exercised the powers of a servitude holder. That is the status quo which
must be restored until it is determined if the servitude indeed exists.’12
This accords with the principle that no rights need be proved. This was
elegantly summarised by Du Plessis:
‘[T]he actual use or the exercise of powers which would normally flow from the named
rights are exercised by the spoliated person. In those circumstances, it is then not
considered whether the spoliated person obtained those rights, only whether they actually
used or exercised the powers associated with that right.’13
[13] Although Innes CJ, and many following cases, spoke of the ‘right of
possession’ and ‘a legal right’, what is in issue is the deprivation of actions
associated with a servitude rather than the underlying basis or right of that
person to the servitude. This kind of possession of an incorporeal is known as
11 J C Sonnekus and J L Neels Sakereg Vonnisbundel 2 ed (2008) at 54. See also Bon Quelle at 514I-515B.
12 Bon Quelle at 516G-H. My translation. The original reads:
‘Voor die versteuring het die respondent, onder die indruk dat hy dit uit hoofde van 'n serwituut doen, die
bevoegdhede van 'n serwituuthouer uitgeoefen. Dit is die status quo wat herstel moet word totdat dit vasgestel
word of die serwituut inderdaad bestaan.’
13 P Du Plessis ‘Bulletin van die Fakulteit Regte PU vir CHO’ (1976) 27 30-31. Referenced in A J Van der
Walt (1984) 47 THRHR 429 at 430. My translation. The original reads:
‘[D]ie daadwerklike gebruik of die uitoefening van bevoegdhede wat normaalweg uit die genoemde regte
voortspruit, deur die gespolieerde uitgeoefen is. Daar word dan in sodanige gevalle nie gekyk of die betrokke
reg aan die gespolieerde toegekom het nie, maar of die gespolieerde wel daadwerklik die bevoegdhede wat
uit sodanige reg sou voortspruit, gebruik of uitgeoefen het.’
quasi-possession. Since there is no physical thing possessed, there is little
wonder that our courts have struggled to articulate the basis on which quasi-
possession is protected. In order to avoid the confusion that any right need be
proved, I prefer to avoid the use of language concerning rights where possible.
[14] So, in this line of cases, the purported use of a servitude constitutes
quasi-possession of an incorporeal, irrespective of whether the user, or quasi-
possessor, proves a legal right to the servitude.14 Prior users who have been
deprived of the use of a servitude have been spoliated and the mandament van
spolie lies.
[15] Our courts have also recognised the use of certain supplies of services
to property which are incidental to the possession of immovable property as
being incorporeal property capable of quasi-possession and worthy of
protection. However, a distinction is drawn between these and personal rights
which do not arise as an incident of possession of corporeal property. In ATM
Solutions (Pty) Ltd v Olkru Handelaars CC and Another,15 Lewis JA
explained:
‘The cases where quasi-possession has been protected by a spoliation order have almost
invariably dealt with rights to use property (for example, servitudes or the purported
exercise of servitudes – ‘gebruiksregte’) or an incident of the possession or control of the
property. The law in this regard was recently succinctly stated in FirstRand Ltd v Scholtz
where Malan AJA pointed out that a spoliation order –
“does not have a catch-all function to protect the quasi-possessio of all kinds of rights
irrespective of their nature. In cases . . . where a purported servitude is concerned the
14 Nienaber v Stuckey 1946 AD 1049 at 1056; Bon Quelle (Edms) Bpk v Munisipaliteit van
Otavi 1989 (1) SA 508 (A).
15 ATM Solutions (Pty) Ltd v Olkru Handelaars CC and Another [2008] ZASCA 153; 2009 (4) SA 337
(SCA); [2009] 2 All SA 1 (SCA) para 9.
mandament is obviously the appropriate remedy but not where contractual rights are in
dispute or specific performance of contractual obligations is claimed . . . It follows that the
nature of the professed right, even if it need not be proved, must be determined or the right
characterized to establish whether its quasi possessio is deserving of protection by the
mandament.”
[. . .] Thus only rights to use property, or incidents of occupation, will warrant a spoliation
order.’16
[16] Cases involving the supply of water and electricity have occasioned
some uneven judgments. These sometimes refer to the deprivation of a ‘right’
to receive a supply of water or electricity. More accurately, however, it is the
deprivation of a prior supply of water or electricity. The crucial issue is that
this is protected in limited circumstances, where it has been received as an
incident of occupation of the property. The limitation was made clear in
Eskom Holdings Soc Ltd v Masinda,17 where Leach JA considered what can
be protected by the mandament, saying:
‘However, the cases that I have dealt with above graphically illustrate how, in the context
of a disconnection of the supply of such a service, spoliation should be refused where the
right to receive it is purely personal in nature. The mere existence of such a supply is, in
itself, insufficient to establish a right constituting an incident of possession of the property
to which it is delivered. In order to justify a spoliation order the right must be of such a
nature that it vests in the person in possession of the property as an incident of their
possession. Rights bestowed by servitude, registration or statute are obvious examples of
this. On the other hand, rights that flow from a contractual nexus between the parties are
insufficient as they are purely personal, and a spoliation order, in effect, would amount to
an order of specific performance in proceedings in which a respondent is precluded from
disproving the merits of the applicant's claim for possession. Consequently, insofar as
16 The reference, omitted from the quote, is to FirstRand Ltd t/a Rand Merchant Bank and Another v Scholtz
NO and Others 2008 (2) SA 503 (SCA); [2007] 1 All SA 436.
17 Eskom Holdings Soc Ltd v Masinda [2019] ZASCA 98; 2019 (5) SA 386 (SCA) para 22.
previous cases may be construed as holding that such a supply is in itself an incident of the
possession of property to which it is delivered, they must be regarded as having been
wrongly decided.’
This sets out the approach to be taken. The incorporeal of a prior supply of
the service which qualifies is one which is an incident of the possession or
control of corporeal property.
[17] Since the present matter does not relate to interruption in the supply of
water or electricity, or to something which is alleged to be an incident of
possession of movable or immovable property, it is not necessary to deal with
that line of cases in any further detail.
[18] In ATM Solutions, the appellant had installed an automated teller
machine (ATM) at a convenience store run by the first respondent. The first
respondent had the ATM disconnected, removed, and placed in a storeroom.
It was then replaced with another entity’s ATM. The appellant applied for a
spoliation order but both the court of first instance and this Court refused it on
the basis that this amounted to seeking specific performance of a contract. The
placing of the ATM of the appellant was not an incident of possession or
control of property. The appellant did not occupy the property. Any right to
have the ATM present and connected at the premises was a personal right
arising from contract.
[19] The crisp issue in both the court of first instance and on appeal in the
present matter is thus whether the prior access to an email address and
company network and/or server amounted to quasi-possession of an
incorporeal which qualified for protection by a spoliation order. The case most
closely resembling the present one is this Court’s decision in Telkom SA v
Xsinet (Pty) Ltd.18 In that matter, the appellant disconnected the respondent’s
telephone and bandwidth systems when a dispute arose as to whether the
respondent owed money for a service. This Court held that the receipt of the
telecommunications service arose from a personal right in contract. The use
of the bandwidth and telephone service was not an incident of possession of
the premises from which the respondent operated. The appeal against the
spoliation order succeeded and the order was set aside.
[20] In the present matter, the prior use of the email address and server was
not an incident of possession of movable or immovable property on the part
of the respondent. This was not even alleged. The respondent did not possess
any movable or immovable property in relation to his erstwhile use of the
server or email address. Any entitlement to use the server and email address
is wrapped up in the contested issue of whether the respondent remains a
director of Blendrite and might relate to the terms of his contract of
employment. It is a personal right enforceable, if at all, against Blendrite. I
can see no basis for distinguishing the present matter from that of Telkom, by
which we are bound unless we are of the view that it is clearly wrong and
requires to be set right. For the reasons aforesaid that decision is consonant
with prior jurisprudence and correct. The respondent’s prior use did not
amount to quasi-possession of incorporeal property. It is therefore not
protectable by way of the mandament. As such, the court of first instance erred
in granting spoliatory relief. The appeal must succeed and the order of the
court of first instance, based on spoliatory relief, set aside.
18 Telkom SA v Xsinet (Pty) Ltd [2003] ZASCA 35; 2003 (5) SA 309 (SCA).
[21] In the result:
The appeal is upheld with costs, including the costs of two counsel
where so employed.
The order of the High Court is set aside and substituted with an order
dismissing the application with costs, including the costs of two counsel,
where so employed.
________________________
GORVEN AJA
ACTING JUDGE OF APPEAL
Appearances
For appellants:
N Singh SC (with him M Manikam)
Instructed by:
Jay Reddy Attorney, Durban
Phatshoane Henney, Bloemfontein
For respondent:
PD Quinlan
Instructed by:
Maharaj Attorneys, Durban
Clause Reid Attorneys, Bloemfontein.
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF THE JUDGMENT DELIVERED
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COAPPEAL
FROM:
The Registrar, Supreme Court of Appeal
DATE:
10 June 2021
STATUS:
Immediate
Please note that the media summary is intended for the benefit of the media
and does not form part of the judgment of the Supreme Court of Appeal.
Blendrite (Pty) Ltd and Another v Moonisami and Another (Case no 227/2020)
[2021] ZASCA 77 (10 June 2021)
Today the Supreme Court of Appeal upheld an appeal from the KwaZulu-Natal
Division of the High Court, Durban (per Chetty J). Mr Moonisami brought a spoliation
application against Blendrite (Pty) Ltd and two others. He is one of two listed
directors of Blendrite. The other party against whom the application was brought was
Global Network Solutions (Pty) Ltd. Global hosts the server and email addresses of
Blendrite. It took no part in the application or the appeal. Mr Moonisami and the other
listed director fell out. The latter, having assumed control of Blendrite, claims that Mr
Moonisami resigned as a director. This is hotly denied. Blendrite then instructed
Global to terminate Mr Moonisami’s use of the network and his email address. It is
this act which Mr Moonisami says amounts to spoliation of a non-corporeal in his
possession. The court a quo held that this was the case and granted a spoliation
order. It also granted Blendrite leave to appeal.
The Supreme Court of Appeal traced the origins of spoliatory relief. The mandament
van spolie requires only the factual proof of prior possession and the unlawful
deprivation of possession, in other words without agreement or recourse to law. It is
aimed at preventing self-help. The respective rights of the parties to possession are
not evaluated until possession has been restored. With corporeal things, both
movable and immovable, possession is relatively straightforward to prove. But our
law also recognises that quasi-possession of certain incorporeals is also protected
by the remedy. Here, too, the legal right to possess the incorporeal is of no moment.
It is the factual quasi-possession prior to deprivation which must be proved. As such,
talk of ‘rights’ of possession are best avoided.
The classic case where the remedy applies to incorporeals relates to servitudes.
Quasi-possession is shown by the factual use of the servitude. The right to do so is
of no moment until restoration takes place. More recently quasi-possession of the
supply of services to immovable properties such as water or electricity has been
protected, but in limited circumstances only. A distinction is drawn between services
supplied as an incident of possession of corporeal property and those supplied by
virtue of a personal right such as contract. It is only the former to which the
mandament van spolie applies. As such, any quasi-possession must be shown to
have arisen as an incident of possession of the immovable property occupied by the
quasi-possessor.
Mr Moonisami, in his capacity as director, had access to Blendrite’s server and an
email address hosted by Global at the instance of Blendrite. His use of these did not
arise as an incident of possession of corporeal property on his part. As such the
Supreme Court of Appeal held that this was not protected by the mandament van
spolie. Since the High Court erred in finding that it was protected, the appeal was
upheld with costs of two counsel where so employed and the order on the spoliation
application set aside and substituted by one dismissing the application with costs of
two counsel where so employed.
|
3317
|
non-electoral
|
2020
|
`
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 112/2019
In the matter between:
BO-KAAP CIVIC AND RATEPAYERS ASSOCIATION
FIRST APPELLANT
35 ON ROSE BODY CORPORATE
SECOND APPELLANT
THE EXECUTORS OF THE ESTATE OF THE LATE
FABIO TODESCHINI
THIRD APPELLANT
and
CITY OF CAPE TOWN
FIRST RESPONDENT
MUNICIPAL PLANNING TRIBUNAL OF THE CITY OF
CAPE TOWN
SECOND RESPONDENT
MAYOR OF CAPE TOWN
THIRD RESONDENT
BUITENGRACHT PROPERTIES (PTY) LTD
FOURTH RESPONDENT
HERITAGE WESTERN CAPE
FIFTH RESPONDENT
Neutral citation: Bo-Kaap Civic and Ratepayers Association and Others v City of Cape
Town and Others (case no 112/2019) [2020] ZASCA 15 (24 March 2020)
Coram:
Navsa, Saldulker, Makgoka and Plasket JJA and Eksteen AJA
Heard:
21 February 2020
Delivered:
24 March 2020
Summary:
Approval by local authority and Mayor of land use application –
challenged on the basis of unreasonableness, irrationality and error of law –
nature of judicial review discussed – deference to expertise of decision
makers – no reviewable irregularity – costs in relation to asserted
constitutional litigation discussed.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Western Cape Division of the High Court, Cape Town (Le Grange
J sitting as court of first instance):
1. The application to lead further evidence on appeal is dismissed with costs,
including the costs of two counsel.
2. The appeal is dismissed with costs, including the costs of two counsel.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Navsa JA (Saldulker, Makgoka and Plasket JJA and Eksteen AJA concurring):
[1] In this case the record comprises 16 volumes and extends to 2715 pages. The
core issue to be addressed is rather more compact. It is, simply, whether the first
respondent, the City of Cape Town (the City), a metropolitan municipality established
in terms of the Municipal Structures Act 117 of 1998, through its Municipal Planning
Tribunal, the second respondent and, ultimately, through its Mayor, the third
respondent, by way of an internal appeal process, lawfully approved land use
applications by the fourth respondent, Buitengracht Properties (Pty) Ltd (the
Developer). The land use applications were in relation to the construction of an
eighteen-storey building, 60 metres tall, in the immediate vicinity of a well-known
international and local tourist destination, which is also a heritage sensitive area, the
Bo-Kaap. Put differently, the question for adjudication is whether the City and the
Mayor had due regard to heritage concerns, as provided for in applicable legislation
and policies, and whether they complied with administrative law principles. There are,
of course, allied questions concerning the propriety of simultaneous associated
approvals by the City, such as the consolidation of the two erven on which the
construction is envisaged to take place, the approval of 310 parking bays, with
attendant traffic consequences, etc but these are inextricably linked to the core issue.
Also linked is a title deed condition relating to the Bo-Kaap attached to one of the
erven, which will be dealt with in due course.
[2] The Western Cape Division of the High Court, Cape Town (Le Grange J),
adjudicating an application by the three appellants, for the review and setting aside of
the approvals and of the Mayor’s decision on appeal, held that they were all lawful and
dismissed the application with costs, including the costs of two counsel. Heritage
Western Cape (HWC), a provincial heritage agency established in terms of s 23 of the
National Heritage Resources Act 25 of 1999 (the NHRA), had intervened in the
proceedings in the high court and supported the review application. In addition, HWC
had sought an order declaring that the intended development could not proceed
without a permit issued in terms of s 27(18) of the NHRA1. The application for that
order was also dismissed. It is against those findings that the present appeal is
directed. The appeal is before us with the leave of the court below. HWC, however,
did not participate in this appeal.
[3] At the outset it is necessary to have regard to the history of the Bo-Kaap. A brief
history, extracted in the main from what was provided by the appellants, is set out
hereafter.
The Bo Kaap was built largely by and for the artisans of Cape Town between 1790
and 1825. It extends over 34 hectares and is bounded by Buitengracht, Rose,
Carisbrook and Strand Streets, and the slopes of Signal Hill.
Although the Bo-Kaap has over centuries been home to people of various origins and
from different regions, the area is closely associated with the traditionally Malay
community of the Cape, which is predominantly Muslim. The ancestors of the majority
1 Section 27(18) provides: ‘No person may destroy, damage, deface, excavate, alter, remove from its
original position, subdivide or change the planning status of any heritage site without a permit issued
by the heritage resources authority responsible for the protection of such site’.
of Muslim people in the Cape arrived from 1658 onwards as slaves, or political exiles
from East Africa and South East Asia (India, Indonesia, Java, Malaysia and Sri Lanka).
Many of them were brought by the Dutch and were skilled craftsmen, artisans, famous
scholars and religious leaders.
The first mosque at the Cape, the Auwal Mosque, was built in the Bo-Kaap
neighbourhood in 1804 and is still in use.
The history of the Bo-Kaap reflects the political processes in South Africa during the
apartheid years. It was declared a residential area exclusive for Cape Malays under
the Group Areas Act 41 of 1950 and people of other racial classifications were forced
to leave.
The neighbourhood has been described as being atypical. In the mid-twentieth
century, most working class people in South Africa were moved to the periphery of the
cities under the Slums Act 53 of 1934 and neighbourhood improvement programmes.
Housing in the Bo-Kaap is made up of long continuous rows of small, mostly single-
storeyed, flat roofed, parapetted houses; staggered to step down the slopes of Signal
Hill. All of the houses face onto the street, with access to the front door immediately
off the pavement via the narrow ‘stoeps’ which often have low brick walls and stoep-
seats at each end. The parapets are decorated with mouldings.
Virtually no houses in the Bo-Kaap have garages and people utilise street parking to
park their vehicles from early evening until the next morning. Rose Street is one of the
roads that is particularly affected by this. Street parking in the Bo-Kaap, and
particularly Rose Street, is not in any event limited to the period after the close of the
working day. Many people who work in the area of the Central Business District (CBD)
bordering the Bo-Kaap utilise available street parking in the Bo-Kaap to park their
vehicles during the working day instead of having to pay for parking.
[4] I now turn to have regard to two other areas of heritage significance in the
vicinity of the proposed development of the Bo-Kaap, namely, Riebeeck Square and
Heritage Square. Riebeeck Square lies between Buitengracht and Breë Streets and
is also bounded by Shortmarket and Church Streets. It is of historical significance in
that it is a square around which Cape Town developed and was an area where
farmers, during our colonial past, used to outspan their wagons and offload their
products. It is common cause that the square has deteriorated over the last few
decades and is now used as a parking lot. Heritage Square is in the immediate vicinity
of Riebeeck Square. It consists of a block of preserved heritage buildings which have
been restored and renovated. In short, this has resulted in a recognised city block with
established heritage values.
[5] The sequence of events that led to the land use approvals for a development
on the doorstep of the Bo-Kaap and which culminated in the present appeal is set out
hereafter. During 2015 Tommy Brümmer Town Planners, who represented the
Developer, held two pre-submission consultations with City officials. The first took
place in May and the second on 24 August. During October of that year, the Developer
made the following applications:
(a) In terms of section 42(b) of the By-law,2 for departures from the City’s Development
Management Scheme (DMS) to allow portions of the building above 38m to be closer
to the street boundary than is permitted by item 60(e) of the DMS;
(b) In terms of section 42(f) of the By-law, for the consolidation of two erven;
(c) in terms of section 42(i) of the By-law, for approval in terms of Item 64(e)(ii) of the
DMS to have parking on the ground floor level for Block B at 0m in lieu of 10m to the
street;
(d) In terms of section 42(i) of the By-law, for approval in terms of Item 162 of the DMS
to develop a new building in the Heritage Protection Overlay Zone (HPOZ);
(e) In terms of section 42(i) of the By-law, to have a 0m building line on the
Buitengracht Street boundary in lieu of 5m as required by Item 121(2) of the DMS for
a metropolitan road.
These are the applications, the approvals of which are at the centre of this appeal.
[6] The applications referred to in para 5 above relate to erven 144698 (2505
square metres) and 8210 (645 square metres) in Cape Town, which are owned by the
Developer. The two erven are adjacent, hence the application for consolidation. The
properties are bounded by Buitengracht, Rose, Longmarket and Shortmarket Streets.
The erven in question, and a number of developed properties alongside them, are
separated from the Bo-Kaap by Rose Street.
2 The applicable City of Cape Town: Municipal Planning By-Law is contained in PN 206 in PGE 7414
of 29-06-2015.
[7] I pause to record the Title Deed condition in relation to Erf 144698. The special
condition for the benefit of the City reads as follows:
‘Subject to the following special condition contained in Deed of Transfer No. 17550/1953
imposed by and for the benefit of the Municipality of Cape Town, namely:
The Transferor shall have the right to refuse permission to build or rebuild any building or
structures on the said land unless the architecture of that portion of such buildings or structure
which fronts on Rose Street is in conformity with the general design and architecture of
buildings situate in such area or areas of the City of Cape Town which is known and/or
classified as the Malay Quarter.’
[8] The applications were motivated and supported by:
(i) an Urban Design Report prepared by Bluegreen Planning and Design;
(ii) a report by Fabian Architects; and
(iii) a Traffic Impact Assessment by Kantey and Templer.
On behalf of the Developer it was stated that the applications seeking approval for the
proposed development were compliant with the City’s policy framework in relation to
such proposals, more particularly: (a) the Cape Town Spatial Development
Framework; (b) the Table Bay District Plan; (c) the Tall Building Policy; and (d) the
Urban Design Policy.
[9] On 7 December 2015 the City’s Directorate of Energy, Environment and
Spatial Planning in the Department of Spacial Planing and Urban Design, submitted
an internal report in relation to the applications by the Developer. The following
remarks were made:
‘In our opinion, due consideration has been given to the context that the site is located within
which is demonstrated through the urban design report attached to the application.
Support was given for a building that [utilises] allowable building height but with massing
sensitive to the Bo-Kaap and Riebeeck Square context. The utilisation of basement parking
also minimises the impact in street activity which was a key design requirement.
We thank the developer and design/planning team for a clear and participated process with
our and other line [department] and [a] well-motivated application clearly unpacking the key
design principles and responses. This made the process of assessment a pleasure.’
[10] Two days later, on 9 December 2015, the City’s Directorate of Asset
Management and Maintenance Transport recommended the approval of the proposal
subject to certain conditions.
[11] On 14 December 2015 the District Head: Environmental and Heritage
Management Resources (the EHM) within the City’s Environmental Management
Department made the following three comments:
‘• The identified heritage resources are the HPOZ urban streetscape interface, the Bo-Kaap
residences along Rose Street, views of vistas of the mountain from various points in the
City and archaeological discovery during excavation.
The Buitengracht Street edge of the building requires a larger setback and canopy on
street level and one storey to improve the pedestrian experience. There must be direct
access to the building at various points along an active edge.
The Rose Street building interface is too high and should emulate the development one
block north. An appropriate edge and interface with Bo-Kaap should be 2 storeys with
setbacks for subsequent storeys. . . .’
[12] Following on what is set out above the Developer’s application was advertised.
It attracted 1017 objections, more than 600 of which were prompted by a website
created and maintained by the first appellant, the Bo-Kaap Civic and Ratepayers’
Association, a voluntary association that claimed it represented the interests of
residents and ratepayers of the Bo-Kaap. The second appellant, the Body Corporate
of 35 on Rose Residents’ Association and, as the name suggests, is the body
corporate responsible for that property, which is located on Rose Street, close to the
erven in question. The body corporate was among those who objected to the
Developer’s proposal. The third applicant in the court below was Professor Fabio
Todeschini, an architect, city planner, urban designer and heritage practitioner who
also owned property in the Bo-Kaap. He passed away and has been substituted as a
litigant in this appeal by the executors of his estate, the third appellant.
[13] On 8 March 2016 the EHM commented on the Developer’s applications. The
comments are pertinent. The EHM noted that there were ‘several significant heritage
resources’ and areas that would be impacted by the proposed development, namely,
(a) Riebeeck Square; (b) erven 1299 and 1300; (c) the Bo-Kaap precinct; (d) the City
Centre; and (e) Heritage Square. Continuing, the EHM recorded that Riebeeck Square
is a significant link between the City and the Bo-Kaap. It went on to state the following:
‘The massing of the proposed building is such that the greater bulk and sheerness of the
design imposes onto Riebeeck Square which serves to further “contain” the square’s breathing
space, boxing it in, which is counterproductive to the historic nature of the space. This is not
seen as a positive impact on the open space.
The historic character of Riebeeck Square is one of openness with important views to Table
Mountain and Signal Hill. These views should not be discarded but should be considered when
impacted on. The proposed building impacts on views from Riebeeck Square and these
impacts should be investigated further.’
(my emphasis).
[14] In respect of the Bo-Kaap it said:
‘The Bo-Kaap is of very high heritage value with many levels of significance which forms part
of the extremely important history of not only Cape Town but of South Africa. The Bo-Kaap is
intricately woven into the early beginnings of Cape Town and has continued to play an
important role in the heritage and history of our city.
On the City’s heritage database Bo-Kaap is listed as a Provincial Heritage Site, a SAHRA
Grade 1 Area and a Proposed HPOZ.
Bo-Kaap can be described on many levels of heritage significance one of which is the historic
fabric and corresponding three dimensional scale and density of the area. This low impact,
architecturally rich and unique area has always had a relationship with town to its south, a
relationship of proximity that has struggled for sustainability due to the continued impact of
new, large and bulky buildings that have served to erode that relationship. Larger, newer
buildings which replaced early structures have resulted in a lineated barrier along both edges
of Buitengracht and Rose Streets. These multi-storey buildings have formed a vertical barrier
between town and the Bo-Kaap which removes the historic connection that has always existed
between the two.
A contextual linking of the Bo-Kaap and town on a physical level is important from a heritage
perspective and is rooted deep in the history of Cape Town. The proposed development
compounds the ongoing separation by means of the design’s bulk and height. The large visual
mass of the proposed building is seen as a physical and visual barrier which erodes the fragile
relationship between the differing built environments of town and the Bo-Kaap. The loss of
historic connection and association of Bo-Kaap with town impacts negatively on the heritage
value of the Bo-Kaap.
The proposed development has opted for setting the massing and bulk back as the building
gets higher which indicates an acknowledgement by the designers of the sensitive nature of
the site and its relationship with Bo-Kaap. This impact should be investigated further with the
aim of design revision that reduces negative influences.’ (My emphasis.)
[15] The EHM stated that a portion of the site fell within the City’s HPOZ and that an
analysis was required as to the proposed development’s impact on the significance
and character of the precinct. Significantly, it went on to state:
‘HPOZ’s are very important tools set in place for the protection, preservation and management
of certain areas which have been investigated, studied and analysed. Those areas have been
recognised to contain sufficient heritage value in terms of heritage resources, significance and
character so as to be protected and managed. Proposed interventions in these areas should
not impact negatively on any of the recognised positive heritage values but should seek to be
informed by those exact values and to achieve a sensitive and welcome balance when placed
in such an environment.
. . .
The proposal introduces a contemporary design approach to its interface at ground and street
level. Further investigation is recommended as to the appropriateness of this approach.
The architectural language is fashionable and does not reference any obvious design
indicators, the incorporation of which would serve to better place the new building in its
sensitive position.
The overall height, bulk and visual mass of the proposed development has a pronounced
impact on the existing built form and character of the immediate area and this is difficult to
mitigate.’ (My emphasis.)
[16] In relation to Heritage Square, the sheer size of the development was a cause
for concern on the part of the EHM. It was not opposed to the addition of built form on
the site, but made its suggestions in order to see if there was a way of limiting the
impact on heritage resources.
[17] I now turn to the heritage statement prepared by the Developer in April 2016.
At the beginning of the executive summary it is stated that the design had responded
positively to urban and heritage related design indicators and that mitigating
measures, such as the stepping back of the upper levels from the Rose Street edge,
without reducing the overall height, would lessen potential negative impacts on the
street and townscape and in relation to Riebeeck Square and the Bo-Kaap. The
Developer’s heritage statement asserted that since the proposed development
involved no listed activities in terms of s 38(1) of the NHRA3 no Heritage Impact
Assessment was required. The Developer drew attention to the base zoning for the
erven in question, namely, ‘Mixed Use MU3’. In terms of the Municipal Planning By-
law, permissible coverage for all buildings within this zone is 100%. It is that base
zoning on which the Developer relied for the applications for approval that it submitted
to the city. The base zoning, and the reliance thereon by the Developer as well as the
City’s insistence that it was an important factor, is a theme that permeates the
complaints and objections by the appellants.
[18] On the 29th of April the EHM wrote to Mr Paul Heydenrych of the City’s Land
Use Management Division stating, inter alia, the following:
‘EHM is still not opposed to the idea of adding built form to the site but is not supportive of the
current proposal.
Our suggestions are aimed at lessening the negative impact that the proposal has on the
heritage resources in the area.
All of the heritage resources identified above will be impacted on in a negative manner to a
certain degree by the proposed development because of the design’s sheer size and
magnitude. The proposed design seeks to mitigate this impact by introducing setbacks and
stepping the building. These setbacks and stepping measures are not significant enough as
mitigation for the impact of the proposal’s size.
The overall height is still seen as being problematic in achieving an appropriate intervention
of a new building into the area. Our recommendation is for a reduction in height whereby a
revised design relates more appropriately to the heritage resources which are impacted on.
The effect of reducing the overall height and subsequent manipulation of proposal might be
more manageable in how the development relates to and impacts on the surrounding heritage
resources.
EHM still recommends that comment be requested by the applicant from Heritage Western
Cape. We request that such comment be forwarded to us please.
EHM acknowledges the substantial Heritage Statement provided by the applicant.’
3 Section 38(2) provides that when a heritage society receives a notice from a person intending to
undertake a development listed in s 38(1), and has reason to believe that heritage resources will be
affected, it must require such person to submit an impact assessment report. It is common cause that
no notice was issued by either the Developer or to responsible heritage authority.
[19] On 11 May 2016, HWC responded to the Developer’s proposals. The following
are the essentials of the response:
‘We note the following three design principles listed in the Heritage Statement, which have
been proposed in an attempt to reduce impacts on townscape and streetscape:
(a) The ‘stepped massing’ from a height of 60m on Buitengracht Street towards a lower
massing on the Rose Street edge;
(b) The incorporation of horizontal and vertical articulation and datum lines, and
(c) The proposed height “counter-balancing” the mass of the City-Park building diagonally
across Riebeeck Square.
With regard to (a), the proposed cascading of the 18-storey building down to a height of
approximately five storeys on Rose Street attempts to make a gradual transition between
the very tall façade on Buitengracht and the Bo-Kaap. The stepping effect alone is however
inadequate to mitigate the substantial heritage impacts on the Bo-Kaap, which is a fine-
grained, predominantly one- and two storey environment with a unique character.
. . .
With regard to (b) above, HWC disputes the datum lines that have been used to establish
the heights and set-backs. Whilst the base zoning and its associated development rules
are recognised, the Heritage Protection Overlay Zone, which is a lawful deprivation, takes
precedence over these underlying “development rights” and was specifically promulgated
to allow for context to inform development and, where necessary, to limit it. We are of the
view that a height of 60m above this section of Buitengracht Street is inappropriate, as it
will dominate both the Bo-Kaap and Riebeeck Square and exacerbate the separation of
the Bo-Kaap from the West City.
As far as design principle (c) above is concerned, HWC does not agree that the Netcare
(“City-Park”) Hospital, diagonally opposite Riebeeck Square, can be used as justification
for the construction of another insensitively-scaled ziggurat building or that “counter-
balancing” the mass of the hospital would be successful mitigation for the negative effects
of a new building, which does not dominate Riebeeck Square, serving as an enclosing
element to the square.
. . .
It is HWC’s view that the development proposal in its current form is inappropriate in this
heritage context and that it will have a detrimental effect on the heritage significance of
both Riebeek Square and the Bo-Kaap. As noted in the CoCT Densification Policy,
development that will be compromising the surrounding built environment should not be
supported. We therefore strongly object to the current planning application.
The proposed mitigation measures, such as stepping down in height are inadequate to
address the substantial impacts of an over-scaled building. The applicants should be
encouraged to re-conceptualise the development proposal, based on comprehensive
heritage indicators and not to merely maximise development, with mitigation as an
afterthought. . . .’ (My emphasis.)
[20] Under the heading ‘Heritage Evaluation’, the following appears in the report,
dated 24 May 2016, by the City’s Land Use Management to the MPT:
‘Various commenting and objecting parties (as indicated above) have cited how the proposed
building will impact on the surrounding heritage resources. Their main points relate to the
proposed building’s height, massing and position.
Despite the legislated heritage resources within the surrounding area (ie PHS), these
resources do not have a legal standing to impose on the subject property.
The various objecting parties’ calls for the reduction in the height of the building due to its
impact on the various heritage resources in the area have not been quantified. The calls for a
reduction in order to limit [the] impact or to allow for a “bridge” between the city and Bo- Kaap
cannot override the primary rights allowable on the property as well as the applicable
legislative context, as previously explained.
With respect to further arguments to limit the height of the portion of the building in the HPOZ,
it is noted that:
If the permissible development rights of the portion outside of the HPOZ were to be accessed
it would serve to “create a backdrop” to a development of the portion within the HPOZ. Despite
this and to mitigate any impacts on the Bo-Kaap area, the bulking of the building is towards
Buitengracht and the CBD. This is some 65m from the Bo-Kaap.
The massing is designated to “bulk” the building towards the central city to “abut” other tall
buildings in the city centre which is the economic hub of the City of Cape Town.
It is noted that other than the development rules for the development site, no development
rules exist within the HPOZ as mentioned in Item 161 of the development management
scheme.
In the absence of the qualification [set out above], my Department considers the above and
following comments. . . relevant to evaluation of this application.
From a statutory point of view, this department reaffirms that no mechanism or legal basis
exists to circumscribe the permissible development rights of the portion of the site outside the
HPOZ, despite objections and the comments from HWC arguing for limiting development
rights.’ (My emphasis.)
[21] On 7 June 2016 a hearing took place before the MPT. I pause to record that
the members of the MPT are technical specialists and a number of them are
independent and not employed by the City. At the MPT meeting Councillor Bryant
emphasised the growth in the CBD and that the amazing growth was something to be
proud of. Extensive discussions ensued, including discussions concerning the scale
of the development and its impact on heritage resources. The following are the noted
reasons for the MPT’s decision to approve the proposal:
‘• The proposal complies with the City of Cape Town Planning Policies (e.g. Table
Bay District Plan Densification Policy, Urban Design policy and Tall Building
Policy).
The proposal takes cognizance of the heritage resources within the area and has
the potential to exhibit good urban design when the relevant conditions have
been complied with, while sacrificing primary development rights.
The proposal will provide an adequate transition between the City and Bo-Kaap
at street level, while reinforcing and defining Riebeeck Square, provided
appropriate urban design and landscaping is implemented.
The massing and height of the building is located away from the Bo-Kaap.
The interface and facades are considered to be acceptable and positive,
especially when relevant conditions are complied with.
The proposal will activate and improve the surrounding streetscapes.
The proposal is considered desirable in terms of Section 99(3) of the City of Cape
Town Municipal Planning By-Law.’
On 21 July 2016 the appellants were notified of that decision.
[22] Twelve appeals were lodged against the approvals by the MPT, including those
of the first two appellants and Professor Todeschini. I pause to record that at the time
that the appeals were lodged the Bo-Kaap had not formally been proclaimed an HPOZ
but that the City did consider that it should be done as a matter of priority.
[23] It is significant that in a report of the City in relation to the appeals, dated 19
October 2016, the following appears:
‘However, the existence of base rights in itself cannot be the sole reason for granting the
City’s approval under the general provisions of a HPOZ. In this regard, the department has
applied its mind and made recommendations to the MPT who, in turn, applied its collective
mind in making specific decisions. As a result, condition 3.2 of the Amended Annexure A
was imposed in order to further mitigate aspects of the proposal. Again, these are reflected
in the minutes and transcripts of the MPT meeting.’
[24] The first stage of the appeals were conducted at a meeting of the Mayoral
Advisory Panel (MAP) on 30 November 2016 and oral representations from some of
the appellants ensued. The MAP then sent a report to the Mayor containing its reasons
for approving the applications. The reasons, in addition to endorsing those of the MPT,
were as follows:
‘In addition to the proposal complying with the City of Cape Town Planning Policies i.e. Table
bay District Plan, Densification policy, Urban Design Policy and Tall Building Policy as
mentioned by the Municipal Planning Tribunal the proposal also complies with the City of Cape
Town Spatial Development Framework, the Integrated Development Plan, Economic Growth
Strategy, and the Transit Orientated Development Strategy.
Where there were errors in the notification process extra time was allowed and agreed to by
the applicant for people to submit comments on, or objections to the application.
Although only a portion of the property was affected by the HPOZ the department had treated
the application as if the whole property was affected by the HPOZ.
The panel was of the view that the application was desirable in terms of section (2)(d), as
contemplated in subsection (3), of section 99 of the MPBL.
In addition to the desirability of the application in terms of section 2(d) as contemplated in
subsection 3(i) related to traffic impacts, parking access and other transport related
considerations, the panel added that the application was desirable in that it bordered on
Buitengracht which is a high order road and is thus an ideal location for land use intensification
and increase density.
In terms of the transit development strategy more residential uses have to be encouraged in
the City centre to address inefficiencies in the City.
The application was sensitive to the Bo-Kaap area.
The massing and height of the building’s façade along Rose Street responds to the
neighbouring buildings’ on each side of the building.’ (My emphasis.)
[25] The second stage of the appeal process comprised of the Mayor considering
the MAP’s report as well as all the other information put before her and then making a
decision. She decided to accept the recommendation of the MAP and agreed with its
report. She stated that she took into account heritage concerns. Her reasons will be
further explored later in this judgment. The appellants had many complaints about the
City and the Mayor’s decisions, including many that were based on ‘procedural
irregularities’, such as the lack of time and opportunity to object, irregular pre-
submission consultations with the City’s officials, defective notifications, and not
making available material information to objectors. Before us these were advisedly,
not persisted in.
[26] On the substantive level the appellants were aggrieved, first, at the City’s
attitude in relation to how an overlay zoning that attached to one of the erven had to
be construed and applied. Overlay zonings are provided for in the DMS, which is
incorporated into the City’s By-law. Among the matters that have to be taken into
account in relation to an overlay zone are environmental, heritage and conservations
concerns. In the present case the overlay zone is an HPOZ, which emphatically
elevates heritage concerns, so it was contended. The appellants submitted that the
base zoning, which in the present case was mixed use, did not detract from the HPOZ.
Item 162 of the DMS provides that the following requires the approval of the city:
‘Any development, including any physical intervention, excavating or other action other than
those caused by natural forces, which may in any way result in a change to the appearance
or physical nature of a heritage place or influence its stability or future wellbeing including: (a)
the construction, alteration, demolition, removal or change of use of a heritage place or a
structure at a heritage place; (b) carrying out any works at a heritage place; and (c)
consolidation of land comprising a heritage place.’
The City is of course empowered to afford an exemption, but must do so consciously.
It did not, according to the appellants, apply its mind to this requirement. .
[27] The appellants were adamant that s 24 of the Constitution,4 as well as the
NHRA obliged the City to have regard to the implications of the development on the
heritage values of the area. That obligation, they insisted, had not been met.
4 ‘Everyone has the right -
(a) to an environment that is not harmful to their health or wellbeing; and
[28] It was contended on behalf of the appellants that Riebeeck Square was a
significant link between the City and the Bo-Kaap and that the proposed development
would disturb that connection because of its sheer height and mass. In respect of
Heritage Square, it was submitted that the development, because of its size, would
impact on it for obvious reasons of proximity.
[29] The appellants made common cause with HWC in asserting that the stepped
massing, that is the proposed cascading of the eighteen-storey building down to a
height of approximately five stories on Rose Street, so as to attempt a gradual
transition between the tall façade on Buitengracht Street was an inadequate step to
mitigate the impact on the heritage value. The appellants accused the City and the
Developer of being deceptive, by providing photomontages of the proposed
development which inaccurately downplayed the height of the building.
[30] The bases of the objections by the appellants grew exponentially. The
appellants incorporated into their growing list of objections and complaints the City
and the Mayor’s failure to abide by the City’s Scenic Drive Policy, which they said was
implicated by the sheer height of the building. Simply put, on this score, the complaint
was that views would be affected, especially in relation to a drive along Buitengracht
Street, which the Scenic Drive Policy sought to prevent. In this regard they stated that
Buitengracht Street is protected as an S2 scenic drive from the bottom of Kloof Nek
Road to Coen Steytler Avenue. The appellants contended that the development would
affect the visual quality from the Bo-Kaap.
[31] In submissions before us reliance was primarily placed on s 99 of the By-law.
More about s 99 and the appellants’ stance in relation thereto, later. The appellants
also submitted that the City had ignored its own policies including those set out at the
end of para 8 above. The appellants accused the City of having failed to have proper
(b) to have the environment protected, for the benefit of present and future generations, through
easonable legislative and other measures that -
(i) prevent pollution and ecological degradation;
(ii) promote conservation; and
(iii) secure ecologically sustainable development and use of natural resources while promoting
justifiable economic and social development.’
regard to its own Tall Building Policy. That policy requires the City to have regard to
the impact of proposed tall buildings. Moreover the appellants contended that the
photomontages of what a completed building would look like, presented by the
Developer as part of its application and for the public to comment upon, were deceptive
and underplayed the visual impact of the building the Developer intended to erect. The
appellants asserted that what was required, especially in the light of the reservations
of the EHM, was a visual impact study. This had not been called for by the City.
[32] Furthermore, the appellants stated that the City completely ignored its own
context sensitive Densification Policy, more particularly, that the scale and character
– bulk, height and architectural styling – of high density areas must be appropriate to
the context. In the present case, so it was contended, the proposed development was
contextually inappropriate.
[33] Moreover, the appellants went on to rely on the City’s Urban Design Policy
(UDP). This policy, so it was asserted, was to ensure that the design process and
formulation of development did not further contribute to the segregated nature of Cape
Town, inherited from apartheid. The appellants took the view that the approval of the
development effectively cut the Bo-Kaap off from the rest of the city.
[34] The appellants continued growing their grounds of objection by placing reliance
on the Cultural Heritage Strategy for the City which, as the name suggests, recognises
the rich cultural history of Cape Town. This is another nuance of the repeated
accusation that heritage concerns were ignored by the City and the Mayor.
[35] The appellants alleged further that the City had failed to enforce the special
condition attached to the Title Deed in relation to Erf 144698, referred to in para 7
above. They pointed out that the Developer had not made any application to the City
for the relaxation of the condition. Thus, so it was contended, the City ought not to
have approved the applications by the Developer.
[36] In its answering affidavit opposing the relief sought by the appellants, the City
pointed out, at the outset, that the subject properties are not located within the Bo-
Kaap. It provided a three-dimensional depiction of the building and its surrounds,
which it contended provided a better understanding of the photomontages supplied by
the Developer. The City contended that the three-dimensional analysis showed that
the development would blend in with the surrounding area.
[37] According to the City, the heritage statement presented by the Developer
provided an accurate description of the history of the area immediately surrounding
the proposed development. The City and the Mayor emphasised that the properties in
question lie within a band of commercial properties between Rose and Buitengracht
Streets and, further, that commercial properties had already intruded and later come
to dominate the block from the early part of the twentieth century. Over time, residential
areas were replaced with commercial properties, such as car salesrooms and car
service centres, parking areas, wholesale and light manufacturing. In this regard, the
City placed reliance on aerial photographs, which show the stark contrast between the
block related to the proposed development and the Bo-Kaap. In essence the City
contended that extensive residential and commercial developments already existed
within the block in which the development was located, as well as within its immediate
vicinity, as opposed to the Bo-Kaap and its unique architecture and character. The site
itself, the City and the Mayor pointed out, has no inherent heritage value.
[38] According to the City, the site in question was already earmarked for
development from the late 1940s. New buildings in the CBD were allowed up to a
maximum height of 37m on streets wider than 18.5m, such as Buitengracht Street,
and up to a height of 25m on streets wider than 12.5m. This was followed by a period
of economic decline and inner-city decay. In 2003 this was reversed when residential
units such as the Studios, adjacent to the subject properties, were developed. These
developments were a form of city living, which now appears to be a growing trend
throughout the world. More recent developments in the area include the Hilton Hotel,
on the corner of Buitengracht and Wale Streets, and 35 on Rose, mentioned in para
12 above.
[39] The latest development on which construction had already started at the time
of commencement of litigation in the court below is called ‘117 on Strand’, and is
situated between Rose, Strand, Ciappini and Castle Streets, adjacent to the Bo-Kaap.
It is 150m away from the subject properties and indeed very similar to the development
under discussion. 117 on Strand is a 17 storey building, comprising 117 apartments,
with underground parking, 5 200m2 of retail outlets and 6 600m2 of office space.
Moreover, 117 on Strand is staggered away from the Bo-Kaap. That development was
not challenged by HWC or the appellants.
[40] The City pointed out that Rose Street is a minor two-way street, providing a
dividing line between the CBD and residential Bo-Kaap. As stated earlier, each side
of the street has a very distinct character. On the western (Bo-Kaap) side, the
residential buildings are typically single to two storeys, set on the advancing slope of
Signal Hill. On the eastern (CBD) side of Rose Street the buildings are mostly three
storeys and higher, currently up to nine storeys. For instance, immediately to the south
of the proposed development is the nine storey high Studios building, on erf 148791,
containing flats and some business premises. Immediately to the north of the
development is 35 on Rose, a six-storey block of flats and offices, situated on erf
166963.
[41] Riebeeck Square, a Provincial Heritage Site (PHS), which is on the eastern side
of the proposed development, as described above, is a large open area currently used
for parking. It is designated as a public open space, and is bounded by the treed
avenues of the surrounding streets. St Stephan’s Dutch Reformed Church is also a
declared PHS and is situated along the Bree Street edge of the square. It is
uncontested that Riebeeck Square has deteriorated over the last few decades. The
City adopted the view that developments such as the one in question should be
supported as they will breathe new life into the square. Surrounding Riebeeck Square
are offices and businesses, the old Christiaan Barnard Hospital (Netcare) as well as
Heritage Square. A positive change has been the renovation and restoration of
Heritage Square, with restaurants that are open in the evenings. The City is adamant
that introducing residential areas, such as the proposed development around
Riebeeck Square, may be a catalyst to develop a more human orientated facility,
rather than a vehicle orientated facility.
[42] The City’s position in relation to the base zoning and overlay zoning is set out
hereafter. Both categories depict a land use prescribed by the DMS regulating the use
of and development of land and setting out the purposes for which land may be used
and the development rules applicable to that land use category. In its answering
affidavit, the City accepted that the approval for use of property under the DMS had to
take into account various policies and principles, as well as environmental and land
use considerations. The City was adamant, however, that designations under the DMS
remained the starting point. It pointed out that base zoning meant the zoning before
the application of any overlay zoning and may include a subzoning as contemplated
in the DMS. Overlay zoning is a zoning, in addition to the base zoning, stipulating the
purposes for which land may be used and the development rules, which may be more
or less restrictive than the base zoning. The City explained that the MU3 base zoning
which attaches to the property in question, applies to all properties in the area between
Buitengracht and Rose Streets. The City’s position was that the base zoning confers
various primary permitted uses for which approval is not required. The base zoning in
question allows for a range of uses, including business purposes and flats. The overlay
zoning in question requires that environmental, heritage protection, and conservation
concerns be taken into account.
[43] According to the City there are three relevant overlay zones designated by the
City. First, is the Cape Town CBD Local Area Overlay Zoning. This is referred to as
the CBD LAO. The second is the Central City Heritage Protection Overlay Zoning. This
is known as the Central City HPOZ. The third is the Table Bay Scenic Drives Overlay
Zone, which it is to be noted, does not include Buitengracht Street. According to the
City the development proposal makes use of the maximum height allowed by the MU3
base zoning.
[44] The City’s position was that the height and the scale of the proposed
development is within all of the rights that attached to properties in that zoning and the
CBD LAO. The City emphasised that the proposed development will, in fact, not utilise
the full extent of conferred developmental rights.
[45] The City pointed out that the properties in question also fall within an urban
development zone. This was introduced in 2003 and is a tax incentive, aimed at
revitalising inner city areas by attracting capital investments in commercial and
residential property through a tax rebate. The idea, so the City said, was to bring
people back to the central city to live, play and work, through appropriate residential
and business densification, affordable housing and mixed usage buildings.
[46] The City also insisted that it applied its own density priority zone policy and that
the CBD was an urban civic upgrade area into which the proposed development fitted
snugly.
[47] In dealing with the appellant’s criticisms against the approval process, the City
referred to the expert knowledge and experience of members of the MPT. They all
have impressive academic and practical credentials. So, too, the members of the
MAP. The same applied to the Mayor’s technical advisor. It was pointed out that all of
these experts agreed that the applications for the development proposal should be
approved.
[48] According to the principal deponent on behalf of the City, the comments made
by interested parties when the proposal was advertised caused the City’s Land Use
Management Department to obtain further input on historical aspects of the area from
the EHM. It acknowledged that the EHM was concerned about the height and scale of
the proposed development and recommended a reduction in height, with a revised
design that related more appropriately to heritage concerns. The EHM suggested that
comment be solicited from HWC. The latter accepted that a permit was not required
in terms of s 27(18) of the NHRA. HWC did not consider the stepping down effect to
Rose Street to be adequate in mitigating heritage impact. It considered the proposed
development’s 60m height to be inappropriate. HWC did not, however, in principal,
object to the erection of the new building.
[49] The City was impressed by the fact that, after receipt of the aforementioned
heritage concerns, the Developer sought to address them by making significant
changes. The Developer, according to the City, did reduce the scale of the proposal
and set the building back further from street boundaries. The part of the building
immediately adjacent to Rose Street was reduced in height, from 5 to 3 storeys, and
the Developer also procured the heritage statement referred to earlier. That statement
accepted that the proposed development would have to be sensitive to the heritage
resources surrounding it. The Developer also contended that the impact on the
townscape and streetscape was positive.
[50] The report to the MPT reiterated that the bulk of the proposed development was
towards the centre of the CBD, to abut other tall buildings. The CBD is the economic
hub of Cape Town. It also indicated that the bulk of the building is at the lower levels,
9 storeys and below, which is at a height similar to the adjacent building on erf 148791.
Significantly, the following appears in the report:
‘Based on the existing rights applicable to the property, this department prefers the current
proposal over a proposal solely based on the primary rights allowable to the property given
the building setbacks, massing and heights proposed. The proposal provides an effective
transition between the City and Bo-Kaap, while being mindful of the heritage resources in the
area.’
[51] In relation to the title deed condition, the following was stated:
‘[T]he condition points in a design direction. It suggests that, in order to fully clarify the interface
along Rose Street and to create the best possible street interface and transition, a condition
should be imposed to allow for further consideration of this façade. As I shall explain below,
the City will take a decision on whether it will exercise the discretion conferred by the title deed
condition, during the building plan stage.’
[52] The transcript of the MPT hearing shows that there was extensive discussion
of development rights and heritage concerns. There was also a discussion about the
application of s 99 of the By-law, which dictates that when applications of the kind
under consideration are decided the social and economic impact should be taken into
account. As far as the City was concerned the unanimous approval of the applications
was reached in balanced fashion, as required by s 99.
[53] In relation to the MAP meeting, the City explained that the appellants addressed
the meeting as did the Developer’s representatives and that this was followed by
extensive discussion. The MAP’s recommendations and reasons are contained in the
minutes of that meeting. The MAP recommended, unanimously, that the appeal be
dismissed. In respect of the Mayor’s decision, the City recorded that she had been
provided with all the documents and materials that were provided to the MAP. In
addition, she had been supplied with the appeals themselves and a report prepared
by the Acting District Manager. She was also placed in possession of the minutes of
the MAP meeting, of 30 November 2016, as well as the report prepared by the
Chairperson of the MAP, Dr Johan van der Merwe.
[54] The City and the Mayor were adamant that she had carefully considered all of
the information placed before her. She engaged in several consultations and
discussions with her technical advisor and with her principal legal advisor. It is
uncontested that she conducted an inspection of the site of the proposed development
and the surrounding areas, accompanied by her technical and legal advisors. She was
aware of the HPOZ attaching to one of the subject erven and was careful to observe
the position of the proposed development in relation to the Bo-Kaap and to make an
assessment of its impact on nearby heritage resources, Riebeeck Square and Rose
and Buitengracht Streets.
[55] The Mayor was aware of the base zoning and the other buildings in the
immediate vicinity of the proposed development. The City and the Mayor insisted that
they had regard to heritage considerations and balanced that against the other
necessary factors. It was only after the Mayor had done so that she reached a decision
to dismiss the appeals.
[56] It is necessary to have regard to the Mayor’s written reasons for accepting the
recommendation of the MAP:
‘I accept the recommendation of the Advisory Panel and agree with its Report to me. I
considered, in particular, the view of the City’s Environment and Heritage Department that the
surrounding heritage resources will be impacted on in a negative manner to a certain degree
by the proposed development due to the design’s sheer size, height and magnitude. However,
I agree with the MPT and the Advisory Panel that the proposed development responds
appropriately to the neighbouring buildings and the environment.’
[57] Significantly, the Mayor stated the following in her affidavit opposing the relief
sought by the appellants:
‘Finally, it should be apparent from the appeals process and record of decision that I did not
decide the appeals on the basis that the City is not entitled to limit primary rights conferred by
the development management scheme when considering an application for development
falling within a heritage protection overlay zone. My belief was, and remains, that it was not
necessary to do so because the proposed development responds appropriately to surrounds
and that sufficient mitigating measures and conditions were put in place to address the
heritage concerns raised.’
[58] The high court, in adjudicating the dispute between the appellants and the
respondents, had regard to the provisions of s 99 of the By-law and the prescribed
criteria in terms of which applications for approvals of the kind in question are to be
decided. Le Grange J considered the sequence of events and the documentation
referred to earlier in this judgement. The court below took into account the comments
by the City’s EHM, the objections by the appellants and all the other information
available to the City and the Mayor. The court held that both s 99 of the By-law and
Item 162 of the DMS required the decision- makers, the City and the Mayor, to take
into account heritage concerns. Le Grange J concluded that whether one was dealing
with the provisions of s 99 or with the relevant provisions of the DMS, heritage
concerns could not be considered to be the pre-eminent or sole criteria in deciding
applications such as those in the present case. The court found that it is but one of a
basket of factors to be balanced in order to arrive at a decision.
[59] The court below dealt with the appellants’ complaint that the City and the Mayor
did not engage with the views expressed by HWC and the EHM and thus failed to
have any real regard to the development’s impact on heritage. It is necessary to set
out, in some detail, the court’s reasoning on this aspect. In this regard, paragraph 88
– 93 of Le Grange J’s judgment are of particular relevance:
’It needs to be mentioned that the MPT and the Mayor were not only obliged to consider
heritage but a far broader range of issues, including heritage. It is difficult to accept that the
City had no regard or failed to have appropriate regard to heritage impact when it considered
the Developer’s planning applications, as this contention by the Applicants, is not borne out
by the papers filed of record.
There can be no misgivings that heritage enjoyed a distinct degree of attention throughout the
various stages of the application. The objectors’ concerns, as noted by Heydenrych, were the
height, massing and position of the building. On this point it was noted by Heydenrych that the
bulk of the building was on the lower levels (9 storeys and below) “which is at a similar height
to the adjacent existing building on Erf 148791”; the revised proposal by the Developer were
preferred over a proposal based solely on primary rights; it was considered that the proposal
provided an effective transition between the City and Bo-Kaap while being mindful of the
heritage resources in the area; it was further found that the development had taken care with
regard to the surrounding heritage elements and that the impact of the building was mitigated
by the setbacks applied to the building which limited its impact on the surrounding heritage
resources.
A member of the MPT considered that the redesign and mitigation measures achieved a
balance between the developer’s statutory rights and the built infrastructure of the Bo-Kaap
and the MPT gave as a reason for their decision the fact that the proposal takes cognizance
of the heritage resources within the area.
At the MAP, one of [the] councillors was of the view that the application responded to the
HPOZ and that the developer had been sensitive to the Bo-Kaap by scaling down the building
on the Rose Street side. Another councillor of the MAP thought that the design had been as
sensitive as possible. The MAP also echoed the reasons for the MPT’s decision by finding
that the proposal took cognizance of the heritage resources within the area.
The Mayor agreed with the MAP. The following was recorded:
“I accept the recommendation of the Advisory Panel and agree with its report to me. I
considered, in particular, the view of the City’s Environment and Heritage Department that the
surrounding heritage resources will be impacted on in a negative manner to a certain degree
by the proposed development due to the design’s sheer size, height and magnitude. However,
I agree with the MPT and the Advisory Panel that the proposed development responds
appropriately to the neighbouring buildings and the environment.’’
The City further considered the fact that the bulk of the building was moved away from the Bo-
Kaap towards Buitengracht Street. Secondly, the Rose Street façade of the building would
only be three storeys which is entirely in keeping with the vernacular of the Bo-Kaap and the
Second Applicant’s building.’
[60] The court below held that the City and the Mayor had arrived at the decisions
referred to above in a balanced fashion that they did not act unreasonably or
irrationally. The Mayor and the City did not commit an error of law and they did not
ultimately hold a rigid view that base zoning rights trumped all countervailing
considerations. Insofar as all the other allied bases of objection of the appellants were
concerned, the following is relevant:
(a) In respect of the lack of a visual impact assessment, the court held that no height
departure was required in terms of the Tall Buildings Policy, which left the City with a
wide discretion in respect of whether to require a visual impact assessment from a
prospective developer. Sufficient information was provided so as to enable the City
and the Mayor to assess the visual impact of the building.
(b) In relation to the appellants’ complaint that the City and the Mayor failed to have
due regard to the proposed development’s impact on traffic, the court below found that
the challenge was unmerited. Le Grange J recorded that the inner city is congested in
many places during peak hours, but that that cannot be held to mean that the entire
enterprise of providing further retail and residential opportunities within for the CBD
must now be abandoned. The court held that the recommendations set out in the traffic
impact assessment, which for present purposes need not be repeated, and the
conditions of approval which included costs accruing to the Developer, were adequate
to deal with traffic-related problems.
[61] The court below rejected HWC’s contention that s 27(18) of the Heritage Act
was triggered and that declaratory relief in that regard was justified. Since HWC is no
longer before us, and since no other party persisted in that argument, there is no need
to deal with that aspect. Relying on the principal of subsidiarity the court below held
that appellants’ further reliance on s 24 of the Constitution was misplaced. In the result
the court made the following order:
‘The Review application and the Fourth Applicant’s application for a Declaratory order are
dismissed with costs. The Applicants are to pay the Respondents’ costs jointly and severally,
the one to pay the other to be absolved. Such costs to include the costs of two counsel.’
[62] Before turning to deal with whether the conclusions of the court below set out
above and the ensuing order were well-founded, it is necessary at the outset to deal
with a preliminary matter. Shortly before the appeal was heard an application to lead
further evidence on appeal was filed on behalf of the appellants. In short, it related to
an enquiry conducted by a firm of attorneys in Cape Town, after allegations were made
by as yet unidentified members of the EHM in relation to the then Mayor’s antipathy to
heritage concerns.5 The allegations made were serious and the Mayor was accused
of abusing her position and being guilty of misconduct and misrule by deliberately
ignoring any input or assertions about heritage concerns. Although Professor
Todeschini had made public utterances about bias and mala fides on the part of the
5 The Mayor who made the decision in question is no longer in office.
City and the Mayor, these were not repeated in the affidavits on which the application
in the court below was based. While there was not a complete disavowal of Professor
Todeschini’s stance, there was, for the purposes of the litigation, a dissociation from
the allegations of mala fides and bias.
[63] The basic problem for the applicants in relation to the admission of new
evidence is that the recommendation by the firm of attorneys was that the allegations
set out in the preceding paragraphs require investigation and that their veracity must
be tested. The City has accepted the recommendation, but the investigation has not
yet commenced. The City has also made it known, publicly, that the allegations
concerning the Mayor will be contested. The allegations, sought to be adduced on
appeal, are hearsay. They remain untested and are from a source that is generic rather
than specific. There has been no attempt to obtain first-hand substantiation of the
allegations made. Moreover, there has been no attempt to have the evidence adduced
in terms of the Law of Evidence Amendment Act 45 of 1988. Section 3(1) of that Act
provides that as a general rule hearsay evidence is inadmissible. There are a few
exceptions, one of which is that evidence should be admitted in the interest of justice,
if the court so opines after considering all relevant factors, including the reason why
such evidence is not given by the person upon whose credibility the probative value
depends. There are also all the other requirements provided for in s 3(1)(c) that a court
has to consider before such evidence is admitted. As stated above no attempt was
made in terms of s 3 of the Evidence Amendment Act to lay a basis for the admission
of the evidence.
[64] The legal principals regulating the admission of further evidence on appeal are
well-established. Our courts have repeatedly stated that, in the interest of finality, a
court’s power to receive further evidence in terms of s 19(b) of the Superior Courts Act
10 of 20136 should be exercised sparingly and that further evidence on appeal should
only be admitted in exceptional circumstances.7 As stated in the preceding paragraph,
the evidence sought to be placed before us is, in general terms, inadmissible and no
legal basis has been provided for its reception. Furthermore, it is an attempt to make
6 Previously s 22(a) of the Supreme Court Act 59 of 1959.
7 De Aguiar v Real People Housing (Pty) Ltd [2010] ZASCA 67; 2011 (1) SA 16 (SCA) paras 9-12 and
the authorities there cited.
out a new case on appeal on as yet untested allegations. In light of what is set out
above we are disinclined to admit the evidence and the necessary order will be made
at the end of this judgment.
[65] I now turn to deal with the substance of the appeal. Before us counsel on behalf
of the appellants were constrained to restrict their submissions to the question whether
the criteria under s 99 of the By-law, the provisions of which are set out hereafter, were
adhered to by the City and the Mayor. In short, the nub of the appellants’ case, whether
by reference specifically to the By-law or to the labyrinth of policies, strategies and
statutory provisions, was that heritage considerations were ignored or downplayed and
that the decisions by the City and the Mayor were therefore unreasonable, irrational
or tainted by the City’s mistaken position in relation to base zoning rights. Section 99
provides as follows:
‘99. Criteria for deciding application
(1) an application must be refused if the decision-maker is satisfied that it fails to comply with
the following minimum threshold requirements -
(a) the application must comply with the requirements of this By-law;
(b) the proposed land use must comply with or be consistent with the municipal spatial
development framework, or if not, a deviation from the municipal spatial development
framework must be permissible;
(c) the proposed land use must be desirable as contemplated in subsection (3); and
(d) in the case of an application for a departure to alter the development rules relating to
permitted floor space or height, approval of the application would not have the effect of
granting the property the development rules of the next subzone within a zone.
(2) if an application is not refused under subsection (1), when deciding whether or not to
approve the application, the decision-maker must consider all relevant considerations
including, where relevant, the following -
(a) any applicable spatial development framework;
(b) relevant criteria contemplated in the development management scheme;
(c) any applicable policy or strategy approved by the City to guide decision making;
(d) the extent of desirability of the proposed land use as contemplated in subsection (3);
(e) impact on existing rights (other than the right to be protected against trade competition);
(f) in an application for the consolidation of a land unit -
(i)
the scale and design of the development;
(ii)
the impact of the building massing;
(iii)
the impact on surrounding properties; and
(g) other considerations prescribed in relevant national or provincial legislation.’
