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Data Science for Social Impact 33

4201

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 316/2022 In the matter between: SUMMERMANIA ELEVEN (PTY) LTD APPELLANT and WILLIAM HENRY HATTINGH N O RESPONDENT Neutral citation: Summermania Eleven (Pty) Ltd v Hattingh N O (316/2022) [2024] ZASCA 42 (5 April 2024) Coram: DAMBUZA ADP, SCHIPPERS, MBATHA, MOTHLE and GOOSEN JJA Heard: 03 May 2023 Delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email, published on the Supreme Court of Appeal website, and released to SAFLII. The date and time for hand-down is deemed to be 11h00 on 5 April 2024. Summary: Contract law – breach of a warranty – onus on the plaintiff to prove breach. Civil procedure – in a trial, evidence is given orally – court may grant an order that evidence be given by way of affidavit – the probative value of evidence given 2 by way of affidavit should be evaluated against the evidence as a whole – evidence insufficient to discharge onus on the appellant. 3 ORDER On appeal from: Eastern Cape Division of the High Court, Makhanda: Lowe J, with Roberson and Bloem JJ concurring) sitting as a court of appeal: The appeal is dismissed with costs. JUDGMENT Dambuza ADP (Schippers, Mbatha, Mothle, and Goosen JJA concurring) [1] At the heart of this appeal is the correct approach to evaluation of evidence in civil trials. The Eastern Cape Division of the High Court, Makhanda (trial court, Mfenyana AJ) admitted into evidence an affidavit deposed to by the appellant’s expert witness and found, on the strength of that affidavit, that the respondent had breached a term of a sale agreement concluded between the parties. A full court of that Division (Lowe J with Roberson and Bloem JJ concurring) reversed the decision of the trial court, and found that the trial court did not properly evaluate the expert evidence. This appeal, against the judgment of the full court, is with the special leave of this Court. [2] The dispute between the parties emanates from a sale agreement concluded between them on 3 February 2015. In terms of that agreement the appellant, Summermania Eleven (Pty) Ltd (Summermania), bought from the respondent, the Billy Hattingh Trust (Trust) a game farm located in Graaff-Reinet, in the Eastern Cape Province. In terms of the written agreement of sale the farm was bought as a going concern. The purchase price included game on the farm. The composition and estimated numbers of the various game species were set out in an addendum to the sale agreement. The addendum was prepared in 4 December 2014. In terms of Clause 5 of the agreement, the Trust guaranteed that there would be no material change to the composition and numbers of game as at December 2014. There was a further warranty in terms of which the Trust undertook to maintain ‘the property’ in the same condition it was in December 2014, until registration of transfer to Summermania. [3] Transfer of the property in the name of Summermania was registered on 10 July 2015, much later than the parties had anticipated. Mr Enrico Nielsen, Summermania’s sole director, took occupation of the farm on 15 July 2015. A year later, on 11 July 2016, Summermania instituted proceedings against the Trust claiming damages for breach of contract in a number of respects. Relevant to this appeal is the allegation that the Trust breached its undertaking to ensure that there would be no material change in the composition and numbers of game. Regarding this claim the Trust merely denied that it had breached the warranty given in the Deed of Sale. [4] Summermania alleged that after taking occupation Mr Nielsen discovered that there was significantly less game on the farm than had been set out in the addendum to the sale agreement. In the summons Summermania pleaded that the numbers of the Nyalas had decreased by seven, the Bushbuck had decreased by eight, the Waterbuck, by 16, the Zebras, by 14, the Mountain Reedbuck, by 20, the Vaal Reedbuck, by seven, and the Eland by seven. Most concerning to Summermania was the reduction in the number of Kudus on the farm by 150. Although the amount claimed as damages included the value of the other missing animals, the dispute and the contested expert evidence was centred around the missing 150 Kudus. Summermania contended that because of their size the missing Kudus could not have gone unnoticed by the Trust’s representatives. 5 [5] On the undisputed facts, the alleged reduction in the given game numbers would have happened over a period of about 18 months from the conclusion of the sale. It took another four months from the date of occupation for Mr Van Niekerk to conduct the game count in November 2015. The November game count report showed that some of the numbers of other game species had increased. [6] The report prepared by Mr Benjamin Van Niekerk, an expert game counter, formed the basis of Summermania’s claim. However, Mr Van Niekerk could not give evidence at the trial because of ill health. His evidence was submitted to court in the form of an affidavit deposed to on 9 January 2020, five years after he had done the game count. [7] The trial court admitted the affidavit in evidence, and on the strength of that evidence, found that the Trust was in breach of the agreement ‘in failing to comply with its obligations in terms of clause 5 of the agreement’. In reversing that decision the full court found that the trial court had not properly evaluated Mr Van Niekerk’s evidence. The full court reasoned that Mr Van Niekerk’s evidence should have been approached with caution, and, should not have been ‘accepted’ given the nature of his illness and the fact that it could not be tested in cross-examination. The court reasoned that there was no evidence of any factor, such as drought or disease that would have affected the composition and numbers of game to the extent deposed to by Mr Van Niekerk. Consequently, the inherent probabilities were that the composition and numbers of game would have remained the same between December 2014 and date of transfer of the farm to Summermania. [8] In this appeal, Summermania contends that the full court erred in several respects. The court erred in placing on Summermania the burden of proving the 6 probable cause for the reduction in the game numbers, because that was not within its knowledge. It was submitted that because Mr Nielsen excluded all major factors such as theft, drought, disease, hunting, and similar dangers that could have caused reduction of the game numbers, Summermania had discharged the onus to prove that there was a breach of the warranty, and that the game must have gone ‘missing’ prior to Mr Nielsen’s occupation of the farm in July 2015. There was also a veiled suggestion that the game numbers recorded in the addendum may have been overstated. [9] Clause 5 of the Deed of Sale states: ‘The seller warrants that there will be no material change in the game numbers or game composition on the property as from the date of inspection being December 2014. The seller will provide on registration to the purchaser all permits related to the property including Certificate of Adequate Enclosure.’ There was no dispute between the parties as to the meaning of this clause. The suggestion that there could have been an overstatement in the addendum must be dismissed. It must be accepted that when the agreement was concluded both parties were satisfied with the accuracy of the composition and numbers of game as recorded in the addendum. In any event, Summermania never pleaded that the Trust misrepresented the game numbers in the addendum. [10] As the giver of the warranty the Trust guaranteed a specific state of affairs – the maintenance of the game numbers as they were in December 2014. Summermania, having alleged that the guaranteed state of affairs had not been maintained bore the burden of demonstrating, through credible and reliable evidence, that this was indeed so. Summermania purported to discharge the onus on it through the evidence of Mr Nielsen, Mr Nathan Regal and Mr Van Niekerk. 7 [11] Mr Nielsen’s evidence did not take the matter anywhere. In essence he related how, soon after taking occupation of the farm during July 2015 he noticed that the numbers of the game were less that those set out in the addendum. Hence, he approached Mr Van Niekerk to conduct the game count. [12] Mr Regal’s evidence, on the value of the missing game, was similarly of little assistance. He described his occupation as a professional hunter, a game capturer, a taxidermist, and a trader in game, with over 20 years’ experience in the industry (since 1992). His evidence was based on his expertise in game valuation. However, during cross-examination he responded to questions relating to efficiency of aerial game counts. [13] Mr Van Niekerk’s evidence on the aerial count was essential for Summermania to demonstrate the reduction in the number of game. He gave evidence as an expert in game counting, game capturing and trading in game. The difficulty is that his evidence was required at a very unfortunate time. He was seriously ill at the time of the trial, suffering from a neuro-degenerative disease that caused him discomfort when seated for long. He was nearing the end of his life and his condition caused him to be emotionally fragile. [14] When called to testify, Mr Van Niekerk’s evidence lasted a few minutes. Because of his condition, he began to cry uncontrollably and was unable to recover. The trial was postponed for some months, until Summermania brought an application to tender Mr Van Niekerk’s evidence by way of an affidavit. Dr Marcell Britz who filed a medical report in support of the application, explained that although Mr Van Niekerk could reflect on past events, testifying in open court would cause him anxiety, such that he would break down. Despite the Trust’s opposition to the application, the trial court allowed Mr Van Niekerk’s evidence to be presented by way of an affidavit. 8 [15] Uniform Court Rule 38(2), in terms of which Mr Van Niekerk’s evidence was tendered, provides that: ‘The witnesses at the trial of any action shall be orally examined, but a court may at any time, for sufficient reason, order that all or any of the evidence to be adduced at any trial be given on affidavit or that the affidavit of any witness be read at the hearing, on such terms and conditions as to it may seem meet: Provided that where it appears to the court that any other party reasonably requires the attendance of a witness for cross-examination, and such witness can be produced, the evidence of such witness shall not be given on affidavit.’ [16] In trial proceedings parties discharge the onus on them by giving oral evidence. The words ‘shall be orally examined’ in rule 38(2) affirm this as the standard procedure. Reliability and credibility of the evidence given is then assessed and analysed through cross-examination. The trial court, however, has a discretion under the rule, to receive evidence given by way of affidavit.1 In this case, the court, in the exercise of its discretion, admitted the evidence of Mr Van Niekerk. It accepted that Mr Van Niekerk was unable to testify in open court because of his medical condition. [17] It was submitted on behalf of the Trust that Mr Van Niekerk’s evidence should have been rejected by the court, because of discrepancies in that evidence, and because Mr Van Niekerk could not be cross-examined. The argument on behalf of the Trust was not that the court exercised its discretion improperly or injudiciously. It was also not the Trust’s case that Dr Britz’ evidence and opinion on Mr Van Niekerk’s medical condition was incorrect or unacceptable. It had to be accepted, therefore, that Mr Van Niekerk could not give oral evidence and be cross-examined. His affidavit was therefore properly admitted. The admission of the evidence nevertheless required the court to consider whether it was 1 18 Lawsa 3 ed para 200. 9 sufficiently reliable and credible and whether the evidence given thereby was sufficient, when considered against the rest of the evidence led at the trial, to discharge the onus on Summermania to prove the allegation of significant reduction in game numbers. [18] Regarding his expertise, Mr Van Niekerk described his experience in animal behaviour, and asserted his familiarity with the topography of the area in which the farm is located. He acquired his experience in game counting over a period of 25 years of farming in game and 15 years ‘in the field of game counting and game capturing’. He explained that because of his experience he knew exactly where, in the bush, the game would hide on being unnerved by the sound of the helicopter during the count, and which species would stay calm and remain in the herd. He had conducted more than 50 ‘commercial serial game counts’ and estimated his accuracy rate at 80%. [19] Mr Van Niekerk’s evidence related to the method he employed and his observations when conducting the count. Regarding the method used, he explained that he conducted the aerial game count on a clear and sunny day, sitting in a helicopter which was flown over the farm along north-south and east-west grid lines which were 300 meters apart. Only he and the helicopter pilot were in the helicopter. They flew over the farm at an altitude of 300 to 600 meters, covering the valleys several times, with pauses in between the grid direction changes, to make allowance for animals to come out of hiding. [20] As to what he was able to observe, Mr Van Niekerk highlighted the size of the Kudus, stressing their weight of up to 300kg, a shoulder height of 1.4 meters, and horns of up to 1.8 meters. This made them easier to spot from the air, especially because in November 2015 the Eastern Cape had been experiencing 10 significant drought and the farm was not as densely vegetated as usual. He was certain that he could not have missed more than 30 Kudus during the count. [21] Mr Van Niekerk acknowledged that during the count some Kudus did hide in the bush. He counted 50 Kudus (compared with 200 as stated in the addendum) and he made an allowance for an additional 30, which he thought was generous, as he could not have missed that number of Kudus given the circumstances at the time of the count. [22] Considered on its own, Mr Van Niekerk’s evidence appears simple and credible, leaving an impression that when he conducted the count, he used a method with acceptable safeguards, and the result should be reliable. However, its reliability could not be tested due to the manner in which the evidence was given. The trial court had to consider that the Trust was denying all material aspects of Summermania’s case: namely, the fact that Mr Van Niekerk conducted a game count, the integrity of the methodology of the count, if it did occur, and the result of the count. A number of concerns arise when considered together with the rest of the evidence led at the trial. [23] In his evidence Mr William Henry Hattingh, the Trust’s sole trustee and witness at the trial, maintained that he had counted 200 Kudus on the farm throughout 2015. He insisted that, although he and his team had continued with hunting operations on the farm subsequent to the conclusion of the sale agreement, the game numbers did not change. Not much criticism was raised in respect of Mr Hattingh’s evidence. [24] Contrary to Mr Van Niekerk’s description of the terrain on the farm, Mr Hattingh described the topography of the farm as rugged and consisting predominantly of mountainous areas with deep valleys, and only a small plateau 11 on one side, such that it was ‘too dangerous’ to do an aerial game count on the farm. This aspect was not mentioned in Mr Van Niekerk’s evidence. This evidence is relevant to the efficiency with which the count could be conducted, particularly in view of Mr Hattingh’s evidence that the usual aerial counting method is to have two counters sitting behind each other, with the pilot determining the direction of the gridlines, which are usually 100 to 150 metres apart. Mr Hattingh’s evidence in this regard was consistent with that of Mr Regal, one of Summermania’s own witnesses. [25] Mr Hattingh raised concerns about the accuracy of aerial game counts in general and Mr Van Niekerk’s count in particular. To substantiate this point he referred to an article written on the subject.2 Points of concern are set out in a portion of the introductory summary of the article as follows: ‘For most large herbivore species, the estimates from the aerial counts were considerably lower than those from ground counts. The data pointed to undercounting as a major problem of aerial surveys. During the aerial counts, significant numbers of animals were missed on the transects, first due to the low probability of spotting single animals, small groups of animals and less conspicuous ones (sighting probability bias), and secondly because part of the population was concealed by obstructions and therefore not visible to observers (visibility bias).’ [26] The submission on behalf of Summermania that Mr Regal responded to these concerns is not entirely accurate. Indeed, during cross-examination Mr Regal was asked about the ease of spotting Kudu from the air, given their preference for dense bush. The exchange reads as follows: ‘Mr Du Toit: . . . How easy is it to spot kudu from the air? Mr Regal: Well, depending on how much flying you’re doing you do spot them because they are [inaudible] they do move. You can spot them. 2 The article from which these paragraphs are drawn is titled: H Jachmann ‘Comparison of aerial counts with ground counts for large African herbivores’ (2002) 39 published in the Journal of Applied Ecology 841-852. 12 Mr Du Toit: You can spot them, yes. I accept that. But how easy is it to spot? If you are in the open veld and you are tracking black wildebeest, and they are running there it’s easier to spot them than something that is standing still. Mr Regal: They are more difficult in open plains. Mr Du Toit: Easier to miss? Mr Regal: Ja Mr Du Toit: Okay. Your experience using a helicopter in game area does the helicopter scare animals? Mr Regal: Which is to the advantage of counting because it makes them move. Mr Du Toit: Makes them move. Kudu, when a kudu feels threatened and it’s in the bushes does it move or stand still? Mr Regal: Depending on the scenario they will change, they will move or some of them will cover. Not all of them will cover, some of them, especially the cows with young ones will move. Mr Du Toit: Okay. So, if there’s all of a sudden, a helicopter comes flying in and you hear the chopping sound of the blades and the kudu is afraid of it, it might be that it will indeed, if it’s in the dense cover that it will stay there and stand still. Mr Regal: It is possible Mr Du Toit: Okay. And it will be hide (sic), that you won’t not be able to spot it from the air. Mr Regal: It is possible.’ [27] Mr Regal’s responses do not dispel the concerns expressed about aerial counts. If anything, there is acceptance of the fact that it may be difficult to predict how Kudus will react to instances of aerial count. The questions and answers were general. They do not inform on how Mr Van Niekerk’s count unfolded in relation to the aspects of concern raised about aerial counts. In addition, Mr Regal was never qualified as a game counter in this case, although he demonstrated some knowledge of game behaviour and game counting. The questions raised on behalf of the Trust regarding this count remained unanswered. These relate to the game count having been conducted by one person as opposed to the recommended two, the gridline spacing of 300m in this instance, rather than 100m, the terrain of the farm not being conducive for game counting, and Mr Van Niekerk’s ability to 13 observe the speed and altitude at which the helicopter was flying whilst, at the same time conducting the count. [28] There was also a contention that Mr Van Niekerk had plagiarised portions of his affidavit. He copied the following portions of his affidavit from the article to which Mr Hattingh referred:3 ‘17. The main factors that influence visibility of large herbivores from the air are animal’s reactions to an over-flying aircraft dispersion, body size and colours. Animals that move in response to an aircraft are more likely to be seen than static ones; dark-coloured animals are easier to spot than light-coloured ones against a light background; large herds are easier to spot than light-coloured ones against a light background; large heads are easier to detect than small ones; large animals are more easily seen than small ones. 18. Body size is important while trying to spot grazers and mixed feeders from the air, while colour is important for spotting browsers. This is mainly due to the difference in habitat use, with browsers being confined to the thicker habitat. 19. Generally spotting and counting problems represent the most important source of bias in a real game count. Spotting and counting bias may also be influenced by the density of the vegetation, by the size and colouring of the animals, by group size, by their reaction to an over-flying aircraft, by light conditions and by operational factors such as height and searching rate.’ [29] Indeed, these passages appear verbatim in paragraph 2 of the introductory summary to the article. I accept that use of long-established methodologies by experts is not unique to this case. However, the manner in which the information is included in Mr Van Niekerk’s affidavit, without acknowledging the original author is misleading. The content is not a mere explanation of methodology, as was submitted on behalf of Summermania. It is a substantive discussion of general game behaviour as observed during aerial game counting. In context, and as presented in the affidavit, it created the impression that this is information that Mr Van Niekerk had gathered through his experience in game counting. The 3 Footnote 2 supra. 14 passages served to bolster confidence in his expertise as a knowledgeable game counter. [30] Even if it is accepted that from his own experience, Mr Van Niekerk agrees with the methodology, it is ironic that the objective of the plagiarised article was to compare the efficiency of aerial counts of large African herbivores with ground counts. The author questioned the accuracy of aerial counts. He made the point that estimates from aerial counts have been considerably lower than ground counts, suggesting undercounting. He attributed this to a number of factors that affect visibility in aerial counts, ‘even with repeat counts of the same area’. He posited spotting and counting problems that lead to bias (inaccuracies) in aerial counts. These include insufficient coverage of the census area when parallel lines are set too far apart (total count), visual estimation of large herds, when photography should be used; double counting as a result of poor navigation, the quality of the observer’s eyesight and ability to concentrate for long, sometimes turbulent flights, and low probability of sighting single animals. None of these disadvantages of aerial counting could be put to Mr Van Niekerk, and there was no evidence in his affidavit as to how he avoided these biases during his count. [31] Against this background, my view is that Mr Van Niekerk’s evidence carried very little probative value, if any. As a result, Summermania failed to discharge the onus to prove a breach of the warranty. [32] Consequently the following order shall issue: The appeal is dismissed with costs. _______________________ N DAMBUZA ACTING DEPUTY PRESIDENT 15 Appearances Counsel for the appellant: S Grobler SC with him W.A Van Aswegen Instructed by: Van Wyk Attorneys, Welkom Hill, McHardy & Herbst Inc, Bloemfontein Counsel for the respondents: P. S Du Toit Instructed by: Spangenberg Attorneys, Humansdorp 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: 05 April 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 Summermania Eleven (Pty) Ltd v Hattingh N O (316/2022) [2024] ZASCA 42 (05 April 2024) Today the Supreme Court of Appeal (SCA) dismissed with costs an appeal against an order granted by the Eastern Cape Division of the High Court, Makhanda in terms of which the appellant, Summermania Eleven, was found to be in breach of a warranty that it had given in an agreement of sale. In the warranty clause the respondent, the William Hattingh Trust, which sold a farm to Summermania, gave an undertaking that it would maintain the same composition and numbers of game on the farm until the farm was transferred to Summermania. After the transfer of the farm, its sole director Mr Nielsen alleged that the numbers of game on the farm, particularly Kudus, were significantly lower than those recorded in the Deed of Sale of the farm. He commissioned Mr Benjamin Van Niekerk, an experienced game counter to do a count from a helicopter. Mr Van Niekerk confirmed that the numbers of Kudu had reduced by 150. This led to the court proceedings. By the time the trial started, Mr Van NIekerk had fallen seriously ill with a motor neuron disease which rendered him emotionally fragile. As a result he could not give oral evidence in court and the trial had to be postponed. When the trial resumed the trial court granted an application for Mr Van Nieker’s evidence to be tendered by way of an affidavit. The trial court found then found, on the strength of that affidavit, the numbers of Kudu had, were lower at the time of transfer and that the Trust had breached the warranty that it had given – to maintain the numbers of game on the farm until registration of transfer. On appeal by the Trust the full court of the Eastern Cape Division found that the trial court had failed to properly evaluate the affidavit evidence of Mr Van Niekerk, who was Summermania’s sole witness on the issue of breach of warranty, it overturned the judgment of the trial court. On further appeal by Summermania the SCA agreed with the full court, that Summermania had failed to discharge the onus on it to prove that there was a breach of the warranty. The SCA found that Mr 2 Van Niekerk’s evidence was insufficient to prove that there had been a reduction in the numbers of game on the farm. The court highlighted that Mr Van Niekerk could not be cross examined, and his evidence did not address aspects of the game count that had been shown to be unreliable. Mr William Hattingh, the sole trustee of the Trust had given evidence that aerial counts on the farm were dangerous because of the mountainous topography in the area where the farm is located. He also pointed out that whereas the recommendation was that aerial counts must be done by two counters, Mr Van Niekerk had done the count alone. In addition Mr Van Niekerk’s evidence on the speed and altitude at which the aircraft was flying was not reliable. The SCA found that Mr Van Niekerk’s evidence carried little probative value. As a result Summermania failed to discharge the onus on it to prove a breach of the warranty. ~~~~ends~~~~

4232

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 245/2023 In the matter between: CITY OF TSHWANE METROPOLITAN MUNICIPALITY FIRST APPELLANT THE MUNICIPAL VALUER OF THE CITY OF TSHWANE METROPOLITAN MUNICIPALITY SECOND APPELLANT THE MUNICIPAL MANAGER OF THE CITY OF TSHWANE METROPOLITAN MUNICIPALITY THIRD APPELLANT and COPPERLEAF COUNTRY ESTATE (PTY) LTD FIRST RESPONDENT THE CHAIRPERSON OF THE APPEAL BOARD ESTABLISHED FOR THE CITY OF TSHWANE METROPOLITAN MUNICIPALITY SECOND RESPONDENT Neutral citation: City of Tshwane Metropolitan Municipality and Others v Copperleaf Country Estate (Pty) Ltd and Another (245/2023) [2024] ZASCA 69 (3 May 2024) Coram: GORVEN, HUGHES and MOLEFE JJA and KEIGHTLEY and MBHELE AJJA Heard: 14 March 2024 Delivered: 3 May 2024 Summary: Local government – Local Government: Municipal Property Rates Act 6 of 2004 – municipal property rates – Deeds Registries Act 47 of 1937 – properties held by township developer by certificate of registered title – such property not excluded 2 from definition of ‘business/commercial’ property in rates policy – municipality committed reviewable error in re-categorising such property as ‘vacant land’ for rates purposes of supplementary valuation roll – roll reviewed and set aside – subsequent valuation roll relying on categorisation of same properties in earlier invalid roll also invalid to the extent of such reliance. 3 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Pretoria (Mokose J, sitting as court of first instance): 1 The appellants’ appeal is dismissed with costs, including the costs pursuant to the employment of two counsel. 2 The first respondent’s cross-appeal against the orders granted by Mokose J on 13 October 2020 and 22 November 2022 succeeds with costs, including the costs pursuant to the employment of two counsel. 3 The order of Mokose J granted on 13 October 2020 is replaced by the following order: ‘1 The evidence of Allen Stanley West contained in paragraph 38.20 of Annexure “N” to the founding affidavit in the application under case number 61228/2017 (the review application) and in paragraph 15.2 of Annexure “C” to the answering affidavit in the application under case number 48037/2017 (the enforcement application) is struck out. 2 The 2010-2011 supplementary valuation roll and the 2013-2017 general valuation roll are reviewed and set aside to the extent that they categorise those erven in Peach Tree Extension 2 (previously a portion of the Farm Knopjeslaagte 385) registered in the name of the applicant in the enforcement application (Copperleaf) at the time (the relevant properties) as “vacant land”. 3 The concomitant re-categorisation by the third respondent in the enforcement application of the relevant properties as “vacant land” is reviewed and set aside. 4 The decision to categorise the relevant properties as “vacant land” is substituted with a decision to categorise the relevant properties as “business/commercial”. 5 The first respondent in the enforcement application (Tshwane) is directed to adjust the 2010-2011 supplementary valuation roll and the 2013-2017 general valuation roll to indicate that the relevant properties are categorised as “business/commercial” within 30 days of service of this order. 6 Within 45 days of the service of this order on him, the fourth respondent in the enforcement application (the municipal manager) is ordered to calculate the 4 amount actually paid by Copperleaf in respect of rates on the relevant properties from 19 December 2008 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2013; and the amount which would have been paid by Copperleaf if the relevant properties had been categorised as “business/commercial” from 19 December 2008 to the earlier date on which a specific property was registered in the name of a purchaser or 30 June 2013. 7 Within 45 days of the service of this order on him, the municipal manager is ordered to repay to Copperleaf the difference between the amounts actually paid by Copperleaf to Tshwane from 19 December 2008 and the amount which would have been paid by Copperleaf if the relevant properties had been categorised as “business/commercial” from 19 December 2008 to the earlier of the date on which a specific property was registered in the name of a purchaser or 30 June 2013, plus interest on such amounts from the date(s) on which Copperleaf paid such amounts to Tshwane to date of final payment calculated at the prime rate levied by the bank at which the primary account of Tshwane is kept, plus 1%, as at the date of the calculation. 8 Within 45 days of the service of this order on him, the municipal manager is ordered to calculate the amount actually paid by Copperleaf in respect of rates on the relevant properties from 1 July 2013 to the earlier of the date on which specific property was registered in the name of a purchaser thereof or 30 June 2017, and the amounts which would have been paid by Copperleaf if the properties had been categorised as “business/commercial” from 1 July 2013 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2017. 9 Within 45 days of service of this order on him, the municipal manager is ordered to repay to Copperleaf the difference between the amounts actually paid by Copperleaf to Tshwane from 1 July 2013 and the amounts which would have been paid by Copperleaf if the properties had been categorised as “business/commercial” from 1 July 2013 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2017, plus interest on such amounts from the date(s) on which Copperleaf paid such amounts to Tshwane to date of final payment calculated at the prime rate 5 levied by the bank at which the primary account of Tshwane is kept, plus 1%, as at the date of the calculation. 10 Tshwane is ordered to make payment to Copperleaf within twenty days of service of this order on it of the sum of R87 862.63 plus interest on such amount at the rate of 10.5% per annum from 3 April 2017 to date of final payment. 11 The review application is dismissed with costs, including the costs pursuant to the employment of two counsel. 12 Tshwane is ordered to pay the costs of the counter-application in the review application including the costs pursuant to the employment of two counsel. 13 Tshwane is ordered to pay the costs of the enforcement application, including the costs pursuant to the employment of two counsel.’ 4 The order granted by Mokose J on 22 November 2022 is replaced by the following order: ‘The City of Tshwane Metropolitan Municipality is ordered to pay the costs of the variation application, including the costs pursuant to the employment of two counsel.’ JUDGMENT Keightley AJA (Gorven, Hughes and Molefe JJA and Mbhele AJA concurring): [1] The high court proceedings against which this appeal is directed involved three interrelated applications. The litigation included review and counter-review applications by the first appellant, the City of Tshwane Metropolitan Municipality (the City), and the first respondent, Copperleaf Country Estates (Pty) Ltd (Copperleaf), respectively. Despite the procedural and chronological complexity of the litigation, the core dispute revolves around the City’s rates policies. More specifically, the question is whether, under the City’s relevant rates policies, a township developer’s election to substitute its original title deed with a certificate of registered title (CRT) under s 43 of the Deeds Registries Act 47 of 1937 (the Deeds Act),1 has the effect that the affected 1 Section 43 of the Deeds Act provides, in relevant part, provides thus: ‘Certificate of registered title of portion of a piece of land (1) If a defined portion of a piece of land has been surveyed and a diagram thereof has been approved by the surveyor-general concerned, the registrar may on written application by the owner of the land 6 properties are excluded from the defined category ‘business/commercial’ and become ‘vacant land’ for rates purposes. [2] The question has material implications for each party because the rates charges for the affected properties, if categorised as vacant land under the relevant rates policies, are more than double the rates charges for those properties if they are categorised as business/commercial. The City’s adamant view was, and remains, that its rates policies permit a re-categorisation of property owned by a township developer from business/commercial to vacant land as soon as the developer substitutes its original title deed for a CRT. Copperleaf, as a township developer which made the election to substitute its title deed for a CRT, disputed that the City had acted lawfully in adopting and applying its policies in this manner. The Gauteng Division of the High Court, Pretoria (the high court) agreed with Copperleaf. It reviewed and set aside the valuation rolls insofar as they categorised the affected properties as vacant land and granted further concomitant relief. [3] The City appeals the judgment and order of the high court with its leave. The high court also granted Copperleaf leave to cross-appeal an order varying the original order granted by the high court (the cross-appeal). [4] I begin by setting out the background facts relevant to the appeal and a summary of the litigation leading up to it. As regards the latter, by appeal stage, the disputed issues had become focused, making it unnecessary to traverse the minutiae of each application. accompanied by the diagram of such portion, the title deed of the land, any bond thereon and the written consent of the holder of any such bond, issue a certificate of registered title in respect of such portion, as nearly as practicable in the prescribed form. (2) In registering the certificate, the registrar shall endorse on the title deed that it has been superseded by the certificate in respect of the land described in the certificate, and on the certificate that the land described therein is mortgaged by the bond and such entries in the registers as shall clearly indicate that the land is now owned by virtue of the certificate and is subject to such bond. (3) . . . (4) . . . (5) (a) Save in the case of a transfer of a whole erf, no owner of a township or settlement in whose title deed the individual erven are not separately described, shall deal separately in any way with an individual erf in such a township or settlement or any portion thereof or share therein until he has obtained a certificate of registered title of such erf in the prescribed form.’ 7 [5] As to the facts, Copperleaf is the registered owner of two portions of the immovable property known as Farm Knopjeslaagte 385. It holds what is referred to as Peach Tree Extension 1 (Peach Tree 1) under a deed of transfer endorsed to reflect that the land has been laid out as a township. In 2005, the land was subdivided into erven according to a general plan, which was registered together with a township register. The second portion of land owned by Copperleaf, Peach Tree Extension 2 (Peach Tree 2), was similarly subdivided into erven under a general plan and associated township register in 2007. Copperleaf originally held Peach Tree 2 under a deed of partition. It is this property which is the subject matter of the dispute. For reasons that will become clear shortly, Peach Tree 1 is of interest in this appeal only for comparative purposes. [6] Copperleaf is the township developer in respect of both Peach Tree 1 and 2. As owner and developer, it sold and transferred individual erven to purchasers from time to time. Prior to transfer to and construction on each erf by individual purchasers, the land in Peach Tree 1 and 2 was vacant. However, in line with the City’s policy at the time, despite being physically vacant, prior to transfer from Copperleaf to an individual purchaser, the land was categorised on the valuation roll for rating purposes as business/commercial. The land in Peach Tree 1 continued, and continues, to be rated as business/commercial on this basis. However, Peach Tree 2 was treated differently after it applied to the Registrar of Deeds for the issuance of a CRT in place of its original deed of partition in respect of the erven that had not yet been transferred to individual purchasers. The CRT was issued on 19 December 2008. Henceforth, the City categorised and rated these erven as vacant land, subject to the applicable higher rates charge. [7] It was common cause in the high court, and remains so on appeal, that the only reason for re-categorising the Peach Tree 2 erven held by Copperleaf from business/commercial to vacant land, was the issuing of the CRT. Erven held by Copperleaf in Peach Tree 1 continued to be categorised as business/commercial and charged at the lower rate because no CRT was ever issued in their respect. [8] The City’s rates policies are of obvious significance to the dispute, not least because it is these policies that define the categories business/commercial and vacant 8 land respectively. Between 2008 and 2017, which is the relevant period, the City adopted and applied variations of its rates policies. The first relevant policy was that which came into effect from 1 July 2008 (the 2008 rates policy). Under this policy, the category ‘business/commercial’ was defined as meaning: ‘. . . a property used for the activity of buying, selling or trade in commodities or services on a property that includes any office or other accommodation on the same erf, the use of which is incidental to such business, with the exclusion of the business of agriculture, farming or inter alia, any other business consisting of the cultivation of soils, the gathering in of crops or the rearing of livestock or consisting of the propagation and harvesting of fish or other aquatic organisms and shall include commercial property as the case may be.’ ‘[V]acant land’ meant: ‘. . . land where no immovable improvements have been erected, other than agricultural land.’ [9] According to the City, under the 2008 rates policy, properties held by a township developer (even though they were physically vacant) were regarded and treated for rates purposes as part of a business entity and they were categorised as business/commercial. The definition of business/commercial was amended on 1 July 2011 (the 2011 rates policy) with the addition to the previous definition of the italicised portion below: ‘. . . a property used for the activity of buying, selling or trade in commodities or services on a property that includes any office or other accommodation on the same erf, the use of which is incidental to such business, with the exclusion of the business of agriculture, farming or inter alia, any other business consisting of the cultivation of soils, the gathering in or crops or the rearing of livestock or consisting of the propagation and harvesting of fish or other aquatic organisms and shall include (properties of a township developer registered in a township title) commercial property as the case may be.’ (Emphasis added.) [10] In the affidavits filed by the City, it explains the reasons for the express inclusion in the 2011 rates policy of the reference to ‘properties of a township developer registered in a township title’. It was aimed at addressing the confusion created by the City’s practice of categorising properties of a township developer as business/commercial without formal reference to this in the definition. The amendment gave formal expression to what had been the prior practice in favour of township developers, this being to categorise vacant land held by a township developer as business/commercial for rates purposes. The amendment also served the purpose of 9 making it clear to developers what the full extent of their financial burden would be once a township was proclaimed. A subsequent amendment to the rates policy on 1 July 2013 (the 2013 rates policy) effected one change to the 2011 rates policy definition: the term ‘registered in a township title’ in the 2011 definition became ‘registered in the township title’ (Emphasis added). [11] It is significant to note that none of the relevant rates policies defines what is meant by the words ‘township title’. This is a key feature of the appeal and I deal with it more fully later. [12] What is also of significance to the appeal are the valuation rolls prepared, adopted, and promulgated by the City during the relevant period. The Local Government: Municipal Property Rates Act 6 of 2004 (the Rates Act) requires municipalities to prepare periodic valuation rolls for all the rateable properties within their areas of jurisdiction. The City published several general valuation rolls (GVRs) and supplementary valuation rolls (SVRs) pertaining to the Peach Tree 2 properties. The first of these was the 2008-2013 GVR. Peach Tree 2 was reflected in this GVR under the category business/commercial in line with the 2008 rates policy. [13] In July 2012, a SVR for the period 2010-2011 was published by the City (the 2010-2011 SVR). Its purpose was to supplement, and effect amendments to, the 2008-2013 GVR. The 2010-2011 SVR included all the erven in Peach Tree 2 still held by Copperfield and reflected that they were now categorised as vacant land. Each of the erven was separately valued. For reasons that will become clear later, Copperfield did not lodge any objection to the 2010-2011 SVR and it was promulgated with effect from 1 September 2012. It applied retrospectively from 1 January 2009, and remained effective until 30 June 2013. This SVR is an important component of the appeal. [14] To complicate matters, two further valuation rolls are relevant to the dispute. The first was a Final SVR for the period 2008-2013 (the 2015 FSVR) which was published by the City on 12 August 2015. The second was a GVR for the period 2013-2017 (the 2013-2017 GVR). In terms of the latter, Copperleaf’s Peach Tree 2 properties remained categorised as vacant land and were rated accordingly. The 10 2013-2017 GVR became the subject of a review challenge in the closing stages of the litigation. [15] It was the 2015 FSVR that ignited the dispute that ultimately led to the high court litigation. Copperleaf lodged an objection to this roll in terms of s 50(1)(c) of the Rates Act. This section permits objections to valuation rolls against ‘any matter reflected in, or omitted from, the roll’. It is not necessary to expand on the nature of the objection, save to record that inherent in Copperleaf’s complaint was that its Peach Tree 2 properties should not have been re-categorised as vacant land. The municipal valuer dismissed the objection on what was essentially a point of jurisdiction. Subsequently, Copperleaf appealed to the Valuations Appeal Board (the VAB) under s 54(1)(a) of the Rates Act. Its appeal was successful. On 12 August 2016 the VAB released its decision, finding that the Peach Tree 2 properties should have been rated as business/commercial for the period that they were categorised as vacant land up to 30 June 2013. The City was directed to take steps to make the necessary adjustments to the valuation roll in accordance with s 69 of the Rates Act.2 [16] By July 2017, when the City had not complied with the VAB’s decision, Copperleaf instituted the first high court application. This application was directed at securing the enforcement of the VAB’s decision through a high court order (the enforcement application). The City opposed the enforcement application and instituted a concurrent application for a review of the VAB’s decision (the City’s review). [17] The City’s review centred on what it asserted was the VAB’s finding that the Peach Tree 2 properties should be categorised as business/commercial. The City contended that the finding was unlawful for various reasons. One of these was that 2 This section, titled ‘Decisions affecting valuation rolls’ provides that: ‘(1) The chairperson of an appeal board and the valuer of the municipality must ensure that the valuation roll is adjusted or added to in accordance with the decisions taken by an appeal board. (2) If an adjustment in the valuation of a property affects the amount due for rates payable on that property, section 55(2) must be applied. (3) Where an addition has been made to the valuation roll as envisaged in subsection (1), section 55(3) must be applied.’ Section 55(2), in turn, requires the City to calculate the amount actually paid on the property and the amount payable in terms of an adjustment to the roll and, if the property owner has made an overpayment, to repay them with interest at the prescribed rate. 11 the original objection by Copperleaf was ill-founded, as the amendment of the Peach Tree 2 properties from business/commercial to vacant land had been given effect to in the 2010-2011 SVR. The City averred that the 2010-2011 SVR had been duly promulgated in August 2012 in accordance with the procedure legislated in s 49(1) of the Rates Act.3 The requisite notice had been published in the Government Gazette inviting owners to inspect the valuation roll and to lodge objections. Copperleaf did not lodge an objection, and the 2010-2011 SVR took effect from 1 September 2012. The point made by the City on this aspect of its review was that Copperleaf’s objection to the 2015 FSVR was misdirected. Copperleaf ought to have objected to the 2010-2011 SVR when it had the opportunity to do so. It could not lodge a valid objection to the 2015 FSVR. The VAB had committed a material error of law in entertaining the appeal against the dismissal of the complaint when, in fact, it had no jurisdiction to do so. [18] Significantly, the City also challenged the VAB’s finding that the Peach Tree 2 properties should have been categorised business/commercial. The City asserted that the 2011 rates policy contemplated that only properties registered under a township title fell properly within the definition of business/commercial. Properties registered in terms of a CRT were not properties registered under a township title in terms of the policy and thus, fell outside the definition of business/commercial. Instead, they fell within the definition of vacant land. The VAB’s decision in finding differently was for this reason reviewable as it was based on a material error of law. To underline its point, in the alternative to a review and setting aside of the VAB’s decision, the City sought an order declaring that: ‘. . . properties held in terms of a certificate of [registered] title are not the same as properties held in terms of a township title, in terms of the provisions of the Deeds Registry Act. . . 3 The procedure to be followed once a municipal valuer has certified a valuation roll is detailed in s 49(1): ‘(1) The valuer of a municipality must submit the certified valuation roll to the municipal manager, and the municipal manager must, within 21 days of receipt of the roll- (a) publish in the prescribed form in the Provincial Gazette, and once a week for two consecutive weeks advertise in the media, a notice- (i) stating that the roll is open for public inspection for a period stated in the notice, which may not be less than 30 days from the date of publication of the last notice; and (ii) inviting every person who wishes to lodge an objection in respect of any matter in, or omitted from, the roll to do so in the prescribed manner within the stated period; (b) disseminate the substance of the notice referred to in paragraph (a) to the local community in terms of Chapter 4 of the Municipal Systems Act; and (c) serve, by ordinary mail or, if appropriate, in accordance with section 115 of the Municipal Systems Act, on every owner of property listed in the valuation roll a copy of the notice referred to in paragraph (a) together with an extract of the valuation roll pertaining to that owner’s property.’ 12 and . . . properties held under a certificate of registered title do not qualify as properties held in terms of a township title for purposes of the definition of business/commercial, as per the (City’s) rates policy for the period 1 July 2011 to 31 June 2013.’ [19] The City’s review was instituted approximately 12 months after the VAB decision was taken. Section 7(1) of the Promotion of Administrative Justice Act 3 of 2000 (PAJA) provides for a 180-day period within which to institute review proceedings. Part of the relief sought by the City was for an extension of this period under s 9 of PAJA. It contended that it would be in the interests of justice to condone its delay in instituting the review. [20] Copperleaf opposed the City’s review and, at the same time, filed a counter-application seeking, among other relief, the review and setting aside of the municipal valuer’s decision to categorise the Peach Tree 2 properties as vacant land (Copperleaf’s review). After the City had provided a record of the proceedings under review in terms of Uniform rule 53(1)(b), Copperleaf expanded the relief originally prayed for in an amended notice of motion filed together with its supplementary founding affidavit. [21] Copperleaf’s expanded relief included two additional review grounds. The first was a challenge to the 2010-2011 SVR to the extent that it categorised Copperleaf’s Peach Tree 2 properties as vacant land (the SVR challenge). The second was a challenge to the 2013-2017 GVR, also limited to the extent that it categorised Copperleaf’s Peach Tree 2 properties as vacant land (the GVR challenge). [22] The SVR challenge was, in part, based on an alleged material procedural irregularity. Copperleaf’s case was that the City had failed to comply with the peremptory requirements of s 49(1)(c) of the Rates Act which prescribed service on Copperleaf of a copy of the Government Gazette notice, as well as the relevant extract from the certified valuation roll relating to its Peach Tree 2 properties. Copperleaf contended that it had never received the requisite notice and extract, nor was there any evidence in the record provided by the City that the latter had complied with its service obligations in this regard. Importantly, Copperleaf repeatedly averred in the 13 affidavits filed in support of its counter-application that it had no knowledge of the existence of the 2010-2011 SVR until the City had referred to it in the City’s review founding papers. [23] In addition to the procedural attack on the 2010-2011 SVR, Copperleaf contended that the City had erred in interpreting the definition of business/commercial to exclude the Peach Tree 2 properties solely on the basis that the properties were held under a CRT. The 2010-2011 SVR, which reflected the categorisation of the properties as vacant land, was thus vitiated by a material error of law. [24] Copperleaf’s GVR challenge flowed axiomatically from the SVR challenge. Copperleaf’s case in this regard was that all the evidence pointed to the 2013-2017 GVR (in which Copperleaf’s Peach Tree 2 properties continued to be categorised as vacant land) having been premised squarely on the initial re-categorisation effected in the unlawful and invalid 2010-2011 SVR. This being the case, the 2013-2017 GVR ought consequently also to be set aside as it relied for its legal validity on the earlier SVR categorisation. [25] Included in Copperleaf’s notice of motion were prayers for orders directing the City to adjust the 2010-2011 SVR and 2013-2017 GVR accordingly to reflect the Peach Tree 2 properties as business/commercial. In addition, and consequent on those adjustments, the court was requested to direct the City to calculate the amounts Copperleaf had paid to the City for rates based on the vacant land categorisation, as well as the amounts it ought to have paid had the Peach Tree 2 properties been correctly rated as business/commercial, and to effect a repayment to Copperleaf of the difference (the adjustment and repayment prayers). [26] Copperleaf included a prayer for an extension of the 180-day period under s 9 of PAJA, but only to the extent that this was necessary. Copperleaf’s primary contention was that its review was instituted timeously. This was disputed by the City. I should add that Copperleaf, in turn, asserted that the City’s application for relief under s 9 should be refused. 14 [27] The high court agreed with Copperleaf that its review application had been instituted timeously and that an extension of time under s 9 of PAJA was unnecessary. It granted the review relief sought by Copperleaf and set aside both the 2010-2011 SVR and the 2013-2017 GVR. The court further directed the City to make the necessary adjustments to categorise the Peach Tree 2 properties as business/commercial. It also granted the repayment relief sought by Copperleaf. The court found it unnecessary to consider the City’s review against the VAB decision as that review had been rendered moot by Copperleaf’s success in its review application. [28] Despite the variety of issues raised in the review applications, on appeal, the parties were agreed that the core question for determination by this Court is the substantive validity of the City’s categorisation of the Peach Tree 2 properties as vacant land based solely on Copperleaf’s conversion of its form of title to a CRT (the core issue). This approach is undoubtedly correct. The question underpins both reviews, with the parties’ respective stances representing opposite sides of the same coin. Either the City is correct in its contention that its categorisation of the Peach Tree 2 properties as vacant land is consistent with its rates policies and thus valid, or the high court correctly accepted Copperleaf’s contention that the rates policies dictate a business/commercial categorisation of the properties, and that the City’s categorisation was thus invalid and unlawful. [29] For this reason, there is little point in entertaining the City’s argument that the high court erred in finding that Copperleaf had instituted its review timeously, or its axiomatic contention that Copperleaf unreasonably delayed in instituting its review. Even if, in principle, this is arguable, the core issue remains to be considered. This is because it forms the crux of the City’s own review challenge to the merits of the VAB’s decision, and the thrust of its case on appeal. No practical point would be served by exploring the question of whether Copperleaf ought to have been non-suited in its review application because of unreasonable delay. [30] In any event, and assuming that some point might be served by considering the delay issue, I am not persuaded that there is any merit in the City’s appeal in this regard. Section 7(1) of PAJA provides that: 15 ‘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) . . . 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 reasons.’ [31] The delay issue applies to the review of the 2010-2011 SVR. As I noted earlier, Copperleaf repeatedly averred, in its answering affidavit to the City’s review and in its founding affidavits in its own review, that it was not served with the requisite notice in terms of s 49(1)(c) of the Rates Act. It consistently stated that it only acquired knowledge of the 2010-2011 SVR when the City referred to it in its review application. That factual averment was never challenged. Instead, the City relied on the provision that Copperleaf ‘might reasonably have been expected to have become aware’ of the 2010-2011 SVR. In that regard, in all of Copperleaf’s extensive communications with the City over the relevant period over its rates invoices there had been no reference to the 2010-2011 SVR by the City, nor was there any reference to that SVR’s existence when Copperleaf pursued its objection to the 2013 GVR, and its appeal to the VAB. [32] The simple point is that the City did not inform Copperleaf of the existence of the 2010-2011 SVR as it was obliged to do by s 49(1)(c). It is of no assistance for the City to assert that, because its invoices to Copperleaf expressly identified the Peach Tree 2 properties as vacant land, Copperleaf ought reasonably to have been aware that the City had adopted a SVR to give effect to this altered categorisation. In City of Tshwane Metropolitan Municipality v Lombardy Development (Pty) Ltd and Others (Lombardy),4 this Court rejected the same argument raised by the City, noting that: ‘For, while it is correct that some of the affected owners would have become aware that something had changed when they began receiving drastically inflated invoices from the beginning of July 2012, there was nothing in those invoices that would have informed them of the underlying reasons for the change. The City provided no other form of notification to the ratepayers other than the invoices. The invoices themselves provided no explanation. They 4 City of Tshwane Metropolitan Municipality v Lombardy Development (Pty) Ltd and Others [2018] ZASCA 77; [2018] All SA 605 (SCA) (Lombardy) para 18. 16 simply reflected the properties as having been re-categorised as vacant and reflected the rate payable as the City’s rate for vacant land. . . .’ [33] The facts of this appeal are on all-fours with those in Lombardy. As in Lombardy, there is no evidence, either attached to the City’s affidavits or in the record provided under Uniform rule 53, that service on Copperleaf was effected in accordance with s 49(1)(c), or that the adoption and promulgation of the 2010-2011 SVR was communicated to Copperleaf. In the absence of such evidence, it must be accepted that Copperleaf could not reasonably have been expected to have become aware of the existence of the 2010-2011 SVR until the City served its affidavits in its review application on 1 September 2017. To find otherwise, as this Court observed in Lombardy, would be to permit the City ‘to make a virtue of its silence on matters on which it owes a duty to account.’5 It follows that the high court was correct in finding that Copperleaf’s review was instituted timeously. [34] On the core issue, as I understand the City’s case, it runs along the following lines. When the Registrar of Deeds issued the CRT, this had a material effect on the legal status of the Peach Tree 2 properties. The CRT converted the properties into individual erven. This had two consequences: first, the properties became rateable individually; second, these individual erven were ‘transferred’, as the City put it, out of the township register envisaged in s 46 of the Deeds Act.6 The ultimate result was that the properties were no longer ‘registered in a township title’ and, accordingly, they no 5 Ibid para 11; see also Kalil NO and Others v Mangaung Metropolitan Municipality and Others [2014] ZASCA 90; 2014 (5) SA 123 (SCA) para 30. 6 Section 46 is under Chapter IV of the Deeds Act, headed ‘Townships and Settlements’. It provides, in relevant part: ‘Requirements in the case of subdivision of land into lots or erven (1) If land has been sub-divided into lots or erven shown on a general plan, the owner of the land sub-divided shall furnish a copy of the general plan to the registrar, who shall, subject to compliance with the requirements of this section and of any other law, register the plan and open a register in which all registrable transactions affecting the respective lots or erven shown on the plan shall be registered. (2) For the purposes of registration of such a general plan the title deed of the land which has been sub-divided shall be produced to the registrar together with the diagram thereof and any mortgage bond endorsed on the title deed and the mortgagee’s consent to the endorsement of such bond to the effect that it attaches to the land described in the plan. (3) If the land sub-divided as shown on the general plan forms the whole of any registered piece of land held by the title deed, the registrar shall make upon the title deed and the registry duplicate thereof an endorsement indicating that the land has been laid out as a township or settlement, as the case may be, in accordance with the plan, and that the lots or erven shown on the plan are to be registered in the relative register.’ 17 longer fell within the definition of business/commercial under the City’s rates policies. The properties became individually rateable as vacant land. [35] I have two fundamental difficulties with the City’s contentions. In the first place, whether the properties became individually rateable is irrelevant to the core issue in dispute. The question is under which category of rates the properties should be charged: the business/commercial rate or the vacant land rate? That question remains to be answered regardless of whether the properties are to be rated individually or not. For this reason, the City’s reliance on this Court’s judgment in City of Tshwane Metropolitan Municipality v Uniqon Wonings (Pty) Ltd (Uniqon)7 is misplaced. That case dealt with the method of valuation of the remaining extent of a township after some erven had been transferred to individual purchasers. The question was whether, for rates clearance purposes, the township owner should be required to pay the rates due in respect of the entire township or only in respect of the particular erf that was to be transferred. The question was not what category of rates should be applied. [36] The second difficulty with the City’s argument is that it fails to engage in an interpretive exercise of the definition of business/commercial in the rates policies. The key portion of that definition for purposes of the core issue is the phrase ‘registered in a township title’. As I noted earlier, the term ‘township title’ is not defined in the rates policies or in the Deeds Act. It has no obvious, plain meaning and requires interpretation. [37] It is trite that the interpretative exercise is guided by the triad of language, context, and purpose, understood in relation to each other, with the aim of reaching a sensible, salient understanding of the words under scrutiny.8 7 City of Tshwane Metropolitan Municipality v Uniqon Wonings (Pty) Ltd [2015] ZASCA 162; 2016 (2) SA 247 (SCA) (Uniqon). 8 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; Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA) para 18. 18 [38] The Deeds Act is contextually relevant to the interpretation of the phrase ‘registered in a township title’. Section 46 prescribes the registration process required for land subdivided and laid out as a township. However, there is no magic in s 46, nor is it determinative of the meaning of ‘registered in a township title’. The section serves the pragmatic purpose of providing for a uniform system for recording and regulating title to, and transfer of,9 land that has been laid out and proclaimed as a township. It does not tell us what is, or is not, a registered township title. [39] Section 46 requires that the formal registration process for land forming part of a proclaimed township must involve the opening of a register at the Deeds Office.10 This is commonly referred to as the township register, although the Deeds Act does not use this term specifically. Significantly, the township register does not supersede the registration of, and hence title to, the land on which the township has been proclaimed.11 It plays a formal role in the land registration process and does not itself determine the legal nature of the title to the land in question. [40] What is more, the Deeds Act recognises that the formal registration of transfer and ownership of land may take several different forms, depending on the underlying circumstances. These include deeds of grant, deeds of transfer, certificates of title, certificates of uniform title, certificates of consolidated title, title deeds and deeds of partition transfer. The nomenclature adopted and applied under the relevant provisions of the Deeds Act is a formal descriptor, rather than a substantive determinant, of the nature of the ownership in question. The fact that an owner holds title in the form of a CRT simply means that they have engaged in the formal processes provided for in ss 34 to 39, or s 43, or s 43A, as the case may be, to substitute their original form of title with a CRT. The issuing of a CRT does not change the legal substance of their ownership. They still hold ‘title’ to the land in question, and that title is registered in the Deeds Office. Consequently, and contrary to the City’s submissions, the issuing of a CRT is not determinative of what is meant by ‘registered in a township title’ in the definition of business/commercial in the rates policies. What this illustrates is that the City’s approach to the issue is fundamentally misdirected. 9 When read with s 47 of the Deeds Act. 10 Section 46(3). 11 Uniqon para 9. 19 [41] The more appropriate pointer for determining what is meant by ‘registered in a township title’ is the purpose of the rates policy. It is this that gives proper context to the definition. The City explained in the affidavits filed in support of its review that historically its rates policies, which gave township developers the benefit of the lesser, business/commercial, rating on their property, were intended to encourage development within the municipality. For this reason, undeveloped township land not yet transferred to individual purchasers, was regarded as part of the developers’ ‘stock’ and was rated more favourably. Once it was transferred to individual purchasers, it was rated as vacant land with a view to encouraging owners to develop their individual erven. [42] The 2011 rates policy was not aimed at effecting any change to the City’s stated intention. On the contrary, as I noted earlier, the City expressly indicated that the inclusion in the 2011 rates policy of the reference to ‘properties of a township developer registered in a township title’ was to clarify, and so to cement, its previously existing policy. It gave formal expression to its prior rates practice. It must therefore be accepted that the phrase ‘included in the 2011 rates policy’ is to have the same meaning and effect as that of the practice historically adopted by the City. The purpose of the definition is to give township developers the benefit of the lower rates scale until they dispose of individual erven to third party owners. Until then, the properties registered to the township developer form part of its ‘stock’ and are rated accordingly. [43] The obvious question to ask is how this stated purpose can possibly be served by construing ‘registered in a township title’ in the definition to exclude properties registered under a CRT? The properties are still owned by the township developer, albeit under a title with a different nomenclature than before, with a view to selling them to third party purchasers for development. They remain, for all practical and legal purposes, part of the township developer’s ‘stock’. There is simply no rational reason for excluding them from the definition of business/commercial for rates purposes. This would defeat the fundamental stated purpose of the City’s policy. It follows that the interpretation favoured by the City, which excludes properties owned by a township developer under a CRT from the definition of business/commercial, 20 must be rejected as insensible and undermining of the express purpose of the provision.12 [44] There is thus no merit in the appeal against the high court’s decision on the SVR challenge. This has material consequences for the appeal against the high court’s decision in respect of the GVR challenge. Copperleaf founded its review of the 2012-2017 GVR on the accepted principle that if a second act (the 2013-2017 GVR) depends for its validity on a prior act (the 2010-2011 SVR), the invalidity of the prior act has the effect that the second act is also invalid.13 Applying this principle in Lombardy, this Court found that: ‘It would have been a relatively simple matter for the City to have filed a further affidavit stating that the new rolls were not based on the re-categorisation in the 2012 roll and what further steps had been taken to cure the failure to comply with the MPRA in 2012. … The inference is … inescapable that the City, despite being given every opportunity to do so, never sought to adduce further evidence as to how it cured the defects in the 2012 roll, simply because there was no such evidence to adduce.’14 [45] In this case, the City has repeated the failings it displayed in Lombardy. While asserting that the decision to categorise the Peach Tree 2 properties again as vacant land in the 2013-2017 GVR was ‘hermetically sealed’ from the decision reflected in the 2010-2011 SVR, it produced no evidence to support the existence of an independent decision to this effect. The end result is inescapable: the 2013-2017 GVR was inextricably linked to, and premised on, the invalid 2010-2011 SVR and is for this reason also invalid. There is no merit in this aspect of the City’s appeal. [46] The City argued in its written heads of argument that the relief granted by the high court, in substituting the decision to categorise the Peach Tree 2 properties as vacant land with their categorisation as business/commercial, was not justified and that the issue ought properly to have been remitted back to the City for consideration. At the hearing of the appeal, however, counsel for the City conceded that if its appeal in respect of the core issue was unsuccessful, this aspect of the appeal would fall 12 Endumeni para 18. 13 Seale v Van Rooyen NO [2008] ZASCA 28; [2008] 3 All SA 245 (SCA); 2008 (4) SA 43 (SCA) para 13. 14 Lombardy paras 26-27. 21 away. This concession was correctly made. Once the City’s interpretation of its rates policies is rejected, the only possible valid decision is that the properties must be categorised as business/commercial. No purpose would be served by remitting the matter back to the City for decision. [47] The final aspect to consider is the cross-appeal in respect of the high court’s variation order. After judgment was handed down by the high court, Copperleaf brought a formal application to vary the order granted under Uniform rule 42(1)(b). It pointed out certain patent errors and omissions. The high court granted the variation order. Unfortunately, that order did not cure all the defects originally identified, nor did it cure the lack of clarity that beset it. Copperleaf’s cross-appeal against the varied order is well founded. The order it asks this Court to make clarifies the high court’s order and gives practical effect to the intention of that court as manifest in its judgment and confirmed on appeal. It is in the interests of justice to order the variations sought, including a variation of the unmotivated costs order against Copperleaf in the variation application. There was no reason to make that order against Copperleaf. It was substantially successful in that application and ought not to have been mulcted in costs. It is thus appropriate that that order be set aside and substituted with an order that the City pay those costs. [48] In the final result, the appeal must fail and the cross-appeal succeed. [49] The following order issues: 1 The appellants’ appeal is dismissed with costs, including the costs pursuant to the employment of two counsel. 2 The first respondent’s cross-appeal against the orders granted by Mokose J on 13 October 2020 and 22 November 2022 succeeds with costs including the costs pursuant to the employment of two counsel. 3 The order of Mokose J granted on 13 October 2020 is replaced by the following order: '1 The evidence of Allen Stanley West contained in paragraph 38.20 of Annexure “N” to the founding affidavit in the application under case number 61228/2017 (the review application) and in paragraph 15.2 of Annexure “C” to the answering affidavit 22 in the application under case number 48037/2017 (the enforcement application) is struck out. 2 The 2010-2011 supplementary valuation roll and the 2013-2017 general valuation roll are reviewed and set aside to the extent that they categorise those erven in Peach Tree Extension 2 (previously a portion of the Farm Knopjeslaagte 385) registered in the name of the applicant in the enforcement application (Copperleaf) at the time (the relevant properties) as “vacant land”. 3 The concomitant re-categorisation by the third respondent in the enforcement application of the relevant properties as “vacant land” is reviewed and set aside. 4 The decision to categorise the relevant properties as “vacant land” is substituted with a decision to categorise the relevant properties as “business/commercial”. 5 The first respondent in the enforcement application (Tshwane) is directed to adjust the 2010-2011 supplementary valuation roll and the 2013-2017 general valuation roll to indicate that the relevant properties are categorised as “business/commercial” within 30 days of service of this order. 6 Within 45 days of the service of this order on him, the fourth respondent in the enforcement application (the municipal manager) is ordered to calculate the amount actually paid by Copperleaf in respect of rates on the relevant properties from 19 December 2008 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2013, and the amount which would have been paid by Copperleaf if the relevant properties had been categorised as “business/commercial” from 19 December 2008 to the earlier date on which a specific property was registered in the name of a purchaser or 30 June 2013. 7 Within 45 days of the service of this order on him, the municipal manager is ordered to repay to Copperleaf the difference between the amounts actually paid by Copperleaf to Tshwane from 19 December 2008 and the amount which would have been paid by Copperleaf if the relevant properties had been categorised as “business/commercial” from 19 December 2008 to the earlier of the date on which a specific property was registered in the name of a purchaser or 30 June 2013, plus interest on such amounts from the date(s) on which Copperleaf paid such amounts to Tshwane to date of final payment calculated at the prime rate levied by the bank at which the primary account of Tshwane is kept, plus 1%, as at the date of the calculation. 23 8 Within 45 days of the service of this order on him, the municipal manager is ordered to calculate the amount actually paid by Copperleaf in respect of rates on the relevant properties from 1 July 2013 to the earlier of the date on which specific property was registered in the name of a purchaser thereof or 30 June 2017; and the amounts which would have been paid by Copperleaf if the properties had been categorised as “business/commercial” from 1 July 2013 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2017. 9 Within 45 days of service of this order on him, the municipal manager is ordered to repay to Copperleaf the difference between the amounts actually paid by Copperleaf to Tshwane from 1 July 2013 and the amounts which would have been paid by Copperleaf if the properties had been categorised as “business/commercial” from 1 July 2013 to the earlier of the date on which a specific property was registered in the name of a purchaser thereof or 30 June 2017, plus interest on such amounts from the date(s) on which Copperleaf paid such amounts to Tshwane to date of final payment calculated at the prime rate levied by the bank at which the primary account of Tshwane is kept, plus 1%, as at the date of the calculation. 10 Tshwane is ordered to make payment to Copperleaf within twenty days of service of this order on it of the sum of R87 862.63 plus interest on such amount at the rate of 10.5% per annum from 3 April 2017 to date of final payment. 11 The review application is dismissed with costs, including the costs pursuant to the employment of two counsel. 12 Tshwane is ordered to pay the costs of the counter-application in the review application including the costs pursuant to the employment of two counsel. 13 Tshwane is ordered to pay the costs of the enforcement application, including the costs pursuant to the employment of two counsel.’ 4 The order granted by Mokose J on 22 November 2022 is replaced by the following order: ‘The City of Tshwane Metropolitan Municipality is ordered to pay the costs of the variation application, including the costs pursuant to the employment of two counsel.’ ________________________ 24 R M KEIGHTLEY ACTING JUDGE OF APPEAL 25 Appearances For the appellants: T Strydom SC with L Kotze Instructed by: MB Mabunda Incorporated, Johannesburg Matsepe Attorneys, Bloemfontein For the first respondent: H F Oosthuizen SC with D J Smit Instructed by: Veneziano Attorneys, Pretoria Symington de Kock 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: 3 May 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 City of Tshwane Metropolitan Municipality and Others v Copperleaf Country Estate (Pty) Ltd and Another (245/2023) [2024] ZASCA 69 (3 May 2024) Today the Supreme Court of Appeal (SCA) dismissed an appeal against a judgment and order of the Gauteng Division of the High Court, Pretoria (the high court) reviewing and setting aside certain aspects of the City of Tshwane Metropolitan Municipality’s (the City’s) valuation rolls for the years 2010-2011 and 2013-2017. The Court confirmed the high court’s direction that the City adjust the valuation rolls to reflect that the properties in question be categorized as ‘business/commercial’, and not as ‘vacant land’. The appellant, Copperleaf Country Estate (Pty) Ltd (Copperleaf), is the owner of two portions of immovable property. In 2005 the first portion, Peach Tree Extension 1, which is held under a registered deed of transfer, was subdivided into erven according to a general plan and a township register was opened. The same steps were taken in respect of Copperleaf’s second property, Peach Tree Extension 2, in 2007. The only difference between the two properties being that in 2008 Copperleaf substituted its title deed for a certificate of registered title (CRT) under s 43 of the Deeds Registries Act 47 of 1937 (the Deeds Act). The City took the view that under its relevant rates policies, once the property was held under a CRT, it was no longer ‘registered in a township title’, in terms of the definition of the category business/commercial. Consequently, the substitution of title had the effect that the erven in Peach Tree 2 were no longer to be classified business/commercial but were to be categorised as vacant land. It amended its valuation rolls accordingly. This change in Peach Tree 2’s rating category had a substantial effect on the rates payable by Copperleaf in respect of its Peach Tree 2 properties in that vacant land attracts a substantially higher rates charge than land that is categorised as business/commercial. The reason for this is that the City’s policy historically has been to support township developers by giving them the benefit of the lesser, business/commercial rating to encourage development within the municipality. Undeveloped township land is treated as part of the developer’s ‘stock’ and rated more favourably than other vacant land. The City argued that once the Register of Deeds issued a CRT as a substitute form of title, this had a material effect on the legal status of the properties in Peach Tree 2. It converted the properties into individual erven, rendering them individually ratable and thus excluding them from the township register. In short, the legal effect of the CRT was that the properties could no longer be considered as part of the township developer’s ‘stock’ for rates purposes. The Court found that the City’s argument could not prevail. On a proper interpretation of the City’s rates policy, the purpose of the definition of the business/commercial category was to give township developers the benefit of the lower rates scale until they dispose of individual erven to third party purchasers. The City’s case that ‘registered in a township title’ should be interpreted to exclude properties held under a CRT was contrary to the policy’s stated purpose, was insensible and must be rejected. The properties were still owned by the township developer albeit under a different nomenclature than before. For all legal and practical purposes, the properties in Peach Tree 2 still formed part of the developer’s stock, and there was no rational reason to exclude them from the definition of ‘business/commercial’ for rates purposes. They remained properties ‘registered in a township title’ and thus fell within the definition of the category ‘business/commercial’. The Court dismissed the appeal. At the same time, the Court upheld a cross-appeal by Copperleaf and granted an order varying the order of the high court. In terms of the order as varied, the Court reviewed and set aside the 2010-2011 supplementary valuation roll and the 2013-2017 general valuation roll to the extent that they categorised the Peach Tree 2 properties as vacant land. It substituted the City’s decision with a decision to categorise the properties as business/commercial and directed the City to adjust the valuation rolls accordingly. The order also directed the City to repay to Copperleaf the difference between the rates it had paid based on the categorisation of the properties as vacant land, and the amount of rates that ought to have been charged on the properties when rated business/commercial. ~~~~ends~~~~

4217

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 197/2023 In the matter between: J J G NEL FIRST APPELLANT IVY JEWEL 3 (PTY) LTD SECOND APPELLANT IVY JEWEL 4 (PTY) LTD THIRD APPELLANT LABONTE 1 (PTY) LTD FOURTH APPELLANT LABONTE 2 (PTY) LTD FIFTH APPELLANT SILKBLAZE 3 (PTY) LTD SIXTH APPELLANT SILKBLAZE 4 (PTY) LTD SEVENTH APPELLANT RUSTYROSE 52 (PTY) LTD EIGHTH APPELLANT and P J J CILLIERS RESPONDENT Neutral citation: Nel & Others v Cilliers (197/2023) [2024] ZASCA 57 (19 April 2024) Coram: NICHOLLS, MATOJANE, and MOLEFE JJA, and BAARTMAN and MBHELE AJJA Heard: 13 March 2024 Delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email; publication on the Supreme Court of Appeal website, and released to SAFLII. The time and date for hand-down is deemed to be 11h00 on the 19th day of April 2024. 2 Summary: Contract – specific performance – whether either of two contracts is unlawful and unenforceable for failure to comply with section 8 read with section 40 of the National Credit Act, 35 of 2005 (the NCA) – whether the appellants are entitled to relief in terms of a contract despite a concession made at a pre-trial conference that certain clauses in the contract fall foul of provisions of the NCA and that those clauses are not severable from the rest of the contract – whether it was necessary for the respondent to have accepted the concession before the appellants could be held to it – whether parties had abandoned their first contract – whether the first contract was inchoate or a simulated agreement – whether the appellants were entitled to relief in respect of either contract. 3 ORDER On appeal from: Gauteng Division of the High Court, Pretoria (Ally AJ, Jansen van Niewenhuizen J and Bokako AJ sitting as a full court): (a) The appeal is upheld with costs, including the costs of two counsel where so employed. (b) The order of the full court is set aside and replaced with the following: ‘(i) The defendant is ordered to pay the first plaintiff the amount of R5 million plus interest on the amount of R5 million at the rate of 15.5% from 1 March 2011 to date of payment. (ii) The defendant is ordered to pay the costs of the action including all reserved costs and the costs consequent upon the employment of two counsel.’ JUDGMENT Baartman AJA (Nicholls, Matojane and Molefe JJA and Mbhele AJA Concurring): [1] The dispute in this appeal is whether either of the two contracts entered into between Mr JJG Nel (the first appellant) and Mr PPJ Cilliers (the respondent) is lawful and enforceable. Both the Pretoria high court (the trial court) and the full court of the Gauteng Division of the High Court, Pretoria (the full court), dismissed the first appellant’s claims for specific performance and damages arising out of various breaches of the two agreements. This appeal is with special leave of this Court. Contractual history [2] The first appellant is a businessman and the controlling mind behind the second to the eighth appellants (the companies). The respondent is an attorney and businessman. In 2006, the respondent was developing an upmarket golf estate through Legend Golf and Safari (Pty) Ltd (the development company) in the Sterkrivier area in Mpumalanga when the first appellant approached him and showed an interest in investing in the development. 4 [3] The first appellant and the respondent concluded a sale of shares agreement in terms of which the respondent sold 5% of the development company to the first appellant for R8 million. In 2007, the respondent recruited major new investors from Kuwait, which resulted in a restructuring of the development company. The first appellant had the option to exchange his 5% share in the old company for 2.5% in the restructured entity. He chose to opt out of the development as he did not approve of the new investors. [4] The respondent, believing that the development would yield good returns, advised him against withdrawing as he estimated that his shares would appreciate to R30 million in three years’ time. He offered to purchase the first appellant’s shares for R30 million after a period of three years. The first appellant agreed and drafted the first agreement (D1), dated 18 February 2008, consisting of four separate agreements. Relevant to this judgment is clause 2 which provides the following: ‘(2) The sale of shares agreement (the sale of shares agreement) in terms whereof the respondent purchases the first appellant’s 5% share in Legend and Safari Resort for R30 million, payable on or before the end of February 2011, interest free and tax friendly.’ (Own translation from Afrikaans.) [5] Contract D1 further provided that the companies would each purchase an erf in the development which the first appellant would finance through an Absa mortgage bond. The respondent would market two of the erven, the profit on which would finance the other five erven. The respondent made an initial payment of R6 million but defaulted on his other obligations. Therefore, on 20 June 2011, to accommodate the respondent, the parties entered into a second agreement (D2) and agreed that the share price would be reduced to R12 million instead of R30 million. [6] In terms of D2, the amount of R6 million that had already been paid in terms of D1 was regarded as an initial payment. The respondent undertook to pay the balance of R6 million in three equal annual cash instalments of R2 million each. The payments would attract interest at the agreed rate. The respondent made one further payment of R1 million on 31 July 2012 to the first appellant, whereafter all payments stopped. It was common cause that neither the first appellant nor the respondent was registered 5 as a credit provider in terms of the National Credit Act 35 of 2005 (NCA). Litigation followed. The pleadings [7] The pleadings in this matter are extremely confusing. It is thus not surprising that the parties disagreed about the issues in dispute. Before this Court, the appellants’ counsel had difficulty explaining the pleadings and instead sought to rely on his heads of argument to clarify the pleaded case and the relief sought, while the respondent’s counsel sought to rely on amendments not included in the appeal record. [8] The appellants issued summons, seeking specific performance, based on the terms of D2 as follows: ‘1. That the defendant be ordered to design, construct and complete four fully furnished hotel suites on each of the aforementioned erven in accordance with the Residential Design Guidelines issued in terms of the articles of association of Legend Golf and Safari Resort Home Owners Association… 2. That the defendant be ordered to pay the second to eighth [plaintiffs’] levies in terms of the articles of association of Legend Golf and Safari Resort Home Owners Association… 3. That the defendant be ordered to pay the second to eighth [plaintiffs’] municipal rates and taxes in respect of the aforesaid erven… 4. Costs of suit.’ [9] Alternatively, the appellants sought conditional relief based on D1 as follows: ‘Plaintiffs conditional claim against the defendant for payment of the balance of the purchase price in terms of a sale of shares agreement 11. This claim is subject to the above [High Court] finding that the agreement attached as D2 is invalid and unenforceable for whatever reason.’ ‘1 Payment of the amount of R23 million. 2. Interest on the amount of R23 million at a rate of 15, 5% per annum from 1 March 2011 to date of payment. 3. In the alternative to paragraphs 1 and 2 above: 3.1 Payment of the amount of R5 million. 3.2 Interest on the amount of R5 million at Absa Bank’s prime interest rate plus 3,5%, compounded monthly and calculated from 1 March 2011. 4. Cost of suit.’ 6 The 19 August 2020 pre-trial concessions [10] The appellants’ counsel made the following formal concession at a pre-trial conference: ‘ 3.2.6. The plaintiffs concede that clauses 2,3 and 4 of ‘D2’ fall within the ambit of section 8 of the [NCA]. . . as alleged in 6.3.1.3 of the plea. 3.2.7. The plaintiffs deny that clauses 2, 3 and 4 of ‘D2’ amount to a separate and distinct credit agreement as alleged in paragraph 6.3.1.3 of the plea. 3.2.8 The plaintiffs admit that neither the first plaintiff . . . nor the companies were registered as credit providers as required by section 40 [of the NCA] as alleged. . . 3.2.11 . . . [I]t would be the plaintiff’s case in argument that clauses 2, 3 and 4 are invalid but not severable from the remainder of ‘D2’ in view of which the whole of ‘D2’ should be held to be invalid and that an amendment to the plaintiff’s particulars of claim was not necessary to present such an argument.’ In the trial court [11] The first appellant was the only witness in the trial before Baqwa J. The first appellant admitted that he had drafted the agreements and submitted them to the respondent for approval. The latter made minor changes to the agreements. However, that admission came after the first appellant had gone to great length, in examination-in-chief, to convince the trial court that the respondent had drafted the agreements because he was legally trained. [12] The first appellant said that he understood figures and the agreements were structured in a manner that would be tax effective. Therefore, the term ‘tax friendly’ meant that there would be further negotiations about the tax liability. The first appellant said that D2 was meant to ‘substitute D1’ because the respondent had not performed in terms of that agreement. A reading of the trial record reveals that the first appellant was not an impressive witness. The trial court dismissed the appellants’ claim, holding that the parties had abandoned D1 and that D2 was ‘unlawful and unenforceable’. However, the learned judge granted leave to appeal to the full court. In the full court [13] In the full court, the appellants argued that D2 was not a credit agreement. Instead, so the submission went, it was ‘a negotiation or settlement of a dispute regarding the payment of the R30 000 000. . . [therefore] in terms of Ratlou v Man 7 Financial Services SA (Pty) Ltd,1 D2 is not a credit agreement in terms of [the NCA] and therefore neither unlawful nor invalid’. The court reasoned that the submission ‘firstly flies in the face of the concession made by the appellants which concession was never withdrawn’, was contrary to the pleaded case and to the first appellant’s testimony. The court further relied on Du Bruyn N O and Others v Karsten2 in holding that D2 was ‘an unlawful and unenforceable’ credit agreement within the meaning of section 8 read with section 40 of the NCA. [14] The court rejected the submission, on behalf of the appellants, that D1 could be revived once it found D2 was ‘unlawful and unenforceable’, because the first appellant had testified that D2 had replaced D1 which it found was ‘an abandonment of D1, therefore D1 could not be resuscitated’. The court held that D1 was inchoate. Although, the respondent did not plead that D1 was inchoate, the court was persuaded that the first appellant had placed the issue before it when he testified that the parties still had to ‘discuss how exactly certain clauses will be performed’. [15] The full court held that that testimony ‘clearly evidences incompleteness’ therefore the appellants could not rely on D1. In any event, it was further held that the ‘deferment of payment’ of R30 million meant that D1 was a credit agreement in terms of the NCA and as the provisions of that Act had not been complied with, D1 was unlawful and unenforceable. Therefore, the court dismissed the appeal and refused the application for leave to appeal. Discussion [16] It is necessary to deal with the status of the pre-trial admission upfront. The appellants persisted with their claim for specific performance in terms of D2 despite the pre-trial concession referred to above. Before this Court, the appellants’ counsel made the startling submission that the appellants could not be held to the concession because the respondent had not accepted it. [17] There is no merit in that submission. Pre-trial proceedings are important, legally binding proceedings in which the issues to be determined at trial are identified and 1 Ratlou v Man Financial Services SA (Pty) Ltd [2019] ZASCA 49; 2019 (5) SA 117 (SCA). 2 Du Bruyn N O and Others v Karsten [2018] ZASCA 143; 2019 (1) SA 403 (SCA). 8 crystallised. The trial proceeds based on the dispute that remains after all admissions and concessions have been made. If that is not the position, the pre-trial process is a costly waste of time. In this matter, the respondent, as he was entitled to, defended the claim based on the concession made in respect of D2. The appellants did not withdraw the concession when they had the opportunity to do so. [18] The concession meant that the appellants then proceeded on the basis that the affected clauses in D2 were not severable, therefore the appellants could not place reliance on that agreement. The full court thus correctly held that D2 was unlawful and unenforceable for failure to have complied with certain of the provisions3 of the NCA. It follows that the appellants could only obtain relief in terms of D1 if that contract was lawful and enforceable. I turn to that enquiry. Is D1 a simulated agreement? [19] The respondent pleaded that D1 was a simulated agreement. A court considers the substance of an agreement irrespective of what its form purports to be. The full court did not consider whether D1 was a simulated agreement. In my view, for the reasons I deal with below, D1 was not a simulated agreement. The full court found that D1 was inchoate and therefore the appellants could not rely on it for relief. I now turn to that finding. Was D1 inchoate? [20] The issue of inchoateness arises in respect of clause 2 of D1 which provides as follows: ‘Peet Cilliers koop Koos Nel se 5% (vyf Persent) aandeel in Legend Golf en Safari Resort (Pty) (Ltd) vir die bedrag van R30 000 000.00 (dertig miljoen Rand). Vermelde bedrag is betaalbaar voor of op einde Februarie 2011, is nie rentedraend nie, en die transaksie sal “Belasting vriendelik” wees’ ([The respondent] purchases the first appellant’s 5% interest in Legend Gold and Safari Resort (Pty) Ltd for the amount of R30 000 000, which amount is payable on or before the end of February 2011, will not attract interest, and the transaction would be tax friendly.) (Own translation from Afrikaans.) 3 Section 8 read with section 40(1). 9 [21] The appellants bemoan their disadvantage as they alleged that the issue had not been canvassed in the pleadings, at the pre-trial conference, nor did the appellants’ counsel lead the first appellant on the issue. In argument, counsel submitted that the issue was not even dealt with in consultation as it was not an issue on the pleadings, therefore no admissible evidence was led to explain the term ‘tax friendly’. Conversely, the respondent’s counsel argued that the issue had been raised on the pleadings. The respondent’s counsel did not abandon reliance on this issue before this Court. [22] Although the full court accepted that the inchoate issue had not been pleaded, the court nevertheless dealt with the issue, because the first appellant had testified about it. However, the first appellant’s testimony in answer to a question from the trial court at the close of his evidence-in-chief. Having accepted that the issue was not canvassed in the pleadings, it was impermissible for the full court to raise an issue not in dispute and to pronounce on it in circumstances where the issue had not been fully canvassed at the trial.4 In this matter, it caused prejudice to the appellants who were denied the opportunity to place their version supported by admissible evidence before the court. In Fisher v Ramahlele,5 this Court held as follows: ‘Turning then to the nature of civil litigation in our adversarial system it 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 basic human rights guaranteed by our Constitution, for ‘it 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. 4 Minister of Safety & Security v Slabbert [2009] ZASCA 163; [2010] 2 All SA 474 (SCA) para 11: ‘The purpose of the pleadings is to define the issues for the other party and the court. A party has a duty to allege in the pleadings the material facts upon which it relies. It is impermissible for a plaintiff to plead a particular case and seek to establish a different case at the trial. It is equally not permissible for the trial court to have recourse to issues falling outside the pleadings when deciding a case.’ 5 Fisher and Another v Ramahlele and Others [2014] ZASCA 88; 2014 (4) SA 614 (SCA); [2014] 3 All SA 395 (SCA) paras 13-14. 10 It is not for the court to raise new issues not traversed in the pleadings or affidavits, however interesting or important they may seem to it, and to insist that the parties deal with them. The parties may have their own reasons for not raising those issues. A court may sometimes suggest a line of argument or an approach to a case that has not previously occurred to the parties. However, it is then for the parties to determine whether they wish to adopt the new point. They may choose not to do so because of its implications for the further conduct of the proceedings, such as an adjournment or the need to amend pleadings or call additional evidence. They may feel that their case is sufficiently strong as it stands to require no supplementation. They may simply wish the issues already identified to be determined because they are relevant to future matters and the relationship between the parties. That is for them to decide and not the court. If they wish to stand by the issues they have formulated, the court may not raise new ones or compel them to deal with matters other than those they have formulated in the pleadings or affidavits.’ (Footnotes omitted.) [23] The full court held that since the onus was on the appellants to prove the agreement, the first appellant’s testimony that the agreement was incomplete could be held against him. This Court, in Natal Joint Municipal Pension Fund v Endumeni Municipality6 held that the interpretation of written instruments must follow the triad of language, context and purpose. In this regard it held: ‘ . . . Whatever the nature of the document, 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. . . . Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible, or business like for the words actually used . . . All this is consistent with the ‘emerging trend in statutory construction’. It clearly adopts as a proper approach to the interpretation of documents the second of the two possible approaches mentioned by Scheiner JA in Jaga v Dönges NO and another, namely that from the outset one considers the context and the language together, with neither predominating over the other. This is the approach that courts in South Africa should now follow…’ [24] To merely accept a litigant’s ‘say so’ on the meaning of the words used is impermissible. The full court ought to have undertaken an interpretative analysis applying the triad. In any event, the first appellant was an unsatisfactory witness. He 6 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA) paras 18-19. 11 complained about his poor memory and claimed that the events had happened 14 years earlier and that he had difficulty in remembering what had happened ‘last week…never mind 14 years ago’. Therefore, the finding that D1 is inchoate stands to be set aside on appeal. Was D1 abandoned? [25] The appellants argued that D1 was revived because D2, the novated contract, was unlawful and unenforceable. The full court rejected that argument on the basis that the first appellant had testified that D2 had replaced D1. Therefore, the full court concluded that ‘that is an abandonment of D1 and same cannot be resuscitated’. In Acacia Mines Ltd v Boshoff7 (Acacia) this Court held the following: ‘The question which to my mind must first be answered is whether the First Prospecting Contract was abandoned or not. If it was abandoned, then the subsequent contract was an entirely new and self-contained contract, and its validity in no way affects the position. There is no direct evidence of abandonment. . . It is therefore a matter of inference whether there was an abandonment or not.’ [26] The objective facts, from which the inference must be drawn, are that the respondent had defaulted on his obligations in terms of D1, therefore, D2 came into being. In the latter agreement, the parties attempted to make the respondent’s obligations incurred in terms of D1, manageable. This is obvious from the introductory paragraph that confirms that the respondent’s obligation in terms of D1 was to pay R30 million and that he had been unable to comply with that obligation, as a result of which D2 had been entered into. There is nothing in either contract to suggest that the parties considered D1 to have been an unlawful agreement as was the case in Acacia where the parties entered into the second contract because their first prospecting contract was worthless. In Acacia, the money that was paid fell due in terms of the second contract. In this matter, the money was paid in respect of both contracts in respect of the same obligation. [27] In Acacia, the court also found that the second agreement made no mention of the first agreement, a factor that points to an abandonment of the first agreement. D2 7 Acacia Mines Ltd v Boshoff 1959 (4) SA 330 (A) at 336E-G. 12 makes introductory reference to the D1. Finally, in Acacia the court said: ‘It is also significant that in entering into the Second Prospecting Contract the company commenced proceedings de novo and used the same machinery as is ordinarily used for entering into new contracts’. In this matter, the parties in D2 expressed their intention to renegotiate the R30 million obligation due in terms of D1. [28] The objective facts indicate that the parties to D2 considered their first agreement valid and binding. Therefore, when the respondent defaulted, they attempted to enter into another valid contract to deal with the respondent’s obligations incurred in terms of their first agreement. I find myself in respectful disagreement with the full court’s finding that the intention of the parties was to abandon D1 based on first appellant’s unreliable evidence. The objective facts do not support that finding. Does D1 fall foul of section 8(4) of the NCA? [29] The full court found that the deferment of payment of R30 million in D1 fell foul of the provisions of section 8(4) of the NCA. The section provides as follows: ‘8. Credit agreements… (4) An agreement, irrespective of its form but not including an agreement contemplated in subsection (2), constitutes a credit transaction if it is – (a) a pawn transaction or discount transaction; (b) an incidental credit agreement, subject to section 5(2); (c) an instalment agreement; (d) a mortgage agreement or secure loan; (e) a lease; or (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.’ [30] The contemporaneous correspondence between the parties indicates that the agreement between them was primarily about the sale of shares. The respondent estimated that the shares would appreciate and made optimistic predictions. Their first agreement, D1, was drafted pursuant to that estimation. The intention was always that 13 the amount should be paid in monetary value. No ‘charge, fee or interest’ was payable by the respondent on the purchase price for the shares. [31] The first appellant, being an accountant, was anxious to have the money paid into one of the entities under his control to minimise any adverse tax implications. That does not make the agreement inchoate, nor does it defer the payment. Instead, the first appellant’s interest in the development company would appreciate as per the respondent’s optimistic predictions if he remained invested for a further three years. The first appellant had invested R8 million in the development and only received R7 million in return. It follows that D1 is not a credit agreement in terms of the NCA. Conclusion [32] The appellants’ concession that certain clauses in D2 contravened the provisions of the NCA and that those provisions were not severable from the rest of D2 was the basis on which the trial was conducted. It follows that the appellants could not obtain any relief based on D2. [33] I am persuaded that the real intention of the parties is ascertainable and that D1 is not a simulated agreement.8 The first appellant wanted to opt out of the development, but the respondent persuaded him that his shares would appreciate considerably in three years. The contracting parties’ true intention is recorded in D1; the latter does not fall foul of section 8(4) of the NCA. It follows that the first appellant is entitled to relief based on the respondent’s breach of his obligations in terms of D1. [34] As indicated above, the pleadings are confusing. The appellants’ counsel made it clear that the claim is not for R23 million; it follows that this Court can only award the lesser amount. It bears repeating that the appellants’ conditional/alternative claim was for the amount of R23 million in terms of D1, alternatively the payments of R5 million plus interest and costs. The appellants, as they were entitled to, abandoned part of their claim for R23 million. It follows that the alternate claim succeeds. [35] As a result, the following order is made: 8 M A Fouche, J V du Plessis and A J Kerr The Principles of Law of Contract 6 ed (2004). 14 (a) The appeal is upheld with costs, including the costs of two counsel where so employed. (b) The order of the full court is set aside and replaced with the following: ‘(i) The defendant is ordered to pay the first plaintiff the amount of R 5 million plus interest on the amount of R5 million at the rate of 15.5% from 1 March 2011 to date of payment. (ii) The defendant is ordered to pay the costs of the action including all reserved costs and the costs consequent upon the employment of two counsel.’ ________________________ E D BAARTMAN ACTING JUDGE OF APPEAL 15 APPEARANCES: For appellant: A B Rossouw SC (with him J H A Saunders) Instructed by: Jaco Roos Attorneys Inc., Pretoria Noordmans Inc., Bloemfontein For respondent: J D Maritz SC Instructed by: Savage Jooste & Adams Inc., Pretoria Pretorius & Vennote, 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: 19 April 2024 Status: Immediate The following summary is for the benefit of the media in the reporting of this case; it does not form part of the judgment of the Supreme Court of Appeal. Nel & Others v Cilliers (197/2023) [2024] ZASCA 57 (19 April 2024) Today the Supreme Court of Appeal (SCA) dismissed the main claim for specific performance in term of the second contract, referred to as D2, entered into between Mr Nel and Mr Cilliers. The court held that the concession at a pre-trial conference, by Mr Nel, that certain clauses in the second contract contravened the provisions of the National credit Act 35 of 2005 (the NCA), and that those provisions were not severable from the rest of the contract meant that Mr Nel could not obtain relief in terms of that contract. Instead, the court granted the alternative relief, R5 million plus interest and costs of the action, claimed in terms of the first contract entered into between Mr Nel and Mr Cilliers. The court accepted that in 2006, Mr Cilliers was developing an upmarket golf estate through Legend Golf and Safari (Pty) Ltd in the Sterkrivier area in Mpumalanga when Mr Nel approached him and showed an interest in investing in the development. The negotiations led to Mr Nel acquiring 5% in the development company for R8 million. In 2007, when Mr Nel wanted to opt out of the development, Mr Cilliers persuaded him to leave his investment in the project for a further 3 years. Mr Cilliers was optimistic that the investment would yield good returns, he estimated that Mr Nel’s shares would appreciate to R30 million in three years’ time. He offered to purchase the shares from Mr Nel at his estimated price 3 years later. Mr Nel accepted that offer which formed the basis of their first contract. The court held that the contemporaneous correspondence between the parties indicates that the agreement between them was primarily about the sale of shares. Mr Cilliers estimated that the shares would appreciate and made optimistic predictions. Their first agreement, D1, was drafted pursuant to that estimation. The intention was always that the amount should be paid 2 in monetary value. No ‘charge, fee or interest’ was payable by Mr Cilliers on the purchase price for the shares. Therefore, the first agreement did not fall foul of section 8 read with section 40 of the NCA as Mr Cilliers alleged. The court held that the first agreement was neither a simulated agreement nor inchoate, therefore, Mr Nel succeeded in his alternative claimed based on a breach of their first contract. ***ends***

4190

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 946/2022 In the matter between: HIGHWAY JUNCTION (PTY) LTD FIRST APPELLANT SWINBURNE VILLAGE HOMEOWNERS ASSOCIATION NPC SECOND APPELLANT SWINBURNE STORE CC THIRD APPELLANT and DI-THABENG TRUCK AND TAXI (PTY) LTD FIRST RESPONDENT DI-THABENG LOGISTICS (PTY) LTD SECOND RESPONDENT DI-THABENG FINANCE (PTY) LTD THIRD RESPONDENT DI-THABENG FUEL SUPPLY (PTY) LTD FOURTH RESPONDENT DI-THABENG FUEL MANAGEMENT (PTY) LTD FIFTH RESPONDENT MEMBER OF THE EXECUTIVE COUNCIL FREE STATE PROVINCIAL DEPARTMENT OF ECONOMICS, SMALL BUSINESS DEVELOPMENT, TOURISM AND ENVIRONMENTAL AFFAIRS SIXTH RESPONDENT MALUTI-A-PHOFUNG LOCAL 2 MUNICIPALITY SEVENTH RESPONDENT THE MINISTER OF WATER AND SANITATION EIGHTH RESPONDENT THE MINISTER OF MINERAL RESOURCES AND ENERGY NINTH RESPONDENT and ENGEN PETROLEUM LIMITED AMICUS CURIAE Neutral citation: Highway Junction (Pty) Ltd and Others v Di-Thabeng Truck and Taxi (Pty) Ltd and Others (Case no 946/2022) [2024] ZASCA 31 (28 March 2024) Coram: PONNAN, GORVEN and KGOELE JJA and SEEGOBIN and KEIGHTLEY AJJA Heard: 1 March 2024 Delivered: 28 March 2024 Summary: Interdictory relief – four interdicts sought – interdict granted which adequately protects rights – appeal against refusal to grant further interdicts moot – no basis for entering into whether a further clear right was established. 3 __________________________________________________________________ ORDER ______________________________________________________________________________On appeal from: Free State Division of the High Court, Bloemfontein (Zietsman AJ, sitting as court of first instance): The cross-appeal is dismissed. __________________________________________________________________ JUDGMENT __________________________________________________________________ Gorven JA (Ponnan and Kgoele JJA and Seegobin and Keightley AJJA concurring) [1] The matter before us is a cross-appeal where the main appeal has lapsed. The parties will be referred to as in the cross-appeal. The first respondent, Di-Thabeng Truck and Taxi (Pty) Ltd (T&T), is the owner of immovable property described as Portion 5 of the Farm Franshoek 1861, district of Harrismith, Free State Province (the property). The property is zoned agricultural. A condition of title, which is recorded in the zoning certificate, also allows use as a place where trucks may be parked. T&T and the second to fifth respondents (the Di-Thabeng entities) were all companies under the effective control of Mr PJ du Toit, until he died during July 2021. [2] The first appellant, Highway Junction (Pty) Ltd, conducts the business of a truck-stop, where drivers can rest, and a fuel retail facility known as ‘The Highway 4 Junction’. In excess of 1 500 trucks pass through it per day. The second appellant, the Swinburne Home Owners Association NPC, is a homeowners association of a housing development adjacent to the property. The third appellant, Swinburne Store CC, is the developer of the Swinburne Township on land adjoining the property. The sixth to ninth respondents played no part in either the high court or before us. [3] The appellants contended that the Di-Thabeng entities were engaged in unlawful activities on the property. These included: (a) The commencement of listed activities under, and thus contraventions of, the National Environmental Management Act 107 of 1998 (NEMA). (b) The use of the property contrary to its approved zoning under the Town Planning Scheme of the relevant municipality and contrary to the provisions of the Spatial Planning Land Use Management Act 18 of 2013 (SPLUMA). (c) The unlawful construction of buildings in contravention of the National Building Regulations and Building Standards Act 103 of 1977 (the NBR). (d) The unlawful alteration of banks or characteristics of a watercourse on the property without a water use licence in contravention of the National Water Act 36 of 1998 (the Water Act). (e) The unlawful retailing of petroleum products in contravention of the Petroleum Products Act 120 of 1977 (the PPA). It is common cause that the Di-Thabeng entities were trading in petroleum products. It is significant that they traded only from the property. [4] As indicated, the property was zoned for agricultural use and the parking of trucks. As regards point (e), T&T holds a wholesale licence under the PPA. Under the PPA and the relevant regulations, the wholesale licence entitles T&T to sell only in bulk (fuel wholesaling). The word ‘bulk’ is defined in the regulations as meaning 5 ‘1500 litres or more, per transaction of petroleum products’. The operative phrase is ‘per transaction’. The requirement of selling in bulk does not apply to the retail sale of fuel (fuel retailing). [5] The system employed by T&T (the impugned system) was to sell fuel in what it termed ‘transaction intervals’ of 1 500 litres. The customer was required to pay for a minimum of 1 500 litres of fuel but did not have to take immediate delivery of the full 1 500 litres. It was permitted to collect as and when it needed the fuel in quantities of less than 1 500 litres. So, for example, having paid for a minimum of 1 500 litres of fuel, the customer could collect 200 litres, then 300 litres, and so on until the quantity paid for had been collected. The real issue is whether the regulation envisages that a transaction comprises the simultaneous sale and delivery of a minimum of 1 500 litres of fuel or whether it comprises the sale of a minimum of 1 500 litres without the need for contemporaneous delivery. The appellants contended for the former and the Di-Thabeng entities for the latter interpretation. As such, the appellants contended that the impugned system amounted to fuel retailing, for which the Di-Thabeng entities admittedly did not have a licence, and not fuel wholesaling. [6] The appellants launched an application for a final interdict in the Free State Division of the High Court, Bloemfontein (the high court). The essential relief sought was: 1 The Di-Thabeng entities are interdicted and/or restrained from any further construction on the property until: 1.1 the necessary environmental approvals have been obtained under NEMA; 1.2 a water use licence has been obtained under the Water Act; 1.3 land use approval has been obtained under the Municipal Planning By-Law; and 6 1.4 a building plan approval has been obtained under the NBR. 2 The Di-Thabeng entities are interdicted and/or restrained from using the property for any uses other than agricultural until: 2.1 the necessary environmental approvals have been obtained under NEMA; 2.2 the use of land has been changed in terms of the provisions of SPLUMA and/or the Municipal Planning By-Law; and 2.3 the land use accords with the approved building plans on the property. 3 The Di-Thabeng entities are interdicted from fuel retailing at or from the property until a site and retail licence has been obtained under the PPA. 4 The Di-Thabeng entities are ordered to desist from breaching their duty of care as envisioned by s 28 of NEMA and s 19 of the Water Act and remedy their breaches of duty of care through reasonable measures within 60 days from the date of this order. 5 The Di-Thabeng entities are directed to pay the respondents’ costs jointly and severally, the one paying, the others to be absolved. The relief in paragraphs 1 and 4 of the notice of motion was not persisted in. The decision confronting the high court was thus whether to grant one or both of the interdicts sought in paragraphs 2 and 3. [7] The high court, per Zietsman AJ, granted the following order: ‘1. The [Di-Thabeng entities] are interdicted and/or restrained from using the property, known as Portion 5 of the Farm Franshoek No 1861, Swinburne, Free State Province, for any uses other than agricultural, and the parking of trucks, until: 1.1 the use of the land has been changed in terms of the provisions of the Spatial Planning and Land Use Management Act, 16 of 2013 and/or the Municipal Planning By-Law of 2015 read with the Town Planning Scheme 51969. 2. Each party shall pay its own costs.’ It can be seen that the relief granted was not framed in the precise terms of either of the interdicts sought in paragraphs 2 or 3 of the notice of motion. It included much of the relief sought in paragraph 2. The clear effect is that the interdict prevents the Di-Thabeng entities from using the property to conduct any trading, even of fuel 7 wholesaling. The high court did not grant the interdict sought in paragraph 3 of the notice of motion. [8] The Di-Thabeng entities sought, and were granted, leave by the high court to appeal to this court against the whole of the judgment. The appellants were granted leave by the high court to cross-appeal to this court against the refusal to grant the interdict sought in paragraph 3. This court admitted Engen Petroleum Ltd as amicus curiae. In the event, the amicus put up heads of argument but, for reasons that shall become apparent, was not called upon to present any oral argument. When the main appeal lapsed, the Di-Thabeng entities could no longer contest the interdict granted by the high court. [9] Before us, the appellants limited the ambit of the cross-appeal to the refusal of the high court to grant the interdict against fuel retailing on the property until a site licence and a retail licence had been obtained under the PPA. This was the second final interdict sought in the high court. The appellants were requested to address the court on whether that relief was necessary in order to protect their rights. Put differently, they were asked if, in the light of the interdict granted, this court should entertain an appeal against the refusal by the high court to grant a second interdict. [10] The appellants quite correctly did not contend that they were not adequately protected at present. The cross-appeal was premised on the submission that: (a) the Di-Thabeng entities may yet comply with paragraph 1.1 of order of the high court; and, (b) in that event, the appellants would be bound in any future litigation by the high court’s findings against the interpretation contended for by them. As such, if this court did not correct those findings, the appellants could be met with pleas of 8 res judicata (it has been decided), or issue estoppel, if they were to subsequently approach a court for that relief. That submission might have had some weight if the issue had been decided by the high court. But, in the view I take of the matter, that was not the case. [11] It must immediately be acknowledged that the judgment of the high court is not a model of clarity. That applies, in particular, to the specific issue in question. In dealing with it, the high court appears to have set out to interpret what was meant by a transaction. The legal approach to interpretation was neither articulated nor applied. That approach should have included an evaluation of language, context and purpose.1 In addition, no reasoning was employed in essaying the interpretation. The high court seemed to say that it could not fault the impugned system applied by the Di-Thabeng entities. However, no clear finding was made since the high court immediately went on to say, ‘. . . however at least a bona fide dispute exists as to the interpretation of [what is meant by] one transaction’. That simply restates the issue. It was precisely what was before the high court in order to establish whether or not the appellants had shown a clear right for the second interdict. The conclusion set out above falls far short of a finding on that issue. It is thus open to the appellants, or anyone else, to approach a court afresh for an interpretation, should the need arise. [12] Since an interdict adequately protecting the rights of the appellants is in place and may be enforced, the relief requesting a further interdict on different grounds does not present a live issue. That renders the matter moot. In National Coalition for 1 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; 2012 (4) SA 593 (SCA) para 18. 9 Gay and Lesbian Equality and Others v Minister of Home Affairs and Others,2 the Constitutional Court held that: ‘A case is moot and therefore not justiciable 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.’ This approach was endorsed in Pheko and Others v Ekurhuleni Metropolitan Municipality: ‘. . . if the applicants’ rights . . . are no longer threatened . . . it will not be in the interests of justice to grant leave to appeal directly to this court.’3 [13] That dictum applies foursquare to this matter. The appellants enjoy effective protection of all of their rights in the overarching interdict against trading on the property. Properly considered, the cross-appeal should have been made conditional on the appeal against the interdict by the Di-Thabeng entities proceeding. When the appeal lapsed, the need for any further interdict on different grounds became moot. [14] Apart from the matter being moot, there are further considerations against arriving at a finding on the interpretation of a transaction. The high court has not yet spoken the final word on the question. In that sense, this court would be pronouncing on the question as both a court of first and also potentially last instance. Moreover, the amicus curiae was admitted to the appeal on the basis that the impugned system was being utilised by other entities who held licences to wholesale fuel. The issue thus has a far wider reach than that of the present dispute. It is one in which parties other than those participating in the appeal have an interest and might reasonably 2 National Coalition for Gay and Lesbian Equality and Others v Minister of Home Affairs and Others [1999] ZACC 17; 2000 (2) SA 1 (CC); 2000 (1) BCLR 39 para 21, fn 18. 3 Pheko and Others v Ekurhuleni Metropolitan Municipality [2011] ZACC 34; 2012 (2) SA 598 (CC) para 31. References omitted. 10 expect to be heard. In those circumstances, it would not be appropriate to pronounce on the matter. In West Coast Rock Lobster Association and Others v Minister of Environmental Affairs and Tourism and Others, even where a declaratory order had been sought, this court took that factor into account: ‘All interested parties were not before the court below and there was no indication on the record that a declaratory order, assuming it to be enforceable in its proposed form, would have any practical effect. These factors in themselves presented an insurmountable obstacle for the appellants.’4 [15] In the present matter, only interdictory relief was sought by the appellants both in the high court and before us. No declaratory relief was sought. The issue is not before us in that form. As such it is even less appropriate to consider it than was the case in West Coast Rock Lobster Association. In any event, granting a declaration of rights is a matter within the discretion of a court. I do not believe it appropriate to do so in the circumstances of this matter. [16] It remains to consider the question of costs. Once the main appeal lapsed, there was no need for a further interdict in order to protect the appellants. Strictly speaking, the cross-appeal should have been withdrawn. However, the appellants can hardly be faulted for having persisted in the cross-appeal in the light of the unclear judgment of the high court concerning a finding on the interpretation. As a result, it will meet the situation if no order as to costs is made. 4 West Coast Rock Lobster Association and Others v Minister of Environmental Affairs and Tourism and Others [2010] ZASCA 114; [2011] 1 All SA 487 (SCA) para 46. 11 [17] In the result, the cross-appeal is dismissed. ____________________ T R GORVEN JUDGE OF APPEAL 12 Appearances For the appellant: H J De Waal SC with J S Rautenbach Instructed by: Cullinan and Associates, Cape Town Phatshoane Henney Attorneys, Bloemfontein For the respondents: M M Rip SC with F H Nel Instructed by: Jacques Classen Incorporated, Pretoria Graham Attorneys, Bloemfontein For the amicus curiae: D W Eades Richard Evans and Associates, Kloof Phatshoane Henny 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 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 Highway Junction (Pty) Ltd and Others v Di-Thabeng Truck and Taxi (Pty) Ltd and Others (Case no 946/2022) [2024] ZASCA 31 (28 March 2024) Today the Supreme Court of Appeal dismissed a cross-appeal from a judgment of the Free State Division of the High Court, Bloemfontein (the high court). The high court had granted an interdict against Di-Thabeng Truck and Taxi (Pty) Ltd and associated companies (the Di-Thabeng entities) preventing them from trading at all from a property (the property) adjacent to that of Highway Junction (Pty) Ltd and the other two appellants (the appellants). The appellants had sought four interdicts, of which they persisted in two. Their essential complaint was that the Di-Thabeng entities, which held a licence to wholesale fuel, were unlawfully in fact retailing fuel from the property. The Di-Thabeng entities were granted leave to appeal against the grant of the interdict but their appeal lapsed. The appellants were granted leave to cross-appeal against the refusal to grant the second interdict sought. The cross-appeal was the only appeal heard by the Supreme Court of Appeal. 2 The legislation governing the sale of fuel defines wholesaling as selling in bulk. That means that no less than 1 500 litres of fuel must be sold at any one time. The Di-Thabeng entities developed a scheme whereby they would sell a minimum of 1 500 litres but would not require the full quantity to be delivered simultaneously with the sale. The real issue is whether the regulation envisages that a transaction comprises the simultaneous sale and delivery of a minimum of 1 500 litres of fuel or whether it comprises the sale of a minimum of 1 500 litres without the need for contemporaneous delivery. The appellants contended for the former and the Di-Thabeng entities for the latter interpretation. The second interdict sought to enforce the latter interpretation. Before the Supreme Court of Appeal, the appellants conceded that the present interdict against trading until the requisite planning permissions had been obtained protected their rights sufficiently. They submitted, however, that the high court had made a finding on the interpretation of the legislation which supported the contention of the Di-Thabeng entities and that, therefore, if the Di-Thabeng entities were able to obtain the requisite permissions to trade from the property, the appellants would be unable to approach a court for the second interdict since the issue of interpretation had been decided. The Supreme Court of Appeal held that the issue had not been decided. There was no live issue to decide and no other factors in favour of dealing with the interpretation issue. For that reason, the cross-appeal was dismissed, without any costs order being made.