[66] Section 99(3), as amended, provides that certain considerations come into play
when the desirability of a proposed development is being considered in terms of s
99(2)(d). These are socio-economic impact, compatibility with surrounding uses,
impact on the external engineering services, impact on safety, health and wellbeing of
the surrounding community, impact on heritage, impact on the biophysical
environment, traffic impacts, parking, access and other transport related
considerations, and whether the imposition of conditions can mitigate an adverse
impact of the proposed land use.
[67] As can be seen, s 99 has to be applied in distinct stages. First, there is the
threshold enquiry set out in s 99(1). The proposed land use must be consistent with
the municipal spatial development framework. The base zoning is a convenient
starting point. It does allow for the kind of development here in question. Insofar as
desirability is concerned, which is intimately associated with the core issue, the factors
set out in s 99(3) of the By-law come into play. In relation to socio-economic impact,
the City’s view was that the proposed development would have a positive effect on
commercial life and inner city living and on regeneration and rejuvenation of the CBD.
The City’s experts in relation to engineering services, safety and health were all in
accord. They took the view that those aspects were adequately dealt with by the
proposed development and had no concerns in that regard. So, too, with the traffic,
parking, access and transport related considerations, including, the conditions put in
place in relation thereto, (as noted by the court below).
[68] It is now necessary to deal with the core complaint, postulated in the court below
and before us, namely, that the City and the Mayor were averse to dealing with any
criticisms concerning heritage impact, that they had adopted a rigid approach
concerning the base zoning and assumed the attitude that base zoning trumped or
negated all other considerations.
[69] Whilst it is unfortunate that City officials, the MPT and the MAP used language
that was sometimes confusing, the question to be addressed is whether, in fact, they
had regard to the criteria set out in s 99 of the By-law, referred to in preceding
paragraphs. It is true that they referred to rights conferred in terms of base zoning and
on occasion spoke about the sacrifice of rights. It is equally true that the documents
indicate that they engaged with heritage concerns and considered the massing away
from Rose Street as a significant concession to heritage concerns. The part of the
City’s report set out in para 50 above makes it clear that the City ultimately did not
consider the primary or base zoning rights to trump all other considerations. In relation
to the title deed condition, referred to above, upon which the appellant’s relied, the City
adopted the attitude that the title deed condition would be enforced when building
plans are submitted by the developer.
[70] The mass of documentation produced by the parties to the litigation is a clear
indication that the full range of countervailing interests were seriously and extensively
engaged with. At this stage of the consideration of whether the application for review
of the approvals by the City and the Mayor was well founded, it is apposite to consider
what judicial review entails. In Endicott Administrative Law at 328 the following
appears:
‘All public authorities ought to make the best possible decisions (and Parliament can be
presumed to intend that they should do so). But that does not mean that the judges have
jurisdiction to hold that a decision was ultra vires on the ground that it was not the best decision
that could have been made.’8
[71] Wade and Forsyth Administrative Law state the following:
‘The system of judicial review is radically different from the system of appeals. When hearing
an appeal the court is concerned with the merits of a decision: is it correct? When subjecting
some administrative act or order to judicial review, the court is concerned with its legality: is it
within the limits of the powers granted? On an appeal the question is “right or wrong?” On
review the question is “lawful or unlawful?”
. . .
Judicial review is thus a fundamental mechanism for keeping public authorities within due
bounds and for upholding the rule of law. Instead of substituting its own decision for that of
8 T Endicott Administrative Law 4 ed (2018).
some other body, as happens when on appeal, the court on review is concerned only with the
question whether the act or order under attack should be allowed to stand or not.’9
[72] Laws J in R v Somerset County Council, ex parte Fewings & others [1995] 1 All
ER 513 (QB) at 515d-g stated:
‘Although judicial review is an area of the law which is increasingly, and rightly, exposed to a
great deal of media publicity, one of its most important characteristics is not, I think, generally
very clearly understood. It is that, in most cases, the judicial review court is not concerned with
the merits of the decision under review. The court does not ask itself the question, “Is this
decision right or wrong?” Far less does the judge ask himself whether he would himself have
arrived at the decision in question. It is, however, of great importance that this should be
understood, especially where the subject matter of the case excites fierce controversy, the
clash of wholly irreconcilable but deeply held views, and acrimonious, but principled, debate.
In such a case, it is essential that those who espouse either side of the argument should
understand beyond any possibility of doubt that the task of the court, and the judgment at
which it arrives, have nothing to do with the question, “Which view is the better one?”
Otherwise, justice would not be seen to be done: those who support the losing party might
believe that the judge has decided the case as he has because he agrees with their
opponents. That would be very damaging to the imperative of public confidence in an impartial
court. The only question for the judge is whether the decision taken by the body under review
was one which it was legally permitted to take in the way that it did.’
[73] Schreiner JA in Sinovich v Hercules Municipal Council 1946 AD 783 at 802-
803 said:
‘The law does not protect the subject against the merely foolish exercise of a discretion by an
official, however much the subject suffers thereby. But the law does protect the subject against
stupid by-laws or regulations, however well intended, if their effect is sufficiently outrageous.’
[74] Hoexter makes the point as follows in Administrative Law in South Africa (2 ed)
at 113:
‘In administrative law “judicial review” refers more specifically to the power of the courts to
scrutinise and set aside administrative decisions or rules (delegated legislation) on the basis
of certain grounds of review.’10
9 Wade & Forsyth Administrative Law 11 ed (2014) at 26.
10 C Hoexter Administrative Law 2ed (2012) at 113.
[75] In Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism
and Others [2004] ZASCA 15; 2004 (4) SA 490 (CC); 2004 (7) BCLR 687 (CC),
O’Regan J explained that s 6 of the Promotion of Administrative Justice Act 3 of 2000
(PAJA) identifies the circumstances in which the review of administrative action might
take place. The authority for that basis is the Constitution.11
[76] In the present case, the focus before us was whether the City and Mayor were
materially influenced by an error of law in that they allegedly adopted the attitude that
base zoning negated or trumped all countervailing considerations. It was also in
general terms submitted that the approvals were irrational or were so unreasonable
that no reasonable person could have reached that decision. This, in essence, was
reliance on the grounds of review provided for in s 6(2) of PAJA. In adjudicating
whether those grounds are justified, we are precluded from considering whether we
would have reached a decision within a band of decisions, but rather whether the
grounds of review provided for in s 6(2) of PAJA and relied on by the appellants are
sustainable.
[77] In determining whether a decision was reasonable or not, factors to be
considered are the nature of the decision, the identity and expertise of the decision-
maker, the range of factors relevant to the decision, the reasons given for the decision,
the nature of the competing interests involved, and the impact of the decision on the
lives and well-being of those affected.12 As taught by the Constitutional Court, although
the review function of courts now has a substantive as well as a procedural ingredient
the distinction between appeals and reviews continues to be significant. 13
[78] In Bato Star the following was stated:
‘In treating the decisions of administrative agencies with the appropriate respect, a court is
recognising the proper role of the executive within the Constitution. In doing so a court should
be careful not to attribute to itself superior wisdom in relation to matters entrusted to other
branches of government. A court should thus give due weight to findings of fact and policy
11 Para 25.
12 Bato Star Para 45.
13 Bato Star Para 45.
decisions made by those with special expertise and experience in the field. The extent to which
a court should give weight to these considerations will depend upon the character of the
decision itself, as well as on the identity of the decision-maker. A decision that requires an
equilibrium to be stuck between a range of competing interests or considerations and which
is to be taken by a person or institution with specific expertise in that area must be shown
respect by the courts.’14
[79] Returning to the facts of the present case, as stated above, the City’s officials,
the MPT and the MAP, despite the use of somewhat opaque language, in fact had
regard to heritage concerns. They all engaged with the Developer and objectors on
that aspect. In truth, the balance envisaged by s 99 was achieved. The City’s experts
and those who served on the MPT and MAP were undoubtedly qualified to deal with
the subject matter, as was the Mayor’s technical advisor. It is not for the court to
second-guess these experts, save where they committed a reviewable irregularity.
This is not to imply judicial timidity but rather to ensure that when judicial intervention
occurs it is based on principle and within the bounds of the law, including observing
the doctrine of the separation of powers. The court below, in my view, cannot be
faulted for holding that the City’s experts had regard to relevant considerations and
were not guilty of the irregularities they were accused of.
[80] Even if it could be argued that what is set out in the preceding paragraph is too
charitable to the City’s officials and departments, there is a further obstacle for the
appellants to overcome. The appeal before the Mayor, it was accepted by counsel on
behalf of the parties, was an appeal in the wide sense, so that the merits of the
applications for approval could be considered afresh.15 It amounts to a re-hearing of
the merits of the matter with or without further evidence or information. It was accepted
by counsel on behalf of the appellants, that whatever flaws there might conceivably
have been in relation to the decision of the MPT, that in the event of a finding that the
Mayor’s decision was untainted by a reviewable irregularity, that would be sufficient to
thwart success in the appeal.
14 See para 48.
15 Golden Arrow Bus Services v Central Road Transportation Board and Others [1948] 3 All SA 478
(A); 1948 (3) SA 918 (A) at 925, 1948 (3) All SA 478 (A); South African Broadcasting Corporation v
Transvaal Townships Board and Others 1953 (4) SA 169 (T) at 178A-D; Tikly and Others v Johannes
NO and Others 1963 (2) SA 588 (T) at 590G-H.
[81] In paras 56 and 57 above the Mayor’s reasons for arriving at her decision, as
well as the statement from her opposing affidavit, are set out. They undoubtedly reveal
that she considered the base zoning as well as all the other aspects she was obliged
to take into account. In particular, she took into account heritage concerns especially
those raised by the EHM. She had all the expert advice she required in order to enable
her to reach a balanced decision in terms of s 99. Insofar as the allied aspects related
to the core question are concerned, such as traffic, access and the provisions of
parking bays, as demonstrated above, the court below dealt with them all in a manner
that cannot be faulted. In the result the appeal must fail.
[82] What remains is the question of costs. In respect of costs, the court below said
the following:
‘There is no reason why the usual position relating to costs in review matters should not apply.
The rule that in constitutional matters, the unsuccessful party is ordinarily not ordered to pay
costs, does not apply in this instance.’
[83] The appellants contended that they were vindicating constitutional rights and
therefore the principle set out in Biowatch Trust v Registrar, Genetic Resources and
Others [2009] ZASCA 14; 2009 (6) SA 232 (CC) at para 22 applies, namely that,
ordinarily in constitutional litigation, if the government loses it should pay the costs of
the other side, and if the government wins, each party should bear their own costs.
[84] It was submitted on behalf of the respondents that the question of costs properly
falls within the discretion of the court, having regard to all of the prevailing
circumstances. In the present case it was pointed out that the first appellant’s litigation
was funded by Ms Petra Wiese, a neighbour and a person of means who also has an
interest in the neighbouring building, 35 on Rose Street. It was pointed out that both
Ms Wiese and Professor Todeschini had property interests in the vicinity of the building
and stood to benefit in the event of success in the litigation. The agreement to fund
the litigation included an indemnification by Ms Wiese against a costs order that might
result against the first appellant. In proper perspective, the application in the court
below was about whether s 99 of the By-law was complied with by the City. The second
and third appellants had proprietary rights that might be affected by the City’s decision.
The first appellant, as indicated above, was placed in funds and indemnified against
cost orders.
[85] Furthermore, the scale of the present litigation was excessive. It might well have
been driven by the funding that was available. As described at the commencement of
this judgment and demonstrated later, the issues, properly distilled, were within a
narrow compass. The necessity for photomontages and extensive affidavits in relation
to the disputation concerning the impact of an 18-storey building is questionable. One
need not be an architect or a construction expert to understand that an 18 storey
building is imposing.
[86] As has been stated by this court in National Home Builders’ Registration
Council & another v Xantha Properties 18 (Pty) Ltd [2019] ZASCA 96; 2019 (5) SA
424 (SCA) at para 26, the mere labelling of litigation as ‘constitutional’ is insufficient.
For the Biowatch principle to apply the case should raise genuine, substantive,
constitutional considerations. The rule does not mean risk-free asserted constitutional
litigation. I can find no detectable misdirection on the part of the court below in relation
to cost.
[87] For all the reasons stated above, the following order is made:
1 The application to lead further evidence on appeal is dismissed with costs,
including the costs of two counsel.
2 The appeal is dismissed with costs, including the costs of two counsel.
_________________
M S Navsa
Judge of Appeal
APPEARANCES
For Appellant:
P Farlam SC, with him K Pillay
Instructed by:
Edward Nathan Sonnenbergs Inc,
Cape Town
Lovious Block Inc, Bloemfontein
For First to Third
L A Rose-Innes SC, with him
H J de Vaal SC
Respondent:
Instructed by:
Fairbridges Wertheim Becker,
Cape Town
McIntyre van der Post, Bloemfontein
For Fourth Respondent:
S P Rosenberg SC and D W Baguley
Instructed by:
Bernadt Vukic Potash & Getz, Cape Town
Honey Attorneys Inc, Bloemfontein
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
Bo-Kaap Civic and Ratepayers Association and Others v City of Cape Town and Others (Case
no 112/2019) [2020] ZASCA # (23 March 2020)
From:
The Registrar, Supreme Court of Appeal
Date:
23 March 2020
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not
form part of the judgment of, nor is it binding on, the Supreme Court of Appeal
Today the Supreme Court of Appeal (SCA) handed down judgment in an appeal against a decision of
Le Grange J, sitting in the Western Cape Division of the High Court, Cape Town (the high court). The
appeal was dismissed with costs, including the costs attendant upon the employment of two counsel.
The matter dealt with the lawfulness of certain decisions of the first respondent, the City of Cape Town
(the City), to approve the land use applications of the fourth respondent, Buitengracht Properties (Pty)
Ltd (the Developer). These applications concerned the construction of an eighteen-story building, 60
metres tall (the proposed development), in the immediate vicinity of a heritage sensitive area, the Bo-
Kaap. The legal question to be adjudicated was whether the City, through its Municipal Planning
Tribunal (MPT), the second respondent, and, ultimately, through its Mayor, the third respondent, by way
of an internal appeal process, had due regard to the heritage concerns provided for in the applicable
legislation and policies and thus complied with administrative-law principles.
The first appellant is the Bo-Kaap Civic and Ratepayers Association, a voluntary association that
claimed to represent the interests of residents and ratepayers of the Bo-Kaap. The second appellant,
the Body Corporate of 35 on Rose, is a residents’ association and, as the name suggests, the body
corporate responsible for that property, which is located close to the erven in question. The third
applicant in the high court was Professor Fabio Todeschini, an architect, city planner, urban designer
and heritage practitioner, who also owned property in the Bo-Kaap. He has since passed away and was
substituted as a litigant in this appeal by the executors of his estate, the third appellant.
The three appellants brought an application in the high court for the review and setting aside of the
approvals, as well as the Mayor’s decision in the internal appeal process. Le Grange J held that the
decisions were lawful and dismissed the application with costs. Heritage Western Cape (HWC), a
provincial heritage agency established in terms of s 23 of the National Heritage Resources Act 25 of
1999 (the NHRA), had intervened in the proceedings and supported the review application. HWC sought
an order, in addition, declaring that the intended development could not proceed without a permit issued
in terms of s 27(18) of the NHRA. The application for that order was also dismissed. It is against these
findings that the present appeal is directed, leave to appeal being granted by the court below.
The SCA had regard to the history of the Bo-Kaap, which reflects the political processes in South Africa
during the apartheid years. The area is closely associated with the traditionally Malay community of the
Cape, which is predominantly Muslim. On this score it was noted that the Auwal Mosque, which was
the first Mosque at the Cape, was constructed in the Bo-Kaap neighbourhood in 1804 and remains in
use. The SCA had further regard to two other areas of heritage concern in the vicinity of the proposed
development, namely, Riebeeck Square and Heritage Square. The former is of historical significance
in that it is a square around which Cape Town developed; and where farmers, during South Africa’s
colonial past, would outspan their wagons and offload their produce. It has over the years deteriorated
and is currently used as a parking lot. The second, Heritage Square, is in the immediate vicinity of
Riebeeck Square and consists of a block of preserved heritage buildings that have been restored and
renovated, which has resulted in a recognised city block with established heritage values.
In 2015, town planners representing the Developer held two pre-submission consultations with City
officials – one in May, the other in August – before making five applications in October of that year, in
terms of the City of Cape Town’s Municipal Planning By-Law of 2015: (i) for departures from the DMS
to allow certain portions of the building to be closer to the street boundary than is permitted by the City’s
Development Management Scheme (DMS); (ii) for consolidation of the two erven owned by the
Developer; (iii) for approval in terms of the DMS to have parking on the ground floor level for Block B to
be closer to the street than is permitted; (iv) for approval in terms of the DMS to develop a new building
in the Heritage Protection Overlay Zone (HPOZ); and (v) to have a 0m building line on the Buitengracht
Street boundary in lieu of the 5m requirement of the DMS. The applications were motivated and
supported by an Urban Design Report, a report by the appointed architects, and a Traffic Impact
Assessment. It was also stated on behalf of the Developer that the proposed development was
compliant with the City’s policy framework in relation to such proposals, in particular the Cape Town
Spatial Development Framework, the Table Bay District Plan, the Tall Building Policy, and the Urban
Design Policy.
Following internal remarks and recommendations, some of which were made subject to certain
conditions, the Developer’s application was advertised. It attracted 1017 objections, more than 600 of
which were prompted by a website created and maintained by the first appellant, the Bo-Kaap Civic and
Ratepayers Association. The second appellant, the Body Corporate of 35 on Rose, was among those
who objected to the proposed development.
On 8 March 2016 the City’s District Head: Environmental and Heritage Management Resources (EHM),
within the City’s Environmental Management Department, commented on the Developer’s applications
and noted that there were several significant heritage resources and areas that would be impacted by
the proposed development. Firstly, the EHM recorded that Riebeeck Square is a significant link between
the city and the Bo-Kaap. It went on to state that the massing of the proposed building was such that
the greater bulk and sheerness of the design imposes onto Riebeeck Square, further containing the
square’s breathing space and boxing it in, which is counterproductive to the historic nature of the space.
Secondly, in relation to the Bo-Kaap, it was noted that the area was low impact, architecturally rich and
unique, but that its relationship of proximity with town had always struggled for sustainability due to the
continued impact of new, large and bulky buildings that resulted in a lineated barrier along both edges
of Rose and Buitengracht Streets, and a vertical barrier between town and the Bo-Kaap, that removed
the historic connection which until then had existed. According to the EHM, the large visual mass of the
proposed building was seen as a physical and visual barrier which stood to erode the relationship
between the differing built environments of town and the Bo-Kaap.
Thirdly, the EHM stated that a portion of the site fell within the City’s HPOZ and thus required an analysis
as to the proposed development’s impact on the significance and character of the precinct, as HPOZ’s
are important tools for the protection, preservation and management of certain areas which have been
recognised to contain sufficient heritage value in terms of resources, significance and character to
warrant the same. The EHM recommended further investigation as to the appropriateness of the
proposed development’s contemporary design approach. Concluding on this aspect, it held that the
overall height, bulk and visual mass of the proposed development had a pronounced impact on the
existing built form and character of the immediate area, which was difficult to mitigate.
Lastly, in relation to Heritage Square, the EHM opined that the sheer size of the proposed development
was a cause for concern. While not against the addition of built form to the site, the EHM made its
suggestions to see if there was a way to limit the impact on heritage resources.
The Developer subsequently prepared a heritage statement in April 2016, wherein it stated that the
design had responded positively to urban and heritage related design indicators and that certain
mitigating measures would lessen potential negative impacts on the street and townscape in relation to
Riebeeck Square and the Bo-Kaap. It further asserted that a Heritage Impact Assessment was not
required since the proposed development did not involve any of the listed activities in terms of s 38(1)
of the NHRA.
On the 29th of April the EHM wrote to the City’s Land Use Management Division. It stated that although
the EHM is not opposed to the idea of adding built form to the site, it is not supportive of the proposed
development because of the identified heritage sources that will be negatively impacted on due to the
design’s sheer size and magnitude. It further stated that the Developer’s proposed mitigation measures
were insufficient for the impact of the proposal’s size. It recommended a reduction in height, to relate
more appropriately to the heritage resources that are impacted on, and urged that comment from HWC
be requested.
On 11 May 2016, HWC responded to the Developer’s proposed design principles to reduce the impacts
on townscape and streetscape. HWC regarded the stepped massing, or stepping effect, as inadequate
by itself to mitigate the substantial heritage impacts on the Bo-Kaap. As to the incorporation of horizontal
and vertical articulation and datum lines, HWC submitted that the HPOZ took precedence over the
underlying ‘development rights’ relating to the base zoning and its associated development rules, and
took the view that the proposed height was inappropriate as it would dominate both the Bo-Kaap and
Riebeeck Square and exacerbate the separation of the Bo-Kaap from the West City. Thirdly, in
response to the proposed height ‘counter-balancing’ the mass of the Netcare (‘City-Park’) Hospital
diagonally opposite Riebeeck Square, HWC rejected the proposition that one insensitively-scaled
building could be used as justification for the construction of another, or that counterbalancing the mass
of the hospital would successfully mitigate the negative effects of a new building, which does not
dominate Riebeeck Square, to serve as an enclosing element. HWC concluded that the proposed
development was inappropriate in its current form and that it would have a detrimental effect on the
heritage significance of both Riebeeck Square and the Bo-Kaap.
In its report to the MPT, dated 24 May 2016, the City’s Land Use Management Division noted that the
objecting parties’ main points relate to the proposed development’s height, massing and position, but
continues to state that although the heritage resources within the surrounding area are legislated, they
‘do not have a legal standing to impose on the subject property’. Calls for a reduction in the height of
the building due to its impact on the various heritage resources had not been quantified; and those due
to the impact, or to allow for a bridge between the city and the Bo-Kaap, could not override the primary
rights allowable on the property, according to the report. It concluded that, from a statutory point of view,
no mechanism or legal basis exists to circumscribe the permissible development rights of the portion of
the site outside the HPOZ.
On 7 June 2016 a hearing took place before the MPT, a tribunal comprised of technical specialists,
many of which are not employed by the City. After extensive debate, including as to the proposed
development’s scale and impact on heritage resources, the MPT approved the proposal. It did so for a
number of reasons: the proposed development’s compliance with the City’s Planning Policies; its
potential to exhibit good urban design when the relevant conditions were complied with, while taking
cognisance of the heritage resources within the area; the proposed development’s provision of an
adequate transition between the city and the Bo-Kaap at street level; the massing and height of the
proposed building being located away from the Bo-Kaap; the proposed development’s potential to
activate and improve the surrounding streetscapes; and its desirability in terms of s 99(3) of the By-law.
Twelve appeals, including those of the first and second appellants and Professor Todeschini, were
lodged against the approvals by the MPT. The first stage of the appeal process was conducted at a
meeting of the Mayoral Advisory Panel (MAP), who thereafter sent a report to the Mayor containing its
reasons for approving the applications. In addition to the reasons of the MPT, the report stated that the
proposed development also complied with the City’s Spatial Development Framework, the Integrated
Development Plan, the Economic Growth Strategy, and the Transit Orientated Development Strategy.
Furthermore, where there were errors in the notification process, extra time was allowed and agreed to
by the applicant for persons to submit comments on, or objections to, the application. The report also
stated that although only a portion of the property was affected by the HPOZ, the department had
treated the application as if the whole property was affected thereby. In addition to the application’s
desirability in terms of traffic impacts, parking access and other transport related considerations, the
MAP added that the application was desirable in that it bordered on Buitengracht which is a high order
road and is thus an ideal location for land use intensification and increased density. It was noted that,
in terms of the transit development, more residential uses had to be encouraged in the city centre in
order to address inefficiencies in the city; that the application was sensitive to the Bo-Kaap area; and
that the massing and height of the building’s façade along Rose Street responded to those of the
neighbouring buildings on each side.
The second stage of the appeal process comprised of the Mayor considering the MAP’s report, along
with all of the other information before her. The Mayor accepted the recommendation of the MA and
agreed with its report. She also stated that she took into account the relevant heritage concerns.
The appellants were aggrieved by the City and the Mayor’s decisions on a large number of grounds. In
the first instance, the appellants were aggrieved at the City’s attitude in relation to how an overlay zoning
that attached to one of the erven was to be construed and applied. The appellants submitted that the
City did not apply its mind Item 162 of the DMS, which requires the City’s approval for any development
which may in any way result in a change to the appearance or physical nature of a heritage place or
influence its stability or future wellbeing. The appellants were, in addition, adamant that s 24 of the
Constitution, as well as the NHRA, obliged the City to have regard to the implications of the proposed
development on the heritage values of the area. In relation to Riebeeck Square, the appellants
contended that the proposed development would disturb the significant link between the city and the
Bo-Kaap due to its sheer height and mass. And, as to Heritage Square, the argument of the appellants
was that the proposed development would impact on it for obvious reasons of proximity.
The appellants also took the view that proposed mitigating measure, the cascading of the eighteen-
storey building down to a height of approximately five stories on Rose Street, was inadequate to
successfully mitigate the negative impact on heritage value. In addition, the appellants objected to the
City and the Mayor’s failure to abide by the City’s Scenic Drive Policy, contending that views would be
affected which is what this policy sought to prevent; accused the City of having failed to have regard to
its own Tall Building Policy, which requires consideration of the impact of proposed tall buildings; and
submitted that the photomontages presented by the Developer as part of it’s application were deceptive
and underplayed the visual impact of the proposed building. The appellants asserted that a visual
impact study was required, which had not been called for by the City.
Furthermore, the appellants argued that the City had ignored its own context-sensitive Densification
Policy, which requires the scale and character of high-density areas to be appropriate to the context,
due to the proposed development apparently being contextually inappropriate. It was also submitted
that the approval of the proposed development effectively cut the Bo-Kaap off from the rest of the city,
thereby further contributing to the segregated nature of Cape Town that was inherited from apartheid,
which is what the City’s Urban Design Policy was contended to prevent. Lastly, the appellants alleged
that the City had failed to enforce the special condition attaching to the Title Deed in relation to Erf
144698. Due to the absence of any application by the Developer to the City for the relaxation of this
condition, so the argument went, the City ought not to have approved the Developer’s applications.
The City opposed the relief sought by the appellants. It pointed out that the properties in question were
not located within the Bo-Kaap and, after providing a three-dimensional depiction of the building and its
surrounds, contended that the development would blend in with the surrounding area. The City and the
Mayor were at pains to point out that the properties in question lie within a band of commercial properties
between Rose and Buitengracht Streets and, further, that commercial properties had already intruded
and later come to dominate the block from the early part of the twentieth century. The argument was
that the site itself had no inherent heritage value. It was pointed out that, at the time the present litigation
was commenced, construction had already begun on a very similar development to the one under
scrutiny, only 150m away. That development is a 17-storey building, containing 117 apartments as well
as retail outlets and office space, but was never challenged by either HWC or the appellants.
Due to the uncontested deterioration of Riebeeck Square over the last few decades, the City adopted
the view that developments such as the one in question should be supported as they would breathe
new life into the square. Surrounding Riebeeck Square are offices and businesses, the old Christiaan
Barnard Hospital (Netcare) as well as Heritage Square. A positive change has been the renovation and
restoration of Heritage Square, with restaurants that are open in the evenings. The City is adamant that
introducing residential areas, such as the proposed development around Riebeeck Square, would be a
catalyst in developing a more human orientated facility, as opposed to a vehicle orientated one.
The City accepted that the approval for use of property under the DMS has to take into account various
policies and principles, as well as environmental and land use considerations, it was adamant that
designations under the DMS were only the starting point. It pointed out that base zoning conferred
various primary permitted uses for which approval was not required, and that the particular base zoning
attaching to the erven in question, so-called MU3, allowed for a range of uses including business
purposes and flats. The relevant overlay zoning, in turn, required that environmental, heritage
protection, and conservation concerns be taken into account.
According to the City, the height and scale of the proposed development is within all of the rights that
attached to properties in the MU3 zoning and the CBD Local Area Overlay Zoning (CBD LAO). What is
more, the proposed development will not utilise the full extent of conferred developmental rights. The
City furthermore indicated that the properties in question fall within an urban development zone, a tax
incentive introduced in 2003, aimed at revitalising inner city areas by attracting capital investments in
commercial and residential property through a tax rebate. The idea was apparently to bring people back
to the central city through appropriate residential and business densification, affordable housing and
mixed usage buildings. The City insisted that it applied its own density priority zone policy and that the
CBD was an urban civic upgrade area into which the proposed development fitted snugly.
As to the criticisms levelled against the approval process, the City referred to the expert knowledge and
experience of members of the MPT, the MAP as well as the Mayor’s technical advisor. It showed that
the comments and objections of interested parties were indeed taken into account, which is evidenced
by the City’s Land Use Management Department obtaining further input on the historical aspects of the
area from the EHM and the Developer seeking to address the heritage concerns by making significant
changes to the proposed design and also procuring the heritage statement referred to above.
In regard to the MPT meeting, the report indicates an extensive discussion of development rights and
heritage concerns. There was also a discussion about the application of s 99 of the By-law, which
mandates the social and economic impact of such proposals to be considered when such applications
are made. Then, in relation to the MAP meeting, the City explained that both the appellants as well as
the developer’s representatives addressed the meeting, followed by extensive discussion. And, lastly,
in respect of the Mayor’s decision, the City recorded that she had been provided with all of the
documents and materials provided to the MAP, as wel as the appeals themselves and a report prepared
by the Acting District Manager. The City and M=the Mayor maintained the view that she had carefully
considered all of the information before or, and engaged in several consultations with her technical
advisor and principal legal advisors. She even conducted an inspection of the site while accompanied
by these advisers. She was aware of the HPOZ attaching to one of the subject erven and was careful
to observe that the position of the proposed development in relation to the Bo-Kaap and to make an
assessment of its impact on nearby heritage resources. The City and the Mayor also maintained that
they had regard to heritage considerations and balanced these against the other necessary factors.
The appeals were only dismissed by the Mayor after she had done so.
The Mayor states that she considered, in particular, the view of the City’s EHM’s view that the
surrounding heritage resources will be impacted on in a negative manner by the proposed development
due to the design’s sheer size, height and magnitude, but that she agreed with the MPT and the MAP
that the proposed development responded appropriately to the neighbouring buildings and
environment. In addition, the Mayor made it very clear that her decision was not based on the
misapprehension that the City is not entitled to limit primary rights conferred by the DMS when
considering an application for development falling within a HPOZ. Rather, her belief was that it was
unnecessary to do so because the proposed development responded appropriately to the surrounding
area and because sufficient mitigating measures and conditions were put in place to address the
heritage concerns raised.
The high court found that, while both s 99 of the By-law as well as Item 162 of the DMS required the
decision-makers to take into account heritage concerns, in neither instance were such heritage
concerns to be considered pre-eminent or the sole criteria in deciding applications such as those in the
present case. In any event, the high court found that heritage enjoyed ‘a distinct degree of attention’
and reiterated the evidence of this throughout the various stages of the application. The high court thus
held that the City and the Mayor arrived at the decisions in a balanced fashion and that they did not act
unreasonably or irrationally. The City and the Mayor did not commit an error of law and they did not
ultimately hold a rigid view that base zoning rights trumped all the countervailing considerations. The
review application was accordingly dismissed with costs.
The SCA found that the nub of the appellants’ case, whether by reference specifically to s 99 of the By-
law, or to the labyrinth of policies, strategies and statutory provisions, was that heritage considerations
were ignored or downplayed and that the decisions by the City and the Mayor were therefore
unreasonable, irrational or tainted by the City’s mistaken position in relation to the base zoning rights.
The SCA held that s 99 has to be applied in distinct stages, starting with the threshold enquiry set out
in s 99(1). It stated that the base zoning is a convenient starting point when testing the proposed land
use against the municipal spatial development framework and found that in this case the kind of
development in question was allowed. The SCA then looked at the factors listed in s 99(3) for the
purposes of considering the proposed development’s desirability. The City was of the view that the
proposed development would have a positive effect on commercial life, inner-city living as well as on
regeneration and rejuvenation of the CBD. The socio-economic impact was thus positive. The City’s
experts were also all of the view that the engineering services, safety and health aspects of the
proposed development were all adequately dealt with and had no reservations here. Traffic, parking,
access and transport related considerations were also not in issue.
On the issue of whether the City and the Mayor were averse to dealing with any criticisms concerning
heritage impact, and that that they adopted a rigid approach concerning the base zoning and assumed
that it trumped or negated all other considerations, the SCA held that despite the use of somewhat
opaque language, the City’s officials, the MPT as well as the MAP in fact had regard to heritage
concerns. They had all engaged with the Developer and the objectors on that aspect and the balance
envisaged by s 99 was achieved. The SCA held that the City’s experts, including those who served on
the MPT and MAP, were undoubtedly qualified to deal with the subject matter and that it is not for the
court to second-guess these experts, save for where they have committed a reviewable irregularity.
The SCA was emphatic that this was not to imply judicial timidity, but rather to ensure that when judicial
intervention occurs it is based on principal and within the bounds of the law, including observing the
separation of powers. In the result, the SCA held that the high court could not be faulted for holding that
the City’s experts had regard to relevant considerations and were not guilty of the irregularities accused
of.
Due to the appeal before the Mayor being an appeal in the wide sense, the hearing considered the
merits of the applications for approvals afresh. It amounted to a rehearing of the merits of the matter,
with or without further evidence or information. Thus, whatever flaws there might conceivably have been
in relation to the decision of the MPT, in the event of a finding that the Mayor’s decision was untainted
by a reviewable irregularity, this would be sufficient to thwart success in the appeal. From the Mayor’s
reasons for arriving at her decision it is clear that she considered the base zoning as well as the other
aspects she was obliged to take not account, such as the heritage concerns, especially those raised by
the EHM. The Mayor had all the expert advice she required in order to reach a balanced decision in
terms of s 99. In the result, the SCA dismissed the appeal with costs, including the costs of two counsel.
__________________________
|
1516
|
non-electoral
|
2008
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No: 96/2008
No precedential interest
In the matter between:
SIPHO BONGINKOSI MSANE FIRST APPELLANT
ROBERT LIJUVWANI KONE SECOND APPELLANT
v
THE STATE RESPONDENT
Neutral citation: Msane v The State (96/2008) [2008] ZASCA 118
(26 September 2008).
Coram:
Lewis, Mlambo and Cachalia JJA
Heard:
27 August 2008
Delivered:
26 September 2008
Summary:
Criminal law – attempt – appropriate sentence. Sentence –
duplication of punishment.
_______________________________________________________________
ORDER
_______________________________________________________________
On appeal from: High Court, Johannesburg (Goldstein and Khampepe JJ
sitting as Full Court).
The appeal succeeds and the order of the Johannesburg High Court is
set aside.
In its place the following order is substituted:
The appeal against sentence succeeds and the sentence imposed by
the Regional Court is altered to read:
‘(i)
On count one the accused are sentenced to four years’
imprisonment of which one year’s imprisonment is suspended for a
period of five years on condition that they are not convicted of extortion
or of a contravention of the Prevention and Combating of Corrupt
Activities Act 12 of 2004, during the period of suspension.
(ii)
On count two the accused are sentenced to one year’s
imprisonment which is ordered to run concurrently with the sentence
imposed on count one.’
______________________________________________________________
JUDGMENT
______________________________________________________________
MLAMBO JA (LEWIS and CACHALIA JJA CONCURRING):
[1] The appellants were convicted by the Johannesburg Regional Court of
extortion and the unlawful possession of 17 ecstasy tablets.1 On the extortion
count they were sentenced to four years’ imprisonment one of which was
1 In terms of s 4 of The Drugs and Drug Trafficking Act 140 of 1992 it is an offence to be
found in possession of a substance decreed dangerous and dependence producing.
suspended for five years on condition that they were not convicted of extortion
or of a contravention of s 1(1) of the Corruption Act 94 of 1992 committed
during the period of suspension. On the drugs related count they were
sentenced to one year’s imprisonment. The sentences on the two counts were
ordered to run consecutively, resulting in an effective four year imprisonment
sentence.
[2] In an appeal to the Johannesburg High Court the extortion count was
altered to one of an attempt. That court (Goldstein and Khampepe JJ), did
not, however, interfere with the sentence imposed, hence this appeal with
leave of this court.
[3] The facts very briefly are that the appellants, a sergeant and constable
respectively, attached to the Hillbrow Crime Intelligence Unit of the South
African Police Services (SAPS) had apprehended the complainant, Ms Susan
Schesser, on a routine patrol, and found 17 ecstasy tablets in her possession.
They arrested her but demanded that she pay them an amount of R4 000 on
receipt of which they would drop charges and return the ecstasy tablets to
her. She agreed to make the payment and arranged to do so the following
day.
[4] However, Schesser decided to report the incident to the Anti Corruption
Unit of the SAPS which decided to entrap the appellants using her as bait.
She was provided with marked money and instructed to meet the appellants
at their rendezvous to hand over the money. Schesser met the appellants as
arranged and as she was about to hand the money over to them, a police
vehicle happened to pass by not far from them. The appellants became
suspicious and instructed her to follow them to another area where the
handover would be done. As they drove off members of the Anti Corruption
Unit pounced and on searching the appellants’ vehicle found the 17 ecstasy
tablets in their motor vehicle and arrested them.
[5] It is not in dispute that upon their arrest the appellants had not yet
taken the money from Schesser. They could therefore not be convicted of
extortion proper, and the court a quo was correct in altering that conviction to
one of an attempt. That court, however, did not alter the sentence imposed by
the regional court. The issue now before us is whether the alteration of the
conviction should have resulted in a decreased sentence as contended by the
appellants.
[6] The court a quo did not elaborate on any reason it may have had for
refusing to interfere with the sentence. In this regard the court a quo,
apparently as an afterthought, as it had already dismissed the appeal, stated
simply: ‘Of course there is the one aspect, and that is that we have now
corrected the conviction by reducing it from one of extortion to one of
attempted extortion, but in my view that does not justify reducing the
sentences’.
[7] The submission advanced to us on the appellants’ behalf in this regard
is that in imposing sentence on count one their personal circumstances,
especially the fact that they retained their jobs despite these offences due to
their outstanding record as policemen, were not given proper consideration by
the courts below. Furthermore, so the submission went, as the regional court
had sentenced them based on a completed offence, the alteration thereof to
an attempt by the high court should ‘logically have altered the sentence’.
[8] That, in my view, is not the test. The test, this being an appeal, is
whether in imposing sentence the courts below committed any misdirection
and, if not, whether the sentence is shockingly inappropriate. The nature of
the offence and the particular circumstances of the matter and the personal
circumstances of the offenders remain relevant in the determination of an
appropriate sentence.
[9] The appellants’ criticism of the sentence imposed by the regional court
on count one is that it failed to have regard to all relevant personal factors.
However, I consider that the regional court properly applied its mind to all
relevant factors before imposing the sentence upheld in the court a quo. In
particular that court took account of the personal circumstances of the
appellants, especially that they were both highly regarded members of the
police force and had family responsibilities. The court also took account of the
pre-sentence reports filed on behalf of the appellants recommending non-
custodial sentences. In the final analysis the regional court was of the view
that extortion was a very serious offence and was prevalent in its area.
[10] The second criticism, directed at the high court, is that it should have
reduced the sentence since it found that only attempted extortion had been
committed. In my view, the appellants’ stance in this regard is misplaced.
Generally, as Snyman2 says, a ‘lesser punishment is imposed for attempt
than for the completed crime’. The basis advanced for this view is that ‘from
the viewpoint of the retributive theory of punishment, either no harm or less
harm (compared to the completed crime) has been caused’. Each case must,
however, be decided on its own facts.
[11] In my view moral blameworthiness plays a critical role in the
determination of an appropriate sentence and, extortion, as found by the
regional court, is a very serious offence. This offence, especially when
committed by law enforcement officers, is morally reprehensible. The fact that
we are here dealing with attempted extortion does not detract from the moral
reprehensibility of the appellants’ conduct. Had Schesser not reported the
matter to the Anti Corruption Unit, the appellants’ crime would probably not
have been detected. Clearly the mere fact that the conviction was altered to
an attempt does not make the offence less morally blameworthy, as it would
have had the appellants changed their minds about going ahead with the deal
and not completed the commission of the offence. In my view the sentence
imposed for the attempted extortion does not induce a sense of shock.
[12] During argument we raised the issue whether the sentence imposed on
the drugs possession count should have been ordered to be served
concurrently with the sentence on the attempted extortion count. It is
important in this regard to take account of the fact that the appellants took
2 C R Snyman Criminal Law 5 ed (2008) p 294.
possession of the ecstasy tablets only for the purpose of safekeeping, so to
speak, until they were paid the extortion money. It is also relevant that such
possession was to aid the extortion and as such their conduct constituted in
essence the commission of a single offence. In my view the imposition of
consecutive sentences under these circumstances without due consideration
that one is essentially dealing with one offence amounted to a duplication of
punishment. It is in this respect that the regional court and court below
misdirected themselves. See S v Mathebula 1978 (2) SA 607 (A) at 613D-E
where Trollip JA stated:
‘As stated above, these two crimes must, for purposes of conviction and punishment,
be regarded as separate and distinct. Extreme care was therefore required in the
exercise of the discretionary power to avoid any duplication of punishment in passing
sentence on count 3 . . .’
See also S v Morten 1991 (1) SACR 483 (A) at 485i-j. In these circumstances
a proper exercise of discretion would have dictated that the sentence of one
year’s imprisonment imposed on the drugs count be ordered to run
concurrently with the attempted extortion count. The appeal should, in my
view, succeed to this limited extent only.
The appeal succeeds and the order of the Johannesburg High Court is
set aside.
In its place the following order is substituted:
The appeal against sentence succeeds and the sentence imposed by
the Regional Court is altered to read:
‘(i)
On count one the accused are sentenced to four years’
imprisonment of which one year’s imprisonment is suspended for a
period of five years on condition that they are not convicted of extortion
or of a contravention of the Prevention and Combating of Corrupt
Activities Act 12 of 2004, during the period of suspension.
(ii)
On count two the accused are sentenced to one year’s
imprisonment which is ordered to run concurrently with the sentence
imposed on count one.’
________________
D MLAMBO
JUDGE OF APPEAL
APPEARANCES:
FOR APPELLANT:
E S CLASSEN
INSTRUCTED BY:
DAVID H BOTHA, DU PLESSIS & KRUGER INC;
JOHANNESBURG
SYMINGTON
&
DE
KOK
ATTORNEYS;
BLOEMFONTEIN
FOR RESPONDENT:
P NEL
INSTRUCTED BY:
THE DIRECTOR OF PUBLIC PROSECUTIONS;
JOHANNESBURG
THE DIRECTOR OF PUBLIC PROSECUTIONS;
BLOEMFONTEIN
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
26 September 2008
Status: Immediate
Please note that the media summary is intended for the benefit of the media and does not form part of the
judgment of the Supreme Court of Appeal.
S B Msane v The State
The Supreme Court of Appeal (SCA) today reversed the order of the Johannesburg High Court confirming an
effective four year sentence of imprisonment imposed on the appellants by the Johannesburg Regional
Court.
The appellants, a sergeant and constable respectively, and attached to the Hillbrow Crime Intelligence Unit
of the South African Police Services, had arrested a woman, S, after they found her in possession of 17
ecstasy tablets. After the arrest they demanded that she pay them R4 000 in return for which they would
return her ecstasy tablets and drop the charge. She undertook to pay them the next day but reported the
matter to the Anti Corruption Unit of the SAPS, who decided to entrap the appellants using her as bait.
As S was about to hand the money to the appellants they became suspicious when a police vehicle went
past, and instructed her to follow them to another area where the handover would be done. Shortly
thereafter, but before the handover, members of the Anti Corruption Unit confronted them and arrested them
for extortion and being in possession of the ecstasy tablets.
The Johannesburg Regional Court convicted the appellants on two counts, extortion and the illegal
possession of drugs. It sentenced them to four years’ imprisonment on the extortion count and one year on
the drug possession count. One year of the four was suspended on certain conditions but the sentences
were to run consecutively.
On appeal to the Johannesburg High Court the extortion conviction was altered to an attempt, but the
sentences were not interfered with. The SCA found that the alteration of a conviction from a completed
offence to an attempt did not in itself warrant imposition of a lesser sentence. The SCA found that the facts of
each case dictated what sentence was to be imposed in each case. The court ruled that it could find no
misdirection regarding the sentence imposed on the attempted extortion count.
The SCA, however, considered that the two offences were committed in pursuit of one object. This, found the
SCA, required that when it came to imposing sentence punishment should not be duplicated. The SCA found
that both the regional and high courts had erred in not ordering that the sentences run concurrently.
The SCA thus ordered that the one year’s imprisonment imposed on the drugs count be concurrently with the
attempted extortion count.
|
2573
|
non-electoral
|
2014
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case no: 506/2013
In the matter between:
LIESL-LENORE THOMAS
APPELLANT
and
THE MINISTER OF DEFENCE AND
MILITARY VETERANS
RESPONDENT
Neutral citation: Thomas v Minister of Defence (506/2013) [2014] ZASCA
109 (11 September 2014)
Coram:
Mpati P, Lewis, Cachalia and Mbha JJA and Gorven AJA
Heard:
22 August 2014
Delivered:
11 September 2014
Summary: An employee of the Western Cape Provincial Department of Health is not
precluded by s 35(1) of the Compensation for Occupational Injuries and Diseases Act 130 of
1993 from claiming damages sustained by her as a result of slipping and falling on stairs
under the control of the Minister of Defence and Military Veterans. Different entities of the
State are to be recognized as such under the Act.
___________________________________________________________________________
ORDER
On appeal from: Western Cape High Court, Cape Town (Saldanha J sitting as
court of first instance):
1 The appeal is upheld with costs, such costs to include those consequent upon
the employment of two counsel where two counsel were employed.
2 The order of the trial court is set aside and replaced by the following order:
„The special plea is dismissed with costs.‟
JUDGMENT
Gorven AJA (Mpati P, Lewis, Cachalia and Mbha JJA concurring)
[1] The crisp issue in this appeal is whether, for the purposes of s 35(1) of the
Compensation for Occupational Injuries and Diseases Act 130 of 1993 (the
COIDA), the words „including the State‟ so qualify the word „employer‟ that all
persons employed by any component of the State are regarded as having a
single employer or whether those words simply indicate that persons employed
within the component parts of the State are brought under the umbrella of the
COIDA. The first of these is the contention of the Minister of Defence and
Military Veterans (the Minister) in resisting a claim for damages by Dr Thomas.
[2] The factual matrix on which this appeal was argued is a simple one. Dr
Thomas, who is the appellant, says she suffered damages arising from a bodily
injury. This was caused by her falling down some stairs at 2 Military Hospital.
At the time, she was employed as a medical registrar. Her employment arose
from an offer in a letter typed on the letterhead of the Western Cape Department
of Health signed by the Chief Executive Officer of that department. A written
contract of employment followed this offer. In that contract the employer is
reflected as being the „Western Cape Provincial Government: Department of
Health‟. At the time of her fall she had been seconded to work at 2 Military
Hospital. These premises were under the control of the Minister. After her fall,
Dr Thomas lodged a claim with the Western Cape Provincial Department of
Health under the COIDA.1
[3] In addition to lodging that claim, Dr Thomas claimed damages from the
Minister and one other in the high court. A special plea was entered by the
Minister. In it, the Minister contends that Dr Thomas is not entitled to claim
such damages because of the provisions of s 35(1) of the COIDA. This section
provides as follows:
„No action shall lie by an employee or any dependant of an employee for the recovery of
damages in respect of any occupational injury or disease resulting in the disablement or death
of such employee against such employee's employer, and no liability for compensation on the
part of such employer shall arise save under the provisions of this Act in respect of such
disablement or death.‟
[4] The argument of the Minister is that, for the purposes of the COIDA, the
State must be regarded as a single employer. It is submitted that the component
parts of the State are not themselves regarded by the COIDA as employers.
Therefore, in the action in question, Dr Thomas is suing her employer and
s 35(1) precludes such an action. The case of Dr Thomas is that the Western
Cape Provincial Department of Health is itself an employer for the purposes of
the COIDA.
1 The COIDA repealed and replaced the Workmen‟s Compensation Act 30 of 1941 (as amended).
[5] The special plea was adjudicated as a separate and initial issue in the
action. The high court upheld the special plea, finding that the State is a single
employer for the purposes of s 35(1), and dismissed the claim of Dr Thomas
with costs, including the costs of two counsel. It is this order against which Dr
Thomas appeals, with the leave of that court.
[6] In Jooste v Score Supermarket and Trading (Pty) Ltd (Minister of Labour
intervening),2 the Constitutional Court held that s 35(1) passed constitutional
muster, dealing with it as follows:
„The Legislature clearly considered that it was appropriate to grant to employees certain
benefits not available at common law. The scheme is financed through contributions from
employers. No doubt for these reasons the employee's common-law right against an employer
is excluded. Section 35(1) of the Compensation Act is therefore logically and rationally
connected to the legitimate purpose of the Compensation Act, namely a comprehensive
regulation of compensation for disablement caused by occupational injuries or diseases
sustained or contracted by employees in the course of their employment.‟3
[7] In arriving at this conclusion, the Constitutional Court dealt with the
purpose of the COIDA saying the following:
„The purpose of the Compensation Act, as appears from its long title, is to provide
compensation for disability caused by occupational injuries or diseases sustained or
contracted by employees in the course of their employment. The Compensation Act provides
for a system of compensation which differs substantially from the rights of an employee to
claim damages at common law.‟4
Having stated this to be the purpose, the position under the common law was
contrasted with that under the COIDA. Part of the rationale was that the COIDA
does not only limit the rights of employees, it accords them other rights. An
example of this is that under the COIDA, if the employee qualifies for
2 1999 (2) SA 1 (CC).
3 Paragraph 17.
4 Paragraph 13.
compensation, no negligence need be proved unlike under the common law
action for damages for injury. Where negligence is a factor, however, increased
compensation can be applied for.5 Further, in addition to compensation under
the COIDA, an employee retains the right to sue third parties which can include
a co-employee.6 All that s 35(1) seeks to achieve is to limit the liability of an
employer to amounts claimable under the COIDA for all matters which fall
within its ambit.
[8] As mentioned, s 35(1) precludes an action by an employee against an
employer. It is thus necessary to determine what is meant by the word
„employer‟ in that section. Majiedt AJ, in the majority judgment in Cool Ideas
1186 CC v Hubbard & another,7 succinctly set out the approach to
interpretation as follows:
„A fundamental tenet of statutory interpretation is that the words in a statute must be given
their ordinary grammatical meaning, unless to do so would result in an absurdity. There are
three important interrelated riders to this general principle, namely:
(a) that statutory provisions should always be interpreted purposively;
(b) the relevant statutory provision must be properly contextualised; and
(c) all statutes must be construed consistently with the Constitution, that is, where reasonably
possible, legislative provisions ought to be interpreted to preserve their constitutional
validity. This proviso to the general principle is closely related to the purposive approach
referred to in (a).‟8
In addition, this court has said that the process of interpretation is objective and
„[t]he “inevitable point of departure is the language of the provision itself” read
in context and having regard to the purpose of the provision and the background
to the preparation and production of the document.‟9
5 Section 56(1).
6 Section 36(1).
7 2014 (4) SA 474 (CC) para28.
8 References omitted.
9 Natal Joint Municipal Pension Fund v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18 (references
omitted).
[9] Section 1 of the COIDA defines employer as meaning „any person,
including the State, who employs an employee…‟. It is the words „including the
State‟ on which the Minister bases the special plea. The COIDA does not define
what is meant by „the State‟. The definitions therefore do not themselves assist
in resolving whether the State or a component of the State, such as a provincial
department or provincial government as a whole, is regarded as an employer
under s 35(1) of the COIDA.
[10] In Holeni v Land and Agricultural Development Bank of South Africa10
this court considered whether „the Land Bank [can] be considered to be 'the
State' as referred to in s 11(b) of the Prescription Act 68 of 1969‟.11 Navsa JA
held that „[t]he State as a concept does not have a universal meaning. Its precise
meaning always depends on the context within which it is used.‟12 What is clear
from this is that the term „the State‟ may have different meanings in different
contexts and in different legislation. This is borne out by various cases which
need not be dealt with here.
[11] It is therefore appropriate to deal with the context within which this
provision, and the definition of employer, is located. The provisions of the
COIDA provide the immediate context and must now be considered against the
backdrop of its purpose.
[12] As already indicated, the COIDA provides for „a comprehensive
regulation of compensation for disablement caused by occupational injuries or
diseases sustained or contracted by employees in the course of their
employment‟.13 To this end, it requires employers to pay assessments into a
10 2009 (4) SA 437 (SCA).
11 Paragraph 10.
12 Paragraph 11.
13 Jooste loc cit.
fund. There is a category of employer which is exempt from doing so. The
COIDA refers to this category as an employer individually liable. This is dealt
with in s 84. If an employee of such an employer becomes entitled to
compensation, the employer individually liable must pay the compensation.14
Section 84(1) reads as follows:
„No assessment in favour of the compensation fund shall be payable in respect of
employees—
(a) in the employ of—
(i) the national and provincial spheres of government, including Parliament and provincial
legislatures;
(ii) a local authority which has obtained a certificate of exemption in terms of section 70
(1)(a)(ii) of the Workmen‟s Compensation Act and has notified the Director-General in
writing within 30 days after the commencement of this Act that it desires to continue with the
arrangements according to the said certificate of exemption; and
(iii) a municipality contemplated in section 10B of the Local Government Transition Act,
1993 (Act No. 209 of 1993), to which exemption has been granted in terms of subsection (2);
(b) whose employer has with the approval of the Director-General obtained from a mutual
association a policy of insurance for the full extent of his potential liability in terms of this
Act to all employees employed by him, for so long as he maintains such policy in force.‟15
[13] It goes without saying that employers individually liable are, first and
foremost, employers as defined in the COIDA. They constitute a subset of
employers singled out for specific treatment. Subsection 84(1)(a)(i) makes it
clear that certain employees are „in the employ of the national and provincial
spheres of government, including Parliament and provincial legislatures‟.
Subsections 84(1)(a)(ii) and (iii) make it clear that there are persons who are „in
14 Section 29. Otherwise, it is paid from the compensation fund.
15 Section 84(1)(b) deals with a second group of employers individually liable. This subsection provides for
employees:
„whose employer has with the approval of the Director-General obtained from a mutual association a policy of
insurance for the full extent of his potential liability in terms of this Act to all employees employed by him, for
so long as he maintains such policy in force.‟
Their presence in subsection (1)(b) does not have any direct bearing on the interpretation arising in this appeal
and nothing more will be said about them.
the employ of‟ certain local authorities or municipalities.16 The latter are
therefore regarded as employers by these subsections.
[14] A number of consequences flow from this conclusion. At the very least,
the former local authorities which are exempted are seen to be different
employers to the municipalities which are exempted. By parity of reasoning, the
local authorities and municipalities which are not exempted, and are therefore
not employers individually liable, are also employers under the COIDA. They
are liable to make contributions to the compensation fund and their employees
are compensated from the fund. They are also entitled to apply for exemption
from making contributions in terms of s 84(2).17 This leads to the ineluctable
conclusion that each local authority and each municipality is considered to be an
individual employer under the COIDA. In addition, each of these is a different
employer to „the national and provincial spheres of government, including
Parliament and provincial legislatures‟.
[15] It can therefore hardly be contended that all the entities referred to in
s 84(1)(a) must be regarded as a single employer in the form of the State. To
add grist to the mill, s 88(1) requires „the employers individually liable‟18 to
make payments towards the administration of the COIDA. This suggests a
number of employers individually liable rather than the State as a single entity.
This is also true of s 31(1) which allows the Director-General to order „an
employer‟ individually liable to provide security. If the State is regarded by the
COIDA as a single employer, none of these entities could be regarded as „an
16 It must be borne in mind that the COIDA was promulgated during the transition to democracy. This is why
local authorities from the pre-democratic era which had been exempted under the Workmen‟s Compensation
Act are referred to as well as municipalities brought into being under the Local Government Transition Act 209
of 1993.
17 This reads as follows:
„The Director-General may upon application exempt any local authority referred to in subsection (1) (a) (ii) or
any municipality referred to in subsection (1) (a) (iii) from the obligations of an employer in terms of this Act
on such conditions as he or she may think fit.‟
18 My emphasis.
employer‟ for this purpose; the reference would be to „the employer‟. It is also
hardly conceivable that the State, as a whole, could be ordered to provide
security.
[16] I did not understand counsel for the Minister to submit that entities within
the sphere of local government are not part of „the State‟. In fact, the heads of
argument filed on behalf of the Minister make the submission that „the State as
an employer in terms of [the COIDA] includes all spheres of government‟. The
Minister further accepts that, under the Constitution, „government is constituted
as national, provincial and local spheres of government‟.19 Apart from
government, the Constitution provides for Legislative authorities at national and
provincial levels.20 These are also specifically referred to in s 84(1)(a)(i). It is
clear from the Constitution that local government, which is given legislative and
executive powers,21 is considered to be part of the State. The Constitution thus
provides that the legislative and executive authorities in each of the spheres of
government form part of the State.
[17] If local government is part of the State, because each municipality and
local authority is regarded as a separate employer, this can only mean that „the
State‟ is not regarded by the COIDA as the employer of the employees working
in all of its component parts. This, to my mind, is in itself dispositive of the
point at hand.
[18] It is fair to say, however, that the thrust of the submissions made on
behalf of the Minister was directed at the proposition that persons employed at
national and provincial levels must be regarded as being employed by a single
19 Section 40(1) of the Constitution.
20 Chapter 4 deals with Parliament, Chapter 5 with the President and National Executive and Chapter 6 with
provincial legislatures and executives.
21 Section 151(2).
employer referred to as the State. During the hearing, the inconsistency of
excluding local government from the State was not pertinently raised. In the
light of this, it is appropriate to consider whether the phrase in s 84(1)(a)(i) „the
national and provincial spheres of government, including Parliament and
provincial legislatures‟ refers to a single employer or more than one employer.
[19] At the level of grammar, it is possible to construe s 84(1)(a)(i) as
referring to a single employer when it is considered in isolation. However, other
provisions in the COIDA militate against such a construction. The key provision
in this regard is s 39(2) which reads as follows:
„For the purposes of subsection (1) an employer referred to in section 84 (1) (a) (i) means, in
the case of—
(a) the national and provincial spheres of government, the respective heads of departments
referred to in section 7(3) of the Public Service Act, 1994 (Proclamation No. 103 of 1994);
(b) Parliament, the Secretary to Parliament;
(c) a provincial legislature, the Secretary of the provincial legislature in question.‟
The word „respective‟ is of crucial importance here. It means that the heads of
departments within the executive are not lumped together as a single employer.
If „an employer‟ is a head of department, employees working in one department
are not employed by another department, whether at national or provincial level,
or by the State as a whole. In addition, subsections (b) and (c) provide that
Secretaries to Parliament and the provincial legislatures, which are included in
s 84(1)(a)(i) as part of „the national and provincial spheres of government‟, are
different employers to the executive authorities at the national and provincial
levels.
[20] This interpretation is buttressed by the reference, in s 39(2) of the
COIDA, to s 7(3) of the Public Service Act (the PSA). Section 7(3) of the PSA
provides that each department shall have a head with the designation in the
relevant schedules to the PSA. The schedules list each department and their
heads at national and provincial levels. At national level, the heads of these
departments are in most cases designated as Directors-General. At provincial
level, the heads are all designated as „Head‟ followed by the name of the
provincial department. In the case of the Western Cape Province, that for the
department of health is designated „Head: Health‟.
[21] It is thus clear that each head of each department in „the national and
provincial spheres of government‟ in s 84(1)(a)(i) is „an employer‟ for the
purposes of the COIDA. In addition, an employer who is a head of department
in the national and provincial spheres of government differs from an employer
in the case of Parliament which is, in turn, different to an employer in the case
of the nine provincial legislatures. The COIDA thus envisages multiple
employers in each of the various spheres of government as opposed to treating
the State as a single employer.
[22] As I have said above, for Dr Thomas to succeed in this appeal, it is only
necessary to find that the phrase „the national and provincial spheres of
government‟ does not refer to a single employer under the COIDA. It would
ordinarily not be necessary to find that, within each of these spheres, there are
multiple employers in the form of the heads of departments. However, in
arriving at the conclusion that the phrase does not refer to a single employer, it
has been necessary to make the finding as to multiple employers on each of the
national and provincial levels.
[23] In summary, therefore, the significance of s 84(1) read with s 39(2) is as
follows. A clear distinction is drawn between the heads of the listed
departments who are the employers in the national and provincial spheres of
government. These are distinguished from the employers in the legislative
bodies in these spheres. These are in turn distinguished from the employers in
the sphere of local government. If, for the purposes of the COIDA, all of these
entities were regarded as a single employer, s 84(1) would read very differently.
All that it would need to say is that the State, regardless of whether it is the
national, provincial or local sphere and regardless of whether it is the executive
or legislative entity, would not be assessed for the purposes of the COIDA in
respect of its employees. It does not say this.
[24] A submission made on behalf of the Minister was that, because s 197(4)
of the Constitution requires provincial employees to belong to a single public
service, the State as a single entity is their employer. It is so that they are
required to belong to a single public service. This does not mean, however, that
all members of the public service are employed by a single employer. Section
197(4) of the Constitution accords to provinces power to carry out all the
actions usually associated with employers, including „recruitment, appointment,
promotion, transfer and dismissal‟. In Premier, Western Cape v President of the
Republic of South Africa,22 the Constitutional Court dealt with a challenge to
national legislation which sought to restructure the public service as a single
entity, including the provincial spheres. The court held that s 41 of the
Constitution23 was not infringed saying the following:
„Functionaries in the provincial administration of the public service are appointed by the
provincial government, are answerable to it and can be promoted, transferred or discharged by
it. The right of the Premier and Executive Council to co-ordinate the functions of the provincial
administration and its departments has been preserved.‟24
[25] Although Premier, Western Cape stops short of specifically saying that a
provincial government, or head of department in a provincial government, is the
employer of public servants within its administration, various sections of the
22 1999 (3) SA 657 (CC).
23 Particularly s 41(1)(e) which requires all spheres of government to „respect the constitutional status,
institutions, powers and functions of government in another sphere‟.
24 Paragraph 91.
PSA make this clear. These include sections 14, 14A, 15(3), 16A(2)(a), 16B(4)
and 17(2) which provide that different departments, whether at national or
provincial level, are employers of members of the public service. These sections
variously refer to „an employee of the department‟ or „the employee of the
department‟. The PSA is thus consistent with my interpretation of what is meant
by an employer under the COIDA and destructive of the submission to the
contrary made on behalf of the Minister.
[26] All of this means that, for the purposes of the COIDA, and in particular
s 35(1), the employer of Dr Thomas was not the State as a single, overarching
entity, but the Head: Western Cape Department of Health. It further means that
s 35(1) does not find application in the action and Dr Thomas is entitled to
pursue her claim against the Minister. It follows that the special plea was
incorrectly upheld and her claim incorrectly dismissed.
[27] For these reasons, the conclusion arrived at by the high court is incorrect.
In the result, the appeal must succeed.
The following order issues:
The appeal is upheld with costs, such costs to include those consequent
upon the employment of two counsel where two counsel were employed.
The order of the trial court is set aside and replaced by the following
order:
„The special plea is dismissed with costs.‟
T R Gorven
Acting Judge of Appeal
Appearances
For Appellant:
M H van Heerden SC
Instructed by:
Sohn & Wood Attorneys, Cape Town
Honey Attorneys, Bloemfontein
For Respondent:
M A Albertus SC, with him R Jaga
Instructed by:
The State Attorney, Cape Town
The State Attorney, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
11 September 2014
STATUS
Immediate
Please note that the media summary is for the benefit of the media and
does not form part of the judgment.
THOMAS v MINISTER OF DEFENCE AND MILITARY VETERANS
(506/2013) [2014] ZASCA 109 (11 September 2014)
The SCA today upheld an appeal by Liesl-Lenore Thomas against the
dismissal of her action against the Minister of Defence and Military
Veterans in the Western Cape High Court. Dr Thomas claimed damages
caused by her falling down stairs at 2 Military Hospital whilst employed
as a medical registrar with the Western Cape Provincial Government:
Department of Health. In a special plea, the Minister invoked the
provisions of s 35(1) of the Compensation for Occupational Injuries and
Diseases Act 130 of 1993 (the COIDA), which precludes an action by an
employee against her employer where compensation is payable under the
COIDA. The Minister argued that the State as a single entity was the
employer of Dr Thomas and that provincial departments were not
regarded as separated employers for the purposes of s 35(1). The
Supreme Court of Appeal held that individual departments were
themselves employers, upheld the appeal and dismissed the special plea.
|
3899
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no. 838/2021
In the matter between:
JAMES MATODZI NESONGOZWI
Appellant
and
COMMISSIONER FOR THE SOUTH
AFRICAN REVENUE SERVICE
Respondent
Neutral citation:
Nesongozwi v Commissioner for SARS (838/2021) [2022]
ZASCA 138 (24 October 2022)
Coram:
Ponnan, Makgoka and Plasket JJA and Weiner and Windell AJJA
Heard:
24 August 2022
Delivered:
24 October 2022
Summary:
Tax Administration Act 28 of 2011 – valuation of shares for purposes of
donations tax and capital gains tax – assessment and objection – appeal to tax court
– only issues objected to subject to appeal.
ORDER
On appeal from: Gauteng Division of the High Court, Johannesburg (Dippenaar and
Senyatsi JJ and Wanless AJ sitting as court of appeal).
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Plasket JA (Ponnan and Makgoka JJA and Weiner and Windell AJJA concurring)
[1] This is an appeal against an order of a full court of the Gauteng Division of the
High Court, Johannesburg (the full court) dismissing an appeal against an order of the
tax court made by Francis J, assisted by assessors. It concerns an additional
assessment of the appellant, Mr James Matodzi Nesongozwi (the taxpayer), to tax for
the 2010 year of assessment. More particularly, it concerns the quantum of his liability
for capital gains tax and donations tax imposed by the respondent, the Commissioner
for the South African Revenue Service (the Commissioner), arising from the transfer
of his shares in the Nesongozwi Mining Corporation (Pty) Ltd (NMC) to the
Nesongozwi Family Trust (the trust). The appeal is before us with the special leave of
this court.
Background
[2] The taxpayer is a mining engineer. He was initially the sole director of
Umthombo Resources (Pty) Ltd (Umthombo), a company that held coal prospecting
and mining rights. Umthombo’s sole shareholder was NMC. The taxpayer was, until
August 2008, also the sole shareholder of NMC.
[3] In May 2006, Umthombo entered into a consultancy agreement with Sumo Coal
(Pty) Ltd (Sumo) in terms of which it was to prospect for coal in defined areas in
Mpumalanga, KwaZulu-Natal, Gauteng and the Free State. Sumo undertook to pay
Umthombo for this work. The parties also agreed that, in the event of viable deposits
of coal being found, they could, if Sumo wished to, conclude joint venture agreements
to exploit those deposits. Sumo would have a 60 percent participation interest in any
such joint venture, while Umthombo would hold a 40 percent interest.
[4] In August 2008, the taxpayer sold 50 percent of NMC’s shares in Umthombo to
Kalyana Resources (Pty) Ltd. The purchase price of the shares was R150 million. A
shareholders agreement was concluded that regulated the disposal by the
shareholders of their shares in Umthombo.
[5] In October 2009, the taxpayer concluded a verbal agreement with the trust for
the sale of his shares in NMC for a price of R547 275. The purchase price was
determined on the basis that NMC was not a trading entity but a holding entity and
that its only anticipated income would be dividends paid by Umthombo. No dividends
had, by that time, been declared by Umthombo, and neither had it engaged in any
mining operations.
[6] In October 2014, the Commissioner issued an additional assessment in
respect, inter alia, of the 2010 year of assessment, which took into account the
taxpayer’s disposal of his NMC shares. The Commissioner determined that the
taxpayer had disposed of the NMC shares at a price below their market value and
imposed a donations tax and capital gains tax liability on him of R48 635 677.49. The
taxpayer objected to the assessment. The Commissioner disallowed the objection and
the taxpayer then appealed to the tax court. It is only in respect of the share transaction
that this appeal is concerned.
[7] After hearing evidence that was largely of an expert nature, the tax court,
dismissed the taxpayer’s appeal but made certain amendments to the assessment. In
relevant part the order reads:
‘130.4 The additional assessment for 2010 dated 10 October 2014 is altered as follows in
terms of section 129(2)(b) of the TAA:
130.4.1
To reflect a capital gain in respect of the disposal by the taxpayer of the
shares he held in NMC to the Nesongozwi Family Trust, in the amount
of R115 700 000 (R231 400 000X50%);
130.4.2
To reflect a donation in respect of the disposal by the taxpayer of the
shares he held in NMC to the Nesongozwi Family Trust, on the amount
of R115 125 725 (R115 700 000—R547 725);
130.5 The imposition of a 10% understatement penalty in terms of section 222 and 223 of
the TAA is confirmed.
130.6 The imposition of interest in terms of section 89quat of the Income Tax Act 58 of 1961
is confirmed.
130.7 The taxpayer is ordered to pay 50% of the costs of this appeal including 50 % of the
qualifying fees of the following expert witnesses:
(a)
Mr A Clay;
(b)
Mr D Thayser;
(c)
Mr A McDonald.’
[8] In his appeal to the full court, the taxpayer raised two grounds of appeal. They
were that the tax court had erred in not discounting the value of Umthombo’s shares
as a result of the potential joint venture agreements envisaged by the consultancy
agreement with Sumo; and that the tax court had erred in ordering the taxpayer to pay
50 percent of the costs and the qualifying fees of the Commissioner’s expert
witnesses.
[9] A day before the appeal was argued, the taxpayer gave notice of his intention
to apply for an amendment of the notice of appeal to introduce two further grounds,
namely that the valuation method applied by the Commissioner’s experts was an
incorrect one and that Umthombo’s mineral resources were incorrectly categorized.
The full court disallowed the amendment in respect of the first issue but allowed it in
respect of the second issue. It concluded, however, that there was no merit in any of
the grounds of appeal before it and dismissed the appeal.
[10] From the taxpayer’s heads of argument, it appears that he wishes to revisit (a)
whether the method used to determine the market value of the shares was the
appropriate method; (b) whether the impact of the consultancy agreement between
Sumo and Umthombo was taken into account correctly; and (c) whether Umthombo’s
mineral resources were correctly characterized. This raises an important point of
principle anterior to the merits, namely whether these points are properly before this
court as grounds of appeal. I say this because the tax court is a creature of statute
with the result that, as was held in Lion Match Company (Pty) Ltd v Commissioner for
the South African Revenue Service,1 ‘the scope of its jurisdiction, its powers and the
ambit of any right of appeal from its decisions’ are defined in the Tax Administration
Act 28 of 2011 (the TAA).
[11] The same principle was applied, in relation to an appeal to the tax court in terms
of the Value Added Tax Act 89 of 1991, in H R Computek (Pty) Ltd v Commissioner
for the South African Revenue Services2 when Ponnan JA held that it had followed
that ‘not having raised an objection to the capital assessment in its notice of objection,
the taxpayer was precluded from raising it on appeal before the tax court’. The purpose
underpinning this principle (which is of general application in civil and criminal appeals
too) was set out thus by Corbett JA in Matla Coal Ltd v Commissioner for Inland
Revenue,3 a matter concerning the Income Tax Act 58 of 1962:
‘Section 81(3) of the Act provides that every objection shall be in writing and shall specify in
detail the grounds upon which it is made. And in terms of s 83(7)(b) the appellant in an appeal
against the disallowance of his objection is limited to the grounds stated in his notice of
objection. This limitation is for the benefit of the Commissioner and may be waived by him.’
He stressed the importance of adherence to this principle, ‘for otherwise the
Commissioner may be prejudiced by an appellant shifting the grounds of his objection
to the assessment in issue’. At the same time, however, he held that in the application
of the principle, a court should not be ‘unduly technical or rigid in its approach’ and
‘should look at the substance of the objection and the issue as to whether it covers the
point which the appellant wishes to advance on appeal must be adjudged on the
particular facts of the case’.4
1 Lion Match Company (Pty) Ltd v Commissioner for the South African Revenue Service [2018] ZASCA
36 para 6. See too Wingate-Pearse v Commissioner, South African Revenue Service [2016] ZASCA
109; 2017 (1) SA 542 (SCA) para 6.
2 H R Computek (Pty) Ltd v Commissioner for the South African Revenue Service [2012] ZASCA 178
para 12.
3 Matla Coal Ltd v Commissioner for Inland Revenue [1986] ZASCA 120; 1987 (1) SA 108 (A) at 125C-
D.
4 At 125I-J.
The system
[12] The term ‘assessment’ is defined in s 1 of the TAA to mean ‘the determination
of the amount of a tax liability or refund, by way of self-assessment by the taxpayer or
assessment by SARS’. In terms of s 92 of the TAA, if SARS is satisfied that an
assessment ‘does not reflect the correct application of a tax Act to the prejudice of
SARS or the fiscus, SARS must make an additional assessment to correct the
prejudice’. If it does so, s 104(1) grants a right to the taxpayer to object to the
assessment so made.
[13] When the taxpayer objects, they must, in terms of s 104(3), lodge their objection
‘in the manner, under the terms, and within the period prescribed in the “rules”’. Those
rules are made in terms of s 103 by the Minister of Finance after consultation with the
Minister of Justice and Constitutional Development. They govern ‘the procedures to
lodge an objection and appeal against an assessment or “decision”, and the conduct
and hearing of an appeal before a tax board or tax court’.
[14] Rule 7 sets out how a taxpayer objects to an assessment. They are required to
deliver their objection to SARS within 30 days of obtaining the reasons for the
assessment or, if no reasons were sought, of the date of assessment.5 The objection
must be made on the prescribed form, completed in full,6 and it must ‘specify the
grounds of the objection in detail’, including the part or amount objected to and the
grounds of assessment that are disputed.7
[15] Section 106, which deals with the determination of objections by SARS,
provides in relevant part:
‘(1) SARS must consider a valid objection in the manner and within the period prescribed
under this Act and the “rules”.
(2) SARS may disallow the objection or allow it either in whole or in part.
(3) If the objection is allowed either in whole or in part, the assessment or “decision” must be
altered accordingly.
5 Rule 7(1).
6 Rule 7(2)(a).
7 Rule 7(2)(b).
(4) SARS must, by notice, inform the taxpayer objecting or the taxpayer's representative of
the decision referred to in subsection (2), unless the objection is stayed under subsection (6)
in which case notice of this must be given in accordance with the “rules”.
(5) The notice must state the basis for the decision and a summary of the procedures for
appeal.’
In terms of rule 9, SARS must ‘notify the taxpayer of the allowance or disallowance of
the objection and the basis thereof’ within 60 days of receipt of the objection.
[16] Section 107 makes provision for an appeal against an assessment. The
relevant sub-sections provide:
‘(1) After delivery of the notice of the decision referred to in section 106(4), a taxpayer objecting
to an assessment or “decision” may appeal against the assessment or “decision” to the tax
board or tax court in the manner, under the terms and within the period prescribed in this Act
and the “rules”.
(2) . . .
(3) A notice of appeal that does not satisfy the requirements of subsection (1) is not valid.
(4) If an assessment or “decision” has been altered under section 106(3), the assessment or
“decision” as altered is the assessment or “decision” against which the appeal is noted.’
[17] Rule 10 provides that when a taxpayer wishes to appeal against an
assessment, they must deliver a notice of appeal in the prescribed manner, within 30
days of receipt of SARS’s notice of disallowance of the objection.8 In terms of rule
10(2)(a), a notice of appeal must be ‘made in the prescribed form’ and, in terms of rule
10(2)(c), it must:
‘specify in detail –
(i)
in respect of which grounds of the objection referred to in rule 7 the taxpayer is
appealing;
(ii)
the grounds for disputing the basis of the decision to disallow the objection referred to
in section 106(5); and
(iii)
any new ground on which the taxpayer is appealing.’
[18] In terms of rule 10(3), a taxpayer may not appeal ‘on a ground that constitutes
a new objection against a part or amount of the disputed assessment not objected to
under rule 7’. If they do so, however, SARS may, in terms of rule 10(4), require them
8 Rule 10(1)(a).
‘within 15 days after delivery of the notice of appeal to produce the substantiating
documents necessary to decide on the further progress of the appeal’.
[19] Section 116 empowers the President to establish by proclamation ‘a tax court
or additional tax courts’. A tax court has, in terms of s 117(1), ‘jurisdiction over tax
appeals lodged under section 107’ as well as, in terms of s 117(3), in respect of
interlocutory applications or procedural matters ‘relating to a dispute under this
Chapter as provided for in the “rules”’.
[20] Section 129 deals with the decisions that a tax court may make. It provides, in
the first two sub-sections:
‘(1) The tax court, after hearing the “appellant's” appeal lodged under section 107 against an
assessment or “decision”, must decide the matter on the basis that the burden of proof as
described in section 102 is upon the taxpayer.
(2) In the case of an assessment or “decision” under appeal or an application in a procedural
matter referred to in section 117(3), the tax court may-
(a)
confirm the assessment or “decision”;
(b)
order the assessment or “decision” to be altered;
(c)
refer the assessment back to SARS for further examination and assessment;
or
(d)
make an appropriate order in a procedural matter.’
[21] Part E of the rules deals with the procedure before a tax court. Rule 31(1)
requires SARS to deliver ‘a statement of the grounds of assessment and opposing the
appeal’, which it must do within 45 days of delivery to it of the taxpayer’s notice of
appeal. In terms of rule 30(2), that statement ‘must set out a clear and concise
statement of’ the following:
‘(a)
the consolidated grounds of the disputed assessment;
(b)
which of the facts or the legal grounds in the notice of appeal under rule 10 are admitted
and which of those facts or legal grounds are opposed; and
(c)
the material facts and legal grounds upon which SARS relies in opposing the appeal.’
[22] In terms of rule 32(1), the taxpayer is then required to deliver to SARS, within
45 days of receipt of the rule 31 statement, a statement of the grounds of their appeal.
The taxpayer must, in terms of rule 32(2), set out ‘clearly and concisely’ the following:
‘(a)
the grounds upon which the appellant appeals;
(b)
which of the facts or the legal grounds in the statement under rule 31 are admitted and
which of those facts or legal grounds are opposed; and
(c)
the material facts and the legal grounds upon which the appellant relies for the appeal
and opposing the facts or legal grounds in the statement under rule 31.’
In terms of rule 32(3), the taxpayer ‘may not include in the statement a ground of
appeal that constitutes a new ground of objection against a part or amount of the
disputed assessment not objected to under rule 7’.
[23] SARS has a right, in terms of rule 33, to reply to the taxpayer’s statement of
grounds of appeal. Its reply must be a ‘clear and concise’ response to any new
grounds, facts or law raised by the taxpayer. Finally, s 34 defines the scope of the
issues before the tax court on appeal. It provides:
‘The issues in an appeal to the tax court will be those contained in the statement of the grounds
of assessment and opposing the appeal read with the statement of the grounds of appeal and,
if any, the reply to the grounds of appeal.’
[24] Section 133 makes provision for an appeal from a decision of a tax court. It
states:
‘(1) The taxpayer or SARS may in the manner provided for in this Act appeal against a decision
of the tax court under sections 129 and 130.
(2) An appeal against a decision of the tax court lies-
(a)
to the full bench of the Provincial Division of the High Court which has
jurisdiction in the area in which the tax court sitting is held; or
(b)
to the Supreme Court of Appeal, without an intermediate appeal to the
Provincial Division, if-
(i)
the president of the tax court has granted leave under section 135; or
(ii)
the appeal was heard by the tax court constituted under section 118(5).’
[25] Section 134 prescribes the procedure for noting an intention to appeal against
a decision of a tax court. Sections 134(1) and (2) state:
‘(1) A party who intends to lodge an appeal against a decision of the tax court (hereinafter in
this Part referred to as the appellant) must, within 21 business days after the date of the notice
by the 'registrar' notifying the parties of the tax court's decision under section 131, or within a
further period as the president of the tax court may on good cause shown allow, lodge with
the 'registrar' and serve upon the opposite party or the opposite party's legal practitioner or
agent, a notice of intention to appeal against the decision.
(2) A notice of intention to appeal must state-
(a)
in which division of the High Court the appellant wishes the appeal to be heard;
(b)
whether the whole or only part of the judgment is to be appealed against (if in
part only, which part), and the grounds of the intended appeal, indicating the
findings of fact or rulings of law to be appealed against; and
(c)
whether the appellant requires a transcript of the evidence given at the tax
court's hearing of the case in order to prepare the record on appeal (or if only
a part of the evidence is required, which part).’
[26] Having considered the statutory regime that regulates appeals against
assessments to the tax court and to the high court, I shall now consider which issues
were before the tax court and, by extension, the full court.
The taxpayer’s objection and appeals
[27] After receiving the first additional assessment made by SARS, the taxpayer
objected on the basis that ‘SARS USED INCORRECT VALUATIONS FOR ITS
ASSESSMENTS’. The taxpayer argued that the valuation was excessive and that it
should have valued Umthombo’s assets at R63 million. It was suggested that if SARS
did not agree with this valuation, the process should ‘be suspended until an
independent valuator is appointed that is acceptable to both SARS and our client’.
[28] Venmyn Rand (Pty) Ltd (Venmyn) was then commissioned by SARS to value
the NMC shares. A second valuation was obtained from Mr Dave Thayser. On the
strength of these valuations, SARS delivered another additional assessment, to which
the taxpayer objected. That is the assessment of relevance in this matter.
[29] The taxpayer’s grounds of objection, in terms of rule 7, focused on one issue.
It was that Venmyn’s valuation of the NMC shares, confirmed in a slightly lower amount
by Thayser, was ‘grossly overstated’ and that, in accordance with a valuation made by
Fin5, the shares should have been valued at –R136 million.
[30] The Commissioner disallowed the objection and furnished the following
reasons for his decision. He stated that the share transfer to the trust in effect
‘constituted a transferal of 50% of the total Umthombo shares’. Venmyn considered
that ‘the most appropriate and fair value of mineral assets of the company should be
based on the values derived from the Venmyn commodity valuation curve’ and
concluded, on this basis, that Umthombo’s fair value – and hence that of the NMC
shares, was R562 million. In the second opinion, Thayser had been of the view that
the most appropriate valuation method, namely the net asset value method, had been
used by Venmyn, but he valued Umthombo, and hence the NMC shares, at R548.1
million. The Commissioner accepted Thayser’s lower figure, and so used a figure of
half of R548.1 million, namely R274 050 000, for the purposes of determining the
taxpayer’s donations tax and capital gains tax liabilities.
[31] The Commissioner, after stating that the NMC shares had been sold to the trust
for R547 275, concluded that they had been disposed of for an inadequate
consideration, and were deemed to have been disposed of as a donation, in terms of
s 58 of the Income Tax Act. As the shares had a market value of R274 050 000,
donations tax and capital gains tax had been levied on the basis of this value. The
Commissioner summarized the taxpayer’s grounds of objection as being that, in
relation to the value of the NMC shares, the taxpayer asserted that the Fin5 valuation
of –R136 million was the correct valuation and the Venmyn and Thayser valuations
were grossly inflated.
[32] In his rule 10 notice of appeal, the taxpayer confirmed that his grounds of appeal
were precisely the same as his grounds of objection. In the Commissioner’s statement
of the grounds of assessment and opposition to the appeal, in terms of rule 31, it was
simply stated that the negative value attributed to the shares by Fin5 was ‘unfounded’.
[33] The taxpayer, in his rule 32 statement, devoted attention to the source of the
difference in opinion as to the value of the NMC shares. That was the consultancy
agreement that had been concluded between Umthombo and Sumo, and a dispute
that had developed in respect of the formation of a joint venture, in respect of one
mining property, in terms of that agreement.
[34] In essence, it was pleaded that the value of the NMC shareholding in
Umthombo had to take account of three factors namely: Sumo’s 60 percent
participation interest in the joint ventures that were to be formed in appropriate
circumstances; the contingent liability that was said to have arisen as a result of the
dispute between Umthombo and Sumo that was settled by Umthombo paying Sumo
R300 million; and limitations imposed by the shareholders agreement regarding the
disposal of Umthombo’s shares.
[35] The taxpayer argued that the value ascribed by the Commissioner to the NMC
shares had to be reduced by 60 percent to account for Sumo’s participation interest in
the joint venture; by the contingent liability of R300 million, which later became an
actual liability; and to reflect the uncertainties attendant on the disposal of Umthombo’s
shares because of the terms of the shareholders agreement. The result, he pleaded,
was that no value could be ascribed to the NMC shares, and consequently no
donations tax or capital gains tax liabilities arose.
[36] It was further pleaded by the taxpayer that both the Venmyn and Thayser
valuations were erroneous because they had failed to take the above factors into
account and were, because of this flaw, both ‘grossly overstated’. Had they taken
these matters into account then, based on SARS’ own evaluation, the value of the
shares sold to the trust was the sum of –R136 million.
[37] The Commissioner pleaded to this case in his rule 33 statement. He denied that
the 60 percent participation interest of Sumo was to be taken into account in the
valuation because, even after having been ordered to do so in an arbitration,
Umthombo still did not enter into a joint venture with Sumo in respect of the one mining
property.
[38] The R300 million that Umthombo had agreed to pay to Sumo in settlement of
their dispute was also not to be taken into account for purposes of the valuation
because, as at the date of the sale of the shares, there was no contingent liability in
this amount. In any event, in terms of the settlement, Sumo surrendered its right to 60
percent of the future profits in relation to the joint ventures with Umthombo in terms of
the consultancy agreement, in return for payment of R300 million. The result was that
Umthombo acquired a right to ‘100% of the future profits in the project(s) that would
have been conducted by the JV, had it been formed’. On this basis, the Commissioner
pleaded, if the R300 million was to be taken into account, so should 100 percent of
anticipated future profits which would accrue to Umthombo. This would be in excess
of R500 million – and would increase the value rather than reduce it.
[39] The issue that was thus before the tax court, in terms of rule 34, was whether
the Venmyn and Thayser valuations were correct or whether the Fin5 valuation was
correct. That issue was to be answered by determining whether Sumo’s 60 percent
participation interest, the R300 million payment to Sumo and the effect of the
shareholders agreement were to be taken into account in the valuation. This was so
because, on the taxpayer’s pleaded case, the fault in the Commissioner’s valuation
was the failure to take these issues into account and the result of doing so would
produce a valuation identical to Fin5’s valuation – a valuation of -R136 million.
The tax court and full court appeals
[40] It is clear, from what I have outlined above, that the parties were in agreement
as to the correctness of the method of valuation. They differed in one respect only and
that was on whether the issues relating to the consultancy agreement, the payment of
damages to Sumo and the shareholders agreement should have been taken into
account in the valuation. The tax court found, with reference to the approach to the
valuation by the taxpayer’s expert witnesses, that the methodology employed by them
and by SARS ‘was the same’ and that ‘[t]his was also the methodology that was
proposed by the taxpayer in his objection of 24 February 2012 and when he testified
in court he agreed that this was the position’.
[41] That method was that Venmyn valued the mineral assets of Umthombo as at 5
October 2009. Thayser valued Umthombo’s shares from this, and using Thayser’s
valuation, SARS established the value of NMC’s shares and halved that amount to
obtain the market value of the taxpayer’s shares that he had sold to the trust. Precisely
the same method was used by the taxpayer’s expert witness, Mr Charles Stride.
[42] Three days into the hearing of evidence in the tax court, the matter stood down
to enable the expert witnesses on both sides to meet. An agreement was reached that
the value of Umthombo’s shares was either R152.7 million or R232 million, depending
on how the mineral resources, in respect of which Umthombo had prospecting rights,
were categorised.
[43] The taxpayer argued that they were ‘resource targets’ while the Commissioner
was of the view that they were ‘inferred resources’. The effect of this categorisation on
the value of Umthombo was significant, being a difference in value of R79.3 million.
The second issue that the tax court had to deal with was whether the consultancy
agreement affected the value of the shares.
[44] Both of these issues were decided by the tax court in favour of the
Commissioner, with the result that the value of the NMC shares sold by the taxpayer
to the trust was determined to be half of R231 400 000, namely R115 700 000.
[45] In respect of the classification of Umthombo’s mineral resources, the
Commissioner adduced the evidence of an expert in the field who qualified himself as
a ‘competent person’ for purposes of the SAMREC Code’s system of categorising
mineral resources. Of the witness called by the taxpayer, however, the tax court
observed that he was ‘reluctant to qualify himself as a competent person for purposes
of the SAMREC code’, he having said that he may have been ‘on the fringes’ of being
a competent person. This being so, his evidence was inadmissible opinion evidence
and the tax court correctly found, on the basis of the evidence of the Commissioner’s
expert witness, that Umthombo’s mineral resources had been correctly categorised as
‘inferred resources’.
[46] The taxpayer argued that Sumo’s 60 percent participation interest in terms of
the consultancy agreement had to be deducted from the value of Umthombo. The tax
court rejected this argument on the basis that the consultancy agreement did not
create a liability for Umthombo but, at best, ‘a contingent liability in the sense that it
may or may not arise depending on whether coal reserves are identified; it is viable
for coal mining and Sumo Coal decide to request Umthombo to enter into a joint
venture’. This contingent liability, the tax court held, ‘cannot be taken into account for
purposes of valuing the mineral resources of Umthombo’.
[47] As far as the R300 million paid by Umthombo to Sumo was concerned, the tax
court held that it was only 11 months after the sale of the shares that the arbitrator had
found that Umthombo had to enter into a joint venture with Sumo, and still later that it
opted to pay damages of R300 million to Sumo instead. The tax court also made the
point that Umthombo Coal, rather than Umthombo Resources, had, in terms of the
settlement agreement, undertaken to pay this amount to Sumo. Furthermore, if this
amount was to be taken into account, so too should the total value of the ‘joint venture’.
If this was done, a further R200 million would have been added to the value of
Umthombo, increasing its value.
[48] Finally, the tax court did not allow any discount on the basis of the shareholders
agreement limiting the transferability of Umthombo’s shares. It did so on the basis of
item 31(3) of the Eighth Schedule of the Income Tax Act which states that when
determining the market value of unlisted shares, no regard may be had to any
provision that restricts the transferability of those shares and that ‘it shall be assumed
that those shares were freely transferable’.
[49] The tax court concluded that capital gains tax in respect of the sale of the NMC
shares was to be calculated on the following basis: (a) the value of Umthombo was
R232 million ‘according to the agreement between the experts’; (b) an amount of R6
million was to be deducted ‘to determine the value of the Umthombo shares’ in
accordance with Thayser’s valuation, leaving an amount of R231.4 million; and (c) 50
percent of that amount, being R115.7 million, was attributable to the NMC shares, on
the basis of ‘a method that both SARS and the taxpayer applied to arrive at the value
of the NMC shares’. The result was the order that I have quoted in paragraph [7]
above.
[50] Pursuant to the tax court’s order, the taxpayer filed a notice of his intention to
appeal against parts of the tax court’s order. He sought leave to appeal directly to this
court. Francis J granted leave to appeal to the full court instead.
[51] In the notice, two grounds of appeal were raised. The first was that the tax court
‘erred or misdirected itself in failing to find that the sixty (60%) percent discount
contained in clause 7 of the written consultancy agreement should be applied to the
amount contained in Table 6 of Exhibit BB’, that being the joint minute of the experts
in relation to the valuation. The second related to the costs order.
[52] Later in the notice, the taxpayer made it clear that the valuation of Umthombo’s
shareholding was not in issue. In paragraph 4, for instance, it was stated that the tax
court ‘ought to have subjected the value of R232 000 000 attributed to the
shareholding in Umthombo Resources (Pty) Ltd to the 60%/40% split in the
determination of the value of the shareholding attributable to the taxpayer . . .’.
[53] Subsequent to leave to appeal being granted, the taxpayer filed his notice of
appeal. As with the previous notice, the taxpayer’s grounds related to the ‘discount’
arising from the consultancy agreement and to costs. These grounds mirrored what
was said in the previous notice. What was sought was an order in which the value of
the NMC shares was reflected as R46 280 000, calculated as follows: R231 400 000
x 40% = R92 560 000 x 50% = R46 280 000, for purposes of determining the
taxpayer’s capital gains tax and donations tax liability. Up to this point, what was
evident was that both the Commissioner and the taxpayer used the same valuation
methodology and worked from the same figures.
[54] The focus of the appeal to the full court changed at the last minute. In the
taxpayer’s heads of argument, two more issues were raised and the relief sought
differed fundamentally from that stated in the notice of appeal. Now, the taxpayer
sought to challenge the valuation methodology in asserting that the market value of
the shares was, in fact, never determined. He also sought to re-open the
characterisation of Umthombo’s mineral resources. The relief sought was altered to a
setting aside of the assessment and a remittal to the Commissioner for a new
assessment to be made.
[55] Not surprisingly, the Commissioner objected to the new grounds raised in the
taxpayer’s heads of argument, pointing out that no application to amend his notice of
appeal had been made. Dippenaar J pointed out in her judgment on behalf of the full
court that despite the objection, no application to amend was forthcoming during a
period of nine months from the date of the objection being raised (in the
Commissioner’s heads of argument) until the hearing of the appeal. When the appeal
was heard, an application to amend the notice of appeal was made from the bar and,
as Dippenaar J pointed out, ‘[n]o reasons for the delay or the absence of a formal
application were provided’.
[56] The full court refused the taxpayer’s application in respect of the valuation
method. It did so for the following reasons. First, the issue of the valuation
methodology was not canvassed in the tax court, in the evidence or in the pleadings.
Secondly, the taxpayer’s witnesses agreed with the SARS witnesses on the valuation
method and on the values, subject to the appropriate characterisation of the mineral
resources. Third, the discounted cash flow method, that the taxpayer now
enthusiastically propounded, could not have been used, because the information
necessary for its application was not available. This was common cause. Fourth, a
challenge to the valuation method would raise ‘substantial new factual issues not
canvassed before the Tax Court and the appellant is seeking to build a case on a
foundation not previously laid’. Finally, the principle of finality in litigation would be
undermined and a setting aside and remittal of the assessment would have the effect
of nullifying the agreement between the expert witnesses. The full court concluded
that the ‘methodology issue is not a pure legal point to be determined on accepted
facts, nor were the factual considerations on which it relies explored in the Tax Court’.
[57] The full court granted the application for the amendment in respect of the
characterisation of the mineral resources. There were thus two grounds that it had to
consider, the other being the effect of the consultancy agreement.
[58] The full court upheld the tax court’s finding on the characterisation of the
mineral resources. It did so on two bases. First, the Commissioner’s witness qualified
himself as an expert in the field, against the required standard, while the taxpayer’s
witness did not. That meant that the former’s evidence was admissible, while the
latter’s was inadmissible opinion evidence. Furthermore, the evidence of the former
could not be faulted while that of the latter left a lot to be desired.
[59] As far as the effect of the consultancy agreement was concerned, the full court
held that the tax court’s finding that the liability was contingent could not be faulted.
The consultancy agreement required three conditions to be met before a joint venture
could be formed. They were that coal reserves had been identified, that they were
viably minable and that Sumo had decided that it wished to enter into a joint venture
with Umthombo. At the date of the sale of the shares, the conditions had not been met.
In respect of the R300 million paid by Umthombo to Sumo, the full court agreed with
the tax court that if it was to be taken into account, so too should R200 million
representing Umthombo’s profits – and that would have the effect of increasing the
valuation of Umthombo.
Conclusion
[60] I have set out in detail the taxpayer’s objection, the pleadings in the tax court
and the notice of appeal before the full court. I have also given a detailed account of
the proceedings in the tax court and the full court, and the reasoning of each on the
issues before them. First, it is apparent that there was never, until the filing of the
taxpayer’s heads of argument in the appeal to the full court, any suggestion that the
taxpayer disputed the method of valuation adopted by Venmyn and Thayser. It was
not a ground of objection and neither was it a ground of appeal before the tax court.
In Knox D’Arcy AG v Land and Agricultural Development Bank of South Africa,9 this
court held:
‘It is trite that litigants must plead material facts relied upon as a basis for the relief sought and
define the issues in their pleadings to enable the parties to the action to know what case they
have to meet. And a party may not plead one issue and then at the trial, and in this case on
appeal, attempt to canvass another which was not put in issue and fully investigated. The
Land Bank (and the trial court for that matter) was never put on notice that it would answer a
case that it had frustrated, deliberately or otherwise, the performance of the obligation imposed
by clause 2.1 of the settlement agreement. Clearly, we cannot now, on appeal, decide issues
that have neither been raised nor fully ventilated previously.’
Precisely the same holds good in this appeal. The valuation method was not an issue
before the tax court or the full court, and consequently, it was not an issue before this
court.
9 Knox D’Arcy AG v Land and Agricultural Bank of South Africa [2013] ZASCA 93; [2013] 3 All SA 404
(SCA) para 35.
[61] Secondly, it was common cause that the valuation method that was used was
the correct one. There was also agreement as to the value, subject to the
characterisation of Umthombo’s mineral resources and the effect of the consultancy
agreement. Both parties applied the same valuation method. There was thus never a
dispute as to the valuation method. This issue was, in effect, settled between the
parties. As a result, it was not permissible for the taxpayer to raise it, late and
opportunistically as he did, as a ground of appeal. The position in this case is similar
to that in Gusha v Road Accident Fund.10 In that case, the parties had concluded an
agreement, prior to the issue of summons in which the respondent had accepted
liability in unqualified terms for the injuries suffered by the appellant in a motor vehicle
accident. Later, the respondent applied to amend its pleadings to include a prayer for
an apportionment of damages due to what it averred was contributory negligence on
the part of the appellant. It was, Leach JA held, impermissible in the face of the
unqualified concession of liability for the respondent ‘to attempt to introduce the
appellant’s alleged contributory negligence in order to seek a reduction in the extent
of its liability’.11 And for the same reasons, the full court was correct to refuse to allow
the taxpayer’s application to amend the notice of appeal to include, as a ground, the
valuation method. It had been agreed to and consequently was not an issue that could
be appealed against.
[62] Thirdly, even on the assumption that the issue had been appealable, the
taxpayer would have had to establish a misdirection on the part of the full court in the
exercise of its discretion to disallow the amendment. I have set out the full court’s
reasoning. It furnished a full and complete justification for its decision. The taxpayer
has not even attempted to assail the exercise of that discretion. We are not simply at
large and there has been no suggestion that the discretion was not judicially exercised
or was influenced by an application of the wrong principles or a misdirection of fact.
The appeal must fail on this point on account of all three of the reasons that I have
given.
10 Gusha v Road Accident Fund [2012] ZASCA 242; 2012 (2) SA 371 (SCA).
11 Para 15.
[63] In my view, the characterisation of Umthombo’s mineral resources was
appealable. I am mindful of Corbett JA’s observation in Matla Coal12 that a court should
not be unduly technical or rigid in its approach to a taxpayer’s objection and notice of
appeal and should focus on ‘the substance of the objection’ within the context of the
particular facts of the case. While the issue was not raised expressly as an objection
and as a ground of appeal, it was an issue concerned with the proper application of
the agreed valuation method and it was fully canvassed in the evidence.
[64] I have set out above the reasoning of the tax court and the full court on the
characterization of Umthombo’s mineral resources and the effect of the consultancy
agreement. In respect of both issues, the reasoning of the tax court and of the full court
was firmly grounded in the credible evidence of the expert witnesses called by the
Commissioner and cannot be faulted. As a result, the appeal must fail.
[65] I make the following order.
The appeal is dismissed with costs, including the costs of two counsel.
________________________
C Plasket
Judge of Appeal
12 Note 3 at 125I-J.
APPEARANCES
For the appellant:
A E Bham SC and J Potter
Instructed by:
Faber
Goertz
Ellis
Austen
Inc,
Johannesburg
McIntyre Van der Post, Bloemfontein
For the respondent:
C Louw SC and H J Snyman
Instructed by:
Klagsbrun Edelstein Bosman De
Vries, Pretoria
Symington De Kok, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
24 October 2022
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
Nesongozwi v Commissioner for SARS (838/2021) [2022] ZASCA 138
(24 October 2022)
MEDIA STATEMENT
The Supreme Court of Appeal (SCA) today dismissed the appeal of Mr J M
Nesongozwi (the taxpayer) against the Commissioner for the South African Revenue
Service (the Commissioner).
The taxpayer sold his shares in a company, the Nesongozwi Mining
Corporation (Pty) Ltd, to the Nesongozwi Family Trust for a purchase price of
R547 275. When the Commissioner issued an assessment that took into account this
transaction, he took the view that the purchase price bore no relation to the market
value of the shares. He imposed donations tax on the difference between the purchase
price and his valuation of the market value of the shares, as well as capital gains tax.
The total tax liability that he imposed on the taxpayer was R48 635 677.49.
The taxpayer objected to the assessment. He did so on the basis that the value
of the shares had been ‘grossly overstated’ by the Commissioner and that, in fact, they
had a much lower value. The Commissioner engaged the services of two sets of
experts to value the shares afresh. They differed to an extent and the Commissioner
accepted the lower valuation of R274 050 000. On this basis, he dismissed the
taxpayer’s objection.
The taxpayer then appealed to the tax court. After the commencement of the
proceedings, the expert witnesses of both sides met and agreed on the valuation
method as well as the base valuation of the shares. They differed only in respect of
the effect on the value of the characterisation of certain underlying mineral resources
and of a consultancy agreement. The tax court dismissed the taxpayer’s appeal. He
applied for leave to appeal. The tax court granted him leave to appeal to a full court of
the Gauteng Division of the High Court, Johannesburg. Leave had been sought only
in respect of two issues: the effect of the consultancy agreement on the value of the
shares; and the costs order made by the tax court.
When the matter was heard by the full court, the taxpayer applied from the bar
to amend his notice of appeal to include an attack on the valuation method, and to
revisit the characterisation of the mineral resources. The full court refused the
application for an amendment in respect of the first issue but granted the amendment
in respect of the second issue. It proceeded to dismiss the appeal with costs.
With the leave of the SCA, the taxpayer appealed once more. The primary issue
before the SCA was whether the valuation method was properly before it. The SCA
found that it was not because it had not been raised as an issue in the taxpayer’s
objection to the assessment or in the tax court. Indeed, it was an issue that was
common cause, the parties having, in effect, settled this issue. It was consequently
not appealable. There was also no merit in the other grounds raised by the taxpayer,
with the result that his appeal was dismissed with costs, including the costs of two
counsel.
|
3847
|
non-electoral
|
2022
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 309/21
In the matter between:
MINISTER OF COOPERATIVE GOVERNANCE
AND TRADITIONAL AFFAIRS
FIRST APPELLANT
PRESIDENT OF THE REPUBLIC OF
SOUTH AFRICA SECOND APPELLANT
and
BRITISH AMERICAN TOBACCO SOUTH
AFRICA (PTY) LTD FIRST RESPONDENT
JT INTERNATIONAL SOUTH AFRICA
(PTY) LTD SECOND RESPONDENT
MELINDA FERGUSON THIRD RESPONDENT
KEOAGILE MOLOBI FOURTH RESPONDENT
LIMPOPO TOBACCO PROCESSORS
(PTY) LTD FIFTH RESPONDENT
SOUTH AFRICAN TOBACCO
TRANSFORMATION ALLIANCE NPC SIXTH RESPONDENT
BLACK TOBACCO FARMERS
ASSOCIATION SEVENTH RESPONDENT
SUIDER AFRIKA AGRI INISIATIEF NPC EIGHTH RESPONDENT
SOUTH AFRICAN INFORMAL TRADERS
ALLIANCE NINTH RESPONDENT
LA TOSCANA INVESTMENTS CC T/A
J J CALE TOBACCONISTS TENTH RESPONDENT
Neutral citation: Minister of Cooperative Governance and Traditional Affairs
and Another v British American Tobacco South Africa (Pty)
Ltd and Others (case no 309/21) [2022] ZASCA 89 (14 June
2022)
Coram:
MAYA P and ZONDI, VAN DER MERWE and SCHIPPERS
JJA and MOLEFE AJA
Heard:
3 March 2022
Delivered: 14 June 2022
Summary: Constitutional law – COVID-19 pandemic – regulation made under
Disaster Management Act 57 of 2002 (the Act) – prohibiting sale of tobacco and
related products – challenged as infringement of fundamental rights – dignity,
bodily and psychological integrity, freedom of trade and deprivation of property
– limitation under s 36 of Constitution – to reduce strain on health system – not
established – interpretation of ss 27(2)(n) and 27(3) of the Act – tobacco ban
unnecessary – appeal dismissed.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from: Western Cape Division of the High Court, Cape Town (Ndita,
Steyn and Slingers JJ) sitting as court of first instance:
The appeal is dismissed with costs, including the costs of two counsel.
The cross-appeal is upheld with costs, including the costs of two counsel.
Paragraph 224.2 of the order of the Western Cape Division of the High
Court is set aside and replaced with the following order:
‘The first and second respondents are ordered to pay the applicants’ costs,
including the costs of two counsel and the qualifying expenses of the
applicants’ expert witnesses.’
________________________________________________________________
JUDGMENT
________________________________________________________________
Schippers JA (Maya P, Zondi and Van der Merwe JJA and Molefe AJA
concurring)
[1] On 30 January 2020 the World Health Organisation (WHO) declared the
outbreak of a novel virus, namely SARS-CoV-2 (COVID-19), a ‘Public Health
Emergency of International Concern’. In response to the COVID-19 pandemic
the first appellant, the Minister of Co-operative Governance and Traditional
Affairs (the Minister), the Cabinet member responsible for the administration of
the Disaster Management Act 57 of 2002 (the Act), on 15 March 2020 declared
a national state of disaster in terms of s 27(1) of the Act. The Minister made a
series of regulations under s 27(2) of the Act to contain the spread of COVID-19.
These included a nationwide lockdown, defined as ‘the restriction of movement
of persons’, which came into effect on 23 March 2020, and a prohibition on the
sale of tobacco products, e-cigarettes and related products.1
[2] The term, ‘tobacco product’ is defined in the Tobacco Products Control
Act 83 of 1993 (Tobacco Products Control Act) and includes a product containing
tobacco intended for human consumption and any device manufactured for use
in the consumption of tobacco. Vaping products that do not contain tobacco are
not currently regulated in South Africa, but were restricted in the same way as
tobacco products during the lockdown. These products include e-cigarettes,
designed to deliver an aerosol to users by heating a solution of substances which
may or may not contain nicotine.2
[3] In some respects, the lockdown in South Africa resembled lockdowns in
other countries. However, this was not the case when it came to smoking and
vaping. South Africa was the only country in the world to prohibit the sale of
tobacco and vaping products to consumers during a national lockdown, save for
Botswana and India.3 Countries such as Italy, France, Switzerland and Spain had
expressly classified tobacconists and other retailers that sell tobacco and vaping
products as essential shops that could remain open during lockdown.
[4] The respondents are farmers, processors, manufacturers, retailers and
consumers, situated at every level of the supply chain for tobacco and vaping
products. In June 2020 they launched an urgent application in the court below,
for an order declaring that Regulation 45, which provided that ‘[t]he sale of
1 Regulation 27 of the Regulations published under GN R480, GG 43258, 29 April 2020.
2 The concept, ‘vaping’ refers to the process in terms of which a consumer inhales, exhales, holds or otherwise
has control over an electronic delivery system, with or without nicotine.
3 Botswana banned the import and sale of tobacco and tobacco-related products during a declared six-month state
of public emergency – https://theconversation.com/tobacco-bans-during-lockdown-should-encourage-renewed-
anti-smoking-drives-139690.
India
imposed
a
ban
on
tobacco
products
and
e-cigarettes
–
https://www.sciencedirect.com/science/article/pii/S0033350621004418.
tobacco, tobacco products, e-cigarettes and related products is prohibited, except
for export’ (Regulation 45), was unconstitutional and invalid. The prohibition
applied during Alert Level 3 of the national state of disaster.4
[5] The application was heard by a full court of the Western Cape Division of
the High Court, Cape Town (the high court) (Ndita, Steyn and Slingers JJ) on
5 and 6 August 2020. After judgment had been reserved, Regulation 45 was
rescinded by the Minister on 17 August 2020, upon the move to Alert Level 2.
The high court made an order declaring Regulation 45 inconsistent with the
Constitution and invalid, and directed each party to pay its own costs. With the
leave of that court, the appellants appeal the order of invalidity, and the
respondents, the costs order.
The basic facts
[6] The first respondent, British American Tobacco South Africa (Pty) Ltd
(BATSA), after the lockdown had come into effect on 26 March 2020, decided
not to challenge the prohibition on the sale of tobacco until it became clear that
the Government intended to continue enforcing the ban on cigarette sales. It was
anticipated that the extension of the lockdown would be accompanied by a
relaxation of certain restrictions imposed in terms of the regulations, including
the sale of tobacco and vaping products. However, that did not happen and the
ban remained in force when Alert Level 5 lockdown was extended until 30 April
2020.
[7] In his address to the nation on 23 April 2020, the President said that the
sale of cigarettes would be permitted when the country moved to the Alert Level
4 lockdown on 1 May 2020. Pursuant to the President’s speech, a draft framework
for all five alert levels called ‘The Risk Adjusted Strategy’ was published on
4 Regulation 45 was published under GN R608, GG 43364, 28 May 2020.
25 April 2020. It included tables for each of the five alert levels setting out
proposed permitted activities and goods that could be sold during each level. In
line with the President’s announcement, the table applicable to Alert Level 4
included ‘tobacco products’ as goods that would be permitted to be sold.
[8] The draft Risk Adjusted Strategy called for public comment. BATSA made
written representations which included the following. There was insufficient
evidence to draw any firm conclusions on the relationship between smoking,
vaping and COVID-19. An extension of the ban on the sale of tobacco products
would have an adverse impact on the revenue of local suppliers, distributors,
retailers, wholesalers and BATSA’s sustainability programme for 10 000
informal traders. The ban was likely to result in the closure of operations
including farming, processing and local production, and result in the illicit trade
completely replacing all legal tobacco and vaping products.
[9] Despite the President’s statement that the sale of cigarettes would be
permitted in Alert Level 4, on 29 April 2020 the Minister announced that the
prohibition on the sale of tobacco and vaping products would continue. The
Minister’s reasons were twofold. First, consumers in the lower economic bracket
tend to share lit cigarettes (manufactured or hand-rolled), thereby increasing the
risk of coming into contact with infected saliva. This would increase the
transmission of COVID-19. In addition, these consumers do not observe social
distancing. Second, the disease allegedly has an adverse impact on the lungs of
smokers.
[10] On 24 May 2020 the President announced that the country would move to
Alert Level 3 with effect from 1 June 2020, and that the sale of tobacco products
would remain prohibited, ‘due to the health risks associated with smoking’.
Regulation 45 formed part of the regulations published in Government Gazette
43364 dated 28 May 2020.5
[11] The continued prohibition on the sale of tobacco products had an adverse
effect on some 11 million users of tobacco and vaping products in South Africa.
They use these products for pleasure and to manage or relieve stress during their
daily lives. Their inability to enjoy the daily pleasures of smoking and vaping had
a negative impact on their emotional well-being and personal autonomy.
[12] Regulation 45 resulted in heavy losses to the fiscus because tobacco
manufactures, such as BATSA and the second respondent, JT International South
Africa (Pty) Ltd, pay substantial excise duties, which the illicit tobacco trade does
not pay. BATSA alone usually collects and pays about R214 million weekly in
excise revenue to the fiscus, or over R900 million monthly. According to the
organisation Tax Justice SA, the ban on the sale of cigarettes during the lockdown
resulted in the loss to the national Government of some R35 million per day in
excise duties. This means that a total amount of approximately R2.4 billion in
taxes was lost during the first eight weeks of the lockdown.
[13] There was no unanimity within the Cabinet concerning the ban on cigarette
sales. On 30 April 2020 the Minister of Finance publicly stated that he was not in
favour of continuing the ban on alcohol and tobacco, because it had cost the
country at that stage, some R1.5 billion in lost revenue, but that he had lost that
debate.
[14] On 15 May 2020 a research paper entitled, ‘LIGHTING UP THE ILLICIT
MARKET: SMOKERS’ RESPONSES TO THE CIGARETTE SALES BAN IN
SOUTH AFRICA’, was published by Prof Corné van Walbeek, Samantha Filby
5 See fn 4.
and Kirsten van der Zee of the Research Unit on Economics of Excisable Products
at the University of Cape Town (the Walbeek Report).
[15] The Walbeek Report is the product of an online survey conducted from
29 April 2020 to 11 May 2020, which commenced during Alert Level 5 that
changed to Alert Level 4 on 1 May 2020. The survey targeted people ‘who were
regular cigarette smokers in the period immediately before the ban on cigarette
sales was announced on 25 March 2020’. The aim of the research was to ‘explore
how cigarette smokers responded to the ban’ on the sale of cigarettes and ‘assess
the implications of a response on the market for cigarettes in South Africa’.
[16] The main findings of the Walbeek Report may be summarised as follows.
Of the 10 257 people who continued smoking, 90% continued to buy cigarettes
illegally after the lockdown commenced. The range of prices of cigarettes
increased dramatically: from R0.50 to R4.00 each before lockdown, to R0.50 to
R14.00 each thereafter. The survey results showed that since the lockdown, the
price of cigarettes increased by 4.4% per day which suggested that ‘cigarettes
experienced hyper-inflation in the first two weeks of May 2020’. Approximately
16% of smokers reported successfully quitting smoking during the lockdown.
Smokers who responded to the survey questionnaire expressed anger at the
prohibition (5 322) and 1 511 said that it impacted adversely on their emotional
well-being.
[17] The Walbeek Report states that according to an estimate of revenues for
the 2019/2024 fiscal year, the number of legal cigarettes increased by 11% in
2019/2020, probably due to a decrease in the illicit trade and not an increase in
smoking prevalence. The prohibition on cigarette sales as part of South Africa’s
response to COVID-19, was likely to undo this progress. The ban on tobacco
sales fuelled the illicit market for cigarettes. Illicit traders ‘gained a foothold in a
market where they previously could not compete’, by exploiting the ban and the
desperation of smokers. When the ban was lifted a price-war would ensue
between cigarette producers, resulting in a decrease in cigarette prices and
ultimately an increase in cigarette consumption in the country.
[18] The Report concludes that the ban on cigarette sales ‘is failing in what it
was intended to do’. While it was aimed at supporting public health, people were
buying cigarettes illegally in large quantities, despite the lockdown. The ban was
feeding the illicit market which would be difficult to eradicate. The Walbeek
Report states: ‘It was an error to continue with the cigarette sales ban into Level
4 lockdown’.
[19] As stated above, on 1 June 2020 the respondents successfully launched an
application in the high court for an order declaring that Regulation 45 was
unconstitutional and invalid. The grounds were that Regulation 45 constituted an
infringement of the fundamental rights to dignity, privacy, bodily and
psychological integrity, freedom of trade, and property.
[20] The high court found that Regulation 45 did not reduce the strain on the
health system. Therefore, the appellants had not shown that Regulation 45 was
necessary or that it furthered the objectives set out in s 27(2)(n) of the Act.6 On
this basis the court concluded that the jurisdictional facts envisaged in that
provision were absent and consequently, Regulation 45 was ultra vires.
6 27(2)(n) of the Disaster Management Act 57 of 2002 provides:
‘27 Declaration of national state of disaster
. . .
(2) If a national state of disaster has been declared in terms of subsection (1), the Minister may, subject to
subsection (3), and after consulting the responsible Cabinet member, make regulations or issue directions or
authorise the issue of directions concerning-
. . .
(n) other steps that may be necessary to prevent an escalation of the disaster, or to alleviate, contain and minimise
the effects of the disaster . . . .’
The rights implicated
[21] The respondents alleged that Regulation 45 limited the right to dignity
enshrined in s 10 of the Constitution,7 for the following reasons. Consumers of
tobacco and vaping products were denied the right to exercise their free will: they
were prevented from buying these products during the lockdown. This
infringement of personal autonomy, ie the ability to regulate one’s own affairs,
was an unconstitutional limitation of the right to dignity.8
[22] It was further alleged that Regulation 45 was a limitation of the right to
privacy contained in s 14 of the Constitution.9 It denied consumers the right to
purchase tobacco products for use in the privacy of their homes – conduct in
respect of which consumers legitimately harbour an expectation of privacy.10 This
constituted an unjustifiable intrusion by the State into the private sphere,
particularly in the context of the lockdown where persons were generally
confined to their homes.
[23] Section 12(2)(b) of the Constitution, which forms part of the right to
freedom and security of the person, provides that ‘[e]veryone has the right to
bodily and psychological integrity, which includes the right . . . to security in and
control over their body’. The respondents alleged that ‘control’ includes the
protection of one’s autonomy or bodily self-determination against interference,
and that Regulation 45 limited the freedom and autonomy of adults to choose
tobacco and vaping products, which they enjoyed and found relaxing when
7 Section 10 of the Constitution reads:
‘Everyone has inherent dignity and the right to have their dignity respected and protected.’
8 Barkhuizen v Napier [2007] ZACC 5 (CC); 2007 (5) SA 323 (CC) para 57.
9 Section 14 of the Constitution provides:
‘Everyone has the right to privacy, which includes the right not to have–
(a) their person or home searched;
(b) their property searched;
(c) their possessions seized; or
(d) the privacy of their communications infringed.’
10 Bernstein and Others v Bester N O and Others [1996] ZACC 2 (CC); 1996 (2) SA 751 (CC) para 77; Khumalo
and Others v Holomisa [2002] ZACC 12 (CC); 2002 (5) SA 401 (CC) para 27.
coping with stress, particularly during the lockdown. This was a limitation of the
right to bodily and psychological integrity.
[24] Regulation 45, it was also alleged, constituted a limitation of the right to
choose and practise a trade or occupation freely, guaranteed under s 22 of the
Constitution.11 Prior to the lockdown, the sale of tobacco and vaping products
was lawful. The effect of Regulation 45 was that individual tobacco farmers could
not sell, and nobody could buy their tobacco. This was likely to threaten the
viability of their farming. These farmers could be faced with a stark choice
whether to continue their chosen trade or occupation, or cut their losses and leave
the industry. Tobacconists who sold only tobacco and vaping products were
unable to trade. Their right to choose their trade was taken away by
Regulation 45. Manufacturers, wholesalers and general retailers were denied the
right to practise their trade or occupation, which the respondents alleged, was
arbitrary and not rationally related to the achievement of a legitimate government
purpose.
[25] Finally, the respondents asserted that Regulation 45 was a limitation of the
right not to be deprived of property, contained in s 25(1) of the Constitution.12
For the duration of the prohibition on the sale of tobacco, farmers were unable to
sell their recently-harvested crops, which could go to waste. They were also
unable to use their farms productively, in which they had invested substantial
capital. Manufacturers were not able to use their costly factories and equipment
to manufacture tobacco and vaping products, or sell what they had produced.
Wholesalers and retailers were unable to sell their stock-in-hand of tobacco and
11 Section 22 of the Constitution provides:
‘Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade,
occupation or profession may be regulated by law.’
12 Section 25(1) of the Constitution reads:
‘No one may be deprived of property except in terms of law of general application, and no law may permit
arbitrary deprivation of property.’
vaping products, or utilise their facilities beneficially. All of these industry
participants were unable to alienate their property (tobacco and vaping products)
and realise the value in that property for commercial gain. Manufacturers and
wholesalers were unable to employ their capital assets to turn a profit. This was
a significant limitation of the use, enjoyment and exploitation of their property.
The rights were limited
[26] Counsel for the appellants contended that Regulation 45 did not limit the
relevant fundamental rights based on two arguments. The first was that
Regulation 45 did not prohibit the use of tobacco products, but rather their sale.
But this is a distinction without a difference. The Minister’s affidavit makes it
plain that the only reason for the prohibition on the sale of tobacco and vaping
products, was to make it impossible for people to consume those products during
the lockdown. In fact, the Minister’s case was that the use of tobacco products
and the behavioural risks associated with that use (the sharing of lit cigarettes),
increased the risks of developing a more severe form of COVID-19, and the
transmission of the disease.
[27] The second argument was that the primary right implicated by
Regulation 45 was the right to freedom of trade, occupation and profession in
s 22 of the Constitution, and that even if the regulation had a limiting effect on
the right to dignity and privacy, that effect was incidental to its main purpose –
to regulate the rights of tobacco farmers and tobacconists to sell their products.
[28] This argument however has no basis in the evidence. The Minister herself
stated that Regulation 45 ‘seeks to reduce the incidence of smoking’. This is a
direct limitation of the rights to dignity, and the right to bodily and psychological
integrity. In these circumstances, it is difficult to see how the effect of Regulation
45 was incidental. Further, the authorities on which the appellants relied, namely
Soobramoney13 and Dawood,14 do not support their contention that the limitation
exercise must be performed under s 22 of the Constitution, because that is the
primary right implicated.
[29] Soobramoney concerned the interpretation and application of the rights to
housing, health care, food, water and social security in ss 26 and 27 of the
Constitution.15 The Constitutional Court in Dawood held that in many cases
where the value of human dignity is implicated, the ‘primary constitutional
breach occasioned may be of a more specific right such as the right to bodily
integrity, the right to equality or the right not to be subjected to slavery, servitude
or forced labour’.16 It means no more than this: in a case where it is alleged that
the right to dignity is infringed, the correct enquiry may involve the breach of
some other fundamental right.
[30] The reason for the second argument is not far to seek. The Minister
preferred to apply the rationality test applicable to s 22, rather than the more
stringent proportionality test required by s 36 of the Constitution. The
jurisprudence of the Constitutional Court referred to below, however, does not
permit the Minister to preclude the s 36 enquiry in this manner.
[31] In any event, the appellants’ second argument has already been rejected by
this Court in Esau,17 a case in which the constitutionality of the Level 4
Regulations was challenged. Plasket JA said:
‘I accept too that regulations 28(1), 28(3) and 28(4) also infringe the fundamental right to
human dignity to the extent that they limit the freedom that everyone has to make their own
decisions, as consumers, as to what goods they wish to purchase. These regulations also
13 In Soobramoney v Minister of Health, KwaZulu-Natal [1998] ZACC 17; 1998 (1) SA 765 (CC).
14 Dawood and Another v Minister of Home Affairs and Others; Shalabi and Another v Minister of Home Affairs
and Others; Thomas and Another v Minister of Home Affairs and Others [2000] ZACC 8; 2000 (3) SA 936 (CC).
15 Soobramoney fn 13 paras 15-16 and 19.
16 Dawood fn 14 para 35.
17 Esau and Others v Minister of Co-Operative Governance and Traditional Affairs and Others [2021] ZASCA
9; 2021 (3) SA 593 (SCA).
infringe the fundamental right to freedom of trade, occupation and profession – the right to
“perform activities by means of which a livelihood is pursued”. This right is infringed in that
people may only practise their chosen trade, occupation or profession to the extent permitted
by the regulations.’18
[32] The contention that Regulation 45 was not a limitation of the relevant
fundamental rights was not pressed before us, although we were informed that it
had not been abandoned. Rather, the case was argued on the basis that the rights
implicated were limited, but that Regulation 45 was reasonable and justifiable
under s 36 of the Constitution. It is to that enquiry that I now turn.
The s 36 limitation enquiry
[33] The determination of the constitutionality of Regulation 45 involves a two-
stage analysis: the respondents are required to establish that the regulation limits
one or more fundamental rights and if they do so, the burden shifts to the
appellants to justify the limitation in terms of s 36(1) of the Constitution.19 If the
limitation is not reasonable and justifiable under s 36(1), Regulation 45 must be
declared to be inconsistent with the Constitution and invalid to the extent of that
inconsistency.20
18 Esau fn 17 para 118.
19 ‘36 Limitation of rights
(1) The rights in the Bill of Rights may be limited only in terms of law of general application to the extent that the
limitation is reasonable and justifiable in an open and democratic society based on human dignity, equality and
freedom, taking into account all relevant factors, including-
(a) the nature of the right;
(b) the importance of the purpose of the limitation;
(c) the nature and extent of the limitation;
(d) the relation between the limitation and its purpose; and
(e) less restrictive means to achieve the purpose.
(2) Except as provided in subsection (1) or in any other provision of the Constitution, no law may limit any right
entrenched in the Bill of Rights’; Esau fn 17 para 108.
20 Section 172(1)(a) of the Constitution.
[34] At the outset, the approach to a justification analysis under s 36 of the
Constitution in a time of national crisis such the COVID-19 pandemic, as stated
in Esau,21 bears repetition:
‘[T]he executive has no free hand to act as it pleases, and all of the measures it adopts in order
to meet the exigencies that the nation faces must be rooted in law and comply with the
Constitution . . .
That is not to say that the courts have untrammelled powers to interfere with the measures
chosen by the executive to meet the challenge faced by the nation. Judicial power, like all
public power, is subject to the rule of law.’22
[35] The s 36 limitation enquiry requires a balancing of two sets of interests. On
the one hand, there is the right that is limited: its nature; its importance in an open
and democratic society based on human dignity, equality and freedom; and the
nature and extent of the limitation. On the other hand, there is the importance of
the purpose of the limitation. What must be assessed overall, is whether the
limitation is proportional (whether it invades the fundamental right as little as
possible, balancing the harm caused against the purpose served) and whether it is
reasonable (having regard to its purpose and effect).23
[36] The principles governing the limitation enquiry are settled. The party
seeking to justify an impugned law – usually the organ of state responsible for its
administration – must put the factual material or policy considerations justifying
it before the court.24 Although the party relying on the justification must establish
the facts on which the justification depends, a legislative choice is not always
subject to courtroom fact-finding and may be based on reasonable inferences
unsupported by empirical data.25 Where the State fails to prove data and there are
21 Esau fn 17.
22 Esau fn 17 paras 5 and 6.
23 National Coalition for Gay and Lesbian Equality and Another v Minister of Justice and Others [1998] ZACC
15; 1999 (1) SA 6 (CC) para 35.