4185

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 1106/2022 FEATHERBROOKE HOMEOWNERS’ ASSOCIATION NPC (Registration Number 2000/0067229/08) APPELLANT and MOGALE CITY LOCAL MUNICIPALITY RESPONDENT Neutral citation: Featherbrooke Homeowners’ Association NPC v Mogale City Local Municipality (1106/2022) [2024] ZASCA 27 (22 March 2024) Bench: MAKGOKA, MOTHLE, and MEYER JJA, and KATHREE-SETILOANE AND MASIPA AJJA Heard: 15 November 2023 Delivered: 22 March 2024 Summary: Court orders – need for clarity – court failing to make orders on disputes between parties in granting interdict – proper discretion not exercised – court order inchoate. 2 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Johannesburg (Makume, Thwala and Adams JJ sitting as a court of appeal): 1 The appeal is upheld with no orders as to costs. 2 The order of the Full Court of Gauteng Division, Johannesburg is set aside and replaced with the following: ‘1 The appeal is upheld, with no order as to costs; 2 The order of the High Court is set aside and replaced with the following: ‘1 The matter is remitted to the High Court to determine: (a) whether, in addition to Mogale City, any of the originally cited State entities is responsible for the remedial work at the Estate, and (b) an appropriate order in respect of each of the said State entities.’ ___________________________________________________________________ JUDGMENT ___________________________________________________________________ Makgoka JA (Mothle and Meyer JJA, and Kathree-Setiloane and Masipa AJJA concurring): [1] This appeal is about a misstep by the Gauteng Division of the High Court, Johannesburg (the High Court) per Mahalelo J. That court failed to resolve the lis between the appellant, Featherbrooke Homeowners’ Association NPC (Featherbrooke), and each of the five originally cited respondents. Instead, it inexplicably made an order against only the respondent, Mogale City Local Municipality (Mogale City) in the form of a structural interdict. [2] On appeal to it by Mogale City, the Full Court saw nothing wrong with this inchoate order of the High Court. It simply upheld the appeal and set aside the order of the High Court and replaced it with an order dismissing Featherbrooke’s application with costs. Featherbrooke now appeals to us with the special leave of this Court. 3 [3] The errors made by the two courts below have resulted in an unnecessary appeal to this Court, with attendant wasted costs and a delay in resolving the issues between the parties. This is regrettable. Background facts [4] Featherbrooke Country Estate (the Estate) is a residential complex situated in Mogale City Local Municipality (Mogale City) in the rural western part of Gauteng Province. Mogale City is a local municipality established in terms of s 12(1) read with ss 14(2) and 90(2) of the Local Government: Municipal Structures Act.1 The Estate was declared an approved township in 1996. Its affairs are managed by Featherbrooke, a registered non-profit company. [5] The Muldersdrift se Loop River (the river) traverses the area of jurisdiction of the City of Johannesburg, right through the Estate in the area of jurisdiction of Mogale City, and ends in the Hartbeespoort Dam in the North West Province. According to Featherbrooke, historically, the river came down into the Estate as a manageable stream which was far smaller in volume and velocity. However, over the years, due to an increase in urban development and climate change, the volume and quantity of storm water into the river changed. [6] During annual rainfalls, the velocity of stormwater flowing through the Estate caused an increase in riverbank flooding. Flooding and stormwater placed pressure on the river embankments and beds, corroded them, and made them highly unstable and dangerous, resulting in flooding. This, Featherbrooke said, placed the Estate at risk of electrocution, exposure to sewage waste and damage to property. As a result, Featherbrooke said that since approximately 2010, it had sought the assistance of the Department of Water and Sanitation (the Department), Mogale City and City of Johannesburg. This was all in vain. In the High Court [7] In May 2020, Featherbrooke launched a two-part application in the High Court against the following entities as first to sixth respondents, respectively: Mogale City; 1 117 of 1998. 4 City of Johannesburg; Minister of Water and Sanitation (the Minister); the Member of the Executive Council of the Gauteng Provincial Government for Agriculture and Rural Development (the MEC); Johannesburg Roads Agency (Pty) Ltd; and West Rand District Municipality. [8] In part A, which was brought on an urgent basis, Featherbrooke sought an interim structural interdict jointly, severally and in the alternative, against these respondents. The following relief was sought: first, as against Mogale City, City of Johannesburg and the Johannesburg Road Agency, in the alternative, to ‘immediately and in future do all things necessary to repair, underpin, remediate and manage the stream beds adjacent to [Featherbrooke’s] security fencing . . .’. The remedial work sought by Featherbrooke included the insertion of gabions into the riverbed and embankments, and the moderation of the quantity, volume and flow of the Loop river through attenuation dams and culverts. [9] Second, Featherbrooke also sought an order for Mogale City, City of Johannesburg and the Johannesburg Road Agency, in the alternative, to repair State-owned infrastructure near the Estate, which is exposed due to chronic flooding of the river, including sewer and power-related infrastructure. [10] Third, as against the Minister, Featherbrooke sought an order in similar terms to the one sought against Mogale City, City of Johannesburg and Johannesburg Road Agency. In addition, Featherbrooke sought an order requiring the Minister to moderate ‘the quantity, volume and flow of the water in the [Loop River] flowing from the Walter Sisulu Botanical Gardens and into the river’; and to ‘do all that is necessary to prevent the erosion of the riverbank and to protect the integrity of [Featherbrooke’s] boundary security fence along the riverbank’. Also, to ‘immediately and in future do all things necessary to mitigate, remediate and prevent flooding of [Featherbrooke’s] housing Estate by the [Loop River] and or Featherbrooke’s boundary security fence’ by doing certain remedial work, including: (a) insertion of gabions into the riverbed and embankments; (b) moderation of the quantity, volume and flow of the Loop river through attenuation dams and culverts; (c) moderating the quantity, volume and flow of the water in the river from ‘the Walter Sisulu Botanical Gardens into the river; (d) 5 prevention of the erosion of the riverbank and to protect the integrity of Estate’s boundary security fence along the riverbank. [11] Fourth, Featherbrooke sought an order that Mogale City, Johannesburg City, the Minister, the MEC and the Johannesburg Roads Agency, be directed to provide it with a report back on the implementation of the structural interdict. Fifth, Featherbrooke sought an order containing measures it would be entitled to embark upon in the event of non-compliance with the interdict. [12] In part B, Featherbrooke sought an order in terms of which any of the respondents would show cause why the relief sought in part A should not be made final. [13] In its founding affidavit, Featherbrooke alleged that an increase of the volume of stormwater into the river was due to an increase in urban development and hard surfaces, climate change and changing weather patterns. This had led to the following: (a) exposure of State infrastructure such as sewer lines and underground cables; (b) a collapse of the riverbeds and embankments; (c) a loss of riparian forest leading to accelerated erosion and bed collapse; and (d) damage to the Estate’s infrastructure. [14] The MEC and West Rand District Municipality did not oppose the application while Mogale City, City of Johannesburg, the Minister, and Johannesburg Roads Agency, opposed the application. City of Johannesburg and Johannesburg Roads Agency filed a joint answering affidavit. Each of the opposing respondents took a preliminary point that the matter was not urgent. Substantively, they all denied responsibility and relied on several bases, to which fuller reference will be made later. [15] Part A (the urgent application) was heard on 9 June 2020. On 10 June 2020 it was struck from the roll for lack of urgency, with costs. However, the court gave the following directions in respect of the future hearing of the matter: ‘2 The respondents are authorised to supplement their answering papers by Monday 13 July 2020 at 16h00; 3 The applicant is authorised to supplement its replying papers by Monday 27 July 2020 at 16h00; 6 4 The parties are to deliver supplementary heads of argument and practice notes by Monday 10 August 2020 at 16h00; 5 The registrar is directed to enrol the matter on the opposed motion roll as a matter of urgency, alternatively the parties may approach the Deputy Judge President for allocation of the matter as a special motion of long duration . . .’ [16] The directions envisaged in the above order were complied with. After the filing of the supplementary affidavits, the positions adopted by the respective opposing parties crystallized as follows. Mogale City [17] Management of the environment is a national and provincial competence. Hence, the remediation measures sought against it were constitutionally not within its powers. Specifically, the management of floods does not fall within the competence of a sphere of local government. As such, Mogale City argued that it would be constitutionally incompetent for it to be ordered to do the things that Featherbrooke required it to do in respect of the flooding, as these fall outside its legal competence. Thus, Mogale City disavowed any statutory responsibility to take remedial measures caused by the flooding. It said that Featherbrooke should look to the Minister in terms of the provisions of the National Water Act2 (the Water Act). [18] Regarding the relief sought by Featherbrooke to repair, remediate and manage the State-owned infrastructure in and near the Estate which is exposed due to the chronic flooding, Mogale City raised budgetary considerations. It averred that it had a maintenance plan which was supported by a process-approved budget. It thus could not simply be ordered to repair the infrastructure which was not budgeted for. City of Johannesburg and the Johannesburg Road Agency [19] In addition to the lack of urgency defence, the City of Johannesburg and the Johannesburg Road Agency raised a misjoinder defence. They asserted that since the Estate is situated in the area of jurisdiction of Mogale City, and that the river is owned by the Department, they have no role to play in the matter. They accordingly 2 36 of 1998. 7 requested that the interim and final interdictory relief sought against them by Featherbrooke be dismissed. They further denied that they owed any obligation to Featherbrooke as they are constitutionally only responsible for providing services to the residents within their area of jurisdiction, the Johannesburg Metropolitan area. The Minister [20] The Minister contended that the Department did not have any legislated obligation to take the remedial steps sought by Featherbrooke. In support of this contention, the Minister asserted that: (a) there was no link between the harm suffered by the Estate and any conduct or omission of the Department as the custodian of the river. Instead, Featherbrooke had attributed the increase in the volume of stormwater into the river to an increase in urban development, climate change and weather patterns. (b) the damage to the Estate was due to poor planning on the part of the developers of the Estate, and the Department was not involved in the grant of the approval for the establishment of the Estate. (c) in previous communications between the parties, Featherbrooke had accepted that it, and not the Minister, bore the responsibility to protect its boundary fence. [21] On these grounds, the Minister asserted that it was Featherbrooke’s obligation to undertake the requisite remedial measures, at its expense, to prevent harm to the Estate. To do so, Featherbrooke was required to apply for and obtain a water licence in terms of the Water Act. Its election not to apply for such a licence after being advised to do so, was fatal to Featherbrooke’s application. [22] The Minister also contended that Featherbrooke had impermissibly sought direct reliance on s 24 of the Constitution in breach of the trite principle of subsidiarity.3 The Minister pointed out that the legislation envisaged in s 24 of the Constitution is the 3 That principle is to the effect that where legislation has been enacted to give effect to a constitutional right, a litigant must either rely on that legislation or challenge its constitutionality. See Nokotyana and Others v Ekurhuleni Metropolitan Municipality and Others [2009] ZACC 33; 2010 (4) BCLR 312 (CC) para 50; My Vote Counts NPC v Speaker of the National Assembly and Others [2015] ZACC 31; 2016 (1) SA 132 (CC) paras 44-66 and 160-161. 8 National Environmental Management Act.4 Featherbrooke’s failure to rely on NEMA, according to the Minister, was fatal to its case. [23] The matter came before the High Court on 15 August 2020. Its judgment was delivered on 25 January 2021. The pivot of the judgment was that ‘there is a legislated and constitutional duty on all spheres of government to mitigate and prevent future disaster type situations’. Having satisfied itself that such an interdict was warranted, the High Court ordered Mogale City to effect the remedial work sought, together with the ancillary relief sought by Featherbrooke with regard to regular reports by Mogale City to Featherbrooke on the implementation of the order, ‘within 30 days of the order obtained in Part A’ and thereafter, ‘every three months’. The High Court further granted the parties ‘leave to supplement the papers in Part B.’ Costs were ordered ‘to be determined at the determination of Part B.’ The High Court subsequently granted Mogale City leave to appeal its order to the Full Court, with the proviso that ‘[t]he operation of [its order] is suspended pending [the] appeal’. [24] It is perhaps opportune at this stage to comment on the nature of the order granted by the High Court against Mogale City. It is based on the relief sought by Featherbrooke, which was framed as an application for an interim interdict. But in substance, it was for a final interdict. This is borne out by the nature of the order it granted against Mogale City. Almost everything that Mogale City has been ordered to do is permanent, and imposes on-going obligations on it. No court would be able to reverse any of those in a subsequent hearing. The High Court failed to grasp this rudimentary conceptualisation, and erred by applying the test for an interim interdict, instead of one for a final order.5 The order is, in substance, final. This rendered nugatory, the envisaged hearing in part B. 4 107 of 1998. 5 An applicant for such an order must show a clear right; an injury actually committed or reasonably apprehended; and the absence of similar protection by any other ordinary remedy. Setlogelo v Setlogelo 1914 AD 221 at 227. These requisites have been restated by this Court in a plethora of cases, most recently in Hotz and Others v University of Cape Town [2016] ZASCA 159; [2016] 4 All SA 723 (SCA); 2017 (2) SA 485 (SCA) para 29; Van Deventer v Ivory Sun Trading 77 (Pty) Ltd 2015 (3) SA 532 (SCA) [2014] ZASCA 169 para 26; and Red Dunes of Africa v Masingita Property Investment Holdings [2015] ZASCA 99 para 19. They were affirmed by the Constitutional Court in Pilane and Another v Pilane and Another [2013] ZACC 3; 2013 (4) BCLR 431 (CC) para 38. 9 In the Full Court [25] With no order having been made against any of the originally-cited State respondents, Mogale City was the only appellant before the Full Court. That court upheld Mogale City’s appeal with costs and set aside the order of the high court. It reasoned that to remedy the situation at the Estate, Featherbrooke was obliged to obtain a water licence from the Department. Since it failed to apply for such a licence, its case had to fail. The Full Court also stated that the developer of the Estate had not complied with s 144 of the Water Act by failing to clearly determine the flood lines. Thus, the court exonerated Mogale City of any responsibility and held that it was a matter between Featherbrooke and the Department. In this Court [26] The parties adopted the same stances as they did in the High Court and the Full Court. The starting point is to identify the source of the flooding into the Estate. A major contributing factor to the damage caused to the Estate seems to be the velocity and pace of water which places pressure on the river’s embankments and beds, resulting in corrosion and instability. Thus, the source of the problem is the stream of water, which leads to the collapse of the riverbeds and embankments, which in turn, results in flooding into the Estate. To remedy the situation, among other things, the water stream must be regulated or diverted. This is an activity which is regulated by the Water Act. [27] In terms of the Water Act, all rivers in the country belong to the government, under the trusteeship of the Minister. The purpose of the Water Act as set out in s 2, is to ‘ensure that the nation’s water resources are protected, used, developed, conserved, managed and controlled’ in ways which take into account amongst other factors, ‘managing floods and droughts’.6 Below I briefly outline its relevant provisions. These are ss 21, 22, 36 and 37 of the Water Act. [28] Sections 21 and 22 fall under chapter 4 of the Water Act, which is titled ‘Use of Water’. Part 1 of Chapter 4 sets out the general principles for regulating water use. It provides that ‘[w]ater use is defined broadly, and includes taking and storing water, 6 Section 2(k). 10 activities which reduce stream flow . . .’. (Emphasis added.). Section 21 sets out what constitutes ‘Water use’ for purposes of the Water Act. This includes, among other things, the following: (a) impeding or diverting the flow of water in a watercourse;7 (b) engaging in a stream flow reduction activity8 and (c) altering the bed, banks, course or characteristics of a watercourse.9 [29] Part 4 concerns ‘Stream flow reduction activities’. It allows the Minister, to regulate land-based activities which reduce stream flow, by declaring such activities to be stream flow reduction activities. Whether or not an activity is declared to be a stream flow activity, depends on factors such as the extent of stream flow reduction, its duration, and its impact on any relevant water resource and on other water users. Part 5 deals with ‘Controlled activities’. Section 37 identifies what constitutes a controlled activity. Among such activities, is ‘a power generation activity which alters the flow regime of a water resource’.10 [30] To recap, Mogale City was ordered by the High Court to: (a) insert gabions into the riverbed and embankment, and (b) moderate the quantity, volume and flow of the water in the river through attenuation dams and culverts. To implement these, Mogale City would be required, among others, to: (a) impede or divert the flow of water in a watercourse; (b) engage in a stream flow reduction activity; (c) alter the bed, banks, course or characteristics of a watercourse; (d) engage in a stream flow reduction activity and (e) engage in an activity which alters the flow regime of a water resource’. This would violate each of the relevant provisions of the Water Act referred to earlier, if done without the permission of the Minister. It is evident from a cursory survey of the relevant provisions of the Water Act that the involvement of the Department is, on the face of it, implicated. [31] Because the High Court did not provide any reasons for holding only Mogale City liable, to the exclusion of all other originally-cited respondents, we do not have the benefit of its reasons for that decision, and crucially, whether any of the originally- 7 Section 21(c). 8 Section 21(d). 9 Section 21(i). 10 Section 37(c). 11 cited State entities had been formally absolved from liability. However, on a reading of the judgment as a whole, the High Court appears to have adopted the view that all spheres of government were responsible for ensuring that damage to the Estate is arrested, and that remedial steps had to be undertaken by the relevant entities. [32] This is evident from the high court’s findings that: (a) over ten years Featherbrooke had sought assistance from ‘state departments’ to remediate, mitigate and rehabilitate the river and protect state infrastructure alongside the river which causes threat to life and limb. (b) No steps have been taken by any of the ‘relevant departments’ to remedy the situation, ‘except for the state departments to shift the blame from one department to one another’. (c) Neither Mogale City, City of Johannesburg nor the Minister have indicated if they had ‘acted in the discharge of their constitutional obligations or statutory obligations imposed on them; despite ‘the departments describing the situation faced by Featherbrooke as a “disaster” and “urgent”; (d) there seems to have been no cooperative management between Mogale City and City of Johannesburg to remedy the situation. [33] Finally, when it considered the requisites of an interim order, the High Court said the following: ‘[Featherbrooke] has no other satisfactory remedy and the balance of convenience favours [it] to the extent that its constitutional rights should be protected which protection outweighs any inconvenience for the respondents to find funds internally or externally to try and mitigate the risky condition of the river in question.’ (Emphasis added.). [34] Given these findings, the High Court’s decision to order only Mogale City to effect remedial work, despite the court’s above-mentioned findings that the State-entities were all liable, is bafflingly inchoate, to say the least. [35] Besides, this has had a negative practical impact, which is two-fold. The first is this. During the pre-litigation stage, there was no clarity as to which State entity, if any, was responsible for the much-needed remedial work. Featherbrooke had, as a result, carefully cast its net wide to include the relevant State entities. It asserted a case 12 against each one of them in the alternative. Thus, Featherbrooke had delineated a lis between it and each of the originally cited State entities. The High Court was therefore obliged to resolve it in respect of each of the State entities. [36] Its failure to do so impacted on how Featherbrooke prosecuted and argued the appeal, both before the Full Court and in this Court. In the High Court it attributed liability to do remedial work on the originally cited State entities jointly and severally, and in the alternative. In this Court, because of the order of the High Court, it was constrained to look only to Mogale City. By limiting the remedial work only to Mogale City, the High Court had, without any explanation, denuded and emasculated the remedy sought by Featherbrooke from it. [37] Second, the order lacks clarity to the extent that Mogale City is expected to do things that only the Department can authorise it to do. The High Court failed to give effect to the salutary injunction by the Constitutional Court in Eke v Parsons11 that court orders must be framed in unambiguous terms and must be practical and enforceable. It must leave no doubt as to what the order requires to be done. That Court explained it as follows: ‘If an order is ambiguous, unenforceable, ineffective, inappropriate, or lacks the element of bringing finality to a matter or at least part of the case, it cannot be said that the court that granted it exercised its discretion properly. It is a fundamental principle of our law that a court order must be effective and enforceable, and it must be formulated in language that leaves no doubt as to what the order requires to be done. The order may not be framed in a manner that affords the person to whom it applies, the discretion to comply or disregard it.’12 (Emphasis added.) [38] During the hearing of this appeal, we invited counsel for the parties to embark with us on a fair and objective analysis of the order of the High Court. Counsel obliged, and we are grateful to them in this regard. At the end of that exercise, it became clear that some of the things Mogale City has been ordered to do, would need the involvement of the Department in terms of the relevant provisions of the Water Act which are referenced earlier in the judgment. 11 Eke v Parsons [2015] ZACC 30; 2015 (11) BCLR 1319 (CC); 2016 (3) SA 37 (CC) para 64. 12 Ibid para 74. 13 [39] The conclusion is therefore inescapable that the High Court did not exercise its discretion properly. Although the Full Court correctly set aside order of the High Court, this does not help address the failure by the High Court to decide the lis in respect of each of the originally cited State entities. [40] What do we do? The answer is not easy. The originally cited State parties are not before us, as there is no cross-appeal by Featherbrooke against the order of the High Court excluding them. As a result, this Court does not have the power to make any order against any of them. The appropriate order, in my view, would be to set aside the order of the Full Court and remit the matter to the High Court, which must decide whether, in addition to Mogale City, any of the originally cited State entities is obliged to effect remedial work at the Estate, and the basis of such obligation. [41] The court must make an order in respect of each of those entities it finds to bear the obligation. This could conveniently be done without a need for filing of further affidavits, or another hearing. The matter was fully ventilated in the High Court after the filing of affidavits (both original and supplementary), and before the Full Court. The only missing aspect in the judgment of the High Court is the issue referred to above. But we are not prescriptive in this regard. Should the High Court require a further hearing, or supplementary heads of argument on any issue, it is at large to give the necessary direction. [42] Lest there be any uncertainty, the effect of what is set out in the preceding paragraphs, and the order we make, is that we have not determined the merits of the appeal by Featherbrooke against Mogale City. We simply restore the parties to the point when the High Court reserved judgment. As such, we neither accept nor reject the High Court’s findings and order that Mogale City is liable to effect remedial work at the Estate. The same goes for the Full Court’s order. We neither accept nor reject the reasoning which underpins its order, which is two-fold, namely: (a) Featherbrooke was solely responsible for the remedial work at its expense, once it obtained a water licence from the Department; (b) neither Mogale City, the Department, nor any other State entity, bears any obligations to effect the remedial works. 14 [43] I make this point because there is likelihood that once the High Court had complied with the order we are about to make, the matter might find its way back to this Court. None of the parties should assert that the merits as between Featherbrooke and any of the parties had already been disposed of by this Court in this appeal. [44] There remains the issue of costs. This case presents uniquely unusual circumstances, brought about by the errors of the High Court as set out above. For this reason, it would not be appropriate to mulct any of the parties with a costs order. Besides, none of the parties achieved substantial success on appeal. In the result, the appropriate order would be that each party should pay its own costs. [45] The following order is made: 1 The appeal is upheld with no orders as to costs. 2 The order of the Full Court of Gauteng Division, Johannesburg is set aside and replaced with the following: ‘1 The appeal is upheld, with no order as to costs; 2 The order of the High Court is set aside and replaced with the following: ‘1 The matter is remitted to the High Court to determine: (a) whether, in addition to Mogale City, any of the originally cited State entities is responsible for the remedial work at the Estate, and (b) an appropriate order in respect of each of the said State entities.’ _________________________ TM MAKGOKA JUDGE OF APPEAL 15 APPEARANCES: For appellant: J C Uys SC (with him S J Martin) Instructed by: J J Badenhorst & Associates Inc., Roodepoort Lovius Block Inc., Bloemfontein For respondent: F J Nalane SC (with him S Qagana) Instructed by: Mogaswa Inc., Roodepoort Van der Berg Van Vuuren Attorneys, Bloemfontein.

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA MEDIA SUMMARY FROM The Registrar, Supreme Court of Appeal DATE 22 March 2024 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. Featherbrooke Homeowners’ Association NPC v Mogale City Local Municipality (1106/2022) [2024] ZASCA 27 (22 March 2024) Today, the Supreme Court of Appeal, handed down a judgment upholding an appeal against the order of the Full Court of the Gauteng Division of the High Court, Johannesburg (the Full Court). That court had upheld an appeal by the respondent, Mogale City Local Municipality (Mogale City) against the appellant, Featherbrooke Homeowners’ Association NPC (Featherbrooke). Featherbrooke had, in the High Court, sought relief against five respondents, including Mogale City, jointly and severally, and alternatively, to effect certain remedial work to a residential Estate managed by Featherbrooke. Without providing reasons, the High Court simply ordered the relief only against Mogale City. That left the dispute between Featherbrooke and the remainder of the respondents unresolved. The Supreme Court of Appeal upheld the appeal without deciding the merits of the matter. It set aside the order of the Full Court and replaced it with an order remitting the matter to the High Court to determine the dispute between Featherbrooke and each of the originally cited respondents. Each party was ordered to pay its own costs. ***END***

4246

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case No: 18/2023 In the matter between: OLD MUTUAL UNIT TRUST MANAGERS LIMITED APPELLANT and LIVING HANDS (PTY) LTD FIRST RESPONDENT WILHELMINA JACOBA LUBBE SECOND RESPONDENT PRELLER NO XOLA COLUMBUS STEMELA NO THIRD RESPONDENT LIVING HANDS (PROPRIETARY) LIMITED FOURTH RESPONDENT JOSEPH ARTHUR WALTER BROWN FIFTH RESPONDENT ANDREW HERBERT TUCKER SIXTH RESPONDENT PHILIPPUS JOHANNES MALAN SEVENTH RESPONDENT HJALMAR MULDER EIGHTH RESPONDENT JOHANNES DE JONGH NINTH RESPONDENT 2 Neutral citation: Old Mutual Unit Trust Managers Limited v Living Hands (Pty) Ltd and Others (Case no 18/2023) [2024] ZASCA 75 (16 May 2024) Coram: SCHIPPERS, NICHOLLS and GOOSEN JJA Heard: 14 March 2024 Delivered: 16 May 2024 Summary: Delict – pure economic loss – financial institution – client calling up investment portfolio – funds paid out in terms of investment agreement – client’s directors misappropriating funds – wrongfulness not proved – no legal duty on institution to safeguard funds – institution not negligent – theft of funds not reasonably foreseeable – neither factual nor legal causation established – appeal upheld. 3 _________________________________________________________________ ORDER _________________________________________________________________ On appeal from: Gauteng Division of the High Court, Johannesburg (Siwendu J, sitting as court of first instance): 1 The appeal is upheld with costs, including the costs of three counsel. 2 The order of the court below is set aside and replaced with the following: ‘The plaintiffs’ claim is dismissed with costs, including the costs of three counsel.’ _________________________________________________________________ JUDGMENT _________________________________________________________________ Schippers JA (Nicholls and Goosen JJA concurring) Introduction [1] The appellant, Old Mutual Unit Trust Managers Limited (OMUT), a financial institution, was the defendant in an action instituted in the Gauteng Division of the High Court of South Africa, Johannesburg (the high court), by the first, second and third respondents (the plaintiffs) in their capacities as the trustees of the Living Hands Umbrella Trust (the Trust). The fourth to ninth respondents (the third parties), former directors and employees of the Fidentia Group of Companies (the Fidentia Group), were joined in the action by OMUT. [2] In the action the plaintiffs claimed damages in delict, based on a negligent omission by OMUT which caused the Trust to suffer pure economic loss. The extraordinary feature of the action is that the undisputed, primary cause of the loss was the criminal conduct of individuals comprising the controlling mind of the first 4 plaintiff, Living Hands (Pty) Ltd, a trust administration company. At the relevant times it was the sole trustee of the Trust and the sole plaintiff when the action was instituted. [3] OMUT defended the action on the grounds that it did not act wrongfully or negligently and did not cause the plaintiffs to suffer any loss. In the alternative and to the extent that its primary defences were rejected, OMUT claimed an apportionment of damages from the first plaintiff and a contribution from the third parties, on the basis that the loss sustained by the Trust was caused by their criminal conduct. [4] The high court upheld the plaintiffs’ claim and ordered OMUT to pay the Trust an amount of R854 654.00, together with in duplum interest and costs. It granted OMUT leave to appeal against that order. This Court granted OMUT leave to appeal the high court’s order dismissing its claim for apportionment against the first plaintiff, and a contribution from the third parties. The plaintiffs’ case [5] In broad summary, the plaintiffs allege the following in the particulars of claim. On 5 September 2000 Mercantile Asset Trust Company (Pty) Ltd (Mercantile) and the Mineworkers Provident Fund (the Provident Fund) entered into a service level agreement. In terms of that agreement Mercantile agreed to establish and administer trusts into which the Provident Fund would, from time to time, pay death benefits for dependants of deceased members of the Provident Fund. 5 [6] The Trust was accordingly the recipient of funds from sources such as the Provident Fund. It was required to administer those funds for the benefit of the Trust beneficiaries. [7] In early 2002 Mercantile sold its administration business to the first plaintiff. The latter assumed the rights under the service level agreement with the Provident Fund and became the sole trustee of the Trust. The first plaintiff was thus obliged to perform the administration function. [8] On 10 May 2002 the first plaintiff, then known as Mantadia Asset Trust Company (Matco), entered into an agreement with OMUT, which was replaced by a new agreement concluded on 15 September 2004 (the OMUT agreement). These agreements regulated the relationship between the first plaintiff and OMUT pertaining to the buying, selling and switching of units in portfolios administered by OMUT, a manager as defined in the Collective Investment Schemes Control Act 45 of 2002 (CISCA).1 [9] On 5 October 2004 Fidentia Holdings (Pty) Ltd (Fidentia Holdings) concluded a sale of shares agreement with the shareholders of the first plaintiff (then Matco), in terms of which the latter sold its entire share capital to Fidentia Holdings for R93 million. The directors of Fidentia Holdings were Mr Joseph Arthur Walter Brown (the fifth respondent), Mr Graham Alan Maddock, Mr Andrew Herbert Tucker (the sixth respondent), Mr Hjalmar Mulder (the eighth respondent) and Mr Johannes Cornelis Linde. 1 The Collective Investment Schemes Control Act 45 of 2002 defines a ‘manager’ as ‘a person who is authorised in terms of this Act to administer a collective investment scheme’. 6 [10] Fidentia Asset Managers (Pty) Ltd (FAM), was a wholly-owned subsidiary of Fidentia Holdings. Messrs Brown, Maddock and De Jongh were its directors. FAM was an approved portfolio manager in terms of s 4 of the Stock Exchange Control Act 1 of 1985 (Stock Exchange Control Act) and s 5 of the Financial Markets Control Act 55 of 1989 (Financial Markets Control Act). When these statutes were repealed, FAM was registered as a financial services provider in terms of s 8 of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act). [11] On 15 October 2004, prior to the closing date of the sale of shares agreement, Mr Steven de Kock, Mr Johannes de Jongh (the ninth respondent) and Mr Linde, acting on behalf of FAM, met with representatives of OMUT. At that meeting they handed two letters to Mr Andries Cronje, a compliance officer employed by Old Mutual. The first was a letter by Matco to FAM confirming FAM’s appointment as the ‘Portfolio Manager’ of the Trust; that FAM was registered with the Financial Services Board (FSB); and that Mr De Jongh, also registered with the FSB, would manage the portfolio. The second letter was an instruction by FAM to OMUT to liquidate R150 million of the Trust’s assets with immediate effect, and to transfer the proceeds into FAM’s trust account. [12] As at 15 October 2004, OMUT had invested some R1.24 billion in various portfolios forming part of collective investment schemes as defined in CISCA. These investments were made in accordance with its agreements with the first plaintiff. [13] OMUT did not act on FAM’s instruction to immediately liquidate R150 million of the Trust’s assets. Instead, by letter dated 15 October 2004, OMUT informed FAM that it would only act on a signed, written instruction from the first 7 plaintiff confirming the proper appointment of FAM. On the same day OMUT wrote to Mr Geoff Gover, the first plaintiff’s Managing Director, advising him of the meeting and what OMUT had communicated to FAM. [14] On 19 October 2004 Mr Gover authorised Symmetry Multi Manager (Symmetry) to provide information to FAM regarding the Trust’s investment with OMUT. Symmetry is a division within Old Mutual which gave investment advice concerning the Trust’s portfolio with OMUT. [15] On 19 October 2004 Fidentia Holdings became the first plaintiff’s sole shareholder, pursuant to the sale of shares agreement. The first plaintiff thus became a wholly-owned subsidiary of Fidentia Holdings. The existing directors of the first plaintiff resigned. Fidentia Holdings appointed Mr Linde, Mr Tucker and Mr Philippus Johannes Malan (the seventh respondent), as directors of the first plaintiff. [16] By letter dated 19 October 2004, the first plaintiff informed Symmetry and OMUT that its board had resolved to call up its entire investment portfolio with OMUT with immediate effect, and requested OMUT to transfer the funds to the first plaintiff’s bank account by no later than 17h00 that day. The letter was signed by the first plaintiff’s Managing Director, Mr Malan, and its director, Mr Tucker. It states that the first plaintiff was ‘legally and morally unable to perpetuate the status quo’, for the following reasons: ‘1. No legally binding written mandate is currently in existence; 2. The provisions of the Financial Advisory and Intermediary Services Act do not appear to have been fully complied with; 3. There is no written appointment of an asset manager; 4. Questions around fees, performance bonuses, and incentives derived from the portfolio have not been adequately answered; 8 5. There appears to be a discrepancy between the portfolio balances as calculated by Old Mutual and Symmetry; 6. Compliance documentation could not be produced and no plausible explanation [was] given therefor; 7. Questions around the construction of the underlying portfolio have not been adequately answered – in this regard, you originally undertook to revert with answers by 17:00 on 18 October 2004, which time was later extended to 18:00, where after you confirmed to us that no mandate is currently in existence.’ [17] On 20 October 2004 Mr Chris Potgieter, OMUT’s Finance, Risk and Compliance Manager, replied to the letter of 19 October 2004. He stated that OMUT would accept the letter calling up the entire Matco investment trust portfolio ‘as soon as we receive confirmation of authority from the beneficial owner’. [18] On the same day (20 October 2004) the first plaintiff faxed a letter, signed by its Managing Director, Mr Malan, to OMUT and Symmetry. In the letter the first plaintiff confirmed that (i) Mr Malan was the sole representative trustee of the Trust; (ii) FAM had been given a full discretionary mandate on 14 October 2004 to act as the investment manager of the Trust; and (iii) in terms of that mandate, FAM was authorised to liquidate the entire investment portfolio with OMUT or portions thereof, as it deemed fit. [19] Between 22 October and 10 November 2004, OMUT paid all the funds which the first plaintiff had invested through OMUT in various collective investment schemes, totalling R1 130 319 447.32 (the Funds), into the first plaintiff’s designated bank account. The plaintiffs alleged that OMUT did so without insisting on the 90-day written notice of intention to terminate, specified in the OMUT agreement. 9 [20] Following the transfer of the Funds from OMUT to the first plaintiff, the latter paid them over to Fidentia Holdings and its wholly-owned subsidiary, Fidentia Capitalwise (Pty) Ltd. The Funds were then under the control of ‘the Fidentia wrongdoers’, as the plaintiffs describe them in the particulars of claim. They did not invest the Funds for the benefit of the Trust or its beneficiaries. Instead, they misappropriated the Funds. [21] The plaintiffs alleged that by repaying the Funds to the first plaintiff, OMUT acted wrongfully. More specifically, it was alleged that ‘OMUT owed the Trust and the Trust beneficiaries a legal duty to comply with the statutory duties’ set out in CISCA, the Financial Institutions (Protection of Funds Act) 28 of 2001 (Protection of Funds Act), the Trust Property Control Act 57 of 1988 (Trust Property Control Act), and ss 27 and 28 of the Constitution. This legal duty, so the plaintiffs alleged, arose by virtue of the contractual relationship between OMUT and the first plaintiff, the provisions of the trust deed pertaining to the Trust (the Trust Deed), and the nature of the Funds. [22] The plaintiffs further alleged that OMUT was negligent in that it failed to ensure that its staff was properly supervised in the exercise of their duties and it did not act with the necessary skill, care and diligence, and in the interests of the investor, as required by CISCA. It was also alleged that OMUT contravened the provisions of the Trust Property Control Act and the Protection of Funds Act. [23] In February 2007 the Western Cape High Court placed the whole of the financial services business of FAM and Fidentia Holdings under provisional curatorship. Curators were appointed and the provisional order was made final on 27 March 2007. When the curators took control of the Fidentia Group, including the Trust and FAM, an amount of R 1 133 911 822.12 was supposed to have been 10 under the control of FAM and the Trust for the benefit of Trust beneficiaries. The curators recovered R403 806 196.00, incurred expenses of R100 071 674.00 in doing so, and distributed the remaining R272 689 727.00 to the plaintiffs. The plaintiffs claimed payment the balance of R861 222 095.12 (amended during the trial to R854 654.00) as damages from OMUT. [24] The plaintiffs alleged that OMUT caused this loss. They claimed that the Fidentia wrongdoers would not have been able to act as they did, had OMUT complied with its alleged duties. The evidence [25] The claim was tried before Siwendu J in 2022. The main witnesses for the plaintiffs were Mr De Jongh, Mr Malan, Ms Invanka Atcheson (a former trustee of Matco), Mr George Nicholas Papadakis, a chartered accountant and curator of the Fidentia Group, and Mr German Emmanuel Anderson, a former employee of the FSB and its successor, the Financial Sector Conduct Authority (FSCA). [26] As appears more fully below, the evidence of these witnesses was merely a narrative of the events that led to the transfer of the Funds from OMUT to the first plaintiff. Their evidence did not establish the elements of the plaintiff’s claim. OMUT did not adduce any evidence and closed its case. [27] Mr De Jongh testified about the meeting on 15 October 2004 with Mr Cronje at OMUT. He confirmed that the Trust had appointed FAM as its portfolio manager and that he had signed the letter instructing OMUT to liquidate R150 million of the Trust’s assets. Mr De Jongh said that he had no reason to doubt that those within the Fidentia Group were persons of integrity. He stated that he had not seen any 11 wrongdoing such as theft or fraud and that had there been such wrongdoing, he would have reported it to the authorities. [28] Mr Malan described the circumstances surrounding his appointment as a trustee of the first plaintiff (then Matco) and its appointment of FAM as portfolio manager. He said that FAM’s appointment was part of the Fidentia Group’s business model. He explained how it came about that he, together with Mr Gover and Mr Arthur Brown, had signed the letter authorising FAM to verify the extent of the investment portfolio with OMUT; to make and execute investment decisions; and to instruct Symmetry to implement any decision taken by FAM. [29] Mr Malan said that there was no harm or imprudence in appointing FAM to manage all the issues around the funds invested with OMUT, since FAM was approved and registered with the FSB. He confirmed his involvement in drafting the letter of 20 October 2004, advising OMUT of the mandate given to FAM to liquidate the investment portfolio with OMUT as FAM deemed fit. [30] Ms Atcheson was employed by the first plaintiff (then Matco) since the early 1990s and subsequently became a shareholder. She described the process in making payments to beneficiaries and guardians, and how Matco carried out its functions under the Trust Deed. She testified that when the sale of shares agreement was concluded, there was nothing to indicate that the persons involved in Fidentia Holdings were dishonest. She and the other shareholders were guided by Investec Bank Limited, which was aware of the Matco’s functions and the type of beneficiaries it served. Ms Atcheson said that she would have had major doubts about proceeding with the sale of Matco’s shares to Fidentia Holdings if there was any indication that Matco was dealing with dishonest people. 12 [31] The testimony of Mr Papadakis concerned the circumstances in which FAM’s licence as an authorised financial services provider (FSP) was withdrawn, and the Fidentia Group placed under curatorship by the Registrar of Financial Services Providers (the Registrar). Mr Papadakis was one of the curators. An inspection report dated 16 January 2007 issued by the FSB, in sum, states that FAM and its key individuals failed to comply with the requirements of honesty and integrity contained in the fit and proper requirements in the FAIS Act, and that R685 million of client funds were unaccounted for. [32] Mr Papadakis said that a whistle blower had alerted the FSB to the improprieties occurring within the Fidentia Group; that the curators discovered that FAM was run as a Ponzi scheme; and that the amount of funds unaccounted for was even higher than R685 million. He gave details of the amounts recovered and what was paid to the plaintiffs. Mr Papadakis also said that the unlawful conduct of persons within the Fidentia Group was not in the public domain when the investment portfolio was transferred to FAM, which was an approved FSP. [33] Mr Anderson’s witness statement was admitted into evidence. In short, the statement describes the procedure followed by the FSB when it receives information indicating a failure to adhere to the legislation which it oversees. The FSB would usually request information from the FSP relating to the allegations against it; the type of licence granted to it; the mandates given by its clients; and details of the funds invested and the investment strategies adopted by the FSP. The high court’s judgment [34] The high court found that the first plaintiff, as a trustee, owed a fiduciary duty to the Trust and its beneficiaries; and that ‘Trust assets in the form of the portfolio were liquidated from units to cash on the instruction of the Trustee’. 13 Despite this finding, the court held that ‘the legislative reach goes beyond the narrow strictures of OMUT’s contractual relationship with the Trust administration company and included the Trust as a party to whom a duty would be owed by a manager’, apparently in terms of s 71 of CISCA. It then held that ‘OMUT owed a direct duty of care to the Trust on whose behalf the assets were held and managed’, which ‘ranks higher than duties arising from the contractual obligations’ under the OMUT agreement. [35] The high court stated that the legislation on which the plaintiffs relied to establish wrongfulness ‘does not expressly create liability for losses to individual investors or beneficiaries’, but granted them ‘indirect protection through the effective regulation of the responsible financial institution’. The ultimate goal of regulation, the court said, is ‘the best interests of . . . investors as a whole’; and the fact that the FSB may not have investigated particular conduct, ‘does not exclude statutory liability or liability at common law if it is found that the institution negligently breached its institutional obligations’. [36] The high court held that public and legal policy considerations dictated that it would be reasonable to impose liability for pure economic loss in this case, which it said, ‘would be wholly consistent with constitutional norms’. The court stated that ‘the nature of the harm and the manner in which it occurred is what is contemplated by the relevant statutes’, the provisions of which are intended to protect the Funds and the end beneficiaries, albeit indirectly. [37] OMUT, the high court found, failed to report the facts and events leading to the release of the Funds to the Master of the High Court, and consequently contravened s 9(1) of the Trust Property Control Act, read with s 2(b) of the 14 Protection of Funds Act. This, the court said, rendered its conduct ‘wrongful and culpable in respect of the Trust and the Trust beneficiaries’. [38] As regards negligence, the high court held that in the absence of an explanation by OMUT, the inescapable inference was that it ‘quickly yielded to the self-seeking posturing of the Fidentia wrongdoers’; and that ‘despite demonstrating the level of prudence, diligence and skill and care required’ (by insisting on a signed, written instruction from the first plaintiff confirming the appointment of FAM, and confirmation of authority from the beneficial owner before accepting the letter calling up the entire Matco investment trust portfolio), OMUT ‘did not follow through’. This conduct, the high court held, was ‘not reasonable and not one expected of a prudent manager’. [39] The court went on to say that OMUT had 90 days to comply with the first plaintiff’s instruction, which was ‘sufficient time to notify the regulatory bodies of the dis-investment, given the scale and size of the portfolio’. A ‘measure of due diligence on Fidentia and FAM as well as notification to the regulatory bodies’, the court held, ‘is not an unreasonable, burdensome or costly exercise or requirement for an entity of OMUT’s calibre and size’. Consequently, the court found that the plaintiffs had proved negligence. [40] On the issue of causation, the high court made the following findings. OMUT was ‘aware of its obligations to the Trust and in turn, the end beneficiaries’. It was alive to the material risks of liquidating the portfolio and paying over the Funds. There was ‘a real probability that Fidentia’s conduct would have been detected early but for OMUT’s failure to report it’ (to Standard Bank, the Registrar 15 and the Master).2 This failure, the high court found, ‘enabled the acquisition [of the Funds] and what followed thereafter’. [41] OMUT, the high court said, led no evidence to show that its failure to report the disinvestment would have made no difference to the events that followed and the loss suffered. The court stated that on the facts and the sheer size of the portfolio, the material risks and detrimental consequences would have been foreseen by a prudent manager. The plaintiffs, the court concluded, had established factual and legal causation. The issues [42] The central issue raised by this appeal is whether the plaintiffs established the elements of delictual liability. These are: (a) wrongfulness; (b) negligence; and (c) causation. Wrongfulness Pure economic loss and omissions [43] The plaintiffs’ claim is for pure economic loss based on an omission. OMUT, they say, culpably failed to take steps to prevent the loss caused to the Trust and the Trust beneficiaries by the misappropriation of the Funds by the Fidentia wrongdoers. 2 Emphasis in the original. 16 [44] There is no general right not to be caused pure economic loss.3 Wrongfulness must be positively established.4 Thus, the plaintiffs were required to show that an entity in the position of OMUT, which carried out an instruction of its client to call up an investment, owed a legal duty not to cause harm to the beneficiaries of one or more of the trusts administered by that client. [45] In Loureiro5 the Constitutional Court stated that the wrongfulness enquiry focuses on ‘the [harm-causing] conduct and goes to whether the policy and legal convictions of the community, constitutionally understood, regard it as acceptable. It is based on the duty not to cause harm – indeed to respect rights – and questions the reasonableness of imposing liability.’ [46] The Constitutional Court in Country Cloud6 described wrongfulness thus: ‘Wrongfulness is an element of delictual liability. It functions to determine whether the infliction of culpably caused harm demands the imposition of liability or, conversely, whether “the social, economic and other costs are just too high to justify the use of the law of delict for the resolution of the particular issue”. Wrongfulness typically acts as a brake on liability, particularly in areas of the law of delict where it is undesirable or overly burdensome to impose liability.’ [47] It is therefore not surprising that the courts have been cautious in extending liability to new situations involving pure financial loss. This is because of the spectre of exposing defendants ‘to a liability in an indeterminate amount for an indeterminate time to an indeterminate class’.7 3 Administrateur, Natal v Trust Bank Van Afrika Bpk 1979 (3) SA 824 (A) at 833A-B, affirmed in Country Cloud Trading CC v MEC, Department of Infrastructure Development, Gauteng [2014] ZACC 28; 2015 (1) SA 1 (CC); 2014 (12) BCLR 1397 (CC) para 22. 4 Telematrix (Pty) Ltd t/a Matrix Vehicle Tracking v Advertising Standards Authority SA 2006 (1) SA 461 (SCA) para 13; Country Cloud fn 3 para 24. 5 Loureiro and Others v Imvula Quality Protection (Pty) Ltd [2014] ZACC 4; 2014 (5) BCLR 511 (CC); 2014 (3) SA 394 (CC) para 53. 6 Country Cloud fn 3 para 20. 7 Ultramares Corp v Touche (1931) 255 NY 170 (74 ALR 1139; 174 NE 441), approved in Country Cloud fn 3 para 24. 17 The plaintiffs’ allegations [48] The plaintiffs allege that OMUT’s conduct in paying out the Funds was wrongful for the following reasons. By 22 October 2004 OMUT knew or should have known that Fidentia Holdings had taken control of the first plaintiff, and that the latter would place the Funds under the administration of FAM. There was a material risk that the Trust had come under the control of individuals who may not act in the best interests of the Trust beneficiaries, and if the Funds were repaid to the first plaintiff, they would be depleted to the prejudice of the Trust and the Trust beneficiaries. [49] The plaintiffs relied on various pieces of legislation as well as the Constitution for their allegation that OMUT owed a statutory duty – not to its client, the first plaintiff – but to ‘the Trust and the Trust beneficiaries’, not to release the Funds to the first plaintiff without having taken steps to safeguard the Funds. These steps, so the plaintiffs alleged, included OMUT satisfying itself that the first plaintiff and FAM would act honestly, prudently and in the interests of the trust beneficiaries. [50] The statutory provisions on which the plaintiffs relied were these: (a) Sections 2(1) and 4(4) of CISCA, which regulate the functions of a manager in administering collective investment schemes. (b) Section 2 of the Protection of Funds Act, which requires financial institutions inter alia to exercise utmost good faith and proper care and diligence. (c) Section 9 of the Trust Property Control Act, which enjoins trustees to perform their duties and exercise their powers with care, diligence and skill. (d) Sections 27 and 28 of the Constitution, which guarantee the right to social security and children’s rights, respectively. 18 [51] The plaintiffs further alleged that OMUT owed the Trust and the Trust beneficiaries a legal duty to comply with the constitutional and statutory duties described above, by virtue of ‘the contractual relationship arising from the first and subsequently the second OMUT agreements’ as well as ‘the provisions of the Trust Deed’. No legal duty established [52] As this court explained in Olitzki,8 whether the breach of a statutory duty is delictually wrongful is a matter of statutory interpretation: ‘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. But where a common-law duty is at issue, the answer now depends less on the application of formulaic approaches to statutory construction than on a broad assessment by the court whether it is “just and reasonable” that a civil claim for damages should be accorded. “The conduct is wrongful, not because of the breach of the statutory duty per se, but because it is reasonable in the circumstances to compensate the plaintiff for the infringement of his legal right.” The determination of reasonableness here in turn depends on whether affording the plaintiff a remedy is congruent with the court’s appreciation of the sense of justice of the community. This appreciation must unavoidably include the application of broad considerations of public policy determined also in the light of the Constitution and the impact upon them that the grant or refusal of the remedy the plaintiff seeks will entail.’ 8 Olitzki Property Holdings v State Tender Board and Another 2001 (3) SA 1247 (SCA) para 12, affirmed in Steenkamp No v Provincial Tender Board, Eastern Cape 2007 (3) SA 121 (CC) footnotes omitted. 19 [53] In Steenkamp9 the Constitutional Court held that factors pointing to wrongfulness include the following: whether the object of the statutory scheme is mainly to protect individuals or advance the public good; whether the relevant statute envisages, directly or by inference, a claim for damages by the aggrieved party; whether the imposition of liability for damages will have a ‘chilling effect’ on the performance of administrative or statutory functions; whether the ensuing harm was foreseeable; and whether the party bearing the loss is the author of its own misfortune. [54] Applied to the present case, the first plaintiff – which intentionally misappropriated the Funds and consequently is the author of its own misfortune – asks that liability for damages be imposed on OMUT on the basis that OMUT negligently enabled that misappropriation by repaying the Funds to the first plaintiff. And this, when the Funds were repaid in accordance with the OMUT agreement and the first plaintiff’s duly authorised instruction. The proposition needs merely to be stated to appreciate its absurdity. [55] It goes without saying that such a claim is contrary to the legal convictions of the community, and the imposition of liability sought by the plaintiffs is both unreasonable and inconsistent with public policy. OMUT acted as any reasonable investment manager would have done. It ensured that the instruction from the first plaintiff was properly authorised, and then acted upon it as it was contractually bound to do. OMUT had no duty to involve itself in the inner workings of the Trust, and it was not permitted to refuse to comply with a duly authorised instruction to call up the Funds. On this basis alone, the plaintiffs failed to prove wrongfulness. 9 Steenkamp NO v Provincial Tender Board of the Eastern Cape [2006] ZACC 16; 2007 (3) SA 121 (CC); 2007 (3) BCLR 300 (CC) para 42. 20 [56] Aside from this, it is clear from the evidence that OMUT could not, and did not, foresee that if the Funds were repaid to the first plaintiff, they would be dissipated to the prejudice of the Trust and its beneficiaries. Rather, the evidence points the other way. [57] Mr De Jongh stated that there was no reason to doubt that those within the Fidentia Group were persons of integrity. Mr Malan said that FAM was appointed to manage the funds invested with OMUT, because FAM was approved by and registered with the FSB. Ms Atcheson testified that she wanted to ensure that the interests of the trust beneficiaries were protected; that there was no indication that the persons involved in Fidentia Holdings were dishonest; and that if they were, it was doubtful that Matco would have proceeded with the sale of its shares. [58] Mr Papadakis confirmed that FAM was properly licensed and there was nothing in the public domain at the time to cast any doubt on the integrity of persons within the Fidentia Group. FAM was entitled to manage a portfolio of assets, since it was an approved portfolio manager in terms of the Stock Exchange Control Act and the Financial Markets Control Act. Mr Anderson stated that because FAM was an approved portfolio manager under these statutes, it was entitled to follow a shortened application process for its licence under the FAIS Act, since it fell into the category of entities ‘whose details were substantially known and credentials approved of by the FSB’. [59] Turning to OMUT’s alleged breach of its statutory duties, a plaintiff who seeks to establish a delictual duty based on the breach of a statutory provision is required to demonstrate that the provision has been breached; that the plaintiff is a person for whose benefit and protection the statutory duty was imposed; that the nature of the harm and the manner in which it occurred are contemplated by the 21 enactment; and that the defendant acted negligently.10 None of these requirements were met in this case. [60] Contrary to the high court’s conclusion, s 71 of CISCA does not extend beyond OMUT’s contractual relationship with the first plaintiff. Neither does the provision ‘include the Trust as a party to whom a duty would be owed by a manager’. Section 71 provides: ‘Status of assets For purposes of this Act any- (a) money or other assets received from an investor; and (b) an asset of a portfolio, are regarded as being trust property for the purposes of the Financial Institutions (Protection of Funds) Act, 2001 (Act 28 of 2001), and a manager, its authorised agent, trustee or custodian must deal with such money or other assets in terms of this Act and the deed and in the best interests of investors.’ [61] The Protection of Funds Act defines ‘trust property’ as meaning: ‘[a]ny corporeal or incorporeal, movable or immovable assets invested, held, kept in safe custody, controlled, administered or alienated by any person, partnership, company or trust for, or on behalf of, another person, partnership, company or trust, and such other person, partnership, company or trust is hereinafter referred to as the principal.’ [62] Thus, s 71 of CISCA does nothing more than oblige OMUT to treat the assets invested with it as property held in trust, and to deal with those assets in accordance with that Act, the deed in terms of which the collective investment scheme is established and administered,11 and the best interests of the investor 10 Da Silva and Another v Coutinho 1971 (3) SA 123 (A) at 140; J Neethling and J M Potgieter Law of Delict 8 ed (2020) at 90-92; J C van der Walt and J R Midgley Principles of the Law of Delict 4 ed (2016) at 154-158 para 95. 11 The Collective Investment Schemes Control Act defines ‘deed’ to mean 22 (defined as ‘the holder of a participating interest in a portfolio in the Republic’). This is consistent with s 2(1) and s 4(4) of CISCA which enjoins a manager to administer a collective investment scheme reasonably, honestly, fairly, with skill, care and diligence ‘in the interests of investors’. [63] These provisions reinforce the fact that OMUT’s obligations under CISCA are to the first plaintiff – not to the Trust and its beneficiaries. Consequently, the high courts’ interpretation that s 71 imposes on OMUT a legal duty to deal with money or assets in the best interests of the Trust, which ‘ranks higher’ than its contractual obligations to the first plaintiff, is incorrect. [64] Similarly, there is nothing in the Protection of Funds Act or the Trust Property Control Act which suggests that OMUT owed a statutory duty not to cause harm to the Trust and its beneficiaries. Rather, the objects of the Protection of Funds Act are to provide for and consolidate the laws relating to the investment, safe custody and administration of funds and trust property by financial institutions, so as to enable the Registrar to protect such funds and property. [65] Section 2 of the Protection of Funds Act states: ‘Duties of persons dealing with funds of, and with trust property controlled by, financial institutions A financial institution or nominee company, or director, member, partner, official, employee or agent of the financial institution or nominee company, who invests, holds, keeps in safe custody, controls, administers or alienates any funds of the financial institution or any trust property- ‘the agreement between a manager and a trustee or custodian, or the document of incorporation whereby a collective investment scheme is established and in terms of which it is administered and includes- (i) the deed of a management company which immediately prior to the commencement of this Act was a management company in terms of any law repealed by this Act; and (ii) a supplemental deed entered into in terms of a deed.’ 23 (a) must, with regard to such funds, observe the utmost good faith and exercise proper care and diligence; (b) must, with regard to the trust property and the terms of the instrument or agreement by which the trust or agency in question has been created, observe the utmost good faith and exercise the care and diligence required of a trustee in the exercise or discharge of his or her powers and duties; and (c) may not alienate, invest, pledge, hypothecate or otherwise encumber or make use of the funds or trust property or furnish any guarantee in a manner calculated to gain directly or indirectly any improper advantage for any person to the prejudice of the financial institution or principal concerned.’ [66] Section 2 of the Protection of Funds Act sets the standard of conduct – the utmost good faith and proper care and diligence – for persons dealing with the funds of and trust property controlled by financial institutions which hold, control, administer and alienate funds or trust property. In similar vein, s 9(1) of the Trust Property Control Act requires trustees to ‘act with care, diligence and skill which can reasonably be expected of a person who manages the affairs of another’. [67] Both these provisions are focused on the duties that the institution owes to the entity on whose behalf it holds and administers the funds – in this case the first plaintiff. They do not impose a duty on the institution to second-guess a lawful instruction by a principal to call up funds, nor to anticipate what the principal may do with those funds in future. [68] Consequently, the high court’s finding that OMUT had contravened s 9(1) of the Trust Property Control Act read with s 2(b) of the Protection of Funds Act, is erroneous. Further, there is no evidence to support this finding. The court paid insufficient attention to the fact that at the relevant time, Mr Brown, Mr Malan and 24 Mr Mulder were the first plaintiff’s nominees in terms of s 6 of the Trust Property Control Act and as such, owed the s 9(1) duties to the Trust and its beneficiaries.12 [69] More fundamentally, the nature of the harm and the manner in which it occurred – the loss of the Funds because of the first plaintiff’s own theft and fraud after it had issued a duly authorised instruction to OMUT to release the Funds – are simply not contemplated by the constitutional and statutory provisions on which the plaintiffs rely. They do not envisage that a financial institution in the position of OMUT, should be required to compensate beneficiaries whose interests the principal failed to protect. A contrary interpretation would not only produce manifestly absurd results,13 but also result in the imposition of liability to an indeterminate class that cannot be justified in principle. [70] Finally, the plaintiffs failed to prove that there was a legal duty on OMUT not to cause the financial loss, on account of the contractual relationship arising from the OMUT agreement and the provisions of the Trust Deed. There was no contractual relationship between OMUT and the Trust and its beneficiaries. That relationship was between the first plaintiff, a trust administration company, and OMUT. [71] The relevant terms of the OMUT agreement, in sum, are these. The stated purpose of the agreement is to set out the terms and conditions under which the first plaintiff would buy, sell and switch units in the portfolios administered by OMUT. All transactions relating to unit trust funds would be carried out by OMUT on receipt of instructions from the client (the first plaintiff). Any payments which 12 See in this regard 43 Lawsa 3 ed paras 224-227. 13 Shenker v The Master and Another 1936 AD 136 at 142; S v Toms; S v Bruce 1990 (2) SA 802 (A) at 807H-I; Independent Institute of Education (Pty) Limited v Kwazulu-Natal Law Society and Others [2019] ZACC 47; 2020 (2) SA 325 (CC); 2020 (4) BCLR 495 (CC) para 18. 25 OMUT was required to make in terms of the agreement would be paid into the first plaintiff’s account at Standard Bank, within two days of OMUT’s receipt of the request for payment (clause 9.1). [72] The high court mistakenly held that OMUT had 90 days to comply with the first plaintiff’s instruction (in terms of the OMUT agreement). OMUT paid the Funds into the first plaintiff’s Standard Bank account in terms of clause 9.1, as it was contractually obliged to do. And the plaintiffs’ allegation that OMUT should have insisted on the full 90-day written notice to terminate the OMUT agreement, defies logic. The first plaintiff was entitled to call up the investment at any stage and exercised its right under clause 9.1. It instructed OMUT to transfer the Funds into its bank account by no later than 17h00 on 20 October 2004. [73] In the circumstances, there was no duty on OMUT to notify the regulatory bodies of the disinvestment, nor to perform ‘due diligence on Fidentia and FAM’. In any event, and as the evidence shows, there was nothing to indicate that the Fidentia wrongdoers would misappropriate the Funds. [74] In addition, it is a settled principle that in general, parties to a contract contemplate that their contract should lay down the ambit of their reciprocal rights and obligations. A court should therefore be loath to extend the law of delict into this area and thereby eliminate provisions which the parties considered necessary.14 As Brand JA put it in Two Oceans Aquarium: 15 There is ‘no policy imperative for the law to superimpose a further remedy’. 14 Lillicrap, Wassenaar and Partners v Pilkington Brothers (SA) (Pty) Ltd 1985 (1) SA 475 (A) at 501, affirmed in Country Cloud. 15 Trustees, Two Oceans Aquarium Trust v Kantey & Templer (Pty) Ltd 2006 (3) SA 138 (SCA) para 18. 26 [75] The Constitutional Court expanded on this point in Country Cloud:16 ‘Where parties take care to delineate their relationship by contractual boundaries, the law should hesitate before scrubbing out the lines they have laid down by superimposing delictual liability. That could subvert their autonomous dealings. This underscores the broader point made by this court in Barkhuizen that, within bounds, contractual autonomy claims some measure of respect.’ [76] It also does not avail the plaintiffs to attempt to found a legal duty on the Trust Deed. OMUT is not a party to and has no obligations under the Trust Deed, by virtue of its contractual relationship with the first plaintiff. Ironically, the Trust Deed protects the trustees – including the first plaintiff – against any loss occasioned by any cause, save for losses on account of personal dishonesty or gross misconduct; yet the first plaintiff seeks the imposition of liability on OMUT, without there being any hint of dishonesty or misconduct on the part of OMUT. Conclusion on wrongfulness [77] The plaintiffs’ loss occurred as a result of theft and fraud by the first plaintiff’s directors. None of the statutory and constitutional provisions on which the plaintiffs rely grants them a right of action, neither do these provisions provide a basis for inferring a claim for civil damages at common law. In any event, the loss was not foreseeable. Public policy as informed by constitutional norms, dictates that it is both unreasonable and overly burdensome to impose liability on OMUT. 16 Country Cloud fn 3 para 65, footnotes omitted. 27 Negligence [78] The authoritative test for negligence is that of Holmes JA in Kruger v Coetzee:17 ‘For the purposes of liability culpa arises if - (a) a diligens paterfamilias in the position of the defendant - (i) would foresee the reasonable possibility of his conduct injuring another in his person or property and causing him patrimonial loss; and (ii) would take reasonable steps to guard against such occurrence; and (b) the defendant failed to take such steps.’ [79] The test was tersely stated by Scott JA in Sea Harvest Corporation:18 ‘[T]he true criterion for determining negligence is whether in the particular circumstances the conduct complained of falls short of the standard of the reasonable person. Dividing the inquiry into various stages, however useful, is no more than an aid or guideline for resolving this issue.’ [80] The plaintiffs did not adduce any evidence in support of their allegation that OMUT was negligent, because it failed to ensure that its staff was properly supervised in the exercise of their duties. Neither was there any evidence to show that OMUT failed to act with the necessary skill, care and diligence, and in the interests of the investor. [81] The high watermark of the plaintiffs’ case on negligence – and indeed, the high court’s finding that OMUT should have taken steps to prevent the loss of the Funds – is the meeting at the OMUT offices on 15 October 2004. It will be recalled that at that meeting Messrs De Kock, De Jongh and Linde handed two letters to Mr Cronje of OMUT: (i) by Matco, confirming FAM’s appointment as Portfolio 17 Kruger v Coetzee 1966 (2) SA 428 (A) at 430, affirmed in Oppelt v Department of Health, Western Cape 2016 (1) SA 325 (CC) para 69. 18 Sea Harvest Corporation (Pty) Ltd and Another v Duncan Dock Cold Storage (Pty) Ltd and Another 2000 (1) SA 827 (SCA) at 839F-G; Oppelt v Department of Health, Western Cape 2016 (1) SA 325 (CC) para 70. 28 Manager with immediate effect; and (ii) by FAM, instructing OMUT to forthwith liquidate R150 million and transfer the money to FAM’s bank account. [82] As stated, OMUT did not act on the latter instruction. Indeed, this is common ground. On the same day ie 15 October 2004, Mr Cronje of OMUT wrote to Mr Gover, the Managing Director of Matco informing him of the meeting. Mr Cronje stated that OMUT required a valid instruction from Matco to liquidate R150 million of the investments; that OMUT would only act on a signed, written instruction based on proper authority from Matco as its client; and that the proceeds of the repurchase would only be paid into the account stipulated in the OMUT agreement, not to any third party. Mr Cronje also confirmed that Mr Gover was satisfied that OMUT was acting in Matco’s best interests. [83] These steps taken by Mr Cronje, the high court found, demonstrated ‘the level of prudence, diligence and skill and care required’ of a manager in his position. But then the court stated that OMUT ‘did not follow through’, because it failed to notify the regulatory bodies (not specified) of the disinvestment, and to conduct due diligence on Fidentia and FAM. Consequently, OMUT was held to be negligent. [84] On the facts, however, there was nothing to report to any regulatory body. And there is no basis for the inference that OMUT ‘yielded to the self-seeking posturing of the Fidentia wrongdoers’, in the absence of an explanation – the plaintiffs bore the onus of proving negligence. The evidence shows that on 20 October 2004, Mr Malan, both in his capacity as the Managing Director of the first plaintiff and trustee of the Trust, confirmed the mandate given to and the appointment of FAM on 14 October 2004, and that FAM was mandated to liquidate the entire investment portfolio. 29 [85] Moreover, there was no indication that the Funds would be misappropriated by the Fidentia wrongdoers. There was no possibility, let alone a reasonable possibility, that OMUT could have foreseen this. OMUT was merely the management company required to carry out the instruction of its client (the first plaintiff) in accordance with the OMUT agreement. It did so. [86] For the above reasons, the plaintiffs failed to prove negligence on the part of OMUT. On this basis also, their claim ought to have been dismissed. Causation [87] In Minister of Police v Skosana19 Corbett JA said: ‘Causation in the law of delict gives rise to two rather distinct problems. The first is a factual one and relates to the question as to whether the negligent act or omission in question caused or materially contributed to . . . the harm giving rise to the claim. If it did not, then no legal liability can arise and cadit quaestio. If it did, then the second problem becomes relevant, viz. whether the negligent act or omission is linked to the harm sufficiently closely or directly for legal liability to ensue or whether, as it is said, the harm is too remote. This is basically a juridical problem in which considerations of legal policy may play a part.’ [88] The plaintiffs’ case on causation is essentially this. Had OMUT complied with its statutory duties, Standard Bank and the Registrar of Collective Investment Schemes would have been informed of the facts (the attempted withdrawal of the R150 million and the instruction to call up the first plaintiff’s investment portfolio), which the Registrar of Collective Investment Schemes would have regarded as an ‘irregularity’. Thereafter, a convoluted chain of events would have followed involving, amongst others, Standard Bank, the Registrar of Collective Investment 19 Minister of Police v Skosana 1977 (1) SA 31 (A) at 34-35, affirmed in Lee v Minister of Correctional Services [2012] ZACC 30; 2013 (2) BCLR 129 (CC); 2013 (2) SA 144 (CC); 2013 (1) SACR 213 (CC) para 38; De Klerk v Minister of Police 2021 (4) SA 585 (CC) para 77. 30 Schemes, the Registrar of Financial Services Providers and the Master of the High Court, that would have prevented the Fidentia wrongdoers from dealing with the funds and avoided the resultant loss. [89] However, the plaintiffs presented no evidence in support of these allegations. Mr Anderson’s evidence, on which the plaintiffs’ relied, comprised general assertions and did not establish causation. He stated: ‘Where information was received indicating possible failures to adhere to the legislation overseen by the FSB, the usual procedure was to make enquiries with the relevant service provider. This would usually take the form of a request for information. Questions that would have been asked, would be specifically about the allegations made against the service provider, and for the type of licence granted to FAM, also include details about the mandates from clients held by the service provider, details of the investment strategy/ies employed by the service provider, and details of where funds were invested.’ [90] The high court was thus asked to speculate as to what Standard Bank, the Registrar of Collective Investment Schemes, the Registrar of Financial Services Providers and the Master of the High Court would have done, had OMUT reported the innocuous fact that FAM had attempted to liquidate R150 million of the first plaintiff’s investment, prematurely by two business days. There was nothing to report to the bank or any regulatory authority concerning the withdrawal of the first plaintiff’s investment portfolio, which was done in accordance with its instructions and the terms of the OMUT agreement. [91] The high court held that ‘OMUT cannot plausibly rely on speculative consequences of such reporting’ and that it ‘led no evidence to show that it would have made no difference to the chain of events that ensued and the loss suffered’. But that turns the inquiry on its head. OMUT did not adduce evidence because the 31 onus of proving causation rested on the plaintiffs. And the facts show that on causation, there was no case to meet. [92] Apart from this, on a straightforward application of the test for factual causation, OMUT’s repayment of the Funds to the first plaintiff in terms of the OMUT agreement, was not the factual cause of the loss. OMUT carried out the first plaintiff’s instruction to call up its investment, convert the unit trusts into cash and pay the money into the first plaintiff’s account at Standard Bank. In its capacity as a trustee of the Trust, the first plaintiff continued to hold those assets. In liquidating the investment and transferring the Funds to the first plaintiff, OMUT caused no loss. [93] The factual cause of the loss, instead, was the misappropriation of the Funds by the Fidentia wrongdoers who acted fraudulently and dishonestly. In fact, that was the evidence of the plaintiffs’ own witness, Mr Papadakis. He said that FAM was run as a Ponzi scheme (save that Mr Brown and his cohort targeted pooled investor funds rather than individuals); that the huge drain from the proceeds of the portfolio of the Trust ‘was as a result of fraudulent conduct within the Fidentia group’; and that the directors and officers of Fidentia Holdings were the ‘criminals who perpetrated the crimes’ (both Mr Arthur Brown and Mr Graham Maddock were convicted of fraud and sent to prison). [94] What is more, OMUT was not the legal cause of the loss. The purpose of legal causation (or the remoteness of damage rule) is to ‘curb liability’,20 by determining whether a factual link between conduct and consequence should be 20 Country Cloud fn 3 para 25. 32 recognised in law.21 It takes into account factors such as reasonable foreseeability, directness, the presence or absence of a new intervening act (novus actus interveniens), legal policy, reasonableness, fairness and justice.22 [95] A consideration of these factors leads to the conclusion that the loss is too remote to be recoverable from OMUT as damages. When it paid the Funds into the first plaintiff’s banking account, nobody, least of all OMUT, could have known that the Fidentia wrongdoers were going to embark on a course of criminal conduct that would result in the depletion of the Funds. The loss suffered was not of a kind that was reasonably foreseeable. [96] It follows that the high court’s conclusions on causation are insupportable as a matter of law, and on the evidence. The underlying policy reason for the remoteness rule is that the defendant must not be held liable for all loss factually caused by the delict, however far removed in time and space. There was no evidence of any ‘material risk’ in liquidating the portfolio and paying over the Funds; and no evidence that the conduct of the Fidentia wrongdoers could have been detected earlier. Causation, as in the case of the other elements of delictual liability, was not proved. Conclusion [97] The various reasons given for allowing the plaintiffs’ claim, are in principle not legally sound. The plaintiffs, on whom the burden of proof lay, failed to establish wrongfulness, negligence and causation. The appeal must therefore succeed. 21 15 Lawsa 3 ed para 181. 22 International Shipping Co (Pty) Ltd v Bentley 1990 (1) SA 680 (A); [1990] 1 All SA 498 (A) at 701C-E; Standard Chartered Bank of Canada v Nedperm Bank Ltd 1994 (4) SA 747 (A) at 769I-771A; Fourway Haulage SA (Pty) Ltd v SA National Road Agency Ltd 2009 (2) SA 150 (SCA); [2008] JOL 22803 (SCA) paras 30-35. 33 [98] The parties agreed that the costs of three counsel in the court below and on appeal, are justified. In the particular circumstances of this case, this Court considers orders to that effect, appropriate. [99] The following order is made: 1 The appeal is upheld with costs, including the costs of three counsel. 2 The order of the court below is set aside and replaced with the following: ‘The plaintiffs’ claim is dismissed with costs, including the costs of three counsel.’ __________________ A SCHIPPERS JUDGE OF APPEAL 34 Appearances: For appellant: A E Bham SC (with E W Fagan SC and M B E Mbikiwa) Instructed by: Webber Wentzel, Johannesburg Symington & De Kok Attorneys, Bloemfontein For respondents: H Epstein SC (with A Bester SC and A Ngioli) Instructed by: Knowels Husain Lindsay Inc, Johannesburg 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: 16 May 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 Old Mutual Unit Trust Managers Limited v Living Hands (Pty) Ltd and Others (Case no: 18/2023) [2024] ZASCA 75 (16 May 2024) Today the Supreme Court of Appeal (SCA) handed down judgment upholding with costs, an appeal against the decision of the Gauteng Division of the High Court, Johannesburg (the high court). The appellant, Old Mutual Unit Trust Managers Limited (OMUT), a financial institution, defended an action instituted in the high court, brought by the first, second and third respondents (the plaintiffs) in their capacities as the trustees of the Living Hands Umbrella Trust (the Trust). The fourth to ninth respondents, former directors and employees of the Fidentia Group of Companies (the Fidentia Group), were joined in the action by OMUT. The plaintiffs claimed damages in delict. They alleged that OMUT acted wrongfully and negligently and caused the Trust to suffer loss when it paid over to the first plaintiff, Living Hands (Pty) Ltd, a trust administration company, some R1.13 billion of its investment portfolio with Old Mutual, pursuant to the first plaintiff’s properly authorised instruction to do so, in terms of an agreement with OMUT. The first plaintiff transferred the investment portfolio to Fidentia Asset Managers (Pty) Ltd (FAM). An amount of R854 654 of these funds were misappropriated by the first plaintiff’s directors, whom the first plaintiff referred to as the ‘Fidentia wrongdoers’. The plaintiffs further alleged that OMUT did not act with the necessary skill, care and diligence, and in the interests of the investor, as required by the Collective Investment Schemes Control Act 45 of 2002 (CISCA) and other legislation. They alleged that OMUT should have notified the relevant regulatory bodies of the disinvestment, and conducted due diligence on Fidentia Holdings and FAM. The high court upheld the plaintiffs’ claim and ordered OMUT to pay damages in the sum of R854 654 together with in duplum interest and costs. In the SCA OMUT argued that it did not act wrongfully or negligently and did not cause the loss. It claimed that the loss was caused by the criminal conduct of the controlling directors of the first plaintiff, who misappropriated the funds. 2 The main issue on appeal was whether the plaintiffs proved that OMUT, as the manager of the Trust’s investment portfolio, had a legal duty to safeguard the funds, and was negligent in preventing their misappropriation by the Fidentia wrongdoers. The SCA held that OMUT did not have a legal duty to safeguard the funds, and thus did not act wrongfully. The first plaintiff was the author of its own misfortune – its directors misappropriated the funds. The SCA found that none of the statutory and constitutional provisions relied on by the plaintiffs granted them a right of action or a claim for civil damages, and it would be unreasonable and overly burdensome to impose liability on OMUT. OMUT, the SCA held, did not act negligently. On the evidence the criminal conduct by the Fidentia wrongdoers was not reasonably foreseeable, and there was no duty on OMUT to report the disinvestment to any regulatory authority. The SCA further held that OMUT did not cause the plaintiffs to suffer any loss: it converted the investment portfolio to cash, which was paid over to the first plaintiff in accordance with the terms of the investment agreement. The factual and legal cause of the loss, the SCA found, was the theft and fraud by the first plaintiff’s directors. The SCA concluded that the plaintiffs, on whom the burden of proof lay, failed to establish wrongfulness, negligence and causation. As a result, the SCA upheld the appeal with costs, including the costs of three counsel. ~~~~ends~~~~

4202

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 090/2021 In the matter between: NATIONAL DEPARTMENT OF PUBLIC WORKS APPELLANT and SIMPHIWE FANI & 77 OTHERS FIRST RESPONDENT [COLLECTIVELY REFERRED TO AS “RESIDENTS OF FARM GREYDEL (AIRPORT PARK)”] VATHISWA JACK SECOND RESPONDENT Neutral citation: National Department of Public Works v Fani and 77 Others [Collectively referred to as “Residents of Farm Greydel (Airport Park)”] and Another (090/2021) [2024] ZASCA 43 (8 April 2024) Coram: SCHIPPERS, GOOSEN and KGOELE JJA and BAARTMAN and BLOEM AJJA Heard: 18 March 2024 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 is deemed to be 11h00 on the 8th day of April 2024. Summary: Condonation – lapsed appeal – late filing of record and heads of argument – delay not fully explained and prospects of success remote – condonation refused. 2 ORDER On appeal from: Eastern Cape Division of the High Court, East London Circuit Court, (Hartle J sitting as court of first instance): The application for condonation is refused with costs. JUDGMENT Baartman AJA (Schippers, Goosen and Kgoele JJA and Bloem AJA concurring): [1] The appellant was granted leave to appeal an order of the Eastern Cape Division of the High Court, East London Circuit (the high court), per Hartle J, issued on 29 October 2020. In terms of that order, the high court declared unlawful the appellant’s demolition of the respondents’ homes on the Remainder of Portion 1 of the Farm Greydel 871, East London (the property), and directed the appellant to restore their homes. The appeal, however, has lapsed due to the appellant’s failure to file the appeal record and heads of argument timeously. The appellant seeks condonation of this failure and reinstatement of the appeal. [2] The matter arises from an ex parte order granted by the high court (Stretch J) on 14 March 2017, against unidentified ‘persons whose identities are . . . unknown and who have attempted, are threatening or may even try to occupy’ the property. These unidentified persons were ‘interdicted and restrained from demarcating any sites for whatever purpose and/or commencing or continuing to erect and/or occupy and/or permit to be occupied on their behalf any structure on the property’. In terms of this order, the sheriff, with the assistance of the South African Police Service, was authorised to take any steps to dismantle or demolish any structure erected on the property in contravention of the order. [3] On 27 July 2020 the appellant, assisted by the sheriff and the police, demolished the respondents’ homes pursuant to the order issued by Stretch J. It alleged that only unoccupied and incomplete structures had been demolished. The 3 court a quo found that the appellant’s reliance on the 14 March 2017 order was misplaced and that it should have launched eviction proceedings in terms of the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (PIE Act). [4] On 4 January 2021, the court a quo granted leave to appeal to this Court against its order of 29 October 2020. The record had to be filed by 18 May 2021. It was eventually filed on 1 November 2022 – some one and a half years later, together with the application for condonation of its late filing and reinstatement of the appeal. [5] The explanation by Ms Tyani of the State Attorney’s office for this gross non-compliance with the Rules of this Court, in summary, is this: (a) On 4 May 2021, the record was filed but was incomplete. The State Attorney, Bloemfontein, advised that photographs were not in colour and handwritten notes had not been typed. The registrar granted the appellant an extension until 18 May 2021 to correct and file the record. (b) The appellant did not file the record by 18 May 2021 because the transcribers could not attend to its rectification timeously. On 19 May 2021, the appellant sought an extension from the respondents until 25 June 2021. The repondents refused on the basis that any further delay was prejudicial to them as some of them had been rendered homeless and the appellant had apparently refused to assist them by providing temporary accommodation. (c) On 20 May 2021, the appellant again filed the record but on 26 May 2021, the correspondent attorney informed Ms Tyani that the registrar had returned the record as the cross-referencing had not been done properly. (d) On 28 May 2021, Ms Tyani sent the record to the transcribers to correct the cross-referencing. On 7 June 2021, she followed this up with the transcribers; on 12 July 2021 and again on 21 July 2021, she further enquired of the transcribers when the record would be completed. (e) The record was not forthcoming. Ms Tyani directed enquiries to the transcribers. The record was still outstanding at the end of July 2021 at which stage Ms Tyani again reminded the transcribers of her previous correspondence in that regard. 4 (f) On 11 August 2021, Ms Tyani went into self-isolation as her husband and child had tested positive for Covid -19. She only returned to work at the end of August 2021. (g) On 8 September 2021, the transcribers furnished the corrected record. On 10 September 2021, Ms Tyani forwarded a copy of the corrected record to her correspondent for filing. (h) Ms Tyani, under the impression that she had to wait for the registrar to indicate that the latter was satisfied with the record, delayed preparing the application for condonation and reinstatement of the appeal. She was still waiting for her correspondent to indicate whether the registrar was satisfied with the record when, on 2 December 2021, the respondents served an urgent application on her in which they sought to hold the appellant in contempt of court for its failure to comply with the 29 October 2020 order. (i) Ms Tyani claimed that the contempt application had caused her to divert attention from this matter, so only on 8 December 2021 did she enquire from her correspondent as to whether the registrar was satisfied with the record. The correspondent promised to revert. (j) On 15 December 2021, Ms Tyani went on annual leave and returned to work on 18 January 2022. On 10 February 2022, Ms Tyani learnt that her correspondent had on 17 December 2021 informed her that further corrections to the record were necessary. (k) On 11 February 2022, the correspondent sent an email to Ms Tyani explaining what needed to be done to get the record compliant. She said that she immediately consulted the transcribers and the registrar of the court a quo to attend to the queries. (l) The founding affidavit, deposed to on 12 July 2022, simply states that the record was not filed timeously because of the ‘difficulty experienced with the transcribers’, with is no explanation of what had happened between 11 February 2022 and 1 November 2022 – some nine months – when the record was eventually filed. [6] It is a settled principle that the standard for considering an application for condonation is the interests of justice, which, as the Constitutional Court explained in Van Wyk,1 1 Van Wyk v Unitas Hospital and Another (Open Democratic Advice Centre as Amicus Curiae) 2007 ZACC; 2008 (2) SA 472 para 20. 5 ‘. . . depends on the facts and circumstances of each case. Factors that are relevant to this enquiry 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, the importance of the issue to be raised in the intended appeal and the prospects of success.’ [7] Condonation applications are not a matter of formality. There is an onus on the applicant to provide a full and satisfactory explanation for its failure to comply with the Rules of this Court.2 This court has recently confirmed the following requirements for reinstatement of a lapsed appeal:3 ‘(a) The applicant must provide a proper explanation of the causes of the delay and explain each of the periods of delay. (b) It is not sufficient for an applicant to set out a number of generalised causes without an attempt to relate them to the time-frame of its default or to enlighten the court as to the materiality and effectiveness of any steps taken . . . to achieve compliance with the Rules at the earliest reasonable opportunity. (c) The court has a discretion which the applicant must show should be exercised in its favour.’ (footnotes omitted) [8] As stated, the state attorney’s explanation does not cover the entire period of delay. What steps were taken, if any, between 11 February and 1 November 2022 to ensure that the record was filed is unexplained. This was not a difficult task – the record consists of affidavits and court orders, and comprises merely three volumes. Despite this, it took Ms Tyani one and a half years to file it. [9] Moreover, Ms Tyani’s explanation is unreasonable.4 She made no attempt to engage with her correspondent to establish precisely what needed to be done to complete the record. She simply handed it to the transcribers to attend to the deficiencies, and allowed months to go by without ensuring that it was filed. Her explanation that her attention was diverted from this case and that she had taken 2 Rule 12 provides the mechanism for condonation application in the event of non-compliance with the Rules. 3 The Chairperson of the North West Gambling Board and Another v Sun International (SA) Limited (1214/2019) [2021] ZASCA 176 (14 December 2021). 4 Van Wyk para 22. 6 vacation leave in December 2021 and then attended to this case only on 10 February 2022, is unacceptable. [10] The effects of the delay in filing the record on the administration of justice and the respondents are self-evident. Worse, this happened during the national lockdown imposed in response to the COVID-19 pandemic. The respondents say that most of them are in desperate need of reconstruction of their homes. [11] The appeal, in any event, has no prospects of success. It is founded on an ex parte order granted against nameless respondents. It is trite that any order issued by a court must be capable of enforcement, particularly because wilful non-compliance will result in an application for contempt of that order. In this case the order granted by Stretch J was unenforceable at the time it was issued, let alone 2 years after it was issued. [12] The delay is inordinate and not properly explained. The opposition to the application for condonation is justified. It is prejudicial to the administration of justice to condone the appellant’s inexplicable dilatory conduct, while the respondents have been rendered homeless since the demolition of their structures in July 2020. In the circumstances, it is not in the interests of justice to grant condonation. [13] The conduct of Ms Tyani and the respondents’ counsel in this case is to be deprecated. Concerning the conduct of Ms Tyani, recently this Court decried the flagrant disregard of its Rules and warned that punitive personal costs orders may be appropriate in conduct of this kind.5 In light of the warnings previously issued by this Court, it is hoped that the Solicitor General6 will take heed and address the problem. [14] Counsel for the respondents disregarded the Rules of Court. There is no explanation why heads of argument were not filed at all. Counsel also arrived late for the hearing. He explained that he had to rely on public transport and that it was his 5 The Member of the Executive Council for Health, Eastern Cape Province v Y N obo EN (056/2021) [2023] ZASCA 32 (30 March 2023). 6 Section 3A of the State Attorney Act, No.56 of 1957 ‘(1) The Solicitor-General shall – (a) be the executive officer of all offices of State Attoney;(b) exercise control, direction and supervision over all offices of State Attorney;…’ 7 first appearance in this Court. This conduct, however, was not wilfully disruptive of the proceedings so as to justify an order denying the respondents the costs of the application. [15] For the above reasons, the application for condonation for the late filing of the record and the heads of argument, is dismissed with costs. ________________________ ED BAARTMAN ACTING JUDGE OF APPEAL 8 APPEARANCES: For appellant: TM Ntsaluba SC (with him N Nabela) Instructed by: State Attorney, East London State Attorney, Bloemfontein For respondent: Z Madukuda Instructed by: Tshingana & Associates, East London Duba 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: 8 April 2024 STATUS: Immediate The following summary is for the benefit of the media in the reporting of this case; it does not form part of the judgment of the Supreme Court of Appeal. National Department of Public Works v Fani and 77 Others [Collectively referred to as “Residents of Farm Greydel (Airport Park)”] and Another (090/2021) [2024] ZASCA 43 (8 April 2024). Today the Supreme Court of Appeal (SCA) dismissed an application for condonation for the late filing of the appeal record and heads of argument. The appellant is the custodian of the Remainder of Portion 1 of the Farm Greydel 871, East London (the property). The appellant experienced problems with persons attempting to invade the property; therefore, on 14 March 2017, it sought and obtained an order from Stretch J. In terms of that order, ‘persons whose identities are…unknown and who have attempted, are threatening or may even try to occupy’ the property were ‘interdicted and restrained from demarcating any sites for whatever purpose and/or commencing or continuing to erect and/or occupy and/or permit to be occupied on their behalf any structure on the property.’ In terms of this order, the sheriff, with the assistance of the South African Police Service (SAPS), was authorised to take any steps to dismantle or demolish any structure erected on the property in contravention of the order. On 27 July 2020, the appellant, assisted by the sheriff and SAPS, demolished the respondents’ homes pursuant to the order issued by Stretch J. On 29 October 2020, Hartle J declared the appellant’s demolition of the respondents’ homes unlawful and directed the appellant to restore the homes. The appellant seeks to appeal that order; the appeal, however, has lapsed due to the appellant’s failure to file the record and heads of argument timeously. The appellant seeks condonation for this failure and reinstatement of the appeal. The appellant has failed to explain the whole period of delay and in any case, the explanation proffered was unreasonable. 2 The state attorney, seized with the matter, made no attempt to engage with her correspondent to establish precisely what needed to be done to complete the record. She simply handed it to the transcribers to attend to the deficiencies and allowed months to go by without ensuring that it had been filed. Her explanation that her attention had been diverted from this case and that she took vacation leave in December 2021, attending therefore to this case only on 10 February 2022, is unacceptable. The effects of the delay in filing the record on the administration of justice and the respondents is self-evident. Their homes were demolished during the national lockdown imposed in response to the COVID-19 pandemic. The respondents say that most of them are in desperate need of reconstruction of their homes. The delay is inordinate and improperly explained. The opposition to the application for condonation is justified. It is prejudicial to the administration of justice to condone the appellant’s inexplicable dilatory conduct, while the respondents have been rendered homeless since the demolition of their structures in July 2020. In the circumstances, it is not in the interests of justice to grant condonation. ***ENDS***