24Minister of Home Affairs v National Institute for Crime Prevention and the Reintegration of Offenders (NICRO)
and Others [2004] ZACC 10; 2005 (3) SA 280 (CC) (NICRO).
25 NICRO fn 24 paras 35 and 36.
cogent objective factors pointing in the opposite direction, the State would have
failed to establish that the limitation is reasonable and justifiable.26
[37] The Minister’s case on justification may be summarised as follows. The
overarching reasons for prohibiting the sale of tobacco and vaping products for
domestic consumption in Alert Level 3 of the lockdown, were to protect human
life and health, and reduce the potential strain on the health system, particularly
given the then predicted steep rise in the rate of infections following the lifting of
the Level 4 restrictions on work and the movement of people necessary to re-start
the economy. The use of tobacco products increased behavioural risks associated
with the transmission of COVID-19, as some smokers share lit cigarettes. The
emerging research concerning the relationship between smoking tobacco
products and COVID-19 showed that the severity of COVID-19 outcomes is
greater in smokers than non-smokers. Smokers have higher intensive care unit
(ICU) admission rates, a higher need for ventilators and a higher mortality rate
than non-smokers. Smoking thus increases the strain on the country’s health care
resources, including health workers.
[38] It is convenient at this point to deal with the ground of justification based
on the behavioural risks concerning the sharing of lit cigarettes. Regulation 45
did little to address this concern. As the Walbeek Report shows, some 90% of
smokers did not stop smoking during the lockdown and continued to purchase
cigarettes illicitly. Thus, smokers would have continued to share illicit cigarettes
despite Regulation 45. And there is no evidence of any sharing of vaping products
by the users of those products.
[39] Aside from this, any concerns about the sharing of lit cigarettes could have
been addressed by measures other than an absolute prohibition on the sale of
26 Teddy Bear Clinic for Abused Children and Another v Minister of Justice and Constitutional Development and
Another [2013] ZACC 35; 2014 (2) SA 168 (CC) para 84.
cigarettes. The founding affidavit states that the Minister could have embarked
on a targeted awareness campaign aimed at ensuring that tobacco users do not
behave in a manner that might increase the spread of COVID-19. The
Government implemented widespread education and awareness campaigns to
inform people about social distancing and sanitising measures to reduce the
spread of the disease. For example, the Minister advised the public not to share
spoons at funerals. Similar measures could have been taken in relation to the use
of tobacco and vaping products.
[40] The remaining reasons for promulgating Regulation 45, the Minister said,
were supported by a WHO statement and scientific brief dated 11 May 2020 and
26 May 2020, respectively. In the ‘WHO statement: Tobacco use and COVID-
19’, the WHO said this. A review of studies by public health experts convened
by the WHO on 29 April 2020 found that smokers were more likely to develop
severe disease with COVID-19, compared to non-smokers. Available research
suggested that smokers were at a higher risk of developing severe disease and
death. The WHO recommended that smokers take immediate steps to quit by
using proven methods.27
[41] The WHO’s Scientific Brief entitled ‘Smoking and COVID-19’ concludes
as follows:
‘At the time of this review, the available evidence suggests that smoking is associated with
increased severity of disease and death in hospitalised COVID-19 patients. Although likely
related to severity, no evidence to quantify the risk to smokers of hospitalisation with COVID-
19 or of infection by SARS-Cov-2 was found in the peer-reviewed literature. Population-based
studies are needed to address these questions.’
27 The WHO statement also describes what happens when a smoker quits, as follows:
‘Within 20 minutes of quitting, elevated heart rate and blood pressure drop. After 12 hours, the carbon monoxide
level in the bloodstream drops to normal. Within 2-12 weeks, circulation improves and lung function increases.
After 1-9 months, coughing and shortness of breath decrease.’
[42] The WHO statement and Scientific Brief however, do not support the
Minister’s justification for the prohibition. In neither publication is it suggested
that the sale of tobacco or vaping products should be prohibited. The Scientific
Brief itself states:
‘There are currently no peer reviewed studies that have evaluated the risk of SARS-Cov-2
infection among smokers. This research question requires well-designed population-based
studies that control for age and relevant underlying risk factors.’
[43] As to the risk of smokers being hospitalised for COVID-19, the Scientific
Brief states:
‘There are currently no peer-reviewed studies that directly estimate the risk of hospitalisation
with COVID-19 among smokers. However, 27 observational studies found that smokers
constituted 1.4-18.5% of hospitalised adults. Two meta-analyses have been published which
pooled the prevalence of smokers in hospitalized patients across studies based in China. The
meta-analysis by Emami et al. analysed data for 2986 patients and found a pooled prevalence
of smoking of 7.6% (3.8% -12.4%) while Farsalinos et al. analysed data of 5960 hospitalized
patients and found a pooled prevalence of 6.5% (1.4% - 12.6%).’28
[44] More fundamentally, in order to establish the primary justification that
smokers have higher ICU admission rates, a higher need for ventilators and a
higher mortality rate than non-smokers, which would increase the strain on health
care resources, the Minister was required to show: (i) that smoking leads to a
more severe COVID-19 disease progression; (ii) that a temporary ban on the sale
of tobacco products during lockdown will reverse or lessen that disease
progression; (iii) that Regulation 45 is effective in materially reducing the number
of smokers; and (iv) that the reduction in smoking over the period that the ban
was intended to be in place would have led to reduced ICU bed occupancy at a
level that would have had a material impact on the ability of the public health
system to cope with COVID-19 admissions: in short, that the purpose of
28 According to the Farsalinos paper the pooled prevalence of 6.5% (1.4% - 12.6%) represented one quarter of the
population smoking prevalence rate in China of 26%.
Regulation 45 outweighed the limitation of the relevant rights. Each of these
requirements is dealt with, in turn.
Does smoking lead to more severe COVID-19 progression?
[45] The Minister’s statement that ‘smokers are more likely to develop severe
disease with COVID-19, compared to non-smokers’, was not established in the
evidence. The WHO Scientific Brief states that there is no peer-reviewed studies
to estimate the risk of hospitalisation of smokers who contract COVID-19. This
is hardly surprising given that according to the medical literature, the pandemic,
an evolving infectious disease, was still under progression and there was limited
data with regard to clinical characteristics of patients and their prognostic factors,
and smoking was assumed to be possibly associated with an adverse disease
prognosis.
[46] What is more, the appellants’ expert, Prof London, a Professor of Public
Health and Family Medicine at the University of Cape Town (UCT), conceded
that the findings in the literature on the risk of infection or hospitalisation for
COVID-19 are mixed; and stated that the literature as to whether or not smoking
is a risk factor for severe COVID-19 goes both ways. Prof London referred to
five studies published in peer-reviewed scientific journals showing that smoking
is a risk factor for severe COVID-19, and the opposite view taken in two peer-
reviewed articles relied on by the respondents’ expert, Dr Morjaria, a Consultant
Physician in Respiratory Medicine. However, the Scientific Brief by the WHO
dated 30 June 2020, and the five studies relied on by Prof London, were published
after the promulgation of Regulation 45, and thus were not considered by the
Minister.
[47] It seems to me that on balance, Dr Morjaria’s opinion that the scientific
evidence on the question whether smoking increases COVID-19 disease
progression is ‘mixed and inconclusive’, is sound. It follows that the Minister’s
statement that ‘[a]t this point in time, the evidence as a whole suggests that
smokers are more likely than non-smokers to develop a severe case of COVID-
19, requiring a ventilator or admission to ICU’, is unsustainable on the evidence.
The effect of quitting smoking on COVID-19 disease progression
[48] Even if this Court were to find that an association between smoking and
disease progression in relation to COVID-19 is established on the papers, the
Minister had to establish that the temporary ban on smoking during the lockdown
was likely to reverse or lessen the progression of the disease. The reason is
obvious: if smoking is associated with severe COVID-19 but that association
would continue even if a person were to stop smoking, then Regulation 45 would
be incapable of achieving its stated purpose of reducing the burden on the health
system to cope with severe cases of COVID-19.
[49] The point is that the medical evidence on both sides showed that the
dangers from cigarette smoking, more specifically its adverse effects on the
respiratory system that impairs pulmonary defence mechanisms, result from long-
term chronic use. Thus, even if it were assumed that the Minister has shown that
the smoking population is more susceptible to certain COVID-19 risks, that
susceptibility would be the result of years or decades of prior smoking. The
Minister bore the onus of showing that this susceptibility would be reduced or
reversed by a temporary cessation of smoking during the tobacco ban.
[50] The Minister apparently did not appreciate this issue and made no attempt
to discharge this onus. The issue is not addressed at all in the WHO literature on
which the Minister relied. Neither Prof London nor Dr Nyamande, a Specialist
Physician and Pulmonologist and the Minister’s expert, addressed the issue in
their affidavits. They dealt with the general health benefits resulting from quitting
smoking, but did not say that this would assist in relation to COVID-19.
[51] Prof London conceded that there is no scientific data to show that quitting
smoking will reduce disease severity in relation to COVID-19. He suggested
tentatively that ‘quitting smoking may reverse the receptor upregulation that is
thought to be the mechanism by which smoking increases the risk for severe
COVID-19 disease’. However, Prof London agreed that this would only be the
case ‘if the link between upregulation of ACE-2 receptors and increased risk for
severe COVID-19 is accepted’. Dr Morjaria however showed that this link is
‘speculative’, because there is no peer-reviewed evidence establishing the clinical
significance of upregulation of ACE-2 receptors in relation to COVID-19 risks.
He said that the literature cited by Prof London suggests that downregulation of
ACE-2 associated with quitting smoking, is not immediate and is observed in
smokers who had quit for at least a year.
[52] In short, there was no scientific justification for the continued ban on the
sale of tobacco products: there is no evidence that short-term quitting has clinical
significance for COVID-19 severity and outcomes.
[53] That left Dr Egbe as the only expert to address the issue on behalf of the
Minister. But Dr Egbe is not a medical doctor: she is a Research Psychologist.
Moreover, Dr Egbe conceded that ‘there is not yet enough data to assess whether
and/or to what extent the chance of infection or disease progression decreases
when a person quits smoking’. At most, Dr Egbe suggested that it was ‘logical’
to believe that stopping smoking would ‘give [smokers’] lungs a fighting chance
against the disease’.
[54] In the light of what is stated above, Dr Morjaria’s conclusion that there is
no consensus that current smoking is a risk factor for infection or COVID-19
disease progression, in my view, is consistent with the medical evidence, and
makes good sense. He said:
‘[B]ased on currently available data in the evolving literature there is an emerging consensus
that risk factors for severe COVID-19 include: older age, male gender, medical comorbidities
including cardiovascular diseases, diabetes, hypertension, increased body mass index (BMI),
chronic kidney disease, solid organ transplants and chronic pulmonary diseases. . . [T]here is
no consensus in relation to current smoking being a risk factor for infection or COVID-19
disease progression. While some of these generally accepted risk factors for COVID-19
severity can be caused by smoking . . . the impact of smoking in relation to these diseases
occurs over a long period of time, often many years (not weeks or months).’
[55] If quitting smoking does not confer a benefit in relation to the chance of
infection or COVID-19 disease progression (as opposed to general improvements
in health), it means that the objectives of Regulation 45 would not have been
achieved. Accordingly, the Minister did not show that the temporary ban on
smoking would have lessened or reversed COVID-19 disease progression.
Regulation 45 did not materially reduce the number of smokers
[56] The respondents relied on the Walbeek Report to show that Regulation 45
was ineffective in reducing the number of smokers. According to the Report, 90%
of survey respondents who did not quit smoking indicated that they had purchased
cigarettes during the lockdown. This means that of the total survey respondents,
16% had quit smoking and only 8.4%, ie 10% of 84% had not purchased
cigarettes during the lockdown. Differently stated, 75.6% of survey respondents
had purchased cigarettes during the lockdown. Even the report by Genesis
Analytics (Genesis), a firm of economists engaged by the Minister to provide an
economic assessment of the respondents’ arguments, states that ‘76% would be a
high proportion’.
[57] The Minister claimed that Regulation 45 was effective in reducing the
number of smokers, based on a study by the Human Sciences Research Council
(HSRC), a report by Genesis, a survey by M4Jam (Pty) Ltd (M4Jam), the
evidence of Mr Richard Murgatroyd, an economist and partner at RBB
Economics (RBB), and expert evidence by Dr Ross, the Deputy Director of the
Research Unit on the Economics of Excisable Products at UCT.
[58] The HSRC study was conducted between 27 March 2020 and 24 April
2020, during Alert Level 5 over the first four weeks of the lockdown. The
statement in the HSRC study that 11.8% of smokers were able to buy cigarettes
during this period has little probative value because, as stated in the Genesis
Report, smokers would have stockpiled cigarettes when the lockdown was first
announced. In any event, the RBB Report offers several reasons for being
sceptical of the results of the HSRC study. For example, the RBB Report states:
‘[I]t it is inherently far more plausible that smokers were able to continue consuming tobacco
products without having to make purchases during the period covered by the HSRC study, by
consuming stockpiles accumulated before the ban, than during the period covered [by] the van
Walbeek study. Consistent with this, the van Walbeek study finds that most respondents (90%
of smokers) had stocked up on cigarettes before the start of the lockdown.’
[59] The survey by M4Jam also has little probative value because M4Jam is not
a market research company, but a crowd-sourcing data platform. The author of
the survey herself describes it as ‘an informal and non-scientific survey’ and
cautions that ‘the information contained therein is not intended as a substitute for
any formal research conducted by any third party’. The Genesis Report states that
a ‘non-trivial’ proportion of smokers had stopped smoking. Genesis did not,
however, perform any independent research to compute what that proportion is.
[60] Dr Ross dealt with this issue most fully on behalf of the Minister.
According to Dr Ross, Regulation 45 would have reduced smoking prevalence
(the percentage of adults who smoke) and smoking intensity (the number of
cigarettes consumed by a smoker per day), because smokers would have been
unable to afford the full price of cigarettes that are sold unlawfully during
lockdown. In fact, she said that this price would consist of ‘both monetary value
(money paid to the seller) and the effort expended to purchase cigarettes (e.g.
time, travel expenses, risk of prosecution). The ban on cigarette sales increased
both components of the price’.
[61] Dr Ross performed a price elasticity exercise regarding smoking
prevalence and said that there would be a ‘10% to 15% quit rate’, and pointed out
that this was close to the number of 16% in the Walbeek Report. Since there are
8 million smokers in South Africa, Dr Ross concluded that ‘if 10% to 15% of
them quit smoking due to the ban, this represents 0.8 to 1.2 million quitters’.
[62] The evidence of Dr Ross on behalf of the Minister is entirely destructive
of the Minister’s case concerning the effectiveness of Regulation 45 – its
foundation is illegality. It means that any reduction in smoking would have
occurred because smokers would not have been able to afford the prices of
cigarettes on the black market. The Minister’s claim that Regulation 45 was
effective because most smokers would have contravened the law, but a small
minority of them would not have been able to afford the prices of illicit cigarettes,
is constitutionally perverse – it relies on unlawful conduct (the sale of illegal
cigarettes at a premium) in order to achieve the intended outcome (a reduction in
smoking).
[63] This perversity is exacerbated by the fact that the State could have achieved
the same outcome by imposing a temporary increase in excise duty on cigarettes,
so that the price of cigarettes sold lawfully would be the same as the price of
cigarettes sold unlawfully during the lockdown. The difference, as the full court
pointed out, is that the fiscus would then have collected the tax revenue lost when
cigarettes were sold unlawfully while Regulation 45 was in force. In other words,
there was an option that was less restrictive than limiting the respondents’
constitutional rights. That option would have had the additional advantage of
generating funds to expand the number of ICU beds beyond the number that
might have been saved by the tobacco ban.
[64] What all of this shows is that on the Minister’s own evidence,
Regulation 45 did not achieve its stated purpose: ‘to reduce the incidence of
smoking’. This, because only 10% to 15% of smokers would have stopped
smoking, and then only for the reason that they would not have been able to afford
the price of illegal cigarettes. Although the appellants submitted that number of
quitters referred to in the Walbeek report (16%) is significant, the fact remains:
some 90% of smokers continued to smoke while Regulation 45 was in force.
The purpose of Regulation 45 did not outweigh the limitation of the rights
[65] The Minister was obliged to show that the benefits of Regulation 45
exceeded the harm it caused, failing which the limitation of constitutional rights
would not be reasonable and justifiable. Section 36(1) of the Constitution requires
the court to ‘weigh the extent of the limitation of the right against the purpose for
which the legislation was enacted’.29
[66] According to the Minister, Regulation 45 would have made available more
ICU beds and ventilators by preventing smokers from contracting a more serious
form of COVID-19. The Minister contended that if 1% of the 8 million smokers
in South Africa had to contract COVID-19, and 5% of that number needed ICU
beds, about 4 000 smokers would require ICU beds and ventilators. There are
approximately 3 300 ICU beds in South Africa.
29 Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd and
Others: In Re Hyundai Motor Distributors (Pty) Ltd and Others v Smit N O and Others 2001 (1) SA 545 (CC);
National Coalition for Gay and Lesbian Equality fn 23 para 37.
[67] Counsel for the appellants submitted that the 1% number was ‘illustrative’.
This means that the Minister did not put up any evidence to support the contention
that admitting 4 000 smokers to ICUs would place undue strain on the health
system. For this reason, I do not think that the respondents’ calculation that there
would have been about 16 fewer patients in the ICU than would have been the
case had there been no prohibition on the sale of tobacco products, and that this
did not show that the health system would not have been able to cope, takes the
matter any further.
[68] As is demonstrated above, the Minister did not discharge the onus of
showing that the infringement of the fundamental rights in issue was justified. On
the contrary, the evidence shows that the purpose sought to be achieved by
Regulation 45 did not outweigh the limitation of those rights. There can be no
question that Regulation 45 was an unjustifiable limitation of the rights to dignity,
and bodily and psychological integrity.
[69] The third respondent stated that she was involved in a life-threatening car
accident as a result of which she developed post-traumatic stress disorder
(PTSD). She smokes organic tobacco in order to cope with PTSD, which she finds
pleasurable and relaxing, and which has helped her overcome her addiction to
hard drugs, which included heroin and crack cocaine. She has been clean for
20 years. When she ran out of tobacco on 1 May 2020, in desperation she resorted
to smoking Rooibos tea and herbal teas, and bought tobacco on the black market
at three times the normal price. After this purchase she suffered a panic attack
and heart palpitations. This evidence shows that Regulation 45 unjustifiably
limited the autonomy and freedom of persons to regulate their own affairs, to
choose which products to buy to cope with stress, and to exercise control over
their bodily and psychological well-being.
[70] The high court’s finding that the right to privacy was infringed, however,
is inconsistent with the reach and operation of that right. In Bernstein the
Constitutional Court said:
‘The truism that no right is to be considered absolute implies that from the outset of
interpretation its right is always already limited by every other right accruing to another citizen.
In the context of privacy this would mean that it is only the inner sanctum of a person, such as
his/her family life, sexual preference and home environment, which is shielded from erosion
by conflicting rights of the community. . . . Privacy is acknowledged in the truly personal realm,
but as a person moves into communal relations and activities such as business and social
interaction, the scope of personal space shrinks accordingly.’
The Court went on to say:
‘A very high level of protection is given to the individual’s intimate personal sphere of life and
the maintenance of its basic preconditions and there is a final untouchable sphere of human
freedom that is beyond interference from any public authority. So much so that, in regard to
this most intimate core of privacy, no justifiable limitation thereof can take place. But this most
intimate core is narrowly construed. This inviolable core is left behind once an individual enters
into relationships with persons outside this closest intimate sphere; the individual’s activities
then acquire a social dimension and a right of privacy in this context becomes subject to
limitation.’30
[71] Applied to the present case, Regulation 45 did not impact on any particular
person or his or her private life. Neither did it limit the intimate personal sphere
of life of any individual. Instead, Regulation 45 prohibited the sale of tobacco and
vaping products, which involved an individual’s outside relations with others.
Therefore, the right to privacy was neither implicated nor infringed.
[72] Regulation 45 threatened the stability of the entire tobacco value chain.
Tobacconists who sold only tobacco and vaping products were unable to trade at
all. They were the only retailers of goods that were prevented from opening their
30 Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC) paras 67 and 77. (Footnotes omitted.)
doors under Alert Level 3. Many informal traders were forced to close their shops
or stalls.
[73] Regulation 45 meant that tobacco farmers had no buyers for their tobacco
and were likely to go out of business. Although the Minister said that exports
were permitted, it was not feasible, in a very short period of time, for local tobacco
farmers to find external purchasers to purchase the volumes of tobacco that
BATSA would have purchased. Thus, tobacco farmers were unable to sell
harvested tobacco crops and forced to continue operations without any income or
cash flow from the rest of the tobacco value chain.
[74] When the application was launched there were more than 200 commercial
farmers and over 150 emerging farmers producing tobacco in South Africa. They
provided about 8 000 jobs for employees, responsible for more than 30,000
dependants, mainly in rural areas of the country where employment opportunities
are scarce. The inability of tobacco farmers to sell their crops undermined their
ability to continue paying their workers and jeopardised their financial ability.
This was aggravated by the fact that tobacco farmers were excluded from the R1.2
billion disaster relief fund intervention made available to assist South African
farmers with the impact of COVID-19.
[75] As a result of Regulation 45, BATSA lost revenue of approximately R322
million per week. Its total loss of revenue exceeded R2 billion in the nine-week
period since the lockdown commenced.
[76] Regulation 45 unjustifiably limited the right to freedom of trade. As was
held in South African Diamond Producers, a law ‘providing that certain persons
may no longer continue to practise [a] trade, would limit the choice element of
section 22; in these cases there is a legal barrier to choice’.31 The Minister
contended that Regulation 45 was temporary. However, it was not clear at the
time when the prohibition would end – the Minister herself contemplated that the
prohibition could continue for a year. Regulation 45 was rescinded in August
2020. Before that however, tobacconists and tobacco farmers did not know for
how long they would be prevented from practising their trade.
[77] Regulation 45 was also an unjustified limitation of the right to property. It
substantially interfered with the right to use or exploit property, as described in
paragraph 25 above. The Minister’s contention that this limitation also was
temporary, is untenable for the reasons advanced above. Had the prohibition
continued in force for a year as envisaged by the Minister, very few businesses
would have been able to survive. Given the substantial limitation on the right to
property, the Minister was required to show a rational connection between the
deprivation and the end sought to be achieved (the purpose of Regulation 45),
which had to be proportionate.32 This was not shown.
[78] In conclusion on the justification analysis: The extent to which Regulation
45 limited the rights in issue, particularly given the lack of factual and scientific
evidence to support its promulgation, was disproportionate to the nature and
importance of the rights infringed, which are foundational to a democracy. As the
Constitutional Court recently held:
‘. . . [T]he rights in the Bill of Rights are an embodiment of the very character or cornerstone
of our constitutional democracy. Both the nature and importance of the right must necessarily
31 South African Diamond Producers Organisation v Minister of Minerals and Energy N O and Others [2017]
ZACC 26; 2017 (10) BCLR 1303 (CC); 2017 (6) SA 331 (CC) para 68.
32 First National Bank of SA Limited t/a Wesbank v Commissioner for the South African Revenue Services and
Another; First National Bank of SA Limited t/a Wesbank v Minister of Finance [2002] ZACC 5; 2002 (4) SA 768;
2002 (7) BCLR 702 (CC) para 100; Reflect-All 1025 CC and Others v MEC for Public Transport, Roads and
Works, Gauteng Provincial Government and Another [2009] ZACC 24; 2009 (6) SA 391 (CC); 2010 (1) BCLR
61 (CC) para 48; Shoprite Checkers (Pty) Limited v Member of the Executive Council for Economic Development,
Environmental Affairs And Tourism, Eastern Cape and Others [2015] ZACC 23; 2015 (6) SA 125 (CC); 2015 (9)
BCLR 1052 (CC) para 80.
be taken into account. And the State has no inherent “right” to limit these rights. But it is
constitutionally obliged to respect, protect, promote and fulfil them.’33
[79] In sum, as stated in the Walbeek Report, ‘the disadvantages of the ban
outweigh the advantages’. For all of the above reasons, and on the facts, the
Minister failed to justify the limitation of constitutional rights in terms of s 36 of
the Constitution. The high court was thus correct in coming to this conclusion.
The application to review Regulation 45
[80] The respondents contended that Regulation 45 was unlawful and fell to be
reviewed and set aside in terms of the Promotion of Administrative Justice Act 3
of 2000 (PAJA) or the principle of legality, on the following grounds. The
Minister abdicated her power to the National Coronavirus Command Council
(NCCC). The Minister had no power under the Act to prohibit the sale of tobacco
and vaping products. Regulation 45 was unnecessary and unreasonable. The
Minister did not follow a fair procedure in making the regulations.
[81] The high court found that the review grounds based on abdication of power
and that the Act does not authorise the making of a regulation prohibiting the sale
of tobacco products, had no merit. It held that the threshold for valid regulation
in terms of s 27(2)(n) of the Act was that the regulation must be ‘strictly necessary
to achieve and/or further the objectives set out in section 27(2)(n)’; and that unless
it was shown Regulation 45 served to reduce the strain on the health system, it
would be ultra vires. The appellants say that the latter findings are incorrect.
[82] Before us, counsel for the respondents, rightly, did not press the argument
that the Minister had abandoned her power to the NCCC. It was however
33 Economic Freedom Fighters and Another v Minister of Justice and Correctional Services and Another [2020]
ZACC 25; 2021 (2) BCLR 118 (CC); 2021 (2) SA 1 (CC); 2021 (1) SACR 387 (CC) para 35. (Footnotes omitted.)
submitted that Regulation 45 was unlawful for the following reasons. Section
27(2)(i) of the Act expressly empowers the making of regulations that suspend or
limit only the sale of alcohol, therefore s 27(2)(n) of the Act must be interpreted
so as to exclude regulations that suspend or limit the sale of any other products.
Section 27(2) does not grant the Minister the power to make regulations that
prohibit the sale of tobacco products in a manner inconsistent with the Tobacco
Products Control Act. Regulation 45 was not necessary as contemplated in
s 27(2)(n) of the Act. Regulation 45 was vitiated by procedural irrationality,
alternatively, procedural unfairness.
[83] The review was brought in terms of both the PAJA and the principle of
legality. It would make no difference to the outcome if the provisions of the PAJA
are not applied. On this basis, the respondents’ review grounds are considered
under the principle of legality.
The interpretation of s 27(2)(n) of the Act
[84] This Court in Capitec34 has explained that the triad of text, context and
purpose in statutory interpretation should not be used in a mechanical fashion. It
is the relationship between the words used, the concepts expressed by those words
and the place of the contested provision within the scheme of the statute as a
whole, which constitutes the unitary exercise of interpretation.
[85] The starting point is the purposes of the Act. According to its long title, it
was passed to provide for:
‘an integrated and co-ordinated disaster management policy that focuses on preventing or
reducing the risk of disasters, mitigating the severity of disasters, emergency preparedness,
rapid and effective response to disasters, and post-disaster recovery and rehabilitation;
34 Capitec Bank Holdings Limited and Another v Coral Lagoon Investments 194 (Pty) Ltd and Others [2021]
ZASCA 99; [2021] 3 All SA 647 (SCA); 2022 (1) SA 100 (SCA) para 25.
the establishment and functioning of national, provincial, and municipal disaster management
centres. . . .’
[86] Section 1 defines a ‘disaster’ as:
‘. . . a progressive or sudden, widespread or localised natural or human-caused occurrence
which
(a)
causes or threatens to cause-
(i)
death injury or disease;
(ii)
damage to property, infrastructure or the environment; or
(iii)
significant disruption of the life of the community; and
(b)
is of a magnitude that exceeds the ability of those affected by the disaster to cope with
its effects using only their own resources.’
[87] Consistent with the purposes of the Act, s 23(1) provides that the National
Disaster Management Centre must determine whether a disastrous event or the
threat of such event should be regarded as a disaster under the Act and if so, the
National Centre must assess the magnitude and severity or potential magnitude
and severity of the disaster and classify the disaster as a local, provincial or
national disaster.
[88] Section 27(1) of the Act empowers the Minister to declare a national state
of disaster if ‘existing legislation and contingency arrangements do not
adequately provide for the national executive to deal effectively with the
disaster’, or ‘other special circumstances warrant the declaration of a national
state of disaster’. Section 27(2)(a)-(m) lists the matters in respect of which the
Minister is empowered to make regulations. Subsection 2(n) specifically
authorises the Minister to make regulations or issue directions concerning ‘other
steps that may be necessary to prevent an escalation of the disaster, or to alleviate,
contain and minimise the effects of the disaster’, ie in relation to matters other
than those stated in s 27(2)(a)-(m).
[89] These provisions of the Act make it clear that if it is necessary to suspend
or limit the sale of a commodity other than alcohol, in order to prevent an
escalation of a disaster, or to alleviate, contain and minimise its effects, and if
doing so is necessary for one or more of the purposes set out in s 27(3), then the
Minister is empowered to make regulations suspending or limiting the sale of that
commodity in terms of s 27(2)(n). This construction accords with the plain
language of ss 27(2) and 27(3), the immediate context of s 27(2)(n), and the
purposes of the Act.
[90] The respondents’ reliance on the maxim inclusio unius est exclusio alterius
for the submission that the power to make regulations under s 27(2)(n) must be
interpreted to exclude the making of regulations that suspend or limit the sale of
any products other than alcohol, because s 27(2)(i) expressly empowers the
making of regulations that suspend or limit the sale of only alcohol, is misplaced.
It ignores the catch-all power conferred by s 27(2)(n), in terms of which
regulations may be made concerning other steps that may be necessary to contain
the disaster. Such steps would include a hard lockdown in order to prevent the
spread of COVID-19. While it is correct that the maxim is one of common sense,
it is not a rule of interpretation and must always be applied with great caution.35
[91] The jurisdictional requirements for the exercise of the power under
s 27(2)(n) are these. There must be a national state of disaster. The Minister must
consult the responsible Cabinet member. The steps taken to prevent an escalation
of a disaster, or to alleviate, contain and minimise its effects, must be necessary.
Whether these steps are necessary turns on the objectively ascertained facts, and
not on the subjective beliefs of the Minister. The power in s 27(2)(n), as in the
case of all the powers specified in s 27(2), must ‘be exercised only to the extent
that this is necessary’ for the purposes specified in s 27(3).
35 Competition Commission of South Africa v Pickfords Removals SA (Pty) Ltd [2020] ZACC 14; 2021 (3) SA 1
(CC) para 50.
[92] Moreover, the above interpretation is sensible.36 The original lockdown
regulations (Alert Level 5) confined people to their homes and suspended the sale
of many goods. The purpose of those regulations was to prevent non-essential
movement of and contact between people, in order to slow the spread of COVID-
19, and to enable the health system to implement measures to cope with an
anticipated surge in the numbers of gravely ill people. On the respondents’
inclusio unius argument, in order to achieve these objectives, the Minister was
empowered to suspend only the sale of alcohol, and not any other commodity.
The argument is untenable. It ignores the purposes of the Act and s 27(2)(n).
Regulation 45 is consistent with the Tobacco Products Control Act
[93] The respondents argued that Regulation 45 was invalid because it is
inconsistent with the Tobacco Products Control Act, since it purported to prohibit
the sale of tobacco products in all circumstances – including instances where the
sale of tobacco products is permitted under the Tobacco Products Control Act.
Section 27(2) of the Act should be interpreted in a way that the Minister is not
empowered to make regulations which are inconsistent with an Act of Parliament.
Unless s 27(2) is construed in this manner, so it was submitted, Regulation 45 is
ultra vires.
[94] The submission is unsound. Section 27(2), properly interpreted, indeed
permits the Minister to suspend or limit rights conferred in terms of other Acts of
Parliament. That much is clear from the matters in respect of which the Minister
is empowered to make regulations or issue directions in s 27(2)(a)-(m). Most of
these matters are regulated by legislation, such as resources of the national
Government including stores, equipment, vehicles and facilities;37 personnel who
36 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA);
2012 (4) SA 593 (SCA) para 18.
37 Section 27(2)(a).
render emergency services;38 the regulation of traffic;39 the provision, control or
use of temporary accommodation;40 the sale of alcohol;41 and the installation and
maintenance of lines of communication.42
[95] The point may be illustrated by reference to s 27(2)(i) of the Act. If the sale
of alcohol is suspended or limited during a national state of disaster in terms of
s 27(2)(i), the provisions of the Liquor Act 59 of 2003 and provincial liquor laws
would remain extant, but their enforcement is temporarily suspended or limited,
whilst the regulation under s 27(2)(i) of the Act is operative. This is specifically
authorised in terms of s 27(2), and is a consequence of the declaration of a
national state of disaster. For these reasons, the respondents’ argument that the
power to regulate does not include the power to prohibit, is unsustainable.
[96] Further, the power to make regulations under s 27(2) of the Act is not
rendered ‘subject to’ any Act of Parliament. On the contrary, s 27(1) empowers
the Minister to declare a national state of disaster by notice in the Gazette if
‘existing legislation and contingency arrangements do not adequately provide for
the national executive to deal effectively with the disaster’,43 or if there are other
special circumstances that warrant such declaration.44 That this was the position
when the state of disaster was declared in March 2020 as a result of the COVID-
19 pandemic, is an understatement. As was stated in Esau,45 the pandemic ‘posed,
and continues to pose, the biggest threat to this country since the Spanish
influenza pandemic of the immediate post-World War I years a century ago’. And
38 Section 27(2)(b).
39 Section 27(2)(e).
40 Section 27(2)(h).
41 Section 27(2)(i).
42 Section 27(2)(j).
43 Section 27(1)(a).
44 Section 27(2)(b)
45 Esau fn 17 para 140.
contrary to the respondents’ assertion, nothing turns on the fact that the Minister
declared a national state of disaster in terms of s 27(1)(b) rather than s 27(1)(a).
[97] The respondents’ reliance on Smit46 for the proposition that s 27(2) ‘would
. . . be unconstitutional if it purported to confer on the Minister the power to make
regulations that have the effect of amending an Act of Parliament’, is inapposite.
Sections 27(2) and 27(3) do not assign to the Minister plenary legislative power:
it does not grant the Minister the power to pass, amend or repeal an Act of
Parliament.47 What is more, ss 27(2) and 27(3) provide a ‘clear and binding
framework for the exercise of the powers’.48
Regulation 45 was unnecessary
[98] The jurisdictional facts for the exercise of the power conferred by
s 27(2)(n) of the Act, have been stated above. Section 27(3) requires that the
powers referred to in s 27(2) be exercised only to the extent that it is necessary,
in this case, ‘for the purpose of assisting and protecting the public’ (s 27(3)(a)),
or ‘dealing with the destructive and other effects of the disaster’ (s 27(3)(e)).
[99] Neither power in s 27(2) nor s 27(3) is expressly said to be exercisable on
the basis of the Minister’s subjective belief, and as stated, whether the exercise
of the powers in s 27(3) is necessary, involves an objective enquiry. In other
words, it is for a court to determine whether Regulation 45 was necessary. It is
not for the Minister to say that she believed that Regulation 45 was necessary to
protect the public or to deal with the destructive effects of COVID-19.
46 Smit v Minister of Justice and Correctional Services and Others [2020] ZACC 29; 2021 (3) BCLR 219 (CC).
47 Smit fn 46 para 31.
48 Smit fn 46 para 36.
[100] The appellants, in reliance on Fair Trade Independent Tobacco
Association,49 contended that ‘necessary’ in this context means ‘rational and
reasonably necessary’. It was submitted that the high court, on the authority of
Pheko,50 erred in concluding that the term ‘necessary’ should be narrowly
interpreted; and that Pheko essentially dealt with the concept ‘evacuation’.
[101] Pheko concerned the interpretation of s 55(2)(d) of the Act, in relation to a
local disaster declared in terms of s 55(1) of the Act. Section 55(2)(d) authorises
the making of regulations concerning ‘the evacuation to temporary shelters of all
or part of the population from the disaster-stricken or threatened area if such
action is necessary for the preservation of life’.51 Section 55(2)(d) is the local
disaster equivalent of s 27(2)(d). Nkabinde J held that s 55(2)(d) must be
‘interpreted narrowly’ and that ‘the Municipality’s powers following upon the
declaration of a local state of disaster must be exercised only to the extent that it
is strictly necessary for the purposes set out in s 55(3)’.52
[102] In Minister of Finance v Afribusiness NPC,53 the interpretation of s 5(1) of
the Preferential Procurement Policy Framework Act 5 of 2000 was in issue. It
provides that the relevant Minister ‘may make regulations regarding any matter
that may be necessary or expedient to prescribe in order to achieve the objects of
this Act’.54 Madlanga J, writing for the majority, held that the word necessary in
that context means something ‘needing to be done’ or ‘that must be done’.
[103] Applied to the present case, the word ‘necessary’ in s 27(3) must be
narrowly construed, to mean ‘strictly necessary’ or ‘essential’, to assist and
49 Fair Trade Independent Tobacco Association v President of the Republic of South Africa and Another 2021 (1)
BCLR 68 (GP) para 87.
50 Pheko and Others v Ekurhuleni Metropolitan Municipality [2011] ZACC 34; 2012 (2) SA 598 (CC) para 52.
51 Section 27(2)(d) of the Act is in identical terms but applies where a national state of disaster has been declared.
52 Pheko fn 50 para 42.
53 Minister of Finance v Afribusiness NPC [2022] ZACC 4.
54 Minister of Finance fn 53 para 114.
protect the public or to deal with the destructive effects of COVID-19. I say this
for the following reasons. First, if the legislative intent was that the power in 27(3)
should be exercised to the extent reasonably necessary, the lawgiver would have
said so. Second, it is a settled rule of interpretation that words in a statute bear the
same meaning throughout the statute, unless such interpretation would result in
injustice, incongruity or absurdity.55 Consequently, the term ‘necessary’ cannot
mean one thing in s 55(3) of the Act, and another in s 27(3). Third, and contrary
to the appellants’ submission, the meaning of ‘necessary’ cannot depend on the
nature of the matter in s 27(2) in respect of which regulations are made. Fourth,
the power conferred on the Minister by s 27(2) cuts across and effectively and
temporarily suspends various statutes dealing with the matters listed in s 27(2)(a)-
(m). It stands to reason that such a power must be exercised only if it is strictly
necessary. Finally, this construction is reinforced by the purposes of the Act and
the fact that a declared national state of disaster is of a short duration – three
months.56
[104] The objectives sought to be achieved by Regulation 45 have been outlined
in the Minister’s reasons, stated above. The Minister accepted that the reasons for
the prohibition on the sale of tobacco products were confined to the health risks
it posed during the pandemic. The Minister referred to scientific literature dealing
with the pandemic and contended that the use of tobacco products increased the
risk of developing a more severe form of the disease. However, the Minister
conceded that the scientific knowledge on this issue was ‘still evolving’, and that
the medical literature was not ‘absolutely conclusive’, but said that it provided a
sufficient basis for her to ‘rationally conclude that smoking presents heightened
COVID-19 risks’.
55 Liesching and Others v S and Another [2016] ZACC 41; 2017 (4) BCLR 454 (CC); 2017 (2) SACR 193 (CC)
para 33.
56 Section 27(5) of the Act states that national state of disaster that has been declared lapses three months after it
has been declared, and may be extended by the Minister for one month at a time before it lapses.
[105] But that is not the test. Section 27(2)(n) and s 27(3) posit an objective
enquiry as to whether Regulation 45 was necessary to assist and protect the
public, and deal with the destructive effects of the pandemic. The scientific
evidence shows that it was not. And as stated above, assuming that there is a
causal link between smoking and the risk of contracting a more severe form of
COVID-19, the Minister would have had to show that stopping smoking during
the tobacco ban would have reversed or reduced the risk of contracting a severe
form of COVID-19. This too, has not been established in evidence.
[106] To be valid, the making of Regulation 45 had to comply with the
constitutional principle of legality, which applies to all exercises of public power
and requires that the relevant functionary act intra vires the empowering
provision.57 For these reasons, the high court correctly held that inasmuch as
Regulation 45 was not necessary to achieve any of the purposes listed in ss 27(2)
and 27(3) of the Act, it was ultra vires.
[107] It follows that the decision in Fair Trade Independent Tobacco
Association,58 in which an application to review and set aside Regulation 45 was
dismissed, is incorrect. It must be regarded as overruled.
Procedural irrationality
[108] Procedural irrationality entails looking at the process leading to the
exercise of public power as a whole and determining whether the steps in that
process are rationally related to the end sought to be achieved; and if not, whether
the absence of a particular step (part of the means) or the absence of a connection
between a particular step in the end, taints the whole process with irrationality.59
57 Fedsure Life Assurance Ltd and Others v Greater Johannesburg Transitional Metropolitan Council and Others
[1998] ZACC 17; 1999 (1) SA 374; 1998 (12) BCLR 1458 (CC) paras 57-59.
58 Fair Trade Independent Tobacco Association fn 49 paras 2, 13 and 99.
59 Albutt v Centre for the Study of Violence and Reconciliation 2010 (3) SA2 93 (CC) 49-51; Democratic Alliance
v President of the Republic of South Africa and Others 2013 (1) SA 248 (CC) para 39; Law Society of South Africa
and Others v President of the Republic of South Africa and Others 2019 (3) SA 30 paras 61-65.
Procedural rationality does not mean that the decision-maker must always afford
a hearing to an affected party.60
[109] On 25 April 2020 the Minister briefed the media regarding a draft
framework for each of the five Alert Levels to be implemented from 1 May 2020.
The draft framework proposed that the manufacturing and sale of tobacco
products would be permitted in Alert Levels 4, 3, 2 and 1. Pursuant to this media
briefing, a draft Risk Adjusted Strategy to ease the lockdown restrictions, was
published for public comment by 27 April 2020.
[110] On 27 April 2020 the government received 816 sector submissions and
70 014 emails from members of the public. There were submissions in favour of
lifting the prohibition on tobacco sales, including one from BATSA, referred to
above. A large number of submissions were also made on the other side, in which
it was argued that the prohibition on the sale of tobacco products under Alert
Level 4, should continue.
[111] Before making Regulation 45, the Minister considered the main issues
relevant to the continuation of the prohibition on the sale of tobacco, tobacco
products, e-cigarettes and related products during the Alert Level 3 period. These
were the public health-related reasons pointing towards continuing the
prohibition. The submissions in favour of lifting the prohibition were also
considered, such as those made by BATSA during the public participation
process which preceded the making of the COVID-19 regulations for the Alert
Level 4 period, and those mentioned by BATSA in a subsequent media statement
on 6 May 2020.
60 Democratic Alliance fn 59 para 65.
[112] Both sides of the issue were discussed and debated in the NCCC and the
Cabinet. Ultimately, it was decided that the prohibition should be continued.
Given these facts, I do not think it can be said that the decision to continue the
prohibition on the sale of tobacco and vaping products, was procedurally
irrational.
The cross-appeal on costs
[113] There can be no doubt that the respondents had achieved substantial
success in the high court. The full court however ordered the parties to pay their
own costs on the following grounds. The Minister was ‘under both a
constitutional and moral obligation to act swiftly at a time when very little was
known about the COVID-19 pandemic and the scientific knowledge thereof was
[scant] and constantly developing’. The prohibition on the sale of tobacco
products had been lifted shortly after the matter had been argued.
[114] The respondents had raised constitutional issues and had been substantially
successful before the full court. The Biowatch principle was therefore
applicable,61 namely that in constitutional litigation between a private party and
the State, the general rule is that the private party should have its costs paid by
the State, and if unsuccessful, each party should pay its own costs. The
Constitutional Court said that ‘particularly powerful reasons must exist for a court
not to award costs against the state in favour of a private litigant who achieved
substantial success in proceedings brought against it’.62
[115] The appellants accept that the Biowatch principle would apply if their
appeal were to succeed and that there should then be no costs order against the
respondents in this Court or in the high court. But they say that if the appeal fails,
61 Biowatch Trust v Registrar, Genetic Resources and Others [2009] ZACC 14; 2009 (6) SA 232 (CC) para 43.
62 Biowatch fn 61 para 24.
the principle does not apply and the respondents are not entitled to their costs.
The contention is untenable.
[116] It is trite that in awarding costs, a court exercises a discretion. An appellate
court will interfere with such discretion only if the court below ‘did not act
judicially in exercising its discretion, or based the exercise of that discretion on
wrong principles of law, or misdirection on the material facts’.63
[117] This is such a case. The full court did not consider the Biowatch principle.
The fact that the prohibition on the sale of tobacco products had been lifted shortly
after the matter was argued, did not mean that the respondents were not justified
in approaching the high court to set it aside on an urgent basis. The respondents
had requested the Minister to lift the prohibition before the application was
launched, but the Minister declined to do so.
[118] That the Minister was compelled to act swiftly in response to the COVID-
19 pandemic, did not alter the fact that the Minister acted unconstitutionally.64
The respondents were compelled to go to court to vindicate their constitutional
rights. The Minister filed voluminous answering papers, including expert
evidence running into hundreds of pages. It is unfair that the respondents should
pay these costs, occasioned by the manner in which the Minister chose to litigate.
[119] It follows that the cross-appeal must be upheld with costs, including the
qualifying expenses of the respondents’ expert witnesses.
63 Biowatch fn 61 para 31.
64 Pheko fn 50 para 52.
The order
[120] In the result, the following order is issued:
The appeal is dismissed with costs, including the costs of two counsel.
The cross-appeal is upheld with costs, including the costs of two counsel.
Paragraph 224.2 of the order of the Western Cape Division of the High
Court is set aside and replaced with the following order:
‘The first and second respondents are ordered to pay the applicants’ costs,
including the costs of two counsel and the qualifying expenses of the
applicants’ expert witnesses.’
___________________
A SCHIPPERS
JUDGE OF APPEAL
Appearances:
For appellants:
M T K Moerane SC (with him A Breitenbach SC,
K Pillay and S Kazee)
Instructed by:
The State Attorney, Cape Town
The State Attorney, Bloemfontein
For respondents:
A Cockrell SC (with him A Toefy)
Instructed by:
Webber Wentzel, Cape Town
Webbers Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
14 June 2022
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Minister of Cooperative Governance and Another v British American Tobacco South Africa
(Pty) Ltd and Others (case no 309/21) [2022] ZASCA 89
The Supreme Court of Appeal (SCA) today dismissed an appeal by the Minister of Cooperative
Governance and Traditional Affairs (the Minister), against an order of the Western Cape
Division of the High Court, Cape Town (high court). The high court made an order declaring
that a regulation made during the national state of disaster, which provided that ‘[t]he sale of
tobacco, tobacco products, e-cigarettes and related products is prohibited, except for export’
(Regulation 45), was unconstitutional and invalid. The high court, however, did not award the
respondents costs, and they cross-appealed against that order.
The respondents are farmers, processors, manufacturers, retailers and consumers, situated at
every level of the supply chain for tobacco and vaping products. They successfully challenged
Regulation 45 in the high court on the grounds that it was an infringement of the fundamental
rights to dignity, privacy, bodily and psychological integrity, freedom of trade and deprivation
of property; and on the basis that the Minister had not shown that the regulation was necessary,
as contemplated in s 27(3) of the Disaster Management Act 57 of 2002 (the Act).
In the SCA, the Minister contended that the reasons for Regulation 45 were to protect human
life and health and reduce the potential strain on the health system, and that the medical
evidence at the relevant time showed that the use of tobacco products increased the risk of
developing a more severe form of COVID-19. The Minister argued that smokers with COVID-
19 had higher ICU admission rates, a higher need for ventilators and a higher mortality rate
than non-smokers. In order to establish this, the SCA held that the Minister was required to
show that: (i) smoking led to a more severe COVID-19 disease progression; (ii) that a
temporary ban on the sale of tobacco products during lockdown would reverse or lessen that
disease progression; (iii) that Regulation 45 was effective in materially reducing the number of
smokers; and (iv) that such reduction in smoking would have led to a reduced ICU bed
occupancy which would enable the health system to cope with COVID-19 admissions. The
SCA concluded that the Minister failed to do so.
The SCA held that the scientific evidence as to whether smoking increased COVID-19 disease
progression was mixed and inconclusive. The statements by the World Health Organisation,
on which the Minister relied, do not support the Minister’s justification for the ban on the sale
of cigarettes. There is no evidence that quitting smoking in the short-term, has clinical
significance for COVID-19 severity and outcomes. Regulation 45 did not reduce the number
of smokers – 90% of them continued to smoke and the claim that number of smokers had been
reduced, was based on illegality: a reduction in smoking would have occurred because smokers
would not have been able to afford the prices of cigarettes on the black market. The State could
have achieved the same outcome by imposing a temporary increase in excise duty on cigarettes.
The Minister thus failed to show that smokers have higher ICU admission rates, a higher need
for ventilators and a higher mortality rate than non-smokers, which would have increased the
strain on the health system.
The claim that smoking increased the behavioural risks associated with COVID-19, because
smokers share lit cigarettes and do not observe social distancing measures, was also not
established. This concern could have been addressed by measures other than an absolute ban
on the sale of cigarettes. Regulation 45 did not prevent smokers from sharing lit cigarettes,
since 90% of them continued smoking during the lockdown.
The SCA consequently held that the limitation of the rights to dignity, bodily and psychological
integrity, freedom of trade and deprivation of property was not justified in terms of s 36 of the
Constitution. Regulation 45 unjustifiably limited the autonomy of persons to regulate their own
affairs, and to exercise control of their bodily and psychological integrity. It infringed the right
to freedom of trade in that farmers could not sell and nobody could buy their tobacco.
Tobacconists were unable to trade. Farmers were unable to use their farms productively and
manufacturers, their costly factories and equipment. This was an unlawful infringement of the
right to property. However, there was no infringement of the right to privacy because
Regulation 45 did not limit the intimate personal sphere of life of any individual.
Finally, the SCA held that Regulation 45 was not strictly necessary or essential in order to
protect the public or to deal with the destructive and other effects of the disaster, as
contemplated in s 27(3) of the Act.
In the result, the SCA dismissed the appeal and upheld the respondent’s cross-appeal on costs.
--------oOo--------
|
3663
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not reportable
Case no: 423/2020
In the matter between:
MLULEKI MARTIN CHITHI
FIRST APPELLANT
ERNEST SANDILE CELE
SECOND APPELLANT
SINAMA AND ASSOCIATES INC
THIRD APPELLANT
In re:
LUHLWINI MCHUNU COMMUNITY
CLAIMANT
and
LAWRENCE HANCOCK
FIRST RESPONDENT
PETER GOBLE
SECOND RESPONDENT
BUCKSTONE CC
THIRD RESPONDENT
MICHAEL ROBERTS
FOURTH RESPONDENT
HALLIWEL PROPERTY TRUST
FIFTH RESPONDENT
ARTHER JAMES ARATHOON
SIXTH RESPONDENT
AMANDA JANE CAMPBELL
SEVENTH REPONDENT
JOHN NORMAN CAMPBELL
EIGHT RESPONDENT
WILLEM JAN SCHORTEMEIJER
NINTH RESPONDENT
BETH SUSAN SHAW
TENTH RESPONDENT
BRETT DAVID SHAW
ELEVENTH REPONDENT
QONDISA CECIL NGWENYA
TWELFTH RESPONDENT
GLR PROPS 005 CC
THIRTEENTH RESPONDENT
NEWINVEST 136 (PTY) LTD
FOURTEENTH RESPONDENT
MICHAEL BENSON
FIFTEENTH RESPONDENT
VENGARITE (PTY) LTD
SIXTEENTH RESPONDENT
ELPIS TRUST
SEVENTEENTH RESPONDENT
MACKENZIE TRUST
EIGHTEENTH RESPONDENT
SAPPI MANUFACTURING (PTY) LTD
NINETEEN RESPONDENT
MONDI (PTY) LTD
TWENTIETH RESPONDENT
CHURCH OF THE PROVINCE OF
SOUTHERN AFRICA
TWENTY-FIRST RESPONDENT
REGIONAL LAND CLAIMS COMMISSIONER
FOR KWAZULU-NATAL
TWENTY-SECOND RESPONDENT
THE MINISTER OF RURAL DEVELOPMENT
AND LAND REFORM
TWENTY-THIRD RESPONDENT
Neutral citation:
Chithi and Others; In re: Luhlwini Mchunu Community v Hancock and
Others (Case No. 423/2020) [2021] ZASCA 123 (23 September
2021)
Coram:
PETSE AP, MOLEMELA, CARELSE and MOTHLE JJA and
MOLEFE AJA
Heard:
17 August 2021
Delivered: This judgment was handed down electronically by circulation to the parties’
legal representatives by email, publication on the website of the Supreme Court of Appeal
and release to SAFLII. The date and time for hand-down is deemed to be 10h00 on ##
September 2021.
Summary: Civil procedure – application for leave to appeal referred for oral argument in
terms of s 17(2)(f) of Superior Courts Act 10 of 2013 – costs order – whether the Land
Claims Court’s order depriving the applicants of their fees was warranted – leave granted
and appeal upheld.
______________________________________________________________________
ORDER
______________________________________________________________________
On application for Leave to appeal from: The Land Claims Court, Randburg, (Meer
AJP sitting as court of first instance):
The application for leave to appeal is granted.
The appeal is upheld.
Paragraph 5 of the order of the Land Claims Court is deleted.
There is no order as to the costs of the appeal.
______________________________________________________________________
JUDGMENT
______________________________________________________________________
Mothle JA: (Petse AP, Molemela, Carelse JJA and Molefe AJA concurring):
[1] On 25 June 2020 two advocates and an attorney, in their personal capacities as
applicants, approached this Court with an application for leave to appeal a punitive costs
order. The costs order in issue deprived them of their fees as legal representatives of the
plaintiffs. On 6 August 2020, this Court, acting in terms of s 17(2)(d) of the Superior Courts
Act 10 of 2013 (the Superior Courts Act), referred the application for oral argument, and
directed that the parties must be prepared, if called upon to do so, to also address the
Court on the merits. The attorney, cited as the third applicant, withdrew from the
application a few days before its hearing. No reason was furnished for the withdrawal.
[2] The impugned costs order was made on 16 March 2020 by Meer AJP sitting in
the Land Claims Court (the LCC). In dismissing the plaintiffs’ claim for restitution of land
rights with costs, the learned Acting Judge President also disallowed in full, the applicants’
fees in the entire matter.
[3] The facts are briefly that on 17 April 1998, Mr Jabulani Mchunu lodged a claim
on behalf of the Luhlwini Mchunu Community (the community) in terms of the Restitution
of Land Rights Act 22 of 1994 (the Restitution Act). The Regional Land Claims
Commissioner, after investigating the claim, could not resolve the disputes with the
landowners through mediation or arbitration. On 5 May 2017, he referred the claim to the
LCC in terms of s 14(2) of the Restitution Act. Thereafter the majority of landowners
issued notices to defend the action, some disputing the allegation that the plaintiffs were
a community within the meaning of s 2(1) (d) of the Restitution Act.
[4] Prior to the commencement of the trial on 25 November 2019, a pre-trial
conference, presided over by the learned Acting Judge President, was held on 17
September 2019. During the pre-trial conference, the learned Acting Judge President
requested the parties to reflect on their stance, with reference to the standard of proof set
by the Constitutional Court, on whether what the plaintiffs sought to pursue was indeed a
community claim. She cautioned the parties that should the allegation that the plaintiffs
were a community not pass muster, there would be costs implications.
[5] On the first day of the trial, the first applicant informed the LCC that the claimants
intended to amend their pleadings. The purpose of the proposed amendment was, in the
main, to introduce an alternative claim as labour tenants. The application to amend was
however deferred to the end of the plaintiffs’ case. After hearing oral evidence from the
plaintiffs’ eight witnesses, the parties addressed the court on the amendment application.
In a written judgment dated 20 February 2020, the plaintiffs’ application to amend was
dismissed, the LCC having found it to be ‘bad in law, prejudicial to the Defendants, vague,
embarrassing and excipiable.’
[6] Thereafter the learned Acting Judge President of her own accord ordered a
separate hearing on an issue of law in terms of Rule 57(1).1 The issue of law raised was
1 Rule 57(1)(c) of the Land Claims Court allows the court, on its own accord, to order that a separate hearing
be held on an issue of law which may conveniently be decided separately from any other issue.
whether the plaintiffs were a community as defined in the Act. After hearing the parties,
the LCC ruled that the plaintiffs were not successful in proving that they were a
community. Their action was thus dismissed with costs. The order included a punitive
costs order – in para 5 thereof - against their legal team, the applicants, couched in the
following terms:
‘The fees of the Plaintiff’s legal team, Attorney Sinama and Advocates Chithi and Cele, for this
entire matter are disallowed in full. They are ordered to repay to the relevant entity that funded
them on behalf of the State, whatever fees that may have already been paid to them.’
[7] On 27 May 2020, the LCC dismissed the applicants’ application for leave to
appeal. The applicants then turned to this Court with the present application. The plaintiffs
and defendants do not feature in this application. In particular, the defendants delivered
notices to abide the decision of this Court. I turn to the Land Court’s reasons for imposing
the punitive costs order against the applicants.
[8] In the main judgment and under the heading ‘Were the proceedings vexatious,
frivolous and an abuse of the Court and should Plaintiff’s legal teams’ fees be disallowed?’
the LCC, in providing reasons for the punitive costs order, stated as follows (paras 24-
26):
‘At the hearing I mero motu asked Mr Chithi [first applicant] for submissions as to whether the
fees of the Plaintiff’s legal team comprising an attorney and 2 advocates, wholly funded by the
State, ought to be disallowed in the event of my finding against the Plaintiff as I have. I raised this,
given the persistence and pursuit on behalf of the Plaintiff with a community claim when there
was no shred of evidence to prove the legally established acid test post-Goedgelegen that the
Plaintiff derived its use and possession of the land from common rules.
I raised this especially given that Mr Chithi, leader of the plaintiff’s legal team, had appeared for
the Plaintiff in Elambini2 supra which, as aforementioned, involved a community claim for
restitution, as in the instant matter. In Elambini, Mr Chithi and the plaintiff’s legal team
unsuccessfully argued, contrary to Goedgelegen3, that persons who were at best labour tenants
2 Elambini Community v Minister of Rural Development and Land Reform and Others [2018] ZALCC 11.
3 Department of Land Affairs and Others v Goedgelegen Tropical Fruits (Pty) Ltd 2007 (6) SA 199 (CC).
or farm workers on privately owned land constituted a community as defined in the Act. In Elambini
at paragraph 149 it was stated:
“it is disquieting that the plaintiff, who was legally represented, and significantly at the state’s
expense, throughout these proceedings, could have pursued and persisted with a community
claim without adducing a shred of evidence to prove the legally established acid test post
Goedgelegen, that they derived their possession and use of the land from common rules”
Post-Elambini at the very least Mr Chithi was thus well-versed with the requirements for instituting
and succeeding with a community claim. This notwithstanding, he persisted with this claim as a
community claim.
I raised the fees of the Plaintiff’s legal team also, given that during a telephonic pre-trial
conference I specifically cautioned the Plaintiff’s legal team to consider whether in light of the
established case law, the claim as a community on the part of the Plaintiff could pass muster, and
cautioned them that there could be cost implications if it did not.’ (Own footnotes.)
[9] The applicants contend, first, in regard to the application for leave to appeal,
that it should be granted, in that there are reasonable prospects of success. Second, in
respect of the envisaged appeal, that the order of the LCC should be set aside on
procedural grounds. Third, on substantive grounds, that the conduct of the applicants in
the trial was not vexatious, frivolous and an abuse of court processes. I proceed to deal
with these grounds in that order.
[10] The threshold for an application for leave to appeal is set out in s 17(1) of the
Superior Courts Act, which provides that leave to appeal may only be given if the judge
or judges are of the opinion that the appeal would have a reasonable prospect of
success.4 The applicants contend that this application concerned an order directed only
against them and not the plaintiffs in the action. Consequently, they asserted that the
application is capable of adjudication, independently of the merits of the action.
4 Minister of Justice and Constitutional Development and Others v Southern African Litigation Centre [2016]
ZASCA 17; 2016 (3) SA 317 (SCA).
[11] In support of their application, the applicants relied, amongst others, on
procedural grounds, that the LCC in adjudicating the matter, breached the principles of
procedural fairness that are fundamental to the rule of law. As it turns out, and for the
reasons that follow, this contention has merit. I am thus of the view that the application
for leave to appeal should be granted and the appeal itself determined.
[12] It will be recalled that the learned Acting Judge President raised the question of
the costs with the first applicant during the debate in relation to the Rule 57 issue of law.
She summarily raised the issue of the punitive costs while the first applicant was
addressing the court. The first applicant was directed to show cause why he, the second
and third applicants, as plaintiffs’ legal team, should not be deprived of their fees. The
exchange between the first applicant and the learned Acting Judge President at that point,
demonstrates that the issue was raised in a manner that the first applicant felt somewhat
obligated to respond there and then. Thus, neither the applicants nor the other parties
participating in the trial were afforded adequate opportunity to make meaningful, or any
submissions on the subject.
[13] As for the second applicant and the attorney, they were not afforded an
opportunity to have their say in relation to the looming deprivation of their fees that the
LCC had threatened. In its judgment refusing leave to appeal, the LCC summarily
dismissed their complaint in this regard, on the basis that they were present in court and
that had they requested to address the court – which they did not do – they would readily
have been allowed to do so. This, however, manifests a misconception of the essence of
their complaint. When the LCC was minded to issue an order in the terms encapsulated
in para 5 of its order it had a duty to invite and then afford the second and erstwhile third
applicants a reasonable opportunity, as of right, to dissuade it from making the sort of
order it had contemplated. But it did not. Therein lies the rub.
[14] The principle that the courts should not grant adverse court orders, without
providing the affected parties an opportunity to be heard, is trite and sacrosanct. In this
regard what the Constitutional Court said in De Beer NO v North-Central Local Council
and South-Central Local Council 2001 (11) BCLR 1109 (CC); 2002 (1) SA 429 (CC) is
instructive. The Court said (para 11):
‘The right to a fair hearing before a court lies in the heart of the rule of law. A fair hearing before
a court as a prerequisite to an order being made against anyone is fundamental to a just and
credible legal order . . . It is a crucial aspect of the rule of law that court orders should not be made
without affording the other side a reasonable opportunity to state their case.’
[15] It therefore goes without saying that the courts must do more to avoid summarily
inquiring into the conduct of a legal practitioner and thereafter imposing a sanction. In
Singh and Others v North Central and South Central Local Councils and Others, [1999]
1 All SA 350 (LCC), the LCC stated as follows (para 128):
‘That however is not necessarily the end of the matter in relation to the conduct of the applicants’
attorneys and counsel and its impact on the costs order. The applicants and their attorneys allege
that an agreement has been reached with the Chief Land Claims Commissioner to provide legal
aid for these proceedings in terms of section 29(4) of the [Restitution] Act. This is disputed by the
third respondent. It would appear that that dispute may have to be resolved in separate legal
proceedings. It certainly does not fall to be determined here. For purposes of the costs order in
this matter, I will assume, without in any way seeking to decide the issue, that there is an
agreement or decision to provide legal aid for these proceedings. Where a litigant is funded by
State legal aid, a court may none the less order that an attorney may not recover costs from the
State’s legal aid system. Section 29(4) represents part of the State’s legal aid system. This may
be a case where such an order should be made. However the applicants, their attorneys and
counsel have not had an opportunity of being heard in this respect and no such order was sought
at the hearing. I will therefore provide in the order that such an opportunity be afforded before this
aspect is finally dealt with.’ (Emphasis added.)
[16] Further, in holding that the conduct of the applicants was vexatious, frivolous
and an abuse of court processes, the LCC made reference to the provisions of the
Vexatious Proceedings Act 3 of 1956 (the Act). The right to be heard prior to an order
being made in vexatious proceedings is entrenched in the Act itself. The relevant
provision is s 2(1) (b), which provides:
‘2(1)(b)
If, on an application made by any person against whom legal proceedings have been
instituted by any other person or who has reason to believe that the institution of legal proceedings
against him is contemplated by any other person, the court is satisfied that the said person has
persistently and without any reasonable ground instituted legal proceedings in any court or in any
inferior court, whether against the same person or against different persons, the court may, after
hearing that other person or giving him an opportunity of being heard, order that no legal
proceedings shall be instituted by him against any person in any court or any inferior court without
leave of that court, or any judge thereof, or that inferior court, as the case may be, and such leave
shall not be granted unless the court or judge or the inferior court, as the case may be, is satisfied
that the proceedings are not an abuse of the process of the court and that there is a prima facie
ground for the proceedings.’ (Emphasis added.)
[17] Accordingly, I conclude that the learned Acting Judge President erred in not
paying due regard to these statutory prescripts. She failed to separate the inquiry
concerning costs against the applicants from the trial, and to provide an opportunity for
the applicants to be heard. This breach of procedure, on its own, and for reasons
enunciated above, vitiates the LCC’s punitive costs order against the applicants. On this
ground alone, the punitive costs order falls to be set aside.
[18] Having so concluded, there is thus no need to deal in detail with the substantive
grounds of appeal, save to mention two issues. First, the LCC characterised the first
applicant’s conduct in the trial as being persistently in pursuit of a vexatious claim. This
view is expressed in paragraph 29 of its judgment as follows:
‘The Vexatious Proceedings Act 3 of 1956 authorises a court to prohibit legal proceedings by any
person who has persistently and without any reasonable ground instituted legal proceedings. For
the purposes of this Act, the element of persistency is a necessary one. Heugh and others v Gubb
1980 (1) SA 699 (C) at 702F. The litigation in the present case fits the persistency criteria, given
Mr Chithi’s persistence with a community claim notwithstanding his lack of success with the same
nature of evidence in Elambini.’ (Emphasis added.)
[19] On a proper reading of the record placed before this Court, there is no evidence
that supports the conclusion reached by the LCC that the litigation in the present case fits
‘the persistency’ criteria. The first applicant disputed the LCC’s finding that he initiated the
proceedings in Elambini. He contended that he had joined the proceedings in Elambini
as a junior member of the plaintiff’s substitute legal team, after the plaintiffs’ case had
been prosecuted. Therefore, having joined the proceedings at that stage, it cannot be
said that he instituted the plaintiffs’ case in Elambini. Similarly, included in the LCC’s
documents of the present case and filed as Bundle A, is the plaintiffs’ statement of claim
dated 28 February 2018, signed by T Kadungure as plaintiff’s counsel. A statement of
claim initiates proceedings for the claimants in the LCC, and not the referral in terms of
s 14 of the Restitution Act. The first applicant appears to have joined the proceedings
after the statement of claim was filed in 2018 and sometime before the pre-trial
conference. Thus, neither he nor the second applicant, could have initiated the
proceedings in this case.
[20] The second issue concerns the caution the learned Acting Judge President
made to the parties during the pre-trial conference. She cautioned that there could be
costs implications. Although paragraph 4 of the minutes of the pre-trial conference5 does
not reflect the learned Acting Judge President having cautioned the applicants, the first
applicant nevertheless confirms, in paragraph 12 of the founding affidavit before this
Court, that such a warning was made. However, it is apparent from the record that the
learned Acting Judge President cautioned the applicants even before the LCC heard oral
evidence from the plaintiffs’ witnesses at the trial. This is borne out by what is contained
in paragraph 7 of the minutes that, at that stage, the plaintiffs were yet to file their expert’s
report.
[21] Curiously, the learned Acting Judge President did not indicate the reasons that
moved her to issue the caution even before the plaintiffs presented oral evidence, in
particular that of the expert witnesses. The Constitutional Court in Helen Suzman
Foundation v President of the Republic of South Africa and Others; Glenister v President
5 The minutes of the pre-trial conference were signed by the learned Acting Judge President.
of the Republic of South Africa and Others [2014] ZACC 32; 2015 (1) BCLR 1 (CC),
cautioned, in paragraph 36, as follows:
‘The Court should ordinarily be very loath to grant a punitive cost order in a case like this. This is
constitutional litigation and parties should never be forced to be too careful to assert their
constitutional rights through a court process, for fear of a cost order.’6
Although these remarks were made in a different context, they are equally apposite in this
case as the plaintiffs were asserting their constitutional right to land restitution.
[22] The first applicant avers that in a consultation with the plaintiffs, held after the
caution, the plaintiffs instructed the legal team to present oral evidence in court, including
the expert evidence of Dr V Khumalo and Mr Xolani Xaba, the land surveyor to establish
their entitlement to the relief sought. Both experts appeared to support the plaintiffs’
contention that they were a community. There is no evidence to suggest that the
applicants acted recklessly in presenting the plaintiffs’ case in the manner they did. In
Multi Links Telecommunications Ltd v Africa Prepaid Services Nigeria Ltd 2014 (3) SA
(GP), the court remarked (para 34):
‘. . . [A]ttorneys and counsel are expected to pursue their clients’ rights and interest fearlessly and
vigorously without undue regard for their personal convenience. In that context they ought not to
be intimidated by their opponent or even, I may add, by the Court. Legal practitioners must present
their case fearlessly and vigorously, but always within the context of set ethical rules that pertain
to them. ... ’
[23] In the result I make the following order:
The application for leave to appeal is granted.
The appeal is upheld.
Paragraph 5 of the order of the Land Claims Court is deleted.
There is no order as to the costs of the appeal.
6 This view is reiterated by the same court in Lawyers for Human Rights v Minister in the Presidency and
others [2016] ZACC 45; 2017 (1) SA 645 (CC) para 17.
_____________________
SP MOTHLE
JUDGE OF APPEAL
APPEARANCES:
For appellants:
T V Norman SC (with her C M Nqala and K Shazi)
Instructed by:
Gordon Zungu Attorneys, Durban
Maduba Attorneys, Bloemfontein
For the 1st to 23rd Respondents: No appearance
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
23 SEPTEMBER 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
Chithi and Others; In re: Luhlwini Mchunu Community v Hancock and Others (Case No.
423/2020) [2021] ZASCA 123 (23 September 2021)
Today the Supreme Court of Appeal (SCA) handed down judgment upholding the appellants’ appeal
against the decision of the Land Claims Court, Randburg (LCC).
The issue before the SCA was whether the punitive cost order granted by LCC depriving the land
claimants’ Legal Representatives of their fees in a land claim trial, should be set aside.
In November 2019, two Advocates and an Attorney were appointed to represent claimants as plaintiffs
in a trial for restitution of land rights, held in the LCC. Prior to the commencement of the trial, on 17
September 2019 a pre-trial conference, presided over by the learned Acting Judge President, was held.
During the pre-trial conference, the learned Acting Judge President requested the parties to reflect on
their stance, with reference to the standard of proof set by the Constitutional Court. The issue being
whether what the plaintiffs sought to pursue in the land claim was indeed a community claim as
prescribed by the Restitution of Land Rights Act. She cautioned the parties that should the allegation
that the plaintiffs were a community not pass muster, there would be costs implications.
At the end of the plaintiffs’ case, the LCC ruled that the plaintiffs were not successful in proving that
they were a community. Their action was thus dismissed with costs. The order included a punitive costs
order granted against their Legal Representatives. The LCC had found that the plaintiffs’ Legal
Representatives persistently pursued proceedings that were vexatious, frivolous and an abuse of the
court.
The SCA held that the principle that courts should not grant adverse court orders, without providing the
affected parties an opportunity to be heard, is trite and sacrosanct. Furthermore, the SCA held that the
right to be heard prior to an order being made in vexatious proceedings is entrenched in the Vexatious
Proceedings Act 3 of 1956. The SCA concluded that the learned Acting Judge President erred in not
paying due regard to these statutory prescripts, in that the learned Acting Judge President failed to
separate the inquiry concerning costs against the Legal Representatives from the trial, and to provide
an opportunity for the Legal Representatives to be heard.
~~~~ends~~~~
|
1352
|
non-electoral
|
2010
|
THE SUPREME COURT OF APPEAL
REPUBLIC OF SOUTH AFRICA
JUDGMENT
Case No 426/09
In the matter between:
ANSELMO INACIO DE FREITAS DE AGUIAR
Appellant
and
REAL PEOPLE HOUSING (PTY) LIMITED
Respondent
Neutral citation:
De Aguiar v Real People Housing (426/09) [2010]
ZASCA 67 (24 May 2010)
Coram:
MTHIYANE, VAN HEERDEN, MLAMBO and
SHONGWE JJA and GRIESEL AJA
Heard:
4 May 2010
Delivered:
24 May 2010
Summary:
Application for leave to adduce further evidence –
requirements restated – whether lessee entitled to rely on
enrichment lien for expenses in respect of necessary and
useful improvements.
ORDER
On appeal from: South Gauteng High Court (Johannesburg) (Bhana
AJ sitting as court of first instance):
(a)
The appeal is dismissed with costs.
(b)
The order of the high court is varied by substituting a period of
60 days for the period of 120 days in para 1 of the order.
JUDGMENT
GRIESEL AJA (MTHIYANE, VAN HEERDEN, MLAMBO and
SHONGWE JJA concurring):
[1] The sole issue for determination in this appeal is whether or not
leave should be granted to the appellant to adduce further evidence so as
to enable him to rely on an alleged improvement lien as a defence to a
claim for his eviction from certain premises. If leave is refused, it is
common cause that the appeal should fail.
[2] The present respondent (as applicant in the court below) obtained
an order in the South Gauteng High Court, Johannesburg for the eviction
of the appellant (respondent in the court below) and all those who
occupy the premises described as 90 Main Road, Walkerville, Meyerton
(the property) by virtue of his occupation.
[3] Most of the relevant facts are uncontentious and can be briefly
stated. The appellant’s father acquired the property as vacant land in
1970, later erecting a family home and other improvements thereon
during the early 1980s. The appellant and his family have been in
occupation of the property ever since. During November 1997 the
property was sold in execution to First National Bank (FNB) after the
appellant’s father ran into financial difficulties. FNB subsequently sold
the property to the respondent, who took transfer thereof during May
2001. On 14 May 2001, the respondent concluded a written lease with
the appellant in respect of the property at a monthly rental of R9 795.04.
In breach of the lease, however, the appellant failed regularly to pay the
rental due and as at 15 April 2006 he was in arrears in a total amount in
excess of R130 000. The respondent accordingly instituted action against
the appellant in the Vereeniging magistrate’s court for recovery of the
arrears and cancellation of the lease. It simultaneously commenced
eviction proceedings out of the same court. Both the action and the
application were opposed by the appellant.
[4] On 25 April 2006 the parties reached a settlement of their
disputes and entered into a written ‘settlement agreement’ which was
made an order of court. In terms of the settlement, the lease was
cancelled and the respondent agreed to sell the property to the appellant
at a purchase price of R1,5 million, which had to be paid, alternatively
secured by acceptable bank guarantees, on or before 31 May 2006.
Clause 1.4 of the settlement agreement provides as follows:
‘In the event that the defendant fails to meet the conditions mentioned in 1.3 above
[ie payment or securing of the purchase price], the defendant has agreed to vacate the
premises on or before 30 June 2006.’
It was also recorded that the agreement constituted ‘a full and final
settlement of the disputes between the parties’.
[5] The appellant failed to pay or secure the purchase price by due
date, with the result that he became obliged to vacate the property on 30
June 2006. He refused to do so, which led to the launching of the
application for eviction in the court below, based squarely on the under-
taking contained in clause 1.4 of the settlement agreement.
[6] In his answering affidavit filed in opposition to the claim for
eviction, the appellant raised numerous issues, none of which amounted
to a valid defence in law and none of which requires judicial attention at
this stage. The learned judge in the court below rightly rejected the
appellant’s opposition to the order sought and found that the
respondent’s right to seek eviction arose out of the ‘self-standing settle-
ment agreement’ entered into between the parties. He accordingly
granted an eviction order, affording the appellant a further 120 days to
vacate the premises.
[7] The appellant filed a notice of application for leave to appeal
against the eviction order, raising a number of grounds of appeal. Those
grounds all fell away, however, and were overtaken by a notice styled
‘Supplementary Grounds for Leave to Appeal’, supported by a
supplementary affidavit, in which the appellant – now represented by a
new legal team – claimed to be entitled to rely on an enrichment lien
over the premises, based on ‘considerable amounts of money’ allegedly
expended by him and his father in respect of ‘necessary and useful
improvements’ to the property. This was an entirely new point, which
was neither foreshadowed in the evidence on record at that stage nor
supported by such evidence. The appellant accordingly sought leave to
appeal so as to enable him to apply to the court hearing the appeal for
leave to lead further evidence relating to such expenses and improve-
ments.
[8] In the event, the application for leave to appeal was dismissed by
the court below, but was subsequently granted by this court on petition.
Pursuant to that order, a substantive application for leave to adduce
further evidence was delivered on behalf of the appellant, which is what
is before us at this stage. Should such leave be granted, the respondent
wants the matter to be remitted to the high court for that court to
determine whether, having regard to the evidence adduced by the
appellant, he is entitled to rely on a lien as a right to retain possession of
the property.
Legal position
[9] In terms of s 22(a) of the Supreme Court Act 59 of 1959 this
court (and a high court) is afforded power –
‘. . . on the hearing of an appeal to receive further evidence, either orally or by
deposition before a person appointed by such division, or to remit the case to the
court of first instance, or the court whose judgment is the subject of the appeal, for
further hearing, with such instructions as regards the taking of further evidence or
otherwise as to the division concerned seems necessary; . . . .’
[10] These provisions have been the subject of judicial scrutiny on
innumerable occasions over the years and although the requirements
have not always been formulated in the same words, the basic tenor of
the various judgments throughout has been to emphasise the court’s
reluctance to reopen a trial:1 in the interests of finality, the court’s
powers should be exercised sparingly and further evidence on appeal
should only be admitted in exceptional circumstances.2
[11] It is incumbent upon an applicant for leave to adduce further
evidence to satisfy the court that it was not owing to any remissness or
negligence on his or her part that the evidence in question was not
adduced at the trial.3 Furthermore, inadequate presentation of the
litigant’s case at the trial will only in the rarest instances be remediable
by the adduction of further evidence at the appeal stage.4 It is thus clear
that the test is a stringent one. As pointed out by Corbett JA in S v N:5
‘A study of the reported decisions of this Court on the subject over the past 40 years
shows that in the vast majority of cases relief has been refused: and that where relief
has been granted the evidence in question has related to a single critical issue in the
case.’
[12] While pointing out that it is undesirable to lay down fixed rules
as to when the court ought to accede to the application of a litigant
desirous of leading further evidence upon appeal, this court as well as the
1 Erasmus Superior Court Practice A1-55 – A1-56 (Service Issue 33).
2 Colman v Dunbar 1933 AD 141 at 161; S v N 1988 (3) SA 450 (A) at 458E; Rail Commuters Action
Group & others v Transnet Ltd t/a Metrorail & others 2005 (2) SA 359 (CC) para 43.
3 Simpson v Selfmed Medical Scheme & another 1995 (3) SA 816 (A) at 824J.
4 R v Carr 1949 (2) SA 693 (A) at 699.
5 Footnote 2 above at 458I–459A.
Constitutional Court has in a series of decisions laid down certain basic
requirements. The formulation that is perhaps the most often quoted is
that of Holmes JA in S v De Jager:6
‘(a)
There should be some reasonably sufficient explanation, based on alle-
gations which may be true, why the evidence which it is sought to lead was not led at
the trial.
(b)
There should be a prima facie likelihood of the truth of the evidence.
(c)
The evidence should be materially relevant to the outcome of the trial.’
[13] Applying the foregoing principles to the evidence before us, I am
of the view that the present application cannot succeed.
Evidence materially relevant to the outcome
[14] Starting with the last requirement first, counsel for the
respondent strongly relied on the terms of the settlement agreement
concluded between the parties on 25 April 2006. He pointed out that it
contains an unequivocal undertaking by the appellant to vacate the
property on or before 30 June 2006, should he be unable to pay or secure
the purchase price by that date.7 It contains no room for an unexpressed
reservatio mentalis that would entitle the respondent to evade his con-
tractual undertakings. The settlement agreement formed an independent
6 1965 (2) SA 612 (A) at 613B. See also the cases referred to in footnote 2 above as well as Loomcraft
Fabrics CC v Nedbank Ltd & another 1996 (1) SA 812 (A) at 824H–825D; S v M 2003 (1) SA 341
(SCA) para 16; Prophet v National Director of Public Prosecutions 2007 (6) SA 169 (CC) para 33;
and President of the Republic of South Africa & others v Quagliani, and two similar cases 2009 (2)
SA 466 (CC); [2009] ZACC 1 para 70.
7 Para 4 above.
basis for the respondent’s application for eviction, as the learned judge in
the court below rightly found. This finding, which has not been assailed
on appeal on behalf of the appellant, is dispositive of the matter. As
correctly submitted by counsel for the respondent, the appellant’s
purported reliance on an enrichment lien is incompatible with the
undertaking to vacate the property. The appellant has not sought – either
in the answering affidavit or in his supplementary affidavit – to assail the
validity of the settlement agreement or to qualify the undertaking
contained therein. In the result, no amount of further evidence relating to
improvements can avoid the consequences of this undertaking or affect
the outcome of the application.
[15] In the light of this conclusion, it is not strictly necessary to deal
with the other requirements. It is, in any event, clear to me that the
application does not comply with any of the other requirements
applicable to applications of this nature, as I shall briefly demonstrate.
A reasonable explanation
[16] From the affidavits filed on behalf of the respondent in the
application for leave to adduce further evidence it is evident that the only
reason why evidence in support of the alleged lien was not placed before
the court earlier was due to the fact that he was allegedly unaware of the
judgment of this court in Business Aviation Corporation (Pty) Ltd &
another v Rand Airport Holdings (Pty) Ltd.8 In that case – an action by a
lessor for the eviction of the lessees from an urban property – the lessees
8 2006 (6) SA 605 (SCA).
relied on an enrichment lien as they had expended money on necessary
and useful improvements to the property for which they had not been
compensated. The lessor met the lessees’ defence with the contention
that the lien purportedly relied upon had been abolished by two
Placaeten, promulgated by the Estates of Holland in 1658 and 1696
respectively. On appeal to this court it was held that the provisions of
article 10 of the Placaeten had never applied to urban leases, with the
result that the Placaeten did not provide an answer to the lessees’
reliance on an enrichment lien. It was this perceived ‘fundamental
change’ in the law of which the appellant claims to have been unaware
and on which he now seeks to rely. The appellant cannot say why his
erstwhile legal representatives did not inform him of his rights, but he
surmises that this must be due to the fact that they had been equally
ignorant of the said judgment and its effect on the rights of lessees.
[17] In my opinion, the appellant’s explanation does not withstand
scrutiny, nor does it excuse his failure to invoke the purported lien at an
earlier stage:
(a)
First, the decision in Business Aviation Corporation was handed
down in this court on 30 May 2006. There is simply no explanation –
apart from pure speculation on the appellant’s part – as to why his
former legal team would have been unaware of that decision when the
present matter came to be argued before the court below exactly one year
later, on 30 May 2007. Whatever the true reason may be, it is clear to me
that this is not one of those ‘rarest instances’ where the respondent
should be permitted to take shelter behind the perceived inadequate
presentation of the defence case.9
(b)
Second, the Business Aviation decision did not create new law, as
suggested by the appellant; it merely clarified the common law position
as it had existed for many years. Nothing prevented the appellant, if so
advised, from relying on an improvement lien when deposing to his
answering affidavit. This is all the more so, seeing that the appellant
alleges that he effected improvements to the property, not only in his
capacity as lessee, but also as a lawful occupier. The Business Aviation
decision did not in any way affect the rights of lawful occupiers to rely
on enrichment liens.
A prima facie likelihood of the truth of the evidence
[18] In his answering affidavit in the main application the appellant
made mention of various improvements effected to the property over the
years, making it clear that it was his father who had developed the
property and paid for the various improvements. Thus, although the
appellant was clearly alive to the issue of improvements when deposing
to his answering affidavit, no mention was made of any improvements
for which the appellant himself can claim credit. In his supplementary
9 Carr’s case, supra.
affidavit, however, the appellant claims that he and his father had spent
‘a substantial amount of money on useful and necessary improvements
to the premises’. Any improvements effected by his father are, of course,
completely irrelevant to a consideration of the lien on which the
appellant seeks to rely. Moreover, any improvements effected before
2001, when the respondent became the owner of the property, are
equally irrelevant, because the respondent could not have been enriched
by such improvements.
[19] As to the details regarding exactly which improvements they
were, when they were effected and at what cost, the appellant is
exceedingly vague. More importantly, the appellant does not presently
have the necessary evidence available to establish the enrichment lien on
which he wishes to rely; such evidence must still be found. According to
him, it has been ‘very difficult . . . to track down the builders’ who
carried out the improvements in question. He has also experienced
difficulty finding ‘any records of such transactions and in most instances
payment took place in cash transactions the records of which have been
disposed of’. This court is therefore quite unable to evaluate the cogency
of the evidence that the appellant proposes to place before the high court,
should leave be granted. Such evidence as has been adduced by the
appellant, in the form of a report prepared by an architect, Mr John
Cornish, has persuasively been refuted on behalf of the respondent. On
the basis of information supplied by the appellant, Mr Cornish drew a
schedule, illustrated by an aerial photograph, of improvements the
appellant claims to have made after 1 August 2001. With reference to
building plans obtained from the local authority, however, it was
demonstrated by the respondent that most of the improvements claimed
by the appellant have in fact been in existence at least since October
1985 and therefore could not have been improvements effected by him
after August 2001.
[20] Moreover, it is clear from what is set out above that the new
evidence does not relate to a ‘single critical issue’, as required. Instead, it
is envisaged that, should the matter be remitted to the high court and
referred for the hearing of oral evidence, the appellant ‘will be able to
call many witnesses, including the builders (with subpoenas duces tecum
for documents) as well as many of my family members who were aware
that I was paying for the improvements to be effected and witnessed the
building operations’. Thus, what the appellant contemplates is a full-
scale new trial, spanning a lengthy period of time and involving a
multitude of witnesses and documents, much of which will be
strenuously contested by the respondent, as appears from the affidavit
filed in opposition to the present application. This is a compelling con-
sideration against granting the relief sought.10
Conclusion
[21] To sum up, I am of the view that the appellant has not satisfied
any of the requirements for leave to adduce further evidence. In the
circumstances, the application for leave to adduce further evidence is
without merit. It follows that the appeal falls to be dismissed with costs.
10 Cf Metrorail supra loc cit; S v N supra at 459A–B.
[22] Counsel for the respondent has asked us to vary the order of the
court below in one respect: as mentioned earlier, the court below
afforded the appellant a period of 120 days to vacate the property.
Counsel asked that this period be substituted with a period of 30 days. In
the light of the fact that the appellant has had a further period of almost
three years since the date of the order by the high court in which to
arrange his affairs, I am inclined to accede to this request. However, in
my view, a fair compromise would be to allow the appellant a period of
60 calendar days from the date of this order to vacate the property.
[23] It is ordered:
(a)
The appeal is dismissed with costs.
(b)
The order of the high court is varied by substituting a period of
60 days for the period of 120 days in para 1 of the order.
B M GRIESEL
Acting Judge of Appeal
APPEARANCES
FOR APPELLANT:
George Kairinos
Instructed by:
Harry Goss Attorneys, Bedfordview
McIntyre & Van der Post, Bloemfontein
FOR RESPONDENT:
Dirk Vetten
Instructed by:
Martini-Patlansky, Houghton, Johannesburg
Lovius-Block Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
24 May 2010
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and
does not form part of the judgment of the Supreme Court of Appeal.
* * *
DE AGUIAR v REAL PEOPLE HOUSING
– Case No 426/09
The Supreme Court of Appeal today dismissed an appeal by Mr Anselmo De Aguiar
(the appellant) against an eviction order granted by the South Gauteng High Court,
Johannesburg.
The appellant applied to the SCA for leave to lead new evidence so as to establish a
lien over the property in question as a defence to a claim for his eviction from a
smallholding in Meyerton, Gauteng. He alleged that he had spent ‘considerable
amounts of money’ in respect of necessary and useful improvements to the property.
The SCA referred to previous authorities, where it was held that, in the interests if
finality, the court’s powers to allow further evidence ‘should be exercised sparingly
and further evidence on appeal should only be admitted in exceptional circum-
stances’. With reference to the facts on which the appellant relied, the SCA held that
the appellant’s application did not comply with any of the requirements laid down in
the authorities. The appeal was accordingly dismissed with costs. The appellant and
all other persons occupying the premises with him will now have to vacate the
premises within 60 days from the date of the SCA’s order.
--ends--
|
3554
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 41/2020
In the matter between:
ALFRED JAN BEZUIDENHOUT
APPELLANT
and
THE STATE
RESPONDENT
Neutral citation: Alfred Jan Bezuidenhout v The State (41/2020) [2021] ZASCA 52
(23 April 2021)
Coram:
SALDULKER, MOCUMIE and NICHOLLS JJA and WEINER and
MABINDLA-BOQWANA AJJA
Heard:
17 March 2021
Delivered:
This judgment was handed down electronically by circulation to the
parties’ legal representatives by email, publication on the Supreme
Court of Appeal website and release to SAFLII. The date and time for
hand-down is deemed to be have been at 12h00 on 23 April 2021.
Summary:
Criminal law and procedure – application of s 309B(5) of the Criminal
Procedure Act 51 of 1977 – appeal against conviction – whether the appellant had a fair
trial – trial to start de novo before a different presiding officer.
______________________________________________________________________
ORDER
______________________________________________________________________
On appeal from: Gauteng Division of the High Court, Johannesburg (Monama J, and
Thobane AJ):
1 The appeal is upheld.
2 The order of the high court is set aside and replaced with the following order:
‘(a) The appeal is upheld and the conviction and sentence of the appellant are
set aside.
(b) The trial is to start de novo in the regional court, Vosloorus before a
different presiding officer.’
______________________________________________________________________
JUDGMENT
______________________________________________________________________
Nicholls JA (Saldulker, and Mocumie JJA and Weiner and Mabindla-Boqwana AJJA
concurring)
[1] The central question in this appeal is whether the appellant had a fair trial. The
appellant was charged with murder and the unlawful possession of a firearm, in the
Regional Court, Vosloorus. He pleaded not guilty to the charge of murder but guilty to the
charge of the illegal possession of a 38 special calibre revolver. On 1 June 2018, the
appellant was convicted on both counts and sentenced to 15 years’ and 8 years’
imprisonment, respectively. The sentences were ordered to run concurrently, an effective
term of imprisonment of 15 years.
[2] The appellant was refused leave to appeal by the trial court. So too, was an
application in terms of s 309B(5) of the Criminal Procedure Act 51 of 1977 (the CPA) to
adduce further evidence. On petition to the High Court, Gauteng Division, the appellant
was granted leave to appeal against the sentence only. In his application for leave to
appeal the conviction for murder to this Court, he also sought an order that the case be
remitted to the regional court for further evidence to be heard. On 26 November 2019, he
was granted special leave by this Court to appeal the merits of his conviction.
[3] At his first appearance, on 3 July 2017, the appellant appeared in person. His right
to legal representation was explained to him. For the next appearances on 10 July 2017
and 17 July 2017, he remained unrepresented, but on 22 August 2017, it was noted that
he had procured the services of an attorney from Legal Aid, Ms Gqwede. However, she
was not present as she was busy in another court. On 30 August 2017, Ms Gqwede was
present and confirmed that the appellant did not require the court to sit with assessors.
On 3 October 2017, the trial was postponed because Ms Gqwede was ill. When the
matter was next set down on 22 October 2017, Ms Gqwede was ill again.
[4] On this occasion, the appellant addressed the court stating that he did not wish to
have an attorney and had only done so on the court’s advice. He claimed that this was
his 14th court appearance and he did not want to waste the court’s time. He stated:
‘. . . I believe the Court wants to determine the truth, and I think that for the truth I do not need
anybody else to speak on my behalf . . . I think my counsel will probably end up sick again when
we have to start the proceedings again, and I would ask the Court to indulge me, that if that
happens, let me rather please speak the truth on my own behalf . . . The truth does not need any
explanation.’
[5] On the strength of his request, the magistrate told the appellant that it was his right
to conduct his own defence, but he should understand that he would have to lead and
cross-examine witnesses. He was further informed that he could change his attorney if
he was dissatisfied. The matter was postponed until 21 November 2017 and then again
to 2 February 2018, when the trial finally commenced. He remained legally unrepresented
throughout.
[6] The appellant was charged and convicted of the murder of Mr Bisani Tshukela (the
deceased) by shooting him with an unlicensed 38 special calibre Rossi revolver. The
incident took place in a farming area near Dawn Park, within the Boksburg Municipality,
between 08h00 and 09h00 on 26 November 2016.That the appellant shot the deceased
with his unlicensed revolver is not in dispute. Nor is it disputed that the deceased was
unarmed at the time, carrying only a two litre container of milk. The murder conviction of
the appellant turns on the circumstances of the shooting.
[7] On the appellant’s version he had no intention to kill the deceased and was merely
defending his property, his wife and grandchildren. He claims that the shooting occurred
while the deceased was trying to wrestle the firearm from him. In contrast, the version of
the only eyewitness, Mr Muzivukile Dumezweni who was employed as a herdsman by the
deceased, is that the deceased was intentionally shot and killed by the appellant for no
good reason. Mr Dumezweni however did not see the actual shooting.
[8] The appellant owns a small holding on which he grows vegetables. He said that
there had been ongoing arguments for the past two to three years over the fact that
Mr Dumezweni herded cattle on to his property, destroying his vegetable and trampling
his garden. Despite his protestations, this occurrence, he said, took place several times
a week. On that particular day, the deceased and Mr Dumezweni were herding 110 head
of cattle. The appellant was adamant that the cattle were on his property, just as they had
been three or four times the previous week. Mr Dumezweni vehemently denied that the
cattle grazed on the appellant’s property that day, or in the past. He maintained that he
and the deceased were herding the cattle along the tarred road, towards grazing land
further away. He also denied ever having spoken to the appellant previously, although he
acknowledged having seen him on occasion.
[9] Mr Dumezweni described the incident as follows. He was at the back of the herd
while the deceased was guiding the cattle from the front. He heard a firearm going off and
the herd of cattle started running towards him. He herded them back towards the
deceased. Mr Dumezweni saw the appellant on the road next to the herd, holding a
‘pump-action gun’. After Mr Dumezweni had herded the cattle back, he saw the appellant
talking to the deceased at close quarters. He did not see the shooting incident but heard
a firearm go off and he saw the deceased had fallen to the ground on his back. At that
stage the pump gun was on the ground. The appellant then shouted at him in a language
that he did not understand and pointed a small firearm at him and went back into his
house. Mr Dumezweni approached the deceased who told him he had been shot by the
appellant. He saw blood on the T-shirt of the deceased in the chest area. The appellant
returned, placed the deceased into his car and drove off. It is common cause that the
appellant took the deceased to Sunward Park Hospital where he later died. The police
arrived at the scene and Mr Dumezweni explained to them what had happened.
[10] The appellant’s version was that the vegetables grown on his small holding were
regularly being destroyed and trampled by Mr Dumezweni’s herd of cattle. He had also
been the victim of 18 robberies in the past few months and the police had been of no
assistance when he reported them. On the day of the incident, he had the pellet gun in
his possession as he was shooting at Indian Myna birds that were pulling out his thatch.
He saw Mr Dumezweni on the tar road approaching him from the right-hand side and he
told him he would shoot the cattle if they came onto his property. Realising that it would
be pointless to shoot cattle with a pellet gun, he went to get his 38 special calibre revolver
which was in the shed. He fired a warning shot and then noticed a second person (the
deceased) approaching him from plot 105 on the left. He fired two more warning shots
into the air but both men continued towards him. He fired a fourth warning shot into the
ground but this did not deter the men. The deceased then ‘jumped on [him] with both his
hands and grabbed [the appellant’s] hand’. His hand was on the trigger of the revolver.
The appellant, who weighs 53kg and was almost 60 years old, described in detail how
the deceased, who was younger, bigger and stronger than him, tried to wrestle the firearm
from him. They both fell backwards; the deceased fell on top of him. During the skirmish,
the firearm went off and he remembers Mr Dumezweni looking down at him. He shouted
to Mr Dumezweni to call an ambulance and turned his attention to the deceased. He saw
the deceased had no blood at that stage, just a ‘tiny wound’. He tore off the deceased’s
T-shirt and put it under his head, threw his firearm into a ditch and then put the deceased
into his car with the help of a passer-by and rushed to Sunward Park Hospital. The police
fetched him from the hospital and on his return to the property he fetched the firearm from
the ditch and gave it to the police, and his wife also handed over the pellet gun.
[11] Mr Dumezweni denied having seen the appellant wrestling with the deceased for
the firearm; denied that they both fell; denied that the fatal shot went off during the
altercation as they fell; and denied seeing the appellant lying flat on his back. Mr
Dumezweni was insistent that both the appellant and the deceased were standing when
the deceased was shot. Any suggestion that the incident took place on the appellant’s
property was vehemently rejected. When this was put to Mr Dumezweni his response
was that the appellant’s property was ‘far away from the spot where [the appellant] shot
[the deceased]’. He maintained that the deceased had fallen on the road.
[12] It is difficult to understand, on his own version, exactly what was visible to
Mr Dumezweni and what he actually saw of the shooting incident. He said the reason why
he did not see the shooting was because the cattle were in front of him and he was
approaching from behind. Even though he did not see the shooting, he heard the sound
of a gunshot and saw the deceased falling down. In his evidence in chief Mr Dumezweni
said that he heard only one shot. Later he confirmed to the appellant that he had heard
three shots being fired but maintained that these were from the pellet gun and not the
revolver.
[13] Constable Phoshoko and Constable Chepape were the police officers who
arrested the appellant soon after the shooting. They testified that they were called to the
scene of the shooting where they found the deceased’s jersey, jacket and a two litre bottle
of milk lying on the ground. Mr Dumezweni told them that the deceased had gotten into
an argument with the appellant, who had then shot him. The appellant had taken the
deceased to hospital immediately afterwards. The police fetched the appellant from the
hospital and brought him back to the scene. As requested, the appellant went into the
house and fetched two guns, a revolver and a pellet gun. The revolver had no ammunition
in it and there were no spent cartridges on the scene. Both constables said there was no
blood on the clothing of the appellant and no blood on the scene. They saw no fencing
around either of the properties, the appellant’s and the neighbouring plot 104, although
Constable Chepape made reference to a fence around the appellant’s house.
[14] Warrant Officer Shadung, working with the forensic unit confirmed that the revolver
and air gun were in working order. The revolver had a chamber for 5 rounds of ammunition
in the cylinder. He testified that the revolver could not go off accidentally.
[15] What took on great significance in the course of the trial was whether there was
gunshot residue around the wound sustained by the deceased. If a bullet were to be fired
at close range, as in a struggle, one would expect to find ‘tattooing’ or ‘starring’ on the
skin. This is the presence of small puncture-like wounds on the skin in a regular pattern.
Warrant Officer Shadung said that a gunshot from up to 50 cm away would cause
tattooing from the gun powder residue. The skin would tear apart into a star shape or
cross sign and that is where you would find the powder tattooing. Dr Alverez, the trauma
surgeon at Sunward Park said that the deceased was bleeding profusely from a
gunshot wound on the right side of chest, under the arm. Although not a ballistics expert,
he saw no tattooing, no starring, and no stellated lesions (these are lesions normally seen
with close proximity contact or high velocity ballistic penetration).
[16] Dr E Apatu, the forensic pathologist who conducted the post mortem testified that
the bullet went into the right hand side of the chest, then upwards and back into the left
chest cavity. There was blood in the right chest cavity, a partially collapsed right lung with
a perforating wound in the lower lobe of the right lung. The left lung was intact. As to the
position of the shooter when the revolver was fired, she vacillated between saying that
the gun was shot at a ninety degree angle which she then changed to forty five degrees,
and then again, changed to somewhere in between. On whether the shot was at close
range Dr Apatu said that she did not note any gunshot residue around the wound but
because it was a regular circular wound it was not a distant shot. She then said it was
‘maybe at the end of close range, the beginning of intermediate range’. She said if she
were to make, what she described as a very rough guess, the gun would have been
perhaps 30 cm or more from the deceased when it went off. She concluded that the
autopsy was not suggestive of a close contact wound, based on her findings. This was
because one would have found imprints of the muzzle, either partial or complete, and a
stellate wound. If a little further away one would expect tattooing which was also not
present.
[17] The trial court identified 5 issues for determination: whether the appellant
intentionally shot the deceased; whether the deceased and the appellant were a distance
away from each other when the shot went off, or struggling for the firearm; whether
Mr Dumezweni and the deceased threatened the appellant; whether the cattle were on
the appellant’s property; and whether the firearm was recovered from inside the
appellant’s house or from a trench on his property.
[18] The trial court accepted the testimony of Mr Dumezweni describing him as a
consistent and honest witness who withstood ‘lengthy and gruelling’ cross examination
by an unrepresented accused. The court appeared to accept that the evidence of
Mr Dumezweni as a single witness, who on his own admission did not see the firearm go
off, would have been insufficient to prove that the version of the appellant could not be
reasonably possibly true. It held that the cautionary rule in respect of single witnesses
required further ‘guarantees’.
[19] These took the form of corroboration for Mr Dumezweni’s version in the evidence
of the other state witnesses, particularly Dr Apatu, Warrant Officer Shadung and
Dr Alverez. The trial court said that ‘all three experts testified the firearm was not in close
proximity to the deceased when he was shot. There was no starring or tattooing to show
the firearm was close to the deceased’s chest when the deceased was shot’. Therefore,
it was concluded that there was no close contact at the time and the appellant’s version
that he was in a skirmish over the firearm with the deceased when the shot went off could
not be believed.
[20] It is against this evidence that one must assess whether the appellant had a fair
trial. While the trial court had been cognisant of the need to explain fully to the appellant
the consequences of declining legal representation at the outset of the trial, at the end of
the state’s case, the court merely reminded the appellant that he had the right to testify
and to call witnesses and that they would be cross-examined by the prosecutor.
Notwithstanding the technical nature of some of the state’s evidence, it was not drawn to
the attention of the appellant that the expert evidence may need to be rebutted by an
expert witness. Nor was it suggested to him that in light of the evidence led by the state
he should reconsider whether he required legal representation.
[21] Even during sentencing, on 1 June 2018, the magistrate remarked that the
appellant believed that his conviction ‘was based on perceptions, and that the expert
evidence should be reconsidered.’ This could have been remedied when the appellant
procured the services of an attorney to argue his leave to appeal. Together with the
application for leave to appeal, the appellant’s legal representative brought an application
to adduce further evidence in terms of s 309B(5) of the Criminal Procedure Act 51 of 1977
(the CPA). This section provides:
‘(5) (a) An application for leave to appeal may be accompanied by an application to adduce
further evidence (hereafter referred to as an application for further evidence) relating to the
conviction, sentence or order in respect of which the appeal is sought to be noted.
(b) An application for further evidence must be supported by an affidavit stating that—
(i)
further evidence which would presumably be accepted as true, is available;
(ii)
if accepted the evidence could reasonably lead to a different decision or order; and
(iii)
there is a reasonably acceptable explanation for the failure to produce the evidence
before the close of the trial.
(c) The court granting an application for further evidence must—
(i)
receive that evidence and further evidence rendered necessary thereby, including
evidence in rebuttal called by the prosecutor and evidence called by the court; and
(ii)
record its findings or views with regard to that evidence, including the cogency and the
sufficiency of the evidence, and the demeanour and credibility of any witness.
(6) Any evidence received under subsection (5) shall for the purposes of an appeal be deemed
to be evidence taken or admitted at the trial in question.’
[22] An application was made by the appellant to call the evidence of a land surveyor,
Mr Muller, and Mr Wolmarans, a forensic and ballistic expert, formerly employed by the
South African police for more than 20 years. Mr Muller, using the police photographs,
identified the spot where the deceased was shot by establishing where the clothing was
photographed by the police immediately after the shooting. He concluded that this point
was on the appellant’s property, not on the road or the neighbouring plot. This contradicts
the evidence of Mr Dumezweni.
[23] Mr Wolmarans reconstructed the scene. His report details various inconsistencies
in the evidence of Mr Dumezweni. Significantly, he stated that because the deceased was
wearing a T-shirt, any gunshot residue would be found on the clothing rather than the
skin. As the clothing was not sent to the forensic unit, Warrant Officer Shadung was not
aware that it could provide a filter effect for the gun shot residue. Similarly, the pathologist
never received the T-shirt, nor was this fact put to her during her testimony. In
Mr Wolmarans’ view, because the shot was fired upwards, the possibility of the shot going
off in a struggle could not be excluded. As regards the pressure required to fire the
revolver, he stated that Warrant Officer Shadung was correct that the firearm can only fire
with the correct pressure and double action requires more pressure than single pressure
but the pressure was not tested.
[24] In his judgment on the application to adduce further evidence, the magistrate
dismissed the application on the grounds that he had already found that the appellant’s
evidence on how the deceased had obtained the gunshot wound to be a fabrication.
Therefore, the evidence of the proposed witnesses would not materially change the
outcome of the trial. As regards the fact that the appellant had conducted his own defence,
quoting S v Petzer and Another,1 the magistrate found this to constitute insufficient
grounds to allow further evidence. This was particularly so, the magistrate found, in
circumstances where he had explained to the appellant that he was entitled to call
witnesses to support his case.
[25] The locus classicus on the test to be applied for a successful application to adduce
further evidence is S v de Jager.2 This decision was before the enactment of s 309B3 but
the basic principles remain unchanged, now subject to the Constitution. Holmes JA said:
1 S v Petzer and Another [1992] 1 All SA 99 (A); 1992(1) SACR 633 (A).
2 S v de Jager [1965] 2 All SA 490 (A); 1965 (2) SA 612 (A) at 613c-d.
3 This section was inserted by s3 of The Criminal Procedure Amendment Act 76 of 1997, which came into
effect on 28 May 1997.
‘This Court, can, in a proper case, hear evidence on appeal; see R v Carr 1949 (2) 693 (AD); but
the usual course, if a sufficient case has been made out, is to set aside the conviction and
sentence and send the case back for the hearing of the further evidence, as was done, for
example, in R v Mhlongo and Another 1935 AD 133. However, it is well settled that it is only in an
exceptional case that the Court will adopt either of the foregoing courses. It is clearly not in the
interests of the administration of justice that issues of fact, once judicially investigated and
pronounced upon, should lightly be re-opened and amplified. And there is always the possibility,
such is human frailty, that an accused, having seen where the shoe pinches, might tend to shape
evidence to meet the difficulty. Accordingly, this Court has, over a series of decisions, worked out
certain basic requirements. They have not always been formulated in the same words, but their
tenor throughout has been to emphasise the Court’s reluctance to re-open a trial. They may be
summarised as follows:
(a)
There should be some reasonably sufficient explanation, based on allegations which
may be true, why the evidence which is sought to lead, was not led at the trial.
(b)
There should be a prima facie likelihood of the truth of the evidence.
(c)
The evidence should be materially relevant to the outcome of the trial.’
Non-fulfilment of any one of these requirements would ordinarily be fatal to the
application.4
[26] It has been held that the exercise of the court’s discretion to receive further
evidence will be reserved for only exceptional circumstances.5 There can be no doubt
that there is a general need in the public interest for finality in duly concluded litigation.6
This must be seen in the light of every person’s right to a fair trial as set out in s 35(3)7 of
the Constitution, which is now the overarching consideration in all trials.
4 S v de Jager fn 2 above at 613E.
5 Colman v Dunbar 1933 AD 141 at 161-3; R v Carr 1949 (2) SA 693 (A) at 699; S v Louw [1990] 4 All SA
703 (AD);1990 (3) SA 116 (A) at 123H; Rail Commuters Action Group and Others v Transnet Ltd t/a Metro
Rail and Others [2004] ZACC 20 (CC); 2005 (4) BCLR 301 (CC);2005 (2) SA 359 (CC) para 41; Bo-Kaap
Civic and Ratepayers Association and Others v City of Cape Town and Others [2020] 2 All SA 330 (SCA);
[2020] ZASCA 15 para 64.
6 S v Sterrenberg 1980 (2) SA 888 (A) at 893F-G.
7 Section 35 (3) of the Constitution provides:
‘(3) Every accused person has a right to a fair trial, which includes the right –
(a) to be informed of the charge with sufficient detail to answer it;
(b) to have adequate time and facilities to prepare a defence;
(c) to a public trial before an ordinary court;
(d) to have their trial begin and conclude without unreasonable delay;
(e) to be present, when being tried;
(f) to choose, and be represented by, a legal practitioner, and to be informed of this right promptly;
[27] This Court in Hanuman v S8 found that the affidavit of an 11 year old complainant
who sought to retract her allegations of sexual impropriety against her step-father, could
not reasonably be true. The application to adduce further evidence was refused. So too,
in S v Romer,9 where an appellant sought to lead further medical evidence on the
appellant’s defence of sane automatism. This Court held that the medical evidence was
controversial and related to conviction rather than sentence which was the subject of the
appeal.
[28] The question of adducing further evidence has been dealt with in several high court
decisions. In Munyai v S,10 the complainant sought to recant her evidence that the
appellant raped her. The court was not entirely convinced that the second requirement,
namely the truth of the complainant’s allegations, had been met. However, it was not
disputed that the complainant and the appellant had had consensual sex encounters
when he was out on bail. While this did not necessarily mean that the earlier rape had not
occurred, the court held that there was the very real danger of a miscarriage of justice.
The conviction and sentence were set aside and the matter referred back to the trial court
for the hearing of further evidence, on the truth or falsity of the rape allegations, subject
to certain directives, including making provision for legal representation for the
complainant.
(g) to have a legal practitioner assigned to the accused person by the state and at state expense, if
substantial injustice would otherwise result, and to be informed of this right promptly;
(h) to be presumed innocent, to remain silent, and not to testify during the proceedings;
(i) to adduce and challenge evidence;
(j) not to be compelled to give self-incriminating evidence;
(k) to be tried in a language that the accused person understands or, if that is not practicable, to have the
proceedings interpreted in that language;
(I) not to be convicted for an act or omission that was not an offence under either national or international
law at the time it was committed or omitted;
(m) not to be tried for an offence in respect of an act or omission for which that person has previously been
either acquitted or convicted;
(n) to the benefit of the least severe of the prescribed punishments if the prescribed punishment for the
offence has been changed between the time that the offence was committed and the time of sentencing;
and
(0) of appeal to, or review by, a higher court.’
8 S v Hanuman [1998] 1 All SA 254 (A); 1998 (1) SACR 260 (SCA).
9 S v Romer [2011] ZASCA 46; 2011 (2) SACR 153 (SCA).
10 Munyai v S 2017 (2) SACR 168 (GJ); [2017] 3 All SA 23 (GJ); [2017] ZAGPJC 121.
[29] In Sebofi v S,11 the court mero motu remitted the matter for further evidence and
directed that the magistrate call for evidence relating to the specimens taken at the
medical examination and the laboratory results, as well as any cell phone records that
may exist. In that matter, another rape case, the court decried the paucity of evidence
which was not commensurate with the seriousness of the charges and the resultant life
sentence. The calibre of the case presentation by both the defence and the prosecution,
and the lack of proper forensic investigation was deprecated. It was found the magistrate,
despite her best endeavours, had not done enough to ensure that there was a fair trial.
[30] In War v S12, another instance of the recantation of a rape allegation by a child
whose father allegedly raped her, the court granted an application to the trial court to lead
further evidence. In this instance, the child herself had given conflicting versions even
before the trial began. The court found that there was no reason to prefer the one version
over the other and as the appellant was facing life in prison, it would be an affront to
justice to deny the appellant the opportunity to investigate the evidence foreshadowed in
the application.
[31] More recently in Lottering v S,13 an application in terms of s 309B(5) by the
appellant, who was a policeman convicted of armed robbery, was declined. The appellant
sought to call his wife as witness and laid his failure to do so during the trial at the door
of his legal representative. The court held that the appellant’s wife clearly had an interest
in her husband’s acquittal and, in any event, the complainant’s identification of the
appellant was overwhelmingly convincing. The court noted the different considerations in
criminal and civil trials14 and stressed the importance of finality in litigation, which had
been enunciated in a long line of decisions. It was held that such applications should not
be granted where there is but a token compliance with s 309B(5)(b).
11 Sebofi v S [2016] ZAGPJHC 290.
12 War v S 2015(1) SACR 571 (GP).
13 Lottering v S 2020 (2) SACR 629 (WCC).
14 Ibid para 28, where reference is made to S v Carr.
[32] While finality in litigation is an important consideration, this should not be at the
expense of an accused person’s fair trial rights. In this instance, it was not enough for the
magistrate, at the end of the State’s case, to have merely informed the appellant, an
unrepresented accused, that he could call witnesses in his defence. The importance of
the forensic evidence, and its possible impact on the eventual outcome of the trial, should
have been fully explained to the appellant. As a layperson, and from a perusal of the
record, it is clear that he did not have sufficient skill and expertise to understand what
countervailing evidence was required and, indeed, where he may procure evidence of
such a specialised nature. The magistrate, after explaining the consequences of the
evidence, should have asked the appellant whether he wished to call expert witnesses in
rebuttal, and if necessary, assisted him in doing so. It would also have been apt at this
stage to suggest to the appellant that he reconsider his stance on legal representation,
once faced with evidence of a technical nature. The magistrate’s failure to adopt either
course of action, in my view, rendered the trial unfair.
[33] Where an appeal court has found the trial to be unfair, various options are open to
it. Section 19 of the Superior Courts Act15 empowers a court hearing an appeal to remit a
case to the court of first instance or ‘confirm, amend or set aside the decision which is the
subject of the appeal and render any decision which the circumstances may require’.16
Generally, courts have looked favourably upon remittal to the trial court for the hearing of
further evidence, which is primarily of a formal and technical nature.17 But this is not
necessarily so. The overriding principle must always be the interest of justice.
[34] The question then arises whether to remit the matter back to the trial court or direct
that the matter commences de novo. In Sebofi the court declined an invitation by the State
to order that the trial start de novo in terms of ss 313 and 324 of the CPA.18 It found that
this was not an option open to it, as there was no question of invalidity in the sense
contemplated in those sections, which are confined to technical failures.
15 Superior Courts Act 10 of 2013.
16 Ibid, section 19(d).
17 Mathikinca v S [2015] ZAWCHC 134; 2016 (1) SACR 240 (WCC) para 17; S v Ross [2012] ZAWCHC
171; 2013 (1) SACR 77 (WCC) para 13.
18 Sebofi v S fn 11 above.
[35] In Mokoena v S19 this Court dealt with a technical irregularity in terms of s 324A
which resulted in the failure of justice. The high court had remitted the matter back to the
same magistrate for the re-opening of the case to allow the leading of further evidence.
This Court found that because the magistrate had already made strong credibility findings
against the appellant it was not in the interests of justice that the same magistrate
adjudicate the case.
[36] Here too, the magistrate has made an adverse credibility finding against the
appellant. More importantly, he has decided that the proposed evidence would make no
material difference to the outcome of the case. In circumstances where a judicial officer
has pre-determined an issue, remittal on the very same issue would amount to a
miscarriage of justice. To remit this matter to the trial court under these circumstances for
the adjudication of further evidence would not be fair to the appellant. Once this is so, the
only alternative is for the matter to start de novo before a different magistrate.
[37] In the result the following order is made:
The appeal is upheld.
The order of the high court is set aside and replaced with the following
order:
‘(a) The appeal is upheld and the conviction and sentence of the appellant
are set aside.
(b) The trial is to start de novo in the regional court, Vosloorus before a
different presiding officer.’
19Mokoena v S [2019] ZASCA 74; 2019 (2) SACR 355 (SCA).
___________________
C NICHOLLS
JUDGE OF APPEAL
APPEARANCES:
For appellant:
F Roets
Instructed by:
Botha-Booysens & Van As Attorneys, Boksburg
Symington & De Kok, Bloemfontein
For respondent:
M Mashego
Instructed by:
The Director of Public Prosecutions, Johannesburg
The Director of Public Prosecutions, Bloemfontein.
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
23 April 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does not form part of
the judgments of the Supreme Court of Appeal
Alfred Jan Bezuidenhout v The State (41/2020) [2021] ZASCA 52 (23 April 2021)
Today the Supreme Court of Appeal (SCA) upheld the appellant’s appeal against an order of the Gauteng Division
of the High Court, Johannesburg.
This matter has its genesis in the Regional Court, Vosloorus, where the appellant was convicted of murder of one
Bisani Tshukela (the deceased) and the illegal possession of a 38 calibre revolver. The appellant was sentenced to
15 years and 8 years imprisonment, respectively, and the sentences were ordered to run concurrently, an effective
term of 15 years.
The appellant was refused leave to appeal by the trial court. So too, was an application in terms of s 309B(5) of
the Criminal Procedure Act 51 of 1977 (the CPA) to adduce further evidence. On petition to the High Court,
Gauteng Division, the appellant was granted leave to appeal against the sentence only. In his application for leave
to appeal the conviction for murder to the SCA, he also sought an order that the case be remitted to the regional
court for further evidence to be heard. He was granted special leave by the SCA to appeal the merits of his
conviction.
The central question before the SCA was whether the appellant had a fair trial. At his first appearance, the
appellant appeared in person. Although his right to legal representation was explained to him, he elected to appear
in person. At a later stage the appellant appointed a legal representative from Legal Aid however, the attorney did
not appear on behalf of the appellant save on one occasion where she appeared and confirmed that the appellant
did not require the court to sit with assessors. When the matter was set down for trial the attorney remained absent.
The appellant addressed the court stating that he did not wish to have an attorney and had only done so on the
court’s advice, and he wished to finalise the matter. The court then concluded that that it was his right to conduct
his own defence, but informed him that he would have to lead and cross-examine witnesses and was further
advised of his right to appoint an alternative attorney.
The SCA held that while the trial court had been cognisant of the need to explain fully to the appellant the
consequences of declining legal representation at the outset of the trial, at the end of the state’s case, the court
merely reminded the appellant that he had the right to testify and to call witnesses and that they would be cross-
examined by the prosecutor. Notwithstanding the technical nature of some of the state’s evidence, it was not drawn
to the attention of the appellant that the expert evidence may need to be rebutted by an expert witness. Nor was it
suggested to him that in light of the evidence led by the state that he should reconsider whether he required legal
representation. The SCA held further that the importance of the forensic evidence, and its possible impact on the
eventual outcome of the trial, should have been fully explained to the appellant. As a layperson, and from a perusal
of the record, it was clear that the appellant did not have sufficient skill and expertise to understand what
countervailing evidence was required and where he may procure evidence of such a specialised nature. The
magistrate, after explaining the consequences of the evidence, should have asked the appellant whether he wished
to call expert witnesses in rebuttal, and if necessary, assisted him in doing so. It would also have been apt at that
stage to suggest to the appellant that he reconsider his stance on legal representation, once faced with evidence of
a technical nature. The magistrate’s failure to adopt either course of action, said the SCA, rendered the trial unfair.
This could have been remedied when the appellant applied for leave to appeal and made an application to adduce
further evidence in term of s309B(5) of the CPA. The appellant sought to call two expert witnesses who could
have cast doubt on some of the evidence of the state witnesses. The magistrate dismissed the application on the
basis that he had already disbelieved the appellant’s version and therefore the proposed evidence would have no
impact on the outcome of the matter.
In view of the above, the SCA upheld the appeal, set aside the appellant’s conviction and sentence, and ordered
that the trial should start de novo in the Regional Court, Vosloorus, before a different magistrate.
--------oOo--------
|
4132
|
non-electoral
|
2023
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case no: 979/2022
In the matter between:
AFRICAN NATIONAL CONGRESS
APPELLANT
and
EZULWENI INVESTMENTS (PTY) LTD
RESPONDENT
Neutral citation: African National Congress v Ezulweni Investments (Pty) Ltd
(Case no 979/2022) [2023] ZASCA 159 (24 November 2023)
Coram:
GORVEN,
MEYER
and
WEINER JJA
and
CHETTY
and
UNTERHALTER AJJA
Heard:
7 November 2023
Delivered: 24 November 2023
Summary: Contract – conclusion – authority to conclude – test for factual disputes
– evaluation of evidence – bare denials coupled with untenable version – no bona
fide factual disputes.
Civil procedure – evidence on appeal – test – requirements not met.
__________________________________________________________________
ORDER
______________________________________________________________________________
On appeal from: Gauteng Division of the High Court, Johannesburg (Adams,
Makume and Twala JJ, sitting as court of appeal):
The application to admit evidence on appeal is dismissed with costs.
The appeal is dismissed with costs, including the costs of two counsel where
so employed.
__________________________________________________________________
JUDGMENT
__________________________________________________________________
Gorven JA (Meyer and Weiner JJA and Chetty and Unterhalter AJJA
concurring)
[1] The respondent, Ezulweni Investments (Pty) Ltd (Ezulweni), claimed to have
concluded an agreement on 20 February 2019 with the appellant, the African
National Congress (the ANC).1 This the ANC denied. Ezulweni then applied to the
Gauteng Division of the High Court, Johannesburg (the high court) for payment of
R102 465 000, along with interest and costs. The high court, per Bhoola AJ, granted
the relief sought by Ezulweni. The ANC was granted leave to appeal to the full court
of that division. The full court, per Adams J, with Makume and Twala JJ concurring,
turned down the appeal with costs. This court granted the ANC special leave to
appeal and this is the resultant appeal.
1 All of the events relevant to this matter took place in 2019. Unless reference is made to another year, all dates refer
to 2019.
[2] Two initial matters bear mention. The first is that the appeal had lapsed and
an application was made by the ANC for its reinstatement. After argument was
heard, the panel adjourned briefly, and thereafter made an order reinstating the
appeal. No costs order was sought or made.
[3] The second relates to an application to admit further evidence on appeal
brought by the ANC. It was based on s 19(b) of the Superior Courts Act 10 of 2013.
Once more, after hearing the submissions of the parties, the panel adjourned briefly,
and then made an order dismissing that application with costs. It was indicated at the
time that the reasons for that decision would be furnished along with the judgment
in the appeal. Those reasons are given below after the appeal has been dealt with.
[4] For the sake of brevity, I shall refer to the persons who were involved by only
their surnames after first mention. The undisputed facts follow. At all material times,
the Chief Executive Officer of Ezulweni was one Mr Renash Ramdas. Ramdas
described himself as a long-standing and loyal member of the ANC. Another
company with which Ramdas was associated had provided election banners and
materials to the ANC for the 2014 elections. Ramdas had dealt with Mr Mabaso, the
Finance Manager of the ANC, on that occasion. A general election in South Africa
was called for 8 May. During January, Ramdas approached Mabaso and asked him
to arrange a meeting with Mr Mashatile, the Treasurer General of the ANC. He
indicated that he wished to make a presentation for the supply of election banners,
their placement and removal for the new election campaign. Mabaso arranged a
meeting later in January at the headquarters of the ANC, Luthuli House. There he
introduced Ramdas to Mr Nkholise, the Personal Assistant to the Head of the
Elections Campaign, Mr Mbalula. Mabaso, Nkholise and Ramdas agreed to meet on
20 February.
[5] Thus far there was no dispute. Thereafter, the versions diverged somewhat.
The primary submission of the ANC before us was that the papers exhibited factual
disputes which could not be resolved in favour of Ezulweni. As a result, I shall
summarise each of the versions, in turn, so as to evaluate that submission. Despite
diverging in certain respects, the versions coincide at various points as will become
clear.
[6] The version of Ezulweni was deposed to by Ramdas. In anticipation of the
meeting of 20 February, he sent Nkholise a quote dated 11 February reflecting the
prices of items which could be supplied. The first item was titled ‘Banners’. These
were described as ‘230 cm x 100 cm PVC banner including 2 metal rod U-bolts &
nuts that fit onto street pole’ and the unit price was R2 900.
[7] The 20 February meeting took place at the Garden Court Hotel in Eastgate.
The same three persons met on that occasion, along with an additional person from
Ezulweni. An oral agreement was concluded. Mabaso and Nkholise placed an order
for 30 000 branded PVC banners at an agreed price of R2 900 per banner. In
addition, a price of R70 per banner was agreed for their placement and removal.
These would be employed as a final push to attract voters to the polling stations.
Ezulweni would send designs for approval and place the banners shortly before the
elections. It would remove them thereafter.
[8] After the meeting, Ezulweni set about filling the order. This included
designing and ordering the printing of the banners from entities in Durban and China,
ordering the material for the metal hangers and employing additional staff to assist
in the production. Because some of the suppliers required deposits, Ramdas initially
approached Nkholise, requesting assistance from the ANC in this regard. Nkholise
said that this was not possible due to cash-flow constraints caused by the general
election, but he assured Ramdas that Ezulweni would be paid immediately after the
election campaign. The interim funding was then provided by one Mr Motlekar and
the directors of Ezulweni personally.
[9] Thereafter, Ramdas ‘constantly communicated with [Nkholise and Mabaso]
and kept them abreast of the progress of the project’. He put up photographs ‘which
were shared with’ them and which showed such progress. These two sets of
averments were not denied by the ANC, they were simply ‘noted’.
[10] On 4 April, Ezulweni sent an invoice to Nkholise for R87 million for the
30 000 PVC banners.2 The legend was that these were ‘[as] per samples provided’.
The ANC admitted receipt. After the election, final invoices for R100 050 000 and
R2 415 000 respectively were sent.3
[11] On 9 April, Mabaso and Nkholise forwarded three documents to Ramdas. The
first was an email containing the final design for the ‘Call to Vote’ banners. The
second document was a photograph of a letter dated 2 April over the signature of
Mbalula, addressed to Mashatile, and copied to one Mahlalela and to Mabaso. The
letter was headed ‘Re: Signing of Election’s money’ (the 2 April letter). It informed
Mashatile and the others as follows:
‘This communiqué serves to inform the Finance department that Comrade Lebohang Nkholise has
been assigned as the signatory for bookings and money for the duration of the Elections
Campaign’.