4189

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 1119/2022 In the matter between: RYAN SYCE FIRST APPLICANT SEBASTIAN CARL BLIGNAUT SECOND APPLICANT and MINISTER OF POLICE RESPONDENT Neutral citation: Syce and Another v Minister of Police (1119/2022) [2024] ZASCA 30 (27 March 2024) Coram: MAKGOKA, CARELSE, WEINER and GOOSEN JJA and TOKOTA AJA Heard: 1 November 2023 Delivered: 27 March 2024 Summary: Application for special leave to appeal – referred for oral argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013 – discretion to arrest in terms of s 40(1)(b) of Criminal Procedure Act 51 of 1977 – whether lawful detention pursuant to arrest becomes unlawful when suspect entitled to be released on bail – effect of abandonment of portion of judgment relating to interest payable on damages in terms of s 86 of Magistrates Courts Act 32 of 1944 – whether special 2 circumstances established – special leave granted – appeal against dismissal of unlawful arrest claim dismissed – appeal against dismissal of unlawful detention claim and costs order in appeal against interest order upheld. 3 ORDER On appeal from: Eastern Cape Division of the High Court, Makhanda (Van Zyl DJP and Ah Shene AJ, sitting as a court of appeal): 1 The first and second applicants are each granted special leave to appeal against the orders of the high court. 2 The costs of the applications for special leave to appeal shall be costs in the appeal. 3 The appeal against paragraph 1 of the high court order is upheld with costs. 4 Paragraph 1 of the high court order is set aside and replaced with the following: ‘1.1 The appeal is upheld. 1.2 The respondents are ordered to pay the costs of the appeal up to 20 July 2021, being the date of filing of the rule 51(11)(a) notice of abandonment. 1.3 No order for costs is made in relation to the appeal thereafter.’ 5 The appeal against paragraph 4 of the high court order is upheld in part. 6 Paragraph 4 of the high court order is set aside and replaced with the following: ‘4.1 The first respondent’s cross-appeal against the dismissal of his claim for unlawful arrest is dismissed. 4.2 The first respondent’s cross-appeal against the dismissal of his claim for unlawful detention is upheld. 4.3 The order of the magistrates’ court is replaced with an order as follows: 4 ‘The defendant is liable for the unlawful detention of the first plaintiff at Walmer Police Station, Gqeberha from 23h00 on 6 December 2014 to 12h10 on 7 December 2014. The defendant is ordered to pay to the first plaintiff the sum of R40 000 as damages for said unlawful detention, together with interest thereon from date of judgment.’ 4.4 There shall be no order for costs in the cross-appeal.’ 7 The respondent is ordered to pay the second applicant’s costs of appeal in this Court. 8 No order for costs is made in relation to the first applicant’s appeal in this Court. JUDGMENT Weiner and Goosen JJA (Carelse JA and Tokota AJA concurring): [1] This is an application for special leave to appeal against orders of the Eastern Cape Division of the High Court, Makhanda, sitting as a court of appeal (the high court). The application was referred for oral argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013, upon the usual terms that the parties should be prepared to address the merits of the appeal if required. The substantive issues concern the liability of the respondent, the Minister of Police (the Minister), for the alleged wrongful and unlawful arrest and detention of the first applicant, Mr Syce, and a costs order granted against the second applicant, Mr Blignaut. [2] On the evening of 6 December 2014, two members of the South African Police Service (SAPS), Constables Tom and Grimsel, were on patrol in the suburb of 5 Walmer in Gqeberha. They were alerted to be on the look-out for a grey VW Polo motor vehicle, which was suspected to be transporting illicit drugs in the area of the Fig Tree Park Shopping Centre, in Walmer. [3] At approximately 21h00, the police officers saw a grey VW Polo in the precinct of the Fig Tree Park Shopping Centre. They stopped the vehicle. Other police vehicles arrived on the scene. The constables approached the vehicle. Mr Syce was the driver. Mr Blignaut and Ms Varnyess were passengers in the vehicle. The police officers told the occupants why they had stopped the vehicle. They then searched the vehicle and each of the occupants. No drugs were found. The search had revealed some alcohol containers in the vehicle. [4] During the search and the interaction with Mr Syce, Constable Tom detected the smell of alcohol on Mr Syce’s breath. She requested him to undertake a breathalyser test. The test reading was 0,45 grams per 1000 millilitres, indicating that Mr Syce’s blood alcohol content was over the legal limit.1 Constable Tom informed Mr Syce that, since the reading was over the limit and that he had been driving the vehicle, she was arresting him on suspicion of ‘drunken driving’. She warned him of his rights and placed him under arrest. [5] Mr Blignaut and Ms Varnyess were permitted to leave. Mr Syce was placed in the police vehicle and taken to the Walmer Police Station, where he was formally detained; a case number was assigned; and a blood test kit obtained. His rights were explained to him and he was provided with a notice of rights, which he signed. An entry was made in the occurrence book at the Walmer Police Station at 21h20. Mr 1 In terms of s 65 of the National Road Traffic Act 93 of 1996, the maximum permissible blood alcohol concentration is set at 0,05g/100ml and for alcohol concentration in breath at 0,24g/1000ml. 6 Syce was then taken to the Livingstone Hospital. They arrived at the hospital at approximately 21h35. A blood sample was drawn for a blood alcohol test by Dr Adebisi at 22h21. Thereafter, he was taken back to the Walmer Police Station, where he was detained. On 7 December 2014, at 08h00, he was charged by the investigating officer and at 12h10 he was released from custody and warned to appear in court on 6 July 2015. [6] In July 2015, Mr Syce, Mr Blignaut and Ms Varnyess each instituted action against the Minister in the Magistrate’s Court for the District of Port Elizabeth (the trial court). They claimed payment of an amount of R60 000 each for an unlawful search. Mr Syce also claimed R80 000 for his unlawful arrest and detention. On 9 February 2017, the three actions were consolidated into one. During the course of the trial, Ms Varnyess withdrew her claim. The magistrate gave judgment in favour of Mr Syce and Mr Blignaut in respect of their claims for unlawful search. The magistrate awarded each of them R30 000 in damages and interest on the amounts from the date of issue of summons. The magistrate dismissed Mr Syce’s claim for unlawful arrest and detention. The Minister was ordered to pay the costs of the action. [7] The Minister appealed to the high court against the order that interest was payable from the date of summons. The Minister also appealed against the magistrate’s failure to award costs in favour of the Minister in relation to the unlawful arrest and detention claim. The Minister did not appeal against the finding of liability in relation to the unlawful search, nor the quantum of damages payable. [8] Mr Syce cross-appealed against the dismissal of his claim for unlawful arrest and detention. Before the appeal was heard, Mr Syce and Mr Blignaut abandoned 7 the order in relation to interest payable from the date of summons. They filed a notice in terms of rule 51(11)(a) of the Magistrates’ Court Rules, in which they consented to an order that interest run from the date of judgment. We were informed by counsel that a copy of the rule 51(11)(a) notice was presented to the high court when the appeal was argued and that Mr Blignaut did not participate in the appeal. [9] The high court upheld the Minister’s appeal in relation to the order that interest was payable from the date of summons. It replaced the magistrate’s order with an order that interest was to be paid from a date 14 days after judgment until final payment was made. The high court awarded the costs of the appeal to the Minister. It dismissed the Minister’s appeal in relation to the costs of the action and dismissed the first applicant’s cross-appeal. The high court found that the arrest and detention were lawful. It is against these latter orders that Mr Syce and Mr Blignaut now seek special leave to appeal.2 [10] Mr Syce wishes to appeal against the costs order made against him in respect of the Minister’s appeal before the high court (the interest-order appeal).3 He also wants to appeal against the dismissal of his claim for unlawful arrest and detention.4 Mr Blignaut wishes to appeal against the costs order in the interest-order appeal.5 2 The order of the high court reads as follows: ‘1. The appeal be and is hereby upheld with costs. 2. The orders of the Magistrate with regards to the interest awarded to the two Respondents be and are hereby set aside, and substituted with an order in respect of each Respondent that: ‘The defendant is directed to pay interest on the amount of R30 000.00 to be calculated at the prescribed rate of interest from a date fourteen days after the date of judgment to date of payment.’ 3. The appeal in respect of the costs of the action be and is hereby dismissed. 4. The First Respondent’s cross-appeal be and is hereby dismissed with costs.’ 3 Paragraph 1 of the order above. 4 Paragraph 4 of the order above. 5 Paragraph 1 of the order above. 8 Special leave to appeal [11] Special leave to appeal will be granted if the applicant can establish not only that there is a reasonable prospect of success on appeal, but that there are special or extraordinary circumstances which warrant a further appeal. In Van Wyk v S; Galela v S,6 this Court re-affirmed the test laid down in Westinghouse Brake and Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd,7 as follows: ‘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.’ [12] In urging us to grant special leave to appeal in relation to the unlawful arrest and detention claim, counsel for Mr Syce submitted that the evidence showed that the arresting officer was not aware that she had a discretion not to arrest. She could therefore not have exercised the discretion. This would render the arrest and detention unlawful. Furthermore, the case concerns the ambit of a police officer’s discretion when effecting an arrest in circumstances such as the present. These are legal questions of considerable importance, it was submitted, upon which no clear authority exists. [13] We agree. If indeed the discretion whether or not to arrest was triggered, its ambit is a matter of considerable importance. Accordingly, we are satisfied that the threshold for special leave to appeal is met in relation to Mr Syce’s appeal against the dismissal of his cross-appeal before the high court. 6 Van Wyk v S; Galela v S [2014] ZASCA 152; 2015 (1) SACR 584 (SCA) para 21. 7 Westinghouse Brake and Equipment (Pty) Ltd v Bilger Engineering (Pty) Ltd 1986 (2) SA 555 (A) at 564H-565E. 9 [14] Regarding the costs award made in the interest-order appeal, it was submitted that the high court was not required to address the issue in light of the notice of abandonment. By proceeding with the appeal on that issue the high court committed an error of law. Furthermore, so it was submitted, the high court committed an ‘extraordinary error’ by awarding costs against Mr Blignaut, who did not participate in the appeal. This would qualify as a special circumstance justifying the granting of special leave to appeal. [15] Counsel for the Minister argued that the notice of abandonment did not contain a tender for the costs of the appeal. The Minister was therefore entitled to proceed with the appeal in order to obtain such an order for costs. The high court was therefore entitled to deal with the issue as it did. Accordingly, this was not a matter where there are special circumstances which warrant an appeal which, in effect, is solely against costs. [16] The high court judgment does not address the abandonment of the order, despite it having been drawn to its attention at the hearing of the appeal. The high court instead determined the merits of the Minister’s appeal and, upon concluding that the appeal should succeed, made the usual costs order. [17] The abandonment of a judgment or order which is under appeal has the effect of removing the lis between the parties. In Durban City Council v Kistan8 (Kistan), it was stated that: ‘By abandoning that part of the order which is appealable the defendant has conceded to the plaintiff the only relief which he was entitled in law to seek from this Court.’9 8 Durban City Council v Kistan 1972 (4) SA 465 (N) (Kistan). 9 Ibid at 469H. 10 And further that: ‘The only lis between the parties was the order for costs granted by the magistrate. That lis has been removed by the defendant’s abandonment of the order in his favour relating to that lis.’10 [18] The absence of any consideration of the notice of abandonment filed pursuant to s 86 of the Magistrates’ Court Act 32 of 1944 (the Magistrates’ Court Act), suggests that the high court did not exercise its discretion to award costs with reference to relevant principles. As Cloete JA put it in Naylor v Jansen: ‘I had occasion in Logistic Technologies (Pty) Ltd v Coetzee to express the view that a failure to exercise a judicial discretion would (at least usually) constitute an exceptional circumstance. I still adhere to that view ─ for if the position were otherwise, a litigant adversely affected by a costs order would not be able to escape the consequences of even the most egregious misdirection which resulted in the order, simply because an appeal would be concerned only with costs . . .’ 11 (Footnote omitted.) [19] In addition, one of the factors which constitute a special circumstance for granting special leave is that the prospects of success are so strong that a refusal of leave may result in a manifest denial of justice.12 In the present matter, we consider this to be the case. An injustice would accrue to Mr Syce and Mr Blignaut because if the order of the high court stands, they would be obliged to pay the full extent of the costs on appeal, despite their abandonment of the erroneous order by the trial court. In our view, the threshold for granting special leave to appeal is therefore also met on this issue. The issues on appeal 10 Ibid at 470A. 11 Naylor and Another v Jansen [2006] ZASCA 94; 2007 (1) SA 16 (SCA) para 10. 12 Cook v Morrison and Another [2019] ZASCA 8; 2019 (5) SA 51 (SCA) para 8. 11 [20] There are two issues which must be decided in the appeals. First, whether the order dismissing the unlawful arrest and detention claim should stand. Secondly, whether the high court order upholding the Minister’s appeal against the interest order, with costs, was an appropriate order. The arrest [21] During the course of the trial it was conceded by Mr Syce that the jurisdictional requirements, set out in s 40(1) of the Criminal Procedure Act 51 of 1977 (the CPA), for his arrest had been met. At the conclusion of his evidence-in-chief, however, his particulars of claim were amended to allege that Mr Syce had asked the arresting officer to allow him to walk to the nearby home of his girlfriend, but that his request was ignored. This came to be the central attack on the lawfulness of the arrest, namely an alleged failure by the arresting officer to exercise a discretion whether or not to arrest. [22] A peace officer who makes a warrantless arrest has a discretion whether or not to make the arrest. The discretion arises once the jurisdictional requirements stipulated in s 40(1) of the CPA are satisfied.13 In Groves NO v Minister of Police14 (Groves), the Constitutional Court confirmed this principle in relation to a warrantless arrest, as follows: ‘The officer making a warrantless arrest has to comply with the jurisdictional prerequisites set out in section 40(1) of the CPA. In other words, one or more of the grounds listed in paragraphs (a) to (q) of that subsection must be satisfied. If those prerequisites are satisfied, discretion whether or not to arrest arises. The officer has to collate facts and exercise his discretion on those facts. The officer must be able to justify the exercising of his discretion on those facts. The facts may include an investigation of the exculpatory explanation provided by the accused person.’ 13 Minister of Safety and Security v Sekhoto and Another [2010] ZASCA 141; 2011 (5) SA 367 (SCA) para 28. 14 Groves NO v Minister of Police [2023] ZACC 36; 2024 (1) SACR 286 (CC) (Groves) para 52. 12 [23] Although the Constitutional Court in Groves was dealing with an arrest made pursuant to a warrant, it provided important guidance in relation to the circumstances which trigger the discretion. It stated that: ‘Applying the principle of rationality, there may be circumstances where the arresting officer will have to make a value judgment. Police officers exercise public powers in the execution of their duties and “[r]ationality in this sense is a minimum threshold requirement applicable to the exercise of all public power by members of the executive and other functionaries”. An arresting officer only has the power to make a value judgement where the prevailing exigencies at the time of arrest may require him to exercise same; a discretion as to how the arrest should be affected and mostly if it must be done there and then. To illustrate, a suspect may at the time of the arrest be too ill to be arrested or may be the only caregiver of minor children and the removal of the suspect would leave the children vulnerable. In those circumstances, the arresting officer may revert to the investigating or applying officer before finalising the arrest.’15 [24] Prior to the amendment of his particulars of claim they read, in relevant part, as follows: ‘14. Plaintiff’s arrest was wrongful, unlawful, and malicious, in that, inter alia: 14.1 he did not commit an offence in the presence of a peace officer; 14.2 there was no reasonable suspicion that he had committed a Schedule 1 offence.’ [25] When the amendment was moved, the magistrate noted that paragraph 14.1 was to be deleted and replaced with, ‘the arresting officer informed the plaintiff that he was obliged to arrest him.’ Paragraph 14.2 was to be deleted and replaced with, ‘the arresting officer refused the plaintiff to go to the third plaintiff’s house which was not far from the place of arrest, and to leave his motor vehicle [at] the nearest petrol station.’ 15 Ibid para 60. 13 [26] Mr Syce’s evidence-in-chief on the issue was presented as follows: ‘Now, did you tell the Police members where you guys were on your way to? – Yes. When did it happen? – Excuse me? When did that happen, when did you tell the Policemen? – When they pulled us off. Okay. This is now during the search? – Yes. And exactly, how far were you away from your destination? – Basically walking, you can walk, it is walking distance. Walking distance away from your destination? – Yes. Did you tell the Police that? – We told them that we are going to Fairview Links, it is not far. You told them it is not far? – Yes. And what did he say? – He did not listen.’ [27] After a short exchange in which Mr Syce seemed unsure of the questions, he was asked: ‘Look, the reason I am asking you this, is because I want to establish, how did it come about that he, the Policeman, actually told you that he had to arrest you, that is why I am asking you the question? – Yes. Because his supervisor was going to do a follow up on him.’ [28] Later, there are the following exchanges: ‘Now, to your mind, was there any need for the Police to have handcuffed you and arrested you? – No Why do you say that? – Because I was not a threat on the road, I was not driving recklessly. So there was no need for them to have arrested you? – No. . . . And what did you tell the Police about your destination? – I told them it is just close by, in Fairview Link. Is there any way that we can leave the vehicle, and just walk the way? You asked the Police if you can walk to Fairview Link, and leave the car there? – At the nearest garage. . . . You asked that specifically – Yes. 14 And what was the response to that request? – They were not interested in that.’ [29] This was the evidence upon which it was contended that the arresting officer had failed to exercise a discretion rendering the arrest unlawful. When Constable Grimsel testified, he was presented in cross-examination with an expanded version of Mr Syce’s evidence, which included a specific allegation about who had arrested him: ‘The plaintiff testified also that when after he blew the breathalyser was over the limit, he asked you but . . . he told you, “look here I am basically walking distance away from my ex-girlfriend’s house.” At that time it was his girlfriend’s house. “I am walking distance from my girlfriend’s house. Can I not just leave the car here and then we walk home.” He asked you not to arrest him but you refused. You said no, you are obliged to arrest him because your superior is watching you and she will follow up, she will make a follow-up to see if you arrested him.’ [30] During cross-examination the arresting officer, Constable Tom, denied that Mr Syce had asked not to be arrested. She explained that no such request was made to her. She indicated that in circumstances where the person is over the legal limit for driving under the influence of alcohol she would be obliged to arrest. It was on this basis that it was suggested that her failure to appreciate that she had a discretion rendered the arrest unlawful. [31] We have set out the evidence in some detail because it illustrates several problems with the case as presented on the issue of the exercise of a discretion by the arresting officer. First, the alleged failure by the arresting officer to exercise a discretion did not form part of the cause of action advanced by Mr Syce. The belated introduction of the amended paragraphs 14.1 and 14.2 did not squarely raise the alleged failure to properly exercise a discretion. Secondly, as the passages from the record demonstrate, there was a considerable difference between Mr Syce’s evidence 15 and that which his legal representative suggested was his evidence. An oblique request to be allowed to walk home came to be presented as a specific and motivated request not to be arrested. [32] It was not Mr Syce’s case that he had acknowledged the transgression; that he accepted that he would be charged with an offence; and that he had offered co-operation to enable that process to occur. Even accepting that Mr Syce had asked either of Constables Grimsel or Tom, to be allowed to walk home, the request was in truth no more than that he be let off the hook. In our view, a police officer who has clear evidence in the form of a breathalyser test, cannot be criticised for refusing the transgressor an opportunity to walk away. [33] We say this because of the nature of the offence Mr Syce was suspected of having committed, namely driving a motor vehicle in contravention of s 65 of the National Road Traffic Act 93 of 1996. The section prohibits the driving of a motor vehicle on a public road in three sets of circumstances: when under the influence of alcohol or a drug having a narcotic effect; when the driver’s blood alcohol concentration is above 0,05 gram per 100 millilitres; and when the concentration of alcohol in the driver’s breath is above 0,24 milligrams per 1000 millilitres. [34] The section imposes a time limit of two hours from the time of commission of one or other of the prohibited acts, within which a blood test or breathalyser test must be performed. This restriction serves to protect the integrity and reliability of the evidence gathered from such tests. Subsections (8) and (9) provide that: ‘(8) Any person detained for an alleged contravention of any provision of this section shall not─ 16 (a) during his or her detention consume any substance that contains alcohol of any nature, except on the instruction of or when administered by a medical practitioner; (b) during his or her detention smoke until the specimen referred to in subsection (3) or (6) has been taken, as the case may be. (9) No person shall refuse that a specimen of blood, or a specimen of breath, be taken of him or her.’ [35] These subsections impose restrictions upon the liberty person suspected of having committed an offence under s 65(1), (2) or (5). They apply only to a person detained. In other words, the statute envisages detention as a means to obtain evidence required for the proof of the prohibited conduct and to secure its reliability. The ambit of a police officer’s discretion not to arrest a person suspected of committing a s 65 offence, must be construed in light of the envisaged detention contemplated by the section. The discretion not to arrest and detain can only arise if the broader objects of s 65 can be met without imposing restrictions upon the liberty of the suspect. [36] In our view, this matter does not properly engage the question of whether, in the circumstances of this arrest, the arresting officer failed to exercise a discretion. It does not arise on the evidence. Nor does it arise upon the pleaded case. In light of this, the trial court’s treatment of the matter cannot be faulted. Nor can that of the high court, where it held that the issue of the improper exercise of the power to arrest was not properly raised nor substantiated by the evidence. The detention [37] Regarding the alleged unlawful detention at Walmer Police Station, Mr Syce’s case at trial was that it was unlawful by reason of the unlawful arrest. He pleaded, however, that his detention and incarceration were wrongful, unlawful, and 17 malicious in that ‘there were no reasonable and/or objective grounds justifying [this] subsequent detention after his blood was drawn . . . and his personal particulars were obtained by the arresting officer.’ He also pleaded that the arresting officer and other police officers at the Walmer Police Station had failed to apply their minds in respect of his detention and that he was not promptly informed of his right to apply for bail, as required by s 50(1)(b) of the CPA. [38] The facts disclose that Mr Syce was, immediately after being placed under arrest, transported to the Walmer Police Station, where he was formally placed in detention. A case number was assigned; he was provided with a formal notice of rights; and a forensic blood sample kit was assigned. He was taken to the Livingstone Hospital to have a blood sample taken. At that stage he was already in detention pursuant to his arrest. [39] Although Mr Syce claimed that his further detention was unlawful, there was, in fact, only a detention pursuant to the arrest. He remained in detention until his release from custody on 7 December 2014, shortly after midday, when he was released in terms of s 59 of the CPA on warning to appear in court. [40] The onus to establish that the detention of Mr Syce was lawful rests upon the Minister.16 Although it rests upon the Minister throughout, the onus arises in the adjudication of a matter only if the unlawfulness of the detention is pleaded or is canvassed in the evidence.17 In this instance, as will be shown, it was pleaded in a manner which triggered the application of the onus. 16 Minister of Police and Another v Du Plessis [2013] ZASCA 119; 2014 (1) SACR 217 (SCA) par 17. 17 Minister of Safety and Security v Slabbert [2009] ZASCA 163; [2010] 2 All SA 474 (SCA) (Slabbert) para 21-22. 18 [41] The Minister’s defence of the unlawful detention claim rested upon s 39(3) of the CPA. That section provides that the effect of a lawful arrest shall be that the person arrested shall be in lawful custody until lawfully discharged or released from custody. It was the Minister’s case, therefore, that the detention of Mr Syce pursuant to his lawful arrest remained so until his release. [42] While s 39(3) of the CPA provides for the continuity of the lawfulness of the detention of a suspect, it must be read in the context of those provisions of the CPA which provide for the release of a suspect from detention. Lawful release from custody may occur either before, at or after the detained suspect’s first appearance in court, as is required by s 50 of the CPA. Release from custody prior to the first appearance in court may occur by release on bail or warning, for specified offences, in terms of ss 59 and 59A of the CPA. These sections impose upon the police certain obligations, in relation to detained persons, which, if not met may render the continued detention of a suspect unlawful, notwithstanding s 39(3) of the CPA [43] Section 50(1)(b) obliges the police to inform the detained person, as soon as reasonably possible’ of the right to apply for bail. Subsection (1)(c) provides that: ‘Subject to paragraph (d), if such an arrested person is not released by reason that- (i) no charge is to be brought against him or her; or (ii) bail is not granted to him or her in terms of section 59 or 59A, he or she shall be brought before a lower court as soon as reasonably possible, but not later than 48 hours after the arrest.’ [44] Section 50 therefore contemplates that a detained person must be informed of their right to bail in order that the right may be exercised even before the first appearance.18 Section 59, which applies in this case by virtue of the offence for 18 The obligation to give expeditious effect to the right to apply for bail, either in court or in terms of ss 59 and 59A of the CPA, is clear. In Magistrate, Stutterheim v Mashiya 2004 (5) SA 209 (SCA) par 16, it was held that a detainee has 19 which Mr Syce was arrested and detained, provides for bail to be granted by a senior police officer. In relevant part it states: ‘(1)(a) An accused who is in custody in respect of any offence, other than an offence – (i) referred to in Part II or Part III of Schedule 2; . . . may, before his or her first appearance in a lower court, be released on bail in respect of such offence by any police official of or above the rank of non-commissioned officer, in consultation with the police official charged with the investigation, if the accused deposits at the police station the sum of money determined by such police official.’ [45] In Setlhapelo v Minister of Police and Another19 it was held that: ‘[I] am of the view that once the jurisdictional facts for the consideration of police bail in terms of s 59(1)(a) of the CPA are present, the police have a constitutional duty to ascertain as soon as reasonably possible after the arrest whether the arrestee wishes bail to be considered. If the arrestee wishes to apply for police bail, the senior police official, in consultation with the investigating police official, must consider bail as a matter of urgency. A failure to inform the arrestee of his constitutional right to apply for bail or a failure to consider bail or any unreasonable delay in the process could, depending on the circumstances of the case, render the arrestee's further detention until his first appearance in court unlawful.’20 [46] In EF v Minister of Safety and Security (EF),21 this Court considered the effect of a failure by the police to act in accordance with s 59 of the CPA and release a suspect, in the context of a delictual claim for damages arising from a sexual assault a procedural right to a prompt decision upon a request for bail that is not dependent upon the merits of the request, and in Mashilo and Another v Prinsloo [2012] ZASCA 146; 2013 (SACR) 648 (SCA) par 16, it was held that ‘expedition relative to circumstances is what is dictated by [ss 50(1)(b) and (c)] and the Constitution.’ 19 Setlhapelo v Minister of Police and Another [2015] ZAGPPHC 363. Despite this exposition of the principles the court dismissed the plaintiff’s claim because he had not specifically relied upon the provisions of s 59 in his particulars of claim. In the light of Zealand v Minister of Justice and Constitutional Development and Another [2008] ZACC 3; 2008 (6) BCLR 601 (CC); 2008 (2) SACR 1 (CC); 2008 (4) SA 458 (CC) (Zealand) para 24, the outcome appears erroneous. 20 Ibid para 38. See also Gqunta v Minister of Police [2020] ZAECGHC 82 para 14. 21 E F v Minister of Safety & Security [2018] ZASCA 96; 2018 (2) SACR 123 (SCA) (EF). 20 perpetrated upon the suspect whilst in police custody. Although the case did not concern a claim founded upon an unlawful detention, s 59 of the CPA was relevant. The facts were that following the suspect’s detention on a charge of drunken driving (as in this case), a senior police officer interviewed him. It was common cause that s 59 of the CPA applied and that the suspect could be released on bail, upon the recommendation of a senior police officer. The senior police officer had recommended his release. The suspect was, however, transferred to another police station and the recommended release did not occur. When his wife enquired about her husband’s release on bail, she was told that no bail had been recommended or set. The suspect therefore remained in custody. The sexual assault by other inmates occurred during this period. [47] Based on these facts, this Court had no difficulty in finding that the failure of the police officers to give effect to the recommendation to release the suspect was wrongful and negligent.22 Where the question to be answered is whether the continued detention of a suspect who is entitled to be released, is lawful, the same principle would apply, namely that the failure to release or consider the release of a suspect in accordance with provisions that would permit of such release, would render the continued detention unlawful.23 [48] Mr Syce’s pleaded case was that his continued detention was unlawful on the basis that it was no longer required. This related to him having furnished his personal particulars and having provided a blood sample. The blood sample was provided after 22h00 on the night he was arrested and he was thereafter detained at the Walmer 22 Ibid paras 18–20. 23 In Mvu v Minister of Safety and Security 2009 (2) SACR 291 (GSJ); 2009 (6) SA 82 (GSJ) paras 10 – 12; 17, it was stated that continued detention is always subject to the exercise of a discretion. That is certainly so in circumstances where ss 59 and 59A of the CPA apply. 21 Police Station. His release from detention was, however, as a matter of law, subject to the provisions of the CPA which permit the release of a suspect prior to his first appearance in court. Mr Syce’s evidence was that he had been told, by the arresting officer, that he would be released after four hours. He stated that he was not informed of his right to apply for bail in terms of s 50(1)(b) of the CPA. [49] The issue of the lawfulness of his continued detention was properly and sufficiently raised on the pleadings and in his evidence.24 In the circumstances, the onus to prove that the continued detention was not unlawful arose, in the sense that evidence was required to justify the conclusion that it was not unlawful.25 [50] The evidence presented by the Minister was, however, confined to that of the arresting officers, Constables Tom, and Grimsel. They denied that they had told Mr Syce that he would be released after four hours. According to them, once their functions as arresting officers had been carried out, the decision to release was that of senior officers at the Walmer Police Station and the detectives assigned to the case. Thus, even on the evidence presented on behalf of the Minister, the release of Mr Syce was a matter to be determined by senior police officers at the Walmer Police Station. No evidence was presented on behalf of the Minister to challenge the assertion that Mr Syce was not informed of his right to apply for bail. His evidence stood uncontradicted. No evidence was presented to explain the circumstances giving rise to Mr Syce’s release, in terms of s 59 of the CPA, only shortly after midday on the following day. 24 See Zealand fn 19 above para 24, where the Constitutional Court held that: ‘The Constitution enshrines the right to freedom and security of the person, including the right not to be deprived of freedom arbitrarily or without just cause, as well as the founding value of freedom. Accordingly, it was sufficient in this case for the applicant simply to plead that he was unlawfully detained. This he did. The respondents then bore the burden to justify the deprivation of liberty, whatever form it may have taken.’ 25 Slabbert fn 17 above. 22 [51] Although it is apparent, on the common cause facts, that Mr Syce was released in terms of s 59 of the CPA, they were required to justify his continued detention until he was released. We know only that Mr Syce was seen by the investigating officer at 08h00 on the following morning and that he was released at 12h10. If it was the case that Mr Syce’s release in accordance with s 59 of the CPA could not reasonably have been achieved before the time of his actual release, then it was incumbent upon the police to explain why that was so, particularly in the light of their failure to inform him of his right to apply for bail. [52] The absence of evidence to justify the lawfulness of Mr Syce’s continued detention after his return to the Walmer Police Station, means that there was no evidence upon which the onus could be discharged. The high court therefore erred in finding that the continued detention of Mr Syce was lawful. In the circumstances, his cross-appeal on the unlawful detention claim ought to have been upheld. Since he succeeds before this Court, it is necessary to consider an appropriate award of damages. [53] The assessment of damages is ordinarily the preserve of a trial court. The default position when the issue arises before an appeal court would be to remit the matter to the trial court. That is not always necessary or appropriate. In EF this Court said: ‘The general rule is that the determination of damages is a function peculiarly within the province of the trial court. It is competent, however, for this court itself to fix the damages to which the appellant is entitled. See Neethling v Du Preez and Others; Neethling v Weekly Mail and Others 1995 (1) SA 292 (A) at 301A-C. This court has all the information necessary to consider this 23 aspect. It is therefore in as good a position to do so as the trial court. For that reason, no purpose would be served by remitting the matter for that purpose.’26 [54] The evidence on record in this matter is sufficient to allow this Court to make an award for general damages. The purpose of the award in a matter such as this, is to compensate a claimant for deprivation of personal liberty and freedom and the attendant mental anguish and distress caused by the detention. In Minister of Safety and Security v Tyulu,27 this Court emphasized that ‘the primary purpose is not to enrich the aggrieved party, but to offer him some needed solatium for his injured feelings.’28 [55] In EF, it was said: ‘Arriving at an appropriate award for general damages is never an easy task. The broadest general consideration and the figure arrived at must necessarily be uncertain, depending upon the court’s view of what is fair in all circumstances of the case. See Sandler v Wholesale Coal Suppliers Ltd 1941 AD 194 at 199 and De Jongh v Du Pisanie NO 2005 (5) SA 457 (SCA). In the latter case, this court noted that there was a readily perceptible tendency towards increased awards in respect of general damages in recent times. However, it reaffirmed conservatism as one of the multiple factors to be taken into account in awarding general damages (para 60). It concluded that the principle remained that the award should be fair to both sides – it must give just compensation to the plaintiff, but ‘not pour out largesse from the horn of plenty at the defendant’s expense’, as pointed out in Pitt v Economic Insurance Company Limited 1957 (3) SA 284 (D) at 287E-F.’29 [56] Mr Syce claimed R80 000 as his damages, whereas the Minister submitted that R30 000 would be a reasonable amount. Among the factors considered are the personal circumstances of the plaintiff and the circumstances of the detention. 26 EF fn 21above para 32. 27 Minister of Safety and Security v Tyulu [2009] ZASCA 55; 2009 (5) SA 85 (SCA); 2009 (2) SACR 282 (SCA). 28 Ibid para 26. 29 EF fn 21 above para 33. 24 Regarding his personal circumstances, Mr Syce was 36 years of age, and not married, although he had a partner. He held a tertiary qualification in the form of a N2 in engineering and was employed by Transnet. Apart from this, there is no evidence about his earnings or standing in the community. [57] Mr Syce described the conditions of the cell as bad. He said that there was a smell of urine; that the toilets were dirty, and it was unbearable inside the cell. There were seven other detainees. He was given a dirty blanket which had fleas on it. There was no mattress in the cell. He was afraid that the other detainees could harm him. [58] The determination of an appropriate sum for damages is a matter of discretion. Counsel for the parties referred us to similar cases to consider in the determination of damages. Previous awards made in comparable cases, can afford guidance. The comparative exercise is, however, not a meticulous examination of awards, and should not impinge upon the court's general discretion.30 Suffice it to say that a survey of the cases referred to by counsel, emphasized the high premium placed on the right to freedom and security of the person as enshrined in the Constitution.31 This is discernable in progressively more generous amounts awarded for damages in such cases. [59] There is no evidence that Mr Syce suffered any degree of humiliation beyond that inherent in being detained. Although his cell was overcrowded and dirty, there is no suggestion that he was harassed in the cell by any of the inmates, although he was apprehensive of them. His unlawful detention extended from his return to the 30 Protea Assurance v Lamb 1971 (1) SA 530 (A) at 535B-536A. 31 Section 12(1) of the Constitution. 25 police station until his release shortly after noon on the following day. This was a period of approximately 13 hours. [60] Taking all these factors into account, an award of R40 000 would be an appropriate sum for damages for Mr Syce’s unlawful detention. The costs in the interest-order appeal [61] Section 86 of the Magistrates’ Court Act provides that: ‘(1) A party may by notice in writing abandon the whole or any part of a judgment in his favour. (2) Where the party so abandoning was the plaintiff, or applicant, judgment in respect of the part abandoned shall be entered for the defendant or respondent with costs. (3) Where the party so abandoning was the defendant or respondent, judgment in respect of the part abandoned shall be entered for the plaintiff or applicant in terms of the claim in the summons or application. (4) A judgment so entered shall have the same effect in all respects as if it had been the judgment originally pronounced by the court in the action or matter. (5) If a party abandons a judgment given in his or her favour because the judgment debt, the interest thereon at the rate granted in the judgment and the costs have been paid, no judgment referred to in subsection (2) or (3) shall be entered in favour of the other party.’ [62] Rule 51(11) of the Magistrates’ Court Rules provides that: ‘(a) A respondent desiring to abandon the whole or any part of a judgment appealed against may do so by the delivery of a notice in writing stating whether he or she abandons the whole, or if part only, what part of such judgment. (b) Every notice of abandonment in terms of paragraph (a) shall become part of the record.’ [63] The notice of abandonment is directed to the clerk of the court who is required to enter the orders for which provision is made in s 86(2) and (3) of the Magistrates’ 26 Court Act.32 The notice also serves as a notice filed in the appeal against the judgment or order so abandoned. [64] The rationale and purpose of abandonment as provided by s 83 of the Magistrates’ Court Act, 32 of 1917 (the present s 86), was described by De Villiers JP, in Burridge v Chodos:33 ‘Sec., 83 obviously aims at simplifying the procedure in a case where a successful party in a magistrate’s court finds himself in possession of a damnosa hereditas, in the shape of a judgment which he sees no prospect of maintaining on appeal. Formerly such a judgment could only be altered, as a rule, by going through the expensive routine of appeal. The Act introduces an automatic method of, altering the judgment by the process of an “abandonment”. One can see that it would be an essential feature of an automatic scheme that it should be laid down exactly, and precisely, and rigidly, what should be the extent of the alteration of the judgment effected by an abandonment, for, if any discretion were left to any judicial or other officer, the scheme would lose its automatic character. We find this feature duly embodied in sec. 83, in which it is provided that “the respondent to an appeal may by notice in writing abandon the whole or any part of the judgment against which the appeal is noted” and “where the party so abandoning was the plaintiff, judgment in respect of the part abandoned shall be entered for the defendant with costs”; and “a judgment so entered shall have the same effect in all respects as if it had been the judgment originally pronounced by the court in the action.” It appears thus that if a successful plaintiff desires to make use of this automatic statutory procedure he can only do so at the price of a complete reversal of the abandoned judgment (or part of judgment): in other words he can only do so if he is agreeable to see judgment entered for the defendant in lieu of judgment for himself, and he cannot, under the statutory procedure, stop halfway by altering the judgment in his own favour into a judgment of “absolution from the instance.” If a successful plaintiff is not willing to go to this length, then he is relegated to the position in which he would have been before the Act, i.e., 32 See Scrooby v Engelbrecht 1940 TPD 100 at 105, which dealt with s 83 of the Magistrates’ Court Act, 32 of 1917 (which was in identical terms to the present s 86), where it was held that: ‘An abandonment under sec. 83 has certain results which are set out in the Act and it enables the clerk of the court to make certain alterations in the records of the court without an order of the Court of Appeal.’ (My emphasis.) 33 Burridge v Chodos 1928 OPD 16 at 17-18. 27 he must either come to terms with his adversary or allow the latter to go through the routine of appeal.’ 34 [65] Whether s 86 of the Magistrates’ Court Act permits only the entry of the consequential orders provided by the section, need not be decided for purposes of the present appeal. That is so because the high court’s order varying the magistrate’s order was not in question. The abandonment of an order in a pending appeal, however, plainly carries costs implications. What was required of the high court, therefore, was to decide the liability for the costs of the appeal in the light of the notice of abandonment. The fact that it did not do so means that its discretion was exercised upon an incorrect basis. This Court is, therefore, entitled to interfere with the order and grant a costs order which, in its discretion, will meet the exigencies of the case. [66] Counsel for the Minister relied upon the judgment in Vaal Investment & Trust Co (Pty) Ltd v DG Ladegaard (Pty) Ltd,35 where it was held that it is necessary that a tender for costs of the appeal should be included in the notice of abandonment. It was submitted that the Minister was entitled to pursue the costs of the appeal in the absence of the tender. On this basis, it was suggested that the order of the high court was, irrespective of the failure to deal with the abandonment, correct. For that reason the appeal ought not to succeed. 34 The same interpretation was applied in Viljoen v Richter 1928 OPD 97 at 100-101. This was followed in Bonthuys v Visser’s Garage 1950 (3) SA 130 (SWA) at 132E (Bonthuys). In Van Rensburg v Reid 1958 (2) SA 249 (E) at 251, which dealt with the section in its present form, it was held that: ‘If a party wishes to avoid the costs of an appeal against a judgment obtained by him by abandoning his judgment, he must take the result prescribed under sec. 86 if he abandons in terms of that section or must get his opponent to accept an abandonment outside that section. I incline therefore to the view that Burridge v. Chodos, supra, was correctly decided, but I consider it unnecessary to make a definite finding on the point.’ 35 Vaal Investment & Trust Co (Pty) Ltd v DG Ladegaard (Pty) Ltd 1973 (2) SA 799 (T) at 800G. 28 [67] A party in whose favour abandonment of an order occurs after an appeal against the order has been prosecuted, is entitled to claim the costs incurred in connection with the appeal up to the date of abandonment. In Department: Transport, Province of KwaZulu-Natal v Ramsaran and Others (Ramsaran),36 this Court approved the dictum in Bonthuys v Visser’s Garage (Bonthuys) which held that: ‘The claimant seems to have two courses open to him to obtain these costs, i.e. (a) he may set the appeal down, not for argument on the merits, but for recovering costs due to him up to the date when he received the notice of abandonment, or (b) he may apply, on notice to the other party, for an order from the Appeal Court granting him these costs, if the other party refuses to recognise his claim thereto, as is the case here.’ 37 [68] Bonthuys was concerned with an abandonment which fell outside of the ambit of the erstwhile s 83 (now s 86 of the Magistrates’ Court Act). It held that the judgment could not be automatically altered and required alteration on appeal.38 The appellant, however, was not entitled to pursue the appeal on its merits. The appellant was only entitled to proceed at the appeal to determine liability for costs up to the date of abandonment.39 In that case, it was held that the appellant was entitled to those costs ‘as well as the costs of argument at the appeal regarding the liability for those costs’.40 [69] In Ramsaran, the second option identified in Bonthuys was available. The abandonment of the order under appeal had taken place in terms of Uniform Rule 36 See Department: Transport, Province of KwaZulu-Natal v Ramsaran and Others [2019] ZASCA 62 (Ramsaran) para 9. 37 Bonthuys fn 34 above at 132H. 38 Ibid at 132E-F. 39 Ibid at 132G. 40 Ibid at133D. 29 41. Rule 41(1)(c) permits an application to be made for the costs to be awarded where no consent to pay such costs is contained in the notice of abandonment.41 Ramsaran therefore only allowed the costs of the appeal up to the date of abandonment of the orders under appeal. [70] Thus, whether or not the terms of the abandonment required a variation of the order on appeal, the Minister was only entitled to claim the costs of appeal up to the stage of abandonment. It was not open to the Minister to proceed with the appeal as if the notice of abandonment had not been filed. We were informed that the notice of abandonment was presented to the high court at the hearing of the appeal because it had not been included in the appeal record. Why it was not included is not known. Rule 51(11)(b) of the Magistrates’ Court Rules requires that the notice be included in the appeal record. The failure to tender the costs of appeal up to the stage of the abandonment, may have entitled the Minister to claim the costs of argument at the appeal to determine liability for those costs, but it does not follow that such costs must necessarily be awarded. That will depend upon the facts and the exercise of the court’s discretion. In this instance the abandonment conceded the variation sought on appeal shortly after the appeal was prosecuted.42 It disposed of the lis between the parties as a matter of law.43 It was common ground that Mr Blignaut had not participated in the appeal after the abandonment. Mr Syce’s cross-appeal, however, remained and required an appeal hearing. Nothing on the record indicates that the failure to tender the costs up to the date of abandonment was raised with Mr Syce or Mr Blignaut as an issue to be pursued at the appeal hearing. 41 Rule 51 of the Magistrates’ Court Rules does not contain an equivalent provision. 42 The appeal to the high court was prosecuted on 7 May 2021. The rule 51(11)(a) notice was served on 20 July 2021. 43 Kistan fn 8 above. 30 [71] These are important considerations which, in this case, ought to be weighed in the exercise of the discretion to award costs beyond the date of filing of the notice of abandonment. A costs order serves to indemnify a successful party against the legal costs incurred in vindicating its rights. It is underpinned by considerations of fairness and reasonableness, hence as a rule the costs of the appeal should be paid up to the date of abandonment. In our view, however, the circumstances of this case require that no costs order should be made in the Minister’s interest-order appeal after that date. The appeal against the high court’s costs order must, therefore, succeed.44 [72] We turn briefly to the costs orders. For the reasons we have set out, the Minister ought to have to have secured an order dismissing the cross-appeal in relation to the unlawful arrest. Mr Syce ought to have succeeded in the appeal relating to the unlawful detention and secured an award of damages. Ordinarily this would be accommodated by applying the principle that the costs follow the result. The two aspects were, however, inextricably interlinked insofar as the prosecution of the appeal was concerned. Both parties achieved success. It is not readily clear on what basis it might be found that one of the parties achieved more substantial success. The fact that damages were awarded on the one claim does not assist, since it is equally true that damages were not awarded on the other claim. [73] In light of this, fairness suggests that in relation to the cross-appeal before the high court, each party should pay its own costs. The same applies to the appeal, on those issues, before this Court. 44 See paragraph 1 of the high court order set out in fn 2 above. 31 [74] In the result, the following order is made: 1 The first and second applicants are each granted special leave to appeal against the orders of the high court. 2 The costs of the applications for special leave to appeal shall be costs in the appeal. 3 The appeal against paragraph 1 of the high court order is upheld with costs. 4 Paragraph 1 of the high court order is set aside and replaced with the following: ‘1.1 The appeal is upheld. 1.2 The respondents are ordered to pay the costs of the appeal up to 20 July 2021, being the date of filing of the rule 51(11)(a) notice of abandonment. 1.3 No order for costs is made in relation to the appeal thereafter.’ 5 The appeal against paragraph 4 of the high court order is upheld in part. 6 Paragraph 4 of the high court order is set aside and replaced with the following: ‘4.1 The first respondent’s cross-appeal against the dismissal of his claim for unlawful arrest is dismissed. 4.2 The first respondent’s cross-appeal against the dismissal of his claim for unlawful detention is upheld. 4.3 The order of the magistrates’ court is replaced with an order as follows: ‘The defendant is liable for the unlawful detention of the first plaintiff at Walmer Police Station, Gqeberha from 23h00 on 6 December 2014 to 12h10 on 7 December 2014. The defendant is ordered to pay to the first plaintiff the sum of R40 000 as damages for said unlawful detention, together with interest thereon from date of judgment.’ 4.4 There shall be no order for costs in the cross-appeal.’ 32 7 The respondent is ordered to pay the second applicant’s costs of appeal in this Court. 8 No order for costs is made in relation to the first applicant’s appeal in this Court. __________________ S WEINER JUDGE OF APPEAL __________________ G GOOSEN JUDGE OF APPEAL Makgoka JA: [75] I have had the privilege to read the judgment of my Colleagues, Weiner and Goosen JJA (the first judgment). I agree with the orders made in the first judgment. I write separately as I do not agree with the reasoning underpinning the interests-costs issue. In my view, that issue should not detain us for as long as it does in the first judgment. The hallmark of this Court’s judgments has always been the brevity and linear reasoning. There are of course, cases in which an expansive exposition is inevitable. The issue in question does not fall within that category. In my view, it can, and should, be disposed of pithily. The lengthy discourse on established 33 principles in the first judgment is, in my view, not necessary for the determination of this simple issue. [76] The issue arose as follows. The trial court upheld the appellants’ claims for wrongful and unlawful search. It awarded them compensation of R30 000 each. Interest on the amount was ordered to run from the date of service of summons. The Minister noted an appeal to the high court against this order, among others. In turn, Mr Syce noted a cross-appeal against the trial court’s dismissal of his claim for unlawful detention. [77] On 20 July 2021 the appellants delivered a notice in terms of rule 51(11)(a) of the magistrate court’s rules, in which they abandoned the interest portion of the trial court’s order. The appellants accepted that the trial court had erred in awarding them interest from the date of summons. They accepted that interest should have been ordered to run only form the date of judgment. The effect of the abandonment was that on appeal, the appellants would be liable to pay the Ministers costs only up to the date of the abandonment, namely, 20 July 2021. [78] Although the notice of abandonment was not included in the record of appeal in the high court, counsel for the parties confirmed to us that: (a) the notice was handed up to the court at the commencement of the hearing of the appeal in the high court; (b) the high court was informed that the notice rendered moot, the appeal in respect of the interest portion of the trial court’s order; and (c) the high court did not need to adjudicate the appeal in respect of the interest award. Despite the above, the high court adjudicated the issue in its judgment. It upheld the Minister’s appeal against the award of interest and ordered the appellants to pay the costs in respect 34 thereof. It did not refer at all, to the notice of abandonment. The effect was that the appellants were ordered to pay the costs even after the date of the abandonment of the order. [79] The applicants now seek this Court to reverse the high court’s order and replace it with one ordering them to pay the costs up to the date of the delivery of their notice of abandonment. Were the order of the high court to stand, an injustice would occur to Mr Syce and Mr Blignaut, in that they would be obliged to pay the full extent of the costs on appeal, despite their abandonment of the erroneous order by the trial court. This points to the fact that the prospects of success are so strong that a refusal of leave may result in a manifest denial of justice,45 – a key consideration whether special leave should be granted. [80] In my view, this is the nub of the appeal on this issue, and the basis on which it should be decided. The error of the high court should be corrected. For these brief reasons I agree with the order of the first judgment to do so. __________________ T MAKGOKA JUDGE OF APPEAL 45 Cook v Morrison and Another [2019] ZASCA 8; 2019 (5) SA 51 (SCA) para 8. 35 Appearances For the applicants: M du Toit Instructed by: Peter McKenzie Attorneys, Gqeberha Lovius Block Inc, Bloemfontein For the respondent: F Petersen and L Hesselman Instructed by: State Attorney, Gqeberha 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: 27 March 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 Syce and Another v Minister of Police (1119/2022) [2024] ZASCA 30 (27 March 2024) The Supreme Court of Appeal (SCA) today partly upheld an appeal against an order of the Eastern Cape Division of the High Court, Makhanda, per Van Zyl DJP and Ah Shene AJ (the high court), which dismissed an appeal in relation to the unlawful arrest and detention of the first appellant. The matter came before the SCA by way of an application for special leave to appeal, which had been referred for oral argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013. On the evening of 6 December 2014, Mr Syce (the first applicant), was the driver of a motor vehicle which was stopped by members of the South African Police Service. The vehicle was stopped on the strength of information received about alleged drug-dealing. Mr Syce, Mr Blignaut (the second applicant) and one other person were in the vehicle. They were subjected to a physical search. No drugs were found. During the course of the search, one of the police officers detected the smell of alcohol on Mr Syce’s breath. A breathalyser test was administered. It indicated that Mr Syce was over the limit prescribed in s 65 of the National Road Traffic Act 93 of 1996. Mr Syce was arrested on a charge of drunken driving. Mr Syce was detained at the Walmer Police Station. He was taken to the Livingstone Hospital where a blood sample was drawn and returned to the police station. He was seen by the investigating officer the following morning and released on warning to appear in court in terms of s 59 of the Criminal Procedure Act, 51 of 1977 shortly after midday on 7 December. Mr Syce, Mr Blignaut, and the other passenger in the vehicle each instituted claims in the Magistrates’ Court. Mr Syce claimed damages for unlawful arrest and detention and for the unlawful search conducted on him. Mr Blignaut and the other person claimed damages for the unlawful search. The third party withdrew the action at a later stage. The Magistrates’ Court found in favour of Mr Syce and Mr Blignaut on the unlawful search. It awarded an amount of R30 000 as damages and made an order that interest on the award run from date of demand. The magistrate dismissed Mr Syce’s claims for unlawful arrest and detention. The Minister appealed against the interest order made by the magistrate. Mr Syce cross-appealed against the dismissal of his claims for unlawful arrest and detention. There was no challenge to the magistrate’s orders in relation to the unlawful search. Shortly after the Minister’s appeal was prosecuted, Mr Syce and Mr Blignaut filed a notice abandoning the order relating to interest running from date of demand. They consented to an order that interest run from the date of judgment. They filed a notice in terms of Rule 51(11) (a) of the Magistrates’ Court Rules. When the appeal was heard before the high court, the notice of abandonment was drawn to the court’s attention. In light of the absence of a tender for costs in the notice of abandonment, argument was presented on the costs of the Minister’s appeal. 2 The high court disposed of the Minister’s appeal on the merits of the matter and ordered Mr Syce and Mr Blignaut to pay the costs of the appeal. It found that the arrest was lawful and that the subsequent detention of Mr Syce was lawful. It therefore dismissed Mr Syce’s cross-appeal. Mr Syce and Mr Blignaut brought an application for special leave to appeal. Mr Blignaut sought leave to appeal against the costs order made against him. Mr Syce sought leave to appeal that issue and against the dismissal of his claims for unlawful arrest and detention. The SCA found that the effect of the notice of abandonment was to dispose of the substantive issue on appeal. It held that the high court’s failure to deal with the notice of abandonment meant that it had not properly exercised its discretion in relation to the costs of appeal. Such failure constituted exceptional circumstances which satisfied the test for special leave to appeal. In relation to the dismissal of the unlawful arrest and unlawful detention claims, it considered that important questions concerning the existence of a discretion to arrest arose. It therefore granted special leave to appeal Three issues arose in the appeal, namely whether the arresting officer ought to have exercised a discretion to arrest; whether the consequent detention was lawful; and the costs order made by the high court. In relation to the arrest, the SCA held that the nature of the offence/s provided in s 65 of the National Road Traffic Act, envisaged that the suspect be detained for the purposes prescribed by the section, including that a blood sample be obtained. Execution of an arrest was therefore contemplated. It found that the arresting officer could only exercise a discretion not to arrest if the requirements of s 65 could be met without placing the suspect under arrest. It found that the facts did not trigger the exercise of a discretion. It therefore found that the arrest was lawful as had been found by the high court. In relation to the unlawful detention, the SCA found that the lawfulness challenge was properly raised on the pleadings. The onus to establish that the detention was lawful, rested throughout upon the Minister The SCA held that a lawful detention carried out pursuant to a lawful arrest could become unlawful if the suspect was entitled to be released on bail. In this case, Mr Syce had challenged the necessity for his continued detention after a blood sample had been obtained. He also stated that he had not been informed of his right to apply for bail. His right to apply for bail included the right to seek his release in terms of s 59 of the Criminal Procedure Act, 51 of 1977. No evidence was presented by the police. There was therefore no evidence to gainsay the allegation that Mr Syce had not been informed of his right to apply for bail, nor to explain why Mr Syce was only released, in terms of s 59, after midday on the following day. The SCA found that the Minister had failed to discharge the onus to establish that the detention was lawful. In light of this it found that Mr Syce was entitled to payment of damages. It ordered payment of an amount of R40 000 for the unlawful detention for the period of approximately 13 hours that he was held. In regard to the order for costs of the Minister’s appeal, the SCA found that since the high court had failed to exercise its discretion upon a proper basis, it was entitled to do so. It found that a party who abandons an order on appeal is usually liable for the costs of the appeal up to the date of abandonment. Where those costs are not tendered, the appellant would be entitled to seek such an order. In that event, the appellant may be entitled to costs of obtaining the order. The SCA found that Mr Blignaut took no part in the appeal after the notice of abandonment was filed. In the case of Mr Syce, the only substantive issues which required adjudication were those raised in his cross-appeal. It concluded that the appropriate order would be to one requiring Mr Syce and Mr Blignaut to pay the costs up to the date of abandonment of the order for interest. It set aside the high court order and replaced it with an order to that effect. In relation to the costs of the appeal, the SCA found that Mr Blignaut was entitled to his costs. In the case of Mr Syce’s appeal, it ordered each party to pay their own costs on the basis that both parties to that appeal had achieved substantial success. . --------ends--------

4326

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 702/2023 In the matter between: TRANSASIA 444 (PTY) LTD APPELLANT and THE MINISTER OF MINERAL RESOURCES AND ENERGY FIRST RESPONDENT DIRECTOR-GENERAL: DEPARTMENT OF MINERAL RESOURCES AND ENERGY SECOND RESPONDENT THE REGIONAL MANAGER: KWAZULU-NATAL REGION THIRD RESPONDENT UMSOBOMVU COAL (PTY) LTD FOURTH RESPONDENT TRANSASIA MINERALS SA (PTY) LTD FIFTH RESPONDENT In re: UMSOBOMVU COAL (PTY) LTD APPLICANT and THE MINISTER OF MINERAL RESOURCES AND ENERGY FIRST RESPONDENT DIRECTOR-GENERAL: DEPARTMENT OF MINERAL RESOURCES AND ENERGY SECOND RESPONDENT THE REGIONAL MANAGER: KWAZULU-NATAL REGION THIRD RESPONDENT And 2 Case no: 707/2023 In the matter between: TRANSASIA MINERALS (SA) (PTY) LTD APPELLANT and THE MINISTER OF MINERAL RESOURCES AND ENERGY FIRST RESPONDENT DIRECTOR-GENERAL: DEPARTMENT OF MINERAL RESOURCES AND ENERGY SECOND RESPONDENT THE REGIONAL MANAGER: KWAZULU NATAL REGION THIRD RESPONDENT UMSOBOMVU COAL (PTY) LTD FOURTH RESPONDENT TRANSASIA 444 (PTY) LTD FIFTH RESPONDENT In re: UMSOBOMVU COAL (PTY) LTD APPLICANT and THE MINISTER OF MINERAL RESOURCES AND ENERGY FIRST RESPONDENT DIRECTOR-GENERAL: DEPARTMENT OF MINERAL RESOURCES AND ENERGY SECOND RESPONDENT THE REGIONAL MANAGER: KWAZULU NATAL REGION THIRD RESPONDENT Neutral citation: Transasia 444 (Pty) Ltd v The Minister of Mineral Resources and Energy and Others (702/2023) & Transasia Minerals (SA) (Pty) Ltd v The Minister of Mineral Resources and Energy and Others (707/2023) [2024] ZASCA 145 (23 October 2024) Coram: MOLEMELA P, ZONDI DP and UNTERHALTER JA and MANTAME and DIPPENAAR AJJA Heard: This appeal was, by consent between the parties, disposed of without an oral hearing in terms of s 19(a) of the Superior Courts Act 10 of 2013. 3 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 23 October 2024 at 11h00. Summary: Failure to cite party with direct and substantial interest in application to compel disclosure of records held by the Director-General of the Department of Mineral Resources and Energy relating to the application for the Ministerial consent for the transfer of a mineral right under s 11 of the Mineral and Petroleum Resources Act 28 of 2000 – disclosure order erroneously sought and granted as contemplated by rule 42(1)(a) of the Uniform Rules of Court – order issued by court considering rescission supplementing the disclosure order incompetent – order set aside and substitution order granted. 4 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Pretoria (Millar J, sitting as court of first instance): In relation to Transasia 444 (Pty) Ltd’s appeal under case number 702/2023: 1 The appeal succeeds. 2 The order issued by Millar J on 29 August 2022 is set aside and substituted with the following: ‘(a) The application for rescission succeeds. (b) The default order granted by Mngqibisa-Thusi J, on 8 July 2022, under case number 10531/2022, is hereby set aside. (c) The application for the joinder of the applicant as the fourth respondent in the disclosure application under case number 10531/2022 is granted. (d) The applicant is granted leave to oppose the disclosure application and to file its answering affidavit within (15) fifteen) days from the date of this order. (e) The fourth respondent in the rescission application (Umsobomvu Coal (Pty) Ltd) is ordered to pay the applicant’s costs.’ 3 The fourth respondent is ordered to pay the appellant’s costs of appeal including the costs of the application for leave to appeal both in the high court and in this Court. In relation to Transasia Minerals (SA) (Pty) Ltd’s appeal under case number 707/2023, the following order is issued: 1 The appeal succeeds. 2 The order issued by Millar J on 29 August 2022 is set aside and substituted with the following: ‘(a) The applicant is granted leave to intervene as an applicant in the application for leave to appeal. (b) The applicant is granted leave to oppose the disclosure application and to file its answering affidavit within 15 (fifteen) days from the date of this order. (c) The fourth respondent in the rescission application (Umsobomvu Coal (Pty) Ltd) is ordered to pay the applicant’s costs in the intervention application.’ 5 3 The fourth respondent is ordered to pay the costs of appeal including the costs of application for leave to appeal both in the high court and in this Court. ___________________________________________________________________ JUDGMENT ___________________________________________________________________ Zondi DP (Molemela P and Unterhalter JA and Mantame and Dippenaar AJJA concurring): [1] The two appeals were heard simultaneously, as the issues they raise are substantially similar, notwithstanding that they were not formally consolidated. The appellant in the matter under case number 702/2023 is Transasia 444 (Pty) Ltd (Transasia 444) and under case number 707/2023 the appellant is Transasia Minerals (SA) (Pty) Ltd (Transasia Minerals). Transasia 444 and Tranasia Minerals, though they are separate entities, are owned by a common shareholder, Transasia BVI, which is incorporated and registered in the British Virgin Islands. [2] The two appeals concern the validity of the order made by Millar J of the Gauteng Division of the High Court, Pretoria in an application for rescission of the order made by Judge Mngqibisa-Thusi of the same division on 28 June 2022. The main issue before Millar J was whether Mngqibisa-Thusi J’s order should be rescinded. Instead of expressly granting or dismissing the application for rescission, Millar J issued an order which substantially changed the terms of Mngqibisa-Thusi J’s order. [3] The facts which gave rise to these appeals are largely common cause and are the following. Transasia 444 and Transasia Minerals have been involved in a long-standing dispute with the fourth respondent, Umsobomvu (Pty) Ltd (Umsobomvu). The dispute relates to the transfer of certain mining rights Umsobomvu sold to Transasia 1 (Pty) Ltd, (Transasia 1) which the latter subsequently assigned to Transasia 444. Umsobomvu disputed the validity of the sale agreement and cancelled it. Transasia 444 disputed Umsobomvu’s right to cancel the agreement and sought to enforce it. [4] Transasia 444 applied to the second respondent, the Director-General of the Department of Minerals and Energy (Director-General) for ministerial consent in terms of s 11 of the Mineral and Petroleum Resources Development Act 28 of 2002 (the 6 MPRDA) for the transfer of the mineral rights to it. In support of the application, Transasia 444 submitted to the Director-General various documents, some of which were confidential, while others belonged to third parties, including Transasia Minerals. Umsobomvu opposed the application. Despite its opposition, the Minister gave his consent to the transfer of Umsobomvu’s mineral rights to Transasia 444. Umsobomvu was aggrieved by the decision and lodged an appeal in terms of s 96 of the MPRDA.1 To prosecute the appeal, Umsobomvu was entitled to the record of the decision, subject to disclosure under confidentiality protection. [5] On 28 June 2022, Umsobomvu sought and obtained from the Gauteng Division, Pretoria an order (Mngqibisa-Thusi J’s order) directing the first respondent (Minister of Mineral Resources and Energy), the Director-General and the third respondent, (the Regional Manager: KwaZulu-Natal Region), (collectively referred to as the Department) to deliver all the records in respect of the appeal that Umsobomvu had brought in terms of s 96 of the MPRDA . When this application was brought, Transasia Minerals and Transasia 444 were not joined as parties, nor did they receive notice of the application. Both were entitled to service of the application and to be cited as parties to the application as they are both affected persons as envisaged in regulation 74(1) to the MPRDA. Some of the documents which were sought to be disclosed contained material which they claimed to be confidential. [6] Mngqibisa-Thusi J’s order reads as follows: 1 Section 96 of the MPRDA headed, ‘Internal appeal process and access to courts’ provides as follows: (1) Any person whose rights or legitimate expectations have been materially and adversely affected or who is aggrieved by any administrative decision in terms of this Act may appeal within 30 days becoming [sic] aware of such administrative decision in the prescribed manner to- (a) the Director-General, if it is an administrative decision by a Regional Manager or any officer to whom the power has been delegated or a duty has been assigned by or under this Act; (b) the Minister, if it is an administrative decision that was taken by the Director-General or the designated agency. (2)(a) An appeal in terms of subsection (1) does not suspend the administrative decision, unless it is suspended by the Director-General or the Minister, as the case may be. (b) Any subsequent application in terms of this Act must be suspended pending the finalisation of the appeal referred to in paragraph (a). (3) No person may apply to the court for the review of an administrative decision contemplated in subsection (1) until that person has exhausted his or her remedies in terms of that subsection. (4) Sections 6, 7(1) and 8 of the Promotion of Administrative Justice Act, 2000 (Act 3 of 2000), apply to any court proceedings contemplated in this section.’ 7 ‘The Third respondent is directed to deliver all records required in terms of the Applicant’s notice of appeal in terms of Section 96 read with Regulation 74 of the Mineral and Petroleum Resources Development Act, 2000 ('MPRDA and Application for the withdrawal of the decision in terms of s 103(4)(b) and Application for suspension of the decision in terms of s 96(2)(a) in respect of the decision made by the Director-General concerning the application made by Transasia Minerals 444 (Pty) Ltd (registration number 2011/003954/07) (Transasia 444) for Ministerial consent in terms of Section 11 of the MPRDA for the transfer of mineral right with reference number KZN30/5/1/2/2/10021MR in respect of the property Farm terrace 3707 Portion 8 of the Farm Winkel no 5054, Remainder and Portion 1 of the Farm Eastkeal no 5138 Farm Lot W no.8610, the Farm Corby Rock no 11509, Remainder of Portion 3, Remainder of Portion 4 and Portions 12 and 15 Farm Hazeldene no 12649 (‘Appeal’) in compliance with Regulation 74(8) of the MPRDA within 5 days of the granting of the Order.’ Mngqibisa-Thusi J did not furnish reasons for her order. [7] Aggrieved by the order of Mngqibisa-Thusi J, Transasia 444, on 15 July 2022, brought an urgent application in the Gauteng Division, Pretoria seeking its rescission. It simultaneously sought leave to be joined as the respondent in the disclosure application and to be allowed to file its answering affidavit within 15 days from the date of the order. Transasia 444’s complaint was that the order that was obtained by Umsobomvu was granted without notice to it, even though Umsobomvu was aware that it was an interested party. Tranasia 444 contended that, as an interested party, it ought to have been joined as a party to the proceedings. The application for rescission was brought under rule 42(1)(a) of the Uniform Rules of Court, alternatively under the common law. [8] Rule 42(1)(a) provides: ‘The court may . . . mero motu [of its own accord] 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 . . .’. [9] The rescission application was heard by Millar J, who, after hearing arguments, granted the following order without reasons: ‘1 By 5 September 2022, Third Respondent will deliver to the Applicant and the Fourth Respondent a complete index of all copies of all documents pertaining to the Record of 8 Decision concerning the application made by the Applicant in terms of section 11 of the Minerals and Petroleum Resources Development Act, 2002 ("MPRDA") ("the Index"). 2. By no later than 12 September 2022, the Applicant will instruct the Third Respondent regarding which documents contained in the Index and the record is / are confidential. 3. The documents so identified by the Applicant shall be produced by the Third Respondent as part of the Record, but under a separate folder to be titled “Confidential Portion of the Record”, by no later than close of business on 23 September 2022. 4. For avoidance of doubt, the confidential and non-confidential parts so compiled must contain a copy of each and every document in the Record in its original format (and may not be redacted). 5. Only the legal representatives of the Fourth Respondent and the experts employed by the fourth Respondent who sign the confidentiality undertaking attached as Annexure “A” (“the Confidentiality Undertaking”) hereto and submit the Confidentiality Undertaking to the Applicant's attorneys, shall be entitled to receive and inspect the Confidential Portion of the Record. 6. For avoidance of all doubt, the Fourth Respondent and its directors and shareholders and employees shall not be entitled to receive or inspect the contents of the Confidential Portion of the Record. 7. Insofar as the Fourth Respondent (acting on advice received from its legal representatives and/ or experts who have signed the Confidentiality Undertaking), wish to challenge the classification of a particular document as a confidential document, the dispute in this regard will be referred to by the Fourth Respondent and the Applicant to a retired judge who will be appointed by the parties within 24 hours of a dispute being declared. The retired judge so appointed will act as an expert and not as an arbitrator; and will decide his/her own procedure, and whether or not evidence and argument is required and if so how it is to be presented. His/her decision on either of these issues will be final and binding on the parties. If the parties cannot agree to the identity of the retired judge to be appointed within 24 hours, the Chairperson of the Johannesburg Bar shall be required to make such an appointment and shall be requested to do so on an urgent basis. The determination of the dispute will be treated by the parties and the expert as an urgent matter. Any issues concerning the interpretation and/or application of the confidentiality undertaking which may arise shall be referred to the retired judge on the same basis. 9 8. All submissions to the Minister making reference to the Confidential Portion of the Record will be treated confidentially by the Fourth Respondent and submissions will be treated in the same vein as the Confidential Portion of the Record. 9. Costs of two counsel from 15 July 2022 to the date of hearing (including the date of hearing) are to be paid by the Applicant to the Fourth Respondent on a party and party scale.’ This order followed the terms of the draft order that was handed up in court by counsel for Umsobomvu. The order in the terms as proposed by Umsobomvu did not find favour with counsel for Transasia 444. He objected to it, stating that his instructions were merely to seek rescission of Mngqibisa-Thusi J’s order and for Transasia 444 to be given an opportunity to oppose the main application. Millar J did not provide reasons for his order, and none were requested by Transasia 444 before launching its application for leave to appeal. [10] Transasia 444 sought leave to appeal against the order of Millar J and sought condonation for the late filing of its application for leave to appeal. Transasia Minerals joined the fray. It applied for leave to be joined as an applicant in the application for leave to appeal and the rescission application, alternatively to intervene in the application for leave to appeal and/or application for rescission. In turn, Umsobomvu responded by bringing an application to compel compliance with the Mngqibisa-Thusi J’s order and to hold the Department and Transasia 444 in contempt for failure to comply with it; alternatively, for an immediate execution of the order in terms of s 18(3) of the Superior Courts Act 10 of 2013. Although all three applications served before Millar J on 20 January 2023, he only dealt with the application for leave to appeal and the intervention application. He left the remaining application for determination at a later stage. [11] Millar J granted Transasia Minerals leave to intervene as the applicant in the application for leave to appeal and dismissed Transasia 444’s application for leave to appeal with no order as to costs. In his judgment on the application for leave to appeal and the intervention application, Millar J for the first time shed light on why he had granted his original order. He explained that he had granted Transasia Minerals leave to intervene in the appeal for it to be able ‘to exercise its rights together with Transasia 10 444 inter alia in terms of paragraphs 2 and 7’ of his order of 29 August 2022. In other words, according to Millar J the order that he fashioned affords Transasia Minerals and Transasia 444 the right to have a say on what documents the Department could release to the attorneys for Umsobomvu. He stated that in considering the rescission application he had regard to the MPDRA and regulation 74(8), regulating appeals, which requires the Regional Manager, upon receipt of the notice of appeal, to send all records pertaining to the decision appealed against to all identified affected persons. [12] According to Millar J, Umsobomvu, being one of the parties contemplated in the regulation, was entitled to be furnished with the record. In his view, Umsobomvu was, however, not entitled to the documents in respect of which the appellants claimed confidentiality or documents which were not relevant to the appeal and to which Umsobomvu had no objection to their exclusion from the appeal record. Notably, Millar J’s order does not stipulate in explicit terms whether he granted or refused rescission, and his reasoning does not provide clarity. He says at para 30 of the judgment: ‘The order made on 29 August 2022, insofar as the rescission of the order of 28 June 2022 was refused, accommodated, without objection by Umsobomvu, the rights and interests of Transasia 444 (and now Transasia Minerals also).’ Millar J also says at para 19 of the judgment that his order does not vary Mngqibisa-Thusi J’s order ‘but serves, in conjunction with [Mngqibisa-Thusi J’s] order, to impose a regime in terms whereof the interests of Transasia 444 (and also Transasia Minerals) could be represented and protected- in the way they would have been had either been before the court on 28 June 2022’. (Own emphasis.) Millar J rejected Transasia Minerals’ contention that the order he issued on 29 August 2022 was not a variation of Mngqibisa-Thusi J’s order in its terms. He explained that his order was an addition to the order of Mngqibisa-Thusi J and had to be read in conjunction with it. [13] Aggrieved by the order of Millar J dismissing leave to appeal, both Transasia 444 and Transasia Minerals petitioned this Court for leave to appeal. Leave to appeal was granted by this court on 22 June 2023. [14] Both Transasia 444 and Transasia Minerals submitted that Millar J’s order was a nullity to the extent that it varied the final order of Mnqgibisa-Thusi J, alternatively, that Millar J erred in refusing rescission. I disagree with the first proposition. Millar J’s 11 order is not a nullity. I accept that it is not a model of clarity, and it is ambiguous, but the fact that it lacks clarity does not render it a nullity. Millar J should ideally have furnished his reasons for his order before the hearing of the application for leave to appeal. But be that as it may, his intention must be ascertained from the language of the judgment on the application for leave to appeal as construed according to the usual, well-known rules.2 As in the case of a document, the judgment and his reasons for giving it, must be read as a whole to ascertain his intention.3 It is now settled that, when interpreting a document, including a court order, the point of departure should be the language in question, read in context while also having regard to the purpose of its provision and the background.4 [15] The Constitutional Court, in Democratic Alliance in re Electoral Commission of South Africa v Minister of Cooperative Governance and Others,5 had this to say regarding the interpretation of court orders: ‘The order with which a judgment concludes has been described as the “executive part of the judgment”, because it defines what the court requires of the parties who are bound by it. For this reason, it was said in Ntshwaqela that although the order must be read as part of the entire judgment, and not as a separate document, the order’s meaning, if clear and unambiguous, cannot be restricted or extended by anything else stated in the judgment. The modern approach is not to undertake interpretation in discrete stages but as a unitary exercise in which the court seeks to ascertain the meaning of a provision in the light of the document as a whole and in the context of admissible background material. This principle applies to the interpretation of court orders, as decisions of this Court make plain. The principle is unaffected by the circumstance that, for reasons of urgency, the order preceded the reasons. Analogously, in International Trade Administration Commission, this Court said that, in interpreting a court’s order, regard could be had to the court’s subsequent judgment on an application for leave to appeal. A court order is made for particular reasons 2 Firestone South Africa (Pty) Limited v Genticuro AG [1977] 4 All SA 600 (A); 1977 (4) SA 298 (A) at 304D-E. 3 Finishing Touch 163 (Pty) Ltd v BHP Billiton Energy Coal South Africa Ltd and Others [2012] ZASCA 49; 2013 (2) SA 204 (SCA) para 13. 4 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA) para 18. 5 Democratic Alliance in re Electoral Commission of South Africa v Minister of Cooperative Governance and Others [2021] ZACC 30; 2022 (1) BCLR 1 (CC) para 12-13. 12 and for particular purposes, and although these may be discerned from the order itself, greater light is shed on them by the judgment.’ (Footnote omitted.) [16] Properly construed, in the light of the judgment given on the application for leave to appeal, the effect of Millar J’s order, although it does not say so in explicit terms, was to refuse rescission. This is, in fact, what he himself says in paragraph 30 of the judgment referred to in para 12 above. The effect of the refusal was that Mngqibisa-Thusi J’s order remained extant. Instead of confirming Mngqibisa-Thusi J’s order, Millar J then reformulated it. He was of the view that it was competent for him to supplement Mngqibisa-Thusi J’s order by imposing a confidentiality regime which would regulate the manner in which the appellants’ documents, which were in possession of the Department, were to be disclosed to Umsobomvu. His explanation for doing so is that, in his view, putting in place a confidentiality regime in the order was necessary in order to address the concerns raised by the appellants which Mngqibisa-Thusi J’s order had failed to do. In my view this was wrong. He either had to grant or refuse rescission. If he had granted rescission, the question of a proper confidentiality regime could have been traversed once the appellants had filed papers in the disclosure application. If the rescission application had been correctly refused, Mngqibisa-Thusi J’s order, being an order to compel disclosure, was an interlocutory order, capable of amendment depending on the exigencies of the situation. [17] The order of Millar J should be set aside. It was incorrect. He was faced with the application for rescission under rule 42(1)(a), alternatively under the common law. All that was required of him was either to grant rescission if a case for It was made out or dismiss it, if he was not satisfied that the order had been erroneously sought or erroneously granted. Based on the evidence that was presented to him, which was not disputed, Millar J should have granted rescission. The appellants had not been joined as parties to the main application before Mngqibisa-Thusi J. Nor did they receive notice of the application. Both were entitled to service of the application and to be cited as parties to the application because they were owners of the material which the Director-General and/or the Minister were required to disclose. They were therefore clearly interested parties. This fact was well known to Umsobomvu’s attorneys when they brought the application to compel. 13 [18] In the notice of appeal in terms of s 96 of the MPRDA that preceded the application to compel, Umsobomvu’s attorneys identified the appellants as affected parties as contemplated in regulation 74(1)(b) of the MPRDA Regulations and again, in the correspondence that exchanged between the parties they were identified as such. Mngqibisa-Thusi J’s order was therefore erroneously sought or granted within the meaning of rule 42(1)(a). [19] It was made in the absence of the appellants, who had a direct and substantial interest in the proceedings by virtue of the fact that they were the owners of the confidential material that was sought to be disclosed. Since they have a legal interest in the subject-matter of the main application, they should have been served with the application to compel.6 The appellants were necessary parties, and they ought to have been joined. The appellants’ non-joinder rendered the proceedings irregular. [20] Madlanga J, in Morudi and Others v NC Housing Services and Development Co Limited and Others,7 quoted with approval the following dictum by Brand JA in Judicial Service Commission v Cape Bar Council:8 ‘It has by now become settled law that the joinder of a party is only required as a matter of necessity – as opposed to a matter of convenience – if that party has a direct and substantial interest which may be affected prejudicially by the judgment of the court in the proceedings concerned. The mere fact that a party may have an interest in the outcome of the litigation does not warrant a non-joinder plea. The right of a party to validly raise the objection that other parties should have been joined to the proceedings, has thus been held to be a limited one.’ (References omitted.) [21] In Amalgamated Engineering Union v Minister of Labour,9 this Court held: ‘Indeed it seems clear to me that the Court has consistently refrained from dealing with issues in which a third party may have a direct and substantial interest without either having that party joined in the suit or, if the circumstances of the case admit of such a course, taking other adequate steps to ensure that its judgment will not prejudicially affect that party’s interests.’ 6 De Villiers and Others v GJN Trust and Others [2018] ZASCA 80; 2019 (1) SA 120 (SCA) para 22. 7 Morudi and Others v NC Housing Services and Development Co Limited [2018] ZACC 32; 2019 (2) BCLR (CC) para 29. 8 Judicial Service Commission v Cape Bar Council [2012] ZASCA 115; 2013 (1) SA 170 para 12. 9 Amalgamated Engineering Union v Minister of Labour 1949 (3) SA 637(A) at 659. 14 [22] It follows therefore that when Mngqibisa-Thusi J granted the order in the absence of the appellants, she committed a procedural irregularity. She could not validly grant an order in the main application without the appellants having been joined. Therefore, Millar J was in error to have, in effect, refused the application for rescission of the order of Mngqibisa-Thusi J. [23] The next question is whether the matter should be remitted to the high court for the consideration of the rescission application. Having regard to the fact that the entire record is before this Court, and that the matter was fully argued before us, it would serve no useful purpose other than to delay the finalisation of these proceedings to uphold the appeal and remit the matter back to the high court for it to consider the rescission application. In these circumstances, it would be in the interest of justice to uphold the appeal, set aside the order of Millar J, rescind the order granted by Mngqibisa-Thusi J and grant Transasia 444 leave to oppose the disclosure application. [24] Transasia Minerals’ position is different to that of Transasia 444. It was not a party to the rescission application that was brought by Transasia 444. It only joined the dispute at the stage of the application for leave to appeal when it sought to be joined in the application for leave to appeal and the rescission application, alternatively to intervene in the application for leave to appeal and/or in the rescission application. Transasia Minerals supported the rescission application. Millar J granted it leave to intervene as an applicant in the application for leave to appeal but he dismissed Transasia 444’s application for leave to appeal. This meant that although Transasia Minerals was granted leave to intervene in the application for leave to appeal, it was not afforded an opportunity to prosecute the appeal since the application for leave to appeal was refused. Transasia Minerals is not entitled to a rescission remedy because it was not a party to the rescission application. It will, however, enjoy the benefit of the rescission granted by reason of the success of Transasia 444’s appeal. And in consequence, Transasia Minerals is granted leave to oppose the disclosure application. The order [25] In relation to Transasia 444 (Pty) Ltd’s appeal under case number 702/2023: 15 1 The appeal succeeds. 2 The order issued by Millar J on 29 August 2022 is set aside and substituted with the following: ‘(a) The application for rescission succeeds. (b) The default order granted by Mngqibisa-Thusi J, on 8 July 2022, under case number 10531/2022, is hereby set aside. (c) The application for the joinder of the applicant as the fourth respondent in the disclosure application under case number 10531/2022 is granted. (d) The applicant is granted leave to oppose the disclosure application and to file its answering affidavit within (15) fifteen) days from the date of this order. (e) The fourth respondent in the rescission application (Umsobomvu Coal (Pty) Ltd) is ordered to pay the applicant’s costs.’ 3 The fourth respondent is ordered to pay the appellant’s costs of appeal including the costs of the application for leave to appeal both in the high court and in this Court. In relation to Transasia Minerals (SA) (Pty) Ltd’s appeal under case number 707/2023, the following order is issued: 1 The appeal succeeds. 2 The order issued by Millar J on 29 August 2022 is set aside and substituted with the following: ‘(a) The applicant is granted leave to intervene as an applicant in the application for leave to appeal. (b) The applicant is granted leave to oppose the disclosure application and to file its answering affidavit within 15 (fifteen) days from the date of this order. (c) The fourth respondent in the rescission application (Umsobomvu Coal (Pty) Ltd) is ordered to pay the applicant’s costs in the intervention application.’ 3 The fourth respondent is ordered to pay the costs of appeal including the costs of application for leave to appeal both in the high court and in this Court. 16 _________________ D H ZONDI JUDGE OF APPEAL 17 Heads of argument prepared by: Case number: 702/2023 For the appellant: B C Stoop SC Instructed by: Hammond-Smith Attorneys, Pretoria Matsepes Inc, Bloemfontein Case number: 707/2023 For the appellant: T N Ngcukaitobi SC Instructed by: R Baloyi Inc, Johannesburg Matsepes 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: 23 October 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 Transasia 444 (Pty) Ltd v The Minister of Mineral Resources and Energy and Others (702/2023) & Transasia Minerals (SA) (Pty) Ltd v The Minister of Mineral Resources and Energy and Others (707/2023) [2024] ZASCA 145 (23 October 2024) Today the Supreme Court of Appeal (SCA) upheld both appeals in case no: 702/2023 and 707/2023. In both appeals, the SCA set aside and substituted the order of the Gauteng Division of the High Court, Pretoria (the high court), further ordering Umsobomvu Coal (Pty) Ltd (Umsobomvu), the fourth respondent in both appeals, to pay the appellants’ costs of the appeal, including the costs of the application for leave to appeal both in the high court and in the SCA. The two appeals, which raised substantially similar issues were heard simultaneously, despite not being formally consolidated. The appellant in case number 702/2023 is Transasia 444 (Pty) Ltd (Transasia 444) while, under case number 707/2023, the appellant is Transasia Minerals (SA) (Pty) Ltd (Transasia Minerals). Transasia 444 and Tranasia Minerals are separate entities owned by a common shareholder, Transasia BVI, which was incorporated and registered in the British Virgin Islands. The two appeals concerned the validity of the order made by Millar J of the high court in an application for rescission of the order made by Judge Mngqibisa-Thusi of the same division on 28 June 2022. The main issue before Millar J was whether Mngqibisa-Thusi J’s order should be rescinded. Instead of expressly granting or dismissing the application for rescission, Millar J issued an order which substantially changed the terms of Mngqibisa-Thusi J’s order. The appellants in both matters had been involved in a long-standing dispute with Umsobomvu. The dispute related to the transfer of certain mining rights Umsobomvu had sold to Transasia 1 (Pty) Ltd, (Transasia 1), which the latter subsequently assigned to Transasia 444. Umsobomvu disputed the validity of the sale agreement and cancelled it. Transasia 444 disputed Umsobomvu’s right to cancel the agreement and sought to enforce it. Transasia 444 applied to the Director-General of the Department of Minerals and Energy (Director-General) for ministerial consent in terms of s 11 of the Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA) for the transfer of the mineral rights to it. In support of the application, Transasia 444 submitted, to the Director-General, various documents, some of which were confidential, while others belonged to third parties, including Transasia Minerals. Umsobomvu opposed the application, however, the Minister gave his consent to the transfer of Umsobomvu’s mineral rights to 2 Transasia 444. Aggrieved by that decision, Umsobomvu lodged an appeal in terms of s 96 of the MPRDA. To prosecute the appeal, Umsobomvu was entitled to the record of the decision, subject to disclosure under confidentiality protection. On 28 June 2022, Umsobomvu sought and obtained an order from the high court ( Mngqibisa-Thusi J’s order) directing the first respondent (the Minister of Mineral Resources and Energy), the Director-General and the third respondent, (the Regional Manager: KwaZulu-Natal Region), (collectively referred to as the Department) to deliver all the records in respect of the appeal that Umsobomvu had brought in terms of s 96 of the MPRDA. When this application was brought, Transasia Minerals and Transasia 444 were not joined as parties, nor did they receive notice of the application and, in addition, some of the documents which were sought to be disclosed contained material which they claimed to be confidential. Aggrieved by the order of Mngqibisa-Thusi J, Transasia 444, on 15 July 2022, brought an urgent application in the high court seeking its rescission under rule 42(1)(a) of the Uniform Rules of Court. It simultaneously sought leave to be joined as the respondent in the disclosure application and to be allowed to file its answering affidavit within 15 days from the date of the order. Millar J, who heard the application, dismissed the application and did not provide reasons for his order. Aggrieved by this decision, Transasia 444 sought leave to appeal against the order of Millar J and sought condonation for the late filing of its application for leave to appeal while, in the same application, Transasia Minerals applied for leave to be joined as an applicant in the application for leave to appeal and the rescission application, alternatively to intervene in the application for leave to appeal and/or application for rescission. Umsobomvu responded by bringing an application to compel compliance with the Mngqibisa-Thusi J’s order and to hold the Department and Transasia 444 in contempt for failure to comply with it; alternatively, for an immediate execution of the order in terms of s 18(3) of the Superior Courts Act 10 of 2013. Millar J granted Transasia Minerals leave to intervene as the applicant in the application for leave to appeal and dismissed Transasia 444’s application for leave to appeal with no order as to costs. Both Transasia 444 and Transasia Minerals petitioned the SCA which granted leave on 22 June 2023. The SCA disagreed with the submission by the appellants that Millar J’s order was a nullity to the extent that it varied the final order of Mnqgibisa-Thusi J, alternatively, that Millar J erred in refusing rescission. It held that, even though the order was not a model of clarity and was ambiguous, the fact that it lacked clarity did not render it a nullity although Millar J should have furnished his reasons for his order before the hearing of the application for leave to appeal. The SCA, in properly construing Millar J’s order, found it to have refused the recission, the effect thereof being that Mngqibisa-Thusi J’s order remained extant. On concluding on this point, the SCA held that Millar J should have granted rescission, based on the undisputed evidence that was presented to him which was to the effect that the appellants had not been joined as parties to the main application before Mngqibisa-Thusi J, nor did they receive notice of the application. The SCA found that, when Mngqibisa-Thusi J granted the order in the absence of the appellants, she committed a procedural irregularity as she could not validly grant an order in the main application without the appellants having been joined. Therefore, Millar J was in error to have, in effect, refused the application for rescission of the order of Mngqibisa-Thusi J. On the issue of whether the matter should have been remitted to the high court for the consideration of the rescission application, the SCA held that, since the entire record had been before it and the matter was fully argued before the Court, it would serve no useful purpose other than to delay the finalisation of the proceedings to uphold the appeal and remit the matter back to the high court for it to consider the rescission application. In the circumstances, it held that it would be in the interest of justice to uphold the appeal, set aside the order of Millar J, rescind the order granted by Mngqibisa-Thusi J and grant both Transasia 444 and Transasia Minerals leave to oppose the disclosure application. --------oOo--------