2 This was a VAT exclusive amount. The final invoices included VAT.
3 On this occasion, both included VAT. The second invoice was for the placement and removal of the banners.
The third document was a photograph of a letter dated 9 April (the 9 April letter)
addressed to Mashatile containing the signature of Mbalula which requested
assistance with the payment of the invoice of 4 April for R87 million and attached
the invoice. I shall return to these letters in due course.
[12] Ramdas had set up a dedicated WhatsApp group for the project comprising
Mabaso, Nkholise and him. Between 29 April and 3 May, Ramdas sent a large
number of WhatsApp messages (the messages) to the other two. These included:
(a) Photographs of the banners;
(b) A message saying that Ezulweni had paid for the airfreight in the sum of
R1.2 million for importing the PVC banners from China and proof of that payment;
(c) Photographs of the finished brackets of the banners and a message advising that
the banners would be distributed throughout the country, excluding Cape Town;
(d) Photographs of the banners in various locations;
(e) A message advising that, due to the nature of the logistics involved, Ezulweni
had employed 100 teams and that each team would place 300 banners.
The ANC admitted that such a group had been set up and that Mabaso and Nkholise
had received the messages and photographs sent by Ramdas to the group.
[13] On 4 May, four days before election day, a meeting was held at the Garden
Court Hotel between Ramdas, Mabaso and Nkholise. This was admitted. The
meeting included a progress report by Ramdas. By the date of this meeting, the
banners and hangers had all been made. Two days later, on 6 May, Ramdas sent a
message to the other two advising them of the areas where the banners had been
placed along with photographs of them in situ. After the election, Ezulweni had the
banners removed and informed Mabaso and Nkholise to that effect, supplying
photographs of the stored banners.
[14] The final two invoices were sent but remained unpaid. Various approaches to
the ANC elicited unfulfilled promises. On 11 June, Ramdas and Mabaso met at the
Holiday Inn in Eastgate. Ramdas requested payment and claimed that Mabaso
acknowledged indebtedness. By letter dated 1 July, Ezulweni wrote to the Secretary-
General of the ANC, Mr Magashule, requesting resolution of the matter. No
response was received. By letter dated 25 July, Ezulweni wrote to the President of
the ANC requesting payment. No response was received. Two letters, dated 6 and
13 August respectively, were sent to the ANC by Ezulweni’s attorneys demanding
payment. Only the second of these received a response from Mashatile. He
acknowledged receipt and said the ‘matter is receiving attention, I will revert to you
in due course.’ The promised response did not materialise. The ANC admitted the
averments concerning these letters.
[15] The version of the ANC follows. It admitted that the meetings testified to by
Ramdas were held with Mabaso and Nkholise, but contended that no agreement was
either negotiated or concluded at any of those meetings. The sole content of the
meetings, and the sole purpose of Mabaso and Nkholise attending them, was to
convey to Ramdas that only Mashatile could authorise election material, and that a
purchase order had to be issued before any agreement could be concluded. In support
of this contention, the answering affidavit placed heavy reliance on the Supply Chain
Policy of the ANC which was said to provide that such was the case. It had no such
provisions. The ANC abandoned reliance on the Supply Chain Policy in the full
court and did not rely on it in this court. It is safe to say that this aspect was the main
basis on which the ANC sought to meet the claim of Ezulweni in the court of first
instance.
[16] The ANC denied that the quotation dated 11 February had been sent to
Nkholise prior to the 20 February meeting. It admitted receiving all of the messages
sent by Ramdas on the dedicated WhatsApp group he set up. It said that no responses
were ever sent because none were required. It admitted receipt of the photographs
showing the progress and the installed banners. It admitted sending the email to
Ramdas on 9 April containing the final design for the ‘Call to Vote’ poster. This, it
said, was sent for information purposes and not ‘to confirm approval of any
agreement between the parties.’
[17] It gave no explanation for its denial that Nkholise had sent Ramdas a copy of
the 2 April letter assigning Nkholise as ‘signatory for bookings and money for the
duration of the Elections Campaign.’ It did not explain how this came into the
possession of Ramdas. As regards the 9 April letter, the following explanation was
given. Nkholise wrote this letter after being approached by Ramdas on 9 April with
an oral proposal. The nature of the proposal was not disclosed. In the letter, Nkholise
requested Mashatile to make payment to Ezulweni of R87 million for 30 000
banners and attached the invoice of 2 April with the legend ‘As per samples
provided’. The letter was not signed by Mbalula. His electronic signature was
inserted by Nkholise, who intended to put it before Mbalula for his consideration.
This never happened. Nor did Nkholise send a copy to Ramdas. ‘As far as [Nkholise]
knows, the letter stayed in his office’ because he ‘never got the opportunity to discuss
the letter with Mbalula before the elections.’
[18] The ANC made much of a letter dated 8 March addressed by Ramdas to ‘The
Executive Council Elections’. The letter thanked that body ‘for the opportunity of
having been requested to quote for the 2019 elections’. It requested the issue of a
formal order ‘so that manufacturing and delivery can begin in earnest’. It said that
Ezulweni could not ‘stress the urgency of our request enough’. The ANC submitted
that this document showed that no agreement had been concluded. In reply,
Ezulweni indicated that it sought assurance in this communication which was
provided by the forwarding of the 2 April letter and the 9 April letter, along with the
final banner design.
[19] The ANC admitted that Mabaso and Nkholise met with Ramdas on 11 June.
It admitted that, at that meeting, Ramdas asked for payment of the invoices. It said
that, although he did so, Mabaso told him that ‘payment would not be possible
without a purchase order and that a purchase order was never issued because there
was no approval by [Mashatile]’. The ANC further admitted that no responses were
given to the various letters requesting payment sent by Ezulweni, apart from the last
one indicating that the ANC would revert to Ezulweni. This, it admits, was not done.
Instead, the ANC stated that the Finance Department had investigated and decided
that there was no agreement. Significantly, no communication emanating from the
ANC denied that the banners were supplied, placed, and taken down as averred by
Ezulweni.
[20] The question arises whether the version of the ANC raises bona fide factual
disputes such that the matter should not have been resolved in favour of Ezulweni
on the papers. The test is a well-worn one. In Stellenbosch Farmers’ Winery Ltd v
Stellenvale Winery (Pty) Ltd, it was held that:
‘. . . where there is a dispute as to the facts a final interdict should only be granted in notice of
motion proceedings if the facts as stated by the respondents together with the admitted facts in the
applicant’s affidavits justify such an order . . . Where it is clear that facts, though not formally
admitted, cannot be denied, they must be regarded as admitted.’4
4 Stellenbosch Farmers’ Winery Ltd v Stellenvale Winery (Pty) Ltd 1957 (4) SA 234 (C) at 235E-F.
This approach was later clarified and qualified by Corbett JA in Plascon-Evans
Paints Ltd v Van Riebeeck Paints (Pty) Ltd:
‘It seems to me, however, that this formulation of the general rule, and particularly the second
sentence thereof, requires some clarification and, perhaps, qualification. . . [T]here may be
exceptions to this general rule, as, for example, where the allegations or denials of the
respondent are so far-fetched or clearly untenable that the Court is justified in rejecting them
merely on the papers . . .’.5
Harms DP elaborated, holding that where a ‘version consists of bald or
uncreditworthy denials, raises fictitious disputes of fact, is palpably implausible, far-
fetched or . . . clearly untenable’,6 the court is justified in rejecting it merely on the
papers. And Heher JA explained that a ‘real, genuine and bona fide dispute of fact
can exist only where the court is satisfied that the party who purports to raise the
dispute has in his affidavit seriously and unambiguously addressed the fact said to
be disputed’.7 With that in mind, the version of the ANC must be evaluated.
[21] It is not disputed that meetings between the three persons involved took place
in January, 20 February, 4 May and 11 June. The ANC denied that the purpose of
the meetings was to negotiate an agreement and denied that Mabaso or Nkholise
were authorised to conclude the agreement contended for by Ezulweni. At all of the
meetings, the two of them simply informed Ezulweni of the need to obtain a purchase
order and that only Mashatile could authorise the conclusion of an agreement.
5 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd [1984] ZASCA 51; 1984 (3) SA 623 (A) at 634H-635D;
[1984] 2 All SA 366 (SCA).
6 National Director of Public Prosecutions v Zuma [2009] ZASCA 1; 2009 (2) SA 277 (SCA); 2009 (1) SACR 361;
2009 (4) BCLR 393; [2008] 1 All SA 197 para 26.
7 Wightman t/a JW Construction v Headfour (Pty) Ltd [2008] ZASCA 6; 2008 (3) SA 371 (SCA); [2008] 2 All SA
512 para 13.
[22] There are serious difficulties with this version. If such was the case, it begs
the question why:
(a) Any further meetings were held after the initial one if they explained the clear
position at that meeting.
(b) In the face of that communication, Ezulweni went to the expense of ordering
materials and printing for the banners.
(c) Ezulweni ‘constantly communicated with’ Mabaso and Nkholise to keep them
abreast of progress.
(d) Mabaso and Nkholise did not respond to those messages by immediately
disabusing Ramdas of his belief that there was an agreement to supply the banners.
(e) Ezulweni sent photographs of the progress of the project.
(f) The photographs did not elicit a response from Mabaso and Nkholise denying the
agreement.
(g) Ezulweni sent an invoice for R87 million to Nkholise on 4 April.
(h) In response Nkholise drafted the 9 April letter to Mashatile requesting payment
of the R87 million rather than enquiring from Ramdas why an invoice had been sent
when no agreement had been concluded.
(i) Despite having said that he intended to raise this with Mbalula, Nkholise did not
do so.
(j) Nkholise intended to raise the letter with Mbalula if there was no agreement.
(k) A copy of the 9 April letter was sent by WhatsApp from Mabaso to Ramdas that
day.
(l) An email was sent to Ramdas on 9 April containing the final design for the ‘Call
to Vote’ banners if it was sent for information purposes only.
(m) Ezulweni would have had any interest in this design if there was no agreement.
(n) The 2 April letter came into the possession of Ramdas.
(o) Ramdas sent Mabaso and Nkholise numerous messages between 29 April and
3 May with photographs of the banners, information that Ezulweni had paid the
airfreight charges for them to be sent from China, photographs of the finished
brackets, information that Ezulweni had employed 100 teams which would each
place 300 banners, and photographs of the banners in various locations.
(p) The meeting which took place between the three of them on 4 May was for the
sole purpose of informing Ramdas that any agreement for the supply of such material
required a purchase order and the approval of Mashatile. This only four days before
the elections.
(q) It was claimed that there was no response to the message with photographs sent
in early May but Ezulweni was able to put up in reply an emoji sent by Mabaso of a
clenched fist in response to that message. This did not prompt an application to put
up a further affidavit in order to rebut this.
(r) The three of them held a meeting on 11 June where Ramdas requested payment
and Mabaso told him that no payment would be forthcoming because no purchase
order had been issued and Mashatile had not approved the agreement.
(s) The letters requesting payment were not immediately responded to stating that
there was no agreement between the parties. The only letter sent in response said
that the matter would be looked into.
[23] All of these factors, and more besides, demonstrate overwhelmingly that the
version put up by the ANC as to the interaction between Ramdas, Mabaso and
Nkholise is utterly untenable and without veracity. The ANC’s version is not capable
of belief in face of the cascade of communications from Ramdas that were met with
deafening silence from the ANC. The only credible response of an entity in the
position of the ANC, if its version was true, would have been immediately to set the
record straight so as to prevent Ezulweni proceeding at risk. This is especially so
since it was submitted before us that the relationship between the ANC and Ramdas
was a warm one. Those responsible for the election were provided evidence of the
work that was being done to produce the banners and then instal them. How did these
officials imagine this was happening, save on the basis of an agreement with
Ezulweni?
[24] The denials of the ANC fall into the category of bald, uncreditworthy denials
designed to create fictitious disputes of fact. The version of the ANC accordingly
does not raise bona fide factual disputes. It does not warrant the approach that the
matter should have been decided on its version. On the contrary, the court of first
instance and the full court were amply justified in basing their findings on the version
of Ezulweni where the two versions conflicted.
[25] One must therefore proceed on the basis that an agreement was reached on
20 February on the terms contended for between Ramdas, on the one part, and
Mabaso and Nkholise, on the other. That does not lead ineluctably to the conclusion
that a binding agreement between the parties was struck. It leads to the enquiry as to
whether Ezulweni made out the case that Nkholise was authorised to conclude such
an agreement on behalf of the ANC. The ANC submitted that Ezulweni failed to
prove either express or ostensible authority on the part of Nkholise to conclude such
agreement.
[26] The 2 April letter is central to the submission of Ezulweni that Nkholise had
actual authority to conclude the agreement. The ANC raised two arguments to
counter this:
(a) Properly construed, the 2 April letter did not confer authority on Nkholise;
(b) If it did so, the authority was conferred after 20 February, the date on which
Ezulweni claimed that the agreement was reached.
These shall be dealt with in turn.
[27] The first question relates to the interpretation of the 2 April letter. The letter
was titled, ‘Re: Signing of Elections Money’ and reads in its body:
‘This communiqué serves to inform the Finance department that Comrade Lebohang Nkholise has
been assigned as the signatory for bookings and money for the duration of the Elections
Campaign.’
The document stated that Nkholise ‘has been assigned’. The task to which he was
assigned was to be the ‘signatory for bookings and money’ relating to the election
campaign. The agreement clearly fell within that framework. The assignation clearly
took place prior to the date on which the letter was drafted or sent. No specific date
was given as to when the assignation took place, but it was said to be ‘for the duration
of the Elections Campaign’. The campaign had begun well before Ramdas met
Mabaso and Nkholise. On the face of it, then, Nkholise had been assigned to this
task for the entire duration of the election campaign.
[28] The context supports this textual interpretation. It was drafted and sent during
the election campaign. It appeared over the signature of Mbalula, the Head of
Elections, and was addressed to Mashatile, the Treasurer General, to Mabaso, the
finance manager and to one Mr Mahlalela whose position was not explained. It was
not denied that the 2 April letter was sent to those addressees.
[29] That Nkholise was authorised for the entire campaign is buttressed by other
facts. The meeting in January, where Mabaso introduced Ramdas to Nkholise, was
arranged because Ramdas requested a meeting with Mashatile. Ramdas told Mabaso
that he wanted to ‘make a presentation on behalf of the [respondent] for the supply
of branded goods to the ANC for the 2019 election campaign.’ Mabaso brought
Nkholise to the meeting for that purpose. Mabaso did not bring Mashatile. The ANC
did not explain why this was done if Mashatile alone could conclude agreements on
behalf of the ANC. The overwhelming probability is that Nkholise was brought to
that meeting because he was the person authorised at that time to conclude an
agreement concerning election campaign related matters.
[30] The subsequent events also bear out this conclusion. At the meeting, Nkholise
placed an order, based on the quotation sent on 11 February, for the election banners.
Nkholise and Mabaso were kept abreast of the steps taken by Ezulweni to fulfil its
obligations under the agreement by way of numerous uncontradicted messages.
Ramdas sent an invoice dated 4 April based on the existence of the agreement. That
prompted Nkholise to draft the 9 April letter to Mashatile saying:
‘This letter serves to request your office to assist us with the payment for 30 000 PVC Banners
required for the elections campaign. The total cost is R87 000 000.00 (R2 900 per PVC banner).
This letter is accompanied by an invoice from Ezulweni Investments.’
That was clearly a letter which assumes an agreement. It annexed the invoice without
in any way disputing that it had been furnished pursuant to a binding agreement. It
simply requested payment from the Treasurer General. That is not the action of an
unauthorised official. If Nkholise had not been authorised at the time the agreement
was concluded, the letter was likely to have requested Mashatile to ratify his actions
or would, at the least, have explained the background to his submission of the invoice
for payment.
[31] Both the 2 April letter and that of 9 April were sent to Ramdas in order to
reassure him that the agreement would be fulfilled and that Ezulweni would be paid.
If the case of the ANC was that Nkholise was authorised to conclude agreements
only after 2 April, it lay in the mouths of the officials of the ANC to say so. There
would presumably have been a resolution or, if not, a minute of a meeting at which
the decision took place. Both would have shown the date on which the decision was
arrived at. The ANC put up no such evidence. The inference is irresistible that, by
20 February, Nkholise was authorised to conclude agreements such as the present
one on behalf of the ANC.
[32] In the result, I find that on 20 February Nkholise had actual authority to
conclude the agreement in question. That is the end of the matter. No purpose would
be served in considering the submissions on the alternatives of ostensible authority
or estoppel raised by Ezulweni. These were only relied upon if this court did not find
that Nkholise had actual authority.
[33] It remains to deal with the reasons why the application to lead further evidence
brought by the ANC was dismissed with costs. As indicated, it was based on s 19(b)
of the Superior Courts Act 10 of 2013. This empowers this court to ‘receive further
evidence’ on appeal.8 The further evidence sought to be introduced was the ‘forensic
report and findings prepared by ENS Forensics (Pty) Ltd (ENS) which investigated
the procurement process involving’ the two parties. The report itself was not put up
in the papers. Only the executive summary (the summary) was put up. The summary
was neither signed nor dated and the author was not identified in the founding
affidavit. Neither the author, nor the persons to whom statements in the report were
attributed, put up affidavits confirming those statements.
8 It also empowers high courts exercising appeal jurisdiction to do so.
[34] The nub of the application appears from the following sentence in the
summary:
‘On 23 February 2019, Mr Ramdas sent a WhatsApp message to Mr Mabaso in which he stated
that if the ANC confirmed two orders with Ezulweni Mr Ramdas had worked out the figures and
that they could all make “ten million each”.’
That was stated as a fact. The conclusion drawn was that this ‘appears to be
indicative of a corrupt relationship between Mr Mabaso and Mr Ramdas’. The
ultimate conclusion was that the conduct of Mr Mabaso appeared ‘to be negligent
and/or irregular and/or potentially corrupt’. Both of these conclusions are founded
on the statement of fact mentioned above. If there was no evidence supporting that
statement, the conclusions would of necessity fall away. There was no verification
that the message was authentic, or, indeed, sent in the form in which it appeared in
the report. Nor was the entire message set out in the summary.
[35] The test for the admission of evidence on appeal was stated in Pepkor
Holdings Ltd and Others v AJVH Holdings (Pty) Ltd and Others:
‘There must be a reasonably sufficient explanation why the evidence was not tendered earlier in
the proceedings. The evidence “must be weighty and material and presumably to be believed”.’9
These principles followed time-honoured ones set out in S v De Jager:
‘(a) There should be some reasonably sufficient explanation, based on allegations which may be
true, why the evidence which it is sought to lead was not led at the trial.
(b) There should be a prima facie likelihood of the truth of the evidence.
(c) The evidence should be materially relevant to the outcome of the trial.’10
9 Pepkor Holdings Ltd and Others v AJVH Holdings (Pty) Ltd and Others [2020] ZASCA 134; 2021 (5) SA 115
(SCA); [2021] 1 All SA 42 (SCA) para 49. The quote is from Colman v Dunbar 1933 AD 141 at 161–163. It is noted
in this matter that the Constitutional Court adopted a similar approach in the matter of Rail Commuters Action Group
v Transnet Ltd t/a Metrorail and Others [2004] ZACC 20; 2005 (2) SA 359 (CC); 2005 (4) BCLR 301 paras 42 and
43 under the Supreme Court Act 59 of 1959.
10 S v De Jager 1965 (2) SA 612 (A) at 613C-D.
[36] As to why the evidence was not led at the outset, the ANC submitted that the
report only came to light recently. There was no evidence as to when the final report
had been completed. The ANC testified that there had been a delay in obtaining the
report because payment for the report had been delayed. That may be so but it fails
to account for the fact that Mabaso, who testified in the main application, was the
person said to have received the message. Mabaso was reported to have said that he
‘did not respond to the message and stated during our interview that he did not recall
this message’.
[37] The answering affidavit of Mabaso was deposed to on 11 October 2019, less
than eight months after the message was said to have been received by him. It is
highly unlikely that Mabaso would not have been able to recall the message at the
time he deposed to the answering affidavit. After all, it must be supposed that an
invitation to participate in a corrupt transaction was not an everyday occurrence for
him. Despite this, Mabaso was silent on the receipt of the message. This can hardly
be said to make out a case that the evidence was not available at the time the
application was argued. As has already been noted, he actively mounted the case that
no agreement had been concluded rather than that he had received this message. He
was totally silent on that point. That evidence was available to the ANC in the mouth
of its chief witness, Mabaso.
[38] This leads to the next question of whether the evidence was prima facie
truthful. There are a number of difficulties with this aspect. In the first place, the
evidence proffered was all hearsay. Secondly, in application papers, the pleadings
are made up of the notice of motion and affidavits. The existing pleaded defence was
that no agreement had been concluded. The alternative defence was that, if it was
found that a deal was struck, Nkholise did not have the requisite authority to bind
the ANC. To aver that a corrupt relationship gave rise to the agreement presupposes
the existence of an agreement and would be destructive of this pleaded case. The
ANC was not able to say how this new defence could stand alongside of the pleaded
case. It would amount to pleading not alternative, complementary, defences, as was
done in the existing papers, but one which fundamentally contradicted those
defences. That is impermissible.
[39] Thirdly, Ezulweni requested access to Mabaso’s device on which the message
was supposedly received. The response was that it was not in the possession of
Mabaso, the ANC or ENS. This begs the question how ENS obtained access to the
message which found its way into the summary. No such information was
forthcoming. Nor was any evidence led as to why the device in question was not
available for analysis. Ezulweni had contracted a person for the purpose of assessing
the authenticity of the message. The person contacted was an expert in IT matters,
including the forensic analysis of electronic information, transmission, storage and
the like. As a result, he was not in a position to assess its authenticity. He did testify,
without challenge, that historic WhatsApp messages can be amended, edited or
faked. He stated that information on how to do so is widely available and can be
achieved reasonably easily. In the light of the above, the ANC failed to show the
prima facie truthfulness of the factual assertion relied upon.
[40] The final enquiry is whether the evidence, if admitted, would be materially
relevant to the outcome of the application. In this regard, the message was
purportedly sent on 23 February. The agreement has been found to have been
concluded on 20 February. That being so, any such message cannot have led to the
conclusion of the agreement, even accepting the executive summary at face value.
[41] These factors present insuperable difficulties in the way of the application to
admit the report as evidence on appeal on each of the three requirements. All of this
means that the case mounted by the ANC for the admission of this evidence on
appeal fell woefully short of the accepted test. It is for these reasons that the order
was made dismissing the application with costs.
[42] Dealing, then, with the costs in the main application, it is appropriate that costs
should follow the result. Both parties employed two counsel and this was warranted.
The costs of two counsel will be awarded where two counsel were employed.
[43] In the result, the following order issues:
The application to admit evidence on appeal is dismissed with costs.
The appeal is dismissed with costs, including the costs of two counsel where
so employed.
____________________
T R GORVEN
JUDGE OF APPEAL
Appearances
For the appellant:
F J Nalane SC with E Muller
Instructed by:
AMMM Incorporated, Alberton
Moroka Attorneys, Bloemfontein
For the respondent:
A R Bhana SC with J Lubbe (Heads of argument
prepared by A Dodson SC and J Lubbe)
Instructed by:
Sarlie & Associates Incorporated, Johannesburg
Symington De Kok Incorporated, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
24 November 2023
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this case and does
not form part of the judgments of the Supreme Court of Appeal
African National Congress v Ezulweni Investments (Pty) Ltd (Case no 979/2022) [2023]
ZASCA 159 (24 November 2023)
Today the Supreme Court of Appeal dismissed with costs of two counsel an appeal from a
judgment of the full court of the Gauteng Division of the High Court, Johannesburg (the full
court) in which it had, in turn, dismissed an appeal from a single judge of that court. The appeal
arose from an application by Ezulweni Investments (Pty) Ltd (Ezulweni) for an order that the
African National Congress (the ANC) pay to it a total of R102 465 000 along with interests
and costs. The court of first instance, per Bhoola AJ, had granted this relief.
The matter arose from a contract which Ezulweni alleged had been concluded with the ANC
for the supply, placement and removal of banners in support of the 2019 general election
campaign of the ANC. The ANC denied that any such agreement had been concluded. In the
first place, it contended that there were factual disputes which could not be resolved in favour
of Ezulweni. Secondly, it submitted that their two officials who were alleged to have concluded
that contract did not have the authority to do so. The Supreme Court of Appeal evaluated the
first of these and found that the ANC had not raised bona fide factual disputes. Those raised
were untenable and fell to be rejected on the papers. On the second aspect, the Supreme Court
of Appeal found that one of the two officials concerned had been expressly authorised by the
ANC to conclude contracts relating to election matters. As a result, it was found that the full
court had correctly dismissed the appeal before it.
The ANC sought to introduce evidence on appeal of a report compiled by ENS Forensics (Pty)
Ltd. The Supreme Court of Appeal found that the evidence which the ANC sought to introduce
did not meet the accepted requirements and dismissed the application with costs.
~~~~ends~~~~
|
427
|
non-electoral
|
2016
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Not Reportable
Case No: 87/15
In the matter between:
LINAH NTOMBI MADALANE obo CLERICIA MASUKU
APPELLANT
and
IZAK DANIEL VAN WYK
RESPONDENT
Neutral Citation: Madalane v Van Wyk (87/2015) [2016] ZASCA 25 (18 March 2016)
Coram:
Ponnan, Zondi JJA and Plasket AJA
Heard:
26 February 2016
Delivered:
18 March 2016
Summary:
Locus standi in judicio – mother purporting to institute action on
behalf of her adult daughter – lacks locus standi to do so.
____________________________________________________________________
ORDER
_____________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria, (Thobane AJ sitting as
court of first instance):
The appeal is dismissed with costs.
JUDGMENT
Zondi JA (Ponnan JA and Plasket AJA concurring):
[1] This is an appeal against the judgment of Thobane AJ sitting in the Gauteng Division
of the High Court, Pretoria, upholding the respondent’s special plea of lack of locus standi
in judicio.
[2] Ms Clericia Masuku was born on 12 February 1991. On 17 December 2003, when
she was 12 years old, she was injured in a motor vehicle accident whilst she was a
passenger on a trailer towed by a vehicle driven by the respondent. On 20 September 2010
her mother, Ms Linah Ntombi Madalane, caused summons to be issued against the
respondent. Paragraph 1 of the Particulars of Claim, annexed to the summons, reads:
‘EISERES, is ‘n meederjarige huishulp met identiteitsnommer 651128 0743 089, wat hierin optree in
haar hoedan[ig]heid as moeder en natuurlike voog van haar minderjarige kind Clericia Masuku
(gebore op 12 Februarie 1991) en ook van dieselfde adres as die Eiseres naamlik Standplaas 162,
Tshabalala Trust, Hazyview (hierna die minderjarige kind genoem).’
The summons was met with a special plea in these terms:
‘1.1
Plaintiff is acting on behalf of Clericia Masuku, a female born on 12 February 1991.
1.2
Clericia Masuku attained majority on 12 February 2009, at the age of 18 years, in terms of sec.
17 of the Childrens Act no. 38 of 2005.
1.3
Plaintiff’s summons was issued 20 September 2010, after Clericia Masuku attained majority.
1.4
In the premises Plaintiff lacks locus standi in iudicio and Defendant prays that the action be
dismissed with costs.’
[3] The court a quo was asked in terms of Uniform rule 33 (4) to determine only the
issue of locus standi. It determined that issue in the respondent’s favour and accordingly
upheld the special plea. The appeal is with the leave of this court.
[4] At that time of the collision, the age of majority was 21 years in terms of s 1 of the
Age of Majority Act 57 of 1972. That was altered to 18 years by way of s 17 of the
Children’s Act 38 of 2005 (the Act), which came into operation on 1 July 2007. The Act
repealed the Age of Majority Act but its repeal did not take effect until 1 July 2007 when s
17 came into operation.
[5] Ordinarily a minor’s locus standi in judicio is limited in that he or she cannot institute
or defend any legal proceedings by himself or herself. He or she requires the assistance of
his or her guardian and consequently can only sue or be sued in the name of his or her
guardian as representing him or her, or in his or her own name assisted by the guardian.
The effect of s 17 of the Act is that minority with its limits on legal capacity terminates when
a person turns 18 years. What this means, is that in the absence of any other legal
impediment an 18 year old person can sue or be sued in his or her own name.
[6] Counsel for the appellant submitted that under the Age of Majority Act - the
applicable Act when her cause of action arose - Ms Masuku had a right to be assisted by
her guardian in any legal proceedings by or against herself until she turned 21 years, and
this was not affected by s 17. In support of this proposition he relied on the decision of this
Court in Malcolm v Premier, Western Cape Government.
2 He argued that as Ms Masuku’s
right to be assisted by her guardian vested in her prior to 1 July 2007, the appellant had the
necessary locus standi to institute an action on her behalf (when she did on 20 September
2010). Reliance was also placed on the principle that statutes are presumed not to affect
vested rights. They are presumed to govern transactions in the future and not those in the
1 F. du Bois Wille’s Principles of South African law (2007) 9 ed at 187; Guardian National Insurance Co Ltd v Van
Gool NO [1992] ZASCA 96; 1992 (4) SA 61 (A) at 66F-G.
2 Malcolm v Premier, Western Cape Government [2014] ZASCA 9; 2014 (3) SA 177 (SCA).
past.
3 Counsel’s reliance on Malcolm is misplaced. In that case this Court was concerned
with the special plea of prescription in terms of the Prescription Act 68 of 1969 and the
extent to which s 13(1)(a) of that Act was affected by s 17 of the Act. The question of locus
standi did not arise at all for consideration by this Court. Malcolm is also distinguishable on
the facts in that there Malcolm himself, not his guardian on his behalf, had instituted legal
proceedings for the recovery of damages. In other words, the person who brought the
action had the necessary locus standi and, therefore, his capacity to institute proceedings
was not disputed.
4 Moreover, from the perspective of the minor, the reduction in the age of
majority from 21 to 18 by the Act, amounts to the removal a legal impediment, not the
imposition of one. To put it another way, a child can now litigate in his or her own name
(and without the assistance of his or her parent) from the time that such child turns 18,
whereas in the past that very same child would have had to wait until 21 to do so.
[7] In the present case at the issue of summons, Ms Masuku had been a major for over a
year and a half. The allegation in the summons that she was then still a minor is accordingly
factually inaccurate and bad in law. She could sue or be sued in her own name without the
assistance of her legal guardian. The appellant did not therefore, at the time of institution of
the action, have locus standi to act on her behalf. The court a quo was therefore correct in
upholding a special plea.
[8] In the result the appeal is dismissed with costs.
_________________
D H Zondi
Judge of Appeal
3 National Iranian Tanker Co v MV Pericles GC [1994] ZASCA 145; 1995 (1) SA 475 (A) at 483I-J.
4 See para 4 of the judgment.
Appearances
For the Appellant:
C van Jaarsveld
Instructed by:
Frans Schutte Inc,
c/o Schutte De Jong Inc, Pretoria
Symington & De Kok, Bloemfontein
For the Respondent:
B P Geach SC
Instructed by:
Nell, Kotzé & Van Dyk Attorneys, Pretoria
Van den Berg Van Vuuren Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL
OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
18 March 2016
Status:
Immediate
Please note that the media summary is intended for the benefit of the media and does not form part of the
judgment of the Supreme Court of Appeal.
Madalane v Van Wyk (87/15) [2016] ZASCA 25 (18 March 2016)
Today the Supreme Court of Appeal (SCA) dismissed an appeal from the Gauteng Division of the High Court,
Pretoria and confirmed the judgment of the high court upholding a special plea of lack of locus standi in judicio
The issue before the SCA was whether the appellant, a mother of an adult daughter, had locus standi to institute
action on her behalf for the recovery of the damages she sustained in a motor vehicle accident when she was still
a minor.
On 17 December 2003 the appellant’s daughter was injured in a motor vehicle accident while she was a
passenger on a trailer towed by a vehicle driven by the respondent on the basis that the accident was caused by
the respondent’s negligence. At the time of the accident the daughter was 12 years old and in terms of the Age
of Majority Act, the law governing status at the relevant time, she would have become a major when she turned
21 years. On 1 July 2007 the Age of Majority Act was repealed and replaced by s 17 of the Children’s Act 38 of
2008 which reduced the age of majority from 21 years to 18 years.
On 20 September 2010 her mother in a representative capacity caused summons to be issued against the
respondent on her behalf. The appellant’s claim was met with a special plea of lack of locus standi in which it
was contended that the daughter should have instituted a claim in her own name because at that time she had
already attained majority. The high court upheld the special plea of lack of locus standi.
On appeal, the SCA dismissed the appeal. It held that the allegation in the summons that the daughter was still a
minor, was factually inaccurate and bad in law in that at the issue of the summons she was already a major and
therefore did not have to be assisted by her legal guardian.
|
3593
|
non-electoral
|
2021
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case no: 314/2020
In the matter between:
LEWIS STORES (PTY) LTD
APPELLANT
and
SUMMIT FINANCIAL PARTNERS
FIRST RESPONDENT
(PTY) LTD
THE NATIONAL CONSUMER
SECOND RESPONDENT
TRIBUNAL
THE NATIONAL CREDIT THIRD RESPONDENT
REGULATOR
Neutral citation: Lewis Stores (Pty) Ltd v Summit Financial Partners (Pty)
Ltd and Others (Case no 314/2020) [2021] ZASCA 91 (25 June 2021)
Coram:
PONNAN, WALLIS, MOCUMIE and DLODLO JJA, and
EKSTEEN AJA
Heard:
5 May 2021
Delivered: This judgment was handed down electronically by circulation to
the parties’ legal representatives by email, publication on the Supreme Court
of Appeal website and release to SAFLII. The date and time for hand-down is
deemed to be have been at 10h00 on 25 June 2021.
Summary: National Credit Act 34 of 2005 – section 141(1)(b) – power of
National Consumer Tribunal to grant leave to refer a complaint directly to it
when National Credit Regulator has issued a notice of non-referral – nature of
proceeding – section does not require formal application nor public hearing –
factors to be considered by Tribunal – Tribunal has wide discretion – decision
to grant leave to refer directly not appealable in terms of section 148(2).
ORDER
On appeal from: Gauteng Division of the High Court, Pretoria (Molefe J
and Khumalo AJ sitting as court of first instance):
The appeal is dismissed with costs, including the costs of two counsel.
JUDGMENT
Eksteen AJA (Ponnan, Wallis, Mocumie and Dlodlo JJA concurring)
[1] This appeal concerns the interpretation and application of the National
Credit Act (NCA),1 and in particular s 141(1)(b)2 and s 148(2)(b)3 thereof.
The first respondent, Summit Financial Partners (Pty) Ltd (Summit), a
registered alternative dispute resolution agent and debt counsellor, lodged a
complaint (the complaint) against the appellant, Lewis Stores (Pty) Ltd
(Lewis), with the third respondent, the National Credit Regulator (the
Regulator), in terms of s 136 of the NCA. The Regulator accepted the
complaint and, after investigating the allegations, it issued a certificate of non-
1 National Credit Act No 34 of 2005.
2 The direct referral of a complaint to the National Consumer Tribunal when the National Credit Regulator
has issued a certificate of non-referral. The section provides:
‘141(1) If the National Credit Regulator issues a notice of non-referral in response to a complaint other than
a complaint concerning section 61 or an offence in terms of this Act, the complainant concerned may refer
the matter directly to-
…;or
(b) the Tribunal, with the leave of the Tribunal.’
3 Appeals against orders of the National Consumer Tribunal. The relevant part of the section is set out in
paragraph 5 of the judgment.
referral, purportedly in terms of s 139(1)(a) of the NCA.4 Summit sought
leave to refer the complaint directly to the second respondent, the National
Consumer Tribunal (the Tribunal), in terms of s 141(1)(b) of the NCA, which
Lewis resisted. The Tribunal granted leave5 and Lewis appealed against the
ruling, without success, to the High Court, Pretoria, in terms of s 148(2) of the
NCA. The appeal to this Court is with leave of the high court.
[2] Lewis is a national retailer in furniture and electrical appliances. On
16 September 2016 Summit lodged the complaint with the Regulator, alleging
that Lewis had repeatedly engaged in a prohibited practice under the NCA, in
breach of s 102 thereof, by raising compulsory and unreasonable delivery
charges in respect of goods sold.
[3] In an application for leave to refer the complaint directly to the
Tribunal, Summit contended that the referral was justified as the complaint
raised issues of great importance to the parties and the public, which deal with
the interpretation of the NCA, and that it enjoyed reasonable prospects of
success. Lewis, on the other hand, denied that Summit had demonstrated good
prospects of success. It contended further that Summit had no interest of its
own in the outcome of the matter and it enjoyed no mandate from any of
Lewis’s customers. In the high court Summit contended, without success, that
the decision of the Tribunal was not appealable. The high court nevertheless
dismissed the appeal.
4 Section 139 provides for the Regulator to ‘issue a notice of non-referral to the complainant if the complaint
appears to be frivolous or vexatious, or does not allege any facts which, if true, would constitute grounds for
a remedy under the Act.
5 The Tribunal was divided as to the extent of the consent, a minority considered that not all the complaints
where leave was sought by Summit should be referred to the Tribunal.
[4] In this Court three issues arose. Firstly, whether a decision of the
Tribunal to permit a direct referral to it in terms of s 141(1)(b) of the NCA is
appealable in terms of s 148(2) of the NCA; secondly, what test should the
Tribunal have applied in assessing the application; and thirdly, whether
Summit had satisfied the test.
[5] Section 48(2)(b) of the NCA provides that:
(2) ‘… a participant in a hearing before a full panel of the Tribunal may –
…
(b) appeal to the High Court against the decision of the Tribunal in that matter, other than
a decision in terms of section 138… .’6
[6] Lewis contended that it had participated in a hearing before the full
panel of the Tribunal and it was therefore entitled to appeal against its
decision. Summit, on the other hand, contended that on a proper construction
of the provisions of the NCA the proceedings before the Tribunal did not
involve ‘a hearing’ as contemplated in s 148(2)(b); and, that the grant of leave
to refer directly did not constitute ‘a decision’ that is susceptible to appeal.
The argument involves the interpretation of the NCA, a task which this court
has described as ‘a particularly trying exercise’7.
6 Section 138 relates to consent orders. A useful discussion on the nature of appeal proceedings in the high
court was set out in National Credit Regulator v Lewis Stores (Pty) Ltd & Another [2019] ZASCA 190;
2020(2) SA 390 (SCA); [2020] 2 All SA 31 (SCA) paras 40-55.
7 Nedbank v National Credit Regulator 2011 (3) SA 581 (SCA) at para 2.
[7] I turn to consider the structure of the relevant portion of the NCA. The
functions of the Tribunal are described in s 27 of the NCA. It is empowered,
in addition to any other power conferred on it by law, to:
‘adjudicate in relation to any:
(i) application that may be made to it in terms of the [NCA], and make any order provided
for in the [NCA] in respect of such an application; or
(ii) allegations of prohibited conduct ...’.
In addition, it may make a costs order in terms of s 147 of the NCA. I shall
revert to s 147.
[8] The complaints procedures are contained in Chapter 7 of the NCA. Any
person may submit a complaint to the Regulator.8 Upon acceptance thereof
the Regulator may immediately issue a notice of non-referral, without
investigating the issue, if the complaint appears to be frivolous or vexatious,
or does not allege any facts which, if true, would constitute grounds for a
remedy under the NCA,9 or it may refer the complaint to a debt counsellor or
an ombud with jurisdiction in certain circumstances.10 It may also direct an
inspector to investigate the complaint,11 which the inspector is required to do
‘as quickly as practicable’.12 The NCA confers investigative powers on such
an inspector to enable him or her to come to a decision on the complaint.
[9] At the conclusion of the investigation, the Regulator may, amongst
other options, issue a notice of non-referral13 or refer the matter to a consumer
8 Section 136.
9 Section 139(1)(a).
10 Section 139(1)(b).
11 Section 139(1)(c).
12 Section 139(1)(c).
13 Section 140(1)(a).
court or to the Tribunal.14 The NCA makes no provision for any party to
challenge the referral, however, in the case of a referral to a consumer court
they may, by application to the Tribunal, challenge the appropriateness of the
forum chosen.15
[10] In this case, the Regulator accepted the complaint and investigated the
matter. It issued a certificate of non-referral, purportedly in terms of s
139(1)(a). Prima facie, it seems to me, the notice of non-referral was in
substance one issued in terms of s 140(1)(a), on the completion of the
investigation. Nothing turns on this aspect.
[11] Where the Regulator has issued a notice of non-referral, a complainant
is, nevertheless, entitled, as of right, to refer the complaint directly to a
consumer court having jurisdiction or, with the leave of the Tribunal, to the
Tribunal.16 Where a complainant chooses (and is permitted) to refer a
complaint directly, in terms of s 141(1)(b) to the Tribunal, in the face of a
certificate of non-referral, they expose themselves to the risk of an adverse
costs order in terms of s 147, in the event of the complainant’s direct referral
not being upheld.17
[12] Again, the NCA does not provide for a challenge to a complainant’s
direct referral. However, where the complainant has referred the matter
14 Section 140(1)(b) and (2).
15 Section 140(4) and (5).
16 Section 141(1)(a).
17 Section 147(1) provides that each party participating in a hearing must bear its own costs. In terms of
147(2)(a), if the Tribunal has not made a finding against a respondent, the member of the Tribunal presiding
at the hearing may award costs to a respondent and against a complainant who referred the complaint in terms
of 141(1).
directly to a consumer court, a respondent may, by application to the Tribunal,
seek an order that the matter be referred to a different consumer court, or to
the Tribunal itself. Once a matter has been properly referred to the Tribunal,
whether by the Regulator in terms of s 140(2) or by a complainant in terms of
s 141(1)(b), the Tribunal is required to conduct a hearing into the matter
referred to it.18 In contrast to s 140(4) and s 141(2), s 141(1)(b) makes no
reference to an ‘application’ or a hearing when seeking leave to refer a
complaint directly to the Tribunal.
[13] Part D of Chapter 7 of the NCA relates to the consideration by the
Tribunal of ‘complaints, applications and referrals’. Section 142 sets out the
powers and obligations of the Tribunal in conducting a hearing. It is required
to do so in public, in an inquisitorial manner, as expeditiously and informally
as possible and in accordance with the rules of natural justice.19 Certain
matters may be delegated to a single member of the Tribunal.20 At the
conclusion of a hearing the Tribunal is obliged to make an order ‘permitted in
the circumstances in terms of [the NCA]’ and must issue written reasons for
its decision.21 Section 150 of the NCA relates to orders of the Tribunal. It
provides:
‘In addition to its other powers in terms of this Act, the Tribunal may make an appropriate
order in relation to prohibited conduct or required conduct in terms of this Act…’
It proceeds to list various orders culminating in a catch all provision relating
to ‘any other appropriate order required to give effect to a right, contemplated
in this Act…’
18 Section 141(3) and (4).
19 Section 142(1).
20 Section 142(3).
21 Section 142(4).
[14] The Tribunal, in the assessment of the application for leave, remarked:
‘[T]he NCA does not specify the factors which the Tribunal must consider in determining
whether an applicant should be granted leave to self-refer the matter. In previous decisions;
the Tribunal has referred to Westinghouse Brake & Equipment (Pty) Ltd22 where the court
was dealing with the issue of leave to appeal against a judgment. In Westinghouse, the court
held that the relevant criteria are whether the applicant has reasonable prospects of success
on appeal; and whether or not the case was of substantial importance to the applicant or
both to him and the respondent.
The Tribunal when considering whether to grant an applicant leave to refer has adopted the
same test, as applied in the High [Court]; for applications for “leave”. The Tribunal will
therefore consider the following factors:
1. Whether the matter is of substantial importance to the applicant; and
2. The applicant’s reasonable prospects of success with the referral’.
[15] The reference to Westinghouse, and the test applied in applications for
leave to appeal, is inappropriate. As I have explained, the NCA provides for
an expeditious, informal and cost-effective complaints procedure.23
Section 141(1)(b) confers on the Tribunal a wide, largely unfettered discretion
to permit a direct referral. The NCA does not require a formal application to
be made and it is not necessary for purposes of the present appeal, nor is it
desirable, to circumscribe the factors to which the Tribunal should have
regard. There is no test to be applied in deciding whether or not to grant a
direct referral to it in respect of a complaint. The purpose of the provision is
simply for the Tribunal to consider the complaint afresh, with the benefit of
22 Westinghouse Brake and Another v Bilger Engineering (Pty) Ltd [1986] ZASCA 10; 1986 (2) SCA 555
(A).
23 Section 139(c) and 142(b) of the NCA.
any findings by the Regulator, and to decide whether it deserves its attention.
Circumstances which may influence its decision may include the prospects of
success, the importance of the issue, the public interest to have a decision on
the matter, the allocation of resources, the complainant’s interest in the relief
sought and the fact that the Regulator did not consider that it merited a hearing
before the Tribunal. The list is not intended to be exhaustive.
[16] As I have said, s 141(1)(b) does not contemplate a formal application,
nor a public hearing. It involves merely a reconsideration of the ruling by the
Regulator. The informal adjudication of such issues is not unprecedented.
Petitions for leave to appeal in the Constitutional Court, this Court, the Labour
Appeal Court and the high court, where a court has refused leave, are
generally considered in chambers, without any appearance by legal
representatives. Moreover, the ruling which the Tribunal is required to make
under s 141(1)(b) is not a ‘decision’, nor an ‘order’ referred to in s 150. Rather,
it involves the exercise of its’ ‘other powers’ contemplated in s 27 and s 150.
Accordingly, on a proper construction of the NCA, the grant of leave to refer
a complaint directly to the Tribunal is not a ‘decision’ which must be arrived
at in a hearing, and it is not susceptible to an appeal in terms of s 148 of the
NCA.
[17] On behalf of Summit, Mr Newdigate alluded to the general rule that,
traditionally, in conventional litigation, a decision is appealable if it is final
and disposes of a material portion of a dispute between the parties.
Accordingly, it has been held, that an order in relation to the forum in which
proceedings are to be conducted, is not final and was therefore not
appealable.24 More recently, this court has adopted a more pragmatic approach
to appealability. Thus, in Beinash25 this court stated: ‘the emphasis is now
rather on whether an appeal will necessarily lead to a more expeditious and
cost effective final determination of the main dispute between the parties and,
as such, will decisively contribute to its final resolution.’
[18] In King26 it explained that: ‘[W]hile the classification of the order might at one
time have been considered to be determinative of whether it was susceptible to an appeal
the approach that has been taken by the courts in more recent times has been increasingly
flexible and pragmatic. It has been directed more to doing what is appropriate in the
particular circumstances than to elevating the distinction, between orders that are
appealable and those that are not, to one of principle’.
[19] Whether there is an appeal in this case depends on the proper
construction of s 148(2)(b) of the NCA. In my opinion it does not provide for
one. The provisions of the NCA, as I have emphasized, requires a quick
informal resolution of complaints. The notion of an appeal to the high court
against a ruling by the Tribunal to allow a direct referral of a complaint to it
is contrary to the purpose of the NCA. The conclusion to which I have come
in respect of the construction of the NCA accords with the approach of the
courts to appeals generally, which militates against appeals which do not
contribute to the expeditious and cost effective final determination of the main
dispute between the parties.
24 United Motor Services Ltd v Cloth Manufacturing Co of Chicago 1937 CPD 284.
25 Beinash v Wixley 1997 (3) SA 721 SCA at 730 E.
26 National Director of Public Prosecutions v King 2010(2) SACR 146 (SCA) at 166-167.
[20] By virtue of the conclusion to which I have come in respect of the
appealability of the ruling by the Tribunal it is not necessary to consider the
merits of the individual complaints raised.
[21] In the result, the appeal is dismissed with costs, including the costs of
two counsel.
_______________________
J EKSTEEN
ACTING JUDGE OF APPEAL
Appearances
For appellant:
A Cockrell SC (with P Farlam)
Instructed by:
Edward Nathan Sonnebergs Inc, Cape Town
Lovius Block, Bloemfontein
For respondent:
JA Newdigate SC (with HN De Wet)
Instructed by:
Carstens Gericke Attorneys, Stellenbosch
Webbers, Bloemfontein
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SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
25 June 2021
STATUS
Immediate
Lewis Stores (Pty) Ltd v Summit Financial Partners & Others (Case no 314/20) [2021]
ZASCA 91 (25 June 2021)
_________________________________________________________________________
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal (the SCA) today dismissed an appeal by Lewis Stores (Pty) Ltd (Lewis)
against a judgment of the Gauteng Division of the High Court, Pretoria (the high court).
Summit Financial Partners (Pty) Ltd (Summit), a registered alternative dispute resolution agent and debt
counsellor, had lodged a complaint against Lewis with the National Credit Regulator (the Regulator) in
terms of section 136 of the National Credit Act (the NCA) in which it alleged that Lewis had repeatedly
engaged in a prohibited practice under the NCA, in breach of s 102 thereof by raising compulsory and
unreasonable delivery charges.
The Regulator had investigated the complaint and issued a certificate of non-referral in terms of s
140(1)(a) of the NCA. Summit, thereafter, sought leave to refer the complaint directly to the National
Consumer Tribunal (the Tribunal) in terms of s 141(1)(b) of the NCA. The Tribunal had granted leave
and Lewis appealed the ruling, without success, to the high court in terms of s 148(2) of the NCA. The
appeal to the SCA was with leave of the high court.
The SCA was called upon to determine firstly, whether a decision of the Tribunal to permit a direct
referral to it in terms of s 141(1)(b) of the NCA was appealable, and secondly, what test the Tribunal
should have applied in assessing the application for direct referral.
The SCA considered the interpretation of the NCA and the complaints procedure provided therein. It
found that the Tribunal had a wide, largely unfettered discretion to decide whether to permit a direct
referral where the Regulator has issued a notice of non-referral. The SCA considered that the NCA did
not require a formal application to be lodged with the Tribunal nor a public hearing to be held. The NCA
did not require any test to be satisfied in arriving at a decision.
On a proper interpretation of the NCA, it held, the decision by the Tribunal in respect of a direct referral
was not appealable. The SCA accordingly dismissed the appeal.
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467
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non-electoral
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2016
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THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 1018/2015
In the matter between:
CHARLES VUYO GAYIYA Appellant
and
THE STATE Respondent
Neutral citation: Gayiya v S (1018/15) [2016] ZASCA 65 (19 May 2016)
Coram:
Mpati P, Wallis, Pillay, Mathopo JJA & Tsoka AJA
Heard:
5 May 2016
Delivered:
19 May 2016
Summary: Criminal law – practice and procedure – trial – charge of murder –
appointment of assessors in terms of proviso to s 93ter(1) of Magistrates’ Courts Act
32 of 1944 – such appointment compulsory unless accused requests, prior to plea,
that assessors not be appointed – failure by regional magistrate to invoke proviso –
court not properly constituted – purported waiver by accused of assessors after guilty
verdict cannot cure defect.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from Gauteng Division of the High Court, Pretoria (Bertelsmann J, sitting
as a court of first instance):
The appeal succeeds and the convictions and sentences are set aside.
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Mpati P (Wallis, Pillay and Mathopo JJA and Tsoka AJA concurring):
[1] This appeal involves the interpretation of the proviso to s 93ter(1) of the
Magistrates’ Courts Act 32 of 1944 (‘the Magistrates’ Courts Act’). The appellant, to
whom I shall, purely for convenience, henceforth refer as ‘the accused’, was
arraigned before the regional court, Bethal, on 20 February 2002 on five charges.
The first (count 1) was a charge of kidnapping, allegedly committed on 29
September 1998. The second (count 2) was a charge of assault with intent to cause
grievous bodily harm, allegedly committed on the same day. Counts 3, 4 and 5 were
charges of murder, possession of a firearm without a licence (in contravention of the
provisions of s 2 of the Arms and Ammunition Act 75 of 1969) and possession of
ammunition without a licence (in contravention of the provisions of s 36 of Act 75 of
1969), respectively, which were also allegedly committed on the same day as counts
1 and 2. The accused pleaded guilty to counts 1 and 3, but not guilty to counts 2, 4
and 5. The regional magistrate thereafter questioned him, in terms of s 112(1)(b) of
the Criminal Procedure Act 51 of 1977 (‘the Act’), in respect of counts 1 and 3.
Having satisfied himself that the accused admitted the allegations in the charges to
which he had pleaded guilty and that he was guilty of the offences in issue, the
regional magistrate convicted him accordingly.
[2] It appears that after the regional magistrate had returned a guilty verdict in
respect of counts 1 and 3 he explained the provisions of s 115 of the Act to the
accused and asked whether he was prepared to make a statement indicating the
basis of his defence in respect of the remaining three counts. The accused chose to
exercise his right to remain silent. The matter was then postponed. On 7 March 2002
the regional magistrate proceeded to question the accused in terms of s 115(2)(b).
The accused, in the course of answering the questions posed, made certain
admissions that were subsequently recorded as such in terms of s 220. The State,
being satisfied with the admissions made by the accused and recorded by the
regional magistrate in terms of s 220, closed its case without leading any evidence.
Despite the regional magistrate’s explanation that the exculpatory part of the
accused’s plea explanation was not evidence in his favour and that should he wish it
to have evidential value he should testify under oath, the accused decided not to
testify and closed his case. After both the State and the accused had addressed the
court the accused was convicted on counts 2, 4 and 5 on the strength of the formal
admissions that had been recorded in terms of s 220 of the Act. The matter was then
once again postponed.
[3] What emerges from the answers given and admissions made by the accused
during his questioning is the following. On the evening of 29 September 1998 the
accused and six others were enjoying a drink at a certain house at Embalenhle in the
district Hoëvelddrif. They later agreed to go to the house of one Themba to fetch a
firearm that belonged to one of the members of the group, namely Doctor Nkambule
(Doctor), from a person named Castro. They also agreed that they should take along
a firearm so that they could shoot Themba were he to threaten to shoot them. When
they arrived at Themba’s house and enquired where Castro was, Themba informed
them that he was in the room. They proceeded to the room where one of the
accused’s companions, Moyeni Mtsweni, struck Castro on the head with a bottle,
which broke, probably as a result of the force of the blow. At that stage the accused
was watching from where he was standing near the door of the room in which they
had found Castro and did nothing (‘Ek het naby die deur gestaan en kyk. Ek het niks
gedoen nie’). When Doctor asked where his firearm was Castro said it was with one
Johnny. Doctor then pointed a firearm at Castro and instructed him to accompany
them to Johnny’s home to fetch his firearm. Castro obliged, but before they had
reached Johnny’s home Doctor said he was going to shoot him. However, he
changed his mind and, instead, handed the firearm to the accused, instructing him to
shoot Castro (‘skiet hom’). The accused took the firearm, held it against Castro’s
head and fired two shots, after which he gave the firearm back to Doctor. It is not
clear from the record whether Castro died immediately upon being shot, but they left
him at the spot where he was shot. The accused went home to sleep. He said that
before deciding to fetch Doctor’s firearm from Castro they drank liquor and used
drugs (‘Ons het toe gedrink en dwelms gebruik’). As to counts 1 and 2 the accused
was convicted on the basis of the doctrine of common purpose.
[4] I have serious doubts about the correctness of the accused’s conviction on
those two counts, but in the view I take of the matter it is not necessary to say more
in that regard. At the accused’s next court appearance on 15 March 2002 his sister,
Ms Miemie Gayiya, testified in his favour in mitigation of sentence. After the accused
and the prosecutor had addressed the court on sentence, the regional magistrate
stopped the proceedings and committed the accused for sentence by the high court
in terms of s 52(a)(i) of Criminal Law Amendment Act 105 of 1997. On 27 May 2002
the accused made another appearance before the regional magistrate, who, for the
first time, told the accused that he (the regional magistrate) had omitted to inform
him of his right to have assessors appointed to assist the judicial officer (‘reg tot
assessore’) and of the role of assessors in the proceedings. The regional magistrate
also informed the accused that his convictions could be set aside, presumably upon
review. The accused’s response was that he did not need assessors at the trial, but
that he would want them at the sentencing stage.
[5] On 30 July 2002 the accused was sentenced by Bertelsmann J in the High
Court, Eastern District Circuit Local Division, Middelburg, as follows:
Count 1: imprisonment for one (1) year;
Count 2: imprisonment for one (1) year;
Count 3: imprisonment for life;
Counts 4 and 5 (taken together for purposes of sentence): six (6) months’
imprisonment.
The court ordered that the sentences imposed in respect of counts 2, 4 and 5 be
served concurrently (‘gesamentlik uitgedien word’).
[6] The accused’s application for leave to appeal against the sentences imposed
on him was heard only on 14 April 2014, while his notice of application for leave to
appeal and for condonation for the late filing thereof were lodged with the registrar of
the North Gauteng High Court on 25 May 2010. When the application for leave to
appeal was argued before him, Bertelsmann J raised with counsel what he
considered to be an irregularity, which he dealt with in the first paragraph of his
judgment granting leave to appeal, where he said:
‘There is one fundamental problem arising in this matter. The applicant was charged with
murder in the regional court. An irregularity occurred as the presiding officer sat without
assessors without having been requested to do so by the defence.’
And further:
‘There are conflicting judgments on the question whether the resulting irregularity is fatal to
the proceedings, or can be condoned if the interests of justice are served thereby.’
The learned Judge consequently granted leave to appeal to this court against both
conviction and sentence. It is not clear from the record why there was a delay of
almost four years from the date upon which the accused’s application for leave to
appeal was lodged until the application was argued before Bertelsmann J. The delay
is in any event unacceptable.
[7] It is not necessary, in my view, to mention the conflicting judgments referred
to by the court below. They are collected and comprehensively discussed in Chala &
others v Director of Public Prosecutions, KwaZulu-Natal & another 2015 (2) SACR
283 (KZP). Subsection (1) of s 93ter of the Magistrates’ Courts Act reads:
‘The judicial officer presiding at any trial may, if he deems it expedient for the administration
of justice –
(a) before any evidence has been led; or
(b) in considering a community-based punishment in respect of any person who has
been convicted of any offence,
summon to his assistance any one or two persons who, in his opinion, may be of assistance
at the trial of the case or in the determination of a proper sentence, as the case may be, to
sit with him as assessor or assessors: Provided that if an accused is standing trial in the
court of a regional division on a charge of murder, whether together with other charges or
accused or not, the judicial officer shall at that trial be assisted by two assessors unless such
an accused requests that the trial be proceeded with without assessors, whereupon the
judicial officer may in his discretion summon one or two assessors to assist him.’
In the present matter the proviso was undoubtedly of application as count 3 was a
charge of murder. It is common cause that the accused was never afforded an
opportunity by the regional magistrate to decide whether or not to request that the
trial proceed without assessors before he was asked to plead to the charges he
faced.
[8] In my view, the issue in the appeal is the proper constitution of the court
before which the accused stood trial. The section is peremptory. It ordains that the
judicial officer presiding in a regional court before which an accused is charged with
murder (as in this case) shall be assisted by two assessors at the trial, unless the
accused requests that the trial proceed without assessors. It is only where the
accused makes such a request that the judicial officer becomes clothed with a
discretion either to summon one or two assessors to assist him or to sit without an
assessor. The starting point, therefore, is for the regional magistrate to inform the
accused before the commencement of the trial, that it is a requirement of the law that
he or she must be assisted by two assessors, unless he (the accused) requests that
the trial proceed without assessors.
[9] In R v Price 1955 (1) SA 219 (A) the appellant had been charged on, among
others, a number of counts relating to breaches of regulations dealing with the price
and control of hides. The Minister of Justice, acting in terms of relevant legislation,
ordered that he be tried by a Judge and two assessors. He was accordingly
arraigned in the appropriate superior court where he pleaded not guilty to the
charges. After the State had closed its case the defence did likewise without leading
any evidence. At the conclusion of submissions from both counsel in respect of the
verdict, judgment was reserved. But before a verdict had been determined on any of
the charges one of the assessors collapsed and died. At a later sitting of the court
counsel for the appellant made a request, in terms of another section of the relevant
legislation, for an order that the case proceed before the Judge and the remaining
assessor. The Judge made the order sought and a verdict (of guilty) was delivered at
a subsequent date.
[10] Following the guilty verdict, a special entry was made on behalf of the
appellant for consideration by this court of the question:
‘Whether the presiding Judge, notwithstanding the application made to that end on behalf of
the accused and the concurrence therewith of the Crown, wrongly and irregularly ordered
the proceedings to continue after the death of the assessor, . . . inasmuch as there was after
his death, no longer a properly constituted Court.’
In answering that question this court said:
‘It was rightly not contended on behalf of the Crown that the appellant was precluded in any
way, because of the request made on his behalf at the trial, from contending in this Court
that the Court which had convicted him was not a properly constituted Court. If in fact the
Court was not properly constituted then its verdict, and consequently also its sentence, are
irregularities that cannot be waived by an accused person.’1
And further:
‘. . . it is also clear from Green v Fitzgerald & others 1914 AD 652, that where a certain
number of Judges is necessary to form a quorum, the Court is not properly constituted if its
number falls short of that quorum, even though that number would be enough to constitute a
1 At 223C-D.
majority of the Court. In the present case, the quorum clearly was three members . . . and
the fact that, in such a quorum, the decision of two would be an effective majority does not
cure the deficiency in its quorum.’2
This court accordingly allowed the appeal and set aside the appellant’s convictions
and sentences.
[11] In the present matter, the quorum prescribed by the proviso to subsec (1) of s
93ter of the Magistrates’ Courts Act was three members, namely the regional
magistrate and two assessors, unless the accused had requested that the trial
proceed without assessors, in which event in his discretion the regional magistrate
could, sitting alone, have constituted a quorum. No such request was made by the
accused. The fact that the accused, when informed of his right to assessors only
after the guilty verdicts, indicated that he did not require assessors and that he would
only do so at the sentencing stage, did not cure the deficiency. It follows that the
court that tried and convicted the accused was not properly constituted. That defect
could not be waived by the accused at the time that he purportedly did so, or cured
by the subsequent proceedings before the court below. Counsel for the State did not
argue otherwise. The appeal must accordingly be upheld.
[12] In the result the following order is made:
The appeal succeeds and the convictions and sentences are set aside.
________________________
L Mpati
President
2 At 223F-G.
APPEARANCES
For the Appellant:
HL Alberts
Instructed by:
Pretoria Justice Centre, Pretoria
Bloemfontein Justice Centre, Bloemfontein
For the Respondent
FW van der Merwe
Instructed by:
Director of Public Prosecutions, Pretoria
Director of Public Prosecutions, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
19 May 2016
STATUS
Immediate
Please note that the media summary is intended for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
Gayiya v S (1018/15) [2016] ZASCA 65 (19 May 2016)
The Supreme Court of Appeal (SCA) today handed down judgment concerning interpretation of the
proviso to s 93ter(1) of the Magistrates’ Courts Act 32 of 1944.