4320

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 522/2023 and 524/2023 In the matter between: ELMIR PROPERTY PROJECTS (PTY) LTD T/A ELMIR PROJECTS FIRST APPELLANT EMALAHLENI LOCAL MUNICIPAL COUNCIL SECOND APPELLANT and BANKENVELD HOMEOWNERS ASSOCIATION (PTY) LTD RESPONDENT Neutral citation: Elmir Property Projects (Pty) Ltd t/a Elmir and Another v Bankenveld Homeowners Association (Pty) Ltd (522/2023 and 524/2023) [2024] ZASCA 141 (21 October 2024) Coram: PONNAN, SCHIPPERS, NICHOLLS and SMITH JJA and MANTAME AJA Heard: 26 August 2024 Delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email, publication on the Supreme Court of Appeal website and released to SAFLII. The date and time for hand-down of the judgment is deemed to be 11h00 on 21 October 2024. 2 Summary: Town-Planning and Townships Ordinance 15 of 1986 (the Ordinance) – township establishment conditions imposed by municipality in terms of s 98 of the Ordinance constitute administrative action as defined in terms of the Promotion of Administrative Justice Act 3 of 2000 – such conditions therefore remain effectual and binding on developer until set aside by a competent court. 3 ______________________________________________________________________ ORDER ______________________________________________________________________ On appeal from: Mpumalanga Division of the High Court, Middelburg (Langa J, sitting as court of first instance): 1. The first appellant’s appeal is dismissed. 2. The second appellant’s appeal is upheld. 3. The costs occasioned in 1 and 2 above, including those of two counsel where so employed, are to be paid by the first appellant. 4. The order of the high court is set aside and replaced with the following order: ‘1. The first respondent is liable to provide sanitation services to the Bankenveld Golf Estate, including the operation and maintenance of the activated sludge water reclamation plants, at its own cost, and to the satisfaction of the second respondent. 2. The first respondent shall pay the costs of the applicant and the second respondent, including those of two counsel where so employed.’ ______________________________________________________________________ JUDGMENT ______________________________________________________________________ Smith JA (Ponnan, Schippers and Nicholls JJA and Mantame AJA concurring): [1] The Bankenveld Golf Estate is a substantial upmarket housing development on the banks of the Witbank Dam, Emalahleni, Mpumalanga. The development consists of two residential estates, which are divided by a privately owned golf course, where wildlife roam free. However, all is not well. The cause of the complaint is the dysfunctionality of two sewage reclamation plants (the plants). The plants were designed to process sewage and to provide recycled water for irrigation but have fallen into disrepair after years of neglect and inadequate maintenance. The malfunctioning plants not only cause inconvenience and health risks for homeowners but also pose a serious threat to the environment, due to the danger of contaminated water discharging into the dam. 4 [2] The question as to who bears the responsibility for the operation and maintenance of the plants lies at the heart of the dispute between the parties. The respondent, the Bankenveld Homeowners Association (Pty) Ltd (Bankenveld HOA), took the view that the appellants, namely, the developer, Elmir Property Projects (Pty) Ltd t/a Elmir Projects (Elmir) and the Emalahleni Local Municipal Council (the municipality), jointly bear the responsibility to operate and maintain the plants. Bankenveld HOA, consequently, during June 2020, launched an application in the Mpumalanga Division of the High Court, Middelburg (the high court), for an order, inter alia, directing Elmir and the municipality jointly to provide sanitation services, ‘which are compliant to all legislation’. In addition to the two appellants, the Bankenveld HOA also cited various other respondents. However, except for the sixth respondent, namely, the Golf Club Bankenveld (Pty) Ltd (the Bankenveld Golf Club), no relief was sought against any of the other respondents, and they also did not enter the fray. [3] Elmir, thereafter, instituted a counter-application in which it sought a declaratory order to the effect that the township establishment conditions imposed by the municipality, in respect of Bankenveld Extension 11 (the second phase of the development) and in terms of which Elmir was obliged to construct, operate and maintain the plants, fell away because that property was never proclaimed as a township. However, Elmir did not obtain leave to appeal in respect of the counter-application. This Court, therefore, does not have jurisdiction to entertain that dispute.1 [4] In a written judgment, delivered on 14 November 2022, the high court, per Langa J, found that Elmir accepted that Extension 11 would be further subdivided into other townships and, by necessary implication, that the conditions attaching to Extension 11 would also apply in respect of those townships. Furthermore, it was clear from Elmir’s conduct, following the proclamation of the subdivided townships, that it considered itself bound by those conditions. The high court thus concluded that there was ‘overwhelming evidence to illustrate that Elmir never had issues with the Township Establishment 1 Newlands Surgical Clinic (Pty) Ltd v Peninsula Eye Clinic (Pty) Ltd [2015] ZASCA 25; 2015 (4) SA 34 (SCA); [2015] 2 All SA 322 (SCA) para 13. 5 Conditions’, and that its conduct ‘justifies a conclusion that it regarded the conditions as applicable to Extension 11, as well as Extensions 12 to 14.’ [5] The high court also made short shrift of Elmir’s claims that the plants had been handed over to the municipality and that the Bankenveld Golf Estate Property Association (Pty) Ltd (the eighth respondent before the high court) took over the maintenance of the plants. It found that Elmir failed to provide any evidence in support of those assertions and that there was, conversely, compelling evidence that the plants were handed over to Elmir. [6] Being of the view that the municipality bears the primary constitutional obligation for the provision of water and sanitation services, the high court found that the township establishment conditions did not relieve it of that duty. It consequently held both the municipality and Elmir jointly and severally responsible for the provision of sanitation services to the Bankenveld Estate, including the operation and maintenance of the plants. [7] The high court consequently granted an order: (a) interdicting Elmir from developing, alternatively, selling or subdividing any of its properties in the Bankenveld Estate pending compliance with the order; (b) directing the appellants, jointly and severally, to provide sanitation services to the Bankenveld Estate; (c) directing the appellants, jointly and severally, to prevent or mitigate any environmental damage caused by sewage spillage, and to the extent that such damage has already occurred, to take remedial steps to rehabilitate the affected areas; (d) directing Elmir to apply for the necessary environmental authorisations in terms of the applicable legislation; (e) prohibiting the Bankenveld Golf Club from extracting any water from the reclamation plants for the purposes of irrigation pending compliance by the appellants with applicable legislation; and 6 (f) compelling Elmir to register a caveat against listed properties, effectively stating that it is interdicted from selling or developing or subdividing the properties until it has complied with the high court’s order. The appellants and the Bankenveld Golf Club were ordered, jointly and severally, to pay the respondent’s costs on the attorney and client scale. [8] The appellants appeal separately against the high court’s order, with Elmir appealing against the whole of the order and the municipality appealing only against those paragraphs that hold it jointly and severally liable with Elmir to provide the sanitation services and which impose related obligations, being those mentioned in paragraphs (b) and (c), above. Both appeals are with the leave of the high court. [9] Although the municipality has consistently asserted that Elmir is primarily responsible for the operation and maintenance of the plants, it has accepted its constitutional oversight responsibility to ensure that Elmir complies with its obligations as developer. On 6 November 2020, the high court, per Mphahlele J, on application by the municipality, granted an interim interdict compelling Elmir to operate and maintain the two reclamation plants and to rehabilitate the environmental damage caused by the sewage spillage. It is common cause that Elmir has complied with that order. Most of the relief granted by the high court has thus been overtaken by the grant of that order. Consequently, despite the voluminous documents filed in the matter, the issue that falls for decision in this appeal has resolved itself into a very narrow and discrete question, namely, who is responsible for the development, operation and maintenance of the reclamation plants. That question must be answered against the backdrop of the following factual matrix. The factual background [10] The first phase of the Bankenveld Estate, comprising Bankenveld Extension 1 to 10, commenced in 2001. That development required approximately 500 kilolitres of water per day for irrigation. The municipality points out that this amount of water would, over a 7 period of a month, be equal to the basic water supply for at least 2500 households, at 6 kilolitres per day. [11] In 2006, Elmir applied for approval for the development of Phase 2, namely Bankenveld Extension 11, which would include close to 1000 residences, an exclusive golf course, country club, hotel, golf driving range, a Primary and High School ‘with all associated infrastructural services’. Elmir also simultaneously applied for the subdivision of Extension 11 into different townships in terms of s 99 of the Town-Planning and Townships Ordinance 15 of 1986 (the Ordinance). [12] It is common cause that Elmir was aware, at the time, that the existing municipal sewage and water infrastructure was operating at full capacity and could not possibly accommodate any further housing developments in the area. Elmir, being mindful of these debilitating infrastructural constraints, proactively proposed township establishment conditions that would address those problems. That application was considered and approved by the municipality in terms of s 98(1) of the Ordinance, and Extensions 12, 13 and 14 were consequently declared as approved townships in terms of s 103 of the Ordinance. During February 2018, Extension 12 was further subdivided into two separate townships. [13] On 1 October 2007, the municipality wrote to Elmir informing it of the decision to approve the application subject to certain conditions. The following conditions are important for the purposes of this appeal: ‘2.7 that it be noted that the treatment and handling capacities of the sanitation system is operating at full design capacity, therefore the proposed option of the developer establishing a water reclamation project be required. The water purification works which supplies potable water to the area is operating above design capacity; 2.8 that the activated sludge water reclamation plan be installed and operated by the developer at his cost to the satisfaction of the Council; . . . 8 2.11 that it be noted that the upgrading of bulk infrastructure as mentioned in 2.7–2.8 above must be budgeted for in future budgets and will be subject to the approval of the budget by the Council; 2.12 that it be noted that if there are no funds approved in the capital budget for the upgrading of the water, sewer, sanitation and electrical bulk services, Council will not be held liable for the fact that the development of the township, Bankenveld Extension 11 (to be subdivided into Bankenveld Extensions 12 – 33) cannot continue and it is recommended that the developer provide the necessary funds to the Council for the upgrading required; . . . 2.21 that it be a condition of the township establishment that an endowment be paid into a trust account to the value of 3% of the land value of the selling price of each erf on date of registration to compensate for the upgrading or construction of new bulk infrastructure’. [14] The material portions of Elmir’s response to the municipality, on 5 February 2008, read as follows: ‘Your letter dated 1 October 2007, contains the following provision: 2.8 that the activated sludge water reclamation plant be installed and operated by the developer at his cost to the satisfaction of the Council; This condition is acceptable to Elmir Projects as developer. The implication of this condition is that Elmir will be responsible for the “bulk” sanitation infrastructure, while the local municipality will be responsible for the “internal” sewer network. This position does not make sense from a practical and administrative point of view. It is much more practical to operate and maintain the sanitation system as a unit. We therefore propose the following with regards to the sanitation: 1. Elmir Projects will be responsible for the installation of the activated sludge water reclamation plant. 2. The HOA of the Golf Estate (a Sec. 21 company) will be responsible for the operation and maintenance of the sanitation system for the whole of the estate to the satisfaction of the municipality. The HOA will recover the expenditure in regard to any works to the sanitation system from the residents by means of their compulsory levies. 3. That the local municipality agrees not to charge any of the property owners in the estate any sewer levies or tariffs.’ 9 [15] Elmir’s proposal for the amendment of the township establishment conditions was referred to the municipal council by its Acting Director: Development Planning. The latter’s report and recommendations were considered at a council meeting on 8 December 2011. The minutes of that meeting show that Elmir’s proposal was emphatically rejected and that the council resolved that the ‘status quo remains.’ [16] It is common cause that Bankenveld Extension 11 was never formally proclaimed as a township in terms of the Ordinance. The reason being that immediately after approval it was subdivided into Bankenveld Extensions 12 to 33. It is also common cause that the conditions attaching to Extension 11 were not included in the Proclamations which established Bankenveld Townships 12, 13 and 14, and neither were they included in the Service Level Agreements concluded between Elmir and the municipality in respect of those townships. Nevertheless, Elmir accepted responsibility for the design and construction of the plants. The certificates of completion issued by the constructing engineers show that they were completed and handed over to Elmir in 2010. [17] The plants were designed to process and recycle the sewage water to be used, inter alia, to irrigate the golf course and for the establishment of the private wildlife estate. It is, however, common cause that they are dysfunctional due to a lack of proper and regular maintenance. Elmir conceded as much and in its answering affidavit. It states that ‘BTW Engineers reported (in October 2016) that the difficulty with the reclamation plants was that they were ineffective in aeriation, disinfection and recirculation of pumps and there was no flow measurement within the plants.’ [18] During August 2019, Enviro-Lab, an independent engineering company specialising in environmental testing, compiled a report confirming that the problems were far more serious. Although there is some dispute as to who commissioned the report, all affected parties accepted that the findings reflected the true operational state of the plants at the time. Enviro-Lab reported that the plants have no incoming effluent meter, the aeriation systems are inadequate, blowers are inefficient, and the return activated sludge pumps in both plants are not functioning properly and must be replaced. Enviro-Lab 10 further cautioned that the water used to irrigate the golf course ‘is extremely dangerous as it contains high concentrations of pathogens such as e-coli as well as high ammonia and nitrate/nitrite.’ Furthermore, in a letter addressed to the Department of Water Sanitation on 11 March 2020, Elmir confirmed, inter alia, that, ‘[t]he waste-water plants are currently in urgent need of new equipment and major maintenance.’ [19] Although Elmir had been issued with an Environmental Authorisation to operate the plants in terms of the National Environmental Management Act 107 of 1998 (the NEMA), it is common cause that it failed to obtain the requisite licences in terms of the National Water Act, 36 of 1998 (the Water Act). Pursuant to s 21(e) (read with s 37(1)) of the Water Act, Elmir requires a licence for irrigation, and in terms of s 21(f), it requires permission for the discharge of water containing waste into the Witbank Dam (a water resource) through a pipe, canal, sewer or conduit. [20] On 20 October 2009, Elmir submitted a revised application to the Department of Water Affairs for a water use licence in terms of s 27 of the Water Act. The Department replied on 6 October 2010, advising Elmir that the application was lacking in numerous ‘administrative and procedural aspects’ and invited Elmir to provide the requested information to enable it to process the application. The letter also stated that if the information was not provided within seven days, the application would be considered on the available information. It is common cause that Elmir did not follow up on its application and the water use licence was never issued. [21] The parties are also at loggerheads regarding who had assumed responsibility for the operation of the plants after their installation. Elmir contends that the plants had been handed over to the municipality and that the Bankenveld Golf Estate Property Association has assumed responsibility for their operation since 2013. [22] In support of its assertion that the plants were handed over to the municipality, Elmir relies on the fact that the municipality signed the engineers’ certificate of completion, and contends, furthermore, that the municipality has also assumed the responsibility to 11 operate and maintain the plants in terms of the Service Level Agreements. According to Elmir, the municipality had confirmed as much in a letter to it on 18 November 2019. [23] However, the certificates of completion in respect of both plants show that they were handed over to Elmir in October 2009 and April 2010, respectively. The terms of the Service Level Agreements also do not support Elmir’s claim in this regard. The Service Level Agreements are generic contracts which refer to the municipality’s general obligations to render services to areas ‘under its jurisdiction’, and not merely to the Bankenveld Estate. The letter on which Elmir relies for this assertion also does not constitute proof that the plants had been transferred to the municipality. It merely postulates what the position would have been if they had in fact been transferred. That letter was prepared by Elmir and presented to the municipality for signature. It endeavours to explain the municipality’s obligations ‘to the extent that infrastructure is constructed and transferred to the municipality’. In any event, subsequent correspondence between Elmir and the municipality evince that both parties were of the view that the responsibility vested in Elmir. By way of example, in an email to the Bankenveld HOA (dated 3 December 2014), more than four years after the installation of the plants, Elmir said the following: ‘Die Munisipalitiet het die werke oorgeneem, maar ons moet dit instand hou in terme van die goedkeuring van die dorpstigting (par 2.8). Ek het destyds probeer om ‘n diens ooreenkoms met die Munisipaliteit te sluit, maar was onsuksesvol.’ 2 [24] In support of its assertion that the Bankenveld Golf Estate Property Association had assumed responsibility for the plants in 2013, Elmir pointed to the fact that the former has been collecting levies of approximately R30 000 per month from members, presumably to fund the operation and maintenance of the plants. It is, however, common cause that the former never adopted a resolution to take over the maintenance of the plants. It explained that the levies were an emergency measure, introduced to contribute 2 English translation: ‘The municipality has taken over the plants, but we must maintain it in terms of the township approval conditions. I tried at the time to conclude a service level agreement with the Municipality but failed.’ 12 to the operational fees of Enviro-Lab after it had been appointed by Elmir, and to discharge any possible statutory obligations it may have had in terms of the NEMA. [25] In any event, Elmir’s conduct after the plants were handed over to it compels the conclusion that it had accepted responsibility in respect of the operation and maintenance of the plants. It has, inter alia, obtained environmental approval for the construction and operation of the plants, constructed the plants at significant cost to itself, attempted to obtain a water use licence, accepted responsibility to pay for the desludging of the plants, and has expended substantial sums of money on environmental experts and the replacement of components to keep the plants operational. Its conduct was, therefore, manifestly at odds with its assertion that either the municipality or the Bankenveld Golf Estate had taken over the operation of the plants. Submissions by the parties [26] Elmir contends that the high court erred in imposing on it, albeit jointly with the municipality, the obligations set out in paragraphs 2, 3, 4 and 5 of the order, since those are the municipality’s constitutional obligations. It argues that the municipality bears the obligation to render the services in terms of ss 24 and 27, read with Schedule 4B, of the Constitution; the provisions of the NEMA; the Water Act, and the Water Services Act 108 of 1997. The high court’s order, so it is contended, has the effect of impermissibly transferring to Elmir the municipality’s constitutional obligation to provide bulk engineering services. [27] Elmir argues, furthermore, that the pre-proclamation conditions attaching to Extension 11 ‘fell away’ because that township was never proclaimed in terms of the Ordinance. Those conditions were also not included in the conditions attaching to Extensions 12, 13 and 14, neither were they included in the Service Level Agreements. Elmir, in its capacity as the developer, could only have assumed the municipality’s obligations in terms of township establishments conditions that have been duly proclaimed in terms of the Ordinance. 13 [28] In this regard, while Elmir initially contended that the entire condition 2.8 fell away because Extension 11 was never proclaimed as a township, Emir’s counsel clarified during his argument in reply, that it is only the responsibility for the maintenance thereof that is being refuted. The argument being that Elmir had requested the municipality to amend that condition, and since the proclamations in respect of Extensions 12, 13 and 14 were published without that condition, it must be accepted that the obligation fell away. [29] As previously stated, the municipality only takes issue with those paragraphs of the order that hold it jointly and severally liable with Elmir. It asserts that the conditions which attached to Extension 11 were proposed by Elmir on the common understanding that the municipality did not have the capacity to render the services and that the development could only proceed if Elmir accepted full responsibility for the design, construction, operation and maintenance of the plants. It was on that understanding that Elmir proposed the conditions and subsequently, both explicitly and through its conduct, accepted that it remained bound by those conditions. When Elmir applied for approval in respect of Extension 11, it had simultaneously also applied for the subdivision of the property into Extensions 12 to 33. The conditions were thus imposed by the municipality well-knowing that the property would be further divided into different townships. After the municipal council rejected Elmir’s application to be released from the obligation to operate and maintain the plants, it continued to fulfil that obligation for some 15 years. [30] The municipality contends that its decision to impose the conditions was an administrative act, which remains valid and effectual until it is set aside by a competent court. It asserted, in addition, that the argument that the conditions, including condition 2.8, fell away because Extension 11 was never proclaimed as a township, a point raised by Elmir for the first time in its counter-application, was a disingenuous attempt by the latter to escape obligations which it had assumed voluntarily. [31] While the municipality accepts that it has oversight responsibility to ensure that Elmir complies with its obligations, it argues that its legal obligations are fundamentally different to that of Elmir. The municipality has a constitutional obligation to provide water 14 and sanitation services, in a sustainable manner, to all consumers in its area of jurisdiction. That obligation does not encompass the responsibility to provide services to exclusive and upmarket developments, to the prejudice of poorer communities. The condition imposed on Elmir, on the other hand, is a private obligation relating to the operation and maintenance of sewage reclamation plants designed and constructed for the sole benefit of the Bankenveld Estate. [32] The municipality contends, furthermore, that it has, in any event, already taken various steps in pursuance of its supervisory responsibility, including directing Elmir to report to it regarding the operation and maintenance of the plants; offering to assist Elmir by allowing it to dispose of the sludge build-up in the municipal dumping sites; instituting application proceedings to compel Elmir to comply with its legal obligations; and issuing a notice inviting tenders for the appointment of ‘capable and competent service providers to establish and manage a modular package plant at Point B, Doornpoort Dam and Bankenveld Estate.’ [33] The Bankenveld HOA makes common cause with the municipality’s argument regarding the applicability of the pre-proclamation conditions imposed in respect of Extension 11 to Extensions 12 to 33. It asserts, however, that the municipality bears the primary constitutional and statutory obligation to render the services. Moreover, it argued that property owners pay water and sanitation levies to the municipality, consequently, the municipality remains jointly liable with Elmir to provide the services. Analysis and discussion [34] For the reasons which I have stated above, Elmir’s contention that either the municipality or the Bankenveld Golf Estate Property Association had assumed responsibility for the operation and maintenance of the plants can, in my view, be readily dismissed. I agree with the high court’s finding that Elmir has failed to provide any evidence in support of that assertion. As the high court correctly found, there is, on the contrary, compelling evidence that Elmir has been operating the plants for some 15 years after their completion, albeit in an unsatisfactory manner. 15 [35] Elmir’s contention that the conditions attaching to Extension 11 ‘fell away’ because that township was never formally proclaimed, is also manifestly unsustainable. First, those township establishment conditions were proposed by Elmir, well-knowing that the municipality’s existing sanitation infra-structure was over-extended and that it did not have the financial resources to pay for the construction of the plants or to fund their continued operation and maintenance. Elmir was also aware that the development would not have been approved, if it did not accept the responsibility for the services in terms of condition 2.8. [36] Second, Elmir had simultaneously applied for the subdivision of Extension 11 and for the approval of the subdivided townships, namely Extensions 12, 13 and 14. It thereafter continued to operate and maintain the plants for years after their construction. [37] Third, the conditions were imposed by the municipality in terms of s 98(2) of the Ordinance, which provides that ‘[w]here an authorised local authority approves an application in terms of subsection (1), it may impose any condition it may deem expedient’. Because the municipality was clearly exercising a public power in terms of empowering legislation, that decision constitutes administrative action as defined in s 1 of the Promotion of Administrative Justice Act 3 of 2000. Those decisions remain valid and effectual until set aside by a competent court.3 [38] In any event, as mentioned earlier, Elmir’s counsel clarified during his argument in reply that its case is that only the obligations to operate and maintain the plants fell away. This argument was predicated on the assertion that the municipality agreed to release Elmir from those obligations. Not being able to point to any explicit statement by the municipality to that effect, counsel argued that we must infer that intention on the part of the municipality from the fact that the conditions, which attached to Extension 11, were not included in those that apply to the subdivided townships. Nor were they incorporated into the Service Level Agreements. He argued, furthermore, that it is significant that only 3 MEC for Health, Eastern Cape v Kirland Investments (Pty) Ltd [2014] ZACC 6; 2014 (5) BCLR 547 (CC); 2014 (3) SA 481 (CC) para 100-101. 16 the condition pertaining to the three percent endowment (condition 2.21) was made applicable to Extensions 12, 13 and 14. This can only mean that the municipality intentionally omitted the other conditions in compliance with its decision to amend the conditions, or so counsel argued. [39] There are, however, two fundamental problems with that argument: First, Elmir expressly undertook to construct and operate the plants. It is for this reason that the application was approved subject to condition 2.8 that the activated sludge water reclamation should be installed and operated in a functional condition at Elmir’s costs. Second, in Elmir’s letter to the municipality, dated 5 February 2008, wherein it applies for the amendment of the conditions, it specifically quoted condition 2.8 and stated that, ‘[t]his condition is acceptable to Elmir as developer.’ It then proposed that the township establishment conditions should be amended, effectively to transfer to the Bankenveld HOA the responsibility to operate and maintain the sanitation system, leaving it only with the obligation to construct the plants. But that proposal was emphatically rejected by the municipality and Elmir could therefore not have been under any illusion that it had been relieved of the obligations to operate and maintain the plants. [40] Insofar as the relief sought against the municipality is concerned, I am of the view that it has either been overtaken by subsequent events or has in the circumstances become unnecessary. The municipality accepts its constitutional obligation to supervise Elmir’s compliance with the township establishment conditions. It has, in this regard, already taken effective steps to compel proper compliance by Elmir, inter alia, by applying for the interdict. Any further order, in that regard, would be tautologous. If, in the future, it should fall short in this regard, any affected party can approach a competent court for appropriate relief. [41] In summary then: Elmir’s appeal falls to be rejected with costs; the municipality’s appeal must be upheld with costs; and Elmir should be compelled to operate and maintain the plants in accordance with condition 2.8. The finding that Elmir remains responsible for the operation and maintenance of the plants also means that it is obliged to comply with 17 applicable environmental legislation, including the obligation to obtain the requisite water use licences. In my view, it is therefore also unnecessary for that obligation to be spelt out in the order that issues. Costs [42] There is no reason why costs should not follow the result, both in this Court and in the high court. The findings that Elmir is primarily responsible for the provision of sanitation services to the Estates; that the municipality only has constitutional oversight responsibility; and that the court consequently erred in holding it jointly liable for the operation and maintenance of the plants, must mean that the municipality has been substantially successful. Elmir is consequently liable for the costs of both the Bankenveld HOA and the municipality Order [43] In the result: 1. The first appellant’s appeal is dismissed. 2. The second appellant’s appeal is upheld. 3. The costs occasioned in 1 and 2 above, including those of two counsel where so employed, are to be paid by the first appellant. 4. The order of the high court is set aside and replaced with the following order: ‘1. The first respondent is liable to provide sanitation services to the Bankenveld Golf Estate, including the operation and maintenance of the activated sludge water reclamation plants, at its own cost, and to the satisfaction of the second respondent. 2. The first respondent shall pay the costs of the applicant and the second respondent, including those of two counsel where so employed.’ _________________ J E SMITH JUDGE OF APPEAL 18 Appearances For the first appellant: L G F Putter SC with S Ogunrobi Instructed by: Van der Merwe Van den Berg Attorneys, Pretoria McIntyre Van Der Post, Bloemfontein For the second appellant: O Ben-Zeev with M Peacock Instructed by: Ka-Mbonane Cooper, Johannesburg Van der Merwe & Sorour, Bloemfontein For the respondent: F J Erasmus SC Instructed by: Van Heerden & Brummer Inc., Witbank 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: 21 October 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 judgment of the Supreme Court of Appeal Elmir Property Projects (Pty) Ltd t/a Elmir and Another v Bankenveld Homeowners Association (Pty) Ltd (522/2023 and 524/2023) [2024] ZASCA 141 (21 October 2024) Today the Supreme Court of Appeal, (the SCA) handed down a judgment in which it dismissed, with costs, the appeal of Elmir Property Projects (Pty) Ltd t/a Elmir Projects (Elmir), and upheld the appeal of the Emalahleni Local Municipal Council (the Municipality), against an order of the Mpumalanga Division of the High Court, Middelburg (the high court). The litigation between the parties was caused by the dysfunctionality of two sewage reclamation plants (the plants), at the Bankenveld Golf Estate development, designed to process sewage and to provide recycled water for irrigation. The plants fell into disrepair after years of neglect and inadequate maintenance, causing not only inconvenience and health risks for homeowners but also posing a serious threat to the environment. The core issue before the SCA was to determine who bore the responsibility for the operation and maintenance of the plants between Elmir and the Municipality. The Bankenveld Homeowners Association (the Bankenveld HOA) took the view that Elmir and the Municipality were jointly responsible for the operation and maintenance of the plants. It, consequently, launched an application in the high court, for an order, inter alia, directing them jointly to provide sanitation services to the Bankenveld Estate and to apply for the necessary environmental approvals, including a water use licence in terms of the National Water Act 36 of 1998. Elmir contended that the condition applicable to Extension 11 (the second phase of the development), that it was to install and operate the plant at its own costs and to the satisfaction of the Municipality, ‘fell away’ because that township was never formally proclaimed. Being of the view that the Municipality bears the primary constitutional obligation for the provision of water and sanitation services, the high court found that the township establishment conditions did not relieve it of that duty. It consequently held both the Municipality and Elmir jointly and severally 2 responsible for the provision of sanitation services to the Bankenveld Estate, including the operation and maintenance of the plants. The high court consequently granted an order, inter alia, interdicting Elmir from developing, alternatively, selling or subdividing any of the properties in the Bankenveld Estate pending compliance with that order, and directing the appellants, jointly and severally, to provide sanitation services to the Bankenveld Estate. The appellants appealed separately against the high court’s order, with Elmir appealing against the whole of the order and the Municipality appealing only against those paragraphs that hold it jointly and severally liable with Elmir to provide the sanitation services, and which imposes related obligations. The SCA agreed with the high court’s finding that Elmir had failed to provide evidence in support of its assertion that either the Municipality or the Bankenveld Golf Estate Property Association had assumed responsibility for the operation and maintenance of the plants. It found that there was, on the contrary, compelling evidence that Elmir had been operating the plants for some 15 years after their completion. In respect of Elmir’s contention that the conditions attached to Extension 11 ‘fell away’, the SCA found that that argument was manifestly unsustainable because first, those township establishment conditions were proposed by Elmir and Elmir was aware that the development would not have been approved if it did not accept the responsibility for the services. Second, Elmir had simultaneously applied for the subdivision of Extension 11 and for the approval of the subdivided townships, namely Extensions 12, 13 and 14, and had continued to operate and maintain the plants for years after their construction. Third, the conditions were imposed by the Municipality in terms of s 98(2) of the Town-Planning and Townships Ordinance 15 of 1986, which authorises the Municipality, when approving an application, to impose any condition it deems expedient. Because the Municipality was clearly exercising a public power in terms of empowering legislation, that decision constituted administrative action as defined in s 1 of the Promotion of Administrative Justice Act 3 of 2000. The decision therefore remains valid and effectual until set aside by a competent court. The SCA found that insofar as the relief sought against the Municipality was concerned, it had either been overtaken by subsequent events or had in the circumstances become unnecessary. The Municipality accepted its constitutional obligation to supervise Elmir’s compliance with the township establishment conditions, consequently, the SCA found it unnecessary to grant an order compelling it to do so. The finding that Elmir remains responsible for the operation and maintenance of the plants also means that it is obliged to comply with applicable environmental legislation, including the obligation to obtain requisite water use licences. The SCA held that it was unnecessary for that obligation to be spelt out in the order. As a result, the SCA made an order dismissing Elmir’s appeal with costs and upholding the Municipality’s appeal. --------oOo--------

4212

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 782/2022 In the matter between: M M on behalf of G M APPELLANT and MEMBER OF THE EXECUTIVE COUNCIL FOR THE DEPARTMENT OF HEALTH, NORTH WEST PROVINCE RESPONDENT Neutral citation: MM obo GM v Member of the Executive Council for the Department of Health, North West Province (782/2022) [2024] ZASCA 52 (18 April 2024) Coram: MAKGOKA, HUGHES and MATOJANE JJA and MUSI and CHETTY AJJA Heard: 14 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 for hand down is deemed to be 18 April 2024 at 11h00. Summary: Delict – medical negligence – transmissibility of damages to parent on death of minor child. Death of child not reported to Master – effect on mother’s locus standi to claim damages on behalf of her deceased child. Appeal struck off with costs. Appellant’s personal claim for emotional shock – requirements not proved in high 2 court. High court failing to decide the lis between the parties. Appeal Court lacking jurisdiction to substitute its own order. Matter remitted to high court. 3 ___________________________________________________________________ ORDER On appeal from: North West Division of the High Court, Mahikeng (Hendricks DJP, Petersen and Snyman JJ sitting as a court of appeal): 1 The order of the Full Court is set aside and replaced with the following: ‘1 The order of the trial court is set aside and replaced with the following: “1. The appellant’s claim for emotional trauma and nervous shock is remitted to the trial court for determination. 2. The appellant’s claim in respect of the other heads of damages is struck off the roll with costs.” 2 The appellant is ordered to pay the costs in this Court. ___________________________________________________________________ JUDGMENT ___________________________________________________________________ Chetty AJA (Makgoka, Hughes and Matojane JJA and Musi AJA concurring): [1] This is an appeal against the order of the Full Court of North West Division of the High Court, Mahikeng (the full court). That court dismissed the appellant’s appeal against the dismissal of her claim against the Member of the Executive Council for the Department of Health, North West Province (the MEC) for compensation in her personal and representative capacity as mother and natural guardian of her minor child, GM. The appeal is with the special leave of this Court. [2] The appeal arises from a medical negligence claim after GM, who was born on 16 October 2010, was later diagnosed with cerebral palsy. The appellant alleged that GM’s cerebral palsy was caused by the negligence of the respondent’s employees at the two hospitals to which she was admitted for obstetric care. She claimed damages for emotional trauma for herself, and future medical expenses, loss of earnings and general damages for pain and suffering on behalf of GM. The issue for determination was whether the medical staff at the Moses Kotane Hospital (MKH) and the Job Shimankana Tabane Hospital (JSTH) were negligent and whether such negligence caused GM to have resultant cerebral palsy. 4 [3] The trial in the high court came before Gutta J, who found that the hospital staff were negligent in various respects in the treatment and care of the appellant before and during the birth of GM. However, she dismissed the claim on the basis that there was no causal relationship between the negligence and GM’s subsequent brain damage. The high court concluded that the cerebral palsy was attributable to an abruptio placentae, a complication occurring during pregnancy in which the placenta gradually separates from the uterus while the baby is still in the uterus. This separation diminishes the supply of oxygen to the baby, with the possibility that the baby will suffer foetal distress. Where an abruption occurs with a foetal heartbeat present, experts recommend an emergency caesarean section should be performed to save the baby. [4] Leave to appeal was granted to the full court on the issue of causality alone. The full court dismissed the appeal with costs. This Court granted special leave to appeal on 12 July 2022. It bears mentioning at the outset that the notice of appeal, dated 5 August 2022, restricted the ambit of the appeal only against the finding that ‘the negligence of the employees [of the respondent] was not causal to the damage suffered by the child’. [5] On 3 November 2023, 11 days prior to the hearing of this appeal, it was brought to the attention of the Registrar of this Court by the respondent’s attorneys that they had received information on 31 October 2023 that GM had passed away in August 2022. The respondent’s attorneys brought this information to the attention of this Court as they considered that it ‘potentially changed the landscape of the appeal’. In response to an enquiry from the Registrar, the appellant’s attorney confirmed in writing that GM had passed away. The attorney further indicated that GM’s death did not extinguish the appellant’s ‘entire claim should the appellant be successful’ and that the matter ‘should proceed as per the papers submitted’. [6] The appellant approached the matter before this Court without any further written submissions as to whether the passing of the child had any impact on the appeal before us. At the hearing of the appeal, no evidence was tendered to indicate when or how the minor child passed away. A copy of the death certificate, at the very least, ought to have been tendered. Indeed, counsel for the appellant held the view that the death of the minor child presented no obstacle to this Court determining the 5 issue of causation. The only head of damages not being pursued by the appellant, counsel submitted, was that of future loss of earnings. All other claims for damages, including that of emotional trauma and shock, remained alive. In the event of the appellant being successful in this Court, it was contended that the death of GM would become a relevant factor only to the extent of determining quantum. [7] What looms large in this appeal is the effect of GM’s death on the claims asserted by the appellant, in particular, whether the appellant has the necessary locus standi to prosecute the appeal. Before I consider that issue, I propose to dispose of the appellant’s claim for emotional trauma and shock. [8] The appellant, in her personal capacity, claimed an amount of R250 000 set out as follows in her particulars of claim: ‘The Plaintiff has been severely shocked and traumatised as a result of seeing her first born in a cerebral palsied state and has suffered general damages for anguish, psychological trauma and loss of amenities of life.’ This allegation was met with a bare denial of liability by the respondent. [9] The appellant testified in the high court that she was 32 years old at the time of the birth of GM. Her testimony was entirely devoted to the circumstances leading up to and surrounding the delivery of GM on 16 October 2010. She testified about her induced labour, bouts of dizziness and her recollection that the doctors were unable to detect a foetal heartbeat. She endured a lengthy labour from approximately 19h00 on 15 October 2010 to approximately 11h20 the following day, when GM was born. Medical experts testified on her behalf that almost five hours prior to the birth, she suffered an abruptio placentae. [10] Upon GM being born, he cried, much to the relief of the appellant who had earlier been informed that no foetal heartbeat could be detected. The suggestion in this regard was that the baby had died. She was discharged the following day although the baby was kept in hospital in an incubator for about three weeks. Importantly, after the birth she observed the baby to be a ‘normal child’. At the time of her testimony in the high court, GM was already eight years old and displayed signs of cerebral palsy. 6 He was unable to sit by himself, unable to speak and experienced difficulty in being fed. [11] It is trite that the appellant bears the onus to prove the damages she claims against the respondent, that the respondent’s employees owed a legal duty1 to care for her and her baby, which duty was negligently breached and that a causal nexus exists between the damages suffered and the breach alleged. The quantum generally rests in proving the amounts claimed. Bester v Commercial Union2 confirmed that a plaintiff who suffers from negligently inflicted ‘nervous shock’ resulting in psychiatric or psychological injuries is entitled to claim damages for patrimonial loss under the Lex Aquilia.3 In Road Accident Fund v Sauls, this Court held that in order to be successful in claiming damages for emotional shock a plaintiff must prove that she or he had sustained a detectable psychiatric injury.4 [12] More recently, in Komape v Minister of Basic Education (Komape),5 where a learner at school fell into a pit latrine and drowned, this Court reaffirmed the position that a plaintiff can only claim damages for emotional shock where it is suffered as a result of detectable psychiatric injury. In contrast, in the present matter there is no evidence that the appellant suffered any emotional trauma or shock. When faced with questions from the Court as to the paucity of evidence to sustain a claim for emotional shock in light of Komape, the high watermark of counsel’s response was that the appellant was affected by the injury to her child, evidenced when she became 1 Cape Town City v Carelse and Others [2020] ZASCA 117; [2020] 4 All SA 613 (SCA); 2021 (1) SA 355 (SCA) para 50. 2 Bester v Commercial Union Versekeringsmaatskappy van SA Bpk 1973 1 SA 769 (A) 776D-777A. 3 The authors R Ahmed and L Steynberg ‘Claims for “emotional shock” suffered by primary and secondary victims’ 2015 (78) THRHR 181 at 183 point out that the terminology in this area of the law used to traditionally describe ‘shock’ or ‘nervous shock’ now includes reference to terms such as ‘psychological lesion’,3 ‘psychiatric injury’, ‘psychological disorder’ and ‘psychological trauma’; In Road Accident Fund v Sauls [2001] ZASCA 135; 2002 (2) SA 55 (SCA), the plaintiff suffered shock and trauma and was entitled to compensation for the psychiatric injury she sustained. According to the medical experts, she was diagnosed with post-traumatic stress disorder which had become chronic; In Gibson v Berkowitz 1996 4 SA 1029 (W), the plaintiff was successful in her claim for damages where she suffered from a nervous and psychological disorder known as a major depressive disorder coupled with anxiety. The court found the defendants liable for all forms of nervous shock and psychological trauma. 4 Road Accident Fund v Sauls [2001] ZASCA 135; 2002 (2) SA 55 (SCA) at 61I. 5 Komape and Others v Minister of Basic Education [2019] ZASCA 192; 2020 (2) SA 347 (SCA). Also reported as RK v Minister of Basic Education (Equal Education as Amicus Curiae) [2019] ZASCA 192; [2020] 1 All SA 651 (SCA); 2020 (2) SA 347 (SCA). 7 emotional while testifying, and started to cry. The transcript reflects that at some stage in her testimony the appellant requested an adjournment. The presiding judge enquired whether ‘the witness required time’, and court adjourned briefly. That is as far as the record goes. [13] The appellant’s claim for emotional trauma is founded on the ground that special leave to appeal was granted in terms of s 16(1)(b) of the Superior Courts Act 10 of 2013. The parameters of the appeal, as set by the appellant in the notice of appeal were the following: ‘The appeal is not against the finding that the Defendant/Respondent’s employees are negligent but only against the finding that the negligence of the employees was not causal to the damage suffered by the child.’ [14] In Leeuw v First National Bank Limited6 it was held that ‘this Court is entitled to make findings in relation to “any matter flowing fairly from the record”’. Although neither counsel addressed the issue of the appellant’s claim for emotional shock in their heads of argument, the appellant’s counsel’s contention that the claim for emotional shock and trauma was still being pursued and was the catalyst for this Court’s engagement on the issue. [15] It is unfortunate that GM developed cerebral palsy and would have endured much hardship in his brief lifetime. However, the appellant’s claim for emotional trauma must be proven by way of evidence. The appellant failed to meet this standard in the high court. The issue of the appellant’s claim for emotional shock proved more vexed than may initially appeared to be the case. The high court’s judgment focused solely on the issue of whether the medical staff at the attendant hospitals were negligent in their treatment of baby GM and whether such negligence was the cause of the resultant cerebral palsy. The high court dismissed the plaintiff’s claim with costs. Leave to appeal was granted to the Full Court on the issue of causation alone, which that court considered to be ‘purely factual’ and ‘straightforward’. It dismissed the appeal, affirming the decision of the high court. 6 Leeuw v First National Bank [2009] ZASCA 161; [2010] 2 All SA 329 (SCA); 2010 (3) SA 410 (SCA) para 5. 8 [16] In this Court, the appellant believed that her ‘entire claim’, including that for emotional shock, was properly before us for determination. It is in this respect that the appellant was fundamentally mistaken. However, much of this can be attributed to the high court which was seized with deciding both the emotional shock claim and that for damages on behalf of GM. It failed or omitted to decide the lis between the parties in respect of the claim for emotional shock and failed to provide any reasons in its judgment to justify its conclusion. On that basis, it is safe to conclude that the high court failed to apply its mind to the claim of damages for emotional shock. [17] For this reason, after the hearing of the appeal, this Court requested the parties to provide information as to what issues, if any, had been separated in the high court pursuant to Uniform Rule 33(4). It is necessary to note that the appeal record did not contain any record of whether the parties had agreed to a separation of issues. Only the respondent’s attorneys responded to the Court’s enquiry and advised that a pre-trial conference was held on 6 November 2017 in which it was agreed that liability and quantum would be separated, and that the plaintiff would bear the onus of proof and the duty to begin. No agreement was reached to defer the appellant’s claim for emotional shock. In light of this agreement, it remains inexplicable why no evidence was led by the appellant in respect of her claim for emotional shock. It begs the question as to what is the appropriate order for this Court to grant in the circumstances. [18] A similar predicament arose in Featherbrooke Homeowners’ Association NPC v Mogale City Local Municipality (Featherbrooke),7 where the high court made several orders against only the municipality, directing it to undertake remedial steps to prevent flooding on a residential estate, and despite it concluding that such duties were attributable to all other state parties who were co-respondents. On appeal, the Full Court set aside the order against the municipality and held that the estate itself was liable to take remedial steps to prevent flood damage to its property. [19] The problem which arose in Featherbrooke, by the time the matter reached this Court, was that the high court had failed to address the lis between the estate and the State parties when it discharged them from any joint liability for the prevention of 7 Featherbrooke Homeowners’ Association NPC v Mogale City Local Municipality [2024] ZASCA 27. 9 flooding on the estate. The State parties were not before this Court and no order could be made against them. Similarly, in the present matter, the high court made no order in respect of the appellant’s claim for emotional shock. Accordingly, no appeal could lie in respect of that claim as the MEC had not been found liable. The Full Court failed to grapple with this scenario and after considering the factual issue of causation, dismissed the appellant’s claim for damages in respect of GM. [20] In light of the high court and the Full Court not dealing with the claim for emotional shock, I am of the view that this Court does not have the power to pronounce on the claim for emotional shock, despite finding that the appellant failed, in terms of the standard set in Komape, to adduce evidence to satisfy the burden of proof. The high court ought to have either dismissed the claim or granted absolution from the instance. It did neither. For this Court to issue either of those orders would be tantamount to clothing itself with jurisdiction where it has none. In large measure, the failure of the high court to pronounce on the claim before it was the seed that influenced how the matter made its way through to this Court. It is not for this Court to prescribe to the high court as to how the matter should be dealt with, at a procedural or substantive level. Accordingly, the proper order to be made is that the appellant’s claim for emotional shock be remitted to the high court, with no order as to costs. [21] I turn now to the rest of the appellant’s claims under various heads of damages, in the light of GM’s death. The heads of damages are: (a) future medical expenses; (b) estimated future loss of earnings; (c) general damages for pain and suffering. These claims were met with a denial of liability by the respondent in its plea. The first two heads of damages fell away with GM’s death. We are therefore left with only the claim for general damages, and whether such a claim is transferable. The law in this regard is settled. In Government of the Republic of South Africa v Ngubane,8 this Court concluded that such a claim is not transmissible unless litis contestatio has been reached. That was recently confirmed by this Court in Minister of Justice v Estate Late Stransham-Ford.9 8 Government of the Republic of South Africa v Ngubane 1972 (2) SA 601 (A) at 606G-H. 9 Minister of Justice and Correctional Services and Others v Estate Late James Stransham-Ford and Others ZASCA 197; [2017] 1 All SA 354 (SCA); 2017 (3) BCLR 364 (SCA); 2017 (3) SA 152 (SCA) para 19. 10 [22] In the present case, litis contestatio had long been reached at the time of GM’s death. The claim is therefore transmissible to his estate. Thus, only the executor of GM’s estate can prosecute the claim. It follows that the appellant does not have the necessary locus standi to prosecute the claim. In terms of s 1(1)(d) of the Intestate Succession Act 81 of 1987, the appellant would, potentially, inherit whatever could be paid out in respect of GM’s general damages, as was the case in Wilsnach N.O v M[....] and Others.10 [23] In conclusion, the issue of transmissibility of the claims on behalf of the minor child is inextricably intertwined with the locus standi of the appellant, in the absence of the minor child, to pursue the appeal before this Court. As Meyerowitz explains:11 ‘. . . the executor derives his authority to act only by receiving a grant of letters of executorship from the Master. An executor testamentary has no locus standi on behalf of the estate until such grant.’ He adds:12 ‘No proceedings can be taken against the estate without making the executor a party to them. Similarly, no person can institute proceedings on behalf of the estate except the executor.’ For these reasons, the proceedings must be stayed pending the appointment of an executor in the estate of GM. The proper order is, therefore, to strike the matter from the roll. [24] As regards the costs of the appeal, it is self-evident that the merits of the appeal could not be determined owing to the uncertain status of the appellant vis-à-vis the remainder of GM’s claim for damages. The appellant is solely to blame for this predicament in light of her failure to report GM’s death to the Master. For that reason, she must bear what, essentially, are the wasted costs. If an executor is appointed, the matter would most likely return to this Court, at which stage the merits would be determined. [25] In the result, the following order is made: 1 The order of the full court is set aside and replaced with the following: 10 Wilsnach N.O v M[....] and Others [2021] 1 All SA 600 (GP); 2021 (3) SA 568 (GP). 11 D Meyerowitz Administration of Estates and their Taxation 1 ed (2010) para 8. 12 Ibid para 12.2. 11 ‘1 The order of the trial court is set aside and replaced with the following: “1. The appellant’s claim for emotional trauma and nervous shock is remitted to the trial court for determination. 2. The appellant’s claim in respect of the other heads of damages is struck off the roll with costs.” 2 The appellant is ordered to pay the costs in this Court. ________________________ M R CHETTY ACTING JUDGE OF APPEAL 12 Appearances: For appellant: J J Wessels SC Instructed by: Munro Flowers & Vermaak Attorneys, Johannesburg Webbers Attorneys, Bloemfontein For respondent: P Mokoena SC (with him H Cassim) Instructed by: Maponya Attorneys, Mahikeng Phatshoane Henney 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: 18 April 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 MM obo GM v Member of the Executive Council for the Department of Health, North West Province (782/2022) [2024] ZASCA 52 (18 April 2024) Today the Supreme Court of Appeal (SCA) set aside the order of the Full Court of the North West Division of the High Court (the full court) and remitted a claim for emotional trauma and nervous shock to the trial court for determination. In relation to the appellant’s claim for all other heads of damages, including general damages on behalf of the deceased minor child, the SCA struck this claim off the roll with costs. The appeal arose from a medical negligence claim after GM, who was born on 16 October 2010, was later diagnosed with cerebral palsy. GM’s mother, the appellant, alleged that GM’s cerebral palsy was caused by the negligence of the respondent’s employees at the two hospitals to which she was admitted for obstetric care. She claimed damages for emotional trauma for herself, and future medical expenses, loss of earnings and general damages for pain and suffering on behalf of GM. The issue for determination in the trial court was whether the medical staff at the Moses Kotane Hospital and the Job Shimankana Tabane Hospital were negligent and whether such negligence caused GM to have resultant cerebral palsy. The trial court found that the hospital staff were negligent in various respects in the treatment and care of the appellant before and during the birth of GM, however, that court dismissed the claim on the basis that there was no causal relationship between the negligence and GM’s subsequent brain damage. The trial court concluded that the cerebral palsy was attributable to an abruptio placentae, a complication occurring during pregnancy in which the placenta gradually separates from the uterus while the baby is still in the uterus. Leave to appeal was granted to the Full Court on the issue of causality alone. The full court dismissed the appeal with costs. Special leave to appeal was then sought and obtained from the SCA with the appeal being restricted only against the finding that the negligence of the employees of the respondent was not causal to the damage suffered by the child. On 3 November 2023, 11 days prior to the hearing of the appeal before the SCA, it was brought to the attention of the Registrar, by the respondent’s attorneys, that they had received information, on 31 October 2023, that GM had passed away in August 2022. The respondent’s attorneys brought this information to the attention of the SCA as they considered that it potentially changed the landscape of the appeal. In response to an enquiry from the Registrar, the appellant’s attorney confirmed in writing that GM had passed away but further indicated that GM’s death did not extinguish the appellant’s entire 2 claim should the appellant be successful, and that the matter should proceed. At the hearing of the appeal before the SCA, no evidence was tendered to indicate when or how the minor child passed away. Before the SCA, the primary issue related to the effect of GM’s death on the claims asserted by the appellant, in particular, whether the appellant had the necessary locus standi to prosecute the appeal given the circumstances. Linked to this was whether the appellant was entitled to a claim for emotional trauma and shock. With regards to the latter issue, the SCA reasoned that in light of the trial court and the full court not dealing with the claim for emotional shock, it was of the view that it does not have the power to pronounce on the claim for emotional shock as sought by the appellant. In addition, the SCA held that a claim of this nature must be proved by way of evidence which the appellant failed to adduce, alternatively, to meet the standard required to satisfy this claim in the trial court. In the result, the SCA, on this aspect, concluded that it was not for the SCA to prescribe to the trial court as to how the matter should have been dealt with, at a procedural or substantive level. Accordingly, the proper order to be made was that the appellant’s claim for emotional shock be remitted to the trial court. In relation to the primary issue, the SCA held the view that the claim on behalf of GM (ie the claim for damages as the claims for future medical expenses and future loss of earnings fell away with GM’s passing) was not transmissible unless litis contestatio had been reached. Given that fact, the claim was therefore transmissible to GM’s estate and only the executor of GM’s estate could prosecute the claim. In the result, the SCA concluded that the appellant did not have the necessary locus standi to prosecute the claim. The SCA made an order setting aside the order of the Full Court and remitting the claim for emotional trauma and nervous shock to the trial court and struck the matter from the roll in relation to the appellant’s claim for all other heads of damages, including general damages. --------oOo--------

4213

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 159/2023 In the matter between: MAGDALENA JOSINA VORSTER APPELLANT and CLOTHING CITY (PTY) LTD RESPONDENT Neutral citation: Vorster v Clothing City (Pty) Ltd (159/2023) [2024] ZASCA 53 (19 April 2024) Coram: MOKGOHLOA, NICHOLLS and HUGHES JJA and SEEGOBIN and MBHELE AJJA Heard: 11 March 2024 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 11h00 on 19 April 2024. 2 Summary: Jurisdiction – Magistrates’ Court Act 32 of 1944 (the Act) – whether a claim for damages falls within the monetary jurisdiction of the magistrates’ courts – s 29(1)(g) sets the jurisdictional limit of the value of the subject matter in dispute – s 37(2) applicable. 3 ORDER On appeal from: Eastern Cape Division of the High Court, Makhanda (Mjali J and Mqumse AJ, sitting as court of appeal): 1. The appeal is upheld with costs. 2. The order of the high court is set aside and substituted with the following: ‘1. The appeal against the order of the regional court is upheld. 2. The defendant’s special plea is dismissed with costs. 3. The plaintiff’s action is referred to the regional court for the determination of damages.’ JUDGMENT Nicholls JA (Mokgohloa and Hughes JJA and Seegobin and Mbhele AJJA concurring): [1] This appeal concerns the monetary jurisdiction of the magistrates’ court in terms of the Magistrates’ Court Act 32 of 1944 (the Act). The oft repeated phrase is that the magistrates’ courts are creatures of statute and have no jurisdiction beyond that provided for in the enabling statute. However, this does not mean that one has to ‘give those powers such a restrictive interpretation as to practically, in many cases lead to a miscarriage of justice.’1 1 Rex v Boon 1913 TPD 12 at 14. 4 [2] The issue for determination is whether a claim for damages falls within the monetary jurisdiction of the magistrates’ courts, which at the time was a maximum amount of R400 000. The Regional Court of the Eastern Cape, Port Elizabeth (the regional court) found that it did not. This was confirmed by the full bench of the Eastern Cape Division of the High Court, Makhanda (the high court). Special leave to appeal was granted by this Court. [3] The facts of this case are briefly as follows. In September 2015, the appellant, Ms Magdalena Josina Vorster (Ms Vorster), fell and injured herself while shopping in the business premises of the respondent, City Clothing (Pty) Ltd (City Clothing). Pursuant thereto, she claimed delictual damages against City Clothing out of the regional court. In her initial particulars of claim, the quantum of Ms Vorster’s claim was R255 856.40. Before the trial commenced, the merits were settled on a 75/25 basis in her favour. The settlement agreement was made an order of court and the issue of quantum was postponed to a later date. The order reads as follows: ‘1. Defendant concedes the issue of negligence on a 75/25% basis. 2. Quantum and causality to be postponed sine die.’ [4] Before the hearing on quantum Ms Vorster effected an amendment to her particulars of claim, increasing the quantum of her claim from R255 856.40 to R531 225.02 less the 25% apportionment. This resulted in a total claim by Ms Vorster of R398 418.77. City Clothing did not object to the amendment which was duly perfected. It filed a consequential amendment to its plea and did not raise monetary jurisdiction as an issue. However, a month and a half later, City Clothing filed a notice to amend its plea, solely to introduce a special plea that the amount of R531 225.02 exceeded the R400 000 monetary jurisdiction of the regional court. In 5 her replication, Ms Vorster responded that after the apportionment was taken into consideration, the amount fell within the jurisdiction of the regional court. [5] The matter proceeded in the regional court only in respect of the special plea. The magistrate found that Ms Vorster had the option to abandon part of her claim to bring it within the jurisdiction of the regional court, but instead she made a deliberate choice to persist with a claim which exceeded the jurisdiction. The magistrate upheld the special plea and found that it was a ‘declinatory plea’ with respect to jurisdiction which, if upheld, brings an end to the action. [6] An appeal to the high court was dismissed with costs. The high court was of the view that Ms Vorster had taken it upon herself to apportion her claim, thus usurping the function of the court. It was only once the quantum of damages had been proven could the apportionment of 75/25% be applied, said the high court. It held that if a portion of an indivisible claim exceeded the monetary jurisdiction, then the whole claim was beyond the jurisdiction of the regional court. For this it relied on Jones v Williams.2 [7] The crucial time to determine whether a court has jurisdiction to entertain a matter is at the time when the action commences. This is even so where the plaintiff is responsible for the removal of jurisdiction.3 Once a court is seized with jurisdiction, it retains that jurisdiction until the matter is concluded.4 The high court considered this argument but distinguished this matter on the basis that once the quantum was amended the quantitative jurisdiction would have to be re-considered. 2 Jones v Williams 1911 TPD 536. 3 Balfour v Balfour 1922 WLD 133; Strydom v Strydom 1945 (1) PH B32 (WLD). 4 Coin Security Group (Pty) Ltd v Smit NO and Others 1992 (3) SA 333 (AD); [1992] 2 All SA 122 (A) at 344 A. 6 It also held that it was of no moment that City Clothing did not immediately raise jurisdiction as an objection when Ms Vorster first filed her amended particulars of claim increasing the quantum. It stated that it would be absurd for the court to ‘turn a blind eye on the issue of jurisdiction well aware that it has a bearing on its competence to deal with such a matter.’ [8] In refusing leave to appeal to this Court, the high court found that the application was based on ‘a misconstrued interpretation of the relevant provisions’, as Ms Vorster had taken it upon herself to apply the 25% apportionment before damages were even proven. [9] The monetary jurisdiction of the magistrates’ court is dealt with in ss 29(1)(g)-(1A) of the Act, which provides: ‘ (1) Subject to the provisions of this Act and the National Credit Act 34 of 2005, a court shall have jurisdiction in…. (a) . . . . (g) actions other than those already mentioned in this section where the claim or the value of the matter in dispute does not exceed the amount determined by the Minister from time to time by notice in the Gazette. (1A) The minister may determine different amounts contemplated in section (1)(a),(b),(f) and (g) in respect of courts for districts and courts for regional divisions . . .’ [10] It is undisputed that at the relevant time the value of a claim determined by the Minister, as falling within the jurisdiction of the regional court, was between R200 000 and R400 000. This Court, therefore, has to determine whether ‘the claim or the value of the matter in dispute’ exceeds R400 000. Ms Vorster argues that the high court erred in deciding the jurisdiction on the basis of the total damages as opposed to the damages actually claimed, namely R398 418.77. City Clothing on 7 the other hand contends that Ms Vorster impermissibly usurped the role of the court by deducting the 25% prior to the court making a determination on the actual quantum. It therefore contends that the only amount this Court can have regard to is R531 225.02, being the amount before the apportionment was applied, which falls outside the monetary jurisdiction of the regional court. In addition, City Clothing contends that the claim is indivisible. [11] Section 29(1)(g) operates to set the jurisdictional limit of the value of the subject matter in dispute.5 The starting point is the pleadings – jurisdiction is always determined with reference to the pleadings.6 The test is the amount claimed. A line of cases dating as far back as 1913, have consistently held that in order to determine whether the claim or the matter in dispute fell within the jurisdiction of the magistrates’ court (in terms of the relevant proclamation), the court has to simply look at the prayer. If the prayer was for an amount under the prescribed amount, then it fell within the jurisdiction of the magistrates’ court.7 Therefore the sole test is the amount claimed. [12] In this instance, the amended prayer reads as follows: ‘Wherefore the plaintiff claims: (a) Payment of the sum of R398 418.77 for damages as aforementioned; (b) Interest on the aforesaid amount, calculated at the prevailing legal rate of 9% per annum as from a date fourteen (14) days from Judgment to date of payment; (c) Costs of suit; (d) Further and/or alternative relief.’ 5 Botha v Andrade and Others [2008] ZASCA 120; 2009 (1) SA 259; [2009] 1 All SA 436 (SCA) para 15 6 Chirwa v Transnet Limited and Others [2007] ZACC 23; 2008 (4) SA 367 (CC); 2008 (3) BCLR 251 (CC) para 169; Baloyi N.O. and Others v Pawn Stars CC and Another [2022] ZACC 10; 2022 (12) BCLR 1431 (CC) para 25. 7Jackson & Co., v Eggeling 1913 TPD 403 at 406. 8 [13] In Van der Merwe v Van der Merwe8 Corbett J, dealt with the ‘value’ of immoveable property in terms of s 29(1)(a) of the Act. He held that the value was the actual market value of the property at the time of the commencement of the action, even though this may fluctuate from time to time. This was the appropriate time to determine the jurisdiction of the magistrates’ court otherwise ‘serious anomalies and absurdities’ could arise in a particular case.9 The court re-iterated that it is the value of the claim and only that value which determines whether jurisdiction will be conferred upon the magistrates’ court.10 [14] From the prayer alone, it is clear that the value of the claim falls within the jurisdiction of the regional court, as the amount claimed is R398 481.77, falling below the R400 000 threshold. The fact that a greater amount has to be determined by the magistrate does not detract from this or have the effect of ousting jurisdiction. Insofar as the regional court may have to have regard to a greater quantum before arriving at the amount claimed, this is dealt with in s 37, a section which the high court erroneously found had no application. [15] Section 37 provides: ‘(1) In actions wherein the sum claimed, being within the jurisdiction, is the balance of an account, the court may enquire into and take evidence if necessary upon the whole account, even though such account contains items and transactions exceeding the amount of the jurisdiction. (2) Where the amount claimed or other relief sought is within the jurisdiction, such jurisdiction shall not be ousted merely because it is necessary for the court, in order to arrive at a decision, to give a finding upon a matter beyond the jurisdiction. 8Van der Merwe v Van der Merwe 1973 (1) SA 436 (C). 9 Ibid at 440 B-D. 10 Ibid at 339 G-H. 9 (3) In considering whether a claim is or is not within the jurisdiction, no prayer for interest on the principal sum claimed or for costs or for general alternative relief shall be taken into account.’ [16] Section 37(2) permits the court to give a finding beyond its jurisdiction if it is necessary to reach its decision on the matter before it but only if the ‘relief sought is within [its] jurisdiction’.11 This section serves the purpose of permitting magistrates to have regard to issues which are relevant to the matter before them, which would otherwise not fall within their jurisdiction. The fact that the court may have to inquire into far larger sums, and into complicated accounts worth far more, is irrelevant as long as the value of claim in dispute does not exceed the monetary jurisdiction of the magistrates’ court or regional court. [17] In this matter, the regional court will have to investigate whether the quantum of R531 225.02 has been proven. But this is not the amount claimed, only 75% has been claimed. The apportionment of 75/25% has already been made an order of court. In these circumstances, it is difficult to understand why is it, by reducing the quantum by 25%, that Ms Vorster has usurped the role of the court. This argument could only hold water where the court had not ordered apportionment. Whatever damages Ms Vorster will finally prove, this quantum will have to be reduced by 25%. But the regional court can never grant an order for more than the amount claimed, namely, R398 481.77. Thus the quantum will always remain within its jurisdiction. [18] Insofar as the high court relied on Jones v Williams to hold that Ms Vorster’s claim was indivisible, this was misplaced. That matter dealt with an action where 11 See Ntshingila and Others v Minister of Police [2011] ZAWCHC 12; 2012 (1) SA 392 (WCC) para 32 where the dictum in Tshisa v Premier of the Free State 2010 (2) SA 153 para 10 is quoted with approval. 10 the plaintiff had claimed an amount in damages and specific performance. The monetary claim against the defendant was for wrongfully diverting stormwater on his land with a separate amount for trespassing on his land and breaking down the barrier he had erected to keep the stormwater out. The claim for specific performance was an ‘order condemning the defendant to substantially block up the outlet made by him aforesaid forthwith’.12 The defendant excepted to the summons on the grounds that the second claim was beyond the jurisdiction of the magistrates’ court. The magistrate refused to allow the plaintiff to abandon that claim at the hearing. The court found that the second claim was one ad factum praestandum which did not fall within the jurisdiction of the magistrates’ court. Because this was so, the court found that the entire claim was beyond the jurisdiction of the magistrates’ court. It is not apparent how Jones v Williams would have any bearing on the present matter. Here, there is only one claim for a monetary amount in damages. [19] There is no doubt that the value of Ms Vorster’s claim is R398 481.77. This falls within the ambit of s 29(1)(g) read together with s 37(2). In any event, to non-suit Ms Vorster on these grounds would amount to a miscarriage of justice. [20] In the result the following order is made: 1. The appeal is upheld with costs. 2. The order of the high court is set aside and substituted with the following: ‘1. The appeal against the order of the regional court is upheld. 2. The defendant’s special plea is dismissed with costs. 3. The plaintiff’s action is referred to the regional court for the determination of damages.’ 12 Jones v Williams 1911 TPD 536 at 538. 11 __________________________ C E HEATON NICHOLLS JUDGE OF APPEAL 12 Appearances For the appellant: N Paterson (with him A White) Instructed by: Raymond Bojanic & Associates, Gqeberha Hendre Conradie Inc, Bloemfontein For the respondent: M Rodrigues Instructed by: Palm and Hollander Attorneys, Rooderpoort Bezuidenhout 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: 19 April 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 Vorster v Clothing City (Pty Ltd) (159/2023) [2024] ZASCA 53 (19 April 2024) Today, the Supreme Court of Appeal (SCA) upheld an appeal from the Eastern Cape Division of the High Court, Makhanda (the high court). The order of the high court was set aside and substituted with an order that: ‘the appeal against the order of the regional court is upheld; the defendant’s special plea is dismissed with costs; the plaintiff’s action is referred to the regional court for the determination of quantum.’ The appellant, Ms Magdalena Josina Vorster (Ms Vorster), fell and injured herself while shopping in the business premises of the respondent, City Clothing (Pty) Ltd (City Clothing). Pursuant thereto, she claimed delictual damages against City Clothing out of the regional court. In her initial particulars of claim, the quantum of Ms Vorster’s claim was R255 856.40. Before the trial commenced, the merits were settled on a 75/25 basis in her favour. The settlement agreement was made an order of court and the issue of quantum was postponed to a later date. Before the hearing on quantum Ms Vorster effected an amendment to her particulars of claim, increasing the quantum of her claim from R255 856.40 to R531 225.02 less the 25% apportionment. Initially it did not raise monetary jurisdiction as an issue but later City Clothing filed a notice to amend its plea, solely to introduce a special plea that the amount of R531 225.02 exceeded the R400 000 monetary jurisdiction of the regional court. The special plea proceeded in the regional court which upheld the special plea and found that it was a ‘declinatory plea’ with respect to jurisdiction. An appeal to the high court was dismissed with costs. The high court was of the view that Ms Vorster had taken it upon herself to apportion her claim, thus usurping the function of the court. It was only once the quantum of damages had been proven could the apportionment of 75/25% be applied, said the high court. It held that if a portion of an indivisible claim exceeded the monetary jurisdiction, then the whole claim was beyond the jurisdiction. In the SCA, Ms Vorster argued that the high court erred in deciding the jurisdiction on the basis of the total damages as opposed to the damages actually claimed, namely R398 418.77. City Clothing on the other hand contended that Ms Vorster impermissibly usurped the role of the court by deducting the 25% prior to the court making a determination on the actual quantum. The SCA held that, the starting point in deciding jurisdiction is the pleadings and that jurisdiction is always determined with reference to the pleadings. The SCA further held that the test is the amount claimed and that in order to determine whether the claim or the matter in dispute fell within the jurisdiction of the magistrates’ court (in terms of the relevant proclamation), the court has to simply look at the prayer. The SCA held that from the prayer alone, it is clear that the value of the claim falls within the jurisdiction of the regional court, as the amount claimed is R398 481.77, falling within the jurisdiction of the magistrates’ court. The SCA held further that s 37(2) of the Magistrate’s court act was applicable. Therefore, the fact that the court may have to inquire into far larger sums, and into complicated accounts 2 worth far more, is irrelevant as long as the value of claim in dispute does not exceed the monetary jurisdiction of the magistrates’ court or regional court. As a result, the SCA upheld the appeal of the high court with costs. ~~~~ends~~~~

4297

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not reportable Case no: 414/2023 In the matter between: ESTELLE LE ROUX FIRST APPLICANT MARTHINUS VAN DER SPUY LE ROUX SECOND APPLICANT and DIELEMAAR HOLDINGS (CAPE) PTY LTD FIRST RESPONDENT IPIC PROPERTIES (PTY) LTD SECOND RESPONDENT Neutral Citation: Estelle Le Roux and Another v Dielemaar Holdings (Cape) Pty Ltd and Another (414/2023) [2024] ZASCA 118 (25 July 2024) Coram: MOTHLE, MEYER and KGOELE JJA and TOLMAY and MBHELE AJJA Heard: 13 May 2024 Delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email, publication on the Supreme Court of Appeal website and released to SAFLII. The date and time for hand-down of the judgment is deemed to be 25 July 2024 at 11h00. 2 Summary: Contract law – contractual claim involving issues of suretyships – special plea of prescription and res judicata – whether the claim in the high court against the applicants had prescribed – whether the reliance of a surety on a counterclaim of the principal debtor is available despite prescription and res judicata – whether leave ought to be granted to the applicants. ______________________________________________________________ ORDER ______________________________________________________________ On appeal from: Western Cape Division of the High Court, Cape Town (Hockey AJ sitting as court of first instance): The application for leave to appeal is dismissed with costs. ______________________________________________________________ JUDGMENT ______________________________________________________________ Mothle JA (Meyer and Kgoele JJA and Tolmay and Mbhele AJJA concurring) [1] This is an application for leave to appeal the judgment and order of 25 November 2022, delivered in the Western Cape Division of the High Court, Cape Town (high court). In an action instituted by Dielemaar Holdings (Cape) (Pty) Ltd (first respondent) and IPIC Properties (Pty) Limited (second respondent), jointly referred to in this judgment as ‘the respondents’, the high court found against the applicants Ms Estelle le Roux (first applicant) and Mr Marthinus van der Spuy le Roux (second applicant), jointly referred to in this judgment as the applicants. The applicants were sued in their capacities as sureties and co-principal debtors in solidum with a close corporation known as Be Positive Trading (principal debtor), in terms of deeds of suretyship, for debts arising out of lease agreements concluded between the principal debtor and the respondents. 3 [2] The high court refused to grant the applicants leave to appeal against the judgment and order. The applicants turned to this Court on petition, which was referred to oral hearing in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013 (the Superior Courts Act). The order of this Court stated further that the parties should also be prepared to address this Court on the merits, if called upon to do so. [3] The background facts are largely common cause. Between 2008 and 2011, the respondents and the principal debtor concluded three commercial property tenancy lease agreements, with the applicants standing surety for the debts of the principal debtor, arising out of the lease agreements, in favour of the respondents. The applicants provided surety in terms of four deeds of suretyship. The lease agreements and the deeds of suretyship, were concluded as follows: (a) On 30 September 2008, the first respondent concluded the first lease agreement (first lease) with the principal debtor, for the rental of shops 3, 7 and 8 at IPIC Shopping Centre, Kenridge, Durbanville. The second applicant bound himself as surety for and co-principal debtor, in favour of the first respondent. (b) On 15 September 2010, the second respondent concluded the second lease agreement (second lease) with the principal debtor for the rental of shop 23 at IPIC Shopping Centre, Aurora, Durbanville. The first applicant bound herself as surety for and co-principal debtor, in favour of the second respondent; and (c) On 3 August 2011, the second respondent concluded a third lease agreement (third lease) for the rental of shops 7 and 8 at IPIC Shopping Centre, Kenridge, Durbanville, with the principal debtor. This lease agreement is an extension of the first one. Both the first and the second applicants bound themselves, each in a separate deed of suretyship, as surety for and co-principal debtors, in favour of the second respondent. [4] Therefore, each of the first two lease agreements, had a deed of surety, and the third lease agreement had two deeds of surety. In terms of the 4 suretyships, the applicants bound themselves as ‘surety and co-principal debtor in solidum, in favour of the respondents as creditors, for payment on demand, of all sums of money which the principal debtor then and from time to time thereafter, may owe or be indebted to the respondents under or arising out of the lease agreements, including damages, legal costs, interest, discount or other charges and in relation to any immovable property, any imposts of whatever nature’. [5] The principal debtor fell into arrears in respect of the rental payments of all three leases, in the amounts of R32 782.75, R198 782.59 and R803 841.29, respectively. On demand for payment, the principal debtor was unable to pay. The respondents instituted three actions, arising out of the lease agreements against the principal debtor and the sureties. The two actions for the first and second leases were instituted in the magistrate court, and the third action for the extension of the first lease, in the regional court. Eventually all three actions were consolidated and set down for hearing in the regional court. The applicants and the principal debtor defended the actions and also lodged a Claim in Reconvention (counterclaim) against the respondents. The respondents applied for summary judgment, which the regional court refused, on the grounds that the third lease had an arbitration clause. The actions in the regional court were therefore stayed pending a referral of the cases to arbitration. [6] On 5 December 2013, Mr Andrew Brown SC was appointed as arbitrator by the Cape Bar Council, pursuant to clause 21 of the third lease agreement. The parties agreed that the arbitration would also include the adjudication of the two actions instituted in terms of the first and second lease agreements. At the arbitration hearing, the sureties raised the arbitrator’s lack of jurisdiction to determine their liability for the debt, as the deeds of suretyship did not provide for arbitration. On 11 February 2015, the arbitrator granted an interim award, wherein he upheld the challenge by the sureties that he did not have jurisdiction to make a determination on their liability in respect of the debt, and as they requested, discharged them from the arbitration proceedings. 5 [7] The arbitration proceedings against the principal debtor continued, scheduled for hearing on 22 July 2015. The hearing was preceded by a notice of withdrawal from the attorneys of the principal debtor. On 8 July 2015, the arbitrator inquired from the closed corporation members of the principal debtor (the applicants), whether they would be representing the principal debtor. The second applicant informed the arbitrator that the principal debtor would no longer oppose the claims in the arbitration. Consequently, on 22 July 2015, there was no appearance on behalf of the principal debtor at the arbitration. The arbitrator made a final award in default of the principal debtor’s appearance, upholding the claims against it and dismissing its counterclaim. The arbitrator’s award was made an order of the high court on 29 March 2016. [8] In July 2016, the respondents then instituted the action in the high court against the applicants, in their capacities as sureties, the outcome of which resulted in the petition before this Court. In terms of s 17(2)(e) of the Act, this Court may thus grant, or refuse leave to appeal, and if it grants such leave, the Court will proceed to consider the merits of the appeal. The applicable test, stated in s 17(1) of the Act, is whether (a) the proposed appeal would have a reasonable prospect of success, or whether (b) there is some other compelling reason why the appeal should be heard, including whether there are conflicting judgments on the matter under consideration.1 [9] The high court had adjudicated this application on the basis of an agreement concluded by the parties before the hearing and presented as stated facts. The issues for determination in the high court, as in this Court, turned on the defences of prescription as raised by the applicants in response to the action, as well as the defences of res judicata or issue estoppel of the applicants’ counterclaims, as raised by the respondents. [10] The applicants, relying on s 15 of the Prescription Act 68 of 1969 (‘the Prescription Act’), contend that the running of the prescription period against 1 Christopher Charles Hughes v Nicolas Gargassoulas and Others (1030/2022) [2024] ZASCA 46; 2024 JDR 1534 (SCA) (12 April 2024) paras 2 and 3. 6 the principal debtor and the sureties commenced when the principal debtor fell in arrears. At that time, it is contended, the period of the running of prescription was interrupted by the service of summons issued in the magistrates court on 17 May 2012, for the first two leases and on 6 April 2013 in the regional court for the third lease. The applicants conclude that when the respondents’ summary judgment was refused by the regional court, and all the actions in that court were not prosecuted to finality, the interruption of the period of prescription of the actions against the sureties lapsed, in terms of s 15(2) of the Prescription Act. Section 15(1) of the Prescription Act provides that the running of prescription shall, be interrupted by the service on the debtor of any process whereby the creditor claims payment of the debt’. Section 15(2) which follows on 15(1) of the Prescription Act, provides: ‘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.’ Therefore, in effect, the applicants contend that in terms of s 15(2) of the Prescription Act, the interruption of the running of prescription, as a result of the service of the summons on them, is deemed not to have occurred. [11] The applicants’ contention has no merit for the reasons that follow. First, in their special plea as defendants, the applicants conceded that the respondents’ debts became due, latest on 12 May 2012 and 5 April 2013 respectively when service of summons was effected on them. Applying the provisions of s 11(d) of the Prescription Act, the applicants had also pleaded that the prescription, running for a period of three years, would have occurred on 12 May 2015 and 5 April 2016 respectively. It is common cause that after the regional court refused the application for summary judgment, the parties submitted the adjudication of the actions to arbitration. On 5 December 2013 and before the completion of the three-year period of prescription in terms of s 11(d) of the Prescription Act, the arbitrator was appointed. The appointment of the arbitrator, interrupted the running of prescription in terms of s 13(1)(f) of 7 the Prescription Act, which provides that the completion of prescription is delayed in certain circumstances, including: ‘(1) If- (a)… … (f) the debt is the object of a dispute subjected to arbitration; or…’ [12] Second, the proceedings in the regional court were stayed in terms of s 6 of the Arbitration Act 42 of 1965 (the Arbitration Act), to enable the actions to be referred to arbitration. Section 6 of the Arbitration Act provides for the stay of proceedings, even in an inferior court, where there is an arbitration agreement between the litigating parties. On completion of the arbitration, the final award was made an order of court. Section 31 of the Arbitration Act, read with s 1 which provides for the definition of a court as the high court, provides that an award may be made an order in the high court. On conclusion of the arbitration, the merits of the actions instituted against the principal debtor, had been adjudicated and the final award made an order of the high court. There was therefore no need for a repeat of the adjudication of the actions in the regional court. Therefore, the proceedings in the regional court were not ‘abandoned’ as the applicants claim, but stayed in terms of the Arbitration Act. The respondents cannot thus be faulted for having turned to the high court that granted the order, to institute the proceedings for payment of the judgment order, against the sureties. [13] Third, the applicants, at their own request, were excused from participating in the arbitration, because the deeds of suretyship did not provide for arbitration. As such, the arbitrator lacked jurisdiction in respect of the sureties. However, the principal debtor was bound by the arbitration clause in the lease agreements. The running of prescription was therefore interrupted or delayed, until the final award was made, on 22 July 2015. The question which then arose was whether by being excused from the arbitration, the running of prescription of the debt against the surety resumed or continued, independent 8 of that of the principal debtor. This question was raised and answered by this Court in Jans v Nedcor Bank (Jans).2 [14] At the outset, Jans stated the question for consideration as follows: ‘The question in issue in this appeal is one which has been the subject of debate for centuries. Does an interruption or delay in the running of prescription in favour of the principal debtor interrupt or delay the running of prescription in favour of a surety?’.3 The Court went further to state thus: ‘…Those who argue that the claim against the surety should prescribe independently of that against the principal debtor, point in the first place to the fact that the claim against the former arises from a contract which is quite separate and distinct from the contract giving rise to the claim against the latter, and that both contracts give rise to distinct obligations. This is undoubtedly so. In the case of the one, the contract is between the creditor and the principal debtor. In the other it is between the creditor and the surety. See, for example, Bulsara v Jordan and Co Ltd (Conshu Ltd) 1996 (1) SA 805 (A) at 810D-G…However, in most contracts of suretyship, certainly in more modern times, it is usual for the surety to bind him-or herself as surety and co-principal debtor. But this does not mean that the surety becomes a party to the contract between the creditor and the principal debtor. As pointed out by Trollip JA in Neon and Cold Cathode Illuminations (Pty) Ltd v Ephron 1978 (1) SA 463 (A) at 471C-G the effect of a surety binding himself as a co-principal debtor is not to render him liable to the creditor in any capacity other than that of a surety who has renounced the benefits ordinarily available to a surety against the creditor. But where the surety is bound as a co-principal debtor, he or she will be jointly and severally liable with the principal debtor and prescription will begin to run in favour of both at the same time.’4 [15] After conducting an historical overview of the authorities, the Court in Jans analysed the various scenarios in the inter play between the running and interruption or delay of prescription, as it may affect the principal debtor and the surety.5 In one of the scenarios, the Court identified the anomaly apposite to this case, as follows: ‘…If a disputed claim against the principal debtor is 2 Jans v Nedcor Bank [2003] ZASCA 15; 2003 (6) SA 646 (SCA); [2003] 2 All SA 11 (SCA) para 32. 3 Ibid para 1. 4 Ibid para 9. 5 Ibid para 31. 9 subjected to arbitration (see s 13(1)(f)[of the Prescription Act]) the creditor may be compelled to institute action against the surety to interrupt prescription. If the matter were resolved by arbitration the action against the surety would once again have been a needless exercise resulting in wasted costs…’.6 The Court in Jans concluded thus: ‘…In my view, therefore, the position in the South African law is that an interruption or delay in the running of prescription in favour of the principal debtor interrupts or delays the running of prescription in favour of the surety….’7 [16] The principle established in Jans was confirmed in Eley (formerly Memmel) v Lynn & Main Inc, where the Court stated as follows: ‘…The thrust of the dicta is, therefore, that if the principal debt is kept alive by a judgment, the surety’s accessory obligation by common law continue to exist.’8 Therefore, the running or interruption of prescription on a principal debtor’s debt, cannot be de-linked from the running or interruption of prescription of the same debt on the surety. I conclude that in this case, the withdrawal of the applicants as sureties from the arbitration proceedings, did not affect the interruption or delay on the running of prescription of the debt, in terms of s 13(1)(f) of the Prescription Act. The arbitration interrupted or delayed prescription for the principal debtor, for whose debts the applicants have bound themselves in solidum as co-principal debtors. For the reasons stated, I find that there would be no prospect of a successful appeal on the ground of prescription raised by the applicants. I turn to deal with the defence of res judicata, as raised by the respondents. The defence of res judicata, which was upheld by the high court, is raised as one of the grounds in the application for leave to appeal. [17] After the appointment of the arbitrator in February 2015, the respondent delivered a statement of claim. The applicants and the principal debtor filed their plea and also lodged a counterclaim (claim in reconvention) against the 6 Ibid para 31. 7 Ibid para 32. 8 Eley (formerly Memmel) v Lynn & Main Inc [2007] ZASCA 142; [2007] SCA 142 (RSA); [2008] 1 All SA 315 (SCA); 2008 (2) SA 151 (SCA) para 11. 10 respondents in the amount of R1 924 623.88, as total damages suffered, arising from the lease agreements. The respondent filed a plea to the applicants’ counterclaim, that the counterclaim was considered and dismissed by the arbitrator in an award that was made an order of the high court. In that regard, the arbitrator had concluded in his final award dated 22 July 2015, as follows: ‘…Adv Crookes also addressed me in relation to the First Defendant’s [the principal debtor’s] Claim in Reconvention. I am satisfied that the Claimants are entitled to an award in default of any appearance for the First Defendant; I am also satisfied that the onus in respect of the First Defendant’s Claim in Reconvention rests upon the First Defendant and that in the absence of any appearance, the claim should be dismissed. I am also satisfied that the Claim in Reconvention is sufficiently linked to the First Defendant’s default in terms of the lease agreement, as to constitute a matter arising therefrom and accordingly that the scale of costs sought by the Claimants is appropriate.’ [18] The applicants (as sureties), withdrew from the arbitration in February 2015 as per the interim award, raising the arbitrator’s lack of jurisdiction on the suretyships. By withdrawing, the applicants did not prosecute the counterclaim, in which they had joined cause with the principal debtor. Similarly, the first applicant in her capacity as a member of the close corporation (of the principal debtor), caused the latter not to participate in the arbitration process and prosecute the counterclaim. [19] The respondents’ plea is a defence of res judicata or issue estoppel. As the respondents’ counsel correctly submits, ‘the requirements for a defence of res judicata are that the judgment in the prior proceedings was [granted] between the same parties, based on the same cause of action (ex eadem petendi causa), with respect to the same subject-matter or thing (de eadem re)’. In Jans,9 the Court distinguished the nature and characteristics of the contract between the creditor and debtor and that between the creditor and the surety. The latter is based on the terms of the deed of suretyship. It is clear from the counterclaim, that the damages complained of, arise from the lease 9 Ibid para 9. 11 agreements concluded with the principal debtor and not from the terms of the deeds of suretyship. It is the principal debtor that raised the counterclaim in the arbitration, but was in default of appearance to prosecute it. However, in Caesarstone Sdot-Yam Ltd v World of Marble and Granite 2000 CC and Others (Caesarstone), this Court accepted that the requirement of ‘same party’ in respect of the defence of res judicata, is not interpreted narrowly.10 [20] The failure to prosecute the claim in reconvention in the arbitration proceedings had its consequences. This Court in Aon South Africa (Pty) Ltd v Van Den Heever NO and Others referring to Caesarstone, held that: ‘…Subject to the person concerned having had a fair opportunity to participate in the initial litigation, where the relevant issue was litigated and decided, there seems to me to be something odd in permitting that person to demand that the issue be litigated all over again with the same witnesses and the same evidence in the hope of a different outcome, merely because there is some difference in the identity of the other litigating party.’11 Having failed to prosecute the claim in reconvention, and the claim being dismissed by the final award made an order of the high court, the applicants are estopped from raising that claim in this case. [21] In a matter whose facts resemble the one at hand, the high court in MAN Truck & Bus (SA) (Pty) Ltd v Dusbus Leasing CC and Others,12 held that where a close corporation was a party to the proceedings, and the member of the close corporation who stood surety for its debt, was identified with the close corporation, issue estoppel applied to such member. The principal debtor and at least the first applicant, failed to prosecute the counterclaim before the arbitration. The high court was thus correct to uphold the respondents’ defence of res judicata. 10 Caesarstone Sdot-Yam Ltd v World of Marble and Granite 2000 CC and Others [2013] ZASCA 129; 2013 (6) SA 499 (SCA); [2013] 4 All SA 509 (SCA) para 42. 11 Aon South Africa (Pty) Ltd v Van Den Heever NO and Others [2017] ZASCA 66; [2017] 3 All SA 365 (SCA); 2018 (6) SA 38 (SCA) para 27. 12 Man Truck & Bus (SA) (Pty) Ltd v Dusbus Leasing CC and Others 2004 (1) SA 454 (W). 12 [22] The high court’s reasoning and conclusion cannot be faulted. The envisaged appeal has no reasonable prospect of success, and there is no other compelling reason why leave to appeal should be granted. Accordingly, the application for leave to appeal cannot succeed, and there is no reason why the costs should not follow the result. [23] In the result, the following order shall issue: The application for leave to appeal is dismissed with costs. _______________ S P MOTHLE JUDGE OF APPEAL 13 Appearances: For appellant: B Hack Instructed by: Johan Victor Attorneys, Cape Town. Rosendorff Reitz Barry, Bloemfontein For respondent: T Crookes Instructed by: Gideon Pretorius Inc., Bellville. Symington de Kok 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: 25 July 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 Estelle Le Roux and Another v Dielemaar Holdings (Cape) Pty Ltd and Another (414/2023) [2024] ZASCA 118 (25 July 2024) Today the Supreme Court of Appeal (SCA) handed down judgment, wherein leave to appeal was dismissed with costs, against the decision of the Western Cape Division of the High Court, Cape Town (the high court). This matter involved a dispute over three commercial property lease agreements between Dielemaar Holdings (Cape) Pty Ltd, IPIC Properties (Pty) Ltd (the respondents) and a close corporation known as Be Positive Trading (the principal debtor). Estelle Le Roux and Marthinus van der Spuy Le Roux (the applicants) had stood as sureties and co-principal debtors in solidum in terms of the deeds of suretyship for the principal debtor's debts arising from the lease agreements in favour of the respondents. The principal debtor fell into arrears in respect of the rental payments of all three leases. On demand for payment, the principal debtor was unable to pay. The respondents instituted action against the principal debtor and sureties in the magistrate court. These actions were consolidated and scheduled for a regional court hearing. The applicants defended the actions and also lodged a counterclaim. The regional court rejected the respondents’ summary judgment application due to an arbitration clause in the third lease, resulting in a stay of proceedings pending arbitration. In the arbitration proceedings, initiated in December 2013, the sureties raised the arbitrator’s lack of jurisdiction to determine their liability of debt, which resulted in the sureties being discharged from the arbitration. On 22 July 2015, the arbitration proceedings continued against the principal debtor. However, the principal debtor was in default of appearance. As a result, the arbitrator made an award upholding the claims against it and dismissing its counterclaim. The arbitrator’s award was made an order of the high court on 29 March 2016. In July 2016, the respondents then instituted the action in the high court against the applicants, in their capacities as sureties and co-principal debtors. In the high court, the applicants argued that the respondents' claim had prescribed under the Prescription Act 68 of 1969 (the Prescription Act), as the service of summons in the magistrate's court had not been successfully prosecuted to final judgment. They contended that the interruption of prescription had therefore lapsed. The respondents raised the defences of res judicata or issue estoppel of the applicants’ counterclaims. They argued that the applicants' counterclaim had been dismissed in the earlier arbitration proceedings, which had been made an order of the high court. The high court dismissed the applicants' application, finding that the respondents' claim had not prescribed and that the applicants were estopped from raising the counterclaim that had been previously dismissed in the arbitration. The high court also dismissed the applicants’ leave to appeal. Aggrieved by the high court decision, the applicants petitioned this Court. The petition was referred to hearing, to determine whether there were prospects of success, should leave to appeal be granted. 2 The main issue on appeal in this Court was whether the respondents' claim against the applicants as sureties and co-principal debtors had prescribed and whether the applicants were precluded from raising a counterclaim that had previously been dismissed in arbitration proceedings. In its findings, the SCA accepted that the appointment of the arbitrator in December 2013 had interrupted the running of prescription under the Prescription Act, and this interruption continued until the final arbitration award was made in July 2015. The fact that the applicants had withdrawn from the arbitration proceedings did not affect the interruption of prescription for the principal debtor, for whose debts the applicants were jointly liable as co-principal debtors. Regarding the res judicata defence, the SCA found that the applicants, by withdrawing from the arbitration, had failed to prosecute the counterclaim raised by the principal debtor. The arbitrator had dismissed the counterclaim, and this dismissal was made an order of the high court. The SCA held that the applicants were thus estopped from raising the same counterclaim again in the current proceedings. The SCA upheld the high court's decision, finding that the applicants' arguments on prescription had no merit. Furthermore, it concluded that the high court's reasoning and conclusions were correct, and that the proposed appeal had no reasonable prospect of success. Accordingly, the SCA dismissed the application for leave to appeal with costs. ~~~~ends~~~~

4218

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case No: 1255/2022 In the matter between: ABSA BANK LIMITED APPELLANT and MARC CHRISTOPHER ROSENBERG FIRST RESPONDENT TERRENCE ROSENBERG SECOND RESPONDENT Neutral citation: ABSA Bank Limited v Rosenburg and Another (1255/2022) [2024] ZASCA 58 (24 April 2024) Coram: PETSE DP, MOKGOHLOA, AND MOTHLE JJA, and BINNS-WARD and TOKOTA AJJA Heard: 16 November 2023 Delivered: 24 April 2024 2 Summary: Contract – interpretation thereof – whether the guarantee agreement concluded between the parties and securing the indebtedness of the credit grantee is enforceable against the respondents as guarantors. 3 ORDER On appeal from: KwaZulu-Natal Division of the High Court, Pietermaritzburg (Bezuidenhout AJ sitting as a court of first instance): The appeal is dismissed with costs. JUDGMENT Petse DP et Tokota AJA (Mokgohloa and Mothle JJA and Binns-Ward AJA concurring): Introduction [1] 'The same words often mean different things to different people. This helps to keep the forensic pot boiling', so said Schutz JA in his inimitable style in Langston Clothing (Properties) CC v Danco Clothing (Pty) Ltd.1 What is at issue in this appeal affords a classic example of the truism in that statement. The present dispute arises from a deed of agreement executed by the respondents during August 2019 and countersigned on behalf of the appellant in March of the following year. The contemplated agreement was a contract in terms of which the respondents guaranteed payment on demand of the debts owed to the appellant, Absa Bank Ltd (ABSA Bank), by Uwoyela Environmental Services (Pty) Ltd (UES). The second respondent, Mr Terrence Rosenberg, is the majority shareholder in UES's holding company. The first respondent, Mr Marc Christopher Rosenberg, is the second respondent's son. 1 Langston Clothing (Properties) CC v Danco Clothing (Pty) Ltd [1998] ZASCA 66; 1998 (4) SA 885 (SCA) at 887B. 4 [2] The contentions of the parties in this court, as in the court below, as to the meaning to be ascribed to the deed, are diametrically opposed. For its part, ABSA Bank asserted that the wording 'is clear and extends to any indebtedness owed by the borrower [UES] whether past, present or future.' Therefore, ABSA Bank asserted that the respondents' argument that they 'had executed the guarantee for the purposes of the borrower procuring an increased facility2 from the bank and that by virtue of the bank not having acceded to the grant of such increased facilities, the guarantee did not take effect' is plainly unsustainable. This was so, Absa Bank contended, because the 'respondents' argument is in conflict with the express and clear wording of the guarantee' and, in any event, undermines the very purpose and the background underpinning the preparation and production of the document. [3] By contrast, from the perspective of the respondents their signature of the guarantee was entirely predicated on the expectation, recorded in the deed of agreement, that ABSA Bank would increase the credit facility afforded to UES. And, because ABSA Bank had determined, prior to its countersignature of the deed, that the stipulated increase would not be forthcoming, the whole agreement fell away and is, as a result, ineffectual. [4] Accordingly, if the contentions advanced by the respondents are sustained, they will have succeeded in avoiding a substantial claim of some R46 million (plus interest) for which ABSA Bank sought to hold them jointly and severally liable. For convenience, we shall refer to the first and second respondents collectively as the respondents. However, when the context so dictates, they will be referred to by their respective first names solely to distinguish the one from the other as they share the same surname. 2 Underlining in the original text. 5 [5] The court a quo (the KwaZulu-Natal Division of the High Court, per Bezuidenhout AJ) dismissed ABSA Bank's application to enforce performance of the guarantee agreement against the respondents. It is not altogether easy to fathom the court's reasons for dismissing the claim. It does seem, however, that it decided that the operation of the guarantee furnished by the respondents was indeed contingent upon the provision by ABSA Bank of additional funding to UES. [6] The respondents resisted the claim and relied on a number of defences in support of their repudiation of it. We shall revert to the issue of the nature of the defences raised by the respondents and what such defences entailed in a moment. The respondents also filed a counter-application against ABSA Bank. The respondents' counter-application was also dismissed, with no order as to the costs associated therewith. [7] This is an appeal by ABSA Bank against the dismissal of the main application and the order pertaining to the costs of the counter-application. The appeal is with the leave of the high court. Factual background [8] In order to elucidate the nature of the issue at the heart of the dispute between the parties, it is necessary to set out the relevant facts in some detail. A couple of years prior to 1994, and as a result of the oil embargo then existing against South Africa, one of the world's largest oil storage facilities, owned and operated by the Strategic Fuel Fund (SFF), a state owned business entity, was developed in Mpumalanga. SFF's substantial quantities of oil were stored in a number of old coal mines at a depth of between 40m and 80m underground. 6 [9] During 2013 UES was awarded a tender by the SFF to recover and reprocess oil sludge from an underground storage facility known as the Ogies Storage Facility (Ogies Project). UES was required, for its own account, to recover the oil sludge and to process the product and sell it as either fuel oil and/or crude oil and/or sludge residue to its off takers. [10] The majority shareholder of UES was Oakbrook Holdings (Pty) Ltd, of which Terrence was the majority shareholder. UES approached ABSA Bank and applied for overdraft facilities to fund the Ogies Project. [11] On 10 August 2018, an agreement was concluded between ABSA Bank and UES, the terms of which were recorded in a Facilities Letter dated 2 August 2018. In the Facilities Letter, UES is referred to as the Borrower and ABSA Bank is referred to as the Lender. In terms of the Facilities Letter, ABSA Bank made a primary lending facility of US$2,5 million available to UES, as well as a commercial asset finance facility of R199 000. The conditions concerning the security required by ABSA Bank from UES to cover its exposure to the latter (a cession of debtors by UES, a limited guarantee from Enviroshore Project Financing Ltd (Mauritius) and a subordination of debt agreement by the latter company) were duly fulfilled. [12] Although the Ogies Project commenced in 2014 it was put on hold in 2019 due to operational health and safety concerns as well as serious cash flow challenges confronting UES. For this reason, the project was delayed. In March 2019, UES approached ABSA Bank for additional funding to finance an escrow account required by SFF in the amount of US$14 653 500 and for operational finance in the amount of US$8,5 million. 7 [13] In May 2019, ABSA Bank undertook a due diligence investigation of the Ogies Project to confirm its viability. As a result of the due diligence, the originally contemplated bridging loan was revised and reduced from US$23 153 500 million to US$18,5 million (comprised of the aforementioned sum for the escrow account and US$3 846 500 for general corporate purposes) to be effected by way of an increase to the existing facility under the Facilities Letter. [14] ABSA Bank indicated, however, that the envisaged increase would only be effected upon the fulfilment of several conditions precedent. Of pertinence to the current matter, the conditions precedent included the provision of a guarantee by the respondents in terms of a deed of agreement prepared by the Bank. The respondents signed the guarantee agreement on 7 August 2019 in the course of the endeavours by UES to achieve satisfaction of all the stipulated conditions precedent for the release of the contemplated increased facility. [15] The principal operative clause of the guarantee agreement was clause 3, which provided: '3.1 With effect from the Signature Date, the Guarantors hereby irrevocably and unconditionally, on a joint and several basis, as a principal and primary obligation in favour of the Lender: (a) guarantee to the Lender, the due, proper and punctual performance by the Borrower of the Secured Obligations, which guarantee the Lender hereby accepts; and (b) undertake to pay to the Lender on first written demand all sums which are now, or at any time or times in the future shall become due, owing or incurred by the Borrower to the Lender pursuant to the Secured Obligations. 3.2 This Guarantee constitutes a separate primary obligation enforceable against each Guarantor. 3.3 A written demand for the payment of the amounts contemplated in Clause 3.1 made to each Guarantor at his domicilium address, set out in Clause 17(Notices and Domicilia) below, from the Lender specifying that an event of default (howsoever described in the Facilities 8 Letter) has occurred and is continuing, shall constitute a demand for payment of the amount guaranteed to the Lender under Clause 3.1 hereof. [16] Clause 3 falls to be read and understood with reference to certain terms therein, which we have identified in bold font in the quotation of the clause in the preceding paragraph, that were specially defined in clause 1.1 of the guarantee agreement. We set out those special definitions below, when we engage more widely with the terms of the contract.3 Critically, for present purposes, the definition of 'Secured Obligations' cross-referenced to the term 'Facilities Letter', which, in turn, was defined so as to include reference to a contemplated increase of the US$2,5 million facility granted in August 2018 to ‘an aggregate amount not exceeding USD 18,500,000.00 (eighteen million five hundred thousand US dollars) on or about the 'Signature Date'. 'Signature Date' was defined to mean 'the date of signature of this Guarantee by the Party last signing'. [17] ABSA Bank signed the guarantee agreement on 19 March 2020 more than 7 months after the respondents did. This was at a stage when it had already declined to increase the aggregate amount available under the Facilities Letter because it had become apparent by then that not all of the stipulated conditions precedent for the contemplated increase would be met. Moreover, ABSA Bank had also become concerned about UES' ability to service its debt. According to the tenor of the deed, the 19th March 2020 was therefore the 'Signature Date' as defined therein. It was thus also the date contemplated in the definition of 'Facilities Letter', on or about which the amount made available by Absa Bank to UES under the lending facility was to be increased. However, ABSA Bank executed the guarantee agreement at a time when it knew that it would not implement the increase in the lending facility in favour of UES as stipulated in the definition of the 'Facilities Letter' in clause 1.1 of the guarantee agreement. 3 See paragraphs 35 and 36. 9 [18] We shall describe the factual circumstances in some detail presently, but for now it will suffice to say that the respondents contested liability under the guarantee agreement because ABSA Bank had failed to increase the amount available under the Facilities Letter 'on or about the Signature Date'. Relying on clause 1.5 of the guarantee agreement (quoted in paragraph 37 below), the respondents contended that ABSA Bank had refused to perform the reciprocal obligation in consideration of which their obligations as guarantors had been undertaken and were thereby disqualified from being able to enforce the agreement. It is unnecessary to consider the additional defences raised by the respondents as they were palpably without merit. [19] As previously mentioned, the respondents brought a contingent counter-application for rectification of the agreement in the event that their contentions concerning the proper interpretation of the guarantee agreement were rejected. The counter-application was dismissed with no order as to costs. The respondents did not apply for leave contingently to cross-appeal against the dismissal of their counter-application. They were nevertheless, of course, still at liberty to argue the susceptibility of the agreement to rectification in defence of their refusal to satisfy ABSA Bank's demand for payment under the guarantee agreement, 4 but did not do so with any enthusiasm at the hearing before us. [20] On 22 July 2020, ABSA Bank sent to UES the First Amendment of the Facilities Letter, a letter that was directed at recording an amendment to the terms of credit set out in the August 2018 Facilities Letter. The letter was countersigned on behalf of UES on 10 September 2020 by Terence in his capacity as chairman of the board of directors and by one Shaun Smith in his capacity as the company's chief operating officer. In terms of the First Amendment, the US dollar denominated facility afforded to UES in terms of the aforementioned Facilities 4 Compare: Gralio (Pty) Ltd v DE Claassen (Pty) Ltd 1980 (1) SA 816 (A) at 824B-C. 10 Letter in the amount of $2,5 million was converted to an overdraft facility denominated in South African currency in the amount of R43 664 000. [21] The First Amendment of the Facilities Letter provided for certain amendments to the Facilities Letter of August 2018. Pertinent to the question in the current matter was the provision in paragraph 4 of the Amendment Letter that clause 8 of the Facilities Letter, which provided: '8. SECURITY 8.1 Security required by the Bank: 8.1.1 Cession of debtors by the Borrower. 8.1.2 Limited Guarantee from Enviroshore Project Financing Limited (Mauritius) (Registration Number C143700 C2/GBL.). 8.1.3 Subordination Agreement by Enviroshore Project Financing Limited (Mauritius) (Registration Number C143700 C2/GBL.).' be deleted and replaced by the following: '8. SECURITY 8.1 Security currently held with the Bank: 8.1.1 Security Cession of debtors signed 10 August 2018 by the Borrower. 8.1.2 Limited Guarantee signed 03 August 2018 from Enviroshore Project Financing Limited (Mauritius) (Registration Number C143700 C2/GBL.). 8.1.3 Subordination Agreement signed 03 August 2018 by Enviroshore Project Financing Limited (Mauritius) (Registration Number C143700 C2/GBL.). 8.1.4 Limited guarantee agreement signed 07 August 2019 by Marc Christopher Rosenberg (Identity Number xxxx) and Terence Rosenberg (Identity Number xxxx).' ABSA Bank contended that the substituted clause 8.1.4 constituted confirmation that the guarantee agreement was accepted by the parties to be of full legal force and effect notwithstanding the Bank’s failure or refusal to increase the facility granted to UES in August 2018. 11 [22] On 4 May 2021, ABSA Bank addressed a written demand and notice of cancellation of the Facilities Letter to UES in terms of clause 3 of the Facilities Letter. Thereafter several demands and extensions were made to UES to honour the Facilities Letter Agreement by repaying the amount it owed to ABSA Bank. UES failed to pay. UES' inability to repay the amount due led to an application being made for its provisional winding up. ABSA Bank then turned to the respondents for payment of the amount that UES owed to it at the time of the demand in respect of the pre-existing debt prior to them signing the guarantee agreement. The respondents refused to pay. [23] As indicated, the respondents opposed the application on the grounds that ABSA Bank did not increase the facility amount to US$18,5 million as agreed, in consideration whereof they had provided the personal guarantees. In the alternative, they contended that there was a misrepresentation on the part of ABSA Bank, and, further alternatively, that there was a justus error, which induced them to sign the agreement, further alternatively, that the common intention of the parties was not properly reflected in the guarantee agreement. For this latter reason, they contingently sought rectification of the guarantee agreement to reflect what they contended were the true intentions of the parties, namely that the guarantee agreement would take effect only upon ABSA Bank availing the additional funding to UES which it in fact refused to do. [24] It bears emphasising that ABSA Bank's claim was predicated on the contention that, in terms of the guarantee agreement, the respondents undertook to pay to ABSA Bank upon 'first written demand all sums which are now, or at any time or times in the future shall become due, owing or incurred by the Borrower to the Lender pursuant to the Secured Obligations' as set out in clause 3.1(b) of the guarantee agreement (quoted above). 12 [25] As already mentioned, both the main and counter-applications came before Bezuidenhout AJ who dismissed both applications, the former with costs and the latter with no order as to costs. To the extent discernible from its judgment, the foundation for the conclusion reached by the high court, broadly stated, was that it was evident from the tenor of the guarantee agreement – read as a whole – that the liability of the respondents under the guarantee agreement was conditional upon ABSA Bank approving the application for the increase of the credit facility extended to UES from US$2,5 million to US$18,5 million. As this did not materialise because ABSA Bank declined the application, so the learned Acting Judge reasoned, ABSA Bank's refusal to approve UES' application for additional funding rendered the guarantee agreement stillborn. This consequence, so concluded the high court, disposed of the dispute between the parties rendering it unnecessary to adjudicate the counter-application. Issues [26] As will have become clear from what has already been stated above, the central issue in this appeal pivots on the proper interpretation of the guarantee agreement concluded between the parties. As to how the guarantee agreement falls to be interpreted, in the light of the words used read in their context, the contentions of the parties are diametrically opposed. Interpretation of documents [27] The principles to be applied in interpreting written documents are now well settled, but it would be useful for present purposes to rehearse them. The approach to interpretation of documents, broadly stated, is to give consideration: '...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. Where more than one meaning is possible each possibility must be weighed in the light of these facts. The process is objective and not 13 subjective. A sensible meaning is to be preferred to one that leads to insensible or unbusinesslike results, or undermines the apparent purpose of the document. Judges must be alert to, and guard against, the temptation to substitute what they regard as reasonable, sensible or businesslike for the words actually used. To do so in regard to statute or statutory instrument is to cross the divide between interpretation and legislation; in a contractual context it is to make a contract for the parties other than the one they in fact made. The "inevitable point of departure in the language of the document itself", read in context and having regard to the purpose of the provision and the background to the preparation and production of the document. '5 (Emphasis added.) [28] That was said by Wallis JA more than a decade ago in Endumeni.6 Endumeni has consistently been followed by this court7 ever since, and endorsed by the Constitutional Court.8 [29] Hot on the heels of Endumeni, in Bothma-Batho Transport,9Wallis JA made plain that his statement in Endumeni quoted in para 27 above 'reflected developments in regard to contractual interpretation espoused in Masstores (Pty) Ltd v Murray & Roberts Construction Ltd. (Pty) Ltd and Another.10 He went on to emphasise that 'the process of interpretation does not stop at a perceived literal meaning of those words [employed in the document being interpreted], but considers them in the light of all relevant and admissible context, including the circumstances in which the document came into being.' And, with reference to 5 Natal Joint Municipal Pension Fund v Endumeni Municipality [2012] ZASCA 13; [2012] 2 All SA 262 (SCA); 2012 (4) SA 593 (SCA) (Endumeni) para 18. 6 Ibid fn 6 above para 18. 7 Bothma-Batho Transport (Edms) Bpk v S Bothma & Seun Transport (Edms) Bpk [2013] ZASCA 176; [2014] 1 All SA 517 (SCA); 2014 (2) SA 494 (SCA) (Bothma-Batho Transport); North East Finance (Pty) Ltd v Standard Bank of South Africa Ltd [2013] ZASCA 76; 2013 (5) SA 1 (SCA); [2013] All SA 29 (SCA) paras 24-28; Auction Alliance v Wade Park [2018] ZASCA 28; 2018 (4) SA 358 (SCA) para 19. 8 Democratic Alliance v African National Congress and Another [2015] ZACC 1; 2015 (2) SA 232 (CC); 2015 (3) BCLR 298 (CC) para 136; Trinity Asset Management (Pty) Limited v Grindstone Investments 132 (Pty) Limited [2017] ZACC 32; 2017 (12) BCLR 1562 (CC); 2018 (1) SA 94 (CC); Road Traffic Management Corporation v Waymark Infotech (Pty) Ltd [2019] ZACC 12; 2019 (6) BCLR 749 (CC); 2019 (5) SA 29 (CC) paras 30-32. 9 Bothma-Batho Transport paras 11-12. 10 Masstores (Pty) Ltd v Murray & Roberts Construction Ltd. (Pty) Ltd and Another 2008] ZASCA 94; 2008 (6) SA 654 (SCA); [2009] 1 All SA 146 (SCA) para 23. 14 foreign authority,11 Wallis JA went on to say that 'Interpretation is no longer a process that occurs in stages but is "essentially one unitary exercise". '12 [30] Two years earlier, and in the course of construing a pension fund rule, Lewis JA noted that: 'The principle that a provision in a contract must be interpreted not only in the context of the contract as a whole, but also to give it a commercially sensible meaning, is now clear. It is the principle upon which Bekker NO [Bekker NO v Total South Africa (Pty) Ltd 1990(3) SA 159 (T) at 170G0H] was decided, and, more recently, Masstores (Pty) Ltd v Murray & Roberts (Pty) Ltd [Masstores (Pty) Ltd v Murray & Roberts (Pty) Ltd 2008 (6) SA 654 (SCA)] was based on the same logic. The principle requires a court to construe a contract in context – within the factual matrix in which the parties operated. In this regard see KPMG Chartered Accountants v Securefin [KPMG Chartered Accountants v Securefin [2009] ZASCA 7; 2009 (4) SA 399 (SCA) ([2009] All SA 523) para 39]. '13 (Footnotes omitted.) We are astute, of course, to the consideration that those remarks do not afford a court authority to construe an agreement at odds with its language so as to improve it or make it fairer. They do, however, convey that where the language is ambiguous or unclear context and commercial sense play an important part in divining the intended import of the text. [31] In addition, it is apposite to make reference to a passage in Hillas & Co Ltd v Arcos Ltd14 referred to with approval by Hoexter JA in Murray & Roberts 11 Rainy Sky SA and others v Kookmin Bank [2011] UKSC 50 [2012] Lloyds Rep 34 (SC) (Rainy Sky SA) para 21 and the authorities therein cited especially Society of Lloyd's v Robinson [1999] 1 All E.R. (Comm) 545, 551 in which the following was stated: 'Loyalty to the text of a commercial contract, instrument, or document read in its contextual setting is the paramount principle of interpretation. But in the process of interpreting the meaning of the language of a commercial document the court ought generally to favour a commercially sensible construction. The reason for this approach is that a commercial construction is likely to give effect to the intention of the parties. Words ought therefore to be interpreted in the way in which a reasonable commercial person would construe them. And the reasonable commercial person can safely be assumed to be unimpressed with technical interpretations and undue emphasis on niceties of language.' 12 Bothma-Batho Transport para 12. 13 See Ekurhuleni Metropolitan Municipality v Germiston Municipality Retirement Fund [2009] ZASCA 154; 2010 (2) SA 498 (SCA); [2010] 2 All SA 195 (SCA) para 13. 14 Hillas & Co Ltd v Arcos Ltd 147 LRT 503 (Hillas & Co). 15 Construction Ltd (Pty) Ltd v Finat Properties (Pty) Ltd 15 in which Lord Wright pertinently observed: 'Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects. '16 [32] Whilst those observations were made as cautionary remarks against any inclination by the courts to render business agreements ineffectual by subjecting them to a too nice or exacting linguistic analysis, they tacitly also carried the more general import that the interpretation of commercial agreements should be undertaken mindful of the evident business intentions of the contracting parties. [33] To conclude, a further foreign decision also merits brief reference. It is Rainy Sky SA v Kookmin Bank,17 in which Lord Clarke SCJ similarly observed that interpretation is no longer a process that occurs in stages but is 'essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, . . . would have understood the parties to have meant.' Lord Clarke SCJ proceeded to quote a passage from the Society of Lloyd's v Robinson,18 where the following was stated: 'Loyalty to the text of a commercial contract, instrument, or document read in its contextual setting is the paramount principle of interpretation. But in the process of interpreting the meaning of the language of a commercial document the court ought generally to favour a commercially sensible construction. The reason for this approach is that a commercial construction is likely to give effect to the intention of the parties. Words ought therefore to be interpreted in the way in which a reasonable commercial person would construe them. And the 15 Murray & Roberts Construction Ltd (Pty) Ltd v Finat Properties (Pty) Ltd 1991 (1) SA 508 (AD). 16 Ibid at 514C. 17 Rainy Sky SA v Kookmin Bank [2011] UKSC 50 ([2012] Lloyd's Rep 34(SC)). 18 Society of Lloyd's v Robinson [1999] 1 AER (Comm) 545, 551. 16 reasonable commercial person can safely be assumed to be unimpressed with technical interpretations and undue emphasis on niceties of language.' [34] In the context of the facts of this case, we think that it can fairly be said that the guarantee agreement is couched in terms which are by no means a model of draftmanship and, in some instances, somewhat obscure. It is therefore, particularly in light of this, that the importance of the circumstances leading to the production of the documents at issue in this appeal looms large. [35] It is now timely to turn to the guarantee agreement itself. In this regard, we deem it necessary to quote fairly extensively some of the clauses of the guarantee agreement that are at the core of this case for one to appreciate the nature of the issue confronting us in this appeal. The face of the agreement records the identity of the contracting parties and the date on which it was executed by the respondents as follows: 'This Guarantee is made on 7 August 2019 between: 1. Marc Christopher Rosenberg, an adult male with identity number... ("Marc"); 2. Terrence Rosenberg, an adult male with identity number... ("Terry", and together with Marc, the "Guarantors" and each a "Guarantor"); and 3. Absa Bank Limited (acting through its Corporate and Investment Banking Division), registration number 1986/004794/06, a limited liability public company and registered bank incorporated in accordance with the laws of South Africa (as "Lender").' [36] And clause 1 in turn records the following: 'It is agreed as follows: 4. Definitions and Interpretation 1. Unless the context indicates a contrary intention, the following words and expressions bear the meanings assigned to them in their corresponding definition provisions, and cognate expressions bear corresponding meanings: "Borrower" means Uwoyela Environmental Service Proprietary Limited (formerly known as Enviroshare Trade and Logistics Proprietary Limited) registration number 2010/014452/07, a 17 limited liability private company duly incorporated in accordance with the laws of South Africa; "Discharge Date" means the date upon which all the Secured Obligations, contingent or otherwise, have been irrevocably and unconditionally paid and performed in full and the Lender has notified the Borrower (and copied to the Guarantors) in writing that the Secured Obligations have been so discharged (the delivery of such notice shall not be unreasonably withheld or delayed by the Lender) or such earlier date as the Lender may otherwise agree in writing, taking into account the profitability of the Project and the Lender becoming satisfied that the Project has, in the Lender's sole discretion (acting reasonably), reached and is expected to maintain a steady state level of production; "Facilities Increase Letter" means the request for increase letter submitted by the Borrower to the Lender requesting an increase in the primary lending facility and confirmed by the Lender pursuant to a reply notice thereto on or about the Signature Date; "Facilities Letter" means the banking facilities letter issued by the Lender on 2 August 2018 and countersigned by the Borrower on 10 August 2018, in terms of which the Lender shall make available a primary lending facility to the Borrower in an aggregate initial amount of USD2,500,000.00 (two million five hundred thousand US dollars), which initial amount shall on or about the Signature Date, be increased to an aggregate amount not exceeding USD 18,500,000.00 (eighteen million five hundred thousand US dollars) pursuant to the Facilities Increase Letter; (emphasis added); "Finance Documents" means – (a) the Facilities Letter; and (b) any other agreements, documents, deeds or instruments entered into by the Lender with the Borrower in terms of which the Lender makes any financing or funding commitment available to the Borrower; "Guarantee" means this guarantee agreement; "Ogies Storage Facility" means the now decommissioned underground oil storage facility located at Ogies terminal in eMalahleni, Mpumalanga; "Parties" means the parties to this Guarantee; "Project" means the extraction of crude oil and sludge by the Borrower from the Ogies Storage Facility; "Secured Obligations" means any and all indebtedness or obligations of any nature whatsoever of the Borrower (whether actual or contingent, present or future) to the Lender from time to time, under and in terms of any Finance Documents (including but not limited to 18 the Facilities Letter), including in respect of the principal amount, interest, costs, expenses, fees and the like; "Signature Date" means the date of signature of this Guarantee by the Party last signing.' . . .' [37] It is also necessary to refer to clause 1.5, which reads: '1.5 Any substantive provision, conferring rights or imposing obligations on a Party and appearing in any of the definitions in this Clause 1 or elsewhere in this Guarantee, shall be given effect to as if it were a substantive provision in the body of the Guarantee.' [38] Clause 2, which is headed 'Introduction', reads: '2.1 The Borrower is Indebted to the Lender and has undertaken to perform under and in terms of the Secured Obligations. 2.2 Each Guarantor knows and understands the full terms and conditions of the Secured Obligations. 2.3 Each Guarantor has agreed to irrevocably and unconditionally guarantee to the Lender the due, proper and punctual performance by the Borrower of the Secured Obligations on the terms and conditions contained herein.' The high court's reasoning [39] In upholding the contentions of the respondents, the high court, inter alia, reasoned as follows: 'During argument, counsel for the applicant referred to various significant dates, such as when the written guarantee was signed as well as the First Amendment to the Facilities Letter. I pointed out to him that the First Amendment letter did not refer to the Guarantors at all and was not signed by them, despite it affecting them materially. It was submitted in response to my observation that there was a link between the Guarantee Agreement and the First Amendment Letter. The Guarantee Agreement referred to the Facilities Letter, and the Facilities Letter in turn is dealt with in the First Amendment letter. It was also submitted that the correspondence that followed could not have left the respondents in any doubt that they were giving a guarantee and that the applicant could proceed in terms of 19 the guarantee. It was further submitted that the first respondent was copied in on the e-mails and he could not say that he did not have knowledge of it. As mentioned above however, the first respondent was copied in for the first time only on 14 December 2020, sometime after the First Amendment letter was signed. It is indeed so that the written guarantee is clearly linked to the Facilities Letter. And herein, in my view, lies the problem for the applicant. The definition of the Facilities Letter as contained in clause 1 of the Guarantee Agreement makes it clear that it was envisaged that the primary lending facility of USD2.5 million "shall on or about the Signature Date" be increased to an aggregate amount not exceeding USD18.5 million "pursuant to the Facilities Letter". The Facilities Letter is clearly identified as the letter issued by the applicant on 2 August 2018. The Facilities Letter is also referred to in the definition of "Secured Obligations". The variation of the terms of the Facilities Letter, by issuing the First Amendment to the Facilities Letter, by implication also varies the Guarantee Agreement. (In terms of clause 19.2 of the Guarantee Agreement, no variation will be of any force or effect unless in writing and signed by both parties. This was clearly not done. I will return to this issue in due course). '19 [40] The high court then concluded: 'It is clear from all the correspondence that preceded the signing of the Guarantee Agreement, that it was but one of many requirements the applicant set as Conditions Precedent. It was clearly contemplated at the time of its signing by the respondents that it would serve as part of the security required for the increase of the existing facility to USD18.5 million. This much is clear from the plain reading of the entire definition of the Facilities Letter in clause 1 of the Guarantee Agreement. It was clearly anticipated that the initial amount "shall on or about the Signature Date, be increased to ... USD18.5 [million]". These are clearly circumstances which should be taken into account when considering the meaning of the terms of the Guarantee Agreement and to assess the parties' contractual intentions. The probabilities suggest in my view that the respondents only ever intended to bind themselves as Guarantors to comply with the conditions set by the applicant in order to ensure the approval of the request for an increase 19 Paras 104-108 of the high court judgment. 20 in the facility of UES. When this event did not occur, the need for the Guarantee Agreement fell away. '20 Appellant's contentions [41] ABSA Bank's contentions, briefly stated, are that the underlying purpose of the guarantee was to secure UES' contractual obligations, as the Borrower, in respect of funds advanced by ABSA Bank as the Lender to UES. And, having regard to the fact that 'the wording of the guarantee is clear and extends to any indebtedness owed by the borrower, whether past, present or future', the defences advanced by the respondents were therefore unsustainable. (Emphasis added.) [42] Counsel appearing for ABSA Bank,21 contended that the phrase 'Secured Obligations' as contained in clause 3.1 (a) of the guarantee agreement includes any indebtedness of any nature whatsoever by the Borrower (ie UES) whether actual or contingent, present or future, to the Lender (ie ABSA Bank) from time to time in terms of the Facilities Letter. He therefore argued that the terms of the guarantee agreement are wide enough to include past and future obligations of the Borrower arising out of any document or agreement.22 In elaboration, counsel emphasised that clause 2.1 of the guarantee agreement makes explicit reference to an existing indebtedness of the Borrower to the Lender. Clause 2, which bore the subheading 'Introduction', merely recorded that the guarantors had agreed to guarantee 'the due, proper and punctual performance by [UES] of the Secured Obligations on the terms and conditions contained herein'. (Emphasis added.) In our view, counsel's reliance on clause 2 (quoted in paragraph 38 above) was profitless because the provision begged the question what 'the terms and conditions contained herein' (see clause 2.3) were. 20 Para 111 of the high court judgment. 21 ABSA Bank was represented by different counsel before the high court. 22 This was a reference to the Facilities Letter that predated the guarantee agreement. 21 [43] Significantly, so counsel submitted, that there was no increased facility at that stage or thereafter – because the application for the increased facility was not acceded to – was of no consequence. Counsel was at pains to emphasise that in resisting the claim, the respondents wrongly focused on a restrictive approach directed at the negotiations for the increase of the facility stemming from April 2019 to 6 March 2020 in order to contextualise the guarantee agreement whereas ABSA Bank instead rightly adopted a broader approach. Respondents' contentions [44] The respondents contended that since ABSA Bank declined to increase the overdraft facility from US$2,5 million to US$18,5 million, the guarantee agreement was unenforceable. They argued that they signed the agreement subject to, and on a clear understanding that ABSA Bank would increase the initial amount of US$2,5 million to an aggregate amount not exceeding US$18,5 million by the signature date. And, in terms of the guarantee agreement, 'signature date' was defined as 'the date of signature of the Guarantee by the party last signing. '23 As the guarantee agreement was signed on behalf of ABSA Bank only on 19 March 2020, some six days after it had declined the application for an increase, the common intention of the contracting parties – borne out by the words of the guarantee agreement – had been frustrated. [45] Therefore, the thrust of the respondents' argument is that for them to have become contractually bound to honour their obligations under the guarantee agreement, ABSA Bank was obliged to fulfil its side of the bargain first by increasing the initial amount as undertaken in terms of the guarantee agreement. Accordingly, having failed to do so, it had no right of recourse in law against them in respect of UES' pre-existing indebtedness of US$2,5 million. Looked at 23 See clause 1.1 in para 35 above. 22 from this perspective, the respondents' defence is in essence in the nature of an exceptio non adempleti contractus. In terms of this defence, ABSA Bank would not be entitled to demand counter-performance from the respondents unless it has itself performed, or tendered to perform, as the case may be.24 In short, this defence entails the principle of reciprocity. Discussion [46] In our judgement, the construction of the guarantee agreement contended for by ABSA Bank's counsel does not take proper account of the textual or factual context of the agreement. The factual context indicates that the reason that the guarantee was sought by ABSA Bank was as part of the additional security sought by the bank in respect of UES’s application for an increased facility to fund an escrow account and provide operational funding. There is nothing in the evidence to indicate that ABSA Bank required additional security at that stage for its existing exposure to the risk of UES defaulting on its debt. On the contrary, the correspondence between the principal parties subsequent to the execution of the guarantee agreement was directed at concerns regarding the fulfilment of the remainder of the conditions precedent for the extension of the increased facility. The parties' description of the provision by the respondents of personal guarantees as a 'condition precedent' stands as confirmation of their common perception that the guarantee was sought and provided in consideration for something to happen in return. Thus, there can hardly be any doubt that that 'something' was the contemplated increase in UES's borrowing facility. [47] The factual context suggests that construing the guarantee in a manner that would burden the respondents with liability for UES's debt even if UES' borrowing facility were not increased would lead to a most unbusinesslike result. 24 Smith v Van Den Heever and Others [2011] ZASCA 5; 2011 (3) SA 140 (SCA) paras 14-15. 23 The facts indicate strongly that the company would be incapable of continuing with the Ogies Project if it was unable to fund the escrow account as required by the SFF and acquire access to a substantial sum to finance its operational expenses. In those circumstances it is most unlikely that ABSA Bank would have called upon the respondents to secure the existing indebtedness of the distressed company that had no prospect of settling its debts without a lifebuoy to trade itself out of difficulty. If the guarantees were required irrespective of a related obligation by ABSA Bank to provide additional finance, its conduct in inducing the contract could be stigmatised as opportunistic, if not extortionate. The exchanges between ABSA Bank's representatives and Terrence that took place at the time the respondents signed the guarantee agreement and for some time thereafter are not consistent with any such cynical conduct on the part of the bank. As mentioned, they were rather directed at the achievement of a situation in which the bank would be able to make the contemplated additional lending happen. Similarly, the notion that the respondents would conclude an agreement exposing themselves to personal liability for the distressed company's existing debt irrespective of the bank providing the lifebuoy to keep it afloat is bereft of any commercial sense. [48] Therefore, the construction of the guarantee agreement contended for by ABSA Bank overlooks and fails to give any meaning to the wording in the definition of 'facilities letter' related to the increase in UES's borrowing facility and its timing 'on or about the Signature Date'. The contextual significance of 'the Signature Date' – both factually and linguistically – is its relationship to the timing of the implementation of the contemplated increased facility. It is significant that ABSA Bank itself provided the deed of agreement to the respondents for them to sign first. Its conduct in so doing demonstrated its appreciation that it would be 'the Party last signing' and would thereby be in control of whether, and if so when, its contemplated obligation to implement the increased facility would accrue. The 24 bank would have no interest in delaying the counter-signature of the guarantee agreement for more than seven months, as it did, if the common intention were that the guarantee agreement were to be operative in respect of UES's existing debt irrespective of the implementation by it of the contemplated increased facility. [49] Accordingly, we agree with the submission by the respondents' counsel that the effect of clause 1.5 of the guarantee agreement (quoted above)25 makes it clear that the reference in the definition of 'facilities letter' to the increased facility imported an obligation upon ABSA Bank to implement it according to the tenor of the definition, and on or about the date of its counter-signature of the agreement. Thus, ABSA Bank was in no position to enforce the agreement without discharging its side of the bargain. [50] It matters not that the definition of 'Secured Obligations' included the existing indebtedness of UES to ABSA Bank. Whilst we agree with the bank's counsel that it plainly did, accepting the defined meaning of 'Secured Obligations' contended for by ABSA Bank, however, does not answer the question whether the agreement became enforceable by it against the respondents. For the reasons canvassed in the preceding paragraphs, we have concluded that would only be after ABSA Bank had implemented the contemplated increased facility. [51] ABSA Bank's counsel's argument, in our view, not only contains seeds of its own destruction but also overlooks several relevant considerations. First, the language used in the guarantee agreement is in the respects relevant clear and unambiguous. It points unequivocally in the direction of an anticipated approval of the increase in funding applied for on behalf of UES. The definition of 25 See paragraph 37 above. 25 'Facilities Letter' explicitly stipulates that the Lender 'shall make available, the primary lending facility in the aggregate initial amount of US$2,5 million, which amount shall on or about the "Signature Date" be increased to an aggregate amount not exceeding US$18,5 million.' (Emphasis added.) The effect of clause 1.5 read with the definition of ‘Facilities Letter’ was to impose an obligation on ABSA Bank to increase the facility on or about the 'Signature Date'. [52] Secondly, it entirely ignores the manifest purpose that the guarantee agreement was, on conception, designed to serve. On this score, clause 3 of the guarantee agreement assumes great significance. When clause 3 is read in context, as it must be, there can be little doubt that the words 'irrevocably and unconditionally' contained therein were intended to take effect once the envisaged increase was approved. That much is confirmed by the qualifying effect of the phrase in clause 2.3 of the deed 'on the terms and conditions contained herein'. Put differently, both the language of the document itself – which is the 'inevitable point of departure' in the interpretive exercise – and the commercial context of the respondents' willingness to undertake the obligation as guarantors of UES' debt impel the conclusion that the respondents would become liable for UES' pre-existing debt of US$2,5 million only once the facility was increased to US$18,5 million. On its proper construction, the guarantee agreement lends itself to no other tenable interpretation. [53] It bears emphasising that to suggest that the guarantee agreement would bind the respondents regardless of whether or not the facility was increased to US$18,5 million, as ABSA Bank would have it, would be to ascribe a meaning to the document that would lead to insensible or unbusinesslike results. Such a result fundamentally undermines the apparent purpose of the document in a way that would effectively be foisting on the contracting parties a contract other than the one they in fact made. And, borrowing from the words of Lord Clarke SCJ in 26 Rainy Sky SA, 'no reasonable commercial person would construe' the guarantee agreement in the way for which ABSA Bank contended. Thus, it is no stretch of the imagination to suppose that 'the reasonable commercial person' would be 'unimpressed with technical interpretations and undue emphasis on niceties of language' urged upon this court on behalf of ABSA Bank. [54] It is as well to bear in mind that where the default position is not expressly recorded in an agreement itself – as in this instance – resort could also be had to the circumstances leading to the conclusion thereof. This will shed light on the intention of the parties as borne by the words used in the document being interpreted. In this case the circumstances surrounding the conclusion of the guarantee agreement can also be gleaned from the conduct of one or more of the parties. From April 2019 there were serious and prolonged negotiations regarding the increase of UES' then existing facility. Before the protracted negotiations finally bore fruit, the parties concluded the guarantee agreement in anticipation of the required increased facility which the respondents signed on 7 August 2019. On 16 September 2019, this was followed by a formal application for the increase of the existing facility of US$2,5 million to US$18,5 million, all at the behest of ABSA Bank. [55] Some six months later, on 6 March 2020, ABSA Bank declined the application for the increase sought. Yet, curiously on 19 March 2020, ABSA Bank signed the agreement. The timing of the signing of the guarantee agreement by ABSA Bank was indicative of the fact that only after the Borrower repaid a measly amount of US$131 164,48 on 3 February 2020 and therefore unable to reduce the initial amount to any appreciable degree, did it apparently dawn on ABSA Bank that there was a serious risk that the Borrower was in financial distress. However, due to the fact that ABSA Bank had already turned down UES' application for the increase of the facility amount, its act in signing the guarantee 27 agreement on 19 March 2020 was, for the reasons already stated, incapable of rendering the agreement legally effectual. If by the 'Signature Date' the increase had been approved – and additional funding advanced – the liability of the respondents would, as a result, have been triggered. [56] Where a party seeks to enforce performance of an obligation undertaken in terms of a contract which is conditional upon performance by himself of a reciprocal obligation owed to the other party, then the performance by the former of his or her reciprocal obligation or the tender of such performance, is a necessary pre-requisite of his or her right to sue. Conversely, in such a case the party to whom the reciprocal obligation is owed may raise a defence, known as the exceptio non adempleti contractus. The fact that the claimant has failed to perform or, as the case may be, failed to tender performance of his or her own reciprocal obligation absolves the other party from the obligations undertaken in terms of the contract.26 [57] Almost a century ago, this court reaffirmed the principle that in any bilateral contract where each party undertakes obligations towards the other, neither party is entitled to enforce the contract unless that party has performed or tendered performance of its own obligations.27 More than five decades ago, Corbett J aptly put it thus: 'For reciprocity to exist there must be such a relationship between the obligation by one party and that due by the other party as to indicate that one was undertaken in exchange for the performance of the other. '28 26 Myburgh v Central Motor Works 1968 (4) SA 864 (T) at 865. 27 Hauman v Nortje 1014 AD 293 at 300. This principle has been consistently applied by this court in several decisions. See, for example: Wolpert v Steenkamp 1917 AD 493 at 499; Rich and others v Lagerwey 1974 (4) SA 748 (A) at 761-2; Nesci v Meyer 1982 (3) SA 498 (A) at 513F; Smith v Van den Heever NO and Others [2011] ZASCA 5; 2011 (3) SA 140 (SCA) para 14; Cradle City (Pty) Ltd v Lindley Farm 528 (Pty) Ltd [2017] ZASCA 185; 2018 (3) SA 65 (SCA) para 20. 28 ESE Financial Services (Pty) Ltd v Cramer 1973 (2) SA 805 (C) at 809D. 28 [58] Pretty much a similar situation obtains in this case. Here, ABSA Bank ought to have first rendered complete performance of its contractual obligation by approving UES' application for the increase of the latter's existing facility of US$2,5 million to the aggregate amount of US$18,5 million. Upon the approval of such application by ABSA Bank, the respondents would consequently have become contractually bound to perform their reciprocal obligation as guarantors of UES' indebtedness. On a proper interpretation of the guarantee agreement, only then would the respondents' liability arise, not just in respect of the additional amount advanced but also the existing debt prior to the execution of the guarantee agreement on 19 March 2020. [59] As Capitec Bank Holdings Ltd v Coral Lagoon Investments 194 (Pty) Ltd and Others29 tells us: 'Most contracts, and particularly commercial contracts, are constructed with a design in mind, and their architects choose words and concepts to give effect to that design. For this reason, interpretation begins with the text and its structure. They have a gravitational pull that is important. The proposition that context is everything is not a licence to contend for meanings unmoored in the text and its structure. Rather, context and purpose may be used to elucidate the text.' If all of this is appreciated, then it readily becomes clear why the contentions advanced on behalf of ABSA Bank cannot be sustained. [60] In all the circumstances therefore and having regard to the language of the agreement, the context and the purpose to which it was directed, the sensible commercial meaning to be ascribed to it that is legally tenable is the one for which the respondents contended. 29 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 51. 29 [61] The First Amendment of the Facilities Letter, which the Bank sought to contend signified that the parties accepted that the guarantee agreement was effective notwithstanding its refusal to afford UES an increased facility, did not in any way affect the import of the guarantee agreement as described above. Inasmuch as the substituted clause 8 inserted by the First Amendment purported to record that as at July 2020 the Bank held the guarantee agreement as effective security, it was factually incorrect. As we have sought to explain, the guarantee agreement had already become a dead letter in March 2020, when the Bank indicated that the increased facility, in consideration for which the guarantee was to be provided, would not be granted. Nothing in the First Amendment breathed life back into it. Neither of the respondents was party to the First Amendment in their personal capacity and the evidence of Marc was that he had no knowledge of the First Amendment at the time it was executed. [62] Taking into account all of the above, we are not persuaded that the end result of the judgment in the court below was wrong. The consequence is that the appeal must fail. Insofar as the question of costs is concerned, there is, in our view, no reason to depart from the general rule that costs should follow the event. [63] It remains to address the appellant's appeal in relation to the costs of the counter-application for rectification of the guarantee agreement. The high court stated that it did not 'deem it necessary to deal with' the counter-application 'in great detail, save to say that the requirements of a claim for rectification have not been met.' Consequently, it dismissed the counter-application 'with no order as to costs.' It is trite that the award of costs is pre-eminently a matter for the discretion of the court of first instance. Therefore, an appellate court's power to interfere with the exercise of such discretion is circumscribed. Having regard to the ultimate conclusion reached in this appeal, we do not think that interference with the costs order made by the court a quo would be warranted. 30 [64] In the result the following order will issue: The appeal is dismissed with costs. X M PETSE DEPUTY PRESIDENT SUPREME COURT OF APPEAL B R TOKOTA ACTING JUDGE OF APPEAL 31 Appearances: Counsel for the appellant: A Subel SC Instructed by: CMS South Africa, Sandton Symington De Kok Inc., Bloemfontein Counsel for the respondents: A V Voormolen SC Instructed by: Cox Yeats Attorneys, Durban 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: 24 April 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 ABSA Bank Limited v Rosenberg and Another (1255/2022) [2024] ZASCA 58 (24 April 2024) Today the Supreme Court of Appeal (SCA) dismissed an appeal emanating from the KwaZulu-Natal Division of the High Court, Pietermaritzburg (the high court) with costs. The appellant, ABSA Bank Limited (ABSA Bank) appealed against the high court’s order, in favour of the respondents, wherein that court dismissed ABSA Bank’s claim in its entirety with costs and further dismissed the respondents’ counter-application with no order as to costs. During 2013, a company called Uwoyela Environmental Services (Pty) Ltd (referred to as UES or the Borrower) was awarded a tender by the SFF to recover and reprocess oil sludge from an underground storage facility known as Ogies Storage Facility (Ogies Project). UES was to recover the barrels of oil and to process the product and sell it as either fuel oil and/or crude oil and/or sludge residue to its off takers. The majority shareholder of UES was Oakbrook Holdings (Pty) Ltd of which the second respondent, Mr Terrence Rosenberg, was the majority shareholder. In order to commence and sustain its project, UES approached ABSA Bank and applied for overdraft facilities to fund the Ogies Project. On 10 August 2018, an agreement was concluded between ABSA Bank and UES, the terms of which were recorded in the Facilities Letter dated 2 August 2018. In terms of the Facilities Letter, UES is referred to as the Borrower and, in terms of the Guarantee Agreement, ABSA Bank is referred to as the Lender. In terms of the Facilities Letter, ABSA Bank would make a primary lending facility of US$2,5 million available to UES, as well as a commercial asset finance facility of R199 000. The security conditions required by ABSA Bank from UES in order to cover its exposure to the latter were fulfilled. The Ogies Project commenced its business operations in 2014, however, in 2019, due to operational health and safety issues as well as serious cash flow challenges confronting UES, the project was delayed and resulted in UES approaching ABSA Bank for a new funding proposal in order to fund an escrow account required by SFF for the project in an amount of US$23 153 500. After protracted negotiations between the parties, ABSA Bank agreed to rather increase the existing facility under the Facilities Letter as opposed to providing a separate loan, specifying further that the envisaged increase would be effected upon the fulfilment of certain stipulated preconditions. In May 2019, and as a result of due diligence undertaken at ABSA Bank’s instance, the bridging loan amount was revised and reduced from US$23 153 500 million to US$18,5 million with certain conditions to be met by UES before the increase was to be effected. It later became apparent that UES was unable to meet all of the stipulated conditions. The negotiations culminated in the signing of the Guarantee Agreement between 2 ABSA Bank and the respondents in their personal capacities as guarantors, thereby in effect standing surety for the debts of UES owed to ABSA Bank upon the additional funds being made available to UES. The respondents signed the Guarantee Agreement on 7 August 2019 and on 16 September 2019, UES submitted an application for the increase as previously agreed. On 19 March 2020, ABSA Bank also signed the Guarantee Agreement, however, it had already declined UES’ application for an increased facility 13 days earlier. On 6 March 2020 the application for an increase was declined due to UES not being able to fulfil all the conditions precedent. On 4 May 2021, ABSA Bank addressed a written demand and notice of cancellation of the Facilities Letter to UES in terms of clause 3 of the Facilities Letter. Thereafter, several demands and extensions were made to UES to honour the Facilities Letter Agreement by repaying the amount it owed to ABSA Bank. UES failed to pay. UES’ inability to repay the amount due led to an application being made for its provisional winding up. ABSA Bank then turned to the respondents for repayment of the amount that UES owed to it at the time of the demand in respect of the pre-existing debt prior to them signing the Guarantee Agreement. The respondents refused to pay. On 2 December 2021, the Bank brought an application in the high court seeking an order against the respondents for the payment of the sum of R51 153 086.91 with interest thereon calculated at 18,75% per annum capitalized from 24 November 2021 to date of payment; and ancillary relief. This application was opposed by the respondents on the grounds that ABSA Bank did not fulfil its obligation to increase the facility amount as agreed. In the alternative, they contended that there was a misrepresentation on the part of ABSA Bank, and, further alternatively, that there was a justus error, which induced them to sign the agreement, further alternatively, that the common intention of the parties was not properly reflected in the Guarantee Agreement. For the latter reason, they sought rectification of the Guarantee Agreement to reflect the true intentions of the parties, namely that the Guarantee Agreement would take effect only upon ABSA Bank availing the additional funding to UES which it refused to do. The central issue before the SCA related to the proper interpretation of the Guarantee Agreement concluded between the parties. In considering the issue on appeal, the SCA stated that the language used in the Guarantee Agreement was clear and unambiguous in that it pointed unequivocally in the direction of an anticipated approval of the increase in funding applied for on behalf of UES. Secondly, the SCA stated that it was important that sight should not be lost of the manifest purpose that the Guarantee Agreement was, on conception, designed to serve and that there can be little doubt that the words ‘irrevocably and unconditional’ contained in clause 3 of the Guarantee Agreement were intended to take effect once the envisaged increase was approved. The language of the document itself – which is the ‘inevitable point of departure’ in the interpretive exercise could only mean that the respondents would become liable for UES’ existing debt of US$2,5 million only once the facility was increased to US$18,5 million. The SCA held that to suggest that the Guarantee Agreement would bind the respondents regardless of whether or not the facility was increased to US$18,5 million, would be to ascribe a meaning to the document that would lead to insensible or unbusinesslike results, and as a result fundamentally undermine the apparent purpose of the document in a way that would effectively be foisting on the contracting parties a contract other than the one they in fact made. Ultimately, the SCA concluded that the language of the agreement, the context and the purpose to which it was directed, the sensible commercial meaning that is legally tenable to be ascribed to it, is that for which the respondents contended. In the result, the appeal was dismissed with costs. --------oOo--------

4259

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 247/2023 In the matter between: JORGE ALEXANDRE DA COSTA BONIFACIO FIRST APPELLANT SERGIO RUI DA COSTA BONIFACIO SECOND APPELLANT and LOMBARD INSURANCE COMPANY LIMITED RESPONDENT Neutral citation: Bonifacio and Another v Lombard Insurance Company Ltd (247/2023) [2024] ZASCA 86 (4 June 2024) Coram: PONNAN, NICHOLLS and MATOJANE JJA, KOEN and SEEGOBIN AJJA Heard: 14 May 2024 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 11h00 on 4 June 2024. Summary: Construction law – performance guarantee – guarantor resisting liability on basis that the claim is fraudulent – guarantor thereafter compromising on liability – whether third parties who indemnified guarantor against payment liable to guarantor – legal nature of performance guarantee – whether settlement deprived third parties of a procedural advantage which would excuse them from liability – whether claim 2 against third parties conditional – whether fraud could properly be adjudicated on the affidavits. 3 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Johannesburg (Strydom J, sitting as a court of first instance): The appeal is dismissed with costs, such costs to include the costs of two counsel where so employed. _________________________________________________________________________ JUDGMENT _________________________________________________________________________ Koen AJA (Ponnan, Nicholls and Matojane JJA and Seegobin AJA concurring) Introduction [1] This appeal considers whether the first appellant, Jorge Alexandre Da Costa Bonifacio, and the second appellant, Sergio Rui Da Costa Bonifacio (collectively referred to as the appellants), are liable to indemnify the respondent, Lombard Insurance Company Limited (the respondent), for a payment it made to DBT Technologies (Pty) Ltd (DBT). The payment was made in respect of a guarantee which the respondent had issued for the due performance of the obligations of Tubular Construction Projects (Pty) Ltd (TCP) to DBT. The Gauteng Division of the High Court, Johannesburg (the high court) found that the appellants were so liable. This appeal is against the whole1 of that judgment with the leave of the high court. Background [2] During or about 2009 Eskom Holdings SOC Limited (Eskom) contracted with Alstom S & E Africa (Pty) Ltd (Alstom) to fabricate, paint and erect six ACC units at Eskom’s Kusile Power Plant. Alstom, in turn, subcontracted some of the work to DBT,2 which, on 23 July 2009 subcontracted some of its work (the subcontracted work) to 1 Notwithstanding the order of the high court stating that it is against the whole of its judgment, the true scope of the appeal is considered in paragraph 15 below. 2 DBT was the applicant in the high court in the application giving rise to this appeal. It is not a party to the appeal. 4 TCP3. In terms of TCP’s subcontract it was required to provide an on-demand performance guarantee in favour of DBT with respect to the subcontracted works. On 8 September 2009, the respondent issued such a guarantee in favour of DBT for an amount of R128 375 851.20. The guarantee provided that the respondent held this amount at the disposal of DBT and undertook to pay to it on a written demand for payment, signed on behalf of DBT by an executive director thereof, stating that the amount demanded was payable to DBT in terms of the subcontract with TCP, and the circumstances of TCP’s breach under its subcontract.4 [3] On 7 June 2019, the appellants executed a ‘Deed of Suretyship and Indemnity’ (the indemnity)5 in favour of the respondent. The following terms of the indemnity are material to this appeal: (a) The appellants indemnified the respondent against any claims, losses, demands, liabilities, costs and expenses of whatsoever nature, and legal costs as between attorney and client, which the respondent may at any time sustain as a result of having executed any guarantee on behalf of the guarantors.6 (clause 2) (b) The appellants agreed to pay on demand any sum of money which the respondent may be called upon to pay under any guarantee, whether or not the respondent shall, at such date, have made such payment, and whether or not the guarantors, TCP or the appellants admitted the validity of such claims against the respondent under the guarantee. (clause 3) (c) The appellants agreed that they were liable to the respondent for the payment of interest on any sum which the respondent may pay under any guarantee, from the date the respondent made such payment until the date that the sum was repaid by the appellants, at a rate equal to the overdraft rate of ABSA Bank Limited, plus 2 percent. (clause 4) 3 TCP was the second respondent in the high court in the application giving rise to this appeal. It has subsequently been liquidated. Like DBT, neither it nor its liquidators have played any role in this appeal. 4 Additional terms of the guarantee included: that the guaranteed sum would reduce in accordance with a reduction schedule annexed to the guarantee against the presentation of six ‘Taking-Over’ certificates; that the respondent’s obligation to make payment was absolute and unconditional and would not be construed to be accessory or collateral on any basis; that any demand for payment received by the respondent would not be delayed by the fact that a dispute might exist between DBT and TCP; and, that DBT was entitled to arrange its affairs with TCP in any manner it saw fit without advising the respondent or it affecting the respondent’s liability under the guarantee. 5 The suretyship portion of the Deed is irrelevant to this appeal. 6 The guarantors were defined in the indemnity as Tubular Technical Construction (Pty) Ltd and Tubular Holdings (Pty) Ltd. 5 (d) The respondent would be entitled, without reference to the appellants and without affecting the appellants’ liability under the indemnity, to consent to any arrangement between DBT, the guarantors and/or TCP, and to make any arrangements or compound with DBT, the guarantors and/or TCP, or to release the guarantors or any other person from any liability to the respondent. (clause 6) (e) The respondent would be entitled to enter into compromises and/or to accept settlements, without affecting the appellants’ obligations under the indemnity, and would be entitled to require the appellants to pay any amount which the respondent may be called upon to pay, or any loss it may have suffered or incurred. (clause 9.4) (f) The indemnity would be enforceable against the appellants in accordance with the tenor thereof, whether as an indemnity or otherwise. (clause 10) [4] On 13 January 2020, a written demand, in compliance with the terms of the guarantee, for the full guaranteed amount, was submitted by DBT to the respondent. On 15 January 2020, the respondent, relying on the terms of the indemnity, in turn demanded payment of the same amount from the appellants jointly and severally. When DBT’s demand to the respondent was not met, DBT launched an application (the main application) in the high court against the respondent, as the first respondent, claiming an order that it be directed to honour payment of the guarantee in the sum of R128 375 851.20 with interest thereon from 13 January 2010, and costs. TCP was cited as the second respondent in the main application, but no relief was claimed against it, save for costs in the event of opposition. [5] Both the respondent and TCP opposed the relief claimed and filed answering affidavits. Both affidavits, that of the respondent based mainly on what had been reported to it by TCP, raised as a primary defence that the demand by DBT was fraudulent, inter alia because the guarantee amount covered work that had already been completed and in respect of which taking-over certificates allegedly should have been issued, which should have reduced the guaranteed amount. TCP’s answering affidavit also raised a number of further defences.7 After DBT had filed its replying affidavit the respondent filed a ‘further affidavit’ providing additional details of the 7 These included inter alia prescription, breaches of the agreement between it and DBT, the acceptance amount having been reduced, certain parts of the contract subsequently having been excluded from the subcontracted work, and extensions of time having been granted. 6 alleged fraud. The response of DBT was that these allegations were irrelevant to the relief sought by DBT and fell to be struck out, that the respondent and TCP were simply impermissibly seeking to embroil the high court in disputes in respect of which it had no jurisdiction, and that the respondent sought to manipulate the true facts to suit a version which supported an allegation of fraud in an attempt to avoid its obligations under the guarantee. [6] On the strength of DBT’s claim and the indemnity, the respondent on or about 5 May 2020 served third party notices8 on ten third parties, the appellants being the seventh and eighth third parties respectively. The notices substantially9 followed the standard form 7 to the Uniform rules of court, and advised the third parties: that DBT had commenced the main application against the respondent and TCP; that the respondent had opposed the application and delivered an answering affidavit (copies of which were attached); and, that the respondent claimed an indemnification from the third parties on the strength of the indemnity as set out in the annexures to the notices. They were further advised that if any of them disputed those grounds, and consequentially the claim of the respondent to an indemnification, or if they disputed the claim of DBT against the respondent, they had to give notice of their intention to oppose within five days of the notice, filed with the Registrar of the high court and a copy on DBT, the respondent and TCP, and thereafter file an answering affidavit within 15 days if they opposed the relief sought by the respondent against them, or the relief sought by DBT against the respondent.10 In the annexure to the third-party notices the respondent prayed that the first to tenth third parties be declared liable jointly and severally to indemnify it in the amount of R128 375 851.20, interest,11 and the costs of the third-party proceedings. 8 Leave to serve these notices after the close of pleadings, as required by rule 13(3)(b) was obtained during early June 2020. 9 Uniform rule 6(14) provides that the provisions of rule 13 apply to all applications. The third party notices accordingly had to be modified, where required, to provide for the proceedings being pursued on motion. 10 This followed from the provisions of rule 13 and form 7 of the Uniform Rules of Court. 11 Interest was claimed on the amount of R128 375 851.20 at the rate of 2 percent above the prime overdraft rate charged by ABSA Bank Limited in respect of the sixth to tenth third parties, calculated from the date of payment by the respondent to DBT, to date of repayment by them to the respondent. 7 [7] During June 2020, the first to sixth and ninth and tenth third parties filed affidavits opposing the relief claimed against them. The appellants, satisfied that DBT’s claim was being opposed by the respondent and TCP and that they would be exonerated if the defences raised by them were successful, did nothing further. TCP was, however, liquidated thereafter. On 6 November 2020 the appellants were furthermore advised by their broker that the respondent was reluctant to continue opposing the matter in the absence of TCP, as it had misgivings advancing a fraud defence of which it had no personal knowledge and TCP, which was supposed to have that knowledge, would no longer be opposing the main application. [8] In a letter from the appellants’ attorney to the respondent’s attorney dated 27 January 2021, the appellants acknowledged that they were now forced to enter ‘into the litigation’. In their reply dated 29 January 2021, the respondent’s attorneys referred to a meeting held on 16 November 2020, which confirmed that they had advised the appellants’ attorneys that the enrolment of the application was imminent, that the TCP group of companies was no longer actively opposing the claim of DBT, and that if the appellants wished to participate in the proceedings, they had to do so as a matter of extreme urgency. The appellants were also advised that the respondent had concluded that it was in its best commercial interests to compromise and settle DBT’s claim, that such a settlement was clearly authorised by the terms of the indemnity, that the settlement would be made an order of court at the hearing on 1 February 2021, and that the respondent would then move for a corresponding order against the third parties that were not in liquidation or business rescue. [9] On 1 February 2021, the high court, in accordance with the terms of the settlement agreement, granted an order directing the respondent to pay to DBT an amount of R100 million in full and final settlement of all issues between them, with DBT and the respondent each paying its own costs.12 The appellants and the other third parties, had up to that stage, not taken any steps to advance their defences and contentions, notwithstanding the elapse of several months. The high court, on 1 February 2021, adjourned the proceedings against the first, fourth, fifth, and sixth 12 The high court also granted an order, based on the indemnity, for the second, third, ninth and tenth third parties to indemnify the respondent for the settlement amount. 8 third parties and the appellants to afford them the opportunity to deliver their affidavits to raise whatever contentions they wished to advance, and to apply for condonation for not having done so previously. [10] Pursuant to that order, the appellants on 20 February 2021 delivered a counter application in which they applied for condonation for the late filing of their answering affidavits to the third party notices, filed affidavits opposing the third party relief claimed by the respondent, asked that the dispute between them and the respondent be referred for trial, and claimed rectification of the Deed of Suretyship and Indemnity. As with the contents of the answering affidavits, filed previously by the respondent and TCP in opposition to the claim by DBT, the appellants opposed the claims against them inter alia on the basis that the calling up of the guarantee had been fraudulent (the fraud defence). In addition, they contended that prior to them being joined as third parties they had been released from their obligations (the release defence), that the settlement had deprived them of a procedural advantage to present their defences to the claim of the respondent and DBT (the procedural advantage defence), and, that the respondent was estopped from proceeding against them (the estoppel defence). [11] In its reply to the appellants’ counter application and affidavits the respondent denied the various defences and the rectification claim. It furthermore contended that the fraud issue had to be resolved as between DBT and the appellants, as the respondent was not a party thereto and did not collude in any alleged fraud. In the high court [12] On 20 September 2022, the high court granted condonation for the late filing of the appellants’ answering affidavits;13 declared the appellants liable, jointly and severally to pay to the respondent the sum of R100 million with interest thereon at the rate of 2 percent above the prime overdraft rate charged by ABSA Bank from time to time from the date of demand, being 15 January 2020, to date of payment; and declared the appellants liable jointly and severally, to pay the costs of the respondent on the scale as between attorney and client, including the costs of two counsel where employed. 13 Condonation had already previously been granted by the court. 9 [13] The high court concluded, inter alia, that for the purposes of deciding the application it did not have to make a finding regarding the alleged fraud; that the respondent was seeking an indemnity no longer on the basis of an adverse finding by the court against the respondent, but on the changed factual circumstances that the respondent had settled the claim by DBT; that proceeding for the settlement amount rather than the high court making a finding of liability made no difference to the respondent’s claim; that the respondent was not proceeding on the basis of a new case only made out in its replying affidavit; that the matter did not require to be referred for trial where DBT who allegedly had acted fraudulently was no longer a party in the main application; and, that the appellants were liable to indemnify the respondent. The estoppel defence, the procedural advantage defence, the release defence, and the rectification claim, were dismissed. The scope of the appeal [14] When granting leave to appeal, the high court stated that the appellants sought leave to appeal ‘on essentially one ground which is elaborated upon in paragraph 1.3.3 of the application for leave to appeal’; that this argument could be raised, although not previously ventilated on the papers or during argument, as it was of a legal nature; and that another court may conclude that the right to challenge the liability of the respondent towards DBT, had remained intact. Leave to appeal was granted against ‘the whole of the judgment’ of the high court. [15] At the outset of the argument before this Court, Mr Ferreira SC, for the appellants, confirmed that the estoppel defence, the release defence, and the rectification claim were not part of the appeal. He conceded that leave to appeal was granted specifically with respect to paragraph 1.3.3 of the application for leave to appeal only. Paragraph 1.3.3 was to the effect that the high court ought to have found that the settlement did not entitle the respondent to obtain an indemnity in terms of the third party procedure, as that procedure entitled the appellants also to contest the claim by DBT against the respondent, but that this right had been affected, to their prejudice, by the settlement. Mr Ferreira further maintained that the issue of fraud was still an issue in the appeal, but only insofar as it related to this defence. This judgment proceeds on that basis. 10 The legal nature of the guarantee [16] It is trite law, confirmed again in Lombard Insurance Co Ltd v Landmark Holdings(Pty) Ltd14 (Landmark), that a performance guarantee, such as the guarantee in this appeal, is autonomous and that the legal effect thereof is that it ‘creates an obligation to pay upon the happening of an event.’ The fact that it relates to a construction contract does not create an accessory obligation of suretyship. The security afforded by the guarantee is in respect of the contractor’s obligations and protects the employer, in the event of default. Such a guarantee is not unlike irrevocable letters of credit issued by banks and used in international trade to establish a contractual obligation on the part of a bank to pay a seller beneficiary. The obligations created by the guarantee are wholly independent of any underlying contract. Whatever disputes may subsequently arise between buyer/employer and seller/contractor are of no moment insofar as it concerns the obligations of the party which provided the guarantee. Its obligation remains to honour the guarantee and it undertakes to pay, provided that the conditions specified in the guarantee are met. [17] On the facts of this appeal, all that was required to give rise to liability on the part of the respondent to DBT was a demand contemplated by the guarantee. Such a written demand15 was made on 13 January 2020, signed on behalf of DBT by its managing director and general manager. The liability of the respondent would be unaffected by any disputes arising from the terms and obligations of the underlying agreement between DBT and TCP, such as whether portions of the work had indeed been taken over, disputes regarding delays, and the like. Fraud [18] Following what was confirmed in Landmark,16 the only basis upon which liability on the guarantee could be avoided, would be if there was fraud on the part of the beneficiary. That would require proof that DBT had presented a written demand, which it knew misrepresented the true facts when it submitted the demand drawing on the 14 Lombard Insurance Co Ltd v Landmark Holdings (Pty) Ltd [2009] ZASCA 71; 2010 (2) SA 86 (SCA); [2009] 4 All SA 322 (SCA) paras 19-21. 15 Coface South Africa Insurance Co Limited v East London Own Haven t/a Own Haven Housing Association [2013] ZASCA 202; [2014] 1 All SA 536 (SCA); 2014 (2) SA 382 (SCA) para 2. 16 Op cit fn 15. 11 guarantee. As has been said, fraud, if established, ‘unravels everything’.17 No court will give effect to a fraud. [19] As regards the claim for an indemnity by the respondent against the appellants, the appellants would not only have to show that the demand by DBT was fraudulent, but also that the respondent’s settlement of DBT’s demand was fraudulent, that is that the respondent paid a claim which it knew was not due and thereby colluded in the fraud of DBT. As a general rule, if fraud which induces a contract does not proceed from one of the parties, but from a third person, it would have no effect upon the contract - the fraud must be the fraud of one of the parties.18 [20] There was no suggestion in the affidavits that the respondent had acted fraudulently or colluded in any alleged fraud by DBT. The high-water mark of the appellants’ case against the respondent was that the respondent had not investigated the claim by DBT against it sufficiently. But it is not expected of a guarantor, faced with a valid demand in respect of a performance guarantee, to investigate the contractual position between a beneficiary and a debtor.19 In Landmark,20 where fraud was similarly raised as a defence to avoid liability on indemnities sought to be enforced, this Court remarked that: ‘In the present case Lombard undertook to pay the Academy upon Landmark being placed in liquidation. Lombard, it is accepted, did not collude in the fraud. There was no obligation on it to investigate the propriety of the claim. The trigger event in respect of which it granted the guarantee had occurred and demand was properly made. The same [that is as applied to Lombard’s liability on the performance guarantee] applies to the undertaking by the three respondents. They undertook to indemnify Lombard in the event that it paid a claim based on the guarantee provided by it. That event occurred and the respondents were likewise liable.’ The high court was therefore correct, insofar as liability based on the indemnity was concerned, that it did not have to consider the question of fraud, because there was no fraud alleged on the part of the respondent to consider. 17 Lazarus Estates Ltd v Beasley [1956] 1 Q.B 702 at 712. 18 Slip Knot Investments 777 (Pty) Ltd v Du Toit [2011] ZASCA 34; 2011 (4) SA 72 (SCA) para 8. 19 Guardrisk Insurance Company Limited & Others v Kenz [2013] ZASCA 182; [2014] 1 All SA 307 (SCA) para 28. 20 Paras 21 and 22. 12 [21] Insofar as it concerned any fraud on the part of DBT potentially tainting the guarantee, thereby affecting the liability of the respondent to DBT, and following from that any liability of the appellants to the respondent, the question more correctly was not whether the high court should have enquired into the issue of any fraud on the part of DBT, but whether it was competent for the high court to do so on the affidavits/pleadings as they stood after the settlement had been made an order of court. DBT would be an essential party to any proceedings enquiring whether it had acted fraudulently. A finding of fraud could not be made against DBT, in its absence, where relief to that effect was not claimed against it21 in proceedings that were current and ongoing. The alleged loss of a procedural right [22] The appellants had been brought into the application as third parties, at the instance of the respondent. Not having been joined as parties at the instance of DBT there was no lis between the appellants and DBT, and the appellants did not become defendants vis-à-vis DBT.22 When served with the third party notices the appellants were vested with various procedural rights contained in rule 1323 as well as other rules, and the common law, which they could have invoked. They included the following: 21 It was for the parties in their affidavits to set out and define the nature of their disputes, and for the court to adjudicate upon those issues so determined – 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 paras 15 and 19. 22 Shield Insurance Co Ltd v Zervoudakis 1967 (4) SA 735 (E) at 739B. 23 Rule 13 of the Uniform Rules of Court provides: ‘Third Party Procedure (1) Where a party in any action claims– (a) as against any other person not a party to the action (in this rule called a “third party”) that such party is entitled, in respect of any relief claimed against him, to a contribution or indemnification from such third party, or (b) any question or issue in the action is substantially the same as a question or issue which has arisen or will arise between such party and the third party, and should properly be determined not only as between any parties to the action but also as between such parties and the third party or between any of them, such party may issue a notice, hereinafter referred to as a third party notice, as near as may be in accordance with Form 7 of the First Schedule, which notice shall be served by the sheriff. (2) Such notice shall state the nature and grounds of the claim of the party issuing the same, the question or issue to be determined, and any relief or remedy claimed. In so far as the statement of the claim and the question or issue are concerned, the rules with regard to pleadings and to summonses shall mutatis mutandis apply. (3)(a) The third party notice, accompanied by a copy of all pleadings filed in the action up to the date of service of the notice, shall be served on the third party and a copy of the third party notice, without a copy of the pleadings filed in the action up to the date of service of the notice, shall be filed with the registrar and served on all other parties before the close of pleadings in the action in connection with which it was issued. 13 (a) In terms of rule 13(4) and (6), to oppose the claims by the respondent; (b) In terms of rule 13(6), to contest the liability of the respondent to DBT;24 (c) As provided in the proviso to rule 13(6), to pursue the joinder of DBT in terms of the provisions of rule 24 in respect of any specific relief they might have wished to pursue against DBT; (d) Pursuant to the provisions of rule 13(8), to issue third party notices for appropriate relief25 against any other parties to the litigation, including DBT;26 (b) After the close of pleadings, such notice may be served only with the leave of the court. (4) If the third party intends to contest the claim set out in the third party notice he shall deliver notice of intention to defend, as if to a summons. Immediately upon receipt of such notice, the party who issued the third party notice shall inform all other parties accordingly. (5) The third party shall, after service upon him of a third party notice, be a party to the action and, if he delivers notice of intention to defend, shall be served with all documents and given notice of all matters as a party. (6) The third party may plead or except to the third party notice as if he were a defendant to the action. He may also, by filing a plea or other proper pleading contest the liability of the party issuing the notice on any ground notwithstanding that such ground has not been raised in the action by such latter party: Provided however that the third party shall not be entitled to claim in reconvention against any person other than the party issuing the notice save to the extent that he would be entitled to do so in terms of rule 24. (7) The rules with regard to the filing of further pleadings shall apply to third parties as follows: (a) In so far as the third party's plea relates to the claim of the party issuing the notice, the said party shall be regarded as the plaintiff and the third party as the defendant. (b) In so far as the third party's plea relates to the plaintiff's claim, the third party shall be regarded as a defendant and the plaintiff shall file pleadings as provided by the said rules (8) Where a party to an action has against any other party (whether either such party became a party by virtue of any counterclaim by any person or by virtue of a third party notice or by any other means) a claim referred to in subrule (1), he may issue and serve on such other party a third party notice in accordance with the provisions of this rule. Save that no further notice of intention to defend shall be necessary, the same procedure shall apply as between the parties to such notice and they shall be subject to the same rights and duties as if such other party had been served with a third party notice in terms of subrule (1). (9) Any party who has been joined as such by virtue of a third party notice may at any time make application to the court for the separation of the trial of all or any of the issues arising by virtue of such third party notice and the court may upon such application make such order as to it seems meet, including an order for the separate hearing and determination of any issue on condition that its decision on any other issue arising in the action either as between the plaintiff and the defendant or as between any other parties, shall be binding upon the applicant.’ 24 In terms of rule 13(7)(b) in so far as the appellants’ plea would relate to DBT’s claim, the appellants would be regarded as defendants/respondents and DBT would have to file pleadings as provided by the rules. 25 Van Loggerenberg in Erasmus ‘Supreme Court Practice’ vol 2 page D1-145 explains that ‘[s]ubrule (1) provides for two alternative bases upon which a litigant can join a third party. The remedies and relief that a litigant may seek against a third party differ, depending upon whether the third party is joined under subrule (1)(a) or (b).’ 26According to Van Loggerenberg in Erasmus ‘Supreme Court Practice’ vol 2 page D1-148A rule 13(8) was designed to fill a lacuna, for had it not been for the subrule, a party to an action/application having a claim in subrule (1) against another party to the same action, which could not be brought within the ambit of a claim in reconvention, would have to enforce such a claim by way of a separate action. Now, if not already a party to the action/application, such person could be joined by a third-party notice. 14 (e) to have proceeded against DBT separately, and then to have asked for a consolidation of such separate proceedings and the third-party proceedings. Joinder is often simply a form of consolidation and consolidation a form of joinder.27 These processes were all available to the appellants to avoid a multiplicity of actions28 but they had to be invoked by them. [23] The appellants’ specific complaint in their application for leave to appeal was that the settlement denied them the right in rule 13(6) to file an affidavit to contest the claim of DBT against the respondent. They however had that right from the time they were served with the third party notices, just as they had the right to deliver answering affidavits to oppose the indemnity claimed against them by the respondent. They had elected not to drive the process of opposing what they considered to be a fraudulent claim, in respect of which the respondent sought an indemnity from them. They had hoped that the initial opposition by the respondent and TCP to DBT’s demand would be persisted with and would procedurally unfold in a manner which opportunistically would benefit them as well. However, the circumstances had changed by November 2020. TCP was liquidated, and its liquidators apparently elected to not participate further in the proceedings. The respondent decided to compromise the claim by DBT. It had the inalienable right29 to do so30 at common law and in accordance with the express terms of the indemnity, notably clauses 6 and 9.4. The law generally favours a compromise (transactio) to achieve finality.31 The appellants were aware by at the latest November 2020, if not already in October 2020, of the changed circumstances 27 Nel v Silicon Smelters (Edms) Bpk 1981 (4) SA 792 (A) at 802B, it was held that the purpose of rule 13 is in broad terms the same as that of a consolidation of actions under rule 11: to have issues which are substantially similar tried at a single hearing so as to avoid the disadvantages attendant upon a multiplicity of trials. 28 Gross v Commercial Union Assurance Co Ltd 1974 (1) SA 630 (A) at 634E. See also Bekker, T (2017). ‘Third Party joinder: A plea for reform’ THRHR (1682-4490), 80 (4), p. 622. 29 ‘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.’ – Barkhuizen v Napier [2007] ZACC 5; 2007 (5) SA 323 (CC); 2007 (7) BCLR 691 (CC) para 57. 30 The third parties could never negate the right of Lombard to settle the claim by DBT. It also had that right in terms of the provisions of the indemnity. The third parties could not compel DBT remaining as a party to the litigation, for a procedural advantage, post the settlement between DBT and Lombard. If there were procedural advantages to be enjoyed from DBT being a party to the litigation, such as producing documents referred to in affidavits (rule 35(12)) then they might have to be secured otherwise. 31 ‘The law, in fact, rather favours a compromise (transactio), or other agreements of this kind; for interest rei publicae ut sit finis litium [it is in the public interest that there be an end to litigation]. – Schierhout v Minister of Justice 1925 AD 417 at 423. 15 and that they would have to take steps to establish any procedural rights they might require for the fraud allegations to be ventilated fully. Yet they did not do so. [24] The respondent’s claim throughout remained based on the indemnity contract, not the settlement agreement. The only impact of the settlement agreement was that the amount to be paid was reduced. When the relevant terms of the settlement agreement were incorporated by the high court in its order of 1 February 2021, the issue of the respondent’s liability to DBT, including that it was not affected by any fraud or any other defence as between the respondent and DBT, had become res judicata. DBT was from then no longer a party to the litigation. All that remained were the third party proceedings. These are independent of the main application.32 Even then, the procedural rights in paragraph 22(a), (c) and (e) were still available to the appellants, subject to them obtaining condonation, where required, to invoke those out of time. [25] The opportunity which the appellants had to file a plea/answer to contest DBT’s claim against the respondent in terms of rule 13(6), was however no longer available because DBT was no longer a party to the proceedings. It is important that finality must be achieved in litigation. The appellants only had themselves to blame for losing that procedural opportunity, because when they had the right to file processes to resist DBT’s claim against the respondent and DBT was still the applicant in the litigation, they had failed to invoke it. The settlement did not deny the appellants the procedural right to contest the claim of DBT. They had simply failed to pursue it in the first place when they were entitled to have done so. [26] But even after the claim of DBT was settled, the terms of the settlement had been incorporated into the court order, and DBT was no longer a party to the litigation, the appellants could still have invoked appropriate procedures to properly introduce whatever issues relating to the fraud they might wish to have raised to resist liability. They could have invoked any of the rights and procedures detailed in paragraph 22(a), (c) and (e) above. They applied for condonation and filed a counter application and an affidavit to oppose the claims by the respondent against them, but they did not take any of the other steps open to them to bring DBT back into the proceedings as a party. 32 ABSA Bank Ltd v Boksburg Transitional Local Council 1997 (2) SA 415 (W) at 416A. 16 Absent those procedures being invoked, there was simply no lis between the appellants and DBT33 in which the issue of fraud could be addressed. Conditionality [27] During argument the emphasis in the appellant’s case shifted somewhat. It was contended that any liability of the appellants to the respondent had been expressed to be conditional upon a court, presumably in a considered judgment, reaching a definitive finding that the respondent was liable in law to DBT, before the appellants in turn could be held liable to the respondent in the third party proceedings. The appellants placed reliance in this regard on the following allegations in the respondent’s founding affidavit in the third party proceedings: ‘In the event that the [high court] upholds [DBT’s] claim, then [the respondent] alleges that it is entitled to an indemnification from the [appellants] on the basis of the allegations set out below. . . . and . . . In consequence of the Indemnity and Deed [o]f Suretyship and in the event that [the respondent] is ordered to pay any amount to [DBT], [the respondent] is entitled to payment of the same amount from the [appellants], Ninth and Tenth Third Parties.’34 (Emphasis added) [28] It was argued by the appellants that following the settlement, the respondent could not obtain an indemnity from them in the third party proceedings, but that an indemnity for the settlement amount, would have to be claimed in separate fresh proceedings to be instituted. This argument cannot succeed. [29] Firstly, the indemnity sought in terms of the provisions of rule 13 was based on the contract of indemnity, the terms whereof made it clear that: the respondent was indemnified against any claim, or demand of whatsoever nature (clause 2); the appellants agreed to pay to the respondent on demand any sum of money which they may be called upon to pay, whether or not the respondent had made such payment and whether or not the appellants admitted the validity of such claim against the 33 Geduld Lands Ltd v Uys 1980 (3) SA 335 (T) at 340G. 34 In their answering affidavit to the third-party proceedings, Mr Jorge Alexandre Da Costa Bonifacio explained the appellants’ understanding as being that ‘[the respondent’s] third party process against my brother and I were conditionally issued on the condition that the above Honourable Court upholds DBT’s claim against [the respondent].’ 17 respondent (clause 3); and, payment was to be made once the respondent had received a demand from DBT and the respondent in turn demanded payment from the appellants (Clause 3). On the wording of the indemnity, this liability was not conditional on the respondent firstly being found liable to DBT by a court. [30] Secondly, the settlement simply quantified the amount of the claim. When the issues in the main application between DBT and the respondent became res judicata the amount of the appellants’ liability in terms of the indemnity was no longer dependent on an adverse finding against the respondent by the court, but followed from the changed factual basis that the respondent had chosen to settle the claim by DBT, as was set out in the respondent’s replying affidavit in the third party proceedings. [31] Thirdly, the allegations in the affidavit, if given the meaning contended for by the appellant, would contradict the express wording of the indemnity, the express wording of rule 13, the wording of the standard form 7 annexed to the Uniform Rules of Court, and the wording of the annexure to the third party notice. When the high court incorporated the terms of the settlement in its order it fixed the amount of the payment to be made. That did not contradict the wording of the affidavit when interpreted purposively in the context in which the third party proceedings were issued. The settlement amount is the amount the high court ‘ordered’ the respondent to pay. [32] If separate fresh proceedings were to have been instituted the appellants would still have been required to join DBT for the issue of fraud to be ventilated and adjudicated properly, and for any available right of recourse to be exercised against DBT. The position would have been no different to the position in which the appellants found themselves during November 2020. The procedural rights allegedly lost would also not have been available had the respondent not settled DBT’s claim and abided by the high court’s ultimate finding, simply because the appellants had not invoked such right. [33] The issue of any fraud on the part of DBT was accordingly not an issue which properly arose for adjudication before the high court. The high court was correct not to consider the question of fraud because it was not competent to do so on the 18 pleadings. The appellants certainly had not been denied any procedural rights which would excuse them from liability. Conclusion [34] The appeal falls to be dismissed with costs. Both sides employed two counsel and were agreed that any costs order should include the costs consequent upon the employment of two counsel, where employed. Such an order is appropriate in the circumstances of this appeal. [35] In the result, the following order is made: The appeal is dismissed with costs, such costs to include the costs of two counsel where so employed. ________________________ P A KOEN ACTING JUDGE OF APPEAL 19 Appearances For appellants: F J Ferreira SC with C Richard. Instructed by: Raees Chothia Attorneys, Johannesburg Honey Attorneys, Bloemfontein. For respondent: C J McAslin SC with L Laughland. Instructed by: Frese, Moll & Partners, Johannesburg 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: 4 June 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 Bonifacio and Another v Lombard Insurance Company (247/2023) [2024] ZASCA 86 (4 June 2024) _________________________________________________________________________________ The Gauteng Division of the High Court, Johannesburg, had previously found that Mr Jorge Alexandre Da Costa Bonifacio, and Mr Sergio Rui Da Costa Bonifacio (collectively referred to as the Bonifacios), were liable to indemnify Lombard Insurance Company Limited (Lombard), for a payment it made to DBT Technologies (Pty) Ltd (DBT). The payment to DBT was in respect of a guarantee which Lombard had issued to secure the due performance of the obligations of Tubular Construction Projects (Pty) Ltd to DBT. The Bonifacios appealed against that decision with the leave of the high court. On appeal before the Supreme Court of Appeal, the Bonifacios contended that the high court had erred as the demand by DBT had been tainted by fraud, that the decision by Lombard to settle the claim of DBT deprived them of a procedural advantage they had enjoyed to raise the issue of fraud and that they were accordingly now excused from liability, and that the claim against them, on the pleadings before the high court, was conditional on their liability in terms of the indemnity being determined by a court, and not by a settlement between DBT and Lombard. The Supreme Court of Appeal in its judgment handed down today confirmed the autonomous nature of a performance guarantee. Liability based on such guarantee depends on compliance with the terms of the guarantee and is not affected by any alleged breach of the terms of the underlying agreement in respect of which it was issued, unless the demand for payment was tainted by fraud. It found that there was no legal impediment to Lombard compromising on its liability to DBT. It also found that notwithstanding Lombard’s settlement of DBT’s demand, the Bonifacios had appropriate procedures available to them to have raised the issue of fraud on the part of DBT for determination, but that they had failed to do so. The SCA concluded that no evidence of fraud on the part of Lombard had been adduced before the court, and that the issue of any fraud on the part of DBT, had not been properly raised for determination. Finally, it concluded that that the claim for an indemnity was, based on the terms of the indemnity and a proper interpretation of the affidavits, not conditional. 2 The appeal was therefore dismissed with costs, including the costs of two counsel where so employed. ~~~~ends~~~~

4178

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 1196/2022 In the matter between: KAPEEL BECHAN FIRST APPELLANT BECHAN CONSULTING (PTY) LTD SECOND APPELLANT and SARS CUSTOMS INVESTIGATIONS UNIT FIRST RESPONDENT SARS TACTICAL INVESTIGATIONS UNIT SECOND RESPONDENT TANYA POTGIETER ─ SARS ILLICIT ECONOMY UNIT THIRD RESPONDENT LINDIWE SHIBINDI ─ SARS ILLICIT ECONOMY UNIT FOURTH RESPONDENT MINISTER OF POLICE FIFTH RESPONDENT HAWKS SPECIAL INVESTIGATION UNIT SIXTH RESPONDENT Neutral citation: Bechan and Another v SARS Customs Investigations Unit and Others (1196/2022) [2024] ZASCA 20 (05 March 2024) Coram: PETSE DP, MBATHA and MATOJANE JJA and KATHREE-SETILOANE and KEIGHTLEY AJJA Heard: 22 November 2023 Delivered: 05 March 2024 Summary: Search and seizure – Tax Administration Act 28 of 2011 (the TAA) – interpretation – ss 59(1) and 60(1) – execution of a warrant against third parties on premises identified in the warrant – s 61(3)(a) of TAA – permits search of anything on the premises identified in the warrant including motor vehicle parked on the premises on suspicion that it contains material relevant to the taxpayer. 2 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Pretoria (Millar J, sitting as court of first instance): The appeal is dismissed with costs, including those of two counsel. ___________________________________________________________________ JUDGMENT ___________________________________________________________________________ Kathree-Setiloane AJA (Petse DP, Mbatha and Matojane JJA and Keightley AJA concurring): [1] The first appellant is Mr Kapeel Bechan. He is the sole director of the second appellant, Bechan Consulting (Pty) Ltd.1 The first and second respondents are divisions within the South African Revenue Service (SARS), whilst the third and fourth respondents are SARS officials attached to the SARS’ Illicit Economy Unit, also a division of SARS.2 The appellants applied to the Gauteng Division of the High Court, Pretoria (high court) for relief, by way of the mandament van spolie (spoliation), compelling SARS to return certain items seized, purportedly unlawfully, from Mr Bechan’s motor vehicle during the execution of a warrant in respect of Bullion Star (Pty) Ltd (Bullion Star). The high court dismissed the application. [2] On 28 March 2022, SARS applied to the high court without notice to the appellants for a warrant in terms of s 59 of the Tax Administration Act 28 of 2011 (the 1 The first and second appellants are referred to collectively as ‘the appellants’ in the judgment. 2 The appellants cited SARS Customs Investigations Unit, SARS Tactical Investigations Unit, Tanya Potgieter (SARS Illicit Economy Unit) and Lindiwe Shibindi (SARS Tactical Investigations Unit) as the first to fourth respondents, respectively. The warrant was, however, executed at the behest of the Commissioner for SARS (the Commissioner). Thus, the Commissioner ought to have been cited in the application. However, the first to fourth respondents did not take issue with the incorrect citation of the Commissioner and regarded him as properly cited. The first to the fourth respondents are referred to collectively as ‘SARS’ in the judgment. 3 TAA).3 The high court issued the warrant, in terms of s 60 of the TAA,4 on the basis that there was reason to believe that Bullion Star had, amongst others, committed various tax offences. The warrant authorised SARS officials to search the premises identified as 62 Wessels Road, Rivonia, Johannesburg (the premises). It furthermore authorised them, ‘in carrying out the search and seizure of the premises, to open or cause to be opened or remove and open, anything which the officials suspect to be relevant material5 of Bullion Star’. Execution of the warrant [3] There is a factual dispute on the papers in relation to the execution of the warrant. Since these are motion proceedings in which the appellants sought final relief in the high court, the Plascon-Evan’s rule applied.6 This was confirmed by the Constitutional Court in Thint (Pty) Ltd v National Director of Public Prosecutions (Thint),7 in the context of a factual dispute concerning the execution of a search and seizure warrant in terms of s 29 of the National Prosecuting Authority Act 32 of 1998. The Constitutional Court held as follows in that case: 3 Section 59 of the TAA provides: ‘(1) A senior SARS official may, if necessary or relevant to administer a Tax act, authorise an application for a warrant under which SARS may enter a premises where relevant material is kept to search the premises and any person present on the premises and seize relevant material. (2) SARS must apply ex parte to a judge for the warrant, which application must be supported by information supplied under oath or solemn declaration, establishing the facts on which the application is based.’ 4 Section 60 of the TAA provides: ‘(1) A judge or magistrate may issue the warrant referred to in section 59(1) if satisfied that there are reasonable grounds to believe that – (a) a person failed to comply with an obligation imposed under a tax Act, or committed a tax offence; and (b) relevant material likely to be found on the premises specified in the application may provide evidence of the failure to comply or commission of the offence. (2) A warrant issued under subsection 1 must contain the following – (a) the alleged failure to comply or offence that is the basis for the application; (b) the person alleged to have failed to comply or to have committed the offence; (c) the premises to be searched; and (d) the fact that relevant material as defined in section 1 is likely to be found on the premises. (3) The warrant must be exercised within 45 business days or such further period as a judge or magistrate deems appropriate on good cause shown.’ 5 ‘Relevant material’ as defined in s 1 of the TAA ‘means any information, document or thing that is foreseeably relevant for tax risk assessment, assessing tax, collecting tax, showing non-compliance with an obligation under a tax Act or showing that a tax offence was committed’. 6 Plascon-Evans Paints Ltd v Van Riebeeck Paints (Pty) Ltd 1984 (3) SA 623 (A) at 634E-635C. 7 Thint (Pty) Ltd v National Director of Public Prosecutions, Zuma v National Director of Public Prosecutions and Others [2008] ZACC 13; 2008 (2) SACR 421 (CC); 2009 (1) SA 1 (CC); 2008 (12) BCLR 1197 (CC) para 10. 4 ‘The latter disagreements are different because they are factual disputes concerning what happens during the execution of a warrant. Where a party challenges the lawfulness of a warrant’s execution on notice of motion and disputes of fact arise, that party remains the applicant, and the prosecution must accordingly be treated as the respondent under the Plascon-Evans rule. As far as this category of factual disputes is concerned, it is the state’s version that must be accepted. That is the approach I take to the various factual disagreements arising in these two applications which relate to the execution of the warrants.’ The matter must, therefore, be adjudicated on SARS’ version. The appellants conceded this during argument in the appeal. [4] SARS’ version of the events is that on 29 March 2022 its officials arrived at the premises at approximately 11h25 but were granted access only at approximately 11h50. Whilst SARS officials were at the gate awaiting access to the premises, they saw people removing items from the building and placing them in vehicles. They were, however, unable to identify the nature of these items. [5] Upon entering the premises, SARS officials noticed a Toyota Fortuner motor vehicle with registration number HV07BBGP (the Fortuner) parked on the premises. They saw numerous files and notebooks as well as electronic equipment inside the Fortuner. Upon being informed that Mr Bechan owned the Fortuner, SARS officials requested him to unlock it to enable them to search for material relevant to Bullion Star. When Mr Bechan indicated that he could not find its keys, SARS officials obtained the services of a locksmith to unlock the Fortuner (and other vehicles on the premises). On opening it, they invited Mr Bechan to participate in and be present during, the search. [6] SARS compiled inventories of the items found in the Fortuner. These included: 10 laptop computers, four cellular phones and various financial documents pertaining to Bullion Star, including purchase files and bank statements. However, in their notice of motion, the appellants claimed the return of only two laptop computers and two cellular phones. Despite the exchange of numerous letters in which SARS tendered the return of the seized items on proof of ownership, the appellants disavowed any knowledge of the other laptops and cellular phones. 5 In the high court [7] On 4 April 2022, the appellants applied to the high court for the return of the items listed in paragraph 2 of the notice of motion by way of the spoliation remedy. To succeed in this application, the appellants had to satisfy the high court that they were in peaceful and undisturbed possession or had quasi possession of the property, and that SARS deprived them of their possession forcibly or wrongfully.8 The appellants contended, in this regard, that SARS had unlawfully seized their property of which they were in peaceful and undisturbed possession; that the seized property was not found on the premises but was stored in the Fortuner which was parked in ‘a general carpark’ outside the premises; and that the scope of the warrant was limited to Bullion Star’s property for the specified period of assessment, and did not extend to their property. [8] SARS opposed the application. Its core defence was that it did not unlawfully dispossess the appellants of the items in question, because it had acted in accordance with the terms of a validly issued warrant under s 60 of the TAA. It pointed out that it had returned some items to the appellants but was unwilling to return the two laptop computers and two cellular phones (referenced above) because, without access to their passwords,9 it was unable to determine whether they contained material relevant to Bullion Star.10 [9] The high court held that SARS was entitled to search for and seize items relevant to Bullion Star as the warrant specifically authorised its officials to search anywhere on the premises. This included vehicles parked on the premises. It furthermore held that to interpret the warrant to limit its terms to Bullion Star, the taxpayer referred to in the warrant, would serve to undermine its efficacy. The high court accordingly dismissed the application as well as the application for leave to appeal against its dismissal. The appellants subsequently applied to this Court for leave to appeal which was granted. 8 Setlogelo v Setlogelo 1914 AD 221; Yeko v Qana 1973 (4) SA 735 (A). 9 Section 61(7) of the TAA provides that ‘[n]o person may obstruct a SARS official or a police officer from executing the warrant or without reasonable excuse refuse to give assistance as may be reasonably required for the execution of the warrant’. 10 Section 61(3)(c) enables a SARS official to ‘seize and retain a computer or storage device in which relevant material is stored for as long as is necessary to copy the material required’. 6 On appeal [10] The appellants conceded in their replying affidavit that the Fortuner was parked on the premises. Surprisingly, they contended, to the contrary, in their heads of argument in the appeal that the Fortuner was not parked on the premises. This question was, however, put to rest in the appeal when the appellants accepted, during argument, that the Fortuner was parked on the premises. They, nevertheless, argued that the warrant only applied to the taxpayer (Bullion Star) and not to third parties, such as themselves, who happened to be on the premises at the time of its execution.11 [11] Whether a warrant issued in terms of s 60 of the TAA may be executed against third parties depends on the interpretation of the warrant read together with the search and seizure provisions in the TAA.12 The warrant largely mirrored the search and seizure provisions in Part D of the TAA. [12] SARS contended that on a reading of the warrant with the provisions of ss 59(1) and 60(1) of the TAA, it was location specific and not taxpayer specific. Hence it could be executed against third parties on the premises. Section 59(1) provides that: ‘A senior SARS official may, if necessary or relevant to administer a tax Act, authorise an application for a warrant under which SARS may enter a premises where relevant material is kept to search the premises and any person present on the premises and seize relevant material.’ (Emphasis added.) [13] Section 60(1)(b), in turn, empowers a judge or magistrate to issue the warrant referred to in s 59(1) of the TAA, if satisfied that there are reasonable grounds to believe that, amongst others, relevant material likely to be found on the premises specified in the application may provide evidence of the failure to comply or, the commission of an offence. (My emphasis.) Properly construed, these provisions are location and not taxpayer specific. They contemplate that persons other than the taxpayer may be present on the premises identified in the warrant and in possession of material relevant to the taxpayer. 11 This contention was raised in the appellants’ replying affidavit but not in their heads of argument. 12 The rules of interpretation articulated in Natal Joint Municipal Pension v Endumeni Municipality 2012 (4) SA 593 (SCA) para 18 apply to the interpretation of the search and seizure provisions of the TAA. In interpreting them, this Court must consider the ordinary grammatical meaning of the words used in the provision, the context in which the provision occurs and the apparent purpose of the provision. 7 [14] The phrase ‘to search the premises and any persons present on the premises and seize relevant materials’ in s 59(1) of the TAA, is a clear indicator that SARS officials may, on the authority of a warrant issued under s 60, search the taxpayer as well as any third parties on the premises, and seize any relevant material in their possession. It is immaterial that the seized items are not in the possession of the taxpayer when seized. If they constitute relevant material as defined, they may be seized from a third party who is on the premises.13 [15] Section 61(3) sets out the powers of a SARS official who executes a warrant issued in terms of s 60 of the TAA. It provides: ‘The SARS official may– (a) open or cause to be opened or remove in conducting a search, anything which the official suspects to contain relevant material; (b) seize any relevant material; (c) seize and retain a computer or storage device in which relevant material is stored for as long as it is necessary to copy the material required; (d) . . . (e) if the premises listed in the warrant is a vessel, aircraft, or vehicle, stop and board the vessel, aircraft, or vehicle, search the vessel, aircraft or vehicle or a person found in the vessel, aircraft or vehicle and question the person with respect to a matter dealt with in a tax Act.’ [16] Section 61(3) of the TAA does not limit the execution of a warrant to the business of the taxpayer. Properly construed, it contemplates that in executing a warrant, SARS officials may search anything on the premises identified in the warrant, if they suspect that it contains relevant material. This is clear from the ordinary grammatical meaning of the word ‘anything’14 which is used in s 61(3)(a). This word is broad enough to include a search of vehicles parked on the premises identified in the warrant. [17] Significantly, s 61(3)(a) of the TAA does not afford a SARS official carte blanche in searching the property of third parties who may be on the premises identified in the warrant. A SARS official may only do so if they suspect that the property of a third 13 See fn 5 above for the definition of ‘relevant material’. 14 According to the Oxford English Dictionary, the word ‘anything’ is ‘used to refer to a thing, no matter what’. 8 party contains material relevant to the taxpayer. This interpretation gives effect to the manifest purpose of the search and seizure provisions of the TAA, which is to obtain evidence against a taxpayer if there are reasonable grounds to suspect non-compliance with, or tax offences under, a tax Act. As I see it, search and seizure operations on the premises identified in a warrant would be rendered ineffectual if SARS officials were powerless, under the TAA, to search third parties for relevant material. This would be especially so, in a case such as this, where material relevant to the taxpayer was spirited away and placed in a vehicle belonging to a third party, with impunity. [18] In a final attempt to overcome the insurmountable hurdles in their case, the appellants contended that the execution of the warrant was unlawful, as SARS officials did not have reasonable and probable cause to search the Fortuner. I disagree. On the objective facts, SARS officials had reasonable cause to suspect that the Fortuner contained material relevant to Bullion Star.15 They saw files, notebooks, and electrical equipment inside the Fortuner before searching it. In addition, whilst waiting to gain access to the premises, they saw items being removed from the building and being placed in vehicles parked on the premises. [19] The appellants sought to counter this by submitting that SARS officials had to know with certainty, before searching the Fortuner, that it contained material relevant to Bullion Star. That the executing officials could not know this with any degree of certitude did not mean that they had no probable cause to search the Fortuner. In terms of s 61(3)(a) of the TAA, nothing more than a suspicion that the Fortuner contained material relevant to the taxpayer was required. Thus, in terms of s 61(3)(a) of the TAA, SARS was entitled to search and seize material from the Fortuner on the suspicion that it contained material relevant to Bullion Star. [20] Raising the threshold for the execution of search and seizure warrants, as the appellants would have it, would impact negatively on their efficacy in bringing tax offenders to book. As investigation tools, search and seizure warrants play a vital role 15 See paragraphs 4 and 5 of the judgment. 9 in achieving the core objective of the TAA, which is to ensure the effective and efficient collection of tax.16 [21] In the context of the facts of this case, SARS had a statutory right to dispossess the appellants of the property found in the Fortuner. They were, therefore, not entitled to the relief sought in the spoliation application. For these reasons, the appeal must fail. [22] For the sake of completeness, it is necessary to record that as preparations for delivery of this judgment were being made the appellants’ attorneys advised the Court that on 2 February 2024 the high court set aside the search and seizure warrant.17 This was consequent on a separate application instituted by Bullion Star. The Court was further advised by SARS’ attorneys that it was considering an appeal against that order. It is a well-established general principle that this Court decides whether the judgment appealed from is right or wrong according to the facts in existence at the time it was given and not according to new circumstances that came into existence afterwards.18 It follows that the subsequent setting aside of the warrant by the high court is irrelevant to this appeal. [23] In the result, the following order is made: The appeal is dismissed with costs, including those of two counsel. ________________________ F KATHREE-SETILOANE ACTING JUDGE OF APPEAL 16 Section 2 of the TAA. 17 Bullion Star (Pty) Limited v The Commissioner for the South African Revenue Service Case no. 18176/2022, unreported judgment of the Gauteng Division of the High Court, Pretoria, dated 2 February 2024. 18 Weber-Stephen Products Co v Alrite Engineering (Pty) Ltd 1992 (2) SA 469 (A) at 507C-D. 10 Appearances For the appellants: A E Bham SC (with T Scott) Instructed by: Faber Goërtz Ellis Austen Inc, Pretoria McIntyre Van der Post, Bloemfontein For the first to fourth respondents: B H Swart SC (with S Maritz) Instructed by: VZLR Inc, Pretoria 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: 05 March 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 Bechan and Another v SARS Customs Investigations Unit and Others (1196/2022) [2024] ZASCA 20 (05 March 2024) Today the Supreme Court of Appeal (SCA) dismissed an appeal with costs including those of two counsel. The appeal emanated from the Gauteng Division of the High Court, Pretoria (the high court) and was launched by the first appellant Mr Kapeel Bechan (Mr Bechan) who is the sole director of the second appellant, Bechan Consulting (Pty) Ltd against the first to fourth respondents who are SARS’ officials and SARS’ divisions (the first and second appellants are referred to collectively as the appellants). On 28 March 2022, SARS applied to the high court without notice to the appellants for a warrant in terms of s 59 of the Tax Administration Act 28 of 2011 (the TAA). The high court issued the warrant, in terms of s 60 of the TAA, on the basis that there was reason to believe that Bullion Star had, amongst others, committed various tax offences. The warrant authorised SARS officials to search the premises identified as 62 Wessels Road, Rivonia, Johannesburg (the premises). It furthermore authorised them, ‘in carrying out the search and seizure of the premises, to open or cause to be opened or remove and open, anything which the officials suspect to be relevant material of Bullion Star’. SARS’ version of the events is that on 29 March 2022 its officials arrived at the premises at approximately 11h25, but were granted access only at approximately 11h50. Whilst SARS officials were at the gate awaiting access to the premises, they saw people removing items from the building and placing them in vehicles. They were, however, unable to identify the nature of these items. Upon entering the premises, SARS officials noticed a Toyota Fortuner motor vehicle (the Fortuner) parked on the premises. They saw numerous files and notebooks as well as electronic equipment inside the Fortuner. Upon being informed that Mr Bechan owned the Fortuner, SARS officials requested him to unlock it to enable their search for material relevant to Bullion Star. When Mr Bechan indicated that he could not find its keys, SARS officials obtained the services of a locksmith to unlock the Fortuner (and other vehicles on the premises). On opening it, they invited Mr Bechan to participate in, and be present during, the search. SARS compiled inventories of the items found in the Fortuner. These included: 10 laptop computers; 4 cellular phones; and various financial documents pertaining to Bullion Star, including purchase files, and bank statements. However, in their notice of motion, the appellants claimed the return of only two laptop computers and two cellular phones. Despite the exchange of numerous letters in which SARS 2 tendered the return of the seized items on proof of ownership, the appellants disavowed any knowledge of the other laptops and cellular phones. On 4 April 2022, the appellants applied to the high court for the return of the items listed in paragraph 2 of the notice of motion by way of the spoliation remedy. The appellants contended, in this regard, that SARS had unlawfully seized their property of which they were in peaceful and undisturbed possession; that the seized property was not found on the premises but was stored in the Fortuner which was parked in ‘a general carpark’ outside the premises; and that the scope of the warrant was limited to Bullion Star’s property for the specified period of assessment, and did not extend to their property. SARS opposed the application. Its core defence was that it did not unlawfully dispossess the appellants of the items in question, because it had acted in accordance with the terms of a validly issued warrant under s 60 of the TAA. It pointed out that it had returned some items to the appellants but was unwilling to return the two laptop computers and two cellular phones because, without access to their passwords, it was unable to determine whether they contained material relevant to Bullion Star. The high court dismissed the application. The issue before the SCA was ultimately whether a warrant issued in terms of s 60 of the TAA may be executed against third parties. In coming to a conclusion, the SCA reasoned that the phrase ‘to search the premises and any persons present on the premises and seize relevant materials’ in s 59(1) of the TAA, was a clear indicator that SARS officials may, on the authority of a warrant issued under s 60, search the taxpayer as well as any third parties on the premises, and seize any relevant material in their possession - it is immaterial that the seized items are not in the possession of the taxpayer when seized. The SCA further held that s 61(3) of the TAA does not limit the execution of a warrant to the business of the taxpayer. Properly construed, it contemplates that, in executing a warrant, SARS officials may search anything on the premises identified in the warrant, if they suspect that it contains relevant material. In the result, the SCA concluded that SARS had a statutory right to dispossess the appellants of the property found in the Fortuner and that the appellants were, therefore, not entitled to the relief sought in the spoliation application. --------oOo--------