The appellant (accused) had been arraigned before the Bethal regional court on 20 February 2002 on
five charges, namely: kidnapping (count 1); assault with intent to cause grievous bodily harm (count
2); murder (count 3); possession of a firearm without a licence in contravention of the provisions of s
2 of the Arms and Ammunition Act 75 of 1969 (count 4); and possession of ammunition without a
licence in contravention of the provisions of s 36 of the Arms and Ammunition Act (count 5).
The accused pleaded guilty to counts 1 and 3, but pleaded not guilty to counts 2, 4 and 5. The
regional magistrate thereafter questioned him in terms of s 112(1)(b) of the Criminal Procedure Act 51
of 1977 (the Act), in respect of counts 1 and 3. Having satisfied himself that the accused admitted the
allegations in the charges to which he had pleaded guilty and that he was guilty of the offences in
issue, the regional magistrate returned a guilty verdict in respect of counts 1 and 3. He had explained
the provisions of s 115 of the Act to the accused and had asked whether the accused was prepared
to make a statement indicating the basis of his defence in respect of the remaining three counts. The
accused chose to exercise his right to remain silent. On 7 March 2002 the regional magistrate had
proceeded to question the accused in terms of s 115(1)(a)(i). The accused, in the course of
answering the questions posed, made certain admissions that were subsequently recorded as such in
terms of s 220. The State, being satisfied with the admissions made by the accused and recorded by
the regional magistrate in terms of s 220, closed its case without leading any evidence. Despite the
regional magistrate’s explanation that the exculpatory part of the accused’s plea explanation was not
evidence in his favour and that should he wish it to have evidential value he should testify under oath,
the accused had decided not to testify and closed his case. After both the State and the accused had
addressed the court, the accused was convicted on counts 2, 4 and 5 on the strength of the recorded
formal admissions.
After the accused and the prosecutor had addressed the court on sentence, the regional magistrate
stopped the proceedings and committed the accused for sentence by the high court in terms of s
52(a)(i) of Criminal Law Amendment Act 105 of 1997. On 27 May 2002 the accused made another
appearance before the regional magistrate, who, for the first time, told the accused that he had
omitted to inform the accused of his right to have assessors appointed to assist the judicial officer and
of the role of assessors in the proceedings. The regional magistrate also informed the accused that
his convictions could be set aside, presumably upon review. The accused’s response was that he did
not need assessors at the trial, but that he would want them at the sentencing stage. On 30 July 2002
the accused was sentenced by the Eastern District Circuit Local Division of the High Court,
Middelburg (Bertelsmann J), as follows: Count 1: imprisonment for one (1) year; Count 2:
imprisonment for one (1) year; Count 3: imprisonment for life; Counts 4 and 5 (taken together for
purposes of sentence): six (6) months’ imprisonment. The court ordered that the sentences imposed
in respect of counts 2, 4 and 5 be served concurrently.
The accused’s application for leave to appeal against the sentences imposed on him was heard by
Bertelsmann J on 14 April 2014. During argument before Bertelsmann J, he raised with counsel the
improper constitution trial court, which he considered to an irregularity. The learned judge
consequently granted leave to appeal to the SCA against both conviction and sentence. Thus the
issue on appeal was the proper constitution of the court before which the accused stood trial.
The SCA held that the proviso to s 93ter(1) of the Magistrates’ Courts Act ordains that the judicial
officer presiding in a regional court before which an accused is charged with murder as in this case
shall be assisted by two assessors at the trial, unless the accused requests that the trial proceed
without assessors. And that it is only where the accused makes such a request that the judicial officer
becomes clothed with a discretion either to summon one or two assessors to assist him or to sit
without an assessor. The SCA held that the section is peremptory.
The SCA further held that the quorum prescribed by the section was three members, namely the
regional magistrate and two assessors, unless the accused had requested that the trial proceed
without assessors, in which event in his discretion the regional magistrate could, sitting alone, have
constituted a quorum.
The SCA found that no such request had been made by the accused in this instance, and that the
fact that, when informed of his right to assessors only after the guilty verdicts, he indicated that he did
not require assessors and that he would only do so at the sentencing stage, did not cure the
deficiency.
The SCA held that it followed that the court that tried and convicted the accused was not properly
constituted and that the defect could not be waived by the accused at the time that he purportedly did
so in the subsequent proceedings before Bertelsmann J.
The SCA accordingly upheld the appeal.
--- ends ---
|
1484
|
non-electoral
|
2016
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 021/2016
In the matter between
THE MEC: DEPARTMENT OF EDUCATION
NORTH WEST PROVINCE
FIRST APPELLANT
THE HOD: DEPARTMENT OF EDUCATION
NORTH WEST PROVINCE
SECOND APPELLANT
and
FEDSAS
RESPONDENT
Neutral citation: MEC: Department of Education Northwest Province v FEDSAS
(021/2016) [2016] ZASCA192 (01 December 2016)
Coram:
Maya AP, Wallis and Swain JJA and Fourie and Dlodlo AJJA
Heard:
09 November 2016
Delivered:
01 December 2016
Summary: Education – Powers of the MEC to make regulations relating to the
administration of public schools hostels – s 27(1) of the North West Schools
Education Act 3 of 1998 – ss 9, 12 and 20(1)(g) of the South African Schools Act
84 of 1996 – interpreted in the light of s 29(1) and 28(2) of the Constitution –
hostel regulations within the powers of the MEC.
_________________________________________________________________
ORDER
_________________________________________________________________
On appeal from: North West Division, Mahikeng (Kgoele J sitting as court of first
instance):
1 Leave to appeal is granted.
2 The appeal is upheld with no order as to costs.
The order of the court a quo is set aside and replaced with the following order:
„The application is dismissed.‟
________________________________________________________________
JUDGMENT
_________________________________________________________________
Dlodlo AJA (Maya AP, Wallis and Swain JJA and Fourie AJA concurring):
[1] The respondent, the Federation of Governing Bodies for South African
Schools (FEDSAS) launched an application in the North West Division of the High
Court seeking orders reviewing and setting aside the „Regulations relating to the
Administration of Public school hostels‟ promulgated in the North West Provincial
Gazette Extraordinary 7031, GN 430 of 2012, of 31 August 2012 (the hostel
regulations). The application was opposed by the Head of Department, Education
and Training, North West Province (the HoD). The High Court upheld the
application and declared that the hostel regulations were „unlawfully promulgated,
ipso facto void and of no force or effect‟. Leave to appeal against that order was
refused by the High Court on the basis that the appeal had been perempted.
However, this court (per Leach JA and Plasket AJA) referred the application for
leave to appeal for oral argument.
BACKGROUND FACTS
[2] The Department of Education in the North West Province had received
numerous complaints of learners being unfairly excluded and others being
expelled from hostels without recourse to the provisions of the law. This resulted in
those learners being unable to go to school at all. There were also reports of
abuse of authority including „the charging of high and exorbitant boarding fees and
school fees.‟
[3] The impugned hostel regulations are reportedly the result of an intense
study by the Department on how to achieve the realization of the rights guaranteed
by the Constitution. The Department identified the „lack of access to schools by
learners, more especially in rural areas‟, as „one of the challenges that impacted
on the provision of quality education and learner achievement‟.
[4] On the relationship between the provision of hostels and access to
education, the position is articulated in para 3.1 of the answering affidavit:
„Boarding facilities provide access to education for learners from remote rural areas and
farming communities. Such facilities also provide learners with exposure to the
environment beyond the confines of their own community. They provide an answer for
learners living in places where the State cannot provide schools, thus reducing the
difficulties of transport across distances including costs, the dangers involved in it and the
time being consumed. Boarding facilities also provide access to a choice of education and
access to further education for learners whose local schools are limited to lower level
grades.‟
This was admitted by FEDSAS stating that boarding facilities do provide relief for a
variety of circumstances, for example, where parents are transferred their children
are able to remain at school which has hostel facilities. In FEDSAS‟s view, the
Department must either expend capital on new schools closer to those deprived of
educational access, or build more hostels at existing schools to accommodate
those learners. It was accepted that boarding facilities enable learners to pursue
specialised curricular directions such as technical, agricultural, science and
mathematics fields which may not be available to them at their local school.
[5] There are a number of reasons why boarding facilities provided by hostels
play a vital role in the provision of access to education. Boarding facilities provide
a disciplined environment particularly in cases of families of single working
parents, families in which the parents are compelled to travel extensively, or
families which are unable to provide after-school supervision for learners. They
provide many disadvantaged learners with an opportunity to enjoy better living
conditions and sometimes better care than they would experience in their own
home environment. Basic facilities such as electricity and shelter, television,
computers and media centres are made accessible in some boarding facilities.
Boarding facilities also facilitate participation in extra-curricular activities including
sports and cultural activities.
[6] Boarding facilities provide a relatively safe environment for children, many
of whom are at risk in that they live in informal settlements and townships and are
without supervision for much of the day. They provide a stable environment for
children from broken families or homes with special needs and problems. They
facilitate positive social development and the ability to accept others from different
social or cultural backgrounds. They promote independence, self-discipline and
the ability to work as part of a team of learners.
[7] The provision of boarding facilities can be a cost efficient measure in small,
sparsely populated rural and farming communities. The hostel facilities offer
disadvantaged learners from rural areas, who would otherwise have to travel long
distances to school, better living conditions that are conducive to learning.
Learners travelling long distances to school and back home are exposed to all
kinds of challenges such as arriving late for school or being tired due to the long
hours they have to spend on the road. The accommodation of learners in boarding
facilities will evidently eradicate these challenges and reduce the dropout rate in
schools.
THE LAW
[8] The impugned hostel regulations were promulgated in terms of s 27 of the
North West Schools Education Act 3 of 1998 (the North West Schools Act) read
with s 9(3) of the South African Schools Act 84 of 1996 (SASA). These must be
read in the light of the Constitution. Section 29(1) of the Constitution provides:
„Education
(1) Everyone has the right –
(a) to a basic education including adult basic education.‟
And s 28(2) of the Constitution provides:
„A child‟s best interests are of paramount importance in every matter concerning the child.‟
[9] The most recent pronouncement by the Constitutional Court on the
importance of basic education is found in Federation of Governing Bodies for
South African Schools v MEC for Education, Gauteng & another [2016] ZACC 14;
2016 (4) SA 546 (CC) (Fedsas v MEC for Education, Gauteng) para 3 as follows:
„. . . access to teaching and learning has not been freely and widely accessible to all
people at all times. All forms of human oppression and exclusion are premised, in varying
degrees, on a denial of access to education and training. The uneven power relations that
marked slavery, colonialism, the industrial age and the information economy are girded, in
great part, by inadequate access to quality teaching and learning. At the end of a long and
glorious struggle against all forms of oppression and the beginning of a democratic and
inclusive society, we, filled with rightful optimism, guaranteed universal access to basic
education. We collectively said: “[e]veryone has the right to a basic education, including
adult basic education.”‟ (Footnote omitted.)
Similarly, the Constitutional Court observed in Governing Body of the Juma Musjid
Primary School & others v Essay NO & others (Centre for Child Law & another as
Amici Curiae) [2011] ZACC 13; [2011] 8 BCLR 761 (CC) paras 42 and 43 as
follows:
„The significance of education, in particular basic education for individual and societal
development in our democratic dispensation in the light of the legacy of apartheid, cannot
be overlooked. The inadequacy of schooling facilities, particularly for many blacks was
entrenched by the formal institution of apartheid, after 1948, when segregation even in
education and schools in South Africa was codified. Today, the lasting effects of the
educational segregation of apartheid are discernible in the systemic problems of
inadequate facilities and the discrepancy in the level of basic education for the majority of
learners.
Indeed, basic education is an important socio-economic right directed, among other
things, at promoting and developing a child‟s personality, talents and mental and physical
abilities to his or fullest potential. Basic education also provides a foundation for a child‟s
lifetime learning and work opportunities. To this end, access to school – an important
component of the right to a basic education guaranteed to everyone by section 29(1)(a) of
the Constitution – is a necessary condition for the achievement of this right.‟ (Footnotes
omitted.)
[10] The right to basic education guarantees access thereto, which must
include, where appropriate, access to hostels because of their importance in
making basic education accessible. In terms of Schedule 4 of the Constitution,
„education at all levels, excluding tertiary education‟ is a concurrent provincial and
national legislative competence. This concurrent competence operates as
described by the Constitutional Court in Fedsas v MEC for Education, Gauteng
para 26:
„Education is a functional area of concurrent national and provincial legislative
competence. Parliament may legislate on education and a province too. In turn, the
Premier and MECs in a province exercise authority by implementing provincial legislation.
The legislative competence of a province cannot be snuffed out by national legislation
without more. The Constitution anticipates the possibility of overlapping and conflicting
national and provincial legislation on concurrent and national legislative competences.‟
(Footnotes omitted.)
[11] The Constitutional Court in Head of Department, Mpumalanga Department
of Education & another v Hoërskool Ermelo & another [2009] ZACC 32; 2010 (2)
SA 415 (CC) paras 55-56 described the role of SASA as follows:
„The avowed purpose of the Schools Act is to give effect to the constitutional right to
education. Its preamble records that the achievement of democracy has consigned to
history the past system of education which was based on racial inequality and
segregation, and that the country requires a new national system for schools which will
redress past injustices in the provision of education and will provide education of a
progressively high quality for all learners. The new education system must lay a
foundation for the development of all people‟s talents and capabilities and advance the
democratic transformation of society, and combat racism, sexism, unfair discrimination,
and contribute to the eradication of poverty. The preamble also expresses the intent to
advance diverse cultures and languages and to uphold the rights of learners, parents and
educators. It also makes plain that the statute aims at making parents and educators
accept the responsibility for the organisation, governance and funding of schools in
partnership with the State.
An overarching design of the Act is that public schools are run by three crucial partners.
The national government is represented by the Minister for Education whose primary role
is to set uniform norms and standards for public schools. The provincial government acts
through the MEC for Education who bears the obligation to establish and provide public
schools and, together with the Head of the Provincial Department of Education, exercises
executive control over public schools through principals. Parents of the learners and
members of the community in which the school is located are represented in the school
governing body which exercises defined autonomy over some of the domestic affairs of
the school‟. (Footnote omitted.)
See also MEC for Education, Gauteng Province & others v Governing Body,
Rivonia Primary School & others [2013] ZACC 34; 2013 (6) SA 582 (CC) para 36.
[12] Section 12 of SASA provides:
„Provision of public schools
(1) The Member of the Executive Council must provide public schools for the education
of learners out of funds appropriated for this purpose by the provincial legislature.
(2) The provision of public schools referred to subsection (1) may include the provision of
hostels for the residential accommodation of learners.‟
Section 20(1)(g) identifies the function of governing bodies, subject to the Act, as
the power to:
„administer and control the school’s property and buildings and grounds occupied by the
school, including school hostels, but the exercise of this power must not in any manner
interfere with or otherwise hamper the implementation of a decision made by the Member
of the Executive Council or Head of Department in terms of any law or policy.‟
[13] The preamble to the North West Schools Act provides that its purpose is:
„To provide for a uniform system for the organisation and funding of schools; to amend
and repeal certain laws relating to schools; to cater mainly for the best educational
interests of the child by providing an education of progressively high quality and upholding
the rights of all learners, parents and educators, and to promote their acceptance of
responsibility for the organisation, governance and funding of schools in partnership with
the State; and to provide for matters connected therewith.‟
[14] Section 27(1) of the North West Schools Act provides in relevant part:
„Regulations
27 (1) The Member of the Executive Council in consultation with the Head of Department
may make regulations which are not inconsistent with any law, as to –
(a) any matter which shall or may be prescribed by regulation under this Act;
(b) any matter which the Member of the Executive Council may deem necessary or
expedient to prescribe in order to achieve the objectives of this Act‟.
The purpose of the hostel regulations as stated in regulation 2(1) is „to regulate the
administration and control of hostels, the admission of learners to hostels,
disciplinary procedures and matters related thereto.‟
DISCUSSION
[15] FEDSAS submitted in reliance upon Ngcobo & others v Van Rensburg
1999 (2) SA 1057 (SCA) para 11, that the North West Schools Act cannot be read
disjunctively, or in a manner where only the preamble determines the objectives of
the Act. It emphasised that, when analysing s 27(1)(b) of the North West Schools
Act, this must be done contextually and not by reference to the preamble alone. To
determine whether a functionary has acted intra vires his or her legislative powers,
the ambit of such power must be discernible by reference to the objects of the
entire North West Schools Act. Absent an apparent object, the functionary does
not have that power and acts ultra vires. In making these submissions FEDSAS
relied on Minister of Health NO v New Clicks South Africa (Pty) Ltd & others
(Treatment Action Campaign & another as Amici Curiae) 2006 (2) SA 311 (CC)
para 144 where the following appears:
„Where the making of regulations is challenged on this ground, lawfulness depends on the
terms of the empowering statute. If the regulations are not sanctioned by the empowering
statute they will be unlawful and invalid.‟
[16] FEDSAS argued that in the absence of any express statutory authority, the
general empowering provision finds application only in matters of an administrative
nature and cannot be used to make regulations of a substantive nature. Relying on
Hoërskool Ermelo, it was submitted that the intention of the Legislature in the two
statutes is that the power to run school hostels is placed in the hands of the
parents and guardians of learners through School Governing Bodies (SGBs).
[17] The issue in this appeal engages the right to basic education enshrined in s
29 of the Constitution. Unlike other socio-economic rights, the right to basic
education has no internal limitation requiring it to be progressively realised. It is a
right which is „immediately realizable‟. See Juma Musjid Primary School para 37;
and Minister of Basic Education & others v Basic Education For All & others [2015]
ZASCA 198; 2016 (4) SA 63 (SCA) para 36-37.
[18] All legislation must be read in a manner which promotes the spirit, purport
and objects of the Bill of Rights (s 39(2) of the Constitution). This is an obligation
placed on courts regardless of the approach adopted by the litigants. See
Phumelela Gaming and Leisure Ltd v Gründlingh & others [2006] ZACC 6; 2007
(6) SA 350 (CC) paras 26-27. Additionally, all statutory instruments must be
interpreted purposively, contextually and consistently with the Constitution. See
Stratford & others v Investec Bank Ltd & others [2014] ZACC 38; 2015 (3) SA 1
(CC) para 19; Natal Joint Municipal Pension Fund v Endumeni Municipality [2012]
ZASCA 13; 2012 (4) SA 593 (SCA) para 18.
[19] The assertion that the MEC had simply no power to promulgate the hostel
regulations, militates against the established principle of interpretation that powers
expressly granted must be interpreted to include those powers reasonably
necessary or incidental to those powers. See City of Cape Town v Claremont
Union College 1934 AD 414 at 420 recently followed in Engen Petroleum Limited v
The Business Zone 1010 CC trading as Emmarentia Convenience Centre [2015]
ZASCA 176 para 21.
[20] The regulation-making power in s 27(1) of the North West Schools Act,
extends to what the MEC deems „necessary or expedient to prescribe in order to
achieve the objectives of this Act‟. This phrase as submitted by the appellant,
confers power „of the widest possible character‟ and leaves it to the decision-
maker to decide „what method to follow in order to achieve the purpose stated in
the subsection.‟ See Catholic Bishops Publishing Co v State President & another
1990 (1) SA 849 (A) at 861F. As mentioned above, the objects of the Act include
„the best educational interests of the child by providing an education of
progressively high quality.‟
[21] The constitutional right to education in s 29(1) and the best interests of the
child learner provided for in s 28(2) of the Constitution must be promoted and
protected. These provisions envisage that the right to education goes substantially
further than the provision of classrooms. In a country as large as ours, with
scattered population in rural areas, access to education must necessarily include
the provision of hostels to enable learners living far from schools to obtain an
education. Legislation which gives effect to the right to education requires a
generous interpretation. The provision of hostels is thus an essential component
for facilitating the right of access to education.
[22] The MEC is vested with regulation-making powers. This is clear from ss
12(1) and 12(2) of SASA. The MEC is empowered in terms of s 27(1)(b) of the
North West Schools Act to make regulations deemed necessary or expedient in
order to achieve the objects of the North West Schools Act. The right to education
must include the provision of necessary facilities which includes hostels. SGBs do
not have exclusive authority over the governance of schools and by extension,
school hostels and accordingly do not have unfettered powers to administer school
hostels. Section 20(1)(g) of SASA provides that the exercise and administration of
powers over school hostels must not in any manner interfere with or otherwise
hamper the implementation of a decision made by the MEC or HoD in terms of any
law or policy. The MEC and the HoD accordingly have a say in the administration
of school hostels, contrary to the contention by FEDSAS that the administration of
school hostels is its exclusive preserve. The relationship between the Minister, the
MEC, HoDs and SGBs in the overall administration of school matters in terms of
SASA was recognised by the Constitutional Court in Head of Department,
Department of Education, Free State Province v Welkom High School & others
[2013] ZACC 25; 2014 (2) SA 228 (CC) paras 36-37 where it was held, inter alia,
that:
„The State‟s obligations to ensure that the right to education is meaningfully realised for
the people of South Africa are great indeed. The primary statute setting out these
obligations is the Schools Act. That Act contains various provisions governing the
relationships between the Minister, members of provincial executive councils responsible
for education (MECs), HoDs, principals and the governing bodies of public schools. It
makes clear that public schools are run by a partnership involving school governing
bodies (which represent the interests of parents and learners), principals, the relevant
HoD and MEC, and the Minister. Its provisions are carefully crafted to strike a balance
between the duties of these various partners in ensuring an effective education system.‟
(Footnote omitted.)
[23] FEDSAS‟ claim to the exclusive governance of hostels disregards the
constitutional obligation of the MEC to ensure access to education. This would be
hampered if the MEC were precluded from promulgating regulations relating to
access to hostels for learners as these regulations do. The authority to promulgate
the regulations is a necessary and ancillary power to the constitutional and
legislative duty to provide basic education. This must be understood within the
broader constitutional scheme of cooperative governance (ss 40 and 41 of the
Constitution) that enjoins all spheres of government to adhere to the principles of
unity, indivisibility and coherence in inter-spherical government relations as well as
the fostering of friendly relations assistance and support. This must also be seen
in the context of concurrent legislative competence where the MEC is enjoined to
make basic education accessible to everyone. Thus the MEC‟s power to make
regulations is also derived from his statutory power to arrange for the provision of
education, and in many instances, this cannot be done without providing a hostel.
Once the hostel is provided, the MEC must make regulations pertaining to that
hostel. The MEC has the power under SASA to prescribe codes of conduct. It
would thus be absurd to say that he can do that for the school premises, but not
the hostel. If that was the case, it would mean that conduct that is unacceptable in
the school buildings (such as vandalism) is not a disciplinary offence if it occurs in
the school hostel.
[24] Relying upon ss 146-150 of the Constitution, FEDSAS submitted that the
inconsistency between the sets of legislation was sufficient to invalidate the hostel
regulations. This argument was, however rejected by this court and the
Constitutional Court in Fedsas v MEC, Gauteng. The Constitutional Court laid
down the approach to possible conflicts as follows (paras 27-28):
„The conflict resolution scheme of sections 146, 149 and 150 of the Constitution departs
from the conventional hierarchy that provincial legislation may not be in conflict with
national legislation. Automatic repugnancy between the two classes of legislation does not
arise. The scheme readily acknowledges and manages the potential conflict related to
concurrent national and provincial law-making competences. Under the scheme,
provincial legislation prevails over national legislation except if the national legislation
applies uniformly countrywide or the matter cannot be regulated effectively by respective
provinces or the matter is one listed in the Constitution as requiring uniformity across the
nation. None of these considerations apply here.
Even if there was conflict, it does not render the national or provincial legislation on
Schedule 4 matters invalid. A court must first attempt to avoid the conflict by preferring
any reasonable interpretation of the two pieces of legislation which avoids conflict. If the
conflict persists, the provincial legislation prevails. It must be added that national
legislation may enjoy supremacy over provincial law only in accordance with the test laid
down in sections 146(2) and (3) of the Constitution and in terms of section 148 if section
146 does not apply. However, the trumped provincial or national legislation is not to be
struck down. It simply „becomes inoperative for as long as the conflict remains.‟
[25] The argument of FEDSAS demands that unless SASA set out in detail the
powers of the MEC in relation to hostels, any regulation-making powers conferred
by the North West Schools Act could not be competently exercised in relation to
hostels. This is not correct. The impugned regulations do not unlawfully limit the
powers of SGBs. In Hoërskool Ermelo, the Constitutional Court acknowledged the
important role of SGBs, but stressed that the powers of SGBs are not absolute
and are subject to a range of limitations. Section 16(2) of SASA provides that an
SGB „stands in a position of trust towards the school,‟ and s 20(1)(a) provides that
the SGB „must promote the best interests of the school and strive to ensure its
development through the provision of quality education for all learners at that
school‟.
[26] FEDSAS submits that the definition of both „learners‟ and „school‟ has been
expanded by the regulation and are „contrary to SASA and cannot prevail, and
none of the individual regulations can pass constitutional muster‟. This is not so,
because as correctly pointed out by the appellant, the need to have appropriate
definitions was a practical mechanism of confirming the ambit of the regulations in
relation to hostels. The suggestion that some of the impugned regulations are
irrational is contrary to the requirements of rationality review. The executive has a
wide discretion „in selecting the means to achieve its constitutionally permissible
objectives‟ and courts may not interfere with the means selected „simply because
they do not like them or because there are other more appropriate means that
could have been selected‟. See Albutt v Centre for the Study of Violence and
Reconciliation & others [2010] ZACC 4; 2010 (3) SA 293 (CC) para 51. The
question is simply whether the means selected are rationally related to the
objectives sought to be achieved. The court must merely determine whether there
is a „sufficient connection‟ between the regulations and the objective they seek to
achieve and not whether it was „the best decision [it] could have made or whether
[it] could have made a different decision‟. See Minister of Defence and Military
Veterans v Motau & others [2014] ZACC 18; 2014 (5) SA 69 (CC) para 70.
[27] FEDSAS disregards the objectives sought to be achieved in the ambit of
the right to education and the best interests of the learner. The MEC can lawfully
make regulations pertaining to a school, and he can equally do so in relation to
hostels because they are an integral part of schools. The appeal must accordingly
succeed. In accordance with the principle in Biowatch Trust v Registrar Genetic
Resources 2009 (6) SA 232 (CC) Counsel for the appellant did not ask for an
order for costs.
ORDER
[28] In the result, the following order is made:
1 Leave to appeal is granted.
2 The appeal is upheld with no order as to costs.
The order of the court a quo is set aside and replaced with the following order:
„The application is dismissed.‟
______________________
D V Dlodlo
Acting Judge of Appeal
APPEARANCES
For appellant
G J Marcus SC (with him O K Chwaro and M
Makoti)
Instructed by:
Mokhetle Inc, Mahikeng
Phatshoane Henney Attorneys, Bloemfontein
For first respondent
J I Du Toit SC (with him M J Merabe)
Instructed by:
Michael Randell Attorneys, Mahikeng
Claude Reid Attorneys, Bloemfontein
|
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME
COURT OF APPEAL
THE MEC: DEPARTMENT OF EDUCATION NORTH WEST PROVINCE &
ANOTHER V FEDSAS CASE NO 021/2016
From: The Registrar, Supreme Court of Appeal
Date:
Status: Immediate
Please note that the media summary is for the benefit of the media and does not
form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal today upheld an appeal against a judgment of the
high court, Mahikeng, North West Division, concerning the reviewing and setting
aside of the ‘Regulations relating to the Administration of Public school hostels’
promulgated in the North West Provincial Gazette Extraordinary 7031, GN 430 of
2012, of 31 August 2012 (hostel regulations). The issue on appeal was whether the
court a quo was correct in finding that the hostel regulations were unlawfully
promulgated, ipso facto void and of no force or effect, due to the fact that the MEC
had no power to promulgate the hostel regulations. The Supreme Court of Appeal
held that the MEC is vested with regulation-making powers and that it can lawfully
make regulations pertaining to schools and hostels as they form an integral part of
schools. The appeal succeeds.
-
ends -
|
49
|
non-electoral
|
2017
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 233/2016
In the matter between:
ORICA MINING SERVICES SA (PTY) LTD
APPELLANT
and
ELBROC MINING PRODUCTS (PTY) LTD
RESPONDENT
Neutral Citation:
Orica Mining Services v Elbroc Mining Products (233/2016)
[2017] ZASCA 48 (31 March 2017)
Coram:
Maya AP, Swain and Dambuza JJA and Nicholls and Mbatha
AJJA
Heard:
24 February 2017
Delivered:
31 March 2017
Summary: Intellectual property: claim for patent infringement: s 45 Patents Act 57 of
1978: extent of protection determined by wording of claims: claims to be read in the
context of the patented specification: interpretation of „between‟ in claim to mean
"linearly between" unjustified in context of specification as well as claims: purposive
interpretation: "linearly between" not essential for functionality of invention.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Court of the Commissioner of Patents (Mabuse J, sitting as court
of first instance):
1 The appeal is upheld with costs, including the costs of two counsel;
2 The order of the court a quo is set aside and replaced with the following:
„(a) The defendant is interdicted from infringing South African Patent number
2001/10382 by way of the sale or offering for sale in South Africa of the
defendant‟s drill rig.
(b) The defendant is ordered to pay the plaintiff's costs, including the costs of two
counsel.‟
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Dambuza JA (Maya AP, Swain JA and Nicholls and Mbatha AJJA concurring):
[1] This is an appeal against the judgment of the Court of the Commissioner of
Patents, (Mabuse J). The court dismissed with costs, an action by the appellant,
Orica Mining Services South Africa (Pty) Ltd (Orica) as plaintiff, for an interdict and
ancillary relief, against the respondent, Elbroc Mining Products (Pty) Ltd (Elbroc) as
defendant. The object of the interdict was to restrain Elbroc from infringing South
African patent number 2001/10382, entitled "Portable Drilling Apparatus" (the patent)
held by Orica.
[2] Elbroc counterclaimed for revocation of the patent on the grounds of
obviousness. However, the parties agreed and the court ordered separation of the
issues. Elbroc‟s counterclaim was postponed sine die. Consequently, only the
alleged infringement and more particularly, the meaning of the word „between‟ in the
patent claims, which was central to Orica‟s claim, was before the court a quo.
The appeal is with the leave of the court a quo.
[3] The parties are South African companies which conduct business as suppliers
of materials and equipment used in the mining industry. Orica was granted the
patent on 19 December 2001 under the Patents Act 57 of 1978 (Patents Act) for a
drill rig. The rig is used to drill holes on the hanging roof (or wall) of a mine for
purposes of placing roof-bolts or other securing attachments into the wall – to
reinforce and stabilise the hanging wall. The invention is therefore referred to as a
roof bolter rig. It enables drilling of holes in confined spaces such as stopes, without
having to manually hold and maintain the machine in position. It is a self-supporting
drill rig. In its preferred design it consists of two extendable telescopic props – onto
which is mounted a drill carriage. The props support the surface of the hanging wall
during drilling thus reducing the risk of the hanging wall collapsing onto the rig user.
The machine enhances safety in the mining industry.
[4] Each prop has a pair of cylinders joined at either end by a brace and a base.
A hydraulically operated piston slides into each cylinder to extend from the end of the
cylinder. The free end of the piston forms a point and a conical stud extends centrally
from the outer surface of the base.
[5] Below is a diagram of the Patent No 10382/2001.
The diagram shows, amongst other things, extendable props (2) with a drill (3)
secured thereto. Each prop (2) has a pair of cylinders (5) joined at either end (6, 7)
by a brace (8) and a base (9) with a hydraulically operated piston (10) slidably
secured within each cylinder (5) to extend from the end (6). The free end (11) of
each piston (10) forms a point and a conical stud (12) extends centrally from the
outer surface (13) of the base (9).
[6] It is common cause that Elbroc sold roof bolter rigs that perform the same
function as Orica‟s to the mining industry in South Africa. This led to the allegation of
infringement by Orica. Before the court a quo, Orica contended that Elbroc had
infringed claims 1, 16, 17 and 18 of the patent. In these claims the invention is
described as:
„1. A portable self-supporting drill rig comprising a pair of spaced apart telescopic props with
a carriage between them, the carriage movable along an axis substantially parallel to those
of the props and supporting a drill mounted on the carriage…1
„16. A portable self-supporting drill rig comprising a pair of spaced apart fluid operated
telescopic props with a carriage between them, the carriage movable along an axis
substantially parallel to those of the props and supporting a drill mounted on the carriage,
with the props each secured to a base and braced apart.
17. A portable self-supporting drill rig comprising a pair of spaced apart fluid operated
telescopic props with a carriage between them, the carriage movable along an axis
substantially parallel to those of the props and supporting a drill mounted on the carriage,
with the props each secured to a base and braced apart and the carriage movable by an
extendable piston mounted on the base.
18. A portable self-supporting drill rig comprising a pair of spaced apart telescopic props with
a carriage between them, the carriage movable along an axis substantially parallel to those
of the props and supporting a drill mounted on the carriage, the props each including a
cylinder with one end secured to a base, the cylinders each having a fluid operated piston
slidably secured therein to extend from the other end thereof, and the cylinders braced
apart.‟
1 Claims two to six provide:
„2. A drill rig as claimed In claim 1 in which the drill is pivotally mounted on the carriage.
3. A drill rig as claimed in claim 1 or claim 2 in which the carriage is supported by the props.
4. A drill rig as claimed in claim 3 in which the carriage Is movable along the props.
5. A drill rig as claimed in claim 3 or claim 4 in which the carriage is mounted on a pair of fluid
operated cylinders on the outside of the props.
6. A drill rig as claimed – in claim 5 in which the carriage has a pair of members spaced apart along
the length of the cylinders – the lower member providing the pivot mounting for the drill and the upper
member providing a releasable lock assembly for fixing the drill In alignment with the props.‟
[7] Elbroc contended that one of the integers of the claims in the patent was not
present in its drill rig. This was, according to Elbroc, the description of the drill
carriage as located between a pair of telescopic props. Elbroc contended that this
meant that the drill carriage in the Orica rig was located linearly between the props –
which was not the case with its (Elbroc‟s) rig. For this reason, whilst admitting the
presence of all the other integers of the patent in its drill rig Elbroc maintained that its
rig fell outside the patent claims. This argument is graphically illustrated by the top
view of Elbroc‟s drill rig.
Top view of the Elbroc rig
[8] Having considered the claims of the patent the Commissioner found that the
Elbroc drill rig did not infringe the patent as its carriage equipment was not located
„between‟ its two props. In interpreting the word „between‟ the learned judge adopted
the dictionary meaning „linearly between,‟ and found that because the carriage in
Elbroc‟s drill rig was offset from the linear space between the props there had been
no infringement of the patent. He also held that Orica‟s interpretation of the word
„between‟ amounted to an impermissible extension of the meaning of the word
because it sought „to include a carriage which is offset at a right angle to the co-
linear line between the pair of telescopic props at an undefined and unspecified
distance from the space between the two props‟.
[9] In this court Orica persisted in its contention that on a proper construction the
patent claims required only that the drill carriage be located in the space between the
two props, even if not in the same linear plane as the props. It was submitted on
behalf of Orica that Elbroc‟s argument incorrectly equated the word „space‟ with the
word „line‟ and ignored the context of the specification and the three dimensional
configuration of the props, together with the space separating them.
[10] On the other hand counsel for Elbroc submitted that the correct approach is to
use „the language of the claims‟, that being the ordinary dictionary meaning of the
word „between‟.
[11] Section 45(1) of the Patents Act provides for protection of a patentee against
the making, using, exercising, disposing or offering to dispose of or importing of the
patentee‟s invention. The protection endures for the duration of the patent.2 The
invention is defined in the patent and the courts have indeed held that the exact
nature and scope of the invention and the monopoly claimed for it by a patentee (the
essential constituent features of the patent) must be determined by interpreting the
patent claims.3 In the well know case of Gentiruco AG v Firestone SA (Pty) Ltd4 this
court noted that in dealing with aspects, relating to patent infringements, its first task
is to „ascertain the nature of the invention as claimed and its precise scope.
Accordingly the specification, and especially the claims, have to be construed; it is,
after all, the instrument on which the letters patent were applied for and granted and
it must therefore necessarily govern those issues.‟5 It was pointed out that „if the
object of the claims is borne in mind, their meaning, as ascertained from their own
language, must prevail over the rest of the specification‟ because that is where those
to whom the patent is addressed, will look to determine if they are trespassing.6
2 The Law of South Africa 2nd edition Vol 20 at 179.
3 Ibid.
4 Gentiruco AG v Firestone SA (Pty) Ltd 1972 (1) SA 589 (A).
5 Ibid at 613F-H.
6 Ibid at 615C.
[12] The correct approach to interpreting the claims in the context of the patent as
a whole, has been described in the following terms. In Harrison v Anderson Foundry
Company (1876) 1 AC 574 (HL) the court held:
„The office of a claim is to define and limit with precision what it is which is claimed to have
been invented and therefore patented.
Where a claim is clearly and distinctly made, there can be no necessity for a patentee to
distinguish between what is disclaimed and what is claimed. It is enough to say to Lord
Gifford‟s suggestion that everything which is not claimed is disclaimed.‟
In Multotec Manufacturing (Pty) Ltd v Screenex Wire Weaving Manufacturers (Pty)
Ltd 1983 (1) SA 709 (A) at 721C-E, Corbett JA observed that:
„[T]he Court should always guard against too "textual" an approach in the interpretation of
claims in a patent specification. It is true that it is in the claims that a patentee stakes out and
defines his monopoly; and that the claims must be looked at in order to determine whether
an infringement has taken place. But by peering too closely at the language of a claim the
Court may overlook an infringement which takes the substance of the invention. . . . In this
context it is often said that an infringer who takes the "pith and marrow" of the invention
commits an infringement even though he omits an inessential part or substitutes for that part
a mechanical equivalent. . . . Where the alleged infringer has deviated in regard to some
feature from the invention as literally claimed in the specification, it may often be a matter of
considerable difficulty to determine whether the deviation relates to an essential or a non-
essential feature of the relevant claim or claims. In relation to this I would favour the
approach stated by Lord Diplock in . . . Catnic Components Ltd and Another v Hill and Smith
1981 Fleet Street Reports 60 . . . (at 65 – 66).‟
[13] In Electrical and Musical Industries v Lissen Ltd (1938), 56 RPC 23 [UK] at 39
Lord Russell of Killowen whilst highlighting the function served by patent claims,
clearly stated that the claims derive their colour from the context set out in the body
of the specification. The Learned Judge held:
„The function of the claims is to define clearly with precision the monopoly claimed, so that
the others may know the exact boundaries of the area within which they will be trespassers.
Their primary object is to limit and not to extend monopoly. What is not claimed is
disclaimed. The claims must undoubtedly be read as part of the entire document, and not as
a separate document; but the forbidden field must be found in the language of the claims
and not elsewhere. It is not permissible in my opinion, by reference to some language used
in the earlier part of the specification, to change a claim, which, by its own language is a
claim for one subject-matter, which is what you do when you alter the boundaries of the
forbidden territory. A patentee who describes an invention in the body of a specification
obtains no monopoly unless it is claimed in the claims…
A claim is a portion of the specification which fulfils a separate and distinct function. It and it
alone defines the monopoly; and the patentee is under a statutory obligation to state in the
claims clearly and distinctly what is the invention which he seeks to protect.‟
[14] In Gentiruco AG v Firestone SA (Pty) Ltd7 this court, confronted with a
contention by Firestone that certain claims were irresolvably ambiguous and
therefore invalid, considered the provisions of s16(3) of The Patents Act 9 of 1916
which read:
„A complete specification (1) must fully describe and ascertain the invention and the manner
in which it is to be performed, and (2) must end with a distinct statement of the invention
claimed.‟
Trollip JA remarked that „[s 16(3)] entrenched a method of drawing specifications
that had been evolved in practice, i.e., of incorporating into the patent‟s specification
claims that defined clearly and with precision the invention claimed as a monopoly‟8
and went on to hold that:
„The wording of the second part of the sub-section does not effect a legal severance of the
claims from the rest of the specification; “distinct statement” there means, not a separate
statement but a clear one (see Dutch version, “duidelike opgawe”); the claims do not
constitute a separate document in any sense; they remain part of the specification which
must be read as a whole. . . . Moreover, as the function of the claims is to define with clarity
and precision the scope of the invention claimed as a monopoly, they must of necessity also
serve to describe and ascertain the invention; indeed, as will presently appear, they are not
only an important but also a decisive part of its description and ascertainment.‟9
[15] The court also held that:
„Both must therefore be regarded to ascertain whether or not the complete specification
sufficiently discloses or explains the invention. Indeed the influence of s 16 (3) on s 27 (1)(g),
is such that the words “the invention” in the latter section must mean „the invention as
claimed‟. For a patentee may claim something less than he has invented. Thus, if he
predicates in the body of the specification an invention comprising (a), and (b) but he claims
only (a), the inquiry into sufficient disclosure etc. under the section would be confined to (a)
and would not also extend to (b).‟10
7 Gentiruco AG v Firestone SA (Pty) Ltd 1972 (1) SA 589 (A) at 611A-C.
8 Ibid at 610 C-D.
9 Ibid at 611 A-D.
10 Ibid at 612B-C.
[16] More recently in Marine 3 Technologies Holdings (Pty) Ltd v Afrigroup
Investments (Pty) Ltd11 this court said:
„Generally the first task of a court in the determination of an issue such as the present is to
construe the claims in the patent (Gentiruco AG v Firestone SA (Pty) Ltd 1972 (1) SA 589
(A)). According to Harms JA (Monsanto Co v MDB Animal Health (Pty) Ltd (formerly MD
Biologics CC) 2001 (2) SA 887 (SCA) para 8:
“The rules relating to the interpretation of patents have often been stated and do not need any
reformulation. The problem lies in their sensible application in any given case. For present purposes
the following rules as they appear in Gentiruco AG v Firestone SA (Pty) Ltd … at 614A-616D may be
emphasised: (a) a specification should be construed like any other document, subject to the
interpreter being mindful of the objects of a specification and its several parts; (b) the rule of
interpretation is to ascertain, not what the inventor or patentee may have had in mind, but what the
language used in the specification means, ie what the intention was as conveyed by the specification,
properly construed; (c) to ascertain that meaning the words used must be read grammatically and in
their ordinary sense; (d) technical words of the art or science involved in the invention must also be
given their ordinary meaning, ie as they are ordinarily understood in the particular art or science; (e) if
it appears that a word or expression is used, not in its ordinary sense, but with some special
connotation, it must be given that meaning since the specification may occasionally define a particular
word or expression with the intention that it should bear that meaning in its body or claims, thereby
providing its own dictionary for its interpretation; (f) if a word or expression is susceptible of some
flexibility in its ordinary connotation, it should be interpreted so as to conform with and not to be
inconsistent with or repugnant to the rest of the specification; and (g) if it appears from reading the
specification as a whole that certain words or expressions in the claims are affected or defined by
what is said in the body of the specification, the language of the claims must then be construed
accordingly.”‟
[17] Regarding the language used in the claim Elbroc contended that Orica would
be entitled to invoke the content of the body of the specification only if the word
„between‟, read in context, was ambiguous or had a peculiar technical or scientific
meaning. But in the absence of such ambiguity the word ought to be accorded its
ordinary meaning and the body of the specification could not be invoked, so it was
argued. Indeed, if the meaning of a claim, properly constructed, is sensible, clear
and unambiguous, it is decisive and cannot be restricted or extended by anything
else stated in the body and title of the specification.12 But Elbroc advanced three
dictionary meanings of „between‟. These were: „[across] the space separating two
11 Marine 3 Technologies Holdings (Pty) Ltd v Afrigroup Investments (Pty) Ltd & another [2014] ZASCA
208; 2015 (2) SA 387 (SCA) para 10.
12 Gentiruco ibid at 615E-F.
things‟,13 „with something on each side‟,14 and „a point B is said to lie between points
A and C where A, B, and C are distinct collinear points.‟15 It is important to highlight
that a number of rules of interpretation of patents have developed over time, and the
dictionary meaning of a word is only a guide; it is not decisive of the meaning of a
word.16 The appropriate question being the meaning applicable in the context of the
particular document under consideration – as even definitions must be read in
context.17
[18] There was no explanation for Elbroc‟s choice of the dictionary meaning
selected. In my view the definition, „with something on each side‟ is the most
sensible. It accords with the relational nature of the word „between‟ and is not
dependant on the configuration of the objects under comparison. On the other hand,
as submitted on behalf of Orica the definition „linearly between‟ is restricted to a
situation where the objects compared are of similar configuration. Counsel for Orica
pointed out that during preparation for operation of the preferred embodiment of the
patent, particularly during insertion of the drill into the carriage, a portion of the
carriage at times is off-set from a linear line between the two props.
[19] With regard to context, the advantage of the invention is the enhanced safety
as a result of the support provided by the telescopic props. Further, the detailed
description of the invention in the specification, specifically disavowed a restriction to
linear positioning of the carriage between the props and a limitation to two props. It
provides that „the drill need not be located linearly between the pair of props, but
may be generally between them. This would more likely be the case where an
additional prop or additional props are used‟. Once there are more than two props
which are not configured in a straight line, the carriage may be located between the
props, without being linearly between them.
[20] Both parties led expert evidence with regard to the understanding of persons
skilled in the art. Elbroc‟s expert understood the word „between‟ to mean that the
13 Based on a definition in the Shorter Oxford English Dictionary 6 ed (2007) in terms of which
„between‟ is defined as a synonym for interjacent, which, in turn, is defined as „to lie in between‟; „in
between‟ being defined as „ the middle point on the line: the space between two points in position‟.
14 MacMillan Dictionary.
15 Wolfram and MathWorld.
16 De Beers Industrial Diamond Division (Pty) Ltd v Ishizuka 1980 (2) SA 191 (T). See also: Monsanto
Co v MDB Animal Health (Pty) Ltd (Formerly MD Biologics CC) 2001 (2) SA 887 (SCA) paras 9-10.
17 Lawsa ibid para 184 at 181.
carriage could be offset from the linear line between the props and could also be off
centre. Both experts understood the „linearly between‟ position of the carriage to be
the optimal solution to the problem that the patent solved. Needless to say the
optimal solution is not the only solution.
[21] Turning to purposive interpretation, Orica‟s argument in this regard was raised
as an alternative to the above stated submissions. Within the context of patent
construction, unlike literalism, this approach takes into account the practical
knowledge and experience of the person skilled in the kind of work in which the
invention is intended to be used.18 It considers that a person skilled in the art would
understand whether strict compliance with a particular word or phrase was intended
and whether a variant of a word would have an effect upon the way the invention
works, such that the impugned object would fall outside the monopoly protected in
the claims and there would be no infringement.19
[22] The facts in this appeal bear a striking resemblance to Catnic Components
Limited & another v Hill & Smith Limited20 which was the leading English authority on
purposive construction prior to the enactment of the UK Patents Act in 1977. Firstly,
similarly to the defendant in Catnic, Elbroc admitted to having taken all but one of the
essential features of plaintiff‟s patent. Secondly, there is no evidence that the variant
integer that features in Elbroc‟s drill rig has any material effect on the functioning of
the Orica drill rig.
[23] In Catnic the plaintiffs were the registered proprietors of a patent for novel,
commercially successful steel lintels invented by the second plaintiff. The
defendants, intending to enter the market for galvanised steel lintels, obtained a copy
of the plaintiffs‟ experimental lintel drawings from which they (the defendants) made
their lintels. On being cited for infringement of the patent the defendants produced a
lintel which differed from their first one and from the plaintiffs‟ only in that its rear
support member, instead of being perpendicular to the base, was inclined 6 or 8
degrees from the vertical position. Claim 1 of the patent required the rear member to
„extend vertically‟. The angle of 6 to 8 degrees in the defendants‟ lintel reduced the
18 Selas Corporation of America v Electric Furnace Co 1983 (1) SA 1043 (A) at 1052G-1053F.
19 See Aktiebolaget Hässle & another v Triomed (Pty) Ltd 2003 (1) SA 155 (SCA) para 8.
20 Catnic Components Limited & another v Hill & Smith Limited [1982] RPC183 at 244.
load bearing capacity of the rear member by 0.6 and 1.2 per cent respectively. This
reduction had a negligible effect on the functioning of the member. The Court held
that it would not have been the understanding of persons with the relevant practical
knowledge and experience that strict compliance with the words „extending vertically‟
was intended by the patentee. Moreover, „extending vertically‟ was, in context,
capable of meaning, ‘near enough to vertical to enable the back plate to perform
satisfactorily all the functions that it could perform if it were precisely vertical’.21 (My
emphasis.)
[24] There is nothing in claim 1 of the patent to show that Orica intended that a drill
carriage located only linearly between the props was essential to its invention, or that
a person skilled in the art would understand that the word „between‟ was intended to
be used as a „word of precise meaning‟.22 Moreover Elbroc‟s expert, Mr Johannes
Fourie admitted that although the Elbroc drill carriage is located off the notional line
between the props it was the Elbroc drill rig was still located sufficiently close to the
line to be able to gain support from the props.
[25] Counsel for Elbroc relied upon the decision in Kirin-Amgen Inc & others v
Hoechst Marion Roussel Ltd.23 In support of Elbroc‟s contentions regarding the
interpretation of claims in a patent. For the reasons set out below I do not agree with
the submission.
[26] In Kirin-Amgen, the issue was whether the claims of a European patent
granted to Kirin-Amgen Inc in relation to a protein which stimulates production of red
blood cells in the bone marrow, were infringed by Transkaryotic Therapies Inc. and
Hoechst Marion Roussel Ltd, in circumstances where there was striking similarity
between the technologies used by the two parties for producing the hormone
erythropoietin. The Court found no infringement on the facts of the case. Indeed, the
Court held that patent claims are the decisive basis for determining the extent of
protection.24 But it also approved the basic principles of patent interpretation
21 Ibid at 185.
22 Ibid at 237.
23 Kirin-Amgen Inc & others v Hoechst Marion Roussel Ltd & others; Hoechst Marion Roussel Ltd &
others v Kirin-Amgen & others [2005] 1 All ER 667.
24 At 667.
enunciated in Catnic. The court considered Articles 69 and 84 of the European
Patent Convention (EPC). Article 84 provides that:
„The claims shall define the matter for which protection is sought. They shall be clear and
concise and supported by the description.‟
Article 69 states:
„The extent of the protection conferred by a European patent or European patent application
shall be determined by the terms of the claims. Nevertheless the description and the
drawings shall be used to interpret the claims.‟
[27] Lord Hoffman then sketched the background of these provisions, explaining
that Article 69 was the result of a compromise between what was viewed as the
unduly narrow and literal construction approach of the United Kingdom, and the
other contracting European States whose approach had been to look at the essence
of the invention. The learned judge held that Article 69 should be interpreted as
„defining a position between these extremes which combines a fair protection for the
patentee with a reasonable degree of certainty for third parties.‟
[28] The learned judge referred to the earlier approach in interpreting English rules
which prescribed that the body of the specification could only be considered where
claims had been found to be ambiguous and not where the claims had plain meaning
in themselves. He remarked that to avoid possible injustice, judges were generally
astute to finding the necessary „ambiguity‟ which enabled them to interpret the
document in its proper context and said: „indeed, the attempt to treat the words of the
claim as having meanings “in themselves” and without regard to the context in which
or the purpose for which they were used was always a highly artificial exercise.‟ (at
679.)
[29] Having referred with approval to the purposive approach adopted in Catnic,
the learned judge held (at 680):
„Construction, whether of a patent or any other document, is of course not directly concerned
with what the author meant to say. There is no window into the mind of the patentee or the
author of any other document. Construction is objective in the sense that it is concerned with
what a reasonable person to whom the utterance was addressed would have understood the
author to be using the words to mean. Notice, however, that it is not, as is sometimes said,
"the meaning of the words the author used", but rather what the notional addressee would
have understood the author to mean by using those words. The meaning of words is a
matter of convention, governed by rules, which can be found in dictionaries and grammars.
What the author would have been understood to mean by using those words is not simply a
matter of rules. It is highly sensitive to the context of and background to the particular
utterance. It depends not only upon the words the author has chosen but also upon the
identity of the audience he is taken to have been addressing and the knowledge and
assumptions which one attributes to that audience.‟
[30] The reliance placed by Elbroc on Kirin-Amgen is therefore misplaced.
Purposive interpretation is not an undue extension of the language of patent claims.
In my view to interpret the word „between‟ as meaning linearly between the props is
not in accordance with a purposive interpretation of the specification, as delineated
by the claims. The advantage of the invention is that the telescopic props give
support not only to the hanging roof of the stope, but also to the drill located
"between" them, so that it may be operated remotely. This is precisely what the
respondent‟s drill rig seeks to achieve.
[31] In the result, the following order is made:
1 The appeal is upheld with costs, including the costs of two counsel;
2 The order of the court a quo is set aside and replaced with the following:
„(a) The defendant is interdicted from infringing South African Patent number
2001/10382 by way of the sale or offering for sale in South Africa of the
defendant‟s drill rig.
(b) The defendant is ordered to pay the plaintiff's costs, including the costs of two
counsel.‟
_________________
N DAMBUZA
JUDGE OF APPEAL
APPEARANCES:
For the Appellant:
R Michau SC and K Iles
Instructed by: Dessington & Associates Inc.
Pretoria
c/o Symington & De Kok Attorneys
Bloemfontein
For the Respondent:
A J Bester SC
Instructed by: McCallum Rademeyer & Freimond
Pretoria
c/o Honey Attorneys
Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
31 March 2017
STATUS
Immediate
Please note that the media summary is for the benefit of the media and does not form part of
the judgment.
Neutral Citation:
Orica Mining Services v Elbroc Mining Products (233/2016)
[2017] ZASCA 48 (31 March 2017)
MEDIA STATEMENT
Today the Supreme Court of Appeal handed down a judgment overturning an order
of the Court of the Commissioner of Patents, dismissing an application by Orica
Mining Services (Pty) Ltd for an interdict against Elbroc Mining Products (Pty) Ltd.
Orica had approached the Court of the Commissioner alleging that a roof bolster rig
that Elbroc was selling infringed its patent no 2001/10382 granted in respect of
Orica’s Roof Bolster rig. Elbroc denied the allegation contending that, unlike the
Orica rig the drill carriage in its rig was not located ‘between’ the two telescopic
props that supported the carriage. It was not in dispute that unlike in the Orica rig,
the drill carriage in the Elbroc rig was located off a notional linear line drawn
between the two props.
The Commissioner held that the carriage in the Elbroc rig was not located between
the two props and therefore there was no infringement of the patent. The court found
that ‘between’ meant ‘linearly between’ and that the meaning contended for by Orica
constituted an extension of the ordinary meaning of the word as provided in the
patent
On appeal, the SCA held that claims derive their colour from the context set in the
body of the specification. The Court found that the interpretation given by the
Commissioner to the word ‘between’ was unjustified in the context of the
specification as well as the claim and that on a purposive approach the ‘linearly
between’ was not essential for functioning of the invention. The appeal succeeded.
--- ends ---
|
3050
|
non-electoral
|
2015
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 20147/2014
In the matter between:
PREMIER FOODS (PTY) LTD
APPELLANT
and
NORMAN MANOIM NO FIRST RESPONDENT
THE COMPETITION TRIBUNAL SECOND RESPONDENT
THE COMPETITION COMMISSION THIRD RESPONDENT
THE TRUSTEES FOR THE TIME BEING
OF THE CHILDREN’S RESOURCE
CENTRE TRUST FOURTH RESPONDENT
THE TRUSTEES FOR THE TIME BEING
OF THE BLACK SASH TRUST FIFTH RESPONDENT
CONGRESS OF SOUTH AFRICAN
TRADE UNIONS SIXTH RESPONDENT
NATIONAL CONSUMER FORUM SEVENTH RESPONDENT
TASNEEM BASSIER EIGHTH RESPONDENT
BRIAN MPAHLELE NINTH RESPONDENT
TREVOR RONALD GEORGE BENJAMIN TENTH RESPONDENT
NOMTHANDAZO MVANA ELEVENTH RESPONDENT
FARIED ALBERTU TWELFTH RESPONDENT
Neutral citation: Premier Foods v Manoim NO (20147/2014) [2015] ZASCA
159 (4 November 2015)
Coram:
Maya ADP, Shongwe and Petse JJA and Gorven and
Baartman AJJA
Heard:
29 September 2015
Delivered:
4 November 2015
Summary: Competition Law – leniency under Corporate Leniency Policy –
appellant participated as a self-confessed member of a cartel in complaint
proceedings before the Competition Tribunal – order by the Tribunal finding
that the appellant was involved in a prohibited practice – appellant excluded
from the complaint referrals – whether such order competent – Tribunal having
no power to make any order against appellant – order relating to appellant a
nullity – no need to set aside order – the Tribunal or its Chairperson cannot
issue a certificate under s 65(6)(b) of the Competition Act since order on which
that certificate based a nullity.
ORDER
On appeal from Gauteng Provincial Division of the High Court, Pretoria
(Kollapen J sitting as court of first instance):
1 The appeal is upheld with costs, including those consequent on the
employment of two counsel.
2 The order of the court a quo dismissing the application with costs is set aside
and the following order substituted:
„1 Declaring that neither the first nor the second respondent can lawfully issue a
notice in terms of section 65(6)(b) of the Competition Act 89 of 1998, certifying
that the applicant‟s conduct has been found to be a prohibited practice under the
Act in Competition Tribunal of South Africa case numbers 15/CR/Feb07 and
50/CR/May08.
2 The second and third respondents are directed to pay the costs of the
Applicant.‟
JUDGMENT
Gorven AJA (Maya ADP, Shongwe and Petse JJA and Baartman AJA
concurring):
[1] Cartel activity is a form of practice prohibited by s 4(1)(b) of the
Competition Act.1 Self-interest dictates that the cartel members close ranks. For
this reason, the third respondent, the Competition Commission (the
Commission) has adopted a corporate leniency policy (CLP).2 This offers a:
„. . . self-confessing cartel member, who is first to approach the Commission, immunity for its
participation in cartel activity upon the cartel member fulfilling specific requirements and
conditions set out under the CLP.‟3
It is hoped by this to encourage cartel members to disclose cartel activity and
thus to contribute toward achieving the objects of the Act.4
[2] The appellant, Premier Foods (Pty) Ltd (Premier) had been granted
conditional immunity under the CLP. It gave evidence of the cartel activity in
complaints referred by the Commission to the second respondent, the
Competition Tribunal (the Tribunal). This appeal concerns an order granted by
the Tribunal in those proceedings declaring the conduct of Premier to be a
prohibited practice in respect of its involvement in cartel activity (the
1 Competition Act 89 of 1998. The Act makes use of italics, which have been retained in quotes from the Act.
Section 4(1)(b) reads as follows:
„(1) An agreement between, or concerted practice by, firms, or a decision by an association of firms, is
prohibited if it is between parties in a horizontal relationship and if –
. . .
(b)
it involves any of the following restrictive horizontal practices:
(i)
directly or indirectly fixing a purchase or selling price or any other trading condition;
(ii)
dividing markets by allocating customers, suppliers, territories, or specific types of goods or
services; or
(iii)
collusive tendering.‟
2 Corporate Leniency Policy, GN 628, GG 31064, 23 May 2008, as amended by GN 212, GG 35139, 16 March
2012. The adoption by the commission of the CLP was upheld as valid and lawful in Agri Wire (Pty) Ltd &
another v Commissioner of the Competition Commission & others [2012] ZASCA 134; 2013 (5) SA 484 (SCA)
para 22.
3 Paragraph 3.1 of the CLP, footnotes omitted.
4 The relevant details of the CLP will be discussed more fully later in this judgment.
declaration).5 Premier says that the Tribunal was not empowered to make the
declaration because the conduct of Premier was not included in the complaints
referred to the Tribunal. Premier submits that the declaration is therefore a
nullity. As a result, the argument goes, neither the Tribunal nor the first
respondent, the Chairperson of the Tribunal (the Chairperson), can lawfully
certify the declaration in terms of s 65(6)(b)(i) of the Act.
[3] The declaration came to be granted as follows. In December 2006, the
Commission received information of an alleged bread cartel operating in the
Western Cape (the first complaint).6 It initiated a complaint against Premier,
Tiger Food Brands (Pty) Ltd (Tiger) and Pioneer Foods (Pty) Ltd (Pioneer).
Premier applied for leniency under the CLP, disclosing that it and the other two
parties had been operating a cartel in the Western Cape by fixing selling prices
and other trading conditions.7 Premier went further and disclosed that it, Pioneer
and Foodcorp (Pty) Ltd (Foodcorp) had operated a bread cartel in other parts of
the country. This involved agreements to allocate territories.8 As a result of this
information, the Commission initiated a second complaint (the second
complaint).9 The Commission referred the two complaints to the Tribunal. Only
Tiger and Pioneer were cited as respondents in the first complaint and only
Pioneer and Foodcorp were cited as respondents in the second complaint. Relief
was sought only against the cited respondents.
5 The order was granted in terms of s 58(1)(a)(v) of the Act which provides for an order „declaring conduct of a
firm to be a prohibited practice . . . for purposes of section 65‟. Section 65(6)(b)(i) requires a notice certifying
that the conduct in question „has been found to be a prohibited practice‟. Section 65(9)(a) refers to the date of „a
determination in respect of a matter that affects that person‟. The underlined words are my emphases. These
terms seem to me to be interchangeable. For the sake of consistency, I have used the word „declaration‟ for all
of these.
6 This was allocated case number 15/CR/Feb07.
7 In contravention of s 4(1)(b)(i) of the Act.
8 In contravention of s 4(1)(b)(ii) of the Act.
9 This was allocated case number 50/CR/May08.
[4] The two complaints were dealt with together by the Tribunal. The
founding affidavit to the referral arising from the first complaint explains why
Premier was not cited as a respondent or relief sought against it in the referrals:
„Although [Premier] was also the subject of the [Commission‟s] investigation, it has
not been joined as a respondent in these proceedings because it has been granted conditional
immunity from prosecution (in terms of the [Commission‟s] corporate leniency policy) as a
result of its co-operation with the [Commission] during its investigation and confession of its
role in the bread cartel activity involving the first and second respondents and [Premier] itself
in the Western Cape.‟10
[5] After hearing the referred complaints, the Tribunal granted the
declaration. This declares that Premier and the cited respondents had
contravened s 4(1)(b)(i) and (ii) of the Act in respect of the complaints. At the
time the declaration was made, both Tiger and Foodcorp had consented to
orders under s 49D of the Act, which included administrative penalties. This left
Pioneer as the remaining opposing respondent. A total administrative penalty of
some R195 million was imposed on Pioneer. Premier, as mentioned, had been
granted conditional immunity under the CLP. Premier was granted final
immunity from prosecution as a result of the evidence it gave.
[6] This appeal has arisen because the 4th to 12th respondents (the claimants),
who regard themselves as having been injured by the cartel activity, wish to sue
the four entities for the damages they say they have sustained as a result. They
may only institute action if they file with the Registrar or Clerk of the Court a
notice in terms of s 65(6)(b) of the Act from the Chairperson of the Tribunal.