4274

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Not Reportable Case no: 203/2022 In the matter between: CHICCO MASANGO FIRST APPELLANT HENDRIQUE MUAINGA SECOND APPELLANT and THE STATE RESPONDENT Neutral citation: Masango and Another v The State (203/2022) [2024] ZASCA 98 (14 June 2024) Coram: MOKGOHLOA and KGOELE JJA and TOLMAY AJA Heard: This appeal was, by consent between the parties, disposed of without an 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 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 11h00 on 14 June 2024. Summary: Criminal Procedure – first appellant appeal against conviction and sentence – second appellant appeal against conviction – leave to appeal refused by regional court – petition in terms of s 309 C – refused by the high court – special leave to appeal against dismissal of the petition granted by this Court – test whether appellants have shown reasonable prospects of success on appeal. 2 ORDER On appeal from: Gauteng Division of the High Court, Johannesburg (Molahlehi J and Thobane AJ sitting as court of appeal): 1 The appellants’ application for leave to appeal against the refusal of the petition on their convictions is dismissed. 2 The first appellant’s application for leave to appeal against the refusal of the petition on his sentence is refused. JUDGMENT Tolmay AJA (Mokgohloa and Kgoele JJA concurring): [1] The two appellants in this matter were convicted of robbery with aggravated circumstances read with s 51(2) of the Criminal Law Amendment Act 105 of 1997 in the Regional Court for the District of Soweto held at Protea (the regional court). The first appellant was sentenced to twenty years imprisonment and the second to fifteen years imprisonment on 24 January 2017. On 16 October 2017, leave to appeal was refused against both conviction and sentence in relation to both appellants by the regional court. The appellants then petitioned the Gauteng Division of the High Court, Johannesburg (the high court) for leave to appeal against both conviction and sentence in terms of s 309C of the Criminal Procedure Act 51 of 1977 (the CPA). On 25 February 2019, leave to appeal was refused by the high court. [2] The appellants approached this Court for special leave to appeal, in terms of s 16(1)(b) of the Superior Courts Act 10 of 2013 (the Superior Courts Act). On 18 3 December 2019, special leave to appeal the dismissal of the petition was granted by this Court to the first appellant. The second appellant also approached this Court and sought special leave to appeal against conviction only, leave was granted by this Court on 15 February 2022. Despite this, the notice of appeal states, obviously incorrectly, that both appellants seek leave to appeal against both sentence and conviction. In the heads of argument, however, this error was not repeated. It was directed, for obvious reasons, that the two appeals should be heard together. [3] On the eve before the hearing, counsel requested that the appeal be dealt with in terms of s 19(a) of the Superior Courts Act, and that the appeal accordingly be disposed of without the hearing of oral argument. The request was granted, but counsel was referred to relevant authorities to consider, as only leave to appeal against the dismissal of the petition by the high court was requested and granted. This is of importance as, in the heads of argument, counsel for the appellants and the respondent dealt only with the merits of the case. Despite this, no further heads of argument were filed. [4] It is by now trite that appeals from the lower court under s 309C must be heard by the high court in terms of s 309(1)(a) of the CPA.1 This Court has, in a long list of cases, consistently found that it lacks the jurisdiction to entertain an appeal on the 1 Section 309(1)(a) of the CPA reads as follows: ‘309 Appeal from lower court by person convicted (1)(a) Subject to section 84 of the Child Justice Act, 2008 (Act 75 of 2008), any person convicted of any offence by any lower court (including a person discharged after conviction) may, subject to leave to appeal being granted in terms of section 309B or 309C, appeal against such conviction and against any resultant sentence or order to the High Court having jurisdiction: Provided that if that person was sentenced to imprisonment for life by a regional court under section 51(1) of the Criminal Law Amendment Act, 1997 (Act 105 of 1997), he or she may note such an appeal without having to apply for leave in terms of section 309B: Provided further that the provisions of section 302 (1)(b) shall apply in respect of a person who duly notes an appeal against a conviction, sentence or order as contemplated in section 302(1)(a).’ 4 merits in the absence of leave to appeal being granted.2 Accordingly, the issue to be determined is not the merits of appeal, but whether the high court should have granted leave to appeal. From as far back as S v Khoasasa;3 S v Matshona;4 Tonkin v S;5 Dipholo v S;6 Mthimkhulu v S7 to the latest De Almedia v S,8 it has been reiterated that ‘the issue to be determined is not whether the appeal against conviction and sentence should succeed but whether the high court should have granted leave, which in turn depends upon whether the appellant could be said to have reasonable prospects of success on appeal’.9 [5] What would constitute reasonable prospects of success was set out in Nong and Masingi v The State, with reference to S v Smith,10 as follows: ‘As regards what constitutes “reasonable prospects of success” Plasket AJA in S v Smith describes it concisely: “What the test of reasonable prospects of success postulates is a dispassionate decision, based on the facts and the law that a court of appeal could reasonably arrive at a conclusion different to that of the trial court. In order to succeed, therefore, the appellant must convince this court on proper grounds that he has prospects of success on appeal and that those prospects are not remote but have a realistic chance of succeeding. More is required to be established than that there is a mere possibility of success, that the case is arguable on appeal or that the case cannot be categorised as 2 S v Khoasasa [2002] ZASCA 113; 2003 (1) SACR 123 (SCA); [2002] 4 All SA 635 (SCA); Dipholo v The State [2015] ZASCA 120; Lubisi v The State [2015] ZASCA 179; S v Van Wyk v S, Galela v S [2014] ZASCA 152; [2014] 4 All SA 708 (SCA); 2015 (1) SACR 584 (SCA); Mthimkulu v The State [2016] ZASCA 180; De Almeida v S [2019] ZASCA 84; Nong and Masingi v The State [2024] ZASCA 25. 3 S v Khoasasa 2003 (1) SACR 123 SCA; ([2002] 4 All SA 635). 4 S v Matshona ZASCA 58; [2008] 4 All SA 68 (SCA); 2013 (2) SACR 126 (SCA) (S v Matshona). 5 Tonkin v S [2013] ZASCA 179; 2014 (1) SACR 583 (SCA). 6 Dipholo v The State [2015] ZASCA 120. 7 Mthimkhulu v S [2016] ZASCA 180. 8 De Almeida v S [2019] ZASCA 84. 9 Tonkin v S [2013] ZASCA 179; 2014 (1) SACR 583 (SCA) para 3 quoting S v Matshona para 4; Ntuli v The State [2018] ZASCA 164 para 4; S v Kriel [2011] ZASCA 113; 2012 (1) SACR 1 (SCA) paras 11-12; S v Smith [2011] ZASCA 15; 2012 (1) SACR 567 (SCA) paras 2-3. 10 S v Smith [2011] ZASCA 15; 2012 (1) SACR 567 (SCA) para 3. 5 hopeless. There must, in other words, be a sound, rational basis for the conclusion that there are prospects of success on appeal”.’11 [6] The appellants’ main argument on conviction was that Ms Wendy Ndlovu (Ms Ndlovu) was a single witness. The second was that her identification of the appellants was a dock identification and does not carry enough evidential value to allow for a conviction. [7] Ms Ndlovu testified that on 1 December 2015, she was working at house number 3 in Blackie Swart Street, Randfontein, where she was employed as a housekeeper. Between 09h30 and 10h00, as she was taking out the dustbin, a Ford Bantam vehicle approached the gate, she closed the gate behind her. The men in the vehicle asked her whether the premises she was on, was Mr Jacques Porter’s (Mr Porter) house. She confirmed that it was, and they indicated that they were there to take measurements for purposes of installing air-conditioning. She told them that she wanted to go and fetch her phone to call and confirm with Mr Porter if she could let them in. One of them pretended to call Mr Porter and during the conversation told the person to whom he was speaking that he would leave the invoice with Ms Ndlovu, who after hearing that, opened the gate for them. [8] The men asked her to take them upstairs to the main bedroom. She also pointed out the other rooms as she assumed that they were going to take measurements of all the rooms. One of them went to the study and when he returned, they told her that they were not there for her but for Mr Porter’s things and she needs to shut up. They took her phone and when she screamed, she was slapped. They tied 11 Nong and Masingi v The State [2024] ZASCA 25 para 7. 6 up her hands and legs with cable ties and blindfolded her. She eventually managed to cut the cable ties and escaped through the kitchen door that was open as the perpetrators had locked the front door. She went to the neighbours and phoned Mr Porter and the police. [9] The men took laptops, TV screens, a sound system, her cell phone and a car, a red BMW 3 series, which was in the garage. She testified that she was informed by the police officers who were investigating the robbery that the car was found between 12h00 and 13h00 on the same day. [10] She testified that she had never seen the appellants prior to the incident. She then identified the first appellant in court as the person who took her phone and slapped her. She said that she was able to identify him in court, as he was the one who talked to her all the way to the house and she remarked that he treated her kindly. She pointed the second appellant out as the person who carried a notebook and a measuring tape. She did not attend an identification parade as she was not available on the day that it was held. She was willing to attend on another day, but was never informed of another date. Under cross-examination, she testified that Mr Porter showed her a photograph that was sent to him and asked her whether the man in the photograph was one of the culprits. She said the photograph was of the first appellant. This turned out to be incorrect. [11] Constable Njobo testified that on 1 December 2015, he and five colleagues were driving to report for duty. On their way, they were stopped by community members and informed that two male persons were stripping a motor vehicle. They went with the community to the place and found the appellants stripping a red BMW 7 motor vehicle. They took the appellants to the police station to open a case as they suspected that it was a stolen motor vehicle. Constable Njobo described the motor vehicle as a red BMW 3 series. They took the appellants to the police station with the said vehicle and arrived at the police station at the same time as police officers from Randfontein, who informed them that the BMW was stolen during a robbery, which they were investigating. [12] Mr Porter testified and identified the vehicle at the Protea police station as his own, and that it was stolen during a robbery at his house, together with the items identified by Ms Ndlovu. He said that the first appellant was not in the photographs that he showed to Ms Ndlovu. [13] Another police officer, Mr Mthethwa, testified that he was present when they found the two appellants dismantling the BMW. He confirmed the evidence of Constable Njobo in all material respects. Although there were some contradictions between the evidence of the police officers, they were not material as the fact was that the appellants were found in possession of Mr Porter’s vehicle merely two hours after it was taken during the robbery at his house. The police were, at that time, unaware of the robbery and were not looking for suspects. [14] The appellants’ evidence was a bare denial. Their version was that on the day in question, they were merely walking towards the taxi rank and, as they walked past the red BMW, they were confronted by the police. They denied any knowledge of the vehicle. The magistrate did not accept their version as reasonably possibly true. 8 [15] The law regarding dock identification is trite and the dangers inherent in it have been restated repeatedly.12 In this matter however, the BMW was found in the possession of the appellants within a very short period of time after the robbery, so the doctrine of recent possession finds application.13 Ms Ndlovu’s evidence was corroborated by the fact that the vehicle was found in the appellants’ possession. It is also important to note that Ms Ndlovu initially did not suspect anything and her powers of observation were not initially tainted by fear. In my view, the high court was correct in refusing leave to appeal the convictions. [16] Regarding the sentence of the first appellant, it is trite that sentencing falls within the discretion of the trial court. In casu, there is nothing to indicate that the regional court misdirected itself or did not exercise its discretion properly and judicially. The first appellant was convicted of robbery on 15 November 1999 and sentenced to 14 years imprisonment. On 15 December 2011, he was found guilty of being in possession of stolen goods and was sentenced to three years imprisonment or a R7 000.00 fine. The first appellant’s previous convictions indicate a propensity to commit crime and also indicate that the possibility of rehabilitation seems remote. Although the previous conviction for robbery was more than ten years ago, he was convicted of another crime during 2011. The regional court did not err in not regarding him as a first offender. [17] In the circumstances, the high court was correct in refusing leave to appeal. The appellants did not succeed in convincing this Court that they have reasonable prospects of success on appeal. 12 S v Charzen and Another [2006] ZASCA 147; [2006] 2 All SA 371 (SCA); 2006 (2) SACR 143 (SCA) para 11; S v Ngcina [2006] ZASCA 155; 2007 (1) SACR 19 (SCA) para 16. 13 Mothwa v The State [2015] ZASCA 143; 2016 (92) SACR 489 para 8. 9 [18] The following order is made: 1 The appellants’ application for leave to appeal against the refusal of the petition on their convictions is dismissed. 2 The first appellant’s application for leave to appeal against the refusal of the petition on his sentence is refused. ___________________________ R G TOLMAY ACTING JUDGE OF APPEAL 10 Written submissions For the appellants: J M Mojuto Instructed by: Legal Aid South Africa, Johannesburg Legal Aid South Africa, Bloemfontein For the respondent: V T Mushwana Instructed by: Director of Public Prosecutions, Johannesburg 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: 14 June 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 Masango and Another v The State (203/2022) [2024] ZASCA 98 (14 June 2024) Today the Supreme Court of Appeal (SCA) handed down judgment dismissing the appellants’ application for leave to appeal against the refusal of the petition on their convictions and the first appellant’s application for leave to appeal against the refusal of the petition on his sentence. The facts were briefly that: on 1 December 2015 between 09h30 and 10h00, Ms Ndlovu (a house keeper) witnessed a robbery at her employer, Mr Porter’s house, being committed by the two appellants. On the day in question the appellants managed to deceive Ms Ndlovu to believe that they were there on the instruction of Mr Porter to take measurements for the installation of air conditioners. She allowed them access to the house and once they were inside the house they informed her that they were not there for her but for Mr Porter’s things and she needs to shut up. They took her phone and when she screamed, she was slapped. She was subsequently tied up and blind folded. They then proceeded to steal laptops, TV screens, a sound system, her cell phone and a car, a red BMW 3 series, which was in the garage. The car was found between 12h00 and 13h00 on the same day by police officers in the possession of the two appellants. The appellants were then arrested and convicted of robbery with aggravated circumstances read with s 51(2) of the Criminal Law Amendment Act 105 of 1997 in the Regional Court for the District of Soweto held at Protea (the regional court). The first appellant was sentenced to twenty years’ imprisonment and the second to fifteen years’ imprisonment on 24 January 2017. On 16 October 2017, leave to appeal was refused against both conviction and sentence in relation to both appellants by the regional court. The appellants then petitioned the Gauteng Division of the High Court, Johannesburg (the high court) for leave to appeal against both conviction and sentence in terms of s 309C of the Criminal Procedure Act 51 of 1977 (the CPA). On 25 February 2019, leave to appeal was refused by the high court. The appellants approached this Court for special leave to appeal, in terms of s 16(1)(b) of the Superior Courts Act 10 of 2013 (the Superior Courts Act). On 18 December 2019, special leave to appeal the dismissal of the petition was granted by this Court to the first appellant. The second appellant also approached this Court and sought special leave to appeal against conviction only, leave was granted by this Court on 15 February 2022. The issue to be determined by this Court was whether the high court should have granted leave to appeal. The appellants’ main argument on conviction was that Ms Ndlovu was a single witness. The second was that her identification of the appellants was a dock identification and does not carry enough evidential value to allow for a conviction. She testified that she had never seen the appellants prior to the incident. She then identified the first appellant in court as the person who took her phone and slapped her. She said that she was able to identify him in court, as he was the one who talked to her all the way to the house and she remarked that he treated her kindly. She pointed the second appellant out as the person who carried a notebook and a measuring tape. She did not attend an identification parade as she was not available on the day that it was held. She was willing to attend on another day, but was never informed of another date. Under cross-examination, she testified that Mr Porter showed 2 her a photograph that was sent to him and asked her whether the man in the photograph was one of the culprits. She said the photograph was of the first appellant. This turned out to be incorrect. The SCA held that in order for it to determine whether the high court should have granted leave to appeal depended upon whether the appellants could be said to have reasonable prospects of success on appeal. Therefore, there must be a sound, rational basis for the conclusion that there were prospects of success on appeal. The SCA held that the law regarding dock identification was trite and the dangers inherent in it had been restated repeatedly. In this matter however, the SCA held that the BMW was found in the possession of the appellants within a very short period of time after the robbery, so the doctrine of recent possession found application. The SCA further held that Ms Ndlovu’s evidence was corroborated by the fact that the vehicle was found in the appellants’ possession. Furthermore, according to the SCA, it was also important to note that Ms Ndlovu initially did not suspect anything and her powers of observation were not initially tainted by fear. Therefore the high court was correct in refusing leave to appeal the convictions. Regarding the sentence of the first appellant, the SCA held that it is trite that sentencing falls within the discretion of the trial court. Furthermore, according to the SCA there was nothing to indicate that the regional court misdirected itself or did not exercise its discretion properly and judicially. Additionally, the SCA held that in the circumstances, the high court was correct in refusing leave to appeal. The appellants, according to the SCA, did not succeed in proving that that they had reasonable prospects of success on appeal. As a result, the appellants’ application for leave to appeal against the refusal of the petition on their convictions was dismissed. Additionally, the first appellant’s application for leave to appeal against the refusal of the petition on his sentence was also refused. ~~~~ends~~~~

4231

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 426/2023 In the matter between: NTONI JACOB HLAPE APPELLANT and THE MINISTER OF POLICE RESPONDENT Neutral Citation: Ntoni Jacob Hlape v The Minister of Police (426/2023) [2024] ZASCA 68 (3 May 2024) Coram: NICHOLLS, MOTHLE, WEINER, MOLEFE and KGOELE JJA Heard: 23 February 2024 Delivered: 3 May 2024 Summary: Civil procedure – unlawful arrest and detention – whether the arrest and detention of appellant was unlawful – whether respondent was liable to compensate appellant for his arrest and detention for a period of three days. 2 ___________________________________________________________________ ORDER ___________________________________________________________________ On appeal from: Gauteng Division of the High Court, Johannesburg (Adams J and Turner AJ sitting as court of appeal): The appeal is dismissed with costs. ___________________________________________________________________ JUDGMENT ___________________________________________________________________ Mothle JA (Nicholls, Weiner, Molefe and Kgoele JJA concurring) [1] On 31 August 2018, Mr. Ntoni Jacob Hlape (the appellant) issued summons out of the Gauteng Division of the High Court, Johannesburg (the high court), wherein he sued the Minister of Police (the respondent) for damages in the amount of R200 000. The damages arose from appellant’s alleged unlawful arrest and unlawful detention by members of the South African Police. The respondent defended the action. [2] The same summons was re-issued on 23 March 2021 in the Magistrates’ Court for the District of Emfuleni, held at Vereeniging (the magistrates’ court). The trial commenced on 17 March 2022 in the magistrates’ court, which, on 6 May 2022, dismissed the appellant’s action with costs. Dissatisfied with the outcome, the appellant lodged an appeal with the high court. On 1 February 2023, the appeal court of the Gauteng Division, per Adams J and Turner AJ (the appeal court), also dismissed the appellant’s appeal. Still aggrieved with the outcome, the appellant petitioned this Court for special leave to appeal, which petition was granted on 12 April 2023. It is thus with the special leave of this Court that this appeal is before us. [3] The background facts in this appeal are largely common cause, either because the version of the respondent was, in part, either corroborated by the appellant or not disputed. The respondent’s evidence was presented by three members of the police. These were Sergeant Sibusiso Sibande (Sergeant Sibande) and Constable Sipho Mlungisi Buthelezi (Constable Buthelezi), who testified as the arresting officers, while Sergeant Lebogang MacWilliam Phoofolo (Sergeant Phoofolo) testified in regard to 3 the appellant’s detention. At the time of the appellant’s arrest and detention, all three police officers held the rank of constable. During the trial, police officers Sibande and Phoofolo had been promoted to the rank of Sergeant. In this judgment they will be referred to by their rank of ‘Sergeant’. The appellant testified as the only witness in support of his claim. [4] The arresting officers testified that on the evening of 4 May 2018, at approximately 19h00, while on patrol in a marked police van, they were stopped by a community member who informed them that there were males smoking dagga inside a shack at house 6242 in Pelindaba. They went to the house and found the three men smoking. One of them was the appellant. They introduced themselves as members of the police and asked for permission to enter and search the shack. They were granted permission to do so. Sergeant Sibande searched the appellant and found a transparent plastic bag containing dagga in the appellant’s front right pocket of his trousers. He asked the appellant what he was doing with dagga. The appellant did not respond. Sergeant Sibande explained the appellant’s rights to him, and thereafter informed the appellant that he was arresting him for being in possession of dagga. [5] Sergeant Sibande took the appellant to the police station where he weighed the dagga in appellant’s presence, gave him the notice of rights to sign and handed appellant to the cell commander. During trial and under cross-examination, Sergeant Sibande testified that he informed the appellant that he may apply for bail at court. The appellant disputed the evidence that he was informed of his right to apply for bail. I will return to this aspect later in this judgment. Constable Buthelezi basically corroborated Sergeant Sibande’s account on the events of the arrest. [6] After the appellant was taken to a cell at the police station, Sergeant Phoofolo, who at that time was attached to the crime (investigation) office, took over the docket. He testified that his duties at that time involved conducting a preliminary investigation for the purpose of compiling the profile of the arrestee. In that regard, he had to ascertain whether the person in custody had previous convictions or outstanding cases, or warrants in respect of other offences. All these processes are conducted in order to prepare the arrestee for his initial appearance in court. Sergeant Phoofolo went to the cells to interview the appellant concerning the necessary particulars 4 required for profiling. During the interview, the appellant declined to provide his name to the officer, but disclosed his date of birth. Consequently, no profile could be compiled. Officer Phoofolo testified that he decided to take a warning statement from the appellant, after he informed him of his rights, including the right to be released from custody. The pro forma documents in terms of which he took the warning statement were admitted as evidence in court. The appellant was held in custody for three days. On Monday 7 May 2018, he was released at court, consequent to the prosecutor withdrawing the charge of unlawful possession of dagga. [7] The appeal turns on the appellant’s contentions, first, that the arrest was unlawful, because, as he alleged, Sergeant Sibande did not exercise the discretion required of him before effecting an arrest. Second, that his detention was unlawful, as he had a right to be released on bail, but was not informed of this right. Third, the quantum of the damages claimed, for the alleged unlawful arrest and detention. I turn to deal, first with the appellant’s arrest and thereafter his detention for three days, and if the arrest and/or detention is upheld, the quantum of damages. [8] In regard to his arrest, the appellant pleaded in paragraph 5 of his particulars of claim as follows: ‘The Plaintiff pleads that the arresting officer did not apply his/her mind when he/she executed the arrest of the Plaintiff as he/she failed to exercise his/her discretion whether or not to arrest the Plaintiff. The arresting officer failed to consider other methods to secure the Plaintiff’s attendance in court.’ [9] Section 38(1) of the Criminal Procedure Act 51 of 1977 (the CPA) provides that arrest is one of the four methods of securing the attendance of an accused in court for purposes of trial.1 Because of its intrusive nature on the privacy and liberty of the arrestee, an arrest has to be effected on the authority of a warrant, or, under certain circumstances, without a warrant.2 Consequently, the onus rests on the arrestor to 1 Section 38(1) provides: ‘Subject to section 4(2) of the Child Justice Act, 2008 (Act 75 of 2008), the methods of securing the attendance of an accused who is eighteen years or older in court for the purposes of his or her trial shall be arrest, summons, written notice and indictment in accordance with the relevant provisions of this Act.’ 2 Section 39 of the CPA. 5 justify an arrest. In Minister of Law and Order and Others v Hurley and Another,3 this Court stated thus: ‘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.’ [10] Section 40 of the CPA provides that a police officer may arrest any person without a warrant, if the person is reasonably suspected of committing or of having committed an offence as listed in items (a) to (q) of s 40(1). Of relevance to this appeal, is s 40(1)(h), which provides: ‘(1) A peace officer may without warrant arrest any person — . . . (h) who is reasonably suspected of committing or of having committed an offence under any law governing the making, supply, possession, or conveyance of intoxicating liquor or of dependence-producing drugs or the possession or disposal of arms or ammunition. . .’ In this instance, the relevant law was the Drugs and Drug Trafficking Act 140 of 1992 (the Drugs Act), in particular s 4, dealing with the illegality of the use and possession of dagga. [11] This Court, in Duncan v Minister of Law and Order (Duncan),4 set out four jurisdictional requirements which flow from s 40(1) of the CPA, which authorises arrests without a warrant. They are:, that the person arresting must be a peace officer, who entertained a suspicion, that the suspicion was that the arrestee had committed a schedule 1 offence and that the suspicion rested on reasonable grounds. Applying these jurisdictional facts to this appeal, Sergeant Sibande was a police officer, who entertained a suspicion after a community member informed him of some male persons smoking dagga in a shack. Possession of dagga was, at that time, an offence in terms of s 4 of the Drugs Act. The suspicion rested on reasonable grounds that whoever was smoking dagga in that shack, used and logically therefore, had that dagga in his possession. The appellant confirmed in his evidence that he had dagga 3 Minister of Law and Order and Others v Hurley and Another [1986] ZASCA 53; [1986] 2 All SA 428 (A); 1986 (3) SA 568 (A) at 589E-F. 4 Duncan v Minister of Law and Order [1986] ZASCA 24; [1986] 2 All SA 241 (A); 1986 (2) SA 805 (A) at 818G-H. 6 in his possession. It is thus not disputed that, when the appellant was arrested, the four jurisdictional prerequisites of s 40(1) of the CPA were present. [12] The question that arises is whether Sergeant Sibande, in executing the arrest, exercised a discretion. In Minister of Safety and Security v Sekhoto (Sekhoto),5 this Court established three important principles in the exercise of a discretion when effecting an arrest. The first is that once the required jurisdictional facts that flow from s 40(1) of the CPA, as stated in Duncan are present, a discretion arise as to whether or not to arrest.6 Second, and related to the first, is where a party alleges the failure to exercise a discretion to arrest, that party bears the onus to prove that allegation.7 Third, that the general requirement is that any such discretion must be exercised in good faith, rationally and not arbitrarily.8 The court in Sekhoto further stated thus9: ‘This would mean that peace officers are entitled to exercise their discretion as they see fit, provided that they stay within the bounds of rationality. The standard is not breached because an officer exercises the discretion in a manner other than that deemed optimal by the court. A number of choices may be open to him, all of which may fall within the range of rationality. The standard is not perfection, or even the optimum, judged from the vantage of hindsight and so long as the discretion is exercised within this range, the standard is not breached.’ (Footnotes omitted) [13] These principles were confirmed by the Constitutional Court in Groves NO v Minister of Police,10 thus: ‘The officer making a warrantless arrest has to comply with the jurisdictional prerequisites set out in section 40(1) of the CPA. In other words, one or more of the grounds listed in paragraphs (a) to (q) of that subsection must be satisfied. If those prerequisites are satisfied, discretion whether or not to arrest arises. The officer has to collate facts and exercise his discretion on those facts. The officer must be able to justify the exercising of his discretion on those facts. The facts may include an investigation of the exculpatory explanation provided by the accused person. 5 Minister of Safety and Security v Sekhoto [2010] ZASCA 141; 2011 (5) SA 367 (SCA); 2011 (1) SACR 315 (SCA); [2011] 2 All SA 157 (SCA). 6 Sekhoto Ibid para 28. 7 Sekhoto Ibid para 49. 8 Sekhoto Ibid para 38 9 Sekhoto Ibid para 39. 10 Groves NO v Minister of Police [2023] ZACC 36; 2024 (1) SACR 286 (CC); 2024 (4) BCLR 503 (CC) paras 52 and 60. 7 . . . Applying the principle of rationality, there may be circumstances where the arresting officer will have to make a value judgment. Police officers exercise public powers in the execution of their duties and “[r]ationality in this sense is a minimum threshold requirement applicable to the exercise of all public power by members of the executive and other functionaries”. An arresting officer only has the power to make a value judgement where the prevailing exigencies at the time of arrest may require him to exercise same; a discretion as to how the arrest should be affected and mostly if it must be done there and then. To illustrate, a suspect may at the time of the arrest be too ill to be arrested or may be the only caregiver of minor children and the removal of the suspect would leave the children vulnerable. In those circumstances, the arresting officer may revert to the investigating or applying officer before finalising the arrest.’ [14] In this case, the burden to prove, on a balance of probability, that Sergeant Sibande did not exercise a discretion, is on the appellant. In this regard, the appellant did not tender any evidence to prove that Sergeant Sibande failed to exercise a discretion to arrest. Sergeant Sibande’s evidence-in-chief concerning the arrest, went as follows: ‘MR SIBANDE: When I opened the said plastic, that is when I discovered there is dagga inside. I then asked this one that I was searching: “what is he doing with this dagga.” MR POOE: What was his response? MR SIBANDE: He did not respond. I then explained his rights, telling him that I am arresting him, because he is in possession of dagga, and it is unlawful to be in possession of dagga.’ (Emphasis added.) [15] The evidence in the preceding paragraph was not disputed. The appellant confirmed in his testimony that he was in possession of dagga. Due to the appellant failing to respond to the officer’s question, there were no facts placed before Sergeant Sibande in order for him to exercise a discretion or a value judgment to consider other means, other than an arrest, of securing the appellant’s presence in court. The appellant did not present evidence that, by arresting him, Sergeant Sibande acted in bad faith, arbitrarily or irrationally, as his intention would then have presumably been not to secure the appellant’s attendance at court. On the contrary, Sergeant Sibande testified during cross-examination that he informed the appellant of the reason he was arresting him and further stated as follows: 8 ‘MR GELDENHUYS: Sir, what was the purpose of your arrest? MR SIBANDE: He was in possession of the said drug. He had to be arrested to explain in the court of law why was he in possession.’ (Emphasis added.) Therefore, the decision to arrest the appellant was aimed at securing the appellant’s attendance at court, which in fact happened. In that regard, the high court found, correctly in my view, as follows: ‘. . . the appellant did not identify any facts that were known to the arresting officer which ought to have persuaded him not to arrest and detain the appellant, let alone facts which show that the decision to arrest was made in bad faith, irrational or arbitrarily.’ There is therefore no evidence supporting the allegation that there was no exercise of a discretion to arrest, or that the arrest was made in bad faith, irrationally or arbitrarily. The appellant’s claim that the arrest was unlawful must, on the evidence, fail. This brings me to the question of appellant’s detention. [16] The appellant’s second claim was that his detention after the arrest was unlawful. He in essence contended first, that when he was arrested, the arresting officer did not inform him of his right to be released on bail. Further, that the police failed to pro-actively release him on bail. It was thus a denial of his constitutional right to liberty. Second, that the conditions under which he was held in custody at the police station were in essence appalling and intolerable. He alleged that he was held in custody over the three-day period, in a dirty cell which contained a smelly toilet as it did not flush; there were no towels and warm water to wash, and the inmates were only served two unhealthy meals per day. The conditions of his detention, so he contended, thus harmed his rights to health and dignity. I will deal first with the issue of bail, and thereafter if necessary, with the damages arising from the condition of his detention. [17] Section 39(3) of the CPA links the arrest to the detention. It provides thus: ‘The effect of an arrest shall be that the person arrested shall be in lawful custody and that he shall be detained in custody until he is lawfully discharged or released from custody.’ The phrase ‘released from custody’ includes being released on bail by the police or at court. In regard to bail by the police, s 59(1)(a) of the CPA provides: ‘An accused who is in custody in respect of any offence, other than an offence – (i) referred to in Part II or Part III of Schedule 2; 9 . . . may, before his or her first appearance in a lower court, be released on bail in respect of such offence by any police official of or above the rank of non-commissioned officer, in consultation with the police official charged with the investigation, if the accused deposits at the police station the sum of money determined by such police official.’ [18] The appellant contends that both the arresting officer and the preliminary investigating officer never informed him of his right to be released on bail. This version, which was put to both officers under cross examination, was refuted. Sergeant Sibande testified that at the time he arrested the appellant, he held the rank of constable, therefore he was not qualified to grant any arrestee bail. He further testified that he informed the appellant at the police station, of his right to be released on bail. In support of this evidence, he referred to the notice of rights which he handed to the appellant who read and signed it. Item 3(e) of the notice of rights reads: ‘(3) As a person arrested for the alleged commission of an offence, you have the following rights: . . . (e) you have the right to be released from detention if the interest of justice permit, subject to reasonable conditions.’ [19] The appellant confirmed the evidence of Sergeant Sibande that he was given the notice of rights document and that he read and signed it. He never informed the police officer that he did not understand the notice of rights, nor did he ask the officer to explain the content to him. When he testified in court, he stated that his highest school qualification was grade 11. It could, in all probability, be inferred that he could read and write. The magistrate, with reference to item 3(e) of the notice of rights, correctly concluded thus: ‘If the Plaintiff had read the document properly he could have noticed these aspects and could then have exercised his right to request being released on bail.’ [20] It was put to Sergeant Phoofolo, during cross-examination, that, since as a constable then, he did not qualify to grant the appellant bail, why he did not recommend to his senior officers to grant the appellant bail. Sergeant Phoofolo answered that if the appellant had provided him with at least his identity number, he would have compiled his profile. Sergeant Phoofolo, conceding that on that charge, the appellant did qualify to be released on bail. He further stated that after the appellant 10 was informed of his right to be released on bail, he did not request that he be granted bail. Apart from providing the officer with the date of birth, the appellant simply did not co-operate when his particulars, such as name, identity number and address were sought. It can thus be inferred from Sergeant Phoofolo’s evidence, though not stated explicitly, that the appellant’s refusal to co-operate with the officer in providing information sought for his profiling, was the reason the officer did not recommend to his superiors, that the appellant be released on bail. [21] Further during cross-examination, the appellant’s legal representative suggested to the officer that had the appellant being informed of his right to be released on bail, he would have applied for bail. That suggestion was somewhat contradicted when the appellant testified that when he was held in custody, he was worried about his parents, they had no idea where he was. In that regard, his evidence-in-chief went as follows: ‘MR GELDENHUYS: When you arrived home and you saw your parents for the first time, how did that make you feel? MR HLAPE: I did not know what to say to them. Eventually I even lied to them, but then they heard the truth from the street and they discovered the truth from the street. I had to confess what actually happened. MR GELDENHUYS: How did you feel that your parents discovered from the street? That you did not tell them? Why did you not want to tell them, let me ask you that? Why did you not want to tell your parents? MR HLAPE: I did not want to stress my parents as they are elderly and are on pension. Also what happened, I thought that I was in a secret place when I was arrested. COURT: Meaning what? I thought I was in a secret place when I was arrested. What do you mean, sir? MR HLAPE: I thought I am not guilty for what I was doing at that time, as I was in a secret place, Your Worship.’ (Own emphasis.) [22] The appellant admitted under oath that he lied to his parents, in order to conceal the fact that he had been arrested for being in possession of dagga. The evidence of Sergeant Phoofolo that the appellant did not provide his name, identity number and address was neither challenged nor disputed. The appellant in his evidence also failed to explain, or offer a comment on his refusal to respond to the police officer. It was 11 thus evident that the appellant did not request to be released on bail, as he did not want to admit to his parents that he had been arrested. [23] The magistrates’ court found in its judgment, with reference to the respondent’s witnesses, thus: ‘There is no reason for the court to not believe the evidence of the witnesses. They did not come across as being untruthful at all. They have nothing to gain by arresting the Plaintiff and keeping him in custody until his first court appearance.’ Apart from making a bare denial on the question of bail, the appellant made no intimation, including through his counsel during the cross-examination, that the police officers were lying. It is a trite principle of this Court, from as far back as Rex v Dhlumayo and Another,11 and followed by a long line of the decisions of this Court, that, out of deference to the trial court, an appeal court should be slow to interfere with or upset the findings of the trial court on the facts, as well as on the credibility of witnesses. The rationale is obvious: the magistrate or judge ‘has advantages – which the appeal court cannot have – in seeing and hearing the witnesses and in being steeped in the atmosphere of the trial.’12 However, there is an exception to this principle. The appeal court may interfere if it appears from the transcript of the trial record that the magistrate or judge committed a misdirection. In this particular case, there is no misdirection, because the magistrate’s finding of credibility on the evidence of the police officers, is buttressed by the transcript of the record of the trial proceedings. [24] I am persuaded that, while the conditions of the detention were appalling, on the evidence which the respondents did not seriously dispute, the detention of the appellant was lawful. The lawfulness was as a result of the appellant’s consistent failure to respond to the police officer, to provide basic facts, to enable them to exercise a discretion or value judgment not to arrest him or to have him released from detention on bail. I therefore conclude that the claim that the detention was unlawful, must also fail and the appellant’s appeal should be dismissed. 11 Rex v Dhlumayo and Another 1948 (2) SA 677 (A). 12 Ibid at 705. 12 [25] Under the circumstances, there is no need to deal with the question of quantum of damages. As regards costs, these should follow the result. [26] The following order shall issue: The appeal is dismissed with costs. _____________________ S P MOTHLE JUDGE OF APPEAL 13 Appearances For the appellant: L Swart Instructed by: JJ Geldenhuys Inc., Krugersdorp Symington De Kok Attorneys, Bloemfontein For the respondent: M Gwala SC Instructed by: State Attorney, Johannesburg 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: 3 May 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 Ntoni Jacob Hlape v The Minister of Police (426/2023) [2024] ZASCA 68 (3 May 2024) Today the Supreme Court of Appeal (SCA) dismissed an appeal with costs. The appeal emanated from the appeal court of the Gauteng Division of the High Court, Johannesburg (the appeal court) wherein the appellant, Mr Ntoni Jacob Hlape, had appealed against a decision of the Magistrates’ Court for the District of Emfuleni, held at Vereeniging (the magistrates’ court) as that court had dismissed the appellant’s claim of R200 000 against the Minister of Police (the respondent) for his alleged unlawful arrest and detention. The appeal court similarly dismissed the appellant’s claim. The respondent’s evidence was presented by three members of the police, namely Sergeant Sibusiso Sibande (Sergeant Sibande) and Constable Sipho Mlungisi Buthelezi (Constable Buthelezi), who testified as the arresting officers, while, Sergeant Lebogang MacWilliam Phoofolo (Sergeant Phoofolo), testified in regard to the appellant’s detention. The appellant testified as the only witness in support of his claim. The arresting officers testified that, on the evening of 4 May 2018, while on patrol in a marked police van, they were stopped by a community member who informed them that there were males smoking dagga inside a shack at House 6242 in Pelindaba. They went to the house and found the three men smoking. One of them was the appellant. They introduced themselves as members of the police and asked for permission to enter and search the shack. Upon being granted permission to do so, Sergeant Sibande searched the appellant and found a transparent plastic bag containing dagga in the appellant’s front right pocket of his trousers. He asked the appellant what he was doing with dagga. The appellant did not respond. Sergeant Sibande explained the appellant’s rights to him, and thereafter, informed the appellant that he was arresting him for being in possession of dagga. Sergeant Sibande then took the appellant to the police station where he weighed the dagga in appellant’s presence, gave him the notice of rights to sign and handed appellant to the cell commander. After the appellant was taken to a cell at the police station, Sergeant Phoofolo, who at that time was attached to the crime (investigation) office, took over the docket. He testified that his duties at that time involved conducting a preliminary investigation for the purpose of compiling the profile of the arrestee. In that regard, he had to ascertain whether the person in custody had previous convictions or outstanding cases, or warrants in respect of other offences. Sergeant Phoofolo went to the cells to interview the appellant concerning the necessary particulars required for profiling. During the interview, the appellant declined to provide his name and identity number to the officer, but disclosed his date of 2 birth. Consequently, no profile could be compiled. Officer Phoofolo testified that he decided to take a warning statement from the appellant, after he informed him of his rights, including the right to be released from custody. The pro forma documents, in terms of which he took the warning statement, were admitted as evidence in court. The appellant was held in custody for three days. On Monday 7 May 2018, he was released at court, consequent to the prosecutor withdrawing the charge of unlawful possession of dagga. The appellant contended that: firstly, the arrest was unlawful because Sergeant Sibande did not exercise the discretion required of him before effecting an arrest; secondly, that his detention was unlawful, as he had a right to be released on bail, but was not informed of this right, and, lastly, the amount of R200 000 he claimed for the damages. In addressing these contentions, the SCA, with regards to the unlawful arrest, reasoned that the four jurisdictional requirements of s 40(1) of the Criminal Procedure Act 51 of 1977 were met, as Sergeant Sibande was a police officer, who entertained a suspicion after a community member informed him of some male persons smoking dagga in a shack. Possession of dagga was, at that time, an offence in terms of s 4 of the Drugs and Drug Trafficking Act 140 of 1992. The suspicion rested on reasonable grounds that whoever was smoking dagga in that shack, used and logically, therefore, had that dagga in his possession. The appellant confirmed in his evidence that he had dagga in his possession. In addition to the admission, the appellant did not tender any evidence to prove that Sergeant Sibande failed to exercise a discretion to arrest. On this point, the SCA concluded that this allegation must fail as there was no evidence supporting the allegation that there was no exercise of discretion to arrest, or that the arrest was made in bad faith, irrationally or arbitrarily. With regards to the appellant’s detention being unlawful, the SCA held the view that this claim should also fail as the appellant’s detention was indeed lawful due to his consistent failure to respond to the police officer and provide him with basic facts which would have enabled them to exercise a discretion or value judgment not to arrest him, or, alternatively, to have him released from detention on bail. Given that the appellant failed on both these claims, there was no need for the SCA to entertain the issue of the quantum of damages. In the result, the SCA dismissed the appeal with costs. --------oOo--------

4281

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 725/2023 In the matter between: MINISTER OF POLICE APPELLANT and THANDEKILE SABISA FIRST RESPONDENT LAWRENCE NZIMENI MAMBILA SECOND RESPONDENT Neutral citation: Minister of Police v Sabisa and Another (725/2023) 2024 ZASCA 105 (28 June 2024) Coram: MOCUMIE and MABINDLA-BOQWANA JJA and KOEN, COPPIN and SMITH AJJA Heard: 23 May 2024 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 28 June 2024. 2 Summary: Delict – unlawful arrest and detention – Criminal Procedure Act 51 of 1977 (the Act) – execution of arrest with a warrant must comply with s 39(2) of the Act – arrested person must be taken to the police station or any other place expressly stated in the warrant of arrest in terms of s 50(1)(a) of the Act – arrested person to be brought before a lower court in compliance with ss 50(1)(c) and 50(1)(d) of the Act – further detention of the arrested person to be authorised by the court on application by the prosecutor. 3 ORDER On appeal from: Eastern Cape Division of the High Court, Mthatha (Nhlangulela DJP, sitting as court of first instance): The appeal is dismissed with costs, including those of two counsel where so employed. JUDGMENT Mabindla-Boqwana JA (Mocumie JA and Koen, Coppin and Smith AJJA concurring): Introduction [1] The respondents, Mr Thandekile Nelson Sabisa and Mr Lawrence Nzimeni Mambila instituted claims for damages in the Eastern Cape Division of the High Court, Mthatha (the high court), against the appellant, the Minister of Police (the Minister) for unlawful arrest, unlawful detention and assault. Their matters were consolidated and heard by Nhlangulela DJP, who found in favour of the respondents and awarded each R400 000 for unlawful arrest and detention and R110 000 for assault, torture and contumelia. He granted leave to appeal to this Court. Background Facts [2] On 18 April 2016, the respondents, who were councillors of the OR Tambo District Municipality (the Municipality), were arrested by members of the South 4 African Police Service (SAPS) at the offices of the Municipality at Myezo Park in Mthatha. At the time, Mr Sabisa served as the Deputy Executive Mayor while Mr Mambila was a member of the Mayoral Committee responsible for technical services. [3] The respondents pleaded that they were arrested without warrants of arrest by the members of the SAPS; that the police officers did not produce any warrants for their arrest; and that there was no justification for executing the warrants, even if those were available. They further pleaded that after the arrests they were detained by members of the SAPS for nine days, without a reasonable and probable cause and with the intention to injure them, and were assaulted and tortured which caused them pain, shock and injuria, amongst other things. As a result, they claimed to have suffered damages of R10 million each. [4] The Minister filed a plea in which he admitted the arrests but denied that they were unlawful. He averred that the respondents were arrested in terms of valid warrants of arrest which were shown to them and that the police were justified in executing the warrants. The Minister admitted that the respondents were detained by the police on 18 April 2016 and on 19 April 2016 they were admitted to hospital where they remained under guard until 26 April 2016. The Minister averred further that the respondents remained in hospital on the authority of the Court. He denied that the respondents were assaulted and tortured by the police. [5] The respondents’ evidence was as follows. On the day of their arrests, they were attending a Mayoral Committee meeting at the Municipality’s offices. At approximately 15h00 a team of more than ten armed police officers arrived in about 5 a dozen vehicles. These were apparently members of the Hawks and other several unidentified police officers. Three of the police officers, namely, Detective Warrant Officer Xolile Mdepa, Colonel Loyiso Mdingi and Captain Batandwa Hanise went into the boardroom where the meeting was held. Col Mdingi pointed at the respondents and advised the meeting that they were required in connection with the attempted murder of one Mr Xolile Kompela and the murder of his bodyguard (the Tsolo case). Mr Kompela was the Speaker of the Mhlontlo Local Municipality. [6] Col Mdingi instructed the respondents to accompany the police officers to their motor vehicles that were parked outside. The police seized the respondents’ licenced firearms and cell phones. The respondents were thereafter instructed to board separate motor vehicles. The police left with them and drove towards the N2 East London direction. All the police vehicles that had arrived at the Municipality’s offices drove in a convoy. [7] They stopped by some office in Butterworth. The distance between Mthatha and Butterworth is approximately 120 kilometres. It is about a one and a half to two-hour drive. The respondents were taken inside the office in Butterworth, which is not a police station. There, they were interrogated about the Tsolo case, assaulted and tortured. [8] Mr Sabisa was instructed to remove his clothes until he was left with just his underwear on. There were policewomen present and this embarrassed him a great deal. As this was taking place, he was told to speak the truth. His hands were cuffed around the back of the chair, a tube was placed over his face and pulled at the back of his neck, to the point that he could not breathe. The police officers kept asking 6 him where he got the money he gave to Mr Mambila. He told them that he knew nothing about the money, but they continued hitting him with fists and kicking him on his back. Tears started flowing and he felt embarrassed, having to sob in front of women. Capt Hanise kicked him hard with a knee on his private parts which led to excruciating pain and increased body temperature. [9] Mr Mambila was also instructed to remove the clothes on his upper body and was handcuffed behind his back. He was also suffocated with a tube which covered his eyes and nose and was beaten all over his body. A foot was placed on his hands, which resulted in his chair falling over backward. He felt pain on his chest. [10] At approximately 22h00, the convoy departed to Mthatha Central Police Station (the Police Station). They arrived at the Police Station close to midnight and were booked in and placed in the cells. On 19 April 2016, at approximately 03h00 in the morning, Mr Mambila was visited by an attorney in the cells. He told his attorney that he had been injured and requested him to arrange for him to be seen by a doctor. Mr Sabisa also reported the assault to his attorneys and requested them to take the necessary steps to have those responsible face the law. [11] That afternoon, the police arranged for the respondents to be taken to a doctor, following the requests made by their attorneys. The respondents were booked out of the cells and taken to a doctor. Mr Mambila had difficulty walking to the vehicle. He had to make use of a walking stick. The doctor recommended that the respondents be admitted to hospital. Mr Mambila was given an injection and was transported to the hospital in an ambulance. The respondents were admitted to the same ward. They 7 were shackled to their beds and guarded by the police. They had to get permission from the police if they needed to relieve themselves. [12] On 26 April 2016, the respondents noticed that the police guards had left without any explanation. Their shackles were removed, and they were no longer detained in custody. They however remained in hospital. Mr Mambila was discharged from hospital on 28 April 2016 while Mr Sabisa was transferred to the Mthatha General Hospital, as his medical aid cover would be exhausted on 1 May 2016. [13] On 28 April 2016, the respondents attended the offices of the Hawks in Mthatha, by arrangement, for the purpose of having summonses served on them in respect of the Tsolo case. In terms of the summonses, the respondents had to appear in the Tsolo Magistrates’ Court (the magistrates court) on 19 May 2016. [14] On 19 May 2016, the respondents appeared in the magistrates’ court, after which the case was remanded on various occasions, with them warned to appear on the subsequent remand dates. The charges were withdrawn against Mr Sabisa during October 2016, and against Mr Mambila on 20 February 2017. [15] All three policemen who were present at the time of the arrest, namely, Warrant Officer Mdepa, Col Mdingi and Capt Hanise, testified on behalf of the Minister. They admitted the arrest in the boardroom, the drive to Butterworth and the detention of Messrs Sabisa and Mambila in hospital, albeit denying that those were unlawful. Their evidence, which I deal with in my analysis, was not cohesive in many respects. For current purposes, their evidence was that the warrants of arrest 8 were obtained on the strength of information obtained from a confession in the Tsolo case, which implicated the respondents in a plot to kill Mr Kompela. The respondents were informed of their constitutional rights during the arrest. [16] The high court found the arrest and detention of the respondents unlawful because they were not brought before a court within 48 hours as envisaged in s 50 of the Criminal Procedure Act 51 of 1977 (the Act). Furthermore, they were detained in hospital in custody without an order of court authorising their continued detention beyond the mandatory 48-hour period. The high court further found the warrants to be defective ‘to the extent that they did not authorize the arrestor to take the plaintiffs to Butterworth’. As regards the assault, the high court accepted the respondents’ version. [17] In its reasons for granting leave to appeal, the high court seemed to confine the appeal to whether it had misapplied ss 44 and 51(1)(a) of the Act. To the extent that it is not clear which aspects of the judgment are to be appealed against, the approach I take favours the Minister. The Minister did not appeal the quantum awarded. On appeal [18] Counsel for the Minister submitted that the police were armed with warrants of arrest, the validity of which was not challenged, and that they had no discretion but to arrest. He referred to the recent Constitutional Court decision of Groves N.O. 9 v Minister of Police1 which held that s 43(2)2 of the Act ‘places a positive duty on an arresting officer to arrest the person identified in the warrant with the use of the word “shall”.’ The Constitutional Court held that a peace officer executing a warrant has no discretion but to act in accordance with the terms of the warrant. However, bearing in mind the principle of rationality, there may be situations where the arresting officer will have to make value judgment but that would only be: ‘[W]here the prevailing exigencies at the time of arrest may require him to exercise same; a discretion as to how the arrest should be effected and mostly if it must be done there and then. To illustrate, a suspect may at the time of the arrest be too ill to be arrested or may be the only caregiver of minor children and the removal of the suspect would leave the children vulnerable. In those circumstances, the arresting officer may revert to the investigating or applying officer before finalising the arrest.’3 [19] In my view this case has less to do with whether the arresting officer had a discretion to give effect to the warrants, but more with whether the execution of the arrest, complied with the law. There are questions about whether the warrants were ex facie defective by failing to indicate where the arrested persons should be taken. It is however not necessary to decide that issue. The matter can be disposed of on the factual basis, namely, whether the manner and effecting of the arrests complied with the law. 1 Groves N.O. v Minister of Police [2023] ZACC 36; 2024 (1) SACR 286 (CC); 2024 (4) BCLR 503 (CC) paras 56 and 60. 2 Section 43(2) states that ‘[a] warrant of arrest issued under this section shall direct that the person described in the warrant shall be arrested by a peace officer in respect of the offence set out in the warrant and that he be brought before a lower court in accordance with the provisions of section 50’. 3 Groves N.O. fn 1 para 60. 10 Was the arrest of the respondents lawful? [20] In terms of s 39(1) of the Act an arrest may be effected with or without a warrant, except if the intended arrestee submits to custody. Relevant for our purposes is s 39(2) which provides that: ‘The person effecting an arrest shall, at the time of effecting the arrest or immediately after effecting the arrest, inform the arrested person of the cause of the arrest or, in the case of an arrest effected by virtue of a warrant, upon demand of the person arrested hand him a copy of the warrant.’ (Emphasis added.) [21] This section deals with two alternative requirements, ie the communication of the reason for the arrest or in the case of an arrest effected by virtue of a warrant, the handing over of a copy of the warrant upon demand. Non-compliance with s 39(2) renders the arrest unlawful.4 These alternative conditions must occur at the time of the arrest or immediately thereafter. The latter signifies an occurrence ‘as soon as reasonably possible in the circumstances’.5 [22] In Minister van Veiligheid en Sekuriteit v Rautenbach6 (Rautenbach), this Court held that it is imperative that the persons arrested be informed, as soon as is practically possible, of the reason for the drastic infringement of their fundamental right to liberty. To achieve this objective, a strict rather than a loose application of the statute’s requirements must be adopted. [23] In the Rautenbach matter, the arresting officer had told the suspect that he was arresting him on a warrant. The intended arrestee asked where the warrant was, and the arresting officer told him he would give it to him as soon as the suspect had 4 Minister of Law and Order v Kader 1991 (1) SA 41 (A) at 46A-B. 5 Minister van Veiligheid en Sekuriteit v Rautenbach 1996 (1) SACR 720(A) at 729C-D. 6 Ibid. 11 accompanied him to the police station. The intended arrestee refused to go until he saw the warrant. The arresting officer arrested him anyway. The Court held that s 39(2) assumes that the arrestor has a copy at hand when arresting so that he or she can hand it over at the request of the arrestee. The Court found that the arrestor had no intentions to comply with s 39(2) at the time of the arrest. [24] Turning back to this case, the respondents alleged that they were arrested without a warrant and if there was one, it was not shown to them at the time or immediately after they were arrested. In the first instance, to give effect to s 39(2) the respondents had to be told that they were being arrested on the authority of a warrant, otherwise how else would they know to request a copy? If they are not told, it is reasonable for them to assume, as the respondents did, that they were being arrested without a warrant. [25] Counsel for the Minister submitted that it is sufficient that a warrant was obtained, even if not in the possession of the arrestor at the time of the arrest. Such a reading of the provision is untenable and goes against the primary object of the section. The existence of a warrant ‘somewhere’ does not (by itself) make the execution of the arrest lawful. The arresting officer must be able to exhibit it to the intended arrestee, at the time of the arrest or immediately thereafter, otherwise the object of s 39(2) is defeated. [26] In this case, the evidence of the Minister’s witnesses was inconsistent in material respects. Firstly, they contradicted each other as to who the arresting officer was, and secondly, on whether the respondents were informed that they were arrested on the authority of a warrant, and on whether it was exhibited to them. 12 Warrant Officer Mdepa testified that he was the arresting officer. He stated that he displayed the warrants to the respondents and informed them of their constitutional rights and that they were being arrested in connection with a case of murder. [27] Col Mdingi, on the other hand, in his evidence in chief mentioned a warrant only in relation to Mr Sabisa. It was only in cross examination that he spoke about Warrant Officer Mdepa having warrants for both respondents. Capt Hanise testified that Col Mdingi was the arresting officer and that he had informed the respondents of their constitutional rights and their right to remain silent. Most importantly, he stated that Col Mdingi had no warrant of arrest in his possession when informing the respondents about their rights. [28] These contradictions were compounded further by the fact that, despite Warrant Officer Mdepa’s testimony that he had shown the warrants to the respondents, he wrote on the warrants themselves that they were executed on 19 April 2016, which is contrary to the alleged date of execution, namely, 18 April 2016. [29] Furthermore, there was no mention in the investigation diary that the warrants had been obtained by Warrant Officer Mdepa in Tsolo on 18 April 2016 and/or that they were available and in his possession at the time of the arrest as required by the Standing Order (General) 323 Investigation Diary (SAPS 5) (the Standing Order).7 The Standing Order required completion of the investigation diary, inter alia, to contain a complete chronological record of all work done in the case, including when 7 Issued by Consolidation Notice 44 of 2012. 13 a house or other place is visited, and the name and address of the person visited or searched. [30] Weighing the respondents’ evidence against that adduced on behalf of the Minister on this issue, the probabilities favour the respondents’ version that they were not informed of the existence of warrants by virtue of which their arrests were to be effected. The Minister, accordingly, failed to show that the arrests were lawful. Were the respondents lawfully detained after the arrest? [31] The purpose of the arrest is to bring the arrested person before a court to face justice. Section 50 regulates the process after arrest. Section 50(1)(a) provides that any person arrested ‘shall as soon as possible be brought to a police station or, in the case of an arrest by warrant, to any other place expressly mentioned in the warrant’. [32] The warrants in this case do not indicate where the arrested persons had to be taken. Most importantly, they did not direct that the respondents be taken to Butterworth. At best for the Minister, although there was no indication of which place the respondents must be taken to, on the warrants, they ought to have taken them to a police station. It is not clear why they were not immediately taken to the Police Station, but on a long trip to Butterworth, only to return later to Mthatha where they were then detained. [33] The Minister’s witnesses stated that the respondents were taken to the offices of the Butterworth Crime Intelligence for questioning. Col Mdingi testified that the reason why the respondents were taken to Butterworth was that, because there were factions in the African National Congress, he did not know what would happen if 14 people found out that their leaders were arrested. According to Warrant Officer Mdepa, the respondents were prominent individuals, and their arrest could create chaos in the community. This does not make any sense. The community would have found out sooner or later about the respondents’ arrests. The important issue, in any event, is that police officers are bound to act in accordance with the law. [34] The Minister’s witnesses testified that the interviews in Butterworth were short. In that case, it makes no sense, why the respondents would be kept there for approximately five hours when they had indicated early on, at the mayor’s office, that they wanted legal representation. To aggravate matters, there was no satisfactory explanation in the evidence of the three policemen as to what actually transpired in Butterworth, nor of any warning statements taken from the respondents. Warrant Officer Mdepa testified that he only took the warning statements on 19 April 2016 at the hospital, an occurrence which was also not recorded in the investigation diary. [35] The respondents, on the other hand, explained that they were arrested at approximately 15h00 and arrived in Butterworth at approximately 17h30. They were interrogated in Butterworth until 22h00 when the convoy returned to Mthatha. They were only booked in the Police Station at approximately midnight (23h55). There was no lawful purpose to take the respondents to Butterworth. The detention in Butterworth after the arrest was, consequently, unlawful and not in compliance with the requirements of s 50(1)(a) of the Act. Was the further detention lawful? [36] Section 50(1)(c) of the Act requires an arrested person to be brought before a lower court as soon as reasonably possible, but not later than 48 hours after the arrest. 15 Subsection (d)(i) states that if the period of 48 hours expires outside ordinary court hours, the person may be brought before a lower court not later than the end of the first court day. [37] In terms s 50(1)(d)(ii) (the most relevant section for our purposes), if the 48-hour period expires at the time when the arrested person cannot be brought before a lower court, because of physical illness or condition, the court to which he or she would have been brought, but for the illness, may on application by the prosecutor: ‘authorise that the arrested person be detained at a place specified by the court and for such period as the court may deem necessary so that he or she may recuperate and be brought before the court.’ [38] The application envisaged in this section must set out the circumstances relating to the illness or condition which the arrested person suffers from and be accompanied by a certificate of a medical practitioner. Court orders for further detention at the said place may be similarly sought.8 [39] The respondents were shackled by the police in hospital for nine days, from 19 April 2016 after being booked out of the police cell in Mthatha until 26 April 2016. The period of 48 hours expired at 16h00 on 20 April 2016. Neither of the respondents was brought before a lower court to appear, nor was authorisation sought on 20 April 2016 or thereafter for their detention in hospital. The Minister pleaded that the respondents were detained in hospital on judicial authority. There is, however, no evidence of any court order in terms of s 50(1)(d)(ii) to that effect. 8 Section 50(1)(d)(ii). 16 [40] Counsel for the Minister argued that the words ‘Acc 3 and in absentia – reported to be admitted in hospital’, appearing in the record of the proceedings of 20 April 2016, in the magistrates’ court, should be read as a court order remanding the respondents in hospital. This statement is a far cry from being a court order, let alone a court order complying with the requirements of s 50(1)(d)(ii). Firstly, there was no application by the prosecutor supported by a medical certificate. Secondly, there was no court order authorising and specifying the place and the period of detention. [41] The record of proceedings of 26 April 2016 in the magistrates’ court puts paid to the Minister’s case. The magistrate ordered the release of the respondents on the strength of the submissions by the respondents’ counsel, who appeared in the magistrates’ court, that their further detention contravened s 50(1) of the Act. [42] Confronted with these difficulties, counsel for the Minister, for the first time, and at the hearing of the appeal, placed reliance on s 39(3) of the Act which provides: ‘The effect of an arrest shall be that the person arrested shall be in lawful custody and that he shall be detained in custody until he is lawfully discharged or released from custody.’ [43] He submitted that by virtue of this provision the respondents were in lawful custody until they were released by the court order on 26 April 2016. This, he contended, must be considered with the fact that the court had at the previous hearing remanded the respondents ‘in absentia’. Based on this new argument, he moved for an amendment to the plea to include this new defence. 17 [44] An amendment of the plea will not assist the Minister, on the simple basis that, counsel’s interpretation of s 39(3) is incorrect. In Minister of Justice and Constitutional Development and Another v Zealand,9 this Court said: ‘Section 39(3) provides for lawful detention during the period between lawful arrest and the first court appearance.’ (Emphasis added.) [45] Section 39(3) provides for detention from the time of arrest until the first court appearance. That first detention must itself be lawful, which requires that it must have been preceded by a lawful arrest. In other words, the section presupposes that s 39(2) would have been complied with. Reading s 39(3) in any other way would deprive s 39(2) of any force. [46] The subsection does not allow for perpetual detention until the court has ‘finally spoken’, even when the arrest was unlawful. Such a construal of the provision would infringe upon the detainee’s fundamental right to liberty. In addition, it would directly offend against the provisions of s 50(1) that require an arrested person to be brought before a lower court without delay and no later than 48 hours. The Minister’s counsel’s interpretation is clearly untenable on any reading, also because it would confer unbridled power upon arresting police officers. In the circumstances, the further detention of the respondents after the expiry of the 48-hour provision, was unlawful. Were the respondents assaulted? [47] The probabilities regarding whether the assault took place favour the respondents. They were kept in an office in Butterworth for approximately five hours 9 Minister of Justice and Constitutional Development and Another v Zealand [2007] ZASCA 92; 2007 (2) SACR 401 (SCA) para 10. 18 with no clear justification for such length of detention being given by the Minister’s witnesses. As stated, no plausible explanation was provided as to why the respondents were only booked into the police cells, at the Police Station, just before midnight, having been arrested at about 15h00. [48] The respondents’ evidence on the other hand was clear and cogent. It was supported by the entries in the occurrence book. They told their attorneys at the first available opportunity that they had been assaulted and were injured. The occurrence book reflects that at 10h30 and 11h00 on 19 April 2016, the respondents’ attorneys consulted their clients and requested that the police accompany the respondents to hospital as they were complaining of body pains. Mr Mambila testified that he had to use a walking stick to go to the vehicle. The respondents were taken to a doctor who recommended that they be taken to hospital. Mr Mambila had to be transported by an ambulance from the doctor’s examination room to hospital, due to his serious condition. The fact that the doctor was not called to testify or that the full medical record of Mr Mambila was not presented, is of no moment given the common cause facts which amply support the respondents’ evidence of assault. [49] For these reasons, the appeal must fail. It is accordingly dismissed with costs, including those of two counsel where so employed. ___________________________ N P MABINDLA-BOQWANA JUDGE OF APPEAL 19 Appearances For the appellant: V Notshe SC with A Magadla Instructed by: State Attorney, Mthatha State Attorney, Bloemfontein For the respondents: N Mullins SC with L Kroon Instructed by: Mvuzo Notyesi Inc, Mthatha Phalatsi & Partners, 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 June 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 Minister of Police v Sabisa and Another (725/2023) 2024 ZASCA 105 (28 June 2024) Today the Supreme Court of Appeal (SCA) dismissed with costs, including the costs of two counsel where so employed, an appeal against the decision of the Eastern Cape Division of the High Court, Mthatha (the high court). The respondents, Mr Thandekile Nelson Sabisa and Mr Lawrence Nzimeni Mambila instituted claims for damages in the high court, against the appellant, the Minister of Police (the Minister) for unlawful arrest, unlawful detention and assault. The high court found in their favour and awarded each R400 000 for unlawful arrest and detention and R110 000 for assault, torture and contumelia. It granted leave to appeal to the SCA. On 18 April 2016, the respondents, who were councillors of the OR Tambo District Municipality (the Municipality), were arrested by members of the South African Police Service (SAPS) at the offices of the Municipality at Myezo Park in Mthatha. At the time, Mr Sabisa served as the Deputy Executive Mayor while Mr Mambila was a member of the Mayoral Committee responsible for technical services. The respondents pleaded that they were arrested without warrants of arrest by the members of the SAPS; that the police officers did not produce any warrants for their arrest; and that there was no justification for executing the warrants, even if those were available. They further pleaded that after the arrests they were detained by members of the SAPS for nine days, without a reasonable and probable cause and with the intention to injure them, and were assaulted and tortured which caused them pain, shock and injuria, amongst other things. As a result, they claimed to have suffered damages of R10 million each. The Minister filed a plea in which he admitted the arrests but denied that they were unlawful. He averred that the respondents were arrested in terms of valid warrants of arrest which were shown to them and that the police were justified in executing the warrants. The Minister admitted that the respondents were detained by the police on 18 April 2016 and on 19 April 2016 they were admitted to hospital where they remained under guard until 26 April 2016. The Minister averred further that the respondents remained in hospital on the authority of the Court. He denied that the respondents were assaulted and tortured by the police. The respondents’ evidence was that on the day of their arrests, they were attending a Mayoral Committee meeting at the Municipality’s office. At approximately 15h00 a team of more than ten armed police officers arrived in about a dozen vehicles. These were apparently members of the Hawks and other several unidentified police officers. Three of the police officers went into the boardroom where the meeting was held. They pointed at the respondents and advised the meeting that the respondents 2 were required in connection with the attempted murder of one Mr Xolile Kompela and the murder of his bodyguard (the Tsolo case). Mr Kompela was the Speaker of the Mhlontlo Local Municipality. The respondents were thereafter instructed to board separate motor vehicles. The police left with them and drove towards the N2 East London direction. All the police vehicles that had arrived at the Municipality’s offices drove in a convoy. They stopped by some office in Butterworth. The distance between Mthatha and Butterworth is approximately 120 kilometres. It is about a one and a half to two-hour drive. The respondents were taken inside the office in Butterworth, which is not a police station. There, they were interrogated about the Tsolo case, assaulted and tortured. At approximately 22h00, the convoy departed to Mthatha Central Police Station (the Police Station). They arrived at the Police Station close to midnight and were booked in and placed in the cells. On 19 April 2016, at approximately 03h00 in the morning, Mr Mambila was visited by an attorney in the cells. He told his attorney that he had been injured and requested him to arrange for him to be seen by a doctor. Mr Sabisa also reported the assault to his attorneys and requested them to take the necessary steps to have those responsible face the law. That afternoon, the police arranged for the respondents to be taken to a doctor, following the requests made by their attorneys. The respondents were booked out of the cells and taken to a doctor. Mr Mambila had difficulty walking to the vehicle. He had to make use of a walking stick. The doctor recommended that the respondents be admitted to hospital. Mr Mambila was given an injection and was transported to the hospital in an ambulance. The respondents were admitted to the same ward. They were shackled to their beds and guarded by the police. They had to get permission from the police if they needed to relieve themselves. On 26 April 2016, the respondents noticed that the police guards had left without any explanation. Their shackles were removed, and they were no longer detained in custody. They however remained in hospital. Mr Mambila was discharged from hospital on 28 April 2016 while Mr Sabisa was transferred to the Mthatha General Hospital, as his medical aid cover would be exhausted on 1 May 2016. The high court found the arrest and detention of the respondents unlawful because they were not brought before a court within 48 hours as envisaged in s 50 of the Criminal Procedure Act 51 of 1977 (the Act). Furthermore, that they were detained in hospital in custody without an order of court authorising their continued detention beyond the mandatory 48-hour period. The high court further found the warrants to be defective ‘to the extent that they did not authorize the arrestor to take the plaintiffs to Butterworth’. As regards the assault, the high court accepted the respondents’ version. On appeal, counsel for the Minister submitted that the police were armed with warrants of arrest, the validity of which was not challenged, and that they had no discretion but to arrest. The SCA held that this case had less to do with whether the arresting officer had a discretion to give effect to the warrants, but more with whether the execution of the arrest, complied with the law. The SCA found that the arresting officer failed to comply with s 39(2) of the Act, which provides that: ‘[t]he person effecting an arrest shall, at the time of effecting the arrest or immediately after effecting the arrest, inform the arrested person of the cause of the arrest or, in the case of an arrest effected by virtue of a warrant, upon demand of the person arrested hand him a copy of the warrant’. The SCA stated that to give effect to s 39(2), the respondents had to be told that they were being arrested on the authority of a warrant, otherwise how would they know to request a copy? If they were not told, it was reasonable for them to assume, as the respondents did, that they were being arrested without a warrant. The SCA further held that the arresting officer must be able to exhibit the warrant to the 3 intended arrestee, at the time of the arrest or immediately thereafter, otherwise the object of s 39(2) would be defeated. The SCA found the evidence of the Minister’s witnesses to be inconsistent in material respects. Firstly, that they contradicted each other as to who the arresting officer was, and secondly, on whether the respondents were informed that they were arrested on the authority of a warrant, and on whether it was exhibited to them. The SCA found the detention in Butterworth after the arrest to be unlawful and not in compliance with the requirements of s 50(1)(a) of the Act. Section 50(1)(a) provides that any person arrested ‘shall as soon as possible be brought to a police station or, in the case of an arrest by a warrant, to any other place expressly mentioned in the warrant’. The respondents were arrested at approximately 15h00 and arrived in Butterworth at approximately 17h30. They were interrogated in Butterworth until 22h00 when the convoy returned to Mthatha. They were only booked in the Police Station at approximately midnight (23h55). There was no lawful purpose to take the respondents to Butterworth. The SCA further found that the police did not comply with s 50(1)(c) of the Act which requires an arrested person to be brought before a lower court as soon as reasonably possible, but not later than 48 hours after the arrest. The respondents were shackled by the police in hospital for nine days, from 19 April 2016 after being booked out of the police cell in Mthatha until 26 April 2016. The period of 48 hours expired at 16h00 on 20 April 2016. Neither of the respondents was brought before a lower court to appear, nor was authorisation sought on 20 April 2016 or thereafter for their detention in hospital. There was no evidence of any court order in terms of s 50(1)(d)(ii) to that effect. Counsel for the Minister sought to place reliance on s 39(3). The SCA held that s 39(3) provides for detention from the time of arrest until the first court appearance. That first detention must itself be lawful, which requires that it must have been preceded by a lawful arrest. In other words, the section presupposes that s 39(2) would have been complied with. Reading s 39(3) in any other way would deprive s 39(2) of any force. The SCA held that the subsection does not allow for perpetual detention, even when the arrest was unlawful. Such a construal of the provision would infringe upon the detainee’s fundamental right to liberty. In addition, it would directly offend against the provisions of s 50(1) that require an arrested person to be brought before a lower court without delay and no later than 48 hours. Further, it would confer unbridled power upon arresting police officers. As to whether the assault took place, the SCA found that the probabilities favoured the respondents. They were kept in an office in Butterworth for approximately five hours with no clear justification for such length of detention being given by the Minister’s witnesses. No plausible explanation was provided as to why the respondents were only booked into the police cells, at the Police Station, just before midnight, having been arrested at about 15h00. The SCA found the respondents’ evidence was clear and cogent, and it was supported by the entries in the occurrence book and the common cause facts. For these reasons, the SCA dismissed the appeal. ~~~~ends~~~~

4216

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA Not reportable Case no: 497/2022 & 820/2022 In the matter between KET CIVILS CC APPLICANT and THE MEC: POLICE, ROADS & TRANSPORT, FREE STATE FIRST RESPONDENT NWETI CONSTRUCTION (PTY) LTD SECOND RESPONDENT DOWN TOUCH (PTY) LTD THIRD RESPONDENT RAUBEX NODOLI CONSTRUCTION JV FOURTH RESPONDENT TAU PELE CONSTRUCTION (PTY) LTD FIFTH RESPONDENT SEDTRADE (PTY) LTD SIXTH RESPONDENT Neutral citation: KET Civils CC v The Member of the Executive Committee: Police, Roads & Transport, Free State and Others (497/2022 & 820/2022) [2024] ZASCA 56 (19 April 2024) Coram: MOCUMIE ADP, ZONDI and NICHOLLS JJA Heard: 15 February 2024 Delivered: This judgment was handed down electronically by circulation to the parties’ representatives by email, published on the Supreme Court of Appeal website, and released to SAFLII. The date and time for hand-down is deemed to be 11h00 on 19 April 2024 2 Summary: Civil procedure – Section 17(2)(f) of the Superior Courts Act 10 of 2013 – whether a proper case for reconsideration in terms of s 17(2)(f) is made out – a court may not make a settlement agreement an order of court without hearing an interested party. ORDER On appeal from: Free State Division of the High Court, Bloemfontein (Mhlambi J, sitting as a court of first instance): 1 Leave to appeal is granted. 2 The appeal against the order of the high court dismissing the application for leave to appeal is set aside and substituted with the following order: ‘(a) Leave to appeal is granted. (b) Paragraphs 1 to 5 of the second merits order are set aside and replaced with the following order: (i) An order reviewing and setting aside the decision of the first respondent, acting in his capacity as the accounting officer of the Department of Police, Roads & Transport, Free State, in appointing KET Civils CC and second to sixth respondents on the 21st of February 2019 in the panel PR&T/BID06/2018/19 for the upgrading, periodic routine and special maintenance of all the Free State roads for the Department of Police, Roads & Transport for the duration of 36 (thirty six) months and any contract made under this panel. (ii) An order in terms of s 172(1)(a) of the Constitution of the Republic of South Africa, 1996 declaring that the conduct of the first respondent in constituting the panel as set out above is inconsistent with the provisions of s 217 of the Constitution and is invalid to the extent of its inconsistency. (iii) An order in terms of s 172(1)(b)(ii) of the Constitution, suspending the declaration of invalidity of the contracts of the second to sixth respondents and emanating from the panel and any extensions thereunder until the said contracts are completed. (iv) An order in terms of s 172(1)(b)(ii) of the Constitution, that the orders granted in paragraphs (i) and (ii) above shall not affect the rights of KET Civils CC to pursue any claims for payment emanating from its contract/s and any extensions thereunder. For 3 the avoidance of any doubt, the dispute resolution mechanisms under the contracts shall endure post any termination of the contracts.’ 3 The orders set out above are with effect from 29 April 2021. 4 The first respondent to pay the costs of the appeal, including the costs of the third to the fifth respondents up until 23 June 2023. 5 In relation to the costs which were incurred after 23 June 2023, each party is ordered to pay its own costs. JUDGMENT Mocumie ADP (Zondi and Nicholls JJA concurring) [1] This is an application brought by KET Civils CC (KET) in terms of s 17(2)(f) of the Superior Courts Act 10 of 2013 (the Superior Courts Act) for the reconsideration of this Court’s order dismissing KET’s petition for leave to appeal. Thereafter, KET applied to the President of this Court, in terms of s 17(2)(f) of the Superior Courts Act for her reconsideration of their dismissal of its application. The President referred the reconsideration application for oral argument in terms of s 17(2)(d) of the Superior Courts Act. [2] KET is a close corporation, involved in inter alia road construction. It was the applicant before the Free State Division of the High court (the High court). The first respondent is the Member of the Executive: Police, Roads and Transport in his capacity as the head of the Department (the MEC). KET was appointed by the Department as a member of the panel of contractors constituted under Panel PR&T/BID062018/19 together with the second to the sixth respondents for the upgrading, periodic routine and special maintenance of all Free State roads for the Department. The third to fifth respondents (the contractors) oppose the appeal insofar as KET alleges that they were directly implicated in what occurred before the high court which led to the granting of the second merits order. The MEC filed a notice to abide the decision of this Court on 23 June 2023. 4 [3] Before dealing with the application for reconsideration, two applications for condonation are before this Court. First, KET sought condonation for the late filing of this application. In terms of the rules of this Court, the application must be filed within one month of the decision. The Registrar of this Court was of the view that the application was brought out of time. This is incorrect as the order of this Court dismissing leave to appeal was only sent to the parties by the Registrar on 25 July 2022 although it was issued on 21 July 2022. It is clear that KET cannot be blamed for the delay which was the fault of the office of the Registrar of this Court. Consequently, the application for condonation for the late filing of the application is granted. [4] The contractors sought leave to file a supplementary record, and condonation for the late filing of their heads of argument. KET does not oppose the combined application. Although it does not introduce new material, the supplementary record provides a far more coherent account of what actually transpired before the high court, rather than the haphazard record which was filed by KET. Consequently, leave is granted for the late filing of the supplementary record and condonation is granted for the late filing of the heads of argument. [5] In an application of this nature (in terms of s 17(2)(f))) the question to be answered is whether there are exceptional circumstances militating in favour of the reconsideration sought and whether a grave injustice will result if the order dismissing the application for leave to appeal is not reconsidered and varied. The section provides: ‘The decision of the majority of the judges considering an application referred to in paragraph (b), or the decision of the court, as the case may be, to grant or refuse the application is final: Provided that the President of the Supreme Court of Appeal may in exceptional circumstances, whether of his or her own accord or on application filed within one month of the decision, refer the decision to the court for reconsideration and, if necessary, variation.’ (Emphasis added.) 5 [6] The phrase ‘exceptional circumstances’ is not defined in the Superior Courts Act. In Liesching v S1 the Constitutional Court held that the proviso in s 17(2)(f) is very broad. It keeps the door of justice ajar in order to cure errors or mistakes and for the consideration of a circumstance, which, if it was known at the time of the consideration of the petition, might have yielded a different outcome. It is therefore a means of preventing an injustice. The President is given a discretion, to be exercised judiciously, to decide whether there are exceptional circumstances that warrant referral of the matter to the Court for reconsideration or, if necessary, variation. Whether exceptional circumstances exist will vary on the facts and circumstances of each case. The overall interests of justice will be the final determinative feature for the exercise of the President’s discretion.2 [7] Returning to the facts of this case, in February and March 2019, the Department appointed KET and other construction firms to build various roads in the Free State. While the contracts were in existence, and on 4 November 2020, the Department wrote to KET to inform it that the Auditor General had discovered, in the course of its 2019/2020 financial year audit, that the panel had been irregularly constituted. Accordingly, it would have to be disbanded and a new panel constituted. The Department asked KET to consent to the termination of the panel. It also added that ‘one of the consequences for the continuation of the use of the panel of contractors would be irregular payment’. This led to some consternation on the part of KET, especially when it received no response from the Department to its many requests for clarification. [8] Finally, KET consented to the termination of its contracts with the Department and suspended further work except that which related to traffic control and other safety measures. In February 2021, the Department informed KET that it considered that this conduct amounted to a breach of contract. Although the Department had undertaken that it would approach the high court for the review and setting aside of the composition of the panel of the contractors, it delayed in doing so. In consequence, on 29 April 2021 KET approached the high court with a two-part application. Only Part A is relevant to this application for reconsideration. In Part A, KET sought a declaration that the Department 1 Liesching and Others v S and Another [2016] ZACC 41; 2017 (4) BCLR 454 (CC); 2017 (2) SACR 193 (CC). 2 Ibid paras 55-56. 6 initiate the termination of the contracts it had concluded with KET, and that KET was entitled to suspend further works. The basis of this application was the report of the Auditor General which found that the tender process was irregular and unlawful as it did not comply with s 217 of the Constitution. The Department, in a separate application under a different case number, filed a counter-application for ‘self-review’, seeking an order declaring the constitution of the panel of the contractors, and the contracts concluded pursuant thereto, unlawful.3 This was coupled with a just and equitable remedy suspending such declaration of invalidity for the remaining duration of the contract so that they could be performed to their conclusion. [9] The two applications were enrolled to be heard simultaneously. Both applications (of KET and the counter-application of the Department) served before the high court as urgent applications. There is a dispute as to what occurred in court. It is common cause that KET’s application was struck from the roll for lack of urgency. KET submits that the Department’s counter-application was similarly struck from the roll. The contractors contend that the counter-application was struck from the roll only in respect of KET and the Department. But, insofar as the counter-application concerned them, it was settled and the settlement agreement between the contractors and the Department was made an order of court. This is disputed by KET. [10] Based on the transcript of the court proceedings on 29 April 2021 KET’s denial that the lis between the contractors and the Department was settled, cannot be correct. Mr Luthuli appeared for KET both in the main application and counter-application. Messrs Snellenburg, Pienaar and Grobler appeared for the contractors in both the main application and counter-application. In respect of the counter-application a transcript of the hearing reflects the following exchange: 3 See Department of Transport and Others v Tasima (Pty) Limited [2016] ZACC 39; 2017 (1) BCLR 1 (CC); 2017 (2) SA 622 (CC) (9 November 2016), Khumalo and Another v Member of the Executive Council for Education: KwaZulu Natal [2013] ZACC 49; 2014 (3) BCLR 333 (CC); (2014) 35 ILJ 613 (CC); 2014 (5) SA 579 (CC) para 73 , 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) para 83, City of Cape Town v Aurecon South Africa (Pty) Ltd [2017] ZACC 5; 2017 (6) BCLR 730 (CC); 2017 (4) SA 223 (CC) para 37 and State Information Technology Agency SOC Limited v Gijima Holdings (Pty) Limited State Information Technology Agency SOC Limited v Gijima Holdings (Pty) Limited [2017] ZACC 40; 2018 (2) BCLR 240 (CC); 2018 (2) SA 23 (CC) para 41. 7 ‘ADV SNELLENBERG ADDRESSES COURT: M’Lord, it is quite simple. The third and fourth and fifth respondents in the reactive challenge. So, the MEC of Roads, Police and Roads is counter application, have reached an agreement, with regards to the MEC, as applicant in that application. With regards to an order that we concede to, that he can take subject to two very minor amendments. And the first is then, paragraph 3 of that notice of motion. The words in terms of section 6 of the Promotion of Administrative Justice Act 3/2000…[interventions] COURT: Just bear with me. ADV SNELLENBERG: Yes, it is the back of your file, I would presume, of these papers. COURT: You say in terms of the notice of motion? ADV SNELLENBERG: Prayer 3, the words: in terms of section 6 of the Promotion of Administrative Justice Act 3/2000… That is now the reactive counter application. That is taken out, deleted. So, it will simply read: an order reviewing, setting aside the decision of the applicant, acting in his capacity as the accounting officer of the applicant, in appointing the first to six respondents and then it goes on. COURT: So the words, an order up to PAJA, should be…[intervenes]? ADV SNELLENBERG: Yes, that is removed and then prayer 6, paragraph 6. To read that the: an order directing the applicant to pay the third, fourth and fifth respondents costs. COURT: That is prayer 6? ADV SNELLENBERG: Ja COURT: It should read: an order directing? ADV SNELLENBERG: The applicant to pay the third, fourth and fifth respondents costs. That is now in terms of our agreement. And we concede to an order on those terms and if you do that, it will of course lessen any…[intervenes] COURT: To pay third, fourth and fifth? ADV SNELLENBERG: Because of the other respondents, if they still want to oppose that application, but that is with regards to these three. That will, M’Lord limit the disputes that remain in your main application. Obviously, it will drastically alter that. We respectfully submit, obviously we will not be entertaining you with arguments on urgency of that matter. COURT: You say, you will not be entertaining? ADV SNELLENBERG: We will not be entertaining you then, with arguments with regards to urgency and so forth. So, this settles the lis between the third, the fourth and the fifth respondents, in the counter application and the MEC of Roads’. 8 [11] The terms of settlement as set out by Mr Snellenburg were confirmed by counsel for the Department and two other contractors. Thereafter Mr Luthuli stood up to address the court. As he began his address, Mr Grobler intervened as follows: ‘ADV GROBLER ADDRESSES COURT: My Lord, I am terribly sorry. My apologies to my learned friend as well. I was just discussing with my colleagues now, Has your Lordship made our agreement an order of the court or …[intervenes] Court: I have not, as yet Advocate Grobler: Have you not as yet? May we ask for such an order? Court: The agreement between the applicant and the third, fourth and fifth respondent, in case number… [intervenes] Advocate Grobler: 1640 Court: 1640/2021, Is presented by Mr. Snellenburg, he has made an order…[intervenes] Advocate Grobler: As the court pleases. Advocate Pienaar: As the court pleases. Court: Thank you, Mr. Grobler. Advocate Lethuli [for KET] addresses court: Thank you M’Lord. M’Lord, before I start, If I may just understand the order that the court has just made. Court: Yes? Advocate Lethuli: I understand that to obviously be provisional, dependant on what the court ultimately decides. In so far as the disputes between my client and the department goes. So, that can only become a final order if Your Lordship dismisses my client’s application and grants the departments application. Otherwise, the agreement that has been reached, cannot be made an order of, until such time, as Your Lordship has granted the department’s application. Court: The order is actually in respect of what is…[indistinct] the counter claim. Advocate Lethuli: It is what is called the counter claim? Court: Yes. So, you are saying as between the parties is… [indistinct]. Between the applicant and the respondents. Advocate Lethuli: It is not all the respondents, M’Lord. It is the third, fourth and… [intervenes] Court: [indistinct]… and that is third, fourth and fifth. Advocate Lethuli: And fifth respondent.’ (Emphasis added.) [12] KET alleges that it was unaware of any merits being argued and subsequently an order being granted. And that the record of the proceedings of 29 April 2021 quoted above, bears this out. Although the transcript is a not model of clarity, it seems that the 9 settlement agreement was indeed made an order of court, notwithstanding the objection by KET’s counsel. KET stated that to further obfuscate things, it became aware that the Department and the contractors were not satisfied with the order which was granted by the high court and sought this order (the first merits order) to be corrected. A revised order (the second merits order), was sent to KET on 13 September 2021. Both the first and second merit orders were dated 29 April 2021. [13] In September 2021 KET wrote to the Judge President of the Division complaining that three different orders had been issued which caused great confusion. The Judge President advised that if KET was aggrieved by the second merits order, it should pursue its available legal remedies. This led to KET filing its application for leave to appeal against the orders of Mhlambi J on 4 October 2021. In November 2021 KET was informed that Mhlambi J would not entertain the application for leave to appeal without an application for condonation. Accordingly, KET applied for condonation for the late filing of its leave to appeal. [14] On 5 May 2022, Mhlambi J delivered his judgment. He dismissed the application for leave to appeal on the basis that it was out of time and that KET did not explain the delay to the satisfaction of the court. In his judgment, Mhlambi J stated that the settlement agreement between the Department and the contractors had been made an order of court on 29 April 2021. He did not refer to the existence of the two orders both dated 29 April 2021. He merely stated that he had received a letter from one of the contractors’ attorneys in August 2021 stating that KET was disputing the existence of the court order. He confirmed that the second merits order had been made an order of the court. He also stated that later in September he was presented with another letter from the State Attorney requesting him to vary the order in terms of rule 42(1)(b).4 He did not accede to this request. [15] Mhlambi J found that KET’s application for leave was ‘based on the incorrect fact that the consent order was not granted on 29 April 2021’. He held that, in light of the above, there were no prospects of success that another court would come to another 4 Rule 42(1)(b) empowers a court to amend/correct its order mero motu or if approached by any party on a patent error which does not affect the substance of the order and or judgment. 10 conclusion that such order was not granted on that day. Both the application for condonation and the application for leave to appeal were dismissed with costs. [16] It is clear that two merits orders issued by the high court both dated 29 April 2021. The first order set aside the decision of the Department to appoint the contractors (including KET as the first respondent in that application). This first merits order, according to the contractors, did not reflect all the terms of the compromise, particularly those relating to the just and equitable remedy that there be a suspension of invalidity until the contracts had been completed. That is why the Department approached Mhlambi J in chambers to rectify the error to include those paragraphs which were omitted from the first merits order. This led to what the parties called the second merits order which was dated 29 April 2021. It reads as follows: ‘1. The non-compliance with the Uniform Rules of court be condoned and the matter be heard as an urgent application in terms of Rule 6(12) (a) 2. The application be heard simultaneously with the application under case number 1510/2021 as the facts and parties [are] substantially the same. 3. An order reviewing and setting the decision of the applicant, acting in his capacity as the accounting officer of the applicant in appointing the [first] respondent on the 21st February 2019 in the Panel PR&T/BID062018/19 for the upgrading, periodic routine and special maintenance of all Free State roads for the Department of Police, Roads & Transport for the duration of thirty-six (36) months and any contract made under this panel is reviewed and set aside. 4. An order in terms of section 172(1)(a) of the Constitution of the Republic of South Africa,1996, declaring that the conduct of the applicant in constituting the panel as set out hereinabove is inconsistent with the provisions of section 217 of the Constitution and is invalid to the extent of its inconsistency. 5. An order in terms of section 172(1)(b)(ii) of the Constitution, suspending the declaration of invalidity of the contracts emanating from the panel and any extensions thereunder until the said contracts [are] completed 6. An order directing the applicant to pay the 3rd, 4th and 5th respondents’ costs.’ [17] In the light of what is set out above, the two merits orders made by Mhlambi J were incompetent. First, the counter-application had been struck from the roll due to lack of urgency, only as far as KET was concerned. There is no basis for differentiating between KET and the contractors in this regard. Second, the orders were in rem and therefore could not be granted without the consent of KET which was cited in the counter- 11 application and in the order. The second merits order quoted above applies to all the parties including KET, when KET was not a party to the settlement agreement between the Department and the contractors. [18] The approach adopted by the high court is contrary to what the Constitutional Court stated in Airports Company South Africa v Big Five Duty Free (Pty) Ltd) (ACSA)5 The Court held that no order in rem should be granted without hearing all the parties involved. The court should only give its sanction to the agreement being made an order of court after satisfying itself on the merits of the case. It must carefully scrutinise the settlement agreement and thereafter give its reasons for granting such an order.6 [19] Besides the above misdirections, the purported second merits order, binds KET and has the potential to cause it prejudice and yet it did not consent to it. It was therefore not competent for the high court to grant the Department and the contractors the order which affected KET’s rights. In Buffalo City Metropolitan Municipality v Asla Construction (Pty) Limited7 the Constitutional Court, referencing Eke v Parsons8 stated the following: ‘There are sound reasons why a court should carefully scrutinise a settlement agreement before making it an order of court. Once a settlement agreement is made an order of court, it is interpreted in the same way as any judgment or order and affects parties’ rights in the same way. Madlanga J in Eke puts the matter thus: ‘The effect of a settlement order is to change the status of the rights and obligations between the parties. Save for litigation that may be consequent upon the nature of the particular order, the order brings finality to the lis between the parties; the lis becomes res judicata (literally, ‘a matter judged’). It changes the terms of a settlement agreement to an enforceable court order.’ [20] When a court is presented with a settlement agreement which is sought to be made an order of court, it must satisfy itself before doing so that all the parties that are purported to have concluded the agreement of settlement, had in fact agreed to settle. This was not done in this matter. Had the two judges who considered the petition been aware of these circumstances they would most likely have granted leave to appeal. 5 Airports Company South Africa v Big Five Duty Free (Pty) Limited and Others [2018] ZACC 33; 2019 (2) BCLR 165 (CC); 2019 (5) SA 1 (CC) para 2. 6 Buffalo City Metropolitan Municipality v Asla Construction (Pty) Limited [2019] ZACC 15; 2019 (6) BCLR 661 (CC); 2019 (4) SA 331 (CC) para 25. 7 Ibid para 25. 8 Eke v Parsons [2015] ZACC 30;2015(11) BCLR 1319 (CC);2016 (3) SA 37 (CC). 12 Consequently, KET has succeeded to show the existence of exceptional circumstances justifying this Court to set aside its earlier decision and vary it. [21] In conclusion, both KET and the contractors agreed on what ultimately fell to be contained in the order of this Court which follows hereafter, except for costs. Although not participating in this appeal, we were informed that a representative of the Department was present at court and was in full agreement with what was finally incorporated into the order of this Court. [22] As regards costs, the general rule is that the successful party is entitled to its costs. KET is the successful litigant. It is appropriate that the Department pays the costs of KET and the contractors up until 23 June 2023 when the Department filed a notice to abide the decision of this Court. In view of the confusion that accompanied this matter to which all parties contributed to some extent, including KET, the most equitable way to deal with the issue of costs after 23 June 2023 is that each party must pay its own costs. [23] In the result, the following order is made. 3 Leave to appeal is granted. 4 The appeal against the order of the high court dismissing the application for leave to appeal is set aside and substituted with the following order: ‘(a) Leave to appeal is granted. (b) Paragraphs 1 to 5 of the second merits order are set aside and replaced with the following order: (i) An order reviewing and setting aside the decision of the first respondent, acting in his capacity as the accounting officer of the Department of Police, Roads & Transport, Free State, in appointing KET Civils CC and second to sixth respondents on the 21st of February 2019 in the panel PR&T/BID06/2018/19 for the upgrading, periodic routine and special maintenance of all the Free State roads for the Department of Police, Roads & Transport for the duration of 36 (thirty six) months and any contract made under this panel. (ii) An order in terms of s 172(1)(a) of the Constitution of the Republic of South Africa, 1996 declaring that the conduct of the first respondent in constituting the panel as set out above is inconsistent with the provisions of s 217 of the Constitution and is invalid to the extent of its inconsistency. 13 (iii) An order in terms of s 172(1)(b)(ii) of the Constitution, suspending the declaration of invalidity of the contracts of the second to sixth respondents and emanating from the panel and any extensions thereunder until the said contracts are completed. (iv) An order in terms of s 172(1)(b)(ii) of the Constitution, that the orders granted in paragraphs (i) and (ii) above shall not affect the rights of KET Civils CC to pursue any claims for payment emanating from its contract/s and any extensions thereunder. For the avoidance of any doubt, the dispute resolution mechanisms under the contracts shall endure post any termination of the contracts.’ 3 The orders set out above are with effect from 29 April 2021. 4 The first respondent to pay the costs of the appeal, including the costs of the third to the fifth respondents up until 23 June 2023. 5 In relation to the costs which were incurred after 23 June 2023, each party is ordered to pay its own costs. B C MOCUMIE ACTING DEPUTY PRESIDENT Appearances For the Appellant: N Luthuli Instructed by: Webber Wentzel, Johannesburg Symington De Kok, Bloemfontein For the Third to Fifth Respondents: N Snellenburg SC & W A Van Aswegen Instructed by: Peyper 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: 19 April 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 KET Civils CC v The Member of the Executive Committee: Police, Roads & Transport, Free State and Others (497/2022 & 820/2022) [2024] ZASCA 56 Today the Supreme Court of Appeal (SCA) handed down judgment upholding, with costs, an application for leave to appeal against the decision of the Free State Division of the High Court, Bloemfontein (the high court). The background facts were as follows: KET Civils CC (KET) was a close corporation, involved in inter alia road construction. It was the applicant before the Free State Division of the High court (the high court). The first respondent was the MEC: Police, Roads and Transport in his capacity as the head of the Department (the MEC). In February and March 2019 KET was appointed by the Department as a member of the panel of contractors constituted under Panel PR&T/BID062018/19 together with the second to the sixth respondents for the upgrading, periodic routine and special maintenance of all Free State roads for the Department. On 4 November 2020, while the contracts were in existence, the Department wrote to KET and informed it that the Auditor General had discovered, in the course of its 2019/2020 financial year audit, that the panel had been irregularly constituted. Accordingly, it would have to be disbanded and a new panel constituted. The Department asked KET to consent to the termination of the panel. It also added that one of the consequences for the continuation of the use of the panel of contractors would be irregular payment. This led to some consternation on the part of KET, especially when it received no response from the Department to its many requests for clarification. Finally, KET consented to the termination of its contracts with the Department and suspended further work except that which related to traffic control and other safety measures. In February 2021, the Department informed KET that it considered that this conduct amounted to a breach of contract. In consequence, on 29 April 2021 KET approached the high court with a two-part application. Only Part A was relevant to this application for reconsideration. In Part A, KET sought a declaration that the Department initiated the termination of the contracts it had concluded with KET, and that KET was entitled to suspend further works. The Department, in a separate application under a different case number, filed a counter application for ‘self-review’, and sought an order declaring the constitution of the panel of the contractors, and the contracts pursuant thereto unlawful. This was coupled with a just and equitable remedy suspending such declaration of invalidity for the remaining duration of the contract so that they could be performed to their conclusion. The two applications were enrolled to be heard simultaneously on an urgent basis. KET’s application was struck from the roll for lack of urgency and there was a dispute as to whether Department’s counter-application was struck of the roll or not. A settlement agreement between the contractors and the Department was made and it was made an order of court, which KET disputed. KET alleged that it was unaware of any merits that were argued and subsequently an order that was granted. However, upon assessment of the transcripts of 29 April 2021 hearing, it appeared that indeed an order of the court was made despite objections made by KET. To further obfuscate things, KET stated that it became aware that the Department and the contractors were not satisfied with the order which was granted by the high court and sought this order (the first merits order) to be corrected. A revised order (the second 2 merits order), was sent to KET on 13 September 2021. Both the first and second merit orders were dated 29 April 2021. As a result, on 4 October 2021, KET filed its application for leave to appeal against the orders of the high court. In November 2021 KET was informed that the high court would not entertain the application for leave to appeal without an application for condonation. Accordingly, KET applied for condonation for the late filing of its leave to appeal. On 5 May 2022, the high court delivered its judgment and dismissed the application for leave to appeal on the basis that it was out of time and that KET did not explain the delay to the satisfaction of the court. It further held that, there were no prospects of success. Both the application for condonation and the application for leave to appeal were dismissed with costs. KET then petitioned the SCA for leave to appeal, however, the petition was dismissed. Aggrieved by the outcome, KET brought an application before this Court in terms of s 17(2)(f) of the Superior Courts Act 10 of 2013 (the Superior Courts Act) for the reconsideration of this Court’s order dismissing KET’s petition for leave to appeal. The President referred the reconsideration application for oral argument in terms of s 17(2)(d) of the Superior Courts Act. The SCA held that the two merits orders made by the high court were incompetent. First, the counter-application had been struck from the roll due to lack of urgency, only as far as KET was concerned. There was no basis, according to the SCA, for differentiating between KET and the contractors in that regard. Second, the orders were in rem and therefore could not be granted without the consent of KET which was cited in the counter-application and in the order. The second merits order quoted above applied to all the parties including KET, despite KET not being a party to the settlement agreement between the Department and the contractors. The SCA further held that no order in rem should have been granted without hearing all the parties involved. The court should have only given its sanction to the agreement being made an order of court after it satisfied itself on the merits of the case. It should have carefully scrutinised the settlement agreement and thereafter given its reasons for granting such an order. The Court also found that the purported second merits order, bound KET and had the potential to cause it prejudice and yet it had not consented to it. It was therefore not competent for the high court to grant the Department and the contractors the order which affected KET’s rights. In addition, the SCA further held that, when a court was presented with a settlement agreement which was sought to be made an order of court, it should have satisfied itself before doing so that all the parties that were purported to have concluded the agreement of settlement, had in fact agreed to settle. This was not done in this matter. Had the two judges who considered the petition been aware of these circumstances they would most likely have granted leave to appeal. Consequently, KET had succeeded to show the existence of exceptional circumstances justifying this Court to set aside its earlier decision and vary it and thus, KET’s leave to appeal was granted. ~~~~ends~~~~

4187

non-electoral

2024

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA JUDGMENT Reportable Case no: 613/2017 In the matter between: TECHNOLOGY CORPORATE MANAGEMENT (PTY) LTD FIRST APPLICANT ANDREA CORNELLI SECOND APPLICANT ANTONIO JOSE GARRIDO DA SILVA THIRD APPLICANT IQBAL HASSIM NO FOURTH APPLICANT BARRY KALMIN NO FIFTH APPLICANT and LUIS MANUEL RITO VAZ DE SOUSA FIRST RESPONDENT JOSE MANUEL GARCIA DIEZ SECOND RESPONDENT SHARON ANN OBEREM INTERVENING APPLICANT Neutral citation: Technology Corporate Management (Pty) Ltd and Others v De Sousa and Another (Case No 613/2017) [2024] ZASCA 29 (26 March 2024) Coram: WALLIS, MBHA, VAN DER MERWE, PLASKET and DLODLO AJJA Heard: 30 and 31 October 2023 Delivered: 26 March 2024 2 Summary: Companies Act 61 of 1973 – s 252 – claim that manner in which the business of the company has been conducted was unfairly prejudicial, inequitable or unjust to plaintiffs – requirements for proof of unfair prejudice – whether company a small domestic company of the nature of a partnership – growth of company and introduction of a new major shareholder – effect of shareholders agreement on management of company – whether previous relationship between original shareholders continuing to exist – whether expectations based on previous relationship continuing to exist Dismissal of major shareholder as employee – whether unfair exclusion from company – effect of binding award by CCMA that dismissal neither procedurally nor substantively unfair – rule in Hollington v Hewthorn to be confined to decisions in criminal cases – test for admissibility of CCMA award whether relevant – prima facie proof that dismissal not unfair – onus on plaintiff to demonstrate that notwithstanding award dismissal unfairly prejudicial to him. Shareholder no longer employed in company – locked in because unable to dispose of shares as provided in shareholders’ agreement – whether unfair prejudice if no offer made to acquire their shares – no obligation to make such an offer unless exclusion or other prior conduct caused unfair prejudice – no right of unilateral exit from the company at the cost of the company or the remaining shareholders – where no obligation to negotiate to acquire shares failure to do so not unfair. Loss of trust and confidence by minority shareholders in management by majority – unfair prejudice if occasioned by lack of probity on part of the majority – necessary to show conduct that is dishonest or falls short of the standard of fair dealing required of majority in managing the affairs of the company – unfair prejudice not established by evidence that if managed differently company would have been more profitable. 3 Shareholder dispute – majority shareholders securing that the company’s funds are expended in defending the action – in principle improper if company has no material interest in the outcome of the litigation – where substantive relief is sought against company it is not a nominal defendant – does not mean that company’s resources should be used to defend the interests of the majority shareholders – company should only engage on matters having a direct impact on its own interests – remedy for improper use of company’s resources to fund litigation on behalf of shareholders an interdict and order that majority refund amounts disbursed in their interests – does not entitle minority shareholders to compel the company to expend its funds in payment of the minority’s costs. Fair offer – considerations. Buy-out – before ordering company to purchase minority’s shares court must consider impact on the company – form of order. Fair trial – what constitutes – effect of a one-sided approach to issues - interruptions during cross-examination and restricting the time to be spent on cross-examination – need for civility in exchanges between judge and counsel. 4 ORDER On appeal from: Gauteng Division of the High Court, Johannesburg (Boruchowitz J, as court of first instance) reported sub nom: De Sousa and Another v Technology Corporate Management (Pty) Ltd and Others 2017 (5) SA 577 (GJ). It is ordered that: 1 The application by the intervening applicant for conditional leave to intervene is dismissed and the intervening applicant is ordered to pay the costs of opposition by the first and second respondents in the main application, such costs to include the costs of one counsel. 2 The application for leave to appeal is upheld with costs, such costs to include the costs of the application for leave to appeal before the high court and the costs of two counsel. 3 The appeal is upheld with costs, including the costs of two counsel and the judgment of the High Court is altered to read as follows: (a) The plaintiffs’ claim is dismissed with costs, such costs to include those consequent upon the employment of two counsel. (b) The costs of the adjournment on 2 October 2012 including the costs consequent upon the employment of two counsel are to be costs in the cause in the action. (c) The plaintiffs are ordered jointly and severally, the one paying the other to be absolved, to pay the costs of the application to amend the particulars of claim dated 9 December 2013 and the costs of the application in terms of Rule 35(3) dated 4 December 2015, such costs to include those consequent upon the employment of two counsel. 5 (d) Each party is to bear his or its costs of the application in terms of s 163 of the Companies Act 71 of 2008 and in respect of the recusal application by the first applicant. JUDGMENT Wallis AJA (Mbha, Van der Merwe, Plasket and Dlodlo AJJA concurring) [1] The central issue in this application for leave to appeal is whether the high court’s order, under s 252 of the Companies Act 61 of 1973 (the Act), that the First Applicant, Technology Corporate Management (Pty) Ltd (TCM), purchase the shares in TCM owned by the First Respondent, Mr Luis de Sousa, and the Second Respondent, Mr Jose Diez, should be upheld or set aside. The applicants other than TCM are the remaining shareholders of TCM, namely Mr Andrea Cornelli, Mr Antonio (Tony) da Silva and the Iqbal Hassim Family Trust (the Trust) represented by its trustees, the fourth and fifth applicants. The Trust was the vehicle through which Mr Iqbal Hassim acquired shares in TCM. [2] This judgment is regrettably lengthy, as was the trial before Boruchowitz J. To simplify reading I will refer to Mr de Sousa and Mr Diez jointly as the plaintiffs and to them individually as Luis and Jose, as was done at the trial. The present applicants will be referred to collectively as the defendants in relation to the proceedings in the high court and as the appellants in relation to the proceedings in this court. Individually, Messrs Cornelli, da Silva and Hassim will be referred to as Andrea, Tony and Iqbal. Three other individuals who feature in the 6 narrative, Mr Wayne Impey, the Chief Financial Officer (CFO) of TCM and Messrs Frank and Fabio Cornelli, who were responsible for the operations of what is referred to as the Supplies Division of TCM, will be referred to as Wayne, Frank and Fabio. No disrespect is intended by the use of their given names without conventional honorifics. Conventional usage is adopted in relation to other individuals. [3] In view of the range of issues that arise in this appeal and must be dealt with in the judgment it is convenient to preface it with an index. The issues are dealt with as follows: Section Paragraphs (a) Introduction 4 – 15 (b) Litigation history 16 – 27 (c) Preliminary issues (leave to appeal, joinder and application for leave to intervene in the appeal). 28 – 40 (d) The pleaded case 41 – 50 (e) The evidence 51 – 74 (f) Section 252 75 – 114 (g) Luis’s claim of legitimate expectations and exclusion 115 – 152 (h) Luis’s dismissal 153 – 174 (i) Absence of genuine negotiations and a fair offer 175 – 188 (j) Loss of trust occasioned by a lack of probity 189 – 234 (k) Favourable treatment of Iqbal 235 – 241 (l) TCM’s payment of litigation costs 242 – 247 (m) Jose’s claim 248 – 250 (n) Conclusion on unfair prejudice 251 – 253 (o) The high court’s order 254 – 259 (p) Fair trial issues 260 – 270 7 (q) Costs 271 – 277 (r) Order 278 Introduction [4] In the early 1980s, while they were training as customer engineers on the installation and repair of IBM computers, two young men, Luis and Andrea became good friends. They were good at their work, with Luis becoming a technical specialist and Andrea, who had a more commercial bent and was good with customers, becoming an operations specialist. In 1987, after IBM withdrew from South Africa, leaving their employer, ISM, as the sole agent for IBM products in South Africa, Andrea and Luis decided to set up in opposition to ISM providing computer repair services to IBM users. An accountant they approached for advice said that they should establish a company through which to operate the business. They did so and in due course that company became TCM. Although the initial plan had been for their line manager at ISM to join them, he withdrew at a late stage and TCM was incorporated with each of them owning 50% of the issued shares and each contributing their different skills to the venture. [5] TCM was successful and expanded rapidly. Within a month or two of its establishment, Jose, also an IBM trained technician, was employed to work with Luis, and about two years later Tony, also formerly of IBM, was employed to work in sales with Andrea. Both Jose and Tony were promised shares in TCM, although the extent of the stakes they would receive was indeterminate and the promise was only given effect in 2004. Within a few years of its founding TCM had, through the acquisition of stakes in existing local businesses, established branches in Durban, Cape Town, East London (later moved to Port Elizabeth, as it was then known, 8 now Gqeberha) and Bloemfontein. Under pressure from customers to extend the range of its services it also acquired 50% shareholdings in two existing companies providing software and network services. An increase in the number of employees accompanied the expansion and in 1990 an informal Board of Directors was constituted comprising Andrea as chair, Luis and representatives of the related companies as the remaining members. In truth this was merely a committee created to co-ordinate activities of the various companies involved in some way with TCM.1 [6] One of the ‘directors’ was Andrea’s brother, Frank. He did not work for TCM, but had his own company, Sternco (Pty) Ltd, which imported heavy duty machinery for large industrial corporations such as Iscor and was sharing TCM’s premises on an unexplained basis. He was Sternco’s representative on this board of directors. He became involved in TCM’s business because TCM needed to obtain items of IBM equipment and IBM spares from overseas. IBM disinvested from this country, along with other large multi-national corporations, as part of a campaign to place pressure on the apartheid regime. It appointed ISM as its sole South African representative. TCM could not source the equipment and spares it needed from either ISM, with which it was in competition, or directly from IBM. Apparently, Jose was able to identify and contact potential overseas suppliers, but TCM had no expertise in the process of collecting these items, arranging for their carriage by air or sea to South Africa, arranging insurance, freight and customs clearance and making payment through the international banking system. It turned to Sternco to undertake this work as an adjunct to the latter’s existing business. After Sternco was liquidated in about 1995, Frank and another 1 This is reflected in the fact that the minutes of the first meeting of the committee record that service on the committee was voluntary. 9 brother, Fabio, continued to attend to the importation of equipment and spares for TCM, as well as continuing Sternco’s other business. This was done through the Supplies Division. It will be necessary to revert to the basis upon which this operated later in this judgment. For the present it suffices to introduce Frank and Fabio and the origin of their involvement with TCM. [7] TCM’s business was successful and it expanded the scope of its operations. In addition to the branches it established service centres in 37 places in South Africa to enable it to respond rapidly to customer requests. This was important as major clients included a bank and a healthcare business whose activities extended beyond the major cities. According to its Annual Financial Statements (AFS), TCM earned annual revenues of R165 million in the 2002 financial year. In the following year that increased to R227 million. Andrea and Luis were the sole directors and their directors’ emoluments for those years, apart from any other benefits they may have enjoyed by way of salary, bonuses, allowances and the like, amounted to around R2.6 million, which they shared equally. Their roles within the company were reasonably well-defined. Andrea was effectively the chief executive and Luis headed up the technical side and the accounting. Jose was in charge of logistics and supplies and Tony’s role was in sales and marketing. These four were the key figures, although the staff complement had increased to several hundred. [8] In 2003, TCM lost a tender for a substantial contract with Standard Bank because it lacked an acceptable BEE profile. Andrea believed that, unless this was remedied, the future of the business was threatened and set about looking for a suitable person to introduce to the company to 10 enhance its BEE profile to a suitable level. He identified Iqbal as being able to fill that role. Iqbal had a lengthy career with IBM and was at the time working for IBM in a senior position in Dubai. On 15 March 2004, heads of agreement were signed between Andrea, Luis, Tony, Jose, Iqbal and TCM, as well as the software and networks associated companies and the two outside shareholders, each of whom held a 50% share in those companies. The heads of agreement provided for the then existing shareholders of TCM, being Andrea and Luis (40% each) and Tony and Jose (10% each) to sell a total of 25.1% of the issued share capital in TCM to Iqbal. This would dilute Andrea and Luis’s stakes to 30% each and those of Tony and Jose to 7.45% each. In addition Iqbal was to acquire a 12.6% stake in the network and software companies at the expense of the two outside shareholders. Iqbal took up his position in TCM on 1 April 2004, after the signature of the heads of agreement, but before the conclusion of the formal sale and shareholders agreements that it contemplated. The sale of shares agreements was only concluded on 29 June 2005. Attached to the sale of shares agreement was the following organogram showing the corporate structure after implementing the transaction. 11 [9] The advent of Iqbal marked a distinct change in the internal dynamics of TCM and the commencement of the deterioration in the relationship between Luis and Andrea. In his founding affidavit in earlier application proceedings seeking similar relief in terms of s 252 of the Act (‘the s 252 application’), Luis said that from approximately 2007 the relationship between the members of TCM began to deteriorate. In evidence he tied this to certain events in November 2007. However, there were undoubtedly earlier signs of problems and particularly of a rift between Luis and Andrea. The earliest occurred in relation to two addenda to the sale of shares agreement in September 2005. Both dealt with the computation of the price. On 19 September 2005, Wayne, who 12 had previously been TCM’s auditor and had been appointed as CFO and a director in 2004, brought them to Luis for signature. The two were related, because the one dealt with the computation of the purchase price in terms of the formula in the agreement and the other explained that the price had been computed on the basis of the division known as the TCM Supplies Division reflecting a nil value. Luis signed the first without demur. The second one he refused to sign, although Jose signed both. The treatment of the Supplies Division was one of the grounds upon which Luis and Jose claimed that they had suffered unfair prejudice. As foreshadowed in paragraph 6 it will be dealt with later. [10] Another sign of problems was that, in the emails that were the principal means of communication among the executives, Luis increasingly questioned or challenged Andrea and the exchanges became personal and aggressive suggesting a breakdown in the relationship between the two men. An early exchange in January 2006 captures the tone of these communications. It started with Andrea receiving an email from IBM advising that there had been excellent feedback from the IBM compliance team regarding their performance on fourteen of TCM’s most profitable deals, resulting in a perfect IBM audit. The following morning he circulated the email to Luis, Iqbal and Tony with the suggestion that a staff member, Justine Impey, and her spouse, be awarded a company-paid overseas trip in appreciation of her contribution to the audit and asking for their approval or disapproval. Fourteen minutes after sending the email he received the terse response from Luis ‘Disagree.’ Not surprisingly he replied, asking: ‘Please provide brief motivation on why you disagree?’ The response was:2 ‘I have been over this before and I don’t think that I have to do it again. 2 This and other emails are reproduced in this judgment as sent. 13 I guess this is a sort of democracy and majority wins. In a game there are always winners and losers. Fortunately for you have hand picked the other players and therefore we will never be playing on a level field. You sold it to me and I bought it. I’ll just have to live with it.’ [11] The original email distributing good news raised a simple issue that one would have thought could be resolved by way of a five minute conversation between individuals who had known one another and worked together amicably for years. Given the rather unpleasant tone of Luis’s response, it is no surprise that Andrea’s reply was equally sarcastic and reflected some frustration with Luis. It read: ‘I respect your views and decisions. Its my (democratic) view that you are lacking in understanding of who/what contributes real value at TCM. You references to I “sold you” I ‘hand picked” I created “unlevel playing field” is incorrect, disrespectful and indicative of your continual (democratic) lack of confidence and trust in my intentions and methods. I’ve tried and will continue to better your understanding and confidence, all within reason and respect. I urge you be as respectful, co-operative and if possible less (pre) judgmental.” The email ended with an invitation to discuss the issue or any other issue ‘in restoring your confidence and satisfaction in myself and/or TCM’. The contrast between the tone of this exchange and an earlier exchange of emails between the two men in 2002 was stark. Clearly something was going wrong well before the events of November 2007. [12] The most cursory reading of the documents, the evidence and the record of the proceedings referred to below in the Commission for Conciliation, Mediation and Arbitration (the CCMA), reveals that there was growing tension between Luis and Andrea. In November 2007 matters came to a head and Luis’s disgruntlement turned into action. He 14 consulted attorneys and in May 2008, at their suggestion, approached Mr John Geel, an accountant with KPMG, to undertake a valuation of his shares. In his affidavit in the s 252 application he said that he did this because his and Jose’s positions were becoming untenable and that it would be in the best interests of all if they extricated themselves from the relationship. The terms of engagement of Mr Geel said that his task was ‘to assist Luis with an indicative value of the TCM Group to assist with possible future negotiations with prospective shareholders and/or investors’. As there was no question of any such negotiations occurring, the only purpose of the valuation was to be used in Luis’s efforts to extricate himself from the company by having the company, or the other shareholders, buy his shares. By then he and Jose, although the latter seems to have played a fairly passive role, had resolved to exit the company and were setting about achieving that aim.3 The relationship between him and Jose on the one hand and Andrea on the other, and Luis’s relationship with Iqbal, deteriorated. The record suggests that Andrea and the other directors were aware that Luis was engaged in consultations with legal and commercial advisers with a view to leaving the company. [13] On 19 February 2009 a meeting was convened with Andrea at the instance of Luis and his advisers, Mr Geel and Mr Buchler, his attorney. Mr Geel testified that the purpose of the meeting was to put a proposal that would have involved the purchase of Luis’s and Jose’s shares in TCM. Initially it appeared that the parties would make progress because, Luis and Jose wished to sell and Andrea made it clear that he was desirous of seeing them exit the company. He said he would be more than 3 His evidence during the CCMA hearing was that it was only in August that he seriously started considering exiting the business, but this seems unlikely. In his founding affidavit in the s 252 application he said that when he approached KPMG it was with a view to the on-sale of his shares. 15 happy to assist in a process over the next three months to make that happen ‘in good faith’. He put forward three criteria as indications of what he regarded as good faith. They were that Luis and Jose would reduce their involvement in the day-to-day operations of the company, take a reduction in salary and relinquish their executive directorships. There was then a caucus between the plaintiffs and their advisers. According to Mr Geel, on their return the response was that the conditions were unacceptable to Luis and Jose and:4 ‘… at that point the meeting became acrimonious and I say acrimonious, was hostile, swearing, bad language in the meeting and Andrea said that was it, he got up, he stormed out, he left the meeting, gone. The meeting then adjourned. [14] The following day, Luis was suspended from his employment and presented with three disciplinary charges. An independent chair was appointed to deal with the disciplinary enquiry, which culminated in Luis being dismissed from his employ with TCM with effect from 31 March 2009. Luis appealed unsuccessfully to an independent appeal tribunal and, after that failed, he approached the CCMA. On 30 October 2010, after an eleven day hearing, the CCMA held that his dismissal was both substantively and procedurally fair and dismissed his claim based on unfair dismissal. He did not review that decision before the Labour Court. Instead he decided, in conjunction with his legal advisers, to concentrate his efforts on the s 252 application. That application had been launched on 28 September 2009 in parallel to the CCMA proceedings.5 In it he sought an order that either TCM, or Andrea, Tony and the Trust, purchase his and Jose’s shares in TCM for a price of R160 million or an amount to 4 It was put to Mr Geel that the initial reaction was that this was a fair proposal, but that the problem arose when Mr Buchler said that if Andrea didn’t get on with it quickly Luis would return to work. While Mr Geel did not dispute this I prefer not to make a factual finding on whether that occurred. 5 Case number 09/41464. 16 be determined. Jose was still employed when those proceedings commenced and was never dismissed, but resigned from his employment with TCM on 2 April 2013. [15] The present action was instituted on 14 December 2010 before the s 252 application could be heard. It sought substantially the same relief on substantially the same grounds.6 After a trial lasting for 80 days that gave rise to the record of 17 438 pages now before us, Boruchowitz J upheld the plaintiffs’ claims and ordered TCM to purchase their shares at a value to be determined after consideration of a valuation of the shares by a referee. The judgment runs to 156 pages and 362 paragraphs. An application by the five applicants for leave to appeal was dismissed on 24 May 2017 and Andrea, Tony and the Trust were ordered to pay the costs on an attorney and client scale, including the costs of two counsel. On 7 September 2017 this court (Navsa ADP and Swain JA) referred their application for leave to appeal for oral argument in terms of s 17(2)(d) of the Superior Courts Act 10 of 2013, subject to the usual order that a full record be filed and that the parties be prepared, if called upon to do so, to argue the merits of the appeal. Given the size of the record and the scope of the appeal this Bench was specially constituted to hear the appeal before the commencement of the fourth term. We are indebted to counsel for their helpful submissions and their co-operation in enabling the appeal to be fully argued in the time available. 6 The action was launched before the Companies Act 71 of 2008 came into force on 1 May 2011 and was preserved by the provisions of Item 10(1) of Schedule 5 to the 2008 Act. 17 The litigation history [16] I echo the words of Ponnan JA in Louw v Nel7 that this is a case that is by no means easy for an appellate court to deal with satisfactorily. That is not only because of the voluminous record and the confused presentation of the case and the defence, but also because time did not stand still while the litigation wended its way through the courts. The high court’s judgment contained an explanation of the history of the litigation. This contained very serious findings of bad faith against Andrea and stinging criticism of the conduct of the case by leading counsel for the defendants. These underpinned the making of punitive orders for costs against the defendants and necessitate a traverse of that history. Summons was issued on 14 December 2010. It was amended in 2012 to include reference to events after the issue of the summons. The trial was set down for hearing on 2 October 2012, but was adjourned because it could not be completed in the allocated time. The defendants, other than TCM, were ordered to pay those costs on the attorney and client scale, including the costs of two counsel and qualifying fees for an expert witness Professor Wainer. That order was made despite the fact that the defendants had wanted to proceed with the trial on the available dates, but objected to Professor Wainer giving evidence, because no expert notice had been delivered in respect of his evidence, nor had he attended any meeting of experts as required by the Gauteng Practice Manual. The order is challenged in this appeal. [17] On 9 December 2013, shortly before the trial was due to recommence, having been set down for four weeks from 27 January 2014, the plaintiffs served a notice of intention to amend the particulars of claim to introduce additional financial material up to 2013 and the 7 Louw and others v Nel [2010] ZASCA 161; 2011 (2) SA 172 (SCA) para 1. 18 facts surrounding Jose’s resignation in 2013, together with an allegation amounting to a claim that he was constructively dismissed. The application to amend was opposed and then withdrawn on 16 January 2014, without a tender for costs. Leading counsel for the plaintiffs told the judge that they did not intend to adduce evidence outside the scope of the pleaded issues and that the evidence foreshadowed in the notice would be led ‘for corroborative and evidential’ reasons. The nature of these was not explained. He said in regard to the 2013 financial material that ‘we’re not complaining about 2013, we’re not extending the period of complaint’. [18] In reality the evidence raised entirely new substantive issues that were not pleaded. Over the objections of the defendants’ counsel, Jose dealt with his treatment leading up to his resignation in 2013. The judge understood him to be claiming constructive dismissal and the heads of argument in this court contended that he was constructively dismissed. Professor Wainer dealt at length with the proper accounting treatment of maintenance spare parts. This was not referred to in the pleaded claim and only arose as a result of the revised expert report by Mr Geel produced in anticipation of the amendments to incorporate the 2013 material. In his earlier reports there was no reference to maintenance spare parts as a separate item. The defendants other than TCM were ordered to pay the costs of the plaintiffs’ application to amend on the attorney and client scale, including the costs of two counsel, even though the application was witdrawn. That order is also challenged in this appeal. [19] When the trial commenced in January 2014 the respondents’ leading counsel delivered his opening address during the first two days and the applicants then applied for a separation of issues in terms of Rule 19 33(4). That consumed six days of hearing followed by a week’s adjournment during which the judge prepared a written judgment.8 The hearing of evidence commenced on 14 February 2014 with Mr Geel. A consolidated summary of his evidence had been delivered incorporating material up to 2013. Defendants’ counsel objected to the plaintiffs leading evidence in regard to events falling outside the times specified in the pleadings, being the matters raised in the withdrawn notice of amendment and derived from the consolidated report of Mr Geel. The objection was overruled and Mr Geel gave evidence for four days. The trial was then adjourned at the defendants’ request and cost. [20] On 3 December 2014, during the adjournment, the defendants made an offer to purchase the plaintiffs’ shares for a price of R46 995 000 in the case of Luis and R7 097 000 in respect of Jose, supported by a valuation from TCM’s auditors, Grant Thornton. The offer was open for acceptance by either or both of Luis and Jose until 17 December 2014. On 5 December 2014 the plaintiffs’ attorneys wrote to the defendants’ attorney saying that the offer would be regarded as part of a genuine attempt at trying to resolve the matter, but that the deadline could not be met. The response was to extend it to 19 January 2015. The record contains no other response from the plaintiffs until a letter dated 12 February 2015, noting that the offer had lapsed, but indicating a willingness to engage in settlement negotiations. The defendants’ attorneys asked for a meeting, but nothing came of that. [21] The hearing resumed on 5 May 2015. Notwithstanding that at the end of the previous hearing counsel had said that he had no further 8 De Sousa and Another v Technology Corporate Management (Pty) Ltd 2016 (6) SA 528 (GJ) (De Sousa (1)). 20 questions for Mr Geel, further evidence in chief was led from him dealing with facts about the performance of the company in 2014. These were derived from a fresh summary of Mr Geel’s evidence and a summary of Professor Wainer’s evidence. Leading counsel for the defendants noted an objection to this evidence being led but, given the previous ruling on the introduction of the 2013 evidence, merely so as to have it on record and without any expectation that the objection would be upheld.9 Mr Geel’s evidence in chief continued for a further day and a half. Thereafter his cross-examination commenced. It endured for eighteen days, with a good deal of time being lost due to interlocutory matters and discussions between counsel and the judge, primarily over the direction and duration of the cross-examination. Eventually on 1 June 2015, the judge directed that by midday the following day Mr Geel was to be ‘out of the witness box’. When midday came the following day there was a further debate about the duration of the cross-examination, but ultimately it concluded on 2 June 2015, subject to the reservation of a single issue. [22] Luis’s evidence was led on four days thereafter. On 9 June 2015 the judge informed the parties that he had discussed the course of the case with the Judge President in the light of its length and the fact that he was due to retire from active service as a judge at the end of July 2016. An arrangement had been made for it to be set down for the whole of the first term of 2016. The Judge President had directed that: ‘Whether or not the matter is finalised at the end of the first term of 2016 the parties shall not be permitted to set down or enrol the matter for further hearing in this court. Judgment shall be delivered on the basis of the evidence which at that stage has been adduced. … The parties are directed to take all necessary steps in order to finalise the matter by not later than the last day of the first term of 2016.’ 9 Inexplicably, but typically for this trial, it took 14 pages of the record to note a simple objection. 21 After this direction had been given Luis’s evidence continued for a further three days and the proceedings were then adjourned on 11 June 2015 to 25 January 2016. [23] The trial resumed on that date, but the following five days were taken up with matters arising from an application by Luis under s 163 of the 2008 Act, aimed at compelling TCM to pay his costs of the litigation. TCM (but not the other defendants) opposed the s 163 application and, in the opposing affidavit, sought Boruchowitz J’s recusal from hearing that application, but not the trial. The grounds advanced were that in making the two earlier costs orders against the defendants other than TCM, he had expressed the view that TCM was an innocent and purely nominal party in the s 252 litigation and described the other four defendants as ‘wrongdoers’.10 [24] In December 2015 TCM had declared a dividend, but withheld Luis’s share because his by then divorced wife, Mrs Sharon de Sousa (now Mrs Oberem, the intervening applicant), claimed that one half of it be paid to her because a division of the joint estate formed part of the divorce order. TCM issued an interpleader summons and paid the money into its attorney’s trust account. This prompted Luis to add a further claim to his s 163 claim. This was to be paid the full amount of the dividend declared in December. When the trial resumed, a week was spent dealing with these matters including two days on the recusal application. On the morning that the parties were going to argue the s 163 application, an agreement was reached between Luis and Mrs Oberem, who had now applied to intervene in the trial, that the dividend could be paid and each 10 The view is echoed in his judgment and will be the subject of consideration at a later stage of this judgment. 22 would receive a portion of it. This resulted in the s 163 application not proceeding and the costs of the recusal application and the s 163 application were reserved. At the end of the trial the defendants, other than TCM, were ordered to pay the costs of both applications on the attorney and client scale, including the costs of two counsel. That order is also challenged in this appeal, in part on the grounds that only TCM was a party to those applications and not the other defendants. Andrea deposed to an affidavit confirming certain facts and specifically recorded that he otherwise abided the decision of the court on the merits. The other defendants did not oppose the application. [25] When the matter resumed on 3 February 2016, Luis’s cross-examination started. It continued for nine days until 11 February 2016, when the judge made an order that: ‘Your cross-examination will cease tomorrow afternoon at 4 o’clock. You’re afforded another day to cross-examine Luis.’ The cross-examination ended the following day, although not without a protest being registered over its foreshortening. Luis was re-examined the following day and Jose then gave evidence. His evidence in chief took about a day and he was then cross-examined for about two days in all. When that was finished, plaintiffs’ counsel applied for, and after argument was granted, leave to recall Luis on certain stock sheets referred to in the cross-examination of Jose. That took the balance of that day and some of the following day. [26] On 22 February 2016 Mr Geel’s cross-examination was resumed. He was re-examined on 24 February and then further cross-examined on 25 February 2016. Once he had completed his evidence Professor Wainer gave evidence and was cross-examined over three days before the 23 plaintiffs’ evidence was concluded on 1 March 2016. The following day the defendants’ case was closed without calling any witnesses. Subsequently the parties addressed oral argument over five days and the judgment was delivered on 31 March 2017. Effectively the judge upheld every allegation made by the plaintiffs. His primary finding was that this was a small domestic company of the nature of a partnership and that the plaintiffs had been excluded from participation in its management in a manner that was unfairly prejudicial to them. In addition he held that there had been a failure to negotiate in good faith to enable the plaintiffs to exit the company and this failure on its own constituted further unfairly prejudicial conduct. He dealt with each of the other allegations in the particulars of claim and upheld all of them. His view was that these showed a lack of probity by Andrea in the conduct of the affairs of TCM that underlay the breakdown in relations between him and Luis and constituted a further ground of unfairly prejudicial conduct. [27] In order to determine the appeals against certain costs orders as well as the fair trial issue it will be necessary to look in greater detail at some of the reasons for the protracted nature of the proceedings. An enormous amount of time was taken up by debates over interlocutory issues and procedural matters. At the outset, six days were devoted to arguing the application to separate the issues and the rest of the second week was spent in the preparation of a written judgment. Five days were spent over the s 163 application, the recusal and the related disputes. Time was repeatedly wasted over lengthy debates between the judge and counsel for the defendants, such as one that occurred on 23 February 2016. Mr Geel was about to be recalled to deal with one outstanding issue from his cross-examination and virtually a whole day was spent in debating whether he could deal in re-examination with some work he had 24 done since his previous period in the witness box. The debate stretched over 118 pages of the record and took two-thirds of the day, while the re-examination took 143 pages and the further cross-examination it engendered 109 pages. That was a particularly flagrant example, but there were many others in the record. Throughout the trial the evidence was interspersed with regular exchanges between counsel and counsel, and the judge and counsel. These started with interruptions that became arguments and then wandered all over the terrain of the case without any apparent purpose. Time was taken up with repeated judicial warnings that the proceedings were becoming unduly protracted. The protests these engendered from leading counsel for the defendants – not counsel who appeared before us – further protracted the trial. None of this served to facilitate the smooth running of the case. Preliminary issues [28] The first issue is whether leave to appeal should be granted. If granted, the applicants raised two points in limine that it contended were dipositive of the appeal. The first was that the high court’s order did not include an order in terms of s 252(3) of the Act for the reduction of the share capital of the company in consequence of the order that the company buy the respondents’ shares. That was not a point in limine, but a possible flaw in the order granted by the high court and could only be properly considered at the end of the appeal. The second was that Mrs Oberem, should have been joined in the action after she divorced Luis on 26 October 2015. She had applied for leave to intervene in the trial, but her application had been dismissed and leave to appeal refused. Her further application to this court for leave to appeal was dealt with simultaneously with the application for leave to appeal in the present case. Orders referring each of them for oral argument were granted in 25 similar terms on the same day, 7 September 2017. When Mrs Oberem’s application was heard a consent order was made in circumstances dealt with below. Nevertheless, on 20 October 2023, an application was delivered on her behalf for leave to intervene in this appeal if leave to appeal were to be granted. The second point in limine and the application to intervene in this appeal are intertwined and it is convenient to deal with them together. Leave to appeal [29] This case raised a number of points in regard to the proper approach to s 252 of the Act. While that section has now been repealed by the Companies Act 71 of 2008 (the 2008 Act), decisions on the earlier provision will be of assistance in relation to cases arising under s 163(1) of the new Act,11 which substantially re-enacts it.12 In addition the applicants have reasonable prospects of success if granted leave to appeal on the merits. Together those factors mean that leave to appeal must be granted. [30] One further matter must be mentioned. The applicants raised a contention that they were denied a fair trial. Mr Green SC, who appeared before us on behalf of the applicants, but was not involved in the trial, raised the relevant points in appropriately moderate language by reference to passages in the record. For his part, Mr Subel SC, who appeared for the respondents at the trial and before us, said that ‘It was a thoroughly unpleasant trial.’ The record reveals some disconcerting 11 Grancy Property Ltd v Manala and Others [2013] ZASCA 57; 2015 (3) SA 313 (SCA) paras 22-32; Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others 2014 (5) SA 179 (WCC) paras 54-56. In the latter case at para 54 Rogers J doubted whether the new section provided a much wider scope for judicial intervention than its predecessor. 12 Freedom Stationery (Pty) Ltd and others v Hassam and Others [2018] ZASCA 170; 2019 (4) SA 459 (SCA) para 26; Parry v Dunn-Blatch and others [2024] ZASCA 19, para 20. 26 exchanges between counsel and between leading counsel for the defendants and the judge. An application was made for the judge’s recusal in relation to an interlocutory application. The judgment is in parts couched in immoderate language when expressing displeasure with the manner in which the applicants’ defence to the claim was conducted. In refusing leave to appeal the judge recognised the serious nature of the allegations made in relation to his conduct during the trial, but characterised them as ‘nothing less than an abusive, derogatory, ad hominem attack on a presiding judge’. Regrettably, this conveyed that the judge was overly sensitive to the allegations and regarded them as a personal affront.13 [31] It is unfortunate that in the interests of justice the judge did not grant leave to appeal, so that an appeal court could express a view on the matters he described in these terms. He cited the following paragraph from the judgment of the Constitutional Court in Bernert v ABSA Bank:14 ‘Apart from this the applicant has made serious allegations against judges of the Supreme Court of Appeal. These allegations concern the proper administration of justice. They strike at the very core of the judicial function, namely, to administer justice to all, impartially and without fear, favour or prejudice. Compliance with this requirement is fundamental to the judicial process and the proper administration of justice. This is so because it engenders public confidence in the judicial process, and public confidence in the judicial process is necessary for the preservation and maintenance of the rule of law. Bias in the judiciary undermines that confidence.’ [32] That is an important statement of principle, but the judge should have followed the guidance given in the following paragraph, which he did not quote, in regard to the desirability of such allegations being 13 Moch v Nedtravel (Pty) Ltd t/a American Express Travel Service 1996 (3) SA 1 (A) at 14G-J. 14 Bernert v Absa Bank Limited 2011 (3) SA 92 (CC) para 21. 27 considered by a court that could investigate whether there was any substance in them. That paragraph reads:15 ‘These are important constitutional issues that go beyond the interests of the parties to the dispute, for an independent and impartial judiciary is crucial to our constitutional democracy. It is, therefore, in the public interest that these issues be resolved. As these allegations are made against the Supreme Court of Appeal, there is no court that can investigate these issues other than this court. This court, as the ultimate guardian of the Constitution, has the duty to express the applicable law, in to enhance certainty among judicial officers, litigants and legal representatives, and, thereby, to contribute to public confidence in the administration of justice.’ In Bernert the Constitutional Court granted leave to appeal for those reasons without referring to the prospects of success, because the nature of the issues raised meant that it was in the interests of justice to do so. For the same reason leave to appeal should have been granted in this case in that this court could consider the complaint and address it to the extent necessary. Accordingly, leave to appeal will be granted. Joinder and the application to intervene [33] The circumstances in which Mrs Oberem applied to intervene in this appeal were set out earlier. The application was dealt with at the outset of the hearing and dismissed on the basis that reasons and appropriate costs orders would be given in this judgment. These are the reasons and they also dispose of the second point in limine. [34] For reasons that do not concern us it was thought preferable for Mrs Oberem’s application for leave to appeal to be heard before the application in the present case. It came before this court on 27 May 2019. Mrs Oberem and Luis, together with Jose and TCM, arrived at a 15 Ibid, para 22 28 settlement that was embodied in a consent order. The relevant provisions of that order read as follows: ‘1 A Liquidator is appointed for the determination of the liabilities and assets of the former joint estate, of the Applicant [Mrs de Sousa] and the 1st Respondent [Luis]. In so far as is necessary the appointed liquidator is authorised to discharge all liabilities, liquidate and distribute all of the assets of the joint estate including the 30% shareholding in the 3rd Respondent currently registered in the name of the 3rd Respondent … 2 … 3 Subject to and once all the liabilities of the joint estate have been discharged, the extent of which shall be determined by the liquidator, the Applicant shall be entitled to be registered as a member of the 3rd Respondent as to 15% of its issued share capital, or such portion thereof as may remain thereafter after the discharge of the liabilities as aforesaid. 4 The 1st Respondent shall remain registered as to 30% of the share capital of the 3rd Respondent, until such time as the rights of the Applicant and the 1st Respondent in relation to such shares are finalised. 5 – 10 … 11 Nothing in this order shall affect the costs involved in the trial action under case 50723/2010 or in the appeal pending before the SCA. It is specifically recorded that the Applicant [Mrs Oberem] makes no admission as to any liability of the joint estate and of herself with regard to any costs relating to the trial action and/or any further proceedings relating thereto.’ [35] Mrs Oberem explained in her affidavit in support of the present application for leave to intervene that she had been advised that should leave to appeal be granted this court’s order established her direct legal interest in the present appeal. She believed that there was a conflict between that order and the high court’s order in the trial and that in view of the order in her appeal ‘it is no longer possible for this Honourable Court to uphold the judgment of Mr Justice Boruchowitz in respect of the 29 main matter to the extent of my 15%, or to reverse or vary that order insofar as it may pertain to my 15%’. [36] It was by no means clear what was sought to be achieved by the intervention if leave to appeal were to be granted to the Applicants and the appeal proceeded on its merits. If leave were refused, the high court’s order would remain in place unamended and would encompass what Mrs Oberem referred to as ‘my 15%’. If leave was granted, either the appeal would succeed, in which event the high court’s order would be set aside, or it would fail, in which event it would remain in place unamended. Either way the aim of protecting her 15% would not be achieved, at least not by way of some adaptation or amendment of the high court’s order. [37] A more fundamental difficulty lay with the submission that the effect of the earlier order was to give Mrs Oberem a direct legal interest in the subject matter of the suit. In SA Riding for the Disabled Association16 the Constitutional Court said: ‘It is now settled that an applicant for intervention must meet the direct and substantial interest test in order to succeed. What constitutes a direct and substantial interest is the legal interest in the subject-matter of the case which could be prejudicially affected by the order of the court. This means that the applicant must show that it has a right adversely affected or likely to be affected by the sought.’ [38] Did the earlier order give Mrs Oberem a direct and substantial interest in the subject matter of this case? She clearly had no interest in whether the treatment of her former husband had been unfairly prejudicial, unjust or inequitable to him in his capacity as a 30% 16 SA Riding for the Disabled Association v Regional Land Claims Commissioner and Others 2017 (5) SA 1(CC) para 9. 30 shareholder of TCM, or whether the company’s affairs were being conducted in a manner that was unfairly prejudicial, unjust or inequitable to him or some part of the members of the company. Her claim was dependent upon half of the shares registered in her husband’s name being hers (‘my 15%). She contended that this 15% shareholding ‘no longer forms part of the order’ of the high court and ‘this needs to be recognised at the commencement of the hearing of the appeal’. [39] Unfortunately that was the same misconception that had underpinned her application to intervene at the trial,17 save that it was now thought to have been fortified by the consent order. Once the divorce order was granted Mrs Oberem acquired a right to a division of the joint estate, because it was property jointly owned by Luis and herself. In the ordinary run of cases this is done by agreement between the parties but, if they cannot agree, the court will either order a division, or appoint a liquidator to effect a division,18 or possibly both. The liquidator proceeds under the actio communi dividendo.19 All that is required is an equality of division in the end result, not a division of every asset, although where an asset is easily divisible the liquidator will ordinarily allocate it in equal shares to the former spouses. It is always open to them to agree that any particular asset be divided between them in this way once the liquidation process arrives at the stage where assets can be distributed. That is what occurred as a result of the settlement and the consent order granted by this court. The parties accepted that, once the liquidator’s work was done, the 30% shareholding, or some part of it, 17 This judgment does not appear to have been reported, but see De Sousa v Technology Corporate Management (Pty) Ltd and Others; De Sousa v De Sousa and Another [2018] ZAGPHC 445 paras 37-45 (De Sousa (2)). 18 Gillingham v Gillingham 1904 TS 609 and Revill v Revill 1969 (1) SA 325 (C). 19 Robson v Theron 1978 (1) SA 841 (A) at 854G-855H; Morar NO v Akoo [2011] ZASCA 130; 2011 (6) SA 311 (SCA) para 12. 31 would still exist and could be divided equally between Luis and Mrs Oberem. To that end the consent order made provision for the company and the other shareholders to consent to this arrangement. It made no mention of the present proceedings or what would occur in respect of these shares if the high court’s order or the appeal against it was upheld. The parties knew that would be decided in this application. Prior to the liquidation of the joint estate, the order did not entitle Mrs Oberem to advance claims in respect of any portion of the 30% shareholding registered in Luis’s name. Nor did it give her a direct and substantial interest in the outcome of these proceedings. The 30% shareholding was to remain registered in Luis’s name until the position in relation to those shares was finalised. Until that occurred her interest in the shares themselves was no more than a spes. It is inconceivable that, without any express reference to it, the consent order altered the high court’s order in this case in the material respect suggested by Mrs Oberem. [40] In the result the application to intervene was misconceived and Mrs Oberem lacked any direct and substantial interest in the litigation entitling her to be joined in the appeal if the application for leave were to be granted. As to costs, only the respondents sought an order for costs. In our view they were entitled to their costs, but only on the basis of one counsel and not on the basis of the costs being awarded on an attorney and client scale. That forms part of the order set out above. The pleaded case [41] In pleading the case, even though their situations were markedly different, no distinction was drawn between the position and complaints 32 of Luis and those of Jose, save for a single paragraph dealing with the latter being sent to Namibia. Their cases overlap at some points but diverge at others. It is best therefore to separate the two. Luis’s case [42] The particulars of claim adopted a scattergun approach without clearly identifying the course of conduct of the company’s affairs of which complaint was made. Allegations were pleaded in the broadest possible terms with little particularity, such as the complaints about Luis being ‘criticised, belittled, humiliated and persecuted’, and descended to the trivial with an allegation that Andrea ‘unfairly and unjustly reduced the office and parking space available to’ Luis with a view to showing ‘public contempt’ for him and ‘denigrating his status as a founder member’ of the company. The friendship relationship on which the business had been established had plainly broken down, accompanied by a good deal of bitterness. The broad allegation was that Luis was entitled to the same standing and status in TCM as Andrea and the latter had set about a campaign to deprive him of that status and drive him out of the company. [43] The extent to which the pleadings threw everything but the kitchen sink at Andrea is reflected in the reliance placed upon two events that, as a result of Luis’s opposition, did not occur. The first was a proposed amendment to the sale of shares agreement to reduce the price payable by Iqbal for the Trust’s shares. The second was a proposed loan to Iqbal to assist him to pay for the shares. Luis suggested that this might involve a contravention of s 38 of the Act. He refused to agree to the amendment and, irrespective of its lawfulness, the idea of a loan was dropped. The two paragraphs of the particulars of claim dealing with these matters 33 commenced with the meaningless statements that Andrea ‘purported to compel the plaintiffs to conclude an amending agreement’ and ‘purported to procure that’ a contravention of s 38 would occur. Not only were they meaningless, but it is incomprehensible on what basis events that did not occur because of Luis’s opposition could constitute conduct by Andrea of the affairs of TCM in a manner that was unfairly prejudicial to Luis. [44] Of more substance were allegations falling broadly into four categories. The most substantial related to Luis’s personal situation and encompassed his dismissal as an employee, his resulting exclusion from executive involvement in the day-to-day running of the business and the determination of bonuses and benefits in a manner that was said to be prejudicial to him and benefitted other executives and employees in return for their support of Andrea. It was alleged that Andrea had an ulterior motive of ‘humiliating, denigrating, and punishing’ the plaintiffs for not acceding to his demands. The second category related to allegedly favourable treatment of Iqbal directed at assisting him to pay for his shares by concluding retention agreements, making payments under those agreements and paying him enhanced bonuses and other benefits. The third category involved the accounting treatment of the Supplies Division, the alleged undervaluation of inventory and criticisms of the failure to control the operating expenses of the business, thereby diminishing the benefits flowing to shareholders and the value of the business. The fourth and last category related to the alleged failure in 2008 and 2009 to negotiate in good faith with Luis in order to enable him to dispose of his shares at fair value. Linked to that was a failure to furnish information and documents that would have enabled him to arrive at a fair value for his and Jose’s shares. 34 [45] I have endeavoured to place these disparate items in an appropriate order, although there was no discernible common thread binding them together. On that basis Luis’s case was the following: (a) he had a legitimate expectation to daily involvement and engagement in the operations of the first defendant as a director and shareholder; (b) more particularly he had a legitimate expectation to recognition and remuneration as (i) a founder member of TCM; (ii) a quasi-partner in the affairs of the business, which was a domestic company akin to a partnership; (iii) a participant in and contributor to the business of TCM of equal standing to Andrea; and to (iv) the due respect and regard of his fellow directors, shareholders and employees; (c) since approximately 2007 these benefits had been denied to him; (d) between 2007 and 2009 as a result of his unwillingness to agree to certain changes in the sale agreement under which Iqbal had acquired the shareholding in the company he placed in the Trust, he had been abused and treated in a demeaning manner; had his resignation as a director demanded; and had his bonuses reduced both in order to humiliate him and to use the funds to assist the Trust to pay for the shares and buy the personal loyalty of other recipients of bonuses; (e) Andrea procured the conclusion of retention agreements with Iqbal that were a sham and benefited Iqbal and the Trust at the expense of the other shareholders; (f) the disciplinary charges brought against him were spurious and in procuring them Andrea was driven by the ulterior motive of excluding him from the business; (g) the disciplinary hearing was conducted in a manner that was unfair to him; 35 (h) during 2008 and 2009 Andrea refused to engage in bona fide discussions or negotiations aimed at permitting Luis to dispose of his shares either to the other shareholders or to a third party at a fair value and refused to permit him the proper access to documents and information to which he was entitled as a shareholder and director, thereby preventing him from arriving at a fair assessment of the value of his shares and complying with the provisions of the shareholders’ agreement in regard to the disposal of his shares; (i) in three respects, Andrea engaged in conduct in regard to the finances of TCM that operated to the detriment of other shareholders, namely that he: (1) caused the business of the Supplies Division of TCM to be transferred at no value to another company, TCM Printing Solutions (Pty) Ltd, owned by the Trust as to 25.1% and his brothers Frank and Fabio as to the balance in equal shares of 37.45% each; alternatively procured that the business of the Supplies Division was conducted and accounted for as if it were an entity separate from TCM, with all income and profits accruing for the benefit of the Trust and Frank and Fabio; and (2) during the period 2008 and 2009 Andrea procured an under-valuation of the inventory of TCM of approximately R11.2 million for the purpose of reducing the value of the Luis’s shares; and (3) from 2007 Andrea has conducted the business of TCM in a manner such that the operating profit had been drastically reduced; the operating expenses had almost doubled and, although the gross profit of the business climbed from R153 878 415 in 2008 to R228 746 081 in 2012, a failure to control the expenses of the business, resulted in the benefits available for distribution as dividends not accruing as they should and the growth and well-being of TCM not being properly ensured and protected; 36 (j) Andrea had authorised and procured that the funds of TCM be used to conduct the defence of the application proceedings referred to earlier in para 9 of this judgment; (k) In the result the relationship of trust and respect between Luis and Jose on the one hand and their co-shareholders on the other had broken down so that it was impossible for them to co-operate meaningfully as shareholders, directors and employees and jointly to conduct the business of TCM and best advance its objectives. Jose’s case [46] Jose’s claims in regard to unfair prejudice could not be the same as those of Luis. TCM was established by Andrea and Luis. Jose and Tony had joined it as junior employees with an offer of an indeterminate number of shares. They had carried on as employees without that offer being fulfilled until shortly before it became necessary to sell shares to Iqbal as part of the BEE deal. At times Luis described them as directors, although they were not formally appointed as such until 2004. However, they appear from an early stage to have worked with Andrea and Luis as part of an informal executive committee for the business. They discussed major decisions, but the final decisions were taken by Andrea and Luis. On that basis it was alleged that Jose had a legitimate expectation of daily involvement in the operations of TCM and recognition of his status as a shareholder and director of the company. He did not claim to have been a ’quasi-partner’ as Luis did, nor did he claim to have the other expectations described above in para 45 (b) above. [47] The allegations in the particulars of claim that were specific to Jose were that: 37 ‘During the period of approximately September 2008 to the present time, the second defendant has: 16.1 marginalised, sterilised, humiliated and denigrated the status of the second plaintiff; 16.2 rusticated him to the first defendant’s Namibian office without discussion and without his consent; 16.3 threatened to dismiss the second plaintiff should he not resign as a director of the first defendant; 16.4 deprived the second plaintiff of his erstwhile duties and status without proper cause; 16.5 generally conducted himself towards the second plaintiff with the ulterior motive of forcing the second plaintiff to leave the employ of the first defendant and to give up his directorship thereof and/or his shareholding therein.’ It is unclear whether ‘the present time’ referred to in the preamble was 2010 when the summons was issued, or 2012 when the particulars of claim were amended, but on the facts alleged it does not appear to matter. In paragraph 17 it was alleged that the second defendant had conducted himself and the business of TCM in a manner calculated to deny and frustrate the plaintiffs’ legitimate expectation of their daily involvement and engagement in the operations of TCM and the recognition of their status as shareholders and directors. [48] There was an overlap with Luis’s allegations in regard to the endeavour to reduce the price payable by Iqbal. Jose also objected to the retention payments to Iqbal and he adopted the allegations summarised in paragraphs 45 (i) to (k) arising from Mr Geel’s analysis of the financial position of the company. Like Luis he alleged that there were no bona fide negotiations over their possible departure from the company and the disposal of their shares. Nor was any reasonable offer made to purchase the shares. 38 The relief sought [49] An order under s 252 is directed at remedying the unfair prejudice that has been suffered. The unfair prejudice on which the plaintiffs relied was the following. (a) Their primary case was that by virtue of the nature of TCM’s business they both had a legitimate expectation to daily involvement and engagement in the business, as well as recognition of their status as shareholders and directors. In Luis’s case he claimed to be entitled in addition to recognition as an equal participant and contributor to Andrea. Both claimed to have been denied these rights from 2007 to 2010, when the summons was issued. They said that their prejudice was compounded by their being locked-in, causing an inability to dispose of their shares and realise their value. They sought a ‘buyout’ order that either TCM, or alternatively Andrea, Tony and the Trust, should purchase their shares and take transfer of them against payment of the sum of R160 million, or such other amount as the court might determine. They tendered against payment in full to resign as directors and sign all documents necessary to transfer the shares to whoever purchased them. (b) The secondary case was that, even if they had no such legitimate expectations, Luis’s dismissal and the treatment Jose received before his resignation on 27 March 2013, were prejudicial to their position as shareholders and resulted in their exclusion from the daily involvement and engagement in the business and the recognition as shareholders and directors that they would otherwise have enjoyed. Like their primary case, the prejudice was compounded by their being locked-in. (c) The third source of unfair prejudice was simply that they were locked in and, in and of itself, this constituted unfair prejudice to them as shareholders. 39 (d) Their final ground of unfair prejudice was that they had lost faith and confidence in the management of the business by Andrea and the other directors as a result of the latter conducting the affairs of the business in a manner lacking in probity, so that it was no longer possible for Luis and Jose to co-operate meaningfully with them in the conduct of the company’s business. They did not allege dishonesty or a general lack of probity in conducting the affairs of the company, but a lack of probity in relation to conduct directly affecting them. They attributed this to an intention to force them out of the company and compel them to sell their shares at less than their true worth. This unfair prejudice was closely linked to their being locked-in. [50] Luis and Jose alleged in para 21 of the particulars of claim that the fair value of their shares was R160 million, alternatively an amount to be determined by the court. Mr Geel had determined that figure. Prior to the commencement of the hearing in 2014, the parties agreed that the issues to be decided would be as set out in the particulars of claim ‘save for paragraph 21 thereof, read together with paragraph 15 of the plea (“the remaining issues”) which relates to the quantum of the claim’. The precise effect of that separation of issues, like much else in the case, gave rise to an argument before us arising from the fact that the judgment ed TCM, rather than the other shareholders, to purchase the shares on the basis of a valuation to be done. That will be dealt with later in the judgment. 40 The evidence Luis and Andrea [51] It is a persistent judicial complaint that cases brought by minority shareholders claiming to have been unfairly prejudiced by the manner in which the affairs of the company have been conducted, come to resemble matrimonial suits and disputes over the dissolutions of partnership. The parties take the opportunity to unearth every grievance and canvas every disagreement, however minor, that might conceivably have led to the breakdown in their relationship. They pore over every actual or perceived fault or slight and blame one another for everything that went wrong.20 They frequently attribute to the other party improper motives directed at causing them harm. That occurred in the present case. Luis said that Andrea engaged in ‘a concerted and orchestrated plot to remove me from the business’. He accused Andrea and Iqbal of acting in concert in an attempt ‘to completely alienate me from the business’. According to him Andrea was acting mala fide and was motivated by ulterior motive and malice. Why he would have done this to an old friend and business partner was never explained. In his mind the incident that triggered the breakdown in the relationship occurred in November 2007 when Andrea asked for and received, over his strenuous opposition, an increase in his remuneration that meant that for the first time he earned more than Luis. He viewed this as a fundamental breach of an informal agreement they had concluded in about 1987 that they would always be on the same footing as far as remuneration and status was concerned. 20 Hoffmann J in Re a Company (No 004377 of 1986) [1987] BCLC 94 at 101 drew the analogy with matrimonial proceedings and remarked that: ‘Voluminous affidavit evidence is served which tracks the breakdown of a business relationship commenced in hope and expectation of profitable collaboration. Each party blames the other but often it is impossible, even after lengthy cross-examination, to say more than the petitioner says in this case, namely that there was a clear conflict in personalities and management style.’ 41 [52] The rupture in regard to Andrea’s remuneration was followed two weeks later by Andrea attempting to persuade his fellow shareholders to reduce the price payable by Iqbal for the shares. Luis refused to accept that this was a genuine attempt to assist someone who had brought considerable benefits to the business, but needed assistance in meeting his obligations to pay the purchase price of the shares he had purchased. Instead he treated it as symptomatic of Andrea trying to secure the support of the other directors and senior executives to exclude him from the business. The final straw, after which the relationship between the two men came to resemble a form of internecine guerrilla warfare, was a dispute at the end of November and the beginning of December over Andrea’s attempt to sever the relationship between TCM and its Supplies Division by creating a new company in which the only shareholders would be his brothers Frank and Fabio with Iqbal as a BEE shareholder. This appears to have confirmed Luis’s belief that Andrea was actively working to bring about a situation where he was isolated as a director and would be excluded from the company. His resentment over what he perceived to be a humiliating downgrade in status was obvious and the source of many of the problems between the two of them. [53] Luis attributed every disagreement between himself and Andrea from 2007 to a conspiracy to remove him from the company arising from ulterior motives and malice on the part of Andrea. Everyone who agreed with Andrea over the issues giving rise to disputes was tarred with the same brush of being part of a conspiracy, or having had their co-operation bought with generous bonuses and the like. Hard evidence of such conspiracies and ulterior motives was lacking. The company was thriving and growing to the benefit of all. Between 2004 and 2008 its value increased fourfold according to Luis’ evidence before the CCMA. 42 Between 2008 and 2012, the date of the amended particulars of claim, its sales increased from R318 million to nearly R775 million. Its gross profit increased from R96 million to nearly R229 million. Its headcount grew from 396 to 534. Between June 2008 and July 2012 it paid out dividends of R81 million to its five shareholders, at a stage when dividends were not subject to income tax in the hands of the recipient. Insofar as relevant, that trend continued in the years after 2012. It is obvious that the business was thriving under Andrea’s leadership, notwithstanding Luis’s resistance. Prior to 2005 the company had not declared dividends. The new policy was adopted in the light of clause 4.3 of the sale of shares agreement, which provided that all dividends received by Iqbal would be used to discharge the purchase price of the shares. Luis was a major beneficiary of the new policy of paying substantial dividends. [54] Beyond their increasingly divergent perspectives on their roles and relative positions in the company, no obvious reason emerged for the deterioration of the relationship between the two former friends. Every indication was that before 2004 and the introduction of Iqbal as a BEE shareholder the business was run very informally with Andrea in the CEO role taking responsibility for overall management and building up the company together with sales and marketing, and Luis in charge of the technical side of the business, logistics, procurement, inventory, some accounting record-keeping and administration. There was no evidence of there being any need to resolve issues, as each man took responsibility for his own area of work. Any problems were minor and resolved through informal meetings. After 2004, and especially after the conclusion of the shareholders agreement in 2005, Andrea took his role as CEO very seriously. He saw the loss of the Standard Bank contract and the need to address BEE issues as a wake-up call that the company needed to change 43 and he set about addressing this. He identified Iqbal as the person who could address the BEE issue and make a contribution to the company and he appears to have conducted the negotiations with him with little input from anyone else. Luis did not ask for Iqbal’s CV or interview him. [55] Luis repeatedly suggested that Andrea had persuaded him to go along with the BEE transaction and the shareholders agreement on the basis that nothing would change. This is difficult to believe and is contradicted by the existence and terms of the shareholders agreement. The very act of drawing up a shareholders agreement proclaimed that things would change and what had been an informal way of doing business would become more formal. Email exchanges and Luis’s evidence conveyed that he thought that Andrea had become over-infatuated with his role as CEO, wanted his own way in everything and resented any attempt to stand in his path. In other words he had grown too big for his boots. The shift in perceptions was well illustrated by the emails exchanged between them in November 2007 over Andrea’s suggestion that there be an adjustment to his own remuneration package. [56] The exchange started with an email from Andrea to the directors saying that he had long thought that his package as CEO and Chairman was not consistent with his role and the performance of the company and suggesting an adjustment. Luis responded that afternoon saying that he could not approve of the recommendation and that he would send a note to the shareholders only. The note was in an email sent at the same time in which he said that directors’ increases, especially an increase for the CEO, should be approved only by the shareholders, He said that TCM’s 44 net profits after tax were lower than the previous year although turnover was up by 20% and gross profit by 22%. He added: ‘4 On paper I believe that My Shareholding is worth less today than it was a year ago. Again I speak from what I can recall. 5 As a CEO he has not achieved the number one goal. That is to create fair value in the Shares held by Shareholders.’ Luis added that one cannot compare the package of the CEO of a private company, especially if the CEO is a major shareholder, with that of a public company, as the risks were different. However, he said he respected Andrea’s ability as a businessman and his ability to maximise profits and most aspects of his vision for the group. Accordingly he said he would accept an increase of 5% to bring his total increase for the year up to approximately 18%. [57] The tone of the email, the criticism directed at him and the grudging offer of an insignificant increase, angered Andrea. He responded as follows: ‘Hi Luis, I find your views mostly irrelevant and emotional. Your personal (non appreciative) views are very evident and consistent with your general conduct and behaviour. For the record this is not an “increase” its an “adjustment” long overdue (many years ago), often recommended by other shareholder/directors, yet always opposed by you, maybe thinking and acting as a joint CEO? I remind you, you are not a Joint CEO or a 50/50 partner in a small business (as once was, a long time ago). Accepting, acknowledging this may resolve the continual non-productive baggage you keep raising. I need not (further) justify the and my CEO role, responsibility, value, performance or shareholder returns over the last 20 year … most evident in the last 3 years.’ Andrea went on to say that the directors represented the shareholders and were accordingly able to contribute and vote on the matter he had raised. He claimed that the amount of the adjustment was not material to him as 45 he was not seeking wealth through his salary, presumably in contrast to seeking wealth from his shareholding. He said he was willing to embrace any CEO better suited to the job than he and suggested that Luis nominate one. The issue carried on over the next couple of days with the exchanges becoming increasingly sarcastic on both sides. It included further criticism by Luis of the company’s performance and Andrea’s response that he had addressed these issues ‘enough”. [58] The one point of substance that emerged from these exchanges was that Luis was hoping for the company to list on the JSE to enable the shareholders to realise the true potential of their shares. Andrea recognised that Luis was looking for an ‘exit strategy/plan’ and asked that there should be no more JSE meetings. He suggested that Luis should see whether he could get an offer for the company without its key people and told him that he was ‘a fine one judging the CEO performance’. An article about earnings for CEO’s and executive directors was attached, and he added sarcastically: Now ask yourself how come “you” earn the same as the CEO … maybe its because you have the same size office?’ In the final email in this exchange he referred to Luis’s ‘ghost consultant’, which showed an awareness that Luis was seeking advice outside the company. [59] Luis described the other members of the board of directors (Tony, Iqbal, Wayne and Ms Bhula) as lackeys of Andrea (‘his coterie’), whose support and votes at board meetings and on round robin resolutions had been bought by the grant of bonuses and other financial benefits. An example of his ascribing impropriety to Andrea and others, and his reluctance to take anything at face value, appears from his approach to 46 the incident described in paragraph 10 above. He annexed the emails referred to there to his founding affidavit in the s 252 application. Consistent with his general practice of always attributing ulterior – usually dishonest – motives to people, he said in his affidavit: ‘Obviously, Cornelli’s intention to reward Justine in this way was part of his usual strategy, namely, to reward people, and members of their family, thus to ensure their compliance and loyalty. Certainly this proposal could not be explained on any other basis.’ Andrea’s answering affidavit explained the nature of the IBM audit and its potential downside for TCM and refuted the suggestion that he was trying to curry favour with Wayne by favourable treatment of his sister-in-law. Luis made no endeavour in reply to deal with the importance of the audit or to explain why he thought that the work was part of Ms Impey’s ordinary duties, but redoubled his attack on Andrea by adding that he was close friends of Ms Impey and her husband and: ‘…was even then in the habit of distributing largesse to reinforce his support base in the company.’ It is unclear how this supposed favouritism was compatible with the fact that in the following year Ms Impey’s bonus was reduced substantially, unlike those of other senior employees, and only resumed an upward trajectory the following year. [60] As had been the case when he gave evidence before the CCMA, Luis reluctantly accepted under cross-examination at the trial, that he could point to no fact to justify the accusations he made against the directors, other than that the individuals whom he targeted in this fashion supported proposals emanating from Andrea. He accused his colleagues of blatant dishonesty in regard to an internal survey undertaken in 2008 concerning support services for customer sales and services and persisted in the accusation until the trial. There was no foundation for this 47 accusation. On this and every other point he was unwilling to concede that he might have been at fault in any way, or a contributor to the deterioration in his relationship with Andrea and his fellow directors. [61] In regard to his dismissal Luis said: ‘The whole conflict, orchestrated by [Andrea] culminating in my dismissal on charges which were patently trumped-up, had nothing to do with my conduct as an employee but were designed to punish and persecute me as a shareholder, and, ultimately, to compel me to dispose of my shares at a value far below the true value of my shares.’ This was the pattern throughout the case. Luis was obsessed by the idea that Andrea was conspiring with the other directors to get rid of him and seeking to harm him financially by compelling him to dispose of his shares at less than their true value. He saw a conspiracy in almost everything that was done in the company. When cross-examined about the provisions of the shareholders agreement all he could say was that the apparent and obvious meaning of its provisions ‘was not what he was told’. The record contains many examples of Luis’s unwavering belief that Andrea had for no identifiable reason misled him as to the effect of the shareholders agreement and engaged in a process of manipulating events so as to isolate and exclude him, with a view to compelling him to dispose of his shares at far less than their true worth. It was never apparent why Andrea would have set about such a course. [62] The defendants’ plea did not give a reason for the obvious breakdown in shareholder relations, or make any specific allegations against either Luis or Jose’s conduct. It is plain from the documents in the record and the cross-examination directed to Luis at both the CCMA and the trial, that Andrea and the other directors regarded him as being obstructive and uncooperative in the workplace and having failed to adapt 48 to the needs of a business that had grown beyond all recognition. The issues emerged from the details of the charges in his disciplinary enquiry. The first was a technical one of disobeying an instruction from Andrea and there is no need to go into it. The second was that he had caused an irretrievable breakdown in trust and in the working relationship with his fellow employees, directors and shareholders, arising from accusations of dishonesty made against the CEO and fellow executives as well as insinuations of corporate governance irregularities and potentially criminal breaches of the Companies Act. He had demanded major amendments to the shareholders agreement, such as that he be joint CEO with Andrea, in order to change the manner in which the company was being run and secure greater authority and status for himself.21 The charge said that this had caused a breakdown in relationships, which he had refused to try and repair. This was causing disharmony and tension in the company and he had become incompatible with his fellow directors. The last charge complained of his work performance and his failure to assist his colleagues and heed the advice and instructions of the CEO. The long and the short of this was that his fellow directors laid responsibility for the breakdown in relationships squarely at Luis’s door. [63] The documents included in the record do not cover the entire period after Iqbal joined the company or even the entire period after the conclusion of the shareholders agreement. But the conclusion is irresistible that the problems that gave rise to this litigation followed upon the changes that came about when Iqbal joined the company and flared up over three issues in November 2007. Within six months of the latter date Luis was looking for a way to leave the company he had co-founded 21 He said that it was to reflect the agreed position between him and Andrea that they were of equal status and were always joint CEO’s. Not even Jose supported that view of matters. 49 twenty-one years earlier. In 2008 he started openly to question the accuracy of the audited financial statements, but Mr Geel’s description in his report of the circumstances in which he was employed suggest that the problems had been brewing for a while. The commercial driving force behind Iqbal joining TCM as a shareholder, director and employee was the loss of the contract with Standard Bank and Andrea’s decision that the BEE issue needed to be addressed urgently. While Luis said that he supported the proposal that Iqbal become involved and regarded him as having been an immense success, it is not clear that he truly welcomed it. When issues arose over whether Iqbal would be able to adhere to the payment provisions in the agreement, he was not co-operative in addressing the problem. He said that he thought that Iqbal’s arrival would not affect him or his relationship with Andrea, but plainly no-one else shared that view, not even Jose. His unwillingness to accept this was a theme to which he repeatedly returned and it lies at the heart of his exclusion case. [64] There is nothing in the record to suggest that Andrea tried to address this problem in a sympathetic manner, although some emails said that he had on many occasions tried to discuss the problems with Luis and get him to understand that his fears were misplaced. Several of his emails to Luis said that particular issues had repeatedly been explained to him and there was no point in further discussion. Andrea recognised that the introduction of Iqbal and the conclusion of the shareholders agreement signalled a more formal structure to the company’s operations. There were now three major shareholders and Wayne, its former auditor, had been introduced as the CFO and a director. His own position as CEO took on greater importance, while that of Luis declined in relative 50 importance, becoming a service provider to the sales function. Decisions were now taken after consultations that included Iqbal and Wayne. That Andrea appreciated this is clear, but either Luis did not, or if he did, was deeply resentful of it. Under cross-examination he constantly harked back to the past and the way things had been before the conclusion of the shareholders agreement. His constant queries directed at proposals or decisions advanced by Andrea appear to have been attempts to push back against the changes and reassert his former standing in the company. Those efforts became most apparent in the proposals he put forward in May 2008 to be appointed joint CEO with Andrea. His own description of these was that ‘this is going back okay to the way things used to run before the BEE agreement came along’. [65] The deterioration in the relationship between the two men is apparent from the tone of their correspondence. There are numerous examples in the record. Both were parties to uncivil exchanges. It is pointless to speculate whether the relationship would have broken down had it not been necessary for Iqbal to become a shareholder and be involved in the business. It is equally pointless to speculate whether it would have achieved the success it has without his involvement, or whether, as Andrea feared, it would not have survived. The fact of the matter is that Iqbal became involved with the agreement of both Luis and Andrea and proved a great success. His joining the company flowed from the conduct of TCM’s affairs, but the existing shareholders agreed to it and it was not in any way unfair or prejudicial to their position as shareholders. The schism that arose was an indirect and unintended consequence of his advent. The inevitable changes that it brought about were welcomed and adopted by Andrea and resisted by Luis because of 51 their impact on his role and status. That resistance in turn generated frustration and anger on the part of Andrea and the breakdown in the relationship followed. Jose [66] Jose’s situation was significantly different from that of Luis. Jose was not dismissed, nor were disciplinary charges brought against him. His pleaded complaint was that he, like Luis, was sidelined and humiliated as a result of a restructuring of his role and an allocation of most of his previous responsibilities to Tony. On 31 March 2009 he wrote to Andrea declining an offer of voluntary retrenchment made on 17 March 2009 and accepting the altered description of his responsibilities, in the following terms: ‘In these circumstances, I confirm that I will continue in my new Executive Director role and enclose a signed acceptance of my Job Description to confirm the aforementioned.’ Essentially this left him with no defined duties beyond ad hoc executive projects assigned to him by Andrea. He said that he felt obliged to accept the position even though it left him in a position where he was no longer an executive with people reporting to him, but at the beck and call of Andrea. [67] Shortly thereafter he was seconded on short notice to Namibia to establish a branch office there. It was made apparent to him that, if he did not accept this position, he was likely to be retrenched. The logistics of the move were a problem and impractical for him because of the need to get a visa in order to work in Namibia and because of his home and family commitments. He thought he could have done the job equally well from the Johannesburg office with occasional visits to Namibia, but at the 52 end of the day would apply for a work visa every six months that permitted him to stay in the country. While the logistical and personal problems occasioned by the move were considerable, he accepted the role and over the next three years made a success of it.22 His evidence in chief in this regard was as follows: ‘MR SLON: … [W]hat was your attitude to this response, to this suggestion? JOSE: The suggestion was perfect. There’s no problem at all in my, from my side. I actually welcomed it. I thought it was a good idea and me taking over and handling it was perfect. MR SLON: Yes. JOSE: I knew the field. I knew the logistics. Basically I would know exactly how to take it on and how to get it going.’ His further comments were that ‘I was quite happy doing that’ and: ‘MR SLON: And how – what was the – how did it go, personally? How did you feel about doing the work and going up to Namibia and being involved in the company? JOSE: I was excited about it. MR SLON: Yes. JOSE: I thought it was a good idea.’ [68] Jose also said that in accepting the position in Namibia he had been faced with Hobson’s choice. Either he went to Namibia, or he would have been retrenched and become a non-executive director with significant consequences for him when he was nearing the age of sixty. However, his evidence that the reorganisation that deprived him of his executive duties was an attempt by Andrea to force him to leave the employ of TCM and give up his directorship was unconvincing in view of the positive way in which he embraced it. His resignation on 2 April 2013, two and a half years after the commencement of this action and 22 In his evidence he said he was there for nearly three years until April 2013, but that was nearly four years after he was instructed to take the position. 53 three and a half years after the commencement of the prior application for s 252 relief, was triggered by a row with Andrea over a stock count and the disposal of out of date spares. Andrea criticised Jose for not completing the task allotted to him, while Jose maintained that he had exactly performed what he was told to do and the problem lay with Tony not making it clear which stock he wanted scrapped. It seems probable that Jose was perceived by Andrea and generally within the company as an ally of Luis’s, but he was not driven out and remained an employee until his resignation. General [69] The picture that emerges is one that can easily occur when a small company grows beyond its original roots and becomes a large organisation requiring clearer structures and lines of authority with less scope for the relaxed manner of doing things that characterised its early days. Andrea and the majority of directors saw the company as having changed from a small domestic company into a major business that needed to be run differently from the way it had been run in the past. Wayne’s appointment to a role that had not previously existed, but one that exists in every major company, was indicative of that. Taking cognizance of BEE realities and bringing in Iqbal with his great experience in the industry, likewise showed that the company had moved to a new level. Luis did not readily accept these changes and his attitude towards Iqbal was at best ambivalent and possibly hostile.23 He was particularly sensitive to its impact on his status within the company. He was unwilling to accept Andrea’s authority as CEO, but hankered after the days when, as he perceived it, they had run everything jointly. In his 23 He described him as a ‘latecomer’ who was ‘adding a Black face to the business’. He said that he was ‘not unique in South Africa. There would have been other people that could fulfil that role.’ However, when invited to identify someone he was unable to do so. 54 evidence he attributed everything that had happened to a conspiracy or a plan to humiliate or persecute him. The result was that he hurled accusations of dishonesty and improper motives at everyone who supported Andrea. Everyone else was always wrong and he was right. This extended to the people who presided over the various disciplinary proceedings and even the judge who dismissed the s 252 application. There could be no doubting his sense of grievance. It needed to be, but was not, taken into account when considering the extent to which it coloured his evidence and its reliability. [70] I share the view expressed in Kremer24 that in cases of this type ‘it is usually a waste of time to investigate who caused the breakdown’ and the present case well-illustrates that point. Whether it would have been any easier if counsel for the appellants had not closed their case without calling any witnesses, is impossible to say. One suspects that it would have further muddied the waters. [71] In my view a careful reading of the transcript of the trial and the documentary evidence reveals nothing more than that Andrea’s and Luis’s paths diverged as the company grew and succeeded beyond even their wildest dreams. They had carried on for 17 years with Andrea as the CEO and Luis running the information technology side of the operations and the accounts. For a number of years they had enjoyed the same benefits and major decisions were taken jointly, but there is no evidence of what was regarded as a major decision until the time came to address the BEE problem in 2003 and 2004. Luis’s evidence at the CCMA was that Andrea was always responsible for the ‘managing part’ of the 24 In Re a Company (No 006834 of 1988) ex parte Kremer [1989] BCLC 365 (Ch D) at 366. 55 company, but that they regarded themselves as equal and joint runners of the company.25 Andrea always consulted him when he thought it appropriate and vice versa. [72] Luis said that he was happy with the decision to introduce Iqbal and thought they would simply carry on as before with five people instead of four. That is difficult to accept from a successful businessman, but if correct it was remarkably naïve of him. Iqbal did not share the same background as Luis and Andrea in building the business from scratch. That background was likewise shared by Jose and Tony. He had no baggage arising from long-standing personal relationships. He was entering into a business transaction with successful businessmen. He came from a lengthy career in a large multi-national, which would have operated in a hierarchical way with a clear allocation of roles and responsibilities. He was to acquire a 25.1% stake in the business in terms of formal agreements prepared by legal advisers. There was no reason for him to think that the business would not be run in accordance with those agreements. The shareholders agreement opened the way for disagreements about the direction of the business to be resolved by majority vote. The heads of agreement were followed by the execution of a formal shareholders agreement. This replaced the prior more informal way of doing things evidenced by the promises of equity to Jose and Tony not having been carried out and them being regarded as directors although not appointed as such. All of this signalled that there was to be a significant change in the way in which TCM was run. Luis did not like this and constantly looked back to the pre-2004 situation and tried to assert that his position was no different from what it had been then. 25 He said it was 50.50. 56 [73] By contrast, it is plain that Andrea was less concerned with the past than the future. He was very conscious of his leadership role and responsibilities as CEO of a company with a turnover of hundreds of millions of Rand, major clients, a national footprint and a large and growing workforce. The ongoing growth in the company did not suggest that the business was being mismanaged. He was certainly forceful in making proposals and seeking to implement them. He ultimately lost his temper over Luis’s attempt to act as if he were joint CEO. From the stage when it became clear that Luis was planning to extricate himself from the business, it was equally clear that Andrea would have been happy for him to go. To make matters worse just as Luis did not trust him, he did not trust Luis. That underpinned his suggestions that Luis and Jose should resign as executive directors, but remain non-executives at reduced remuneration. But there is nothing to indicate that he was not genuinely trying to do his best for the company and its shareholders, or was plotting to use nefarious means to rid himself of the burden of dealing with Luis. [74] Against that background, where Luis and Jose wanted to exit the company and Andrea wanted them to leave, one would have thought that it would have been possible to reach an accommodation that enabled that to take place. However, the problem appears to have been that the parties were far too far apart on the value of the shares held by Luis and Jose. Andrea had indicated a figure of R37 million, but their Luis and Jose’s view in the light of Mr Geel’s assessment was that a proper figure was between R130 and R160 million. That was a gap that in the prevailing atmosphere of mutual distrust could not be bridged. All that this court can do therefore is determine whether the high court was correct in its findings in regard to the treatment alleged by Luis and Jose; whether that treatment, to the extent it occurred, was unfairly prejudicial, unjust or 57 inequitable to them in their capacity as shareholders; and, if so, whether the appropriate remedy was an order that TCM purchase their shares. But first in order to provide context to the factual enquiry it is necessary to consider what s 252 requires of an applicant seeking relief under its provisions. Section 252 General [75] The relationship between a company and its members, as well as the members inter se is contractual and based primarily on the memorandum of incorporation (formerly the memorandum and articles of association). In Sammel v President Brand Gold Mining Co Ltd, Trollip JA said:26 ‘By becoming a shareholder in a company a person undertakes by his contract to be bound by the decisions of the prescribed majority of shareholders, if those decisions on the affairs of the company are arrived at in accordance with the law, even where they adversely affect his own rights as a shareholder (cf. secs. 16 and 24). That principle of the supremacy of the majority is essential to the proper functioning of companies.’ The company in that case, was a public company listed on the Johannesburg Stock Exchange with a large body of shareholders, whilst TCM is a private unlisted company, with only five shareholders, but the principle holds good for all companies.27 On any disputed issue the views of the majority will ordinarily prevail. [76] This remains the ordinary rule, but legislation governing companies in South Africa, following both the lead and in many respects 26 Sammel and Others v President Brand Gold Mining Co Ltd 1969 (3) SA 629 (A) at 678. 27 Ebrahimi v Westbourne Galleries Ltd [1972] 2 All ER 492 (HL) at 500. For examples see Garden Province Investments (Pty) Ltd and Others v Aleph (Pty) Ltd and Others 1979 (2) SA 525 (D) at 533H-534G; Louw and others v Nel op cit, fn 7, para 22. 58 the language of similar English legislation, has long recognised that in certain circumstances, even if the majority shareholders act strictly in accordance with the contractual terms governing the shareholder relationship, they may have exercised their powers in a way that was oppressive or unfairly prejudicial to minority shareholders. To that end the courts have been vested with statutory powers to override the majority’s exercise of its contractual powers in order to remedy such oppression or unfair prejudice. At the time the present disputes arose the applicable provision was s 252 of the Act, which in relevant part read as follows: ‘252. Member’s remedy in case of oppressive or unfairly prejudicial conduct.—(1) Any member of a company who complains that any particular act or omission of a company is unfairly prejudicial, unjust or inequitable, or that the affairs of the company are being conducted in a manner unfairly prejudicial, unjust or inequitable to him or to some part of the members of the company, may, subject to the provisions of subsection (2), make an application to the Court for an order under this section. (2) … (3) If on any such application it appears to the Court that the particular act or omission is unfairly prejudicial, unjust or inequitable, or that the company’s affairs are being conducted as aforesaid and if the Court considers it just and equitable, the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the future conduct of the company’s affairs or for the purchase of the shares of any members of the company by other members thereof or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company’s capital, or otherwise.’ This was the provision invoked by Luis and Jose. Speaking for this court Ponnan JA said of it that:28 ‘The combined effect of ss (1) and (3) is to empower the court to make such order as it thinks fit for the giving of relief, if it is satisfied that the affairs of the company are 28 Louw v Nel, ibid, para 7. 59 being conducted in a manner that is unfairly prejudicial to the interests of a dissident minority.’ [77] Although the heading referred to ‘oppression’ that was a hangover from its predecessor.29 Section 252 referred to conduct that is ‘unfairly prejudicial, unjust or inequitable’. While ‘unfairly prejudicial’, ‘unjust’ and ‘inequitable’ are notionally separate they may overlap. For convenience and to avoid unnecessary repetition, I will refer to all three generally as ‘unfair prejudice’ or ‘unfairly prejudicial’ as the sense requires. The section could be invoked in two situations. The first was where the complaint was that a particular act or omission of the company was unfairly prejudicial to the member or group of members. The second was where the affairs of the company were being conducted in a manner unfairly prejudicial to that member or to some part of the members of the company. The latter was the basis for the present claim. While there was potentially an overlap between the two, there was a clear difference in principle, between cases where the complaint arose from the actions of the company and those where it was the manner in which the affairs of the company were being conducted that was alleged to be unfairly prejudicial. The one focussed on the company’s actions, while the other focussed on the manner in which the affairs of the company were being conducted and the actions of those responsible for that conduct.30 These would usually be the directors and the majority shareholders. [78] Unfairly prejudicial conduct by the company could arise from matters such as changes in the articles of association to enable the 29 Section 163 of the 2008 Act refers to ‘oppressive or unfairly prejudicial conduct’ or conduct that ‘unfairly disregards the interests’ of a shareholder or director. 30 The distinction was drawn by David Richards J (as he then was) in Re Coroin Ltd (No 2), [2013] 2 BCLC para 626. 60 majority shareholder to dispose of their shares;31 amending the articles of association to confer additional rights on a developer;32 changes to the voting rights attached to certain shares or the issue of additional shares in such a way as to result in a shareholder’s voting rights being diluted33 or to enable the majority to acquire the minority’s shares; a merger with, or takeover by, another business; the disposal of the company’s business or a major asset of that business;34 or even the winding-up of the company.35 Any of those could be structured so as to prejudice the interests of minority shareholders unfairly. Their common feature was that they were actions by the company itself, albeit driven by the majority shareholders. [79] A claim of the second type under s 252 required proof of the manner in which the affairs of the company were being conducted that was unfairly prejudicial to the member, or part of the members, of the company. The language of the section postulated generally an ongoing course of conduct, although it is unnecessary to decide whether it had to be continuing when the proceedings were launched or when relief was given.36 The cases held that a court should not construe the notion of conducting the affairs of the company unduly narrowly, because ‘the affairs of a company can be conducted oppressively by the directors doing nothing when they ought to do something – just as they can be conducted oppressively when they do something injurious to its interests 31 Greenhalgh v Arderne Cinemas Ltd (No 2) [1950] 2 All ER 1120 (CA). 32 Off-Beat Holiday Club and Another v Sanbonani Holiday Spa Shareblock Ltd and others 2017 (5) SA 9 (CC). 33 In re Sam Weller Ltd [1990] 1 Ch D 682 at 689G-H; Re Coroin Ltd op cit, fn 30. para 555. 34 Garden Province Investments (Pty) Ltd and Others v Aleph (Pty) Ltd and Others, op cit, fn 27. 35 Bader and Another v Weston and Another 1967 (1) SA 134 (C) at 146F-H. 36 See in this regard the discussion of the expression ‘are being conducted’ in the English and Australian counterpart to s 252 in Campbell v BackOffice Investments Pty Ltd [2008] NSWCA 95 paras 126-132. 61 when they ought not to do it’.37 Proof was required of an identifiable and discernible course of conduct of the company’s affairs that was unfairly prejudicial to the member or part of the members.38 It was permissible to rely upon outwardly unrelated incidents, provided they were linked in a way that identified the course of conduct of which complaint was made. In the absence of such a link between the events relied on and the conduct of the company’s affairs the requisites for relief under s 252 would not be satisfied. 39 Without such a link ‘the acts of the members themselves are not acts of the company, nor are they part of the conduct of the affairs of the company’.40 [80] The concept of the affairs of a company being conducted in an unfairly prejudicial manner is concerned with the effect of the conduct, not the motives of those responsible for it, although motive is not always irrelevant because it may affect whether the outcomes are unfair.41 The enquiry is whether objectively speaking the conduct complained of was unfairly prejudicial to the shareholder or part of the shareholders. A successful invocation of s 252 does not require proof of a lack of bona fides on the part of the directors or management of the company or an intention to cause prejudice. The persons responsible for the conduct may be motivated solely by what they regard as (and may well be) the best interests of the company. Sight must not be lost of the importance of the 37 Per Lord Denning in Scottish Co-operative v Meyer and Another [1953] 3 All ER 66 (HL) at 88, quoted in Livanos v Swartzberg and others 1962 (4) SA 395 (W) at 398 C-D. The latter case involved the respondent preparing to set up a business in opposition to the company in anticipation of leaving the existing company. 38 Aspek Pipe Co (Pty) Ltd and Another v Mauerberger and Another 1968 (1 (SA 517 (C) at 529B-D. 39 Graham v Every [2015] 1 BCLC 41 (CA) paras 37-38. The actions may be those of a shareholder but they must involve matters that involve the affairs of the company. If they are merely issues between the shareholders in their capacity as such they do not fall within the section. See also on the same point Loveridge and others v Loveridge [2020] EWCA Civ 1104, para 55 and Primekings Holdings Ltd and Others v King and Others [2021] EWCA Civ 1943, para 61. 40 Per Harman J in Re Unisoft Group Limited (No 3) [1994] 1 BCLC 609 at 610-611. 41 Donaldson Investments (Pty) Ltd and Others v Anglo-Transvaal Collieries Ltd and Others 1983 (3) SA 96 (A) at 111F-H; Parry v Dunn-Blatch and others, op cit, fn 12, para 39. 62 word ‘unfairly’. The remedy is only available if the member is unfairly prejudiced.42 The mere fact that a course of action by the company operates to the prejudice of a member does not suffice to entitle them to a remedy under s 252. The unfairness and the prejudice must affect the shareholder as a shareholder. Unfair prejudice to the shareholder as an employee does not fall within the section unless it has an impact on their position or interests as a shareholder. Save in extremely unusual circumstances the prejudice will be commercial prejudice.43 While the claimant does not have to come to court with ‘clean hands’, in the sense that they must have been faultless in the breakdown of the relationship, if their own conduct is the primary or major cause of the problems that have arisen that is relevant to whether the conduct to which they have been subjected was unfair. [81] ‘Unfairly prejudicial’ is an expression that is not susceptible of close definition. In 1967 Corbett J drew attention44 to the paucity of material on the meaning of the expression ‘unfair prejudice’ in the predecessor to s 252 and the situation has only improved slightly since then, notwithstanding that there are now many cases in the law reports both here and overseas on the application of s 252 or similar provisions in other jurisdictions. The reason is that each case depends on its own peculiar facts, although over time some recognised categories of instances of unfairly prejudicial conduct have been identified. The breadth of the powers vested in the court is not an invitation for courts to intervene in 42 Garden Province Investments (Pty) Ltd v Aleph (Pty) Ltd, op cit, fn 27 at 531C-G. In this case it was said that unfairness was used in the sense of unreasonable on the basis of the Afrikaans text. 43 Re Unisoft Group Limited No 3) op cit, fn 40, at 611 f-i 44 Bader and Another v Weston and Another, op cit, fn 35, at 145C-D dealing with s 111 (bis) 2 of the Companies Act 46 of 1926. 63 the affairs of a company at the instance of a disgruntled member. In a passage cited by this court in Louw v Nel,45 Buckley LJ said: ‘The mere fact that a member of a company has lost confidence in the manner in which the company's affairs are conducted does not lead to the conclusion that he is oppressed; nor can resentment at being outvoted …'46 Dissatisfaction and disagreement with, or disapproval of, the conduct of the business, does not of itself mean that the member has suffered unfair prejudice. The fact that there are irreconcilable differences between shareholders may in some circumstances justify an order for winding-up the company, but it is not, without more, unfair prejudice.47 Something more is required. The question is, how much more? [82] There is a tension between the principle of majority rule in Sammel v President Brand Gold Mining Co Ltd and the power given to courts by s 252 to intervene in the company’s affairs on equitable grounds and in doing so override, or at least provide a remedy for, conduct that is entirely in accordance with the memorandum of association of the company and any collateral agreements. In that situation the principle of majority rule gives way, because the powers of the majority have been exercised in a way that is unfairly prejudicial to the minority. The same tension arose under the provisions of s 459 of the 1985 Companies Act in the United Kingdom, which was the corresponding provision in that jurisdiction until its replacement by s 994 of the 2006 Companies Act.48 It provided for a court to grant relief where the company’s affairs were being or had been conducted in a manner which was unfairly prejudicial 45 Op cit, fn 6, para 24 46 Re Five Minute Car Wash Service Ltd [1966] 1 All ER 242 (CA) at 246-7. 47 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97 para 89 citing Mcmillan v Toledo Enterprises International Pty Ltd [1995] FCA 1664 para 58. 48 Section 994 allows a shareholder to apply to court where ‘the affairs of the company are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of members generally of some part of its members, in their capacity as such (including the petitioning member); or an actual or proposed act or omission of the company is or would be prejudicial.’ 64 to the interests of its members generally or some part of its members. This was the subject of the leading speech of Lord Hoffmann in O’Neill v Phillips.49 The following passage50 provides helpful guidance on the approach to resolving the tensions inherent in s 252: ‘… Parliament has chosen fairness as the criterion by which the court must decide whether it has jurisdiction to grant relief. It is clear from the legislative history … that it chose this concept to free the court from technical considerations of legal right and to confer a wide power to do what appeared just and equitable. But this does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles … Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. In the case of s 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders.51 Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law. The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which 49 Re a company (No 00709 of 1992) O’Neill and another v Phillips and others [1999] 2 All ER 961 (HL). The significance of the judgment is noted by Robert Goddard ‘Taming the unfair prejudice remedy: Sections 459-461 of the Companies Act (1985) in the House of Lords’ (1999) 58 Cambridge Law Journal 487. 50 Ibid, 966f to 967d. 51 Shareholders’ agreements are dealt with below in para 93. 65 equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.’ [83] It has been suggested by one commentator that the approach of Lord Hoffmann unduly narrowed the scope of the unfair prejudice jurisdiction and that the approach of courts in Canada, Australia and New Zealand is to be preferred.52 I have considered the various cases from those jurisdictions cited by the author and others cited by South African writers,53 but refrain from citing and analysing them because I think the criticism is based on a misconstruction of O’Neill v Phillips. There appears to be little practical difference in the approach in different jurisdictions. The author suggested that O’Neill v Phillips ‘effectively limits “unfairness” in terms of the remedy to breaches of legally enforceable agreements’, apparently basing this on the fact that the trial court had said, and Lord Hoffmann accepted, that negotiations to increase Mr O’Neill’s stake in the company to 50% had stalled and Mr Phillips had resumed the reins of management because the company ran into difficulties. But the point of the decision was that the trial judge had found that because Mr Phillips had made no promise or undertaking to increase Mr O’Neill’s shareholding or allow him to continue as the manager of the business, Mr O’Neill could not have had any realistic 52 Matthew Berkahn ‘Unfair Prejudice: Who has it right, economically speaking?’ [2008] 1 JIALawTA 55 (The full title of the journal is Journal of the Australasian Law Teachers Association.). The author cites other academic writing in fn 43 at p 60 in support of his view. A more favourable view was expressed by Jason W Neyers ‘Is there and Oppression Remedy Showstopper: O’Neill v Phillips’ (2000) 33 Can Bus L J 447. 53 M S Blackman et al, Commentary on the Companies Act, (Juta, 2002, Loose-leaf in three volumes). has a wide selection of references to cases in the United Kingdom, Australia and Canada as well as references to the South Africa cases. 66 expectation that either of those events would occur.54 Accordingly there was no unfairness in not carrying out a promise that he had not made. Lord Hoffmann recognised that ‘there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers’. That was inconsistent with saying that unfairness resided only in breaches of legally enforceable agreements. Any doubt should be put to rest by the following passage from his speech:55 ‘In a quasi-partnership company, they will usually be found in the understandings between the members at the time they entered into association. But there may be later promises, by words or conduct, which it would be unfair to allow a member to ignore. Nor is it necessary that such promises should be independently enforceable as a matter of contract. A promise may be binding as a matter of justice and equity although for one reason or another (for example, because in favour of a third party) it would not be enforceable in law.’ (Emphasis added.) [84] Identifying every circumstance in which equitable considerations will make it unfair for the majority to rely on their strict legal powers is an impossible task as Lord Wilberforce recognised when dealing with the just and equitable ground for winding up a company in Ebrahimi v Westbourne Galleries Ltd.56 He said: ‘The words [“just and equitable”] are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is 54 At 971 Lord Hoffmann said: ‘… there is no basis, consistent with established principles of equity, for a court to hold that Mr Phillips was behaving unfairly in withdrawing from the negotiation. This would not be restraining the exercise of legal rights. It would be imposing upon Mr Phillips an obligation to which he never agreed. Where, as here, parties enter into negotiations with a view to a transfer of shares on professional advice and subject to a condition that they are not to be bound until a formal document has been executed, I do not think it is possible to say that an obligation has arisen in fairness or equity at an earlier stage.’ 55 Ibid 969. 