Section 65(6) provides as follows:
„A person who has suffered loss or damage as a result of a prohibited practice –
10 There is a similar paragraph in the referral of the second complaint.
(a) may not commence an action in a civil court for the assessment of the amount or
awarding of damages if that person has been awarded damages in a consent order
confirmed in terms of section 49D(1); or
(b) if entitled to commence an action referred to in paragraph (a), when instituting
proceedings, must file with the Registrar or Clerk of the Court a notice from the
Chairperson of the Competition Tribunal, or the Judge President of the
Competition Appeal Court, in the prescribed form –
(i)
certifying that the conduct constituting the basis for the action has been
found to be a prohibited practice in terms of this Act;
(ii)
stating the date of the Tribunal or Competition Appeal Court finding;
and
(iii)
setting out the section of this Act in terms of which the Tribunal or the
Competition Appeal Court made its finding.‟
It is s 65(6)(b) which applies here. The crucial requirement is certification in
terms of s 65(6)(b)(i) that the conduct on which the action is based has been
found to be a prohibited practice in terms of the Act.
[7] The claimants obtained such notices in respect of Tiger and Pioneer. They
thereupon launched proceedings in the Western Cape Division of the High
Court11 to institute a class action against Premier, Tiger and Pioneer.12 This
application was dismissed. One of the three bases for dismissing it was that no
s 65(6)(b) notice had been filed in respect of Premier.13
[8] The claimants then applied to the Tribunal for a s 65(6)(b) notice in
respect of Premier. This was opposed. The Chairperson convened a pre-hearing
11 It was designated the Western Cape High Court, Cape Town at the time.
12 See The Trustees for the Time Being of the Children’s Resource Centre Trust & others v Pioneer Foods (Pty)
Ltd & others; Mukaddam & others v Pioneer Foods (Pty) Ltd & others [2011] ZAWCHC 102.
13 Two appeals from this judgment were heard by this court. The first resulted in the matter being referred back
with leave given to supplement the papers to deal with the requirements for certification in class actions set out
by this court in that judgment. It was held that prior certification by a court is necessary for the institution of a
class action. See Children’s Resource Centre Trust & others v Pioneer Food (Pty) Ltd & others [2012] ZASCA
182; 2013 (2) SA 213 (SCA). The second held that the applicants had not made out a case for an „opt-in‟ class
action. See Mukaddam v Pioneer Foods (Pty) Ltd & others [2012] ZASCA 183; 2013 (2) SA 254 (SCA). The
Constitutional Court heard an appeal from the second of these. See Mukaddam v Pioneer Foods (Pty) Ltd &
others [2013] ZACC 23; 2013 (5) SA 89 (CC).
conference. He there expressed the view that, in his capacity as Chairperson, it
was he, rather than the Tribunal, who should issue the notice. He invited the
parties to submit heads of argument on the issue. This application is still
pending because Premier then approached the court below for the following
relief:
„Declaring that neither the First nor the Second respondent can lawfully issue a notice in
terms of section 65(6)(b) of the Competition Act 89 of 1998, certifying that the Applicant‟s
conduct has been found to be a prohibited practice under the Act in Competition Tribunal of
South Africa case numbers 15/CR/Feb07 and 50/CR/May08‟.14
[9] The application was dismissed with costs by Kollapen J in the Gauteng
Division of the High Court, Pretoria.15 He held that the declaration was
competent and, because an order in terms of s 58(1)(a)(v) had been granted, a
notice in terms of s 65(6)(b) could be issued in respect of Premier. Leave to
appeal was granted by this court after the court a quo refused an application for
leave to appeal against that decision. This is the appeal which is before us. Only
the Commission and the claimants oppose the appeal.
[10] It is as well to sketch the basic contours of the Act at this point. A
prohibited practice is defined to mean one prohibited in terms of Chapter 2.16
Cartel activity is dealt with in this chapter in s 4(1)(b). A „complainant‟ is
defined as „a person who has submitted a complaint in terms of section
49B(2)(b)‟.17 A „respondent‟ is defined as „a firm against whom a complaint of
a prohibited practice has been initiated in terms of this Act‟.18 The Act
establishes three specialist bodies: the Commission,19 the Tribunal20 and the
Competition Appeal Court (the CAC).21
14 Premier also sought costs.
15 It was known as the North Gauteng High Court, Pretoria, at the time.
16 Section 1 of the Act.
17 Ibid.
18 Ibid.
19 In terms of section 19.
[11] The Commission inter alia investigates complaints of alleged prohibited
practices which have been initiated.22 Once the complaint has been investigated,
the Commission is limited to three courses of action. If it is of the view that no
prohibited practice has been established, it must issue a certificate of non-
referral.23 Where it is of the view that a prohibited practice has been established,
it has two options. First, it can „agree on the terms of an appropriate order‟ with
the respondent to the complaint.24 Secondly, if it does not do so, it must refer
the complaint to the Tribunal.25 If the terms of an order are agreed, the Tribunal
may confirm the agreement as a consent order without hearing evidence.26 If
that order includes an award of damages to the complainant, the complainant
must consent to the damages.27 The consent order does not preclude a
complainant from applying for a declaration in terms of, inter alia,
s 58(1)(a)(v).28 If no damages were awarded in the consent order, a complainant
is not precluded from claiming damages.29
[12] Where a referral takes place, the Commission may refer all or only some
of the particulars of the complaint in terms of s 50(3).30 If it refers only some
particulars, it must then issue a certificate of non-referral in respect of those
20 In terms of section 26.
21 In terms of section 36.
22 Section 49B.
23 If this is done, the complainant is entitled in terms of s 51(1) to refer the complaint to the Tribunal, subject to
its procedural rules.
24 Section 49D(1).
25 Section 50(1) read with s 50(2)(a) and s 50(5).
26 Section 49D(1).
27 Section 49D(3).
28 Section 49D(4)(a).
29 Section 49D(4)(b).
30 Section 50(3) reads:
„(3) When the Competition Commission refers a complaint to the Competition Tribunal in terms of subsection
(2)(a), it –
(a)
may-
(i)
refer all the particulars of the complaint as submitted by the complainant;
(ii)
refer only some of the particulars of the complaint as submitted by the complainant; or
(iii)
add particulars to the complaint as submitted by the complainant; and
(b)
must issue a notice of non-referral as contemplated in subsection (2)(b) in respect of any particulars of
the complaint not referred to the Competition Tribunal.‟
which it does not refer.31 If it does not refer a complaint or issue such a
certificate within a year after the complaint was submitted, the Commission
must be regarded as having issued a notice of non-referral.32 The complainant
may thereupon refer the complaint, or that part of it which was not referred, to
the Tribunal.33
[13] On referral of the complaint, the Tribunal must conduct a hearing.34 This
encompasses „every matter referred to it in terms of this Act.‟ At the conclusion
of the hearing, the Tribunal must make an order and give written reasons.35 One
order it can make is set out in s 58(1)(a)(v) which reads:
„(1) In addition to its other powers in terms of this Act, the Competition Tribunal may –
(a)
make an appropriate order in relation to a prohibited practice, including –
. . .
(v)
declaring conduct of a firm to be a prohibited practice in terms of this Act, for
purposes of section 65;
. . . .‟
This is the order whose declaration to that effect must be certified in the notice
in terms of s 65(6)(b). Another order the Tribunal can grant is to impose an
administrative penalty in the circumstances set out in s 59.36
[14] The Tribunal and the CAC are the only bodies that can make an order
declaring that a firm has engaged in a prohibited practice. Unless they do so, no
such declaration can be made. This is clear from s 62(1)(a), which provides that
the Tribunal and CAC have exclusive jurisdiction in respect of the interpretation
and application of Chapter 2 of the Act. An order made by the Tribunal may be
31 As can be seen, s 50(3)(a)(iii) also allows the Tribunal to add particulars to a complaint.
32 Section 50(5). This time period can be extended by agreement with the complainant or by application to the
Tribunal in terms of s 50(4).
33 In terms of s 51(1).
34 Section 52(1).
35 Section 52(4).
36 For the sake of completeness, it is noted that it can also make other orders in terms of s 60 relating to mergers
which will not be dealt with here.
served, executed and enforced as if it were an order of the High Court.37
Section 65(2) ousts the jurisdiction of a civil court to consider whether conduct
prohibited by the Act has taken place and, if so, to make a declaration.38 A civil
court is obliged to apply the determination of these specialist bodies.39 Once a
declaration has been made by the Tribunal or CAC, it therefore renders res
judicata the issue of the wrongful conduct of the firm in question.
Section 65(9)(a) provides that a „person‟s right to bring a claim for damages
arising out of a prohibited practice comes into existence‟ on the date that the
Tribunal or CAC makes a declaration. Without a declaration, no right to claim
damages comes into existence. Once a declaration has been made, a s 65(6)(b)
notice can be obtained by a person wishing to claim damages. Such a notice „is
conclusive proof of its contents, and is binding on a civil court.‟40 Without that
notice, therefore, a claim for damages cannot be prosecuted.
[15] Having sketched an outline of the relevant aspects of the Act, it will be
helpful to briefly consider the provisions of the CLP. An applicant for immunity
such as Premier (a leniency applicant) must acknowledge culpability and fully
disclose all relevant facts. Immunity is conditional until the Tribunal has made a
final determination in relation to the reported cartel activity.41 Immunity means:
„. . . that the Commission would not subject the successful applicant to adjudication before
the Tribunal for its involvement in the cartel activity, which is part of the application under
consideration. Furthermore, the Commission would not propose to have any fines imposed to
that successful applicant.‟42
Footnote 4 to this clause explains that:
37 Section 64(1).
38 Defined as a High Court or Magistrates Court in s 1.
39 Section 65(2)(a). If no such order has been made at the time the court is approached, the court is obliged to
refer the issue of prohibited conduct to the Tribunal except in circumstances which do not apply here. See
s 65(2)(b).
40 Section 65(7).
41 Clause 3.1 read with clause 9.1.1.2 of the CLP.
42 Clause 3.3 of the CLP. Footnotes omitted.
„Adjudication means a referral of a contravention of chapter 2 to the Tribunal by the
Commission with a view of getting a prescribed fine imposed on the wrongdoer. Prosecution
has a similar import to adjudication herein.‟
[16] In the context of this matter, accordingly, all that is offered to a leniency
applicant is immunity from the application of the provisions of s 59. The CLP
expressly provides that leniency applicants do not enjoy immunity in civil
actions.43 No immunity is therefore offered from a declaration because this is
what gives rise to the right to claim damages. It is clear that, unless a
declaration can be made concerning a leniency applicant, the provisions of
clauses 5.9 and 6.4 are rendered nugatory.
[17] Premier submits that the crisp issue for decision is whether the Tribunal
had the power to grant an order under s 58(1)(a)(v) declaring Premier‟s conduct
to be a prohibited practice. In the first place, it submits that the Tribunal had no
such power. Secondly, it says that the effect of this is that the declaration is a
nullity and does not need to be set aside. There is therefore, the argument goes,
no order containing a determination capable of certification. I shall deal with
these submissions in turn.
[18] Did the Tribunal have the power to grant the order? The Tribunal is a
creature of statute. It has only those powers given to it by the Act and must
exercise its functions in accordance with the Act.44 The Commission
investigates, refers and prosecutes complaints. The Tribunal determines those
complaints which have been referred to it. Its power to determine a complaint
43 Clause 5.9 of the CLP, as underscored by clause 6.4 of the CLP, which provides that „[n]othing in the CLP
shall limit the rights of any person who has been injured by cartel activity in respect of which the Commission
has granted immunity under the CLP to seek civil or criminal remedies‟. (footnotes omitted)
44 Section 26(1)(d).
only arises on referral in terms of the Act, generally by the Commission.45 Put
another way, the referral by the Commission is „a jurisdictional fact for the
exercise of the Tribunal‟s powers in respect of prohibited practices.‟46 In
Competition Commission of South Africa v Senwes Ltd,47 the Constitutional
Court held:
„The question whether the complaint that was found to have been established by the
Tribunal adequately canvassed that which was referred to it must be determined with
reference to the terms of the referral.‟48
The Tribunal is only empowered to make a declaration on matters falling within
terms of a referral. The Commission submits that the question „is whether a
complaint against a particular party is properly referred to and before the
Tribunal when that party is not formally cited as a respondent.‟ For reasons
which will become apparent, my view is that the question goes beyond the issue
of citation.
[19] When the Commission refers a complaint to the Tribunal in terms of
s 50(2)(a), it is entitled to refer only some of the particulars of a complaint. This
is clear from s 50(3). If this is done, the Tribunal‟s power is limited to those
particulars referred to it by the Commission. In Agri Wire (Pty) Ltd & another v
Commissioner of the Competition Commission & others,49 this court upheld the
right of the Commission to exclude one or more cartel members from a referral
to the Tribunal. That decision is not challenged by the Commission or the
claimants. In that matter, the following was said:
„If, at the conclusion of the investigation, the Commissioner decides to refer the
complaint to the Tribunal, the Act specifically provides that the Commissioner may refer all
45 As indicated, complainants may also refer complaints in certain circumstances under s 51(1) but this does not
apply to the present matter.
46 Per Harms DP in Woodlands Dairy (Pty) Ltd & another v Competition Commission [2010] ZASCA 104;
2010 (6) SA 108 (SCA) para 12.
47 Competition Commission of South Africa v Senwes Ltd [2012] ZACC 6; 2012 (7) BCLR 667 (CC) para 36.
48 In the majority judgment by Jafta J. The minority judgment did not comment on this approach, but applied it
when it held that the matter should be referred back to the Tribunal for it to rule on the ambit of the referral.
49Agri Wire (Pty) Ltd & another v Commissioner of the Competition Commission & others [2012] ZASCA 134;
2013 (5) SA 484 (SCA).
or some of the particulars of the complaint and may add particulars to the complaint
submitted by the complainant. One of the central particulars in respect of cartel conduct is the
identity of the members of the cartel. If the complaint is that A and B and C have engaged in
cartel behaviour the Commissioner may decide to refer only A and B. In that way, the
Commissioner exercises the express statutory power to exclude certain particulars, namely C,
from the referral.‟50
[20] In Agri Wire, the party referred to as CWI had been given conditional
immunity under the CLP. It was cited as a respondent in the complaint referral
but no relief was sought against it. Agri Wire and nine others were cited as
respondents against whom relief was sought. As is clear, this court arrived at the
conclusion that CWI could properly be excluded from the referral by
interpreting „particulars of the complaint‟ in s 50(3) to include the parties
alleged to be involved in the cartel activity.
[21] In support of its contention that the Tribunal was empowered to make the
declaration, the Commission relies on Senwes. It makes the following
submissions:
„The Court found that, as a question of fact, the Commission had indeed failed to
specify the particular complaint against the parties in the referral.‟
and
„But, the Court held that the Tribunal nevertheless had jurisdiction to determine the
matter. The Tribunal determined a complaint not originally referred but which was brought to
its attention during the course of deciding a referral.‟
These submissions do not reflect the finding in Senwes. The issue in Senwes
was whether the complaint on which the Tribunal ruled was covered by the
referral. This court held that the conduct fell outside of the ambit of the
50 Paragraph 24.
referral51 but the majority in the Constitutional Court held that it was included.
In this regard, Jafta J said:52
„It was this same complaint which the Tribunal found to have been established in
evidence. As it appears below, the error made by the Tribunal was to call it a margin squeeze.
In my respectful view, the Supreme Court of Appeal erred when it held that the Tribunal
considered a complaint which was not covered by the referral.‟53
The enquiry, therefore, is whether the complaint ruled upon in any one matter
fell within the ambit of the referral.54 This is a fact based enquiry.
[22] In the present matter, in the light of Agri Wire, the issue is whether the
particulars of the complaint relating to Premier‟s conduct fell within the ambit
of the referrals. The Commission and the claimants accept that Premier was not
cited as a respondent in the complaint referrals. They further accept that no
relief was sought against Premier in the referrals. They say, however, that the
particulars of the complaint relating to Premier nevertheless fell within the
ambit of the referrals.
[23] In support of this contention, the claimants submit that Premier was a
respondent as defined in the Act because it formed part of the complaint
initiation. They, and the Commission, submit that Premier‟s conduct formed
part of the referral because Premier participated as a party to whom conditional
immunity had been granted on the basis of its admitted involvement in the cartel
activity. Of the seven witnesses called, five were employees of Premier. All
gave evidence of the cartel activity which included Premier. The only reason the
commission sought no relief against Premier in the referrals was because
51 Senwes Ltd v Competition Commission of South Africa [2011] ZASCA 99 para 46.
52 Paragraph 39. Mogoeng CJ, Moseneke DCJ, Nkabinde, Skweyiya, Van der Westhuizen, Yacoob JJ and
Zondo AJ concurred in the judgment of Jafta J.
53 Froneman J, in whose judgment Cameron J concurred, held that the referral was open to more than one
reasonable interpretation and should be referred back to the Tribunal for a ruling on its ambit.
54 This remains the case when the Commission acts in terms of s 50(3)(a)(iii) and adds particulars to a complaint
as submitted by the complainant.
conditional immunity had been extended to Premier. The Commission summed
up by saying:
„The boundaries of the Tribunal‟s powers are therefore not determined by whether or not the
leniency applicant was formally cited in the referral. They are determined by the fact of the
leniency applicant‟s participation in the hearing, the material facts set out in the referral
affidavit and the evidence adduced by and about it.‟
[24] None of this means that Premier‟s conduct fell within the ambit of the
referrals. Although it was a respondent as defined in the Act, this also does not
mean that it was included in the referrals. That must be determined by
construing the ambit of the referrals themselves. In Agri Wire, CWI participated
on the same basis as did Premier in the present one except that it was also cited
as a respondent in the referral. It was a party to whom conditional immunity had
been extended on the basis of its admitted involvement in cartel activities. It
gave evidence of its involvement in the cartel activities and that of the other
respondents at the enquiry. But, because no relief was sought against it, this
court held that its particulars had not been included in the referral for the
following reasons:
„Clause 9.1.1.3 [of the CLP] warns that, at any stage until total immunity is granted, the
Commission reserves the right to revoke the grant of conditional immunity for lack of co-
operation and pursue a prosecution before the Tribunal. That signals quite clearly that a party
that has been afforded conditional immunity, is not before the Tribunal for the purposes of
the latter making a determination against it, including the imposition of an administrative
penalty. It will only be referred to the Tribunal for the purpose of an adverse determination
and the imposition of an administrative penalty if the Commission revokes its conditional
immunity.‟
[25] The judgment in Agri Wire thus distinguishes between a determination
and the imposition of an administrative penalty. When it refers to a
determination, it does not refer to one for the purpose of imposing an
administrative penalty alone. It includes such a determination but makes it clear
that this is not the only determination from which the referral excluded CWI.
What is then meant by other types of determination? The only places where the
Act refers to a determination in this context is in s 65(2)(a) and s 65(9). The
former relates to a determination concerning conduct that is prohibited in the
Act. The latter relates to a determination for the purposes of a claim for
damages arising from a prohibited practice. Both of these therefore relate to
what I have referred to as a declaration, which is an order in terms of
s 58(1)(a)(v) of the Act. This means, accordingly, that CWI was before the
Tribunal as a cited respondent, but had been excluded from the referral „for the
purposes of‟ seeking any relief at all against it, whether by way of an order in
terms of s 58(1)(a)(v) or the imposition of an administrative penalty under s 59.
[26] In the present matter, as is accepted by the Commission and the
claimants, the Commission neither cited Premier as a respondent nor did it seek
any relief, including a declaration, against it. The referrals were covered by
Form CT1(1) as was required by the rules.55 The forms were headed „The
Competition Commission seeks an order granting the following relief‟ with the
explanation below „(Concise statement of the order or relief sought:)‟. In the
second referral, the Commission wrote in that space: „SEE THE ATTACHED
AFFIDAVIT OF AVISHKAR KALICHARAN‟. The affidavit in question
concluded with a prayer for the relief sought by the Commission. This
comprised orders against only the cited respondents, Pioneer and Foodcorp, in
terms of s 58(1)(a)(v), that they desist from such conduct and that an
administrative penalty be imposed on them. In the first referral, the relief was
set out in the covering form as well as in the prayer to the affidavit. It sought
identical relief to that in the second referral, but also only against the cited
respondents, Pioneer and Tiger. As I have already noted, the Commission itself
55 Competition Tribunal Rules, GG 22025, 1 February 2001 (Note: the Notice Number was omitted in the
publication of these Rules.)
said that it had deliberately not cited Premier as a respondent. Premier‟s
position in the present matter thus corresponds to that of C in the example given
in Agri Wire.56 Unlike in Senwes, the Commission consciously exercised its
right to exclude certain particulars, namely the involvement of Premier in the
cartel activity, from the referrals. There was thus only a partial referral of the
complaints to the Tribunal as is allowed by s 50(3)(a)(ii).
[27] The Commission says that s 58(1)(a)(v) distinguishes between a „firm‟
and a „party‟. Accordingly, it submits that the firm against whom such an order
is made need not be a party. Because Premier participated in the proceedings on
the basis of its admitted involvement in the cartel activity, an order could be
made against it. It says that no prejudice to Premier ensued. But this ignores the
approach in Agri Wire and Senwes, both of which require the subject matter of
the order to fall within the ambit of the complaint referral, failing which the
Tribunal has no power to make a declaration. As I have indicated, my view is
that Premier‟s conduct is not covered by the referrals. The Tribunal thus had no
power to make the declaration. The issue of prejudice does not arise since the
Tribunal was not empowered.
[28] The decision not to cite Premier as a respondent in the referrals provides
an additional basis why the Tribunal was not empowered to make the
declaration. In this regard, Premier differs from the position of CWI, which was
cited as a respondent in Agri Wire. This point is illustrated in a different context
by National Union of Metalworkers of South Africa v Intervalve (Pty) Ltd &
others.57 In that matter, a single party was referred to a Bargaining Council in a
dispute over unfair dismissals. When conciliation did not result from the
referral, the dispute was referred to the Labour Court, also with only one party
56 See paragraph 19 above.
57 National Union of Metalworkers of South Africa v Intervalve (Pty) Ltd & others [2014] ZACC 35; 2015 (2)
BCLR 182 (CC).
being cited. However, the Union then sought to join two other parties in the
Labour Court. The difficulty was that, in terms of the Labour Relations Act 66
of 1995, if there has been no referral to conciliation, the Labour Court has no
jurisdiction over such a dispute. The Labour Court nevertheless allowed the
joinder.
[29] An appeal to the Labour Appeal Court to set aside the joinder succeeded.
The Constitutional Court agreed with the Labour Appeal Court. It held that
joinder was not permissible because those two parties had not been referred to
the Bargaining Council. This meant that the Labour Court had no jurisdiction in
relation to them. This was so even though all three parties had notice of the
conciliation proceedings. In so finding, the majority judgment of Cameron J
said:
„Formal service puts the recipient on notice that it is liable to the consequences of
enmeshment in the ensuing legal process. This demands the directness of an arrow. One
cannot receive notice of liability to legal process through oblique or informal acquaintance
with it.‟58
He concluded:
„So the purpose of the statutory provision – to tell those on the line that the impending
legal process might make them liable to adverse consequences – was not fulfilled. That the
three companies‟ shared HR services, and the companies‟ attorney, knew about the referral
against Steinmüller did not mean that they knew, or should have concluded, that the dispute
against Intervalve and BHR had also been referred for conciliation. On the contrary, the
referral against Steinmüller alone told them the opposite. Intervalve and BHR were left out.
The ensuing legal process did not encompass them.‟59
[30] Premier knew that the other members of the cartel had been cited as
respondents and that relief was sought against them. This does not mean that it
should have anticipated that relief would be sought against it since the referral
58 Paragraph 53.
59 Paragraph 58.
told it the opposite. In the words of Cameron J, it was not notified that it was
„liable to the consequences of enmeshment in the ensuing legal process.‟ The
submission that, because Premier was involved as a leniency applicant in which
it clearly admitted its culpability, a finding could be made against it, attempts to
invoke precisely that „liability to legal process through oblique or informal
acquaintance‟ which was rejected by the Constitutional Court. Citation as a
party is necessary so that that person can invoke all the rights of a party against
whom relief is sought.
[31] The position of Premier is not dissimilar to that of a witness under s 204
of the Criminal Procedure Act 51 of 1977 where immunity from prosecution
can be granted if the witness fulfils certain criteria. If the witness does not do
so, the court has no jurisdiction to convict the witness because the witness was
not an accused before the court. A court would have jurisdiction to do so only if
the witness was subsequently charged before it and was thus accorded all of the
rights of an accused person.60
[32] In all the circumstances, therefore, I hold the view that the Tribunal
lacked the power to make the declaration. This brings into focus the second
issue as to the consequence of that lack of power.
[33] What, then, is the effect of the lack of power of the Tribunal to make the
declaration? In this regard, Kollapen J in the court a quo held that „for as long as
the finding of the Tribunal remains unchallenged, then the issue of the
certificate as proof of such finding is not only permissible but also in my view
60 By this rough analogy, I do not seek to suggest that the power of the Tribunal to determine the terms of the
referral should be narrowly or restrictively construed. See note 6 of the minority judgment in Competition
Commission of South Africa v Senwes Ltd [2012] ZACC 6; 2012 (7) BCLR 667 (CC), where it was said that
such an approach would be more appropriate to the investigative powers of the Commission than to those of the
Tribunal. See also Woodlands Dairy (Pty) Ltd & another v Competition Commission [2010] ZASCA 104;
2010 (6) SA 108 (SCA) para 10.
peremptory.‟61 The Commission and the claimants support this approach.
Premier submits, however, that, because the Tribunal did not have the power to
make the declaration, it is a nullity. It is therefore not necessary to set it aside.
The notice in terms of s 65(6)(b) accordingly cannot be issued because it would
amount to certifying a nullity.
[34] In support of this submission, Premier relies on a line of authorities
stretching back over one hundred years. These were reaffirmed by this court in
The Master of the High Court (North Gauteng High Court, Pretoria) v Motala
NO & others,62 which said:
„As long ago as 1883 Connor CJ stated in Willis v Cauvin 4 NLR 97 at 98 – 99:
“The general rule seems to be that a judgment, without jurisdiction in the Judge pronouncing
it, is ineffectual and null. . .”
Willis v Cauvin was cited with approval in Lewis & Marks v Middel 1904 TS 291; and Sliom
v Wallach's Printing & Publishing Co, Ltd 1925 TPD 650. In the former, Mason J (with
whom Innes CJ and Bristowe J concurred) held at 303:
“It was maintained that the only remedy was to appeal against the decision of the Land
Commission; but we think that the authorities are quite clear that where legal proceedings are
initiated against a party, and he is not cited to appear, they are null and void; and upon proof
of invalidity the decision may be disregarded, in the same way as a decision given without
jurisdiction, without the necessity of a formal order setting it aside (Voet, 2, 4, 14; and 66; 49,
8, 1, and 3; Groenewegen, ad Cod. 2; 41; 7, 54; Willis v Cauvin, 4 N.L.R. 98; Rex v
Stockwell, [1903] T.S. 177; Barnett & Co. v Burmester & Co., [1903] T.H. 30).”‟
These authorities confirm two bases for nullity: lack of jurisdiction to make an
order and non-citation of a person against whom an order is granted. This
further underscores the approach mentioned above in NUMSA v Intervalve that
citation is a necessary prelude to an order granted against an entity.
61 Premier Foods (Pty) Ltd v Manoim NO & others [2013] ZAGPPHC 236 para 45.
62 The Master of the High Court (North Gauteng High Court, Pretoria) v Motala NO & others [2011] ZASCA
238; 2012 (3) SA 325 (SCA) para 12.
[35] In Lewis & Marks v Middel,63 the plaintiffs sued for cancellation of a
diagram of the defendant‟s farm insofar as it encroached on that of the
plaintiffs‟ farm. The diagram of the plaintiffs‟ farm had been confirmed in 1870
and, in 1882, the defendant lodged a protest against that diagram which came
before the Land Commission. The Land Commission awarded the disputed
ground to the defendant who had his farm surveyed in accordance with the
award. This diagram was confirmed and, although the report of the Land
Commission was published, no appeal was noted against it. The court upheld
the plaintiffs‟ challenge to the defendant‟s diagram on the basis that, because
the plaintiffs had not been given notice of the sitting of the Land Commission,
the proceedings before it were null and void.
[36] In a footnote to MEC for Health, Eastern Cape & another v Kirland
Investments (Pty) Ltd t/a Eye & Lazer Institute,64 the Constitutional Court
approved this approach:
„In The Master of the High Court (North Gauteng High Court, Pretoria) v Motala NO and
Others 2012 (3) SA 325 (SCA) the Supreme Court of Appeal, reaffirming a line of cases
more than a century old, held that judicial decisions issued without jurisdiction or without the
citation of a necessary party are nullities that a later court may refuse to enforce (without the
need for a formal setting-aside by a court of equal standing). This seems paradoxical but is
not. The court, as the fount of legality, has the means itself to assert the dividing line between
what is lawful and not lawful. For the court itself to disclaim a preceding court order that is a
nullity therefore does not risk disorder or self-help.‟65
[37] In attempting to address this, the Commission relies on the following
passage in Kirland:
„[98] The outcome does not change if we consider the approval from the perspective
of whether the decision-maker acted within her jurisdiction in granting approval.
63 Lewis & Marks v Middel 1904 TS 291.
64 MEC for Health, Eastern Cape & another v Kirland Investments (Pty) Ltd t/a Eye & Lazer Institute [2014]
ZACC 6; 2014 (3) SA 481 (CC) at 512, note 78.
65 Per the majority judgment of Cameron JA.
Jurisdictional facts refer broadly to preconditions or conditions precedent that must exist
before the exercise of power, and the procedures to be followed when exercising that
power. It is true that we sometimes refer to lawfulness requirements as “jurisdictional facts”.
But that derives from terminology used in a very different, and now defunct, context (namely
where all errors, if they were to be capable of being reviewed at all, had to be construed as
affecting the functionary's “jurisdiction”). In our post-constitutional administrative law, there
is no need to find that an administrator lacks jurisdiction whenever she fails to comply with
the preconditions for lawfully exercising her powers. She acts, but she acts wrongly, and her
decision is capable of being set aside by proper process of law.
[99] So the absence of a jurisdictional fact does not make the action a nullity. It means only
that the action is reviewable, usually on the grounds of lawfulness (but sometimes also on the
grounds of reasonableness). Our courts have consistently treated the absence of a
jurisdictional fact as a reason to set the action aside, rather than as rendering the action non-
existent from the outset. The absence of jurisdictional facts did not entitle Mr Boya to
withdraw the approval, but only to approach a court to set it aside.‟66
On the strength of this, the Commission says that, even if it is found that the
Tribunal lacked power, the declaration must be set aside before Premier can
succeed. This also accords with a long line of authority concerning the effect of
invalid administrative action. In such a case, the administrative decision cannot
be ignored because it exists in fact and has legal consequences until set aside.67
[38] As I see it, the dictum relied upon by the Commission in no way detracts
from the approach in Motala and the line of authorities there referred to.
Premier has not simply ignored the declaration. Nor is it contending that the
Chairperson or Tribunal should do so. It may convincingly be argued that the
declaration could not be ignored by the Chairperson or the Tribunal because
neither of these is a court of law and this would amount to self-help. This may
well be correct but it is not necessary to deal with that issue.
66 Paragraphs 98 and 99, references omitted.
67 Oudekraal Estates (Pty) Ltd v City of Cape Town & others [2004] ZASCA 48; 2004 (6) SA 222 (SCA) para
26.
[39] The reason for this is that the footnote in Kirland says that the right of a
court to ignore as a nullity other court orders does not amount to self-help. The
court a quo was thus in a different position to the Chairperson and the Tribunal.
It was requested to declare that the order against Premier could not lawfully be
certified. It must be borne in mind that, in the present matter, the declaration
had the force and effect of a High Court order.68 If the court a quo disclaimed
the declaration, which is a nullity, it „therefore does not risk disorder or self-
help‟.69 This is because, „as the fount of legality, [the court a quo had] the
means itself to assert the dividing line between what is lawful and not lawful.‟70
On this basis, the court a quo was surely entitled to regard the declaration as a
nullity and grant the relief sought by Premier. In my view, it was not necessary
to first set the declaration aside.
[40] The Commission further submits that a notice under s 65(6)(b) has only
three requirements. These are a finding as to conduct, a date of the finding, and
a section of the Act which was transgressed. It submits that Premier seeks, in its
approach, to read in a fourth requirement - that of the need to be cited as a
respondent in a referral to the Tribunal. The argument goes that this is not
permissible because the meaning of the section does not lead „to some
absurdity, inconsistency, hardship or anomaly which . . . the Legislature could
not have intended‟.71
[41] In the first place, it seems to me that there is, in effect, only one
requirement for the issue of a notice, but three aspects which must be dealt with
in it. The single requirement is an order in terms of s 58(1)(a)(v) which declares
68 Section 64(1) of the Act.
69 Kirland above at 512, note 78.
70 Ibid.
71 Bhyat v Commissioner for Immigration 1932 AD 125 at 129, cited with approval in Poswa v Member of the
Executive Council for Economic Affairs, Environment and Tourism, Eastern Cape [2001] ZASCA 31; 2001 (3)
SA 582 (SCA) para 10.
conduct of the party concerned to be a prohibited practice in terms of the Act.
The other two matters give details of when such order was granted and the
section of the chapter which was found to have been contravened. Be that as it
may, the submission misconceives the approach of Premier. It is not that it
seeks to read in a fourth requirement. Its argument is that the declaration is a
nullity. There is therefore nothing capable of certification.
[42] The Commission and the claimants submit that the approach of Premier
to the interpretation of s 58(1)(a)(v) and s 65(6)(b) results in the claimants being
non-suited because they are unable to procure a certificate concerning Premier‟s
self-confessed conduct. They submit that, in line with s 39(2) of the
Constitution, an interpretation of these sections which least limits the right of
access of the claimants to court should be favoured. The approach set out in
Cool Ideas 1186 CC v Hubbard & another,72 should be followed:
„A fundamental tenet of statutory interpretation is that the words in a statute must be given
their ordinary grammatical meaning, unless to do so would result in an absurdity. There are
three important interrelated riders to this general principle, namely:
(a) that statutory provisions should always be interpreted purposively;
(b) the relevant statutory provision must be properly contextualised; and
(c) all statutes must be construed consistently with the Constitution, that is, where reasonably
possible, legislative provisions ought to be interpreted to preserve their constitutional
validity. This proviso to the general principle is closely related to the purposive approach
referred to in (a).‟73
[43] This approach to interpretation cannot be faulted. But the enquiry in the
present matter does not have to do with the interpretation of s 58(1)(a)(v) or
s 65(6)(b) or, ultimately, with the question of access to the courts. It has to do
72 Cool Ideas 1186 CC v Hubbard & another [2014] ZACC 16; 2014 (4) SA 474 (CC) para 28. The judgment
quoted from is that of Majiedt AJ, in whose judgment four other justices concurred. The other two judgments
did not question the approach to interpretation enunciated in this dictum but differed on other matters.
73 References omitted.
with whether the declaration was a nullity and, accordingly, whether there was
anything which could be certified in terms of s 65(6)(b).
[44] It is not clear that the claimants are non-suited as is their contention. This
aspect was not canvassed in the papers and cannot be decided here. If, however,
the claimants are non-suited, it is not the interpretation of the sections of the Act
and CLP in this matter or the conduct of Premier which leads to this situation. It
is the decision of the Commission not to include Premier in the referrals, or any
referral, for the purposes of seeking an order in terms of s 58(1)(a)(v) of the
Act.
[45] Agri Wire says that „a party that has been afforded conditional immunity,
is not before the Tribunal for the purposes of the latter making a determination
against it, including the imposition of an administrative penalty.‟74 As I have
said earlier, the reference to a „determination‟ must needs cover an order in
terms of s 58(1)(a)(v) of the Act. I see no reason in principle why a leniency
applicant cannot be referred for this purpose. Such an order is, after all,
necessary for the prosecution of a damages claim and the CLP expressly states
that immunity will not affect the right of persons to bring such a claim. It may
be, therefore, that the above dictum goes too far but that need not be decided
here.
[46] Having said this, that issue did not arise in Agri Wire since the referral
there was construed as excluding the grant of any relief against CWI. The issue
of a limited referral was clearly not fully canvassed or dealt with in that matter.
Nor, for the same reason, does the issue arise here. I raise it only as an
indication that Agri Wire does not necessarily offend against the right of persons
such as the claimants to pursue a civil claim. The issue whether a firm which
74 Paragraph 7.
has been granted conditional immunity may be referred to the Tribunal for the
purpose of a finding and can, thus, be subject to an order under s 58(1)(a)(v),
must therefore stand over until it arises squarely.
[47] To sum up, the following is the position. Based on the fact that the
conduct of Premier was not part of the referral to the Tribunal, the Tribunal had
no power to grant any order against it. In addition, Premier was not cited as a
respondent. The declaration is accordingly a nullity. Premier was not obliged to
have the order containing the declaration set aside. Being a nullity, it is
competent for a court to find that there is simply no declaration to certify. This
in turn means that, in this matter, no notice in terms of s 65(6)(b) should be
issued. As is clear from what I have said above, however, it was necessary for
Premier to approach a court. Premier, the Commission, the Tribunal and the
Chairperson were not entitled to simply ignore the declaration.
[48] I therefore respectfully differ from the court a quo that the finding made
against Premier in the declaration was capable of certification. It should have
granted, the order sought by Premier. The appeal must accordingly succeed.
[49] The following order is made:
1 The appeal is upheld with costs, including those consequent on the
employment of two counsel.
2 The order of the court a quo dismissing the application with costs is set aside
and the following order substituted:
„1 Declaring that neither the first nor the second respondent can lawfully issue a
notice in terms of section 65(6)(b) of the Competition Act 89 of 1998, certifying
that the applicant‟s conduct has been found to be a prohibited practice under the
Act in Competition Tribunal of South Africa case numbers 15/CR/Feb07 and
50/CR/May08.
2 The second and third respondents are directed to pay the costs of the
Applicant.‟
________________________
T R Gorven
Acting Judge of Appeal
Appearances
For the Appellant:
D Unterhalter SC (with him M Du Plessis and
L Kelly)
Instructed by:
Nortons Inc., Sandton
McIntyre & Van der Post, Bloemfontein
For the 3rd Respondent:
G J Marcus SC (with him C Steinberg)
Instructed by:
Cheadle
Tomson
&
Haysom
Inc.,
Johannesburg
Webbers Attorneys, Bloemfontein
For the 4th to 12th Respondents:
M M Le Roux
Instructed by:
Abrahams Kiewitz Attorneys, Cape Town
Honey Attorneys, Bloemfontein
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE
SUPREME COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
04 November 2015
STATUS
Immediate
Please note that the media summary is for the benefit of the media and
does not form part of the judgment.
PREMIER FOODS V MANOIM NO (20147/2014) [2015] ZASCA 159
(4 November 2015)
The SCA today upheld with costs an appeal concerning an order granted
by the Competition Tribunal in a matter related to a bread cartel. The
Competition Commission had granted conditional immunity to Premier
Foods under its corporate leniency policy. This gives immunity against
the imposition of an administrative penalty by the tribunal. It expressly
does not affect the rights of persons to bring actions for damages against
a person to whom immunity had been extended.
When the commission referred the complaint relating to cartel activity to
the tribunal, it expressly excluded Premier from the complaint, neither
citing it as a respondent nor seeking relief of any sort relating to it. The
only relief sought was against the respondents cited in the complaint
referral. Despite this, the tribunal granted an order in terms of
s 58(1)(a)(v) of the Competition Act 89 of 1998, finding that Premier’s
conduct had amounted to a prohibited practice under the Act.
Such an order is a necessary prelude to the issue of a notice in terms of
s 65(6)(b) of the Act, which is itself a necessary prelude to the
prosecution of a claim for damages arising from a prohibited practice.
Certain persons wished to institute such a claim, and, having obtained
such notices in respect of the cited respondents, who had also been found
to have engaged in a prohibited practice, applied for such a notice in
respect of Premier.
Premier approached the Gauteng Provincial Division of the High Court,
Pretoria, for an order declaring that no such notice could be issued on the
basis that, because Premier had been excluded from the referral to the
tribunal, the tribunal had no power to have granted the order against
Premier and that the order was thus a nullity. As a result, there was no
finding against Premier to certify. The court a quo dismissed the
application with costs.
On appeal it was held that the tribunal has only those powers accorded to
it by the Act. In the present context, those powers arise in respect of a
complaint referred to it by the commission. In determining whether the
tribunal has power to make an order, it is necessary to determine the
ambit of the referral. The commission is entitled to exclude an entity
involved in a cartel from a referral and, if this is done, the tribunal has no
power to make any order under s 58(1)(a)(v) relating to it. This court held
that, on the facts, the tribunal had had no power to make the order relating
to Premier. It further held that the order was a nullity and that the court a
quo ought to have granted the application. The dismissal of the
application was set aside and the order sought by Premier was granted.
|
159
|
non-electoral
|
2017
|
THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
Reportable
Case No: 622/2017
In the matter between:
MINISTER OF DEFENCE AND
MILITARY VETERANS
FIRST APPELLANT
CHIEF OF THE SANDF
SECOND APPELLANT
and
JONAS MOLEFI MAMASEDI
RESPONDENT
Neutral citation: Minister of Defence v Mamasedi (622/2017) [2017] ZASCA 157 (24
November 2017)
Coram:
Ponnan and Majiedt JJA and Plasket, Mbatha and Schippers AJJA
Heard:
15 November 2017
Delivered: 24 November 2017
Summary:
Defence Act 42 of 2002 – Section 59(3) – deemed dismissal of member
after absence of 30 days – re-instatement of member on good cause shown – board
of enquiry making recommendation to Chief of SANDF not to re-instate member –
member not given opportunity to participate in proceedings of board of enquiry,
contrary to s 102 of Act – decision of Chief of SANDF not to re-instate member
correctly set aside by court below on account of procedural unfairness – order of re-
instatement of member incorrectly made and set aside.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from: Gauteng Division of the High Court, Pretoria (Wentzel AJ sitting as
court of first instance):
(a) The appeal succeeds to the extent that paragraph 2 of the order of the court
below is set aside.
(b) The order of the court below is accordingly amended to read as follows:
‘1 The decision of the second respondent not to re-instate the applicant made on 4
June 2013 is reviewed and set aside.
2 The respondents are ordered to pay the applicant’s party and party costs.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
Plasket AJA (Ponnan and Majiedt JJA AND Mbatha and Schippers AJJA
concurring)
[1] The respondent, Mr Jonas Molefi Mamasedi, held the rank of sergeant in 1
South African Tank Regiment in the South African National Defence Force (SANDF)
before his dismissal. He challenged by way of a review application a decision taken
by the second appellant, the Chief of the SANDF, not to re-instate him. Wentzel AJ,
sitting in the Gauteng Division of the High Court, Pretoria, made an order setting (1)
aside the Chief of the SANDF’s decision not to re-instate Mamasedi; (2) directed that
he be re-instated ‘as a member of the South African National Defence Force with full
benefits including his salary from 15 December 2011’; and (3) directing the appellants
to pay Mamasedi’s costs. When the appellants applied for leave to appeal against
her order, she granted leave to appeal to this court.
The facts
[2] On 29 November 2011, Mamasedi failed to report for duty as he was required
to do. He remained absent without leave until 18 January 2012, when he returned to
his unit. By that time, however, he was, in terms of s 59(3) of the Defence Act 42 of
2002 (the Act), deemed to have been dismissed for misconduct. Section 59(3)
provides:
‘A member of the Regular Force who absents himself or herself from official duty without the
permission of his or her commanding officer for a period exceeding 30 days must be
regarded as having been dismissed if he or she is an officer, or discharged if he or she is of
another rank, on account of misconduct with effect from the day immediately following his or
her last day of attendance at his or her place of duty or the last day of his or her official leave,
but the Chief of the Defence Force may on good cause shown, authorise the reinstatement
of such member on such conditions as he or she may determine.’
[3] It has been held by this court, dealing with similar provisions in other
employment-related legislation, that dismissal follows absence in excess of the
prescribed period by operation of law, consequently no decision is taken to dismiss
the employee that is susceptible to review, but that thereafter a decision may be
taken to reverse a dismissal if good cause for so doing is shown.1
[4] According to Mamasedi, after his return to his unit, and on discovering that he
had been dismissed, he travelled to the SANDF’s Headquarters in Pretoria to lodge a
grievance about his discharge. He was advised to return to his unit in Bloemfontein,
which he did, and to lodge his grievance with his commanding officer.
[5] His commanding officer, Lieutenant-Colonel Jansen, informed him that she
would ‘only deal with [the] grievance as soon as she receives a confirmation from
SANDF, Pretoria’. In the meantime, she said, Mamasedi should remain in the
barracks. He left the barracks on 9 March 2012 when he was, he claimed,
‘unceremoniously locked out of the barracks’.
[6] In the meantime, a board of enquiry had been convened on 18 January 2012
– the day of Mamasedi’s return to his unit – to investigate the reasons for
Mamasedi’s absence without leave and to make recommendations to the Chief of the
SANDF in that regard. The board of enquiry had yet to make a recommendation by 7
1 Minister van Onderwys en Kultuur en andere v Louw 1995 (4) SA 383 (A) at 388G-I; Phenithi v
Minister of Education & others 2008 (1) SA 420 (SCA) paras 9-11.
December 2012 when Mamasedi made representations to the Chief of the SANDF.
Receipt of the representations was confirmed on behalf of the Chief of the SANDF on
22 January 2013. In his representations, Mamasedi stated that he had been absent
without leave because he had been ‘abducted and taken to an initiation school for the
period from 29 November 2011 to 31 December 2011’.
[7] The letter acknowledging receipt of the representations informed Mamasedi
that ‘the matter is currently being investigated and a response will be made available
in due course’.
[8] On 11 July 2013, Mamasedi received ‘final feedback from SA Army
Headquarters regarding the Ministerial Enquiry’ into his absence without leave. The
report of the board of enquiry, including its recommendation, dated 21 February
2013, was attached. The board of enquiry recommended to the Chief of the SANDF
that Mamasedi not be re-instated. The Chief of the SANDF accepted the
recommendation and decided not to re-instate Mamasedi.
[9] The board of enquiry appears to have been convened in terms of s 101 of the
Act. Section 101(1) provides:
‘The Minister, the Secretary for Defence or the Chief of the Defence Force may, at any time
or place, convene a board of inquiry to inquire into any matter concerning the Department,
any employee thereof or any member of the Defence Force or any auxiliary service, any
public property or the property or affairs of any institution or any regimental or sports funds of
the said Force, and to report thereon or to make a recommendation.’
[10] I have said that the board of enquiry appeared to have been convened in
terms of s 101(1) of the Act because the answering affidavit of the Chief of the
SANDF is unhelpful in this respect. He does not say whether he or someone else
convened the board of enquiry and nor is the convening order disclosed. Because
the board of enquiry was referred to in its report as a ‘ministerial enquiry’ it
presumably was convened by the Minister of Defence and Military Veterans in terms
of s 101(1) of the Act.
[11] Both counsel for the appellants and for Mamasedi assumed that the board of
enquiry was one contemplated by s 103 but that assumption is incorrect, and both
conceded as much in argument. A board of enquiry contemplated by s 103 is
convened by the absentee soldier’s commanding officer while the soldier is still
absent without leave and its purpose is to establish the fact that the soldier is absent
without leave and whether any of his or her kit is missing. It has no power to
determine the reasons for the absence without leave.2
The issues
[12] Two issues arise for decision. They are, first, whether the decision not to re-
instate Mamasedi was vitiated by a failure of procedural fairness in that he was not
given an oral hearing before the board of enquiry made its recommendation to the
Chief of the SANDF and to comment on the recommendation; and secondly, if that
point succeeds, whether re-instatement was relief that was competent in the
circumstances. The implications of our findings, insofar as the question of costs are
concerned, will also have to be considered.
Procedural fairness
[13] The procedure that was followed in this case was a two-stage process. The
board of enquiry investigated the facts relevant to the reason for Mamasedi’s
absence without leave, and made a recommendation to the Chief of the SANDF, who
then took a decision in terms of s 59(3) of the Act. This appears to have been a
sensible approach because a factual dispute existed as to whether or not Mamasedi
had been abducted and taken to an initiation school, or had gone there of his own
free will.
2 Section 103 provides:
‘(1) When any member of the Defence Force has been absent without leave for more than 30 days
and is still absent, a board of inquiry must be convened by the commanding officer of the absent
member to inquire into such absence.
(2) If a routine inspection reveals any deficiency in the kit, arms and equipment or any public property
issued to the person contemplated in subsection (1), the board of enquiry may also inquire into such
deficiency.
(3) If the board of inquiry finds that such member has been so absent for more than 30 days and is still
so absent, it must record such finding, including the date of the commencement of the absence
without leave, and also its finding on any deficiencies of the kit, arms and equipment and any public
property issued to him or her and the estimated value thereof.’
[14] In my view, the two-stage process in this case must be viewed holistically and
be seen as affecting rights at each stage, as was held to be the case in Minister of
Health & another NO v New Clicks South Africa (Pty) Ltd & others (Treatment Action
Campaign & another as amici curiae),3 rather than as a bifurcated process involving,
first, an investigation with no effect on rights and, secondly, a decision that affects
rights, as was the approach in such cases as Cassem en ‘n ander v Oos-Kaapse
Komitee van die Groepsgebiederaad en andere4 and South African Defence and Aid
Fund & another v Minister of Justice.5 The latter two cases, based as they were on
the discredited ‘classification of functions’ approach to procedural fairness and the
idea that a right to be heard only applied if it was impliedly incorporated into the
empowering provision, are not compatible with s 33 of the Constitution.
[15] The investigation of the board of enquiry followed by the decision taken by the
Chief of the SANDF not to re-instate Mamasedi – to refuse to make a ‘determination’
– taken together, was an administrative action as defined in s 1 of the Promotion of
Administrative Justice Act 3 of 2000 (the PAJA): it was an exercise of a statutory
power of a public and administrative nature taken by an organ of State which
adversely affected Mamasedi’s rights and which had a direct, external legal effect.6
[16] The PAJA gives effect to the fundamental right to administrative action that is
lawful, reasonable and procedurally fair.7 Section 3, insofar as it is relevant to this
case, provides:
‘(1) Administrative action which materially and adversely affects the rights or legitimate
expectations of any person must be procedurally fair.
(2) (a) A fair administrative procedure depends on the circumstances of each case.
3 Minister of Health & another NO v New Clicks South Africa (Pty) Ltd (Treatment Action Campaign &
another as amici curiae) 2006 (2) SA 311 (CC) paras 137 and 141 (Chaskalson CJ), 441-442 (Ngcobo
J) and 672 (Moseneke J). See too Administrator, Cape & another v Ikapa Town Council 1990 (2) SA
882 (A) at 889J-890C; Director: Mineral Development, Gauteng Region & another v Save the Vaal
Environment & others 1999 (2) SA 709 (SCA) para 19; Oosthuizen’s Transport (Pty) Ltd & others v
MEC, Road Traffic Matters, Mpumalanga & others 2008 (2) SA 570 (T) para 25.
4 Cassem en ‘n ander v Oos-Kaapse Komitee van die Groepsgebiederaad en andere 1959 (3) SA 651
(A).
5 South African Defence and Aid Fund & another v Minister of Justice 1967 (1) SA 263 (A).
6 The PAJA, s 1. See the definitions of ‘administrative action’ and ‘decision’. See too Grey’s Marine
Hout Bay (Pty) Ltd & others v Minister of Public Works & others 2005 (6) SA 313 (SCA) paras 21-24.
7 Constitution, s 33.
(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) -
(i)
adequate notice of the nature and purpose of the proposed administrative
action;
(ii)
a reasonable opportunity to make representations;
(iii)
a clear statement of the administrative action;
(iv)
adequate notice of any right of review or internal appeal, where applicable;
and
(v)
adequate notice of the right to request reasons in terms of section 5.
(3) In order to give effect to the right to procedurally fair administrative action, an
administrator may, in his or her or its discretion, also give a person referred to in subsection
(1) an opportunity to-
(a)
obtain assistance and, in serious or complex cases, legal representation;
(b)
present and dispute information and arguments; and
(c)
appear in person.’
[17] Section 3(5) of the PAJA provides that where an administrator ‘is empowered
by any empowering provision to follow a procedure which is fair but different from the
provisions of subsection (2), the administrator may act in accordance with that
different procedure’.
[18] Section 6(1) of the PAJA provides that any person affected by administrative
action ‘may institute proceedings in a court . . . for the judicial review of an
administrative action’. Section 6(2) catalogues the grounds upon which administrative
action may be reviewed. Section 6(2)(c) provides that administrative action may be
reviewed by a court if ‘the action was procedurally unfair’.
[19] The proceedings of the board of enquiry were regulated, procedurally, by s
102 of the Act. Section 102(4) provides that the evidence given in any hearing of a
board of enquiry must be given orally, subject to three exceptions not relevant in this
case.8 Section 102(6) provides that if a person’s reputation is likely to be affected by
evidence adduced before a board of enquiry, that evidence must be given orally even
if one of the exceptions applies, and the person affected has the right to be present,
8 Section 102(5).
to cross-examine the witness who tendered it, to testify himself or herself and to call
witnesses.
[20] Section 102(7) places an obligation on the president of the board of enquiry to
notify such an affected person timeously ‘of the time and place’ of every meeting of
the board of enquiry and of his or her rights in terms of s 102(6). That person, in
terms of s 102(7), may address the board of enquiry on the evidence that had been
tendered in favour of and against him or her and has a right to legal representation at
his or her own expense or assigned to him or her at State expense. Finally, s 102(9)
provides:
‘Before the record of proceedings is submitted to the person who convened the board, the
relevant findings and recommendations of a board of inquiry must be communicated to each
person who is adversely affected by such findings and recommendations and that person
has the right to make written representations to the person who convened the board of
inquiry within 14 days of receipt of the relevant findings and recommendations.’
[21] It is clear from s 102 that Mamasedi, being a person whose reputation was
likely to be affected by evidence led before the board of enquiry, had a right to
participate in its proceedings. The procedural rights he enjoyed extended beyond the
minimum core rights to procedural fairness envisaged by s 3(2) of the PAJA. He had
a right to give oral evidence, to call witnesses, to cross-examine witnesses and to be
legally represented. The procedure created by s 102 of the Act is more extensive in
its procedural protections than the PAJA and on that account, I find that it is a
procedure that is fair and different to s 3(2) of the PAJA, as contemplated by s 3(5) of
the PAJA.9
[22] It is common cause that Mamasedi was never afforded the opportunity to
participate in the proceedings of the board of enquiry and neither were its findings
and recommendation communicated to him for his comments before being forwarded
to the Chief of the SANDF. His right to procedurally fair administrative action was
violated, and the ground of review envisaged by s 6(2)(c) of the PAJA was
9 Police and Prisons Civil Rights Union & others v Minister of Correctional Services & others (No. 1)
2008 (3) SA 91 (E) para 71.
established, with the result that the Chief of the SANDF’s decision not to re-instate
him was correctly set aside by the court below.
Re-instatement
[23] After the court below had made an order setting aside the decision of the Chief
of the SANDF, a further order was made re-instating Mamasedi retrospective to 15
December 2011. That order cannot stand. I say this for two reasons.
[24] The first reason is that re-instatement does not follow from the setting aside of
the decision not to re-instate Mamasedi. He was discharged by operation of law in
terms of s 59(3) and, in the absence of a decision by the Chief of the SANDF to re-
instate him, he remains dismissed from the SANDF.
[25] The second reason is that, if Wentzel AJ purported to substitute her decision
for that of the Chief of the SANDF, she misdirected herself in doing so. Administrative
decision-making powers are vested by legislation in administrators and not judges.
When an administrative decision is set aside on review, generally speaking, it must
be taken again by the administrator concerned. As a general rule, judges are
precluded by the doctrine of the separation of powers, which allocates powers among
the branches of government, from taking such decisions themselves. They also often
do not have the expertise to do so.10
[26] It is only in limited circumstances when such a ‘usurpation’ of administrative
power is permitted. Section 8(1)(c)(ii) of the PAJA provides that ‘in exceptional
circumstances’ a court, having reviewed and set aside administrative action may
substitute or vary the administrative action. In Trencon Construction (Pty) Ltd v
Industrial Development Corporation of South Africa Ltd & another,11 the
Constitutional Court set out the way in which the exceptional circumstances
exception is to be applied:
10 Gauteng Gambling Board v Silverstar Development Ltd & others 2005 (4) SA 67 (SCA) paras 28-29.
11 Trencon Construction (Pty) Ltd v Industrial Development Corporation fo South Africa Ltd & another
2015 (5) SA 245 (CC); [2015] ZACC 22 para 47.
‘To my mind, given the doctrine of separation of powers, in conducting this enquiry there are
certain factors that should inevitably hold greater weight. The first is whether a court is in as
good a position as the administrator to make the decision. The second is whether the
decision of an administrator is a foregone conclusion. These two factors must be considered
cumulatively. Thereafter, a court should still consider other relevant factors. These may
include delay, bias or the incompetence of an administrator. The ultimate consideration is
whether a substitution order is just and equitable. This will involve a consideration of fairness
to all implicated parties. It is prudent to emphasise that the exceptional circumstances
enquiry requires an examination of each matter on a case-by-case basis that accounts for all
relevant facts and circumstances.’
[27] In this case, if Wentzel AJ indeed intended to substitute the Chief of the
SANDF’s decision with her decision, she did not expressly consider whether
exceptional circumstances were present. If she had, she would have found
immediate difficulties in following this course because there was, on her own
showing, an irresolvable dispute of fact as to whether Mamasedi was abducted or
went to the initiation school voluntarily. She simply was not in any position, let alone
as good a position as the Chief of the SANDF, to take the decision to re-instate
Mamasedi.12 Without the factual dispute having been resolved one way or the other,
it could not be said that the decision was a foregone conclusion. There is,
furthermore, no indication that the Chief of the SANDF is biased or otherwise
precluded from taking the decision again when the facts are properly determined.
[28] In the result, the appeal must succeed to the extent that the order re-instating
Mamasedi must be set aside.
Costs
[29] Counsel for the appellants very fairly conceded that Mamasedi was entitled to
his costs in the court below. Having taken instructions, he also was prepared to
concede that, even though the appellants had achieved significant success on
appeal, the parties should each bear their own costs of the appeal.
12 Intertrade Two (Pty) Ltd v MEC for Roads and Public Works, Eastern Cape & another 2007 (6) SA
442 (Ck) para 43.
The order
[30] The following order is made:
(a) The appeal succeeds to the extent that paragraph 2 of the order of the court
below is set aside.
(b) The order of the court below is accordingly amended to read as follows:
‘1 The decision of the second respondent not to reinstate the applicant made on 4
June 2013 is reviewed and set aside.
2 The respondents are ordered to pay the applicant’s party and party costs.’
____________________
C M Plasket
Acting Judge of Appeal
APPEARANCES
For the Appellants:
V D Mtsweni
Instructed by:
The State Attorney, Pretoria
The State Attorney, Bloemfontein
For the respondent:
D Lebethe
Instructed by:
Ditheko Lebethe Attorneys, Pretoria
Webbers, Bloemfontein
|
SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY – JUDGMENT DELIVERED IN THE SUPREME
COURT OF APPEAL
FROM
The Registrar, Supreme Court of Appeal
DATE
24 November 2017
STATUS
Immediate
Minister of Defence & another v Mamasedi (622/2017)
_____________________________________________________________________
Please note that the media summary is intended for the benefit of the media and does
not form part of the judgment of the Supreme Court of Appeal.
The Supreme Court of Appeal (the SCA) today upheld in part an appeal against a judgment
that had reviewed and set aside the decision of the second appellant not to re-instate the
respondent, and had ordered his re-instatement.
The issue before the SCA was whether the decision not to re-instate the respondent was
vitiated by a failure of procedural fairness in that he was not given an oral hearing before a
board of enquiry made its recommendation to the Chief of the SANDF and to comment on the
recommendation; and secondly, whether re-instatement was relief that was competent in the
circumstances.
The respondent, Mr Jonas Molefi Mamasedi, held the rank of sergeant in 1 South African
Tank Regiment in the South African National Defence Force (SANDF) before his dismissal.
He challenged by way of a review application a decision taken by the second appellant, the
Chief of the SANDF, not to re-instate him. Wentzel AJ, sitting in the Gauteng Division of the
High Court, Pretoria, made an order setting aside the Chief of the SANDF’s decision not to re-
instate the respondent; and directed that he be re-instated as a member of the South African
National Defence Force with full benefits including his salary from 15 December 2011.
On 29 November 2011, the respondent failed to report for duty as he was required to do. He
remained absent without leave until 18 January 2012, when he returned to his unit. By that
time, however, he was, in terms of s 59(3) of the Defence Act 42 of 2002 (the Act), deemed to
have been dismissed for misconduct. According to the respondent, after his return to his unit,
and on discovering that he had been dismissed, he travelled to the SANDF’s Headquarters in
Pretoria to lodge a grievance about his discharge. He was advised to return to his unit in
Bloemfontein, which he did, and to lodge his grievance with his commanding officer.
In the meantime, a board of enquiry had been convened on 18 January 2012 – the day of the
respondent's return to his unit – to investigate the reasons for the respondent's absence
without leave and to make recommendations to the Chief of the SANDF in that regard. The
board of enquiry had yet to make a recommendation by 7 December 2012 when the
respondent made representations to the Chief of the SANDF. Receipt of the representations
was confirmed on behalf of the Chief of the SANDF on 22 January 2013. In his
representations, the respondent stated that he had been absent without leave because he
had been ‘abducted and taken to an initiation school for the period from 29 November 2011 to
31 December 2011’.
On 11 July 2013, the respondent received ‘final feedback from SA Army Headquarters
regarding the Ministerial Enquiry’ into his absence without leave. The board of enquiry
recommended to the Chief of the SANDF that the respondent not be re-instated. The Chief of
the SANDF accepted the recommendation and decided not to re-instate the respondent.
The SCA held that it was clear from s 102 of the Act that the respondent, being a person
whose reputation was likely to be affected by evidence led before the board of enquiry, had a
right to participate in its proceedings. The procedural rights he enjoyed extended beyond the
minimum core rights to procedural fairness envisaged by s 3(2) of the Promotion of
Administrative Justice Act 3 of 2000 (the PAJA). He had a right to give oral evidence, to call
witnesses, to cross-examine witnesses and to be legally represented.
The SCA held further that it was common cause that the respondent was never afforded the
opportunity to participate in the proceedings of the board of enquiry and neither were its
findings and recommendation communicated to him for his comments before being forwarded
to the Chief of the SANDF and therefore his right to procedurally fair administrative action
was violated.
The SCA found that after the court below had made its order setting aside the decision of the
Chief of the SANDF, a further order was made re-instating the respondent retrospective to 15
December 2011 and the latter order could not stand as re-instatement did not follow from the
setting aside of the decision not to re-instate the respondent. He was discharged by operation
of law in terms of s 59(3) and, in the absence of a decision by the Chief of the SANDF to re-
instate him; he remained dismissed from the SANDF.
~~ ends~~
|
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