56 Ebrahimi v Westbourne Galleries Ltd, op cit, fn 27. The case concerned a petition to wind-up a company on the grounds that it would be just and equitable to do so. The passages quoted in the text have previously been cited with approval by this court. See Apco Africa (Pty) Ltd v Apco Worldwide Incorporated [2008] ZASCA 64; 2008 (5) SA 615 (SCA) para 17; Cook v Morrison and Another [2019] ZASCA 8; 2019 (5) SA 51 (SCA) para 20. The principle has been applied on a number of occasions in the high court. 67 room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act 1948 and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this definition is sufficient and exhaustive, equally so whether the company is large or small. The ‘just and equitable’ provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. It would be impossible, and wholly undesirable, to define the circumstances in which these considerations may arise. Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. The superimposition of equitable considerations requires something more, which typically may include one, or probably more, of the following elements: (i) an association formed or continued on the basis of a personal relationship, involving mutual confidence—this element will often be found where a pre-existing partnership has been converted into a limited company; (ii) an agreement, or understanding, that all, or some (for there may be ‘sleeping’ members), of the shareholders shall participate in the conduct of the business; (iii) restriction on the transfer of the members’ interest in the company—so that if confidence is lost, or one member is removed from management, he cannot take out his stake and go elsewhere.’ His Lordship pointed out that it is confusing to refer to such companies as ‘quasi-partnerships’ or ‘in substance partnerships’ especially as one must always be alert to the fact that: ‘[T]the expressions may be confusing if they obscure, or deny, the fact that the parties (possibly former partners) are now co-members in a company, who have accepted, in law, new obligations. A company, however small, however domestic, is a company 68 not a partnership or even a quasi-partnership and it is through the just and equitable clause that obligations, common to partnership relations, may come in.’ [85] Two situations that commonly form the basis for claims by a minority shareholder of unfair prejudice were identified. The first is where there was an agreement or understanding that all or some of the shareholders would participate in the conduct of the business, whether as directors or employees or both, where the unfair prejudice lies in their being prevented from doing so. These can conveniently be described as exclusion cases. The second is where, in the absence of such an agreement or understanding, the conduct of the majority shareholder, especially where it involves a lack of probity on their part, brings about a loss of trust and mutual confidence, but the disaffected shareholder is unable to address that by disposing of their interest in the company. The result is that they are effectively locked in and unable to realise the value of their investment. [86] These two situations frequently overlap. Both are in play in this case. Luis says that he was excluded from the company, initially by being sidelined in his role as a director and employee and subsequently as a result of his dismissal. In addition he says that he is unable to realise the value of his shareholding and is therefore locked in to the company. His primary case was based on the cumulative effect of both. His secondary case was that, even if he had not established his exclusion claim, his ‘locked in’ claim on its own sufficed to entitle him to relief. Jose’s case on exclusion is less clear, although he complained that his role was reduced and his responsibilities given to others, particularly Tony. He was not excluded as a director and remained in employment until he 69 resigned on 2 April 2013, after the commencement of this litigation. His ‘locked in’ claim appeared to be the same as that of Luis. Exclusion cases [87] Exclusion cases overwhelmingly arise in smaller companies57 where the shareholders enter into the venture on the basis of an informal or tacit understanding or arrangement that each will contribute something by way of capital or labour and each will play a role in the running of the company, usually as a director, but sometimes as an employee, whether alone or in addition to being a director. This applies particularly to companies constituted on the basis of family, friendship or complementary business skills, where, albeit unspoken, the parties have an understanding of the manner in which the business will be conducted and their respective roles in it. Later, when differences and disputes arise and cannot be resolved, unfair prejudice may be occasioned to the minority shareholder if they are excluded by the majority shareholder from the position that enabled them to play a role in the running of the company. The aggrieved shareholder then complains that their exclusion was inconsistent with the basis upon which they became a shareholder. Exclusion can occur in various ways. The minority shareholder may be sidelined in the ongoing decision-making process of running the business, while remaining a director and employee. Alternatively, they may be removed as a director under the provisions of the relevant legislation or 57 Rehana Cassim ‘A Critical Analysis on the Use of the Oppression Remedy by Directors Removed from Office by the Board of Directors under the Companies Act 71 of 2008’ (2019) 40 Obiter 154 at 159-161. The court in Latimer Holdings Latimer Holdings Ltd v SEA Holdings New Zealand Ltd [2004] NZCA 226; [2005] 2 NZLR 328, para 78, based on a survey in Australia, held that this was the common situation giving rise to an exclusion claim. Re Phoneer Ltd [2002] 2 BCLC 241 raised the converse situation of a breach of an undertaking to remain working in the business for five years given to induce the other shareholder to make further loans to the company and agree to an adjustment of shareholdings. The breach was held to give rise to unfair prejudice under s 459 of the Companies Act (1985). Not all are small companies and they may involve substantial businesses. See, for example, Re Coroin Ltd (No 2), op cit, fn 30. 70 dismissed from employment, or both. One way or another the effect is to prevent them from continuing to fulfil the role initially anticipated and accepted when they became a shareholder. [88] Exclusion is usually the result of a breakdown in the relationship between the shareholders.58 The reasons for relational breakdown are many and varied. Sometimes the business develops and the shareholders disagree on its future direction. Sometimes the introduction of a new shareholder alters the dynamics between the existing shareholders. Disagreements may arise over the distribution or retention of profits, remuneration of shareholders, the payment of bonuses or dividends. If the business goes through a lean period the managing shareholders may be accused of negligent or incompetent management. The examples can be multiplied, but the end result can be that one or more of the shareholders may feel that they have been excluded. In turn this may lead the disgruntled shareholder to seek avenues to leave the company, while realising the value of their interest in it. [89] The remedy under s 252 is not restricted to cases where the company was formed on the basis of a personal relationship or understanding between the shareholders in regard to the manner in which they will conduct themselves in exercising their rights as shareholders. However, the cases, both here and elsewhere, suggest that it is most usually in that type of case that resort is had to s 252 or its equivalent. These were for a time referred to in England as ‘legitimate expectation’ 58 See M I Iqbal, ‘The effectiveness of shareholder dispute resolution by private companies under UK companies legislation: an evaluation’ (November 2008), doctoral thesis submitted to Nottingham Trent University by M I Iqbal available at https://irep.ntu.ac.uk/id/eprint/306/1/194154_Iqbal.pdf, Chapter 3 (hereafter M I Iqbal). 71 cases,59 but Lord Hoffmann, the initiator of the expression, said that this borrowing from public law may be misleading.60 Since the decision in O’Neill v Phillips the concept of ‘legitimate expectations’ has been abandoned in the UK (but not apparently elsewhere) in favour of ‘equitable considerations’, which is regarded as being more certain and a bar to judicial findings based on individual concepts of fairness rather than some objective standard.61 However, Luis pleaded his case on the basis of a legitimate expectation, so in dealing with it I will continue to use the expression, subject to the caveats in the following paragraph. [90] I share Lord Hoffmann’s reservations about the use of the term ‘legitimate expectations’. The criticism of the expression by the New South Wales Court of Appeal seems justified. It expresses a conclusion regarding the character of the expectation, rather than adding anything to that notion, and it can distract from the central question of whether there has been unfairly prejudicial conduct.62 Like the latter court, I do not accept its replacement by ‘equitable considerations’.63 Unlike England, we do not have a separate system of equity, where equity is the means whereby courts can avoid the consequences of strict legal rights in accordance with principles developed over many years. Our law is developed on the basis of equitable principles generally, especially those embodied in the Constitution and the Bill of Rights, but unlike England it does not afford the courts a power to avoid legal obligations on the basis of equity. In the result equity in our law does not bear the same meaning 59 Visser Sitrus (Pty) Ltd v Goede Hoop Sitrus (Pty) Ltd and Others, op cit, fn 11, paras 62-63. 60 O’Neill v Phillips, op cit, fn 49, at 970 in section 6 of the opinion. This view was endorsed in Re Coroin Ltd, op cit, fn 30 paras 635-636. 61 M I Iqbal, op cit, fn 58 at 186. 62 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd, op cit, fn 47, para 62 (per Spigelman CJ) and paras 649-650 (per Fitzgerald JA). See also Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, paras 166-171. 63 Tomanovic v Global Mortgage Equity Corporation Pty Ltd, ibid, paras 177-179. 72 as it does in England.64 The legitimate expectations doctrine has a definite role in our public law and importing it into the field of company law is not necessarily apt. It is preferable, as Rogers J did in Visser Sitrus,65 to speak of cases where there is proof of an informal arrangement or understanding between the contesting shareholders as to the manner in which they will exercise their rights as shareholders and the roles they will play in the company’s business operations. This can be entirely informal and is unlikely to rise to the level of a contract, but it is shared by the majority and minority shareholders. [91] The exclusion cases to which we were referred and that I have encountered in my own research were almost invariably based on allegations that an arrangement or understanding existed among the shareholders that the minority shareholder would be entitled to participate in the management of the business at an operational level. This created expectations on the part of the minority and imposed restraints upon the majority’s exercise of their contractual rights. If such an arrangement or understanding was established, then excluding the minority shareholder from that participation, whether by removing them from the board of directors, downgrading their role in the company in some other way, or dismissing them from employment, could possibly constitute unfair prejudice to them. The existence of such an arrangement or understanding of that nature is usually inferred from the nature of the relationship between the shareholders, for example, their being close relatives or good friends, and their conduct in managing the affairs of the company, for example, the division of responsibilities, the manner of decision-making or an equality of treatment. The scope of any arrangement or 64 A similar point is made about Canada in Neyers, op cit, fn 52 65 Visser Sitrus, op cit, fn 11, para 62. 73 understanding is limited only by statutory and regulatory constraints and may arise in respect of many situations. [92] Two further points need to be made before turning to discuss the situation of a minority shareholder being locked in and unable to realise their investment in the company. The first is that informal arrangements or understandings of the type being discussed do not necessarily operate in perpetuity. As the company develops and grows such arrangements or understandings will frequently be adapted to changing circumstances or abandoned altogether. The business may expand, or its nature may change. If it is successful, other shareholders may be brought in. Funding agreements may need to be concluded on terms that preclude the implementation of the original agreement or understanding. If the company becomes sufficiently large and successful a listing on a public stock exchange may be sought. The evidence shows that this was thought of as a possibility in 2006 and Luis raised it in a proposal he put to the board of directors in May 2008. Accordingly, when a claim of exclusion is based on an arrangement or understanding, the court must not only examine whether at the inception of the company there was such an arrangement or understanding, but also whether it was still operative when difficulties arose. If the parties by their actions have abandoned it then the disaffected shareholder can no longer rely on it. [93] The second point is that, apart from the memorandum of incorporation of a company, shareholders have always been entitled to further regulate their relationships by way of a shareholders agreement. Such agreements were valid and binding under the Act66 and are 66 Gihwala and Others v Grancy Property Ltd and Others [2016] ZASCA 35; 2017 (2) SA 337 (SCA) para 54. 74 specifically provided for and rendered enforceable under s 15(7) of the 2008 Act. They typify the kind of collateral agreement referred to by Lord Hoffmann.67 Shareholders agreements are entered into where investors wish to regulate their relationship inter se when the investment is to be made through the medium of a company. They are a recognised means of protecting the rights of minority shareholders and dealing with the consequences of a breakdown in relationships between shareholders.68 Their advantage is that they specify the rights of the parties inter se; they may be flexible; they can only be altered with the consent of all the parties; they can restrict the power of the majority to ride roughshod over the views of the minority by imposing minimum requirements to pass certain resolutions; they can make provision for the participation of the shareholders as directors or employees and provide for exit mechanisms if for any reason any shareholders wish to exit the company.69 [94] Where the parties have, with the assistance of legal and possibly commercial advisers, carefully negotiated the terms of a shareholders agreement spelling out their rights and obligations in particular situations, it is ordinarily not unfair to conduct the affairs of the company in conformity with those instruments. The notion of fairness is not indefinite, but is informed by the underlying values of reasonableness and justice that play a creative, informative and controlling role in our law of contract. The Constitutional Court in Beadica held that those values do not empower courts to refuse to enforce contractual terms on the basis of their subjective view of whether to do so would be unfair, unconscionable 67 See para 82, supra. 68 See M I Iqbal, op cit, fn 58, Chapter 4 The thesis is partly based on interviews with barristers in the UK specialising in this area of company law and they appear to be virtually unanimous that such agreements are a protective device for minority shareholders. The use of such agreements is widespread in other jurisdictions. See M I Iqbal, p 79, fn 35. 69 This is a very brief summary of matters discussed in greater detail by Dr Iqbal, ibid. 75 or unduly harsh.70 Where the parties have expressly addressed and provided for particular situations that may arise in the future, courts should be wary of holding that the implementation of what was agreed is unfairly prejudicial to a minority shareholder and, by overriding the agreement, confer rights on the minority shareholder that they agreed not to have. Such a finding would come perilously close to ignoring the principle laid down in Beadica that courts do not have the power to refuse to enforce contracts on the basis of the individual judge’s perceptions of fairness. It would also override the long-accepted principle that the courts do not exist to make contracts for the parties. It is one thing for the courts to remedy unfair prejudice by overriding an otherwise lawful exercise of rights by a majority shareholder. It is something entirely different for them to confer rights on minority shareholders that are greater than, or differ from, the rights for which they have bargained and impose burdens on the majority that it did not undertake to bear. Locked-in cases [95] The possibility of the minority shareholder being locked in and unable to realise their investment may, as will be seen, aggravate the unfairness of an exclusion that is itself unfairly prejudicial. But the shareholder may find themselves locked in even where there is no exclusion from participation in the affairs of the company, or where that exclusion was not unfair. The minority may wish to exit the company because they have lost trust and confidence in the majority and the direction of the company. They may also wish to do so for reasons of their own that impute no failing to the majority. In either event they may 70 Beadica 231 CC and Others v Trustees for the time being of the Oregon Trust and Others [2020] ZACC 13; 2020 (5) SA 247 (CC) paras 79 and 80. In view of the fact that our law does not recognise a system of equity such as that in England it is preferable to refer to the foundational values of our Constitution and the manner in which those principles are to be found in our law of contract than to the ‘established equitable rules’ to which Lord Hoffmann referred in O’Neill v Phillips. 76 find themself unable to realise their investment unless the arrangements for this in terms of the articles of association, or any shareholders agreement, facilitate an exit, or an exit arrangement can be negotiated without undue difficulty. It is not enough merely to show that the relationship between the parties has irretrievably broken down,71 but nonetheless claimants try to build upon such breakdown and their inability to exit the company to show that it has resulted in unfair prejudice to them. When they do so it is always necessary to bear in mind that:72 ‘The provisions of the section were enacted to protect members from unfairly prejudicial, unjust or inequitable conduct; not to enable a 'locked-in' minority shareholder to require the company to buy him out at a price which he considers adequately reflects the value of the underlying assets referable to his shareholding.’ [96] Whether the mere inability to exit the company because of the terms of the memorandum of incorporation or a shareholders agreement is in and of itself unfairly prejudicial to the minority shareholder was considered in O’Neill v Phillips. The relationship between Mr O’Neill and Mr Phillips had broken down so that trust and confidence between the two had been lost. It was submitted that it was irrelevant whether this was due to anything unfair done by Mr Phillips, because, even if he was not at fault in causing the breakdown, it would be unfair to leave Mr O’Neill locked into the company as a minority shareholder. This would prevent him from realising his investment in the company because of provisions in the articles of association that effectively governed and limited his power to dispose of his shares. The contention was that either 71 Grace v Biagioli and Others [2005] EWCA Civ 1222 para 61, sub-para 6; Tomanovic v Global Mortgage Equity Corporation Pty Ltd, op cit, fn 62, para 199. 72 Blackman, op cit, fn 53, p 9-37 (RS2). 77 Mr Phillips or the company should raise the capital to pay Mr O’Neill a fair price for his shares. It was rejected in the following terms:73 ‘Mr Hollington’s submission comes to saying that, in a “quasi-partnership” company, one partner ought to be entitled at will to require the other partner or partners to buy his shares at a fair value. All he need do is to declare that trust and confidence has broken down. … [I]t is submitted that fairness requires that Mr Phillips or the company ought to raise the necessary liquid capital to pay Mr O’Neill a fair price for his shares. I do not think that there is any support in the authorities for such a stark right of unilateral withdrawal. There are cases, such as Re a company (No 006834 of 1988), ex p Kremer [1989] BCLC 365, in which it has been said that if a breakdown in relations has caused the majority to remove a shareholder from participation in the management, it is usually a waste of time to try to investigate who caused the breakdown. Such breakdowns often occur (as in this case) without either side having done anything seriously wrong or unfair. It is not fair to the excluded member, who will usually have lost his employment, to keep his assets locked in the company. But that does not mean that a member who has not been dismissed or excluded can demand that his shares be purchased simply because he feels that he has lost trust and confidence in the others. I rather doubt whether even in partnership law a dissolution would be granted on this ground in a case in which it was still possible under the articles for the business of the partnership to be continued.’74 [97] I think this was correct. The mere fact that a minority shareholder wishes to exit the company and claims to have lost trust in and respect for the majority shareholders does not on its own mean that they have suffered unfair prejudice within the ambit of s 252 (or its equivalent). It does not become unfair prejudice merely because the member seeking to depart is ‘locked in’ by their inability to dispose of their shares. It will 73 O’Neill v Phillips, op cit, fn 49 at 972e-j. The principle was endorsed in Omar v Inhouse Venue Technical Management (Pty) Ltd and Others 2015 (3) SA 146 (WCC) paras 5-6. 74 The model rules for private companies in the Companies Act 2006 do not contain a default rule providing for a dissentient minority shareholder to exit the company despite that having been recommended by the Law Commission. The reasons are discussed by M I Iqbal, op cit, fn 57, para 4.6.3.1, pp 103-105. 78 almost always be prejudicial for the withdrawing minority shareholder to be unable to realise their investment.75 However, prejudice alone, and even a loss of trust in the majority, is not necessarily unfair. After all the minority shareholder agreed to become a shareholder on the basis that they could not freely dispose of their shares in the company. One of the risks of conducting a business with others in a small private company is that leaving the business and disposing of one’s interest in it may be difficult or practically impossible. Small private companies in South Africa have always been required to have provisions in their articles of association restricting the transferability of shares. This is still the case under s 8(2)(b)(ii)(bb) of the 2008 Act. Often these take the form of provisions requiring the departing member to find a purchaser for their shares and, having done so, then to offer the shares to their fellow members on the same terms. Similar provisions are frequently encountered in shareholders agreements. The difficulty is always to find an outside purchaser for the shares. If no such purchaser can be found and the remaining shareholders do not wish to acquire the shares of the departing member the latter is ‘locked in’ to the company with no involvement in its day-to-day operations and no means of realising the value of their shareholding. [98] Treating that as automatically unfair would rewrite the provisions in the memorandum of incorporation, or any shareholders agreement dealing with a member’s disposal of their shares, and replace them with an obligation on the remaining members to acquire them provided only that the departing shareholder declared their loss of trust in the majority. There is no reason why, in the absence of some form of misconduct by 75 Lucy v Lomas [2002] NSWSC 448, para 43; Tomanovic v Global Mortgage Equity Corporation Pty Ltd, op cit fn 62, para 202. 79 the majority, a loss of faith in them should advantage the minority shareholder. Such an advantage would be at the cost of the majority, who had not acted unfairly but would nonetheless have to raise the capital to purchase the minority’s shares. Nor is there is any reason why the disaffected minority, should be in a better situation than shareholders seeking to leave for other reasons, such as relocation elsewhere in the country, or emigration, or advancing years, who would not be entitled to claim that the remaining shareholders acquire their shares. That would amount to discrimination among the shareholders. The estate of a disaffected shareholder would likewise be in a worse situation than the disaffected shareholder was when still alive. [99] If claiming that one had lost faith in the majority were the key to unlocking a right to demand that the company or the majority acquire the minority’s shareholding, it would effectively confer a right to exit the company at will at the expense of the remaining shareholders. A court should not allow a claim of unfair prejudice to be used to rewrite the terms on which the parties agreed to conduct the affairs of the company.76 As Lord Hoffmann said: ‘a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted.’ The same reasoning applies with even greater force in the situation postulated by Luis in his evidence, that where a shareholder and director is also an employee and is dismissed from employment for serious misconduct, the other shareholders must purchase their shares or, if they 76 While not adopting the decision in other respects Hammond J in Latimer Holdings op cit, fn, 57, para 95 said that on this point the House of Lords ‘must be right’ that there should not be a right to exit at will. 80 do not wish to do so, must retain the member in employment despite such serious misconduct. [100] The problem of minority shareholders finding themselves locked in and unable to dispose of their shares has received legislative attention. Under s 164 of the 2008 Act provision is made for a dissenting shareholder in certain circumstances, hedged about with qualifications, to give notice to the company requiring the company to acquire their shares at fair value. However, the availability of that remedy is limited to amendments to the memorandum of incorporation affecting rights attaching to shares, the sale of the whole or greater part of the assets or undertaking, an amalgamation or merger and proposals for a scheme of arrangement. It does not give rise to a general unilateral right of withdrawal at the instance of a minority or dissentient shareholder. And there are sound business reasons why that should be so. To permit a shareholder to withdraw and compel either the remaining shareholders, or the company, to purchase their shares might imperil the future of the company and prejudice its creditors. Its shareholders would be prejudiced by being forced to dispose of assets or borrow money in order to pay the price fixed for the shares of the departing shareholder. It might even lead to the winding-up of the company or the sequestration of the other shareholders. Allowing that to happen to a functioning and otherwise solvent business is not in the public interest. [101] The basic principle underlying provisions such as s 252 was well-expressed by Young J, in Fexuto v Bosnjak Holdings,77 when he said: ‘Because it is easily overlooked, it is necessary to repeat that a plaintiff must actually prove oppression before obtaining relief. Oppression is not normally established 77 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 SC (NSW) at 740. 81 merely by showing that the majority are in control of the company, that the applicant is consistently outvoted nor because the majority have made some decisions which were questionable from a business point of view or have later turned out to be disastrous.…[C]are must be taken to ensure that the traditional role of directors and shareholders to manage and control their own companies was not invaded without due cause.’ Under s 252 in the absence of any unfair prejudice flowing from other matters, the fact that a member finds themself locked in to their shareholding and unable to realise their investment in the company does not sustain a case that the affairs of the company are being conducted in a manner that is unfairly prejudicial, unjust or inequitable to them. Identifying the circumstances where that might in conjunction with other factors have given rise to a claim for relief under s 252, or might give rise to a claim under s 163 of the 2008 Act, is not a question that needs to be addressed in this case. Offers to purchase [102] In O’Neill v Phillips, Lord Hoffmann held that, in exclusion cases in particular, whether the majority offer to acquire the shares of the excluded party may be highly relevant. The trial court and the House of Lords held that Mr O’Neill failed to prove that he had been unfairly treated. In the result Mr Phillips successfully defended the unfair prejudice claim. However, Mr Phillips contended that, in any event, he had made an offer to purchase Mr O’Neill’s shares at a fair valuation and this was all the relief to which Mr O’Neill was entitled. Accordingly it was submitted that the claim should fail. The point did not need to be decided, but was discussed because of its practical importance. 82 [103] The relevant passage reads as follows:78 ‘In the present case, Mr Phillips fought the petition to the end and your Lordships have decided that he was justified in doing so. But I think that parties ought to be encouraged, where at all possible, to avoid the expense of money and spirit inevitably involved in such litigation by making an offer to purchase at an early stage. This was a somewhat unusual case in that Mr Phillips, despite his revised views about Mr O’Neill’s competence, was willing to go on working with him. This is a position which the majority shareholder is entitled to take, even if only because he may consider it less unattractive than having to raise the capital to buy out the minority. Usually, however, the majority shareholder will want to put an end to the association. In such a case, it will almost always be unfair for the minority shareholder to be excluded without an offer to buy his shares or make some other fair arrangement. The Law Commission … has recommended that in a private company limited by shares in which substantially all the members are directors, there should be a statutory presumption that the removal of a shareholder as a director, or from substantially all his functions as a director, is unfairly prejudicial conduct.79 This does not seem to me very different in practice from the present law. But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out.’(Emphasis added.) [104] It must be borne in mind that O’Neill, the minority shareholder, had not been excluded in the sense in which that expression is used in cases of this type. He did not have any expectation of receiving either 50% of the shares or a salary based on 50% of the profits. Accordingly, denying him those benefits did not unfairly prejudice him. The point Lord Hoffmann was making was that it would almost always be unfair not to make a fair offer to acquire the shares of an excluded shareholder, where 78 O’Neill v Phillips, op cit, fn 49, at 974-975. 79 No such presumption was enacted in the English Companies Act 2006 although there is a presumption that the removal of the company’s auditor in certain circumstances will be presumed to be unfairly prejudicial to some part of the company’s members. See s 994 (1A). 83 they were denied benefits which they expected to receive. Similarly the dictum from Kremer80 quoted in para 46 of the high court’s judgment must be understood in its proper context. That was a case where there was no dispute between the parties that one of them would have to purchase the shares of the other in the light of a breakdown of confidence between them. The unusual feature was that the minority shareholder sought an order that they acquire the majority’s shares, while the majority, which had offered to buy the minority’s shares at a fair price, sought an order to that effect. The remark that it would be unfair to require the minority shareholder to maintain their investment in the company where they had fallen out with the majority was made in that unusual context. Where the minority shareholder’s claim to buy-out the majority had failed, to refuse it any relief at all and thereby oblige it to maintain its investment in the company, would indeed have been unfair. Kremer is not authority for the proposition that whenever the minority has fallen out with the majority they will be unfairly prejudiced unless the majority offers to purchase their shares at a fair price. [105] With respect, the high court in the present case misconstrued what Lord Hoffmann said. In para 44 of the high court’s judgment,81 the following appears: ‘A form of unfair prejudice which is of particular relevance in the instant case arises where a minority shareholder who has a right or legitimate expectation to participate in the management of the company is excluded from so doing by the majority without a reasonable offer or arrangement being made to enable the excluded shareholder to dispose of his shares. The prejudicial inequity or unfairness lies not in the legally justifiable exclusion of the affected member from the company's management, but in the effect of the exclusion on such member if a reasonable basis is not offered for a 80 Kremer, op cit, fn 24. 81 De Sousa and Another v Technology Corporate Management (Pty) Ltd and Others 2017 (5) SA 577 (GJ) para 44. 84 withdrawal of his or her capital.82 It was emphasised in O'Neill above … that 'it will almost always be unfair for a minority shareholder to be excluded without an offer to buy his shares or to make some other fair arrangement.' (Emphasis added.) In saying that the high court relied on McMillan NO v Pott:83 ‘[39] In my judgment the respondents' attitude in failing, within a reasonable time of McMillan's exclusion from the management of the company, to afford the trust the opportunity to remove its capital, constitutes an act or omission by the company that, in the circumstances described, is unfairly prejudicial, unjust or inequitable to the trust within the meaning of s 252(1) of the Companies Act. [40] A basis to claim relief in terms of s 252 inured in the circumstances, even if it is accepted that McMillan had been wholly or in part to blame for his removal from the board and dismissal from employment. The prejudicial unfairness or inequity lies not in the legally justifiable exclusion of the affected member from the company's management, but in the effect of the exclusion on any such member … if a reasonable basis is not offered in the circumstances for a withdrawal by the member of his or her capital. The issue of fault should, in general, not negate the right of a so-called quasi-partner member to relief under s 252, when such member has been excluded by the other members from the direct participation in the management of the company, contemplated when the member's investment in the company was made.’(Emphasis added)’ [106] Both those statements indicate that in an exclusion case the prejudice may flow solely from the failure to make a fair offer to acquire the minority’s shares. In other words, even if the exclusion is not unfairly prejudicial to the claimant, the failure of the majority thereafter to make a fair offer to acquire the minority’s shares is unfairly prejudicial. That is particularly clear from the emphasised passage in McMillan NO v Pott, where the judge said that even if McMillan had been entirely at fault and 82 This sentence was quoted in Armitage NO v Valencia Holdings 13 (Pty) Ltd and Others [2023] ZASCA 157, para 22 in support of the proposition that the test for unfair prejudice is an objective one, which is clearly correct. The judgment did not analyse the relevant portions of O’Neill v Phillips or refer to Bayly and Others v Knowles 2010 (4) SA 548 (SCA), which is discussed in para 109. It cannot be taken to have endorsed, even obiter, the judgment that is under appeal before us. 83 McMillan NO v Pott and Others 2011(1) SA 511 (WCC) paras 39 and 40. 85 this had led to his removal from the business that did not matter. The unfairness or inequity would lie in no reasonable basis being offered for the removal of his capital. The conduct leading to the exclusion would not ‘negate the right to relief under s 252’. But, if his dismissal was entirely his fault, the dismissal was not unfairly prejudicial to Mr McMillan. In the absence of some other ground of unfair prejudice it did not give rise to a claim for relief under s 252. [107] Lord Hoffmann did not say that whenever a shareholder is excluded, however justifiably, they will be unfairly prejudiced if a reasonable offer to purchase their shares is not forthcoming. That would ignore the requirement that the shareholder must have suffered unfair prejudice in order to be entitled to relief. Absent any unfairly prejudicial conduct towards the shareholder, they enjoy no right to relief, however much they may be prejudiced by their inability to remove their capital. Any other approach would mean that a shareholder dismissed for the grossest form of misconduct, such as theft or taking a bribe or sexual harassment of subordinates, could claim to be unfairly prejudiced by the absence of an offer to purchase their shares. An offer according to Lord Hoffmann ‘is only material to the outcome of the trial if the court considers that the petitioner is otherwise entitled to succeed’.84 He also did not say that, irrespective of the circumstances, a minority shareholder who had been excluded would be unfairly prejudiced, unless a reasonable offer had been made to acquire their shares. Instead he identified two situations where a reasonable offer is relevant. 84 O’Neill v Phillips, op cit, fn 49 at 974e-f. He said that logically it can only go to the question of costs. 86 [108] The first is where the matter proceeds to trial. In such a case a fair offer not accepted will be relevant to costs if the disaffected shareholder is successful in showing an entitlement to relief, but the relief obtained is no better than that offered. The second situation, and the one that has given rise to misunderstanding, arises from the statement: ‘But the unfairness does not lie in the exclusion alone but in exclusion without a reasonable offer. If the respondent to a petition has plainly made a reasonable offer, then the exclusion as such will not be unfairly prejudicial and he will be entitled to have the petition struck out.’ Lord Hoffmann was dealing solely with exclusion cases, where the exclusion itself was unfairly prejudicial to the excluded shareholder.85 In that situation a reasonable offer made at the outset would cure any unfairness flowing from the exclusion and the respondent could have the petition struck out.86 He did not say that the absence of a reasonable offer on its own, where the exclusion was not unfair, would be unfair. Had that been what he meant, Mr Phillips would have lost and Mr O’Neill would have won, because Mr Phillips had not made a reasonable offer to acquire Mr O’Neill’s shares.87 He rejected the submission that it was unfair for the minority to be ‘locked in’ and unable to dispose of its shares because, if upheld, it would amount to conferring a right to unilateral withdrawal and impose on either the company or the remaining shareholders an 85 Tomanovic v Global Mortgage Equity Corporation Pty Ltd op cit, fn 61, para 237. 86 The striking out procedure in the UK under CPR 3.4(2) provides that: ‘The court may strike out a statement of claim if it appears to the court:- (a) that the statement of claim discloses no reasonable grounds for bringing or defending the proceedings; (b) that the statement of case is an abuse of the court’s process or is otherwise likely to obstruct the just disposal of the proceedings; (c) that there has been a failure to comply with a rule, practice direction or court .’ These were not the rules in force in 1999 when the judgment in O’Neill v Phillips was delivered and it appears that the power to strike out a claim may be wider than our procedure by way of an exception in South Africa. Neyers, op cit, fn 52 points out that it is unclear whether Lord Hoffmann meant that an unfairly prejudicial exclusion ceased to be unfair if a fair offer was made, which suggests that if the majority are prepared to make a fair offer, they can always get rid of the disaffected shareholder even by unfair means, or that making the offer forestalls the buyout remedy where that is what is sought. If it is the latter, it is unclear why that justifies the striking out of the claim. 87 It was unreasonable because it did not include an offer in respect of the costs incurred before the offer was made. 87 obligation to buy the minority’s shares to which they had never consented. The absence of a reasonable offer may aggravate the unfairness of an exclusion, but an exclusion that is not in and of itself unfair is not rendered unfair by the absence of a reasonable offer to buy the excluded shareholder’s shares. [109] In Bayly v Knowles88 this court applied O’Neill v Phillips in that way. The high court had held that the offer made by Bayly ‘was far below the true value of the shares’. In fact, the respondent, Knowles, had not disputed an allegation that the offer was more than fair to him, or set out any facts explaining his failure to accept it, save that he did not want to sell his shares to Bayly, but wanted to acquire Bayly’s shares for himself. In the result the appeal was upheld and the buy-out order set aside. Heher JA said:89 ‘The failure to accept Bayly's offer has important consequences for Knowles. In English law the making of a reasonable offer for the shares of an oppressed minority is enough to counter reliance by the complainer on s 459 of the Companies Act (the equivalent of s 252). Pursuit of the complaint in the face of such an offer is evidence of abuse of the process sufficient to strike out such reliance in limine. The principle of encouraging affected parties to use the procedures provided in the articles (or in a shareholders' agreement) to avoid 'the expense of money and spirit' is laudable. In the context of s 252 the failure of a minority shareholder to accept a reasonable offer for his shares and leave the company in the hands of the majority is, at least, strong evidence of a willingness to endure treatment which is prima facie inequitable despite the choice of a viable alternative. If that is so it would not ordinarily behove him to continue to complain about oppression.’ 88 Bayly and Others v Knowles, op cit fn 82, paras 19-24. In Re Fortuna Dev Corporation: Tempo Group Ltd v Wynner Group Ltd and Another 2010 (2) CILR 85, the Court of Appeal of the Cayman Islands upheld an order striking out a petition for the winding-up of the company on just and equitable grounds where there had been a reasonable offer at a price determined by an agreed procedure to purchase the shares of the dissentient shareholder. 89 Bayly and Others v Knowles, ibid, para 24. 88 Heher JA rightly referred to the need to make a reasonable offer for the shares of ‘an oppressed minority’. He did not say that the failure to make an offer rendered the minority oppressed. Loss of trust due to an absence of probity [110] Although this did not appear in the forefront of the argument by counsel for the plaintiffs, there are references in the judgment of the high court to the affairs of the company being mismanaged and that there had been a lack of probity in the conduct of its affairs.90 The judge said that it: ‘is unduly prejudicial to them as they remain passive shareholders in the company which appears to be mismanaged by the majority with whom they have fallen out. It cannot reasonably be expected of the plaintiffs who have lost their employment to keep their assets locked in TCM. The following is a glaring example of a lack of probity in which TCM’s affairs have been conducted.’ He then referred to the various aspects in which Mr Geel had been critical of the accounts of TCM. [111] Fexuto v Bosnjak Holdings,91 illustrates that where there is a loss of faith, trust and confidence in the majority shareholders occasioned by a lack of probity on their part, that may constitute unfair prejudice and justify the grant of an order that the shares of the disaffected minority be acquired by the company or the majority. The plaintiff in Fexuto complained that the majority appropriated for themselves two business opportunities that they were under a fiduciary obligation to develop through the company. The court ordered an accounting to the company for the benefits acquired by the majority, after which it said that the disaffected minority shareholder would be entitled to a buy-out . 90 Judgment paras 332 and 333. 91 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd, op cit, fn 47, at 740. 89 [112] A large part of the trial was devoted to Mr Geel’s criticisms of the accounting methods of TCM. The judge accepted his evidence and found that the true value of TCM was not reflected in its AFS for 2008 to 2012; that the financial results had been manipulated since 2008; that inventory had been deliberately understated; and, that work-in-progress and maintenance spares had not been properly accounted for. The court held that this had probably been done deliberately in order to suppress share values should TCM or the defendants be compelled to purchase the plaintiffs’ shares. It was also critical of the manner in which the Supplies Division had been treated. The judge clearly did not regard Andrea’s conduct as reflecting the standard of fair dealing to be expected in the treatment of a minority shareholder by the majority. Given those findings it will be necessary to consider in due course whether a case of unfairly prejudicial conduct was established on this further basis, notwithstanding that it did not stand in the forefront of the argument presented to us. Conclusion on s 252 [113] An applicant for relief under s 252 cannot simply make a number of vague and generalised allegations of unfairness, but has to establish:92 ‘1. The particular act or omission that has been committed, or that the affairs of the company have been conducted in the manner so alleged. 2. Such act or omission or conduct of the company’s affairs is unfairly prejudicial, unjust or inequitable to the applicant or some part of the members of the company. 3. The nature of the relief that must be granted to bring to an end the matters of which there is a complaint;93 and 92 Louw and Others v Nel, op cit, fn 7, para 23; Geffen and others v Martin and Others [2018] 1 All SA 21 (WCC) para 23. 93 The appropriate remedy is not limited to reversing the conduct of which complaint is made. It must ‘put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholder of the company’ per Oliver LJ in In re Bird Precision Bellows Ltd [1985] BCLC 90 4. It is just and equitable that the relief be so granted.’ Whether the affairs of the company were conducted in a manner unfairly prejudicial to the minority requires an objective assessment of the overall conduct. While it aids the analysis to consider the alleged conduct within a framework of instances that have been held to constitute unfairly prejudicial conduct in other cases, it is not an exercise in categorisation. Determining whether the company’s affairs can be pigeonholed in one or more categories recognised in other decisions is not necessarily decisive. All the proven facts must be assessed within the legal framework of the applicable corporate structure. That consists of the memorandum of incorporation and any collateral agreements between the shareholders identifying their rights and obligations as members of the company. A shareholders agreement is the archetype of such a collateral agreement. A useful test is whether the exercise of the power or rights in question involves the breach of an arrangement or understanding between the parties, even if not contractually binding, and whether it would be unfair to allow that situation to continue. [114] It is not sufficient for a claimant to show that the relationship between the parties has broken down. There is no right of unilateral withdrawal for a shareholder when trust and confidence no longer exist. The loss of trust or confidence in the majority must flow from the affairs of the company being conducted in a manner that is unfairly prejudicial to the minority. Unfair exclusion from the management of the company to the detriment of the minority’s position as a shareholder is the quotidian example of situations falling within the section. The unfair prejudice may be overcome by an offer to purchase the minority’s shares at a fair price. 493; [1986] Ch 658. Cited with approval in Ming Siu Hung and others v J F Ming Inc and Another [2021] UKPC 1 para 15. 91 Conversely, a failure to make such an offer where there is no prior unfair exclusion and no other unfair prejudice, is not in and of itself unfair prejudice. Unless the minority have suffered unfair prejudice there is no obligation on the company or the majority shareholders to negotiate their exit other than in terms of the memorandum of incorporation or any applicable shareholders agreement and it is not unfair prejudice if they refuse to do otherwise. The exercise by the company or the other shareholders of the powers and rights conferred by the articles cannot ordinarily be regarded as unfair, especially where those powers are used to protect the company from conduct by the minority that is detrimental to the well-being of the company.94 Luis’s claim of legitimate expectation and exclusion Background [115] Luis’s primary contention was that this is an exclusion case based on his legitimate expectation as a director and shareholder to daily involvement and engagement in the operations of TCM. He claimed to have a legitimate expectation to recognition and remuneration as (i) a founder member of TCM; (ii) a quasi-partner in the affairs of the business, which was a domestic company akin to a partnership; (iii) a participant in and contributor to the business of TCM of equal standing to Andrea; and to (iv) the due respect and regard of his fellow directors, shareholders and employees. His complaint was that in breach of this expectation and understanding, since approximately 2007 and especially after his suspension and dismissal in 2009, he had been excluded from engaging in the operations of TCM. This was the first and primary source of alleged unfair prejudice. 94 This summary owes much to the analysis in Grace v Biagioli and Others, op cit, fn 71, paras 61-63. 92 [116] It was common cause that TCM was founded by two men having close ties of friendship and complementary skills that enabled them to make a success of the business. There is no doubt that they went into business together on the basis of mutual trust. From the outset the business operated on a basis of joint decision-making and equality. The advent of Jose and Tony did not change that. Their role was subordinate to that of the two founders. Although Jose and Tony were referred to as directors, it does not appear that they were formally appointed as such until 2003 or 2004. They are not reflected as directors in the AFS until the year ended 29 February 2004. In any event it is clear that they could be overruled by Andrea and Luis. For so long as those two continued on the path of joint decision-making their grip on the company’s affairs was absolute. [117] Luis testified that at a very early stage, soon after Jose joined the company, he and Andrea had a discussion in the garage one afternoon about the need for a formal salary structure so that they could be paid instead of relying on their savings from their employment with ISM. He said that they agreed that: ‘… so long as TCM existed we will be, we would have equal shares in the running of the company. Okay, we’ll draw, you know, the same salaries, have equal say in the management even though we approached it from different angles. Okay, it would be like a, you know, like running a home, like running a family. Okay, both parties have something to say in it.’ This ‘garage agreement’ was consistent with TCM originally being the type of small domestic company that typically features in exclusion cases, where shareholders are also working employees and the parties anticipate that it will continue on that basis. 93 [118] While that was undisputed, the key question was whether that close relationship continued in place after 2004 and justified Luis’s continued expectations of his role. TCM had become a company with a turnover running into the hundreds of millions of Rand, a national presence and a staff complement of several hundred. Its ownership structure and management had altered with the introduction as shareholders of Iqbal, and to a lesser extent Tony and Jose. Initially that occurred in terms of heads of agreement signed on 15 March 2004. It was formalised in the sale of shares agreement and the shareholders’ agreement executed on 29 June 2005. Two obvious questions arose from this. Could the business any longer be described as a ‘quasi-partnership’, or was the basis of the relationship between the shareholders now to be found in the shareholders agreement? Did Luis’s position as a co-founder of the business continue to justify his being entitled to the same standing and authority in the company as Andrea, who was now formally the Chairman of the company and its CEO? [119] Luis attempted to show that the advent of Iqbal and the conclusion of the shareholders agreement left matters unchanged so far as his role in the company was concerned. The running of the company would remain in his and Andrea’s hands and would continue as before. But his evidence suggested that things indeed changed. He said that when Iqbal joined the business: ‘It was not what we had agreed on, on moving forward. It was not what the shareholders agreement was meant to be. None of those things. Everything started turning upside down and Andrea, backed by Iqbal, started changing things in such a way that he just wanted to push me out of the company. That’s what he wanted to do.’ 94 He accepted under cross-examination that the garage agreement was not carried over into the shareholders agreement. However, he clung to the view of the relationship between himself and Andrea expressed in his description of the disciplinary proceedings instituted against him as a dispute ‘between the founders of the company, the two top people in the company’. [120] The differences between Luis and Andrea flared up in November 2007 with Andrea’s suggestion that he receive a backdated adjustment to his remuneration package, resulting in him and Luis being differently remunerated for the first time. The resultant exchanges between them have been described earlier and illustrate the central importance of Luis’s claim that he had a legitimate expectation of being entitled to manage TCM on a day-to-day basis as an equal partner with Andrea and that this was left undisturbed by the sale of shares to Iqbal and the conclusion of the shareholders agreement. The High Court’s finding was as follows: ‘[128] That De Sousa had a right, or at the very least a legitimate expectation, to participate in the management of the business of TCM can admit of no doubt. TCM may properly be described as a quasi-partnership company. Although technically and legally governed by the strictures of company law, in fact and in reality, the relationship amongst the shareholders was more akin to a partnership in which each held 50% of the shares … Since its establishment TCM functioned and was administered under the direct control of its two founding members who participated equally in its management. De Sousa testified that a pact was made between him and Cornelli that for as long as TCM existed they would be equal partners in the business, would earn the same benefits and would have an equal say in its affairs. It was always intended that all shareholders be employed by the company. I also accept that, despite the introduction of Diez, [Da Silva]95 and Hassim as minority shareholders, TCM retained its identity as a domestic company in the nature of a partnership primarily between De Sousa and Cornelli.’ 95 The judgment inadvertently refers to De Sousa and not Da Silva. 95 [121] The learned judge did not explain the basis for the conclusions in the last two sentences of this passage96 and counsel’s heads of argument simply asserted that even after Iqbal’s acquisition of his 25.1% shareholding: ‘… the company nonetheless retained its original identity of a domestic company in the nature of a partnership, primarily between De Sousa and Cornelli …’ Neither the judgment nor the respondents’ heads of argument engaged in any analysis of the provisions of the heads of agreement, the sale agreement or the shareholders agreement, although they were central to the defence to the claim. The plea alleged that the relationship between the shareholders was governed by a written shareholders agreement. Luis’s allegations of a legitimate expectation and the existence of a quasi-partnership of equals between him and Andrea were denied. In a request for particulars for trial the defendants asked whether it was admitted that the shareholders agreement ‘is the document that governs the relationship between the shareholders themselves’. The answer was that at the time of its conclusion it was intended to govern the relationship between the shareholders. Whether it in fact did so lay at the heart of the defence to Luis’s claim. The first issue to be addressed is whether the judge’s findings in the final two sentences quoted in the previous paragraph were correct. The initial relationship between Luis and Andrea will be considered followed by the conclusion of the heads of agreement, the sale agreement and the shareholders agreement. The judgment will then consider the parties’ contentions and the high court’s conclusion as quoted above and set out the findings on the exclusion issue. 96 He referred to it again in para 133, but only in the context of the provisions relating to the disposal of shares by a shareholder. 96 The relationship between Luis and Andrea [122] One cannot fault the learned judge’s conclusion that at its inception in 1987 TCM was a classic example of a small domestic company operating on a basis of trust and mutual respect between the founders, Luis and Andrea. They held equal stakes in the company, applied their differing skills to promoting the growth of the company and reaped the benefits of doing so as it grew and achieved success. Luis said with justifiable pride that they started out in competition with IBM and by the early part of the present century had become IBM’s agent in South Africa. Clearly their relationship gave rise to a mutual understanding that they would work together to manage the company and its affairs on a basis of equality. However, with growth and the company’s expansion came change. The central issue at the trial was whether those changes in ownership and in the nature and extent of its operations brought an end to the understanding that had lasted while building up the company and replaced that understanding with formal agreements. As Young J put it in Fexuto:97 ‘…the legitimate expectation does not last forever. It will be lost, if it is no longer practicable for the right to the expectation to continue.’ Young J’s view that the mere expansion of a company indicates that an earlier arrangement or understanding fell away may not necessarily be correct,98 but changes in the nature of the company and its business may indicate that the earlier informal understanding of how the business should be conducted has ceased to be feasible so that it falls away. A significant factor in bringing that about may be the advent of new shareholders who become involved in the business on a different basis. 97 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd, op cit, fn 77, at 704, lines 44-45. 98 It was held on appeal not to be supported by the facts. Fexuto Pty Limited v Bosnjak Holdings Pty Ltd, op cit, fn 47. 97 [123] The existence of an arrangement or understanding in cases of this type is usually inferred from the conduct of the parties. By and large small domestic companies do not regulate the relationship among shareholders as formally as larger businesses involving experienced business people. Initial arrangements and understandings may be displaced by events. Lord Templeman expressed it broadly in saying that the arrangements or understanding would apply unless for some good reason a change in management and control became necessary.99 The appellants’ case was that this is what happened when Iqbal joined the company in 2004. He did so, with the support of Luis, Jose, Tony and Andrea because it was imperative to address the BEE issue. In order to assess the impact of his arrival on the management of the operations of TCM it is necessary to look at the contracts under which that came about. The heads of agreement [124] The heads of agreement were executed on 15 March 2004. Either prior to, or contemporaneously with, the conclusion of the heads of agreement, effect was given to the long-outstanding undertaking to give Jose and Tony equity in the company. The contract under which that was done was omitted from the record. The heads of agreement provided for the transactions described above in paragraph 8. Iqbal was to pay for the shares he was purchasing over 36 months. The price was payable out of dividends and bonuses, would bear interest and be secured by a pledge. The number of shares sold to Iqbal was sufficient to give TCM the BEE rating it wanted. In addition it ensured that no decision requiring a special resolution could be passed without Iqbal’s agreement.100 99 Tay Bok Choon v Tahnasan Sdn Bvd [1987] UKPC 2 100 Counsel provided us with a list of twenty provisions of the Act that required a special resolution ranging from changing the type of company; changing its name; altering the Memorandum of Association; increasing share capital; converting or cancelling shares; issuing shares; approving share 98 [125] Clause 8 of the heads of agreement provided that: ‘A detailed shareholders agreement and sale agreement shall be entered into between all parties regulating their rights as shareholders and setting out the terms of the sale embodied herein.’ It went on to identify the matters that were to be regulated by the shareholders agreement. Clause 9 provided that, if Iqbal were to leave the company or resign as an employee, he would be obliged to offer his shares back to the original sellers at the same purchase price. He was, however, to be entitled to dispose of a maximum of 70% of his shares to BEE third parties on similar terms as deemed necessary by the majority of the shareholders or in accordance with any BEE Charter applicable to the industry or simply for empowerment purposes.101 Under clause 10 the other shareholders were to have options in their favour to acquire Iqbal’s shares on the same terms and conditions in the event of his resignation or death. [126] Clause 12 recorded that Iqbal was to be appointed an executive director and that his functions and duties would be embodied in employment agreements102 and his package would be structured on mutually acceptable terms. Andrea, Luis and Tony were to remain as directors, but Jose was to resign.103 Under clause 13 detailed employment agreements were to be entered into with Jose and Tony regarding their option plans; making loans to directors or managers; or voluntarily winding-up the company. The 0.1% portion of Iqbal’s shareholding afforded him powerful protection. 101 There is a corresponding provision in clause 11.1 of the shareholders agreement. 102 The heads of agreement say that these are attached but the parties have omitted them from the record. 103 This was effectively reversed under the shareholders agreement because Luis nominated him as a director. 99 functions, duties and package in TCM.104 Lastly in relation to TCM clause 14 provided that: ‘The shareholders agreements must deal with the resignation of directors and employees of Tony and Jose as well as Andrea and Luis and the death of the parties. The parties must meet to discuss all these aspects.’ [127] Thereafter the heads of agreement dealt with TCM Networks (Pty) Ltd and TCM Software and Services (Pty) Ltd in which TCM held a 50% share, with the other 50% being held respectively by Mr del Fabbro and Ms Applewhite, who were both parties, together with those companies, to the heads of agreement. In regard to TCM Networks, Mr del Fabbro was to sell 12.6% of the shares to Iqbal on the same terms and conditions mutatis mutandis as the TCM sale. A shareholders agreement was to be entered into under which Mr del Fabbro, Andrea and Luis were to be directors of TCM Networks. The arrangements in regard to TCM Software were similar in that Ms Applewhite was to sell 12.6% of the shares to Iqbal on the same terms and conditions mutatis mutandis as the TCM sale. A separate shareholders’ agreement was to be entered into under which Ms Applewhite, Iqbal, Andrea and Tony were to be directors of TCM Software. Finally the heads of agreement provided that the management company, TCM Management (Pty) Ltd, was to be restructured and the directors would be Andrea, Luis, Ms Applewhite and Iqbal. [128] The heads of agreement constituted a detailed contract prepared by TCM’s attorney. It provided a roadmap for the future structure of the shareholding of TCM and the management of its business operations. It contemplated the conclusion of further detailed agreements that would 104 We do not know whether such agreements were concluded, but if they were they have been omitted from the record. 100 deal with the shareholdings of the individuals; the identity of the directors of the different companies; the need for employment agreements in respect of Iqbal, Tony and Jose; what was to happen if Iqbal left the company or resigned as an employee; and the resignation as either directors or employees of any of Andrea, Luis, Tony and Jose, as well as the possibility of their deaths. On this basis Iqbal started working for TCM at the beginning of the 2005 financial year in early March 2004. The sale and shareholders agreements [129] TCM adopted new articles of association by resolution dated 28 February 2005 and these were registered om 5 July 2005. Articles 14 to 16 dealt with the circumstances in which a member could dispose of their shares. They imposed an initial obligation to offer the shares to the other existing members and made any transfer subject to the consent of the board of directors. Under article 61 the business of the company was to be managed by the directors. Article 67 provided that a director may hold any office or place of profit under the company other than that of auditor ‘for such period and on such terms as to remuneration and otherwise as the directors might determine’. [130] The sale and shareholders agreements were signed on 29 June 2005 over a year after the heads of agreement. The sale agreement provided for the sale of shares to Iqbal in accordance with the provisions of the heads of agreement. The price was more clearly defined in para 3.1 as being ‘an amount equal to the net asset value of the company as at the effective date together with a price earnings multiple of 5.7 based on the after-tax profits of the company as at the effective date and as reflected in the effective date accounts multiplied by 25,1%’. The parties fixed the price 101 at R26 646 260.53 on the basis of this formula. Payment was to be effected by way of a deposit of R500 000 and the balance was payable within 36 months of the date of signature of the agreement. Contrary to the heads of agreement the balance was to be free of interest. Clause 18 provided that if Iqbal died before full payment had been made the sellers would not be entitled to compel his estate to pay the balance of the purchase price, but should retain the percentage of shares already paid for and sell and transfer the balance to the sellers at the price outstanding at the time. [131] The shareholders agreement was typical of such agreements. In clause 3 it recorded the holdings of the five shareholders and in clause 3.6 provided that: ‘The shareholders wish to regulate their relationship as shareholders in the company on the terms and conditions contained herein.’ That was consistent with the stated purpose in clause 8 of the heads of agreement that the shareholders agreement should be entered into by all parties ‘regulating their rights as shareholders’. It sought in clause 4 to give priority to the agreement over the articles of association. [132] Clause 5 dealt with directors. The relevant provisions read: ‘Notwithstanding anything to the contrary contained in the articles of association of the company, the shareholders shall take all steps, do all things and vote in favour of all resolutions necessary to procure that: 5.1.1 Andrea and Luis shall as long as they hold at least 30% (thirty per centum) each of the company’s total issue share capital be entitled to appoint 2 (two) directors to the board and to remove and replace such appointed directors; 5.1.2 The remaining shareholders being Tony, Jose and Iqbal shall as long as they hold at least 15% (fifteen per centum) each of the company’s total issued share capital 102 be entitled to appoint one director each to the board and to remove and replace such appointed directors; 5.1.3 no person (including any shareholder of the company from time to time) shall have any claim against any party hereto pursuant to his or her removal as director in terms of this agreement and/or in terms of the Act, it being recorded that nothing in this agreement is intended to entrench the appointment as director of any specific individual(s); 5.1.4 resolutions of the board shall, save as otherwise provided herein, be passed by a majority vote of the board on the basis that each director shall have one vote; 5.1.5 in the event of an equality of votes as regards any resolution proposed to be passed by the board, the chairman of the board shall have a casting vote (it being recorded that the present chairman of the board shall be Andrea) who shall however be subject to re-election and re-appointment at the annual general meeting; 5.1.6 s quorum for meetings of the board shall be comprised of any three directors, provided that both Luis and Andrea shall be present at all such meetings; 5.1.7 if there is no quorum at any meeting (“the original meeting”) of the board, the original meeting shall be adjourned to the same time and same day two weeks later than the date originally set (“the adjourned meeting”) on the basis that written notice of the date and time of such adjourned meeting shall forthwith after the adjournment of the original meeting be given by the company to all the directors of the company. Any director(s) present at an adjourned meeting shall constitute a quorum.’ The remaining provisions of clause 5 dealt with the right to appoint alternate directors; the place where board meetings were to be held; contact details of directors; remote participation in board meetings and round robin resolutions. [133] Clause 5 recognised Luis in two ways. First it entitled him to appoint two directors for so long as he held at least 30% of the shares in TCM. Andrea was likewise entitled to appoint two directors to the board. Second it provided that a meeting of directors would not initially be quorate unless both he and Andrea were present. However, the impact of those two provisions was diluted by clauses 5.1.3 and 5.1.7. The former 103 made it clear that nothing in the agreement entrenched either Luis or Andrea, or anyone else for that matter, as a director. The necessary implication was that, notwithstanding their agreed entitlement to appoint directors, and the undoubted anticipation that they would be directors, any of Luis, Andrea or Iqbal could be removed as members of the board by following the statutory procedures laid down in the Act.105 Clause 5.1.6 protected Andrea and Luis by rendering a board meeting at which one of them was not present non-quorate. However, the scope of the protection was limited because at an adjourned meeting the meeting would be quorate if any director was present. [134] Clause 5.1.5 provided for Andrea’s initial appointment as chair of the board, with a casting vote in the case of an equality of votes, but it expressly provided that he could be removed at an annual general meeting. Provision was made in clause 9.1 for the appointment of a managing director to undertake the day-to-day management and administration of the business. Although Andrea is sometimes referred to in documents as the CEO, it is not clear that the board ever formally appointed him to that role. However, it was plainly the manner in which he functioned. Jose accepted that since 1990 Andrea had been the CEO and that he had not held this position jointly with Luis, who was responsible for the technical service and accounting side of the business. [135] Although all of the shareholders were employees of TCM at the time of its conclusion, the shareholders agreement did not refer directly to that employment. Following upon the provision in clause 14 of the heads of agreement that it should deal with the resignation or death of the 105 The provisions of s 71(1) of the 2008 Act preclude the entrenchment of directors by way of shareholders agreements, which reinforces the. provisions of clause 5.1.3. 104 shareholders, including both Luis and Andrea, clause 10 entitled ‘Deemed Offers’, provided that: ‘Should any of the shareholders:- 10.1.1 die or suffer any incapacity for any reason whatever (it being agreed that a continuous period of 90 (ninety) days during which such shareholder is unable to perform his usual management functions in respect of the company shall represent incapacity for the purpose of this 10.1.1; 10.1.2 be sequestrated whether provisionally or finally; or 10.1.3 surrender his estate whether provisionally or finally; or 10.1.4 leave the employ of the company for any reason whatsoever, Then such party (“the offeror”) shall be deemed on the day immediately preceding the occurrence of such event to have offered (“the offer”) all of the offeror’s shares (“the sale shares”) and an equivalent percentage proportion of the offeror’s claim by way of loan account (“the sale claims” against the company on the exact basis set out in clause 13 as applies to each shareholder referred to therein.’ In the case of Luis, Andrea and Tony clause 13.14 provided for them to offer to sell their shares to the remaining shareholders. The procedure in clauses 13.15 to 13.17 was, broadly speaking, that they should find an external third party purchaser, offer the shares to the remaining shareholders at the price and on the terms offered by the potential purchaser and either sell the shares to the remaining shareholders at the price offered by the third party, or sell them to the third party. The effect of the provisions of clauses 13.16 and 13.17 appears to be that if the remaining shareholders accepted the offer in part that would not permit the exiting shareholder to sell the balance to the third party. In order to dispose of the balance of the shares they would have to repeat the process. [136] Other provisions of the shareholders agreement dealt with Iqbal’s shares, the sale of shares by the other shareholders and the admission of new shareholders. Clause 17 covered the dividend policy and clause 21 105 imposed restraints on the shareholders in relation to the disclosure of confidential information and competition with TCM. These restraints applied only during the shareholder’s employment with the company. Finally, clause 27 provided that the agreement was the sole record of the parties’ agreement in relation to its subject matter, namely, the relationship between the shareholders. It also provided that no party would be bound by any representation, warranty, promise or the like not recorded in the agreement. That was fatal to Luis’s complaint that he had been misled. Discussion [137] A claim under s 252 based on the member’s exclusion from the company requires the identification of the acts giving rise to the exclusion. Most reported cases seem to arise from the member’s removal as a director, but in this case that did not occur. Whilst Andrea suggested on several occasions that Luis should resign as an executive director and made that a condition for continuing with the discussions about acquiring his and Jose’s shares on 18 February 2009, he was not removed from the Board and continued to attend board meetings after the present litigation commenced. Luis also remained a shareholder with the ordinary rights of a shareholder to participate in the affairs of the company and receive dividends. Based upon the way things had operated from the inception of the business, he claimed a legitimate expectation to daily involvement and engagement in the operations of the business and to be recognised and remunerated as a participant of equal standing to Andrea, who was the chairman and effectively chief executive of TCM. Was this justified? [138] In order to satisfy that expectation Luis needed to be an executive director of TCM employed as such and remunerated on the same basis as 106 Andrea. He did not have that right under either the articles of association or the shareholders agreement. The trial court held that there was such a right because this was a quasi-partnership company, administered under the direct control of Luis and Andrea, who participated equally in its management on the basis that it was always intended that all shareholders would be employed by the company. The foundation for this was the garage agreement that even Luis accepted was not carried over into the shareholders agreement. Nonetheless, the judge held that even after the introduction of Tony, Jose and the Trust as shareholders and the conclusion of the shareholders agreement the company retained its identity as a domestic company in the nature of a partnership between Luis and Andrea. [139] With respect to the trial judge I cannot accept either of those conclusions. Whatever the precise position before the conclusion of the heads of agreement and up to the conclusion of the sale and shareholders agreements, once those agreements had been concluded the shareholders had put their relationships inter se on a very different footing, namely one regulated by the shareholders agreement. This was the main purpose of the heads of agreement, which said: ‘A detailed shareholders agreement and sale agreement shall be entered into between all parties regulating their rights as shareholders and setting out the terms of the sale embodied herein.’ Clause 3 of the shareholders agreement confirmed that the parties’ purpose in concluding the agreement was to regulate their relationship as shareholders on the terms and conditions set out in that agreement. Those terms were spelled out explicitly in clause 5. It made no mention of any special arrangement or understanding between Luis and Andrea. It attached no qualifications to each shareholder’s power to exercise the 107 voting rights attaching to their shareholding and it dealt with the possibility of their ceasing to be employed by the company. I am unable to see how those detailed arrangements could be overlain by a guarantee of employment and an unspoken partnership between Luis and Andrea requiring that each be afforded equal status and equal participation in the control and management of the company’s business. That would be destructive of the entire purpose of concluding the shareholders agreement and would impermissibly contradict its terms. [140] Dealing first with the finding that it was intended that all shareholders would be employed by the company, it was correct that they were all employees at the time the heads of agreement and the shareholders agreement were concluded and it was assumed that they would continue to be employed. But their employment was neither indefinite nor guaranteed, because clause 10(1) of the shareholders agreement contemplated that a shareholder could become incapacitated from performing their executive functions or cease to be employed. Luis agreed that this included dismissal from employment and his counsel did not suggest otherwise. Accordingly the intention that all shareholders would be employed was subject to a significant qualification that applied to Luis as much as to the other shareholders, namely that they continued to be able to discharge their functions as an executive director and that there were no proper employment-related reasons for terminating their employment. [141] Continued employment was a pre-requisite to Luis’s ability to be involved in the day-to-day running and management of the company. The express recognition that any of the shareholders could be dismissed was inconsistent with an arrangement or understanding that Andrea and Luis 108 would always be employed and engaged jointly in the management of the business. Any shareholder could leave the company for other reasons and compete with TCM. The deemed offer and the accompanying risk of being locked in to a minority shareholding in the company were the only protection offered by the shareholders agreement against any shareholder seeking to leave for whatever reason or conducting themselves in a way that would justify the termination of their employment. [142] In regard to the second finding that the company retained its identity as a domestic company of the nature of a partnership, under cross-examination, both in the CCMA hearing and in his evidence in this case, Luis reluctantly accepted that the shareholders agreement had brought about significant changes to the relationships between him and Andrea. The agreement recorded that Andrea would be the chair and, whether or not he was formally elected to that position, he was de facto the managing director or CEO. The day-to-day management and administration of the company was accordingly to be undertaken by him. The extent to which he consulted his fellow shareholders or directors over any matter was within his discretion. There was no obligation on him to do so. Significant decisions by shareholders about the company’s affairs would require the agreement of at least two of the three major shareholders. This meant that neither he nor Andrea had a right of veto and either could be outvoted. That simple reality disposed of the claim by Luis to continued joint control on a day-to day basis with Andrea. [143] A further insurmountable stumbling block in the path of the high court’s conclusion that this was a domestic company of the nature of a partnership between Luis and Andrea, was that there was no evidence that Iqbal was informed of, much less accepted and agreed to, such an 109 arrangement or understanding between Luis and Andrea. Proving its existence was precluded by clause 27 of the shareholders agreement. Disclosure of the existence of such an arrangement would have materially affected Iqbal’s involvement in TCM. After negotiations lasting over a year and the conclusion of the shareholders agreement it is impossible to conceive that he would have agreed that contrary to its terms the company would continue to be administered under the direct day-to-day control of Luis and Andrea to his exclusion. Anything he wanted to do would depend on his being able to secure the agreement of both of the original shareholders. In the context of a public company Vinelott J said:106 ‘Outside investors were entitled to assume that the whole of the constitution was contained in the articles, read, of course, together with the Companies Acts. There is in those circumstances no room for any legitimate expectation founded on some agreement or arrangement made between the directors and kept up their sleeves and not disclosed to those placing the shares with the public.’ Iqbal was an outside investor in TCM and was entitled to assume that the whole of the arrangements between the shareholders was contained in the shareholders agreement negotiated and executed for that purpose. Accordingly, there could no longer be a ‘quasi-partnership’ arrangement between Luis and Andrea, as contended for in this litigation. [144] The sale of shares and introduction of Iqbal, together with the conclusion of the shareholders agreement, fundamentally changed how the company was to be run. Luis knew this as illustrated by his subsequent attempt to vary the shareholders agreement. The proposal for amendments to the sale of shares agreement that he put before the board of directors in May 2008 included the following: 106 Re Blue Arrow plc [1987] BCLC 585. 110 ‘Luis, his nominee or successor-in-title will get Joint CEO Status with all privileges, salary and car allowance backdated to 1st Nov 2007 as well as Immediate Log-on and equal transaction access to Andrea on ALL TCM current & future accounts on Internet Banking.’ This was a fairly transparent endeavour to restore the claimed position prior to the advent of Iqbal and the conclusion of the shareholders agreement. [145] Accompanying that proposal was a proposal for numerous changes to the shareholders agreement to limit the directors’ powers unless there was agreement by shareholders holding 80% of the entire issued share capital of the company. If adopted the effect would be to shift control of the company on all major decisions and many smaller day-to-day matters from the directors to the shareholders. Any decision on those matters would require the support of all three principal shareholders. It would have given Luis veto power in respect of those thirty-three matters107 and enabled him to block any management decision with which he disagreed. Under cross-examination he was evasive about this, but the conclusion was indisputable. The proposals related inter alia to undertaking new business activities; the repurchase or buy back by the company of its own shares; transfer of any of its shares to any person other than the company itself; incurring long-term debts or any other material borrowing; the conclusion of any contract that ‘could negatively affect the rights of any shareholder’; the passage of special resolutions; the approval of any budget and an annual business plan; the establishment or implementation of or any changes in the company’s financial policy (including but not 107 In Fexuto, op cit, fn 47, para 56 it was said of such a power that: ‘The inability to make decisions by reason of the existence of a veto is a very significant burden for any active commercial organisation to bear. It could adversely affect all its commercial and financial relationships. It is not a burden which should be inferred in the absence of any foundation in the formal documents or in oral communication which creates such an impediment to the capacity of the group to grow and develop.’ 111 limited to payments to shareholders) or accounting policies ‘which might adversely affect one of the shareholders’; the conclusion or implementation of any transaction with any shareholder or officer or director of the company or any relative of those individuals; the appointment, dismissal or determination and or increase in the remuneration and bonuses of directors or the managerial level of employees; the adoption or amendment of employment benefits for employee; the grant of share options or the creation of any employee share scheme with the inclusion of a profit sharing arrangement; and the conclusion of financial or suspensive sale contracts or other contracts binding the company to on-going financial commitments over and above those for which provision had been made in the current budget or business plan of the company. [146] Leaving aside the distinct possibility that these proposals were directed at forcing the hand of his co-shareholders into purchasing his shares, their obvious purpose of reversing the provisions of the shareholders agreement evidenced a clear recognition that the old order had changed in 2004. The former relationship and understanding in relation to the running of the business of TCM ended in 2004 and 2005 and a new arrangement was put in place by the conclusion of those two agreements. [147] There are some similarities with the Australian case of Fexuto,108 which involved a family business that was built from scratch into the largest business of its type in Australia. After the father and patriarch died, the eldest son contended for an understanding among the members of the family, that they would all participate in the management of the 108 Op cit, fn 47. 112 business on the basis of a ‘consensus style management’, alternatively to his entitlement to be an executive director engaged in the day-to-day management of the business. In regard to the existence of this understanding Spigelman CJ said that:109 ‘It is of some significance in the present case that the Appellant was not able to point to any document, nor give any evidence of any conversation, by which the `understanding' for which it contended was created. There was no evidence of any communication constituting any such understanding, or on the basis of which any express understanding could be inferred. The case, in this respect, was entirely a circumstantial one. The right to participate was to be established by a process of inference.’ In that case the business was structured through a holding company, three subsidiaries and three family trusts. This distributed the shares among the three sons and their families equally with their mother holding a key share until her death, with its distribution thereafter preserving the equality of interest among the three sons. In rejecting the claim based on an understanding or informal agreement Spigelman CJ said: ‘The structure was devised with considerable care and attention to detail.’110 Similarly the structure created in terms of the shareholders agreement in this case was devised with considerable care and attention to detail. Iqbal had a 25.1% shareholding, the extra 0.1% coming at the expense of Tony and Jose. That served both BEE purposes and meant that special resolutions could not be passed without his support. The shareholders agreement made detailed provision for the structure of the board of directors of the company and similarly detailed provision for what was to happen if one of the parties to the agreement ceased to be an employee of the company. If, as Luis claimed, matters were to remain unaltered there was no point in creating that carefully designed structure. 109 Ibid, para 32. 110 Ibid, para 39. 113 Conclusion on legitimate expectation [148] The high court’s conclusion that Luis retained a legitimate expectation to daily involvement in the company as a person of equal standing to Andrea after Iqbal joined the company was not justified by the evidence. The court erred in not analysing the agreements governing Iqbal’s introduction to the company or giving any consideration or weight to their provisions or what occurred once Iqbal started working at TCM. It may not have brought immediate or obvious changes in Luis’s day-to-day situation, because he remained an executive director and employee for some five years after that. Whether he truly thought that he would always have daily involvement in the company as a person of equal standing to Andrea, or whether he merely believed that this was his entitlement as a co-founder of the company, is immaterial. Whatever he thought it was on a vague and ill-formed basis. But, for any expectation he entertained to be reasonable or legitimate, he needed to be able to point to an understanding or agreement involving all the shareholders. He made no attempt to do so. In view of the changes that came about in 2004 and 2005 his continued reliance on the historic situation did not suffice. [149] The evidence and particularly the documents placed before us suggest that the affairs of TCM were conducted with a fair degree of informality. In Fexuto,111 Spigelman CJ aptly described this kind of situation in saying the following: ‘Management practices in a corporation develop for many reasons. They are subject to the exigencies of what falls for determination and to the personalities involved. The fact that a particular person exercises certain management rights, or has a de facto authority to carry on or to prevent certain actions, is as consistent with an inference 111 Op cit, fn 46, paras 59 and 61. 114 that this is merely the result of an ad hoc procedure, as it is with an inference that it is a manifestation of an underlying `understanding' to this effect. … One cannot infer the right to have a status quo continue merely from the fact that it is the status quo. Something more is needed in order to establish a right or expectation that it would continue. That will usually take the form of an agreement or understanding between parties or an expectation induced by the conduct of the business.’ [150] Luis’s evidence and the documents did not reflect, much less establish, the continued existence of such an agreement or understanding after 2004. Accordingly, the high court’s finding that after 2004 and 2005 Luis had a legitimate expectation that he would continue to be involved in the daily operations of the company and would be recognised and remunerated as of equal standing with Andrea cannot stand. In my judgment all Luis was entitled to was the position and standing afforded to him under the articles of association and the shareholders agreement. He had a legitimate expectation that he would be entitled to exercise the rights ordinarily attaching to his ownership of a 30% shareholding, as well as the further right, whilst he held that shareholding, to appoint two directors and through them to exercise the powers and functions of a director. For so long as he remained in employment with TCM, I accept that such employment would be in a senior executive position. However, given the provisions of clause 5.1.3 of the shareholders agreement stipulating that his right to be a director was not entrenched, he did not have a legitimate expectation that the company would appoint him as an executive director. Nor did he have a right to expect that it would retain him in employment if there were proper grounds for his dismissal. Those conclusions serve to dispose of his claim insofar as it was based on the existence of the claimed legitimate expectation. 115 Luis’s dismissal [151] That conclusion does not dispose entirely of Luis’s claim to have been excluded from his role at the company. There remained a second source of unfair prejudice alleged on the pleadings, but not developed as such in either the heads of argument or the oral argument. It was that, even if he had no such legitimate expectation, he was employed as an executive director and his unfair dismissal would not only deprive him of that employment and role in the company, but also trigger the deemed offer for his shares. This case on unfair prejudice was based on the contention that he had been unfairly dismissed. This excluded him from his role in the company, because his active engagement in managing the operations of the company ceased after his suspension on 19 February 2009 and his dismissal with effect from 31 March 2009. The evidence, both oral and documentary, suggests that he and Andrea clashed over most substantial and some petty issues. Andrea appears to have had a policy of circulating e-mails to the other directors asking for their agreement to policy decisions that he advocated. The record is replete with responses by Luis questioning or opposing outright those suggestions; demanding information and explanations; querying whether the decisions should be taken without a formal meeting; and frequently countering with his own contrary proposals. After his dismissal nothing prevented him from continuing with this and he did so. However his suspension and subsequent dismissal deprived him of the ability to participate in the day-to-day operations of TCM and perform his managerial function. That was the basis for his second claim to have been excluded. The right to dismiss any employee, including a director, was not disputed, so this claim pertinently raised the fairness of his dismissal 116 [152] Luis alleged that the charges against him were spurious and the conduct of his disciplinary hearing was unfair. He claimed that Andrea was acting with an ulterior motive to rid the business of his daily engagement and involvement in its affairs and to deprive the business of his contribution. The response in the plea was that he had been lawfully and fairly dismissed after a disciplinary procedure the fairness of which, from both a substantive and a procedural perspective, had been upheld by the CCMA and not challenged by him. [153] Despite the fact that Luis’s exclusion flowed from his dismissal, and its alleged unfairness was said to be unfairly prejudicial to him in his capacity as a shareholder, the judgment did not address the fairness of his dismissal. The reason emerged from paragraph 106 of the judgment where the judge said: ‘The proceedings before the CCMA … are not material to the outcome of the case. It is common cause that De Sousa was dismissed from his employment after a disciplinary hearing. Even if it were proven that there were grounds for De Sousa's dismissal, he would still be entitled to claim the relief sought and to dispose of his shares in TCM at a fair value.’ For the reasons already dealt with in paragraphs 103 to 107 of this judgment that view was incorrect. Being subjected to unfair prejudice was an essential pre-requisite, before any question of an offer to purchase arose. The contrary view of the high court in this case and the conclusion to the same effect in McMillan NO v Pott were wrong in law and must be overruled. 117 [154] The judge further explained that in his view the findings of the CCMA commissioner were irrelevant because of the rule in Hollington v Hewthorn.112 In para 129 he added: ‘As a matter of law, it is irrelevant whether or not Cornelli or the board of directors of TCM was justified in dismissing De Sousa from his employment. What matters is that he has been excluded from management …’ In the result the judgment did not deal with the allegations of unfair dismissal, or whether the dismissal was unfairly prejudicial to Luis in his capacity as a shareholder. In the course of the trial counsel for the plaintiffs had taken the same approach and their heads of argument in this court did not address the issue of dismissal.113 That approach was incorrect because Luis’s exclusion flowed directly from his dismissal and the defendants contended that his exclusion was not unfair because his dismissal was fair. If he had no expectation of continued employment and engagement in the day to day running of the business, but his dismissal was grounded on an ulterior motive to rid the business of his involvement, lacking fair reasons relating to his conduct or performance, that would be unfair.114 It would impact directly, and to his prejudice, on his rights as a shareholder because it would give rise to a deemed offer under clause 10 of the shareholders agreement, with the prospect of being locked-in. It was therefore essential to address the fairness of his dismissal. [155] Once the fairness of Luis’s dismissal was in issue, the effect of the decisions on that issue by the various disciplinary bodies and particularly the CCMA had to be considered. Luis pleaded that his dismissal was both procedurally and substantively unfair. The internal disciplinary enquiry 112 Hollington v F Hewthorn & Co Ltd [1943] KB 587 (CA); [1943] 2 All ER 35 (CA). 113 Their practice note said that it was unnecessary to read the record of the evidence before the CCMA. 114 As alleged in para 13.5.4 of the Particulars of Claim. 118 held that his conduct justified his dismissal. The appeal confirmed that decision. After an eleven day trial, where the onus of proving the fairness of the dismissal rested on TCM115 it was held to have discharged that onus. The CCMA commissioner concluded that the dismissal was procedurally and substantively fair. Did the entire issue have to be revisited and decided afresh? Was the judge correct in saying that the finding of the CCMA commissioner was irrelevant? The Labour Relations Act 66 of 1995 and s 252 of the Act [156] The Labour Relations Act 66 of 1995 (the LRA) is one of the statutes passed to give effect to the right to fair labour practices in s 23(1) of the Constitution and the related labour rights in that section. Central to these rights is every worker’s right not to be unfairly dismissed, embodied in s 185(1) of the LRA. Where disputes arise over either the procedural of the substantive fairness of a dismissal, the LRA provides for the dispute in most instances to be referred to the CCMA under s 191(1)(a)(ii) of the LRA, unless it is claimed that the dismissal was one that could be referred directly to the Labour Court under s 191(5)(b) of the LRA. [157] An arbitration award by a CCMA commissioner is capable of being challenged on various grounds under s 145 of the LRA. If it is not challenged then in terms of s 143(1) of the LRA it is final and binding and may be enforced as if it were an order of the Labour Court in respect of which a writ has been issued. It is unnecessary to explore the intricacies of reviews of CCMA arbitration awards as Luis elected not to challenge the commissioner’s award in the present case. It is accordingly final and binding on him. Under s 157(1) of the LRA the Labour Court’s 115 Section 192(2) of the LRA. 119 jurisdiction in relation to reviews of CCMA arbitration awards is exclusive of the jurisdiction of any other court. In the result there was a statutorily binding determination that Luis’s dismissal by TCM was not unfair both procedurally and substantively. [158] The particulars of claim alleged that the manner in which Luis’s original disciplinary hearing was conducted was unfair to him. No particulars were given, but it is apparent, from the decision of the chair of the hearing, as well as the documents in the record and Luis’s evidence, that his complaint was that he had sought to be legally represented at the hearing and this was refused. On the substantive issues Luis advanced three complaints. The first was that the charges related to alleged conduct which had occurred substantially earlier – some six months or more – than the time the charges were levelled against him. The second attacked the charges broadly by saying that they did not merit investigation, scrutiny or dismissal, without giving specifics. That went to the seriousness of the charges. Thirdly he alleged that the charges had been brought with the ulterior motive of ridding the business of him, terminating his daily engagement and involvement in TCM’s affairs and preventing him from making his contribution to those affairs. [159] These allegations raised issues of both procedural and substantive unfairness in relation to his dismissal. They were made in support of the claim that he had been subjected to unfair prejudice as a shareholder in the conduct of the affairs of the company. Insofar as labour law was concerned those questions had been asked and answered against Luis in the only forum having jurisdiction to address them. That raised the conundrum of whether it was open to him to raise them again in a different context and for a different purpose. If he could, it created the 120 possibility of the high court reaching conclusions contrary to those of the CCMA on the very same questions. Take for example the procedural issue of legal representation at the initial disciplinary hearing. The chair held that it was not appropriate to permit him to have legal representation. If the high court took a different view, then the allegation that the disciplinary hearing was unfair would be established. If the high court held that the charges against him related to trivial matters and were brought with an ulterior motive with a view to getting rid of him, his dismissal was substantively unfair. If the high court accepted that the charges were established, but that dismissal was an excessive sanction, the dismissal would likewise be substantively unfair. On each and every issue it was notionally possible for the high court to arrive at the opposite answer to the CCMA in respect of issues that under our labour law fall within the exclusive jurisdiction of the CCMA and potentially the Labour Court and Labour Appeal Court. That would be a most unsatisfactory situation. [160] There is no reason in principle why an applicant for relief under s 252 should not rely on the unfairness of their dismissal from employment as constituting their exclusion from the company. Ordinarily that will be in cases where there is a legitimate expectation of employment as an adjunct to the shareholding. For example, an employee whose principal source of income from their involvement in the company comes from their salary or the ability to earn commission will probably be able to demonstrate that they enjoy a legitimate expectation of continued employment. However, it is conceivable that, even without such an expectation, their dismissal may give rise to unfair prejudice in their capacity as a shareholder, for example, where it triggers an obligation to dispose of their shares at an artificially low price. Where 121 unfair dismissal is relied on in support of a s 252 claim and the fairness of the dismissal has been the subject of adjudication by the bodies established for that purpose, what is the impact of their decisions upon the s 252 enquiry? The high court’s approach was that it was irrelevant. For the reasons that follow, I disagree. The rule in Hollington v Hewthorn116 [161] The high court relied on this decision in saying that the decision of the CCMA commissioner was irrelevant. I do not think it was correct to do so. The rule in Hollington v Hewthorn is described as follows in LAWSA, the opening sentence being the relevant portion for present purposes:117 ‘Evidence that a party has been convicted of a criminal offence is not evidence, not even prima facie evidence, in a subsequent contested civil suit; it is the irrelevant opinion of another court. In uncontested civil proceedings the fact of the conviction constitutes prima facie proof. The finding of a court in civil proceedings is inadmissible in subsequent criminal proceedings and a conviction is not evidence in subsequent criminal proceedings against someone else.’ The judgment has always been controversial118 and in its country of origin and elsewhere has been abolished or varied by statute. It is part of our law of evidence by virtue of the provisions of s 42 of the Civil Proceedings and Evidence Act 25 of 1965, but it has only been invoked to a limited extent. It does not apply in relation to disciplinary proceedings against legal practitioners where a conviction is accepted as constituting evidence of the commission of the crime unless rebutted by the legal 116 Hollington v F Hewthorn & Co Ltd , op cit, fn 115. 117 Lawsa, Vol 18 (3 ed, 2015) para 141; It was stated in this form in Lagoon Beach Hotel (Pty) Ltd v Lehane NO and others [2015] ZASCA 210; 2016 (3) SA 143 (SCA) para 12. 118 C/f S v Khanyapa 1979 (1) SA 824 (A) at 840C-841A, where Rumpff CJ expressed relief that the rule was inapplicable and referred to criticism of it. That judgment was overruled in Attorney-General Northern Cape v Brühns 1985 (3) SA 688 (A), but without addressing the qualms expressed in regard to Hollington v Hewthorn. 122 practitioner.119 In a case involving piercing of the corporate veil it was held that despite the rule the plaintiff could rely upon the existence of a judgment debt against A in order to pursue claims against B and C to recover that debt.120 In a forfeiture case, the Constitutional Court invoked it to refuse to admit the record of a criminal trial where the accused was acquitted, because such evidence was ‘superfluous’.121 The controversy over it is reflected in leading textbooks and academic writing although not all comment is unfavourable.122 [162] Although the rule is expressed as precluding reliance on a conviction in a criminal case to prove a fact in a civil case, there are some judicial statements indicating that it may extend to preventing reliance on a judgment in one civil case as evidence to prove facts in a subsequent civil case involving different parties.123 However, in those cases, unlike the present one, that was not a pertinent issue and the statements were at most obiter dicta. Only in Graham v Park Mews Body Corporate,124 was the rule deliberately extended to include subsequent litigation between the same parties. The court said the following: ‘I am of the view that such rule is applicable in the present matter, even though the previous proceedings were not a criminal trial, but arbitration proceedings. There seems to be a general rule that findings of another tribunal cannot be used to prove a 119 Hassim (also known as Essack) v Incorporated Law Society of Natal 1977 (2) SA 757 (A). 120 Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1995 (4) SA 790 (A) at 806C-H. 121 Prophet v National Director of Public Prosecutions 2007 (6) SA 169 (CC) para 42 122 C W H Schmidt and H Rademeyer The Law of Evidence (Looseleaf, 2003, Lexis Nexus) para 21.1.3; Thulisile Brenda Njoko ‘The admissibility of criminal findings in civil matters: Re-evaluating the Hollington judgment’ 2021 De Jure Law Journal 160. 123 Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others, op cit, fn 123; Shepherd v Mossel Bay Liquor Licensing Board 1954 (3) SA 852 (C) at 860H-861C; Birkett v Accident Fund and Another 1964 (1) SA 561 (T) at 566H-567B; Msunduzi Municipality v Natal Joint Municipal Pension/Provident Fund and others 2007 (1) SA 142 (N) para 11; Mulaudzi v Old Mutual Life Assurance Company (South Africa) Ltd; National Director of Public Prosecutions and Another v Mulaudzi [2017] ZASCA 88; 2017 (6) SA 90 (SCA) para 40. Schmidt and Rademeyer, ibid, para 21.3.5 regard it as illogical not to extend the rule in this way. 124 Graham v Park Mews Body Corporate 2012 (1) SA 355 (WCC) paras 59-65. 123 fact in a subsequent tribunal. I also see no logical reason why the application of this rule cannot be extended to the findings, orders and awards of other tribunals, so as to exclude the opinion of triers of fact in these proceedings in civil or criminal matters.’ The judge sought support for this extension in the following passage from Land Securities plc v Westminister City Council:125 ‘In principle the judgment, verdict or award of another tribunal is not admissible evidence to prove a fact in issue or a fact relevant to the issue in other proceedings between different parties.’ [163] With respect that overlooked the reference to ‘different parties’ in Land Securities. That case concerned an attempt in a rent review arbitration to introduce an arbitrator’s award in a separate rent review involving entirely different parties as evidence of comparable rentals. A careful reading of the judgment shows that the reason for the exclusion of the award was that it was not evidence of a valuation by a skilled valuator – which would have been admissible as expert evidence and subject to cross-examination – but the opinion of the arbitrator based on the evidence placed before him. All that the arbitrator could say was that on that evidence, the correctness of which could not be tested, he had formed the opinion reflected in the award. In addition, admitting the evidence would involve a collateral enquiry into the correctness of the arbitration award, which was not the purpose of the rent review. Graham v Park Mews Body Corporate dealt with an application for the appointment of an administrator to the respondent body corporate. It had been preceded by an arbitration between the applicant and the body corporate over certain repairs and the resultant award had been made an order of court. The applicant sought to make use of the findings by the arbitrator to support the case that the administration of the body corporate should be taken out 125 Land Securities plc v Westminster City Council [1993] 4 All ER 124 at 127. 124 of the hands of the body corporate and vested in an administrator. That was a wholly different situation from the one in the Land Securities case. [164] Graham v Park Mews Body Corporate was considered in Institute for Accountability in Southern Africa v The Public Protector.126 There a claim for declaratory relief was based upon adverse findings made by the Constitutional Court and the Gauteng Division of the High Court in regard to the then Public Protector’s conduct in the discharge of her duties. It was submitted on behalf of the Public Protector that these findings were inadmissible in terms of the rule in Hollington v Hewthorn, as being merely the opinions of various other courts in regard to her conduct. The contention was rejected. The judge pointed out that the findings in question were not made in criminal proceedings, but in reviews of the Public Protector’s conduct, and they were all final andno longer subject to appeal. He held that given the criticism addressed to the rule it should be strictly confined to the circumstances to which it clearly applied, namely the use of findings in a criminal case to prove facts in a civil case. As regards the argument that the rule excluded the findings with which he was concerned, because they were irrelevant opinions, the learned judge held that the findings by judges in review proceedings cannot be equated to the opinions of ordinary individuals. One can well understand the reluctance of a judge to hold that findings by our highest court and the full court of the division in which he was sitting were merely irrelevant opinions that could be disregarded. [165] In my view that criticism of Graham v Park Mews Body Corporate was well-founded. The rule in Hollington v Hewthorn should not be 126 Institute for Accountability in Southern Africa v The Public Protector and others 2020 (5) SA 179 (GP). The views expressed in this judgment have found support in Maqubela and Another v The Master and Others 2022 (6) SA 408 (GJ) paras 47-50. 125 extended beyond the circumstances to which it expressly applied. In other instances where it is sought to use findings in a previous case to prove facts in a subsequent case, the test for admissibility should be relevance and the court must pay careful attention to the weight to be attached to the evidence thus tendered. It should be excluded if, like the Land Securities case, it diverts the case into a collateral enquiry. Discussion [166] Applying those principles to the present case, the rule in Hollington v Hewthorn was inapplicable because the CCMA award was not made in criminal proceedings. It was a labour arbitration to decide whether Luis’s dismissal was either procedurally or substantively unfair. The onus of proof rested on TCM and the decision by the commissioner that it was not unfair in either respect was final and binding on both TCM and Luis. The s 252 proceedings involved the same parties and the allegation was that Luis’s dismissal was both procedurally and substantively unfair. The onus rested on Luis to prove that. While the s 252 action required him to show that the dismissal was unfairly prejudicial to him in his capacity as a shareholder, and he was not seeking conventional labour law remedies such as reinstatement or compensation, the issue of the unfairness of his dismissal was the same in both proceedings and there was a legally binding decision that it was not unfair. On any view the CCMA award was not irrelevant to the s 252 issue that Luis had raised and did not raise collateral issues. Accordingly the judge erred in treating it as such. [167] In fairness to the judge there are passages in the record that suggest that counsel for TCM may have been under a misapprehension as to the scope of the rule in Hollington v Hewthorn. Leading counsel mentioned the case and was plainly concerned that without some 126 admission it would be necessary for him to call all eleven witnesses who had testified at the CCMA enquiry to show that the dismissal was fair, as the rule might prevent him from relying upon the CCMA award. That concern resulted in the defendants’ attorney proposing to the plaintiffs’ attorney that the record of the evidence before the CCMA should be accepted as evidence in the trial, a proposal that if accepted would have resolved one of the key issues in regard to the conduct of the trial. The plaintiffs did not explain why they did not agree to this proposal and the judge disallowed cross-examination of Luis directed at ascertaining why this was unacceptable.127 That disallowance was based on Luis not having been the author of the correspondence between the attorneys. That was not a good reason for preventing counsel from cross-examining Luis on their contents.128 [168] On the issue of the relevance of the CCMA award the status of such an award was dealt with above. The grounds upon which Luis contended that his dismissal was unfair for the purposes of this action overlapped to a considerable extent with the grounds of unfairness canvassed in the CCMA. The record of the CCMA proceedings was before the high court, as were the reasoned findings of the initial disciplinary hearing, the appeal and the CCMA commissioner. Luis was cross-examined to a limited extent129 on his basis for claiming that the result of the disciplinary procedures was unjustified. The high court was in a position to reach its own conclusions on whether there were grounds for doubting the finding of the commissioner and it could do so in the light of the reasons advanced by Luis for not accepting that conclusion. 127 In argument counsel merely said that ‘Of course’ they could not agree to that proposal. 128 Van Tonder v Kilian NO 1992 (1) SA 67 (T) at 72F-73J; Absa I-Direct Ltd v Lazarus NO and Another [2017] ZAKSDHC 14; 2017 JDR 0572 (KZD) para 6. 129 Cross-examination was restricted by certain time constraints imposed by the judge. 127 But it did not do so, even though the fairness of the dismissal was of central importance in the exclusion case advanced by Luis. That was an erroneous approach. [169] It is helpful to consider the grounds Luis put forward for not accepting the CCMA award. His only complaint in regard to the disciplinary hearing was that he was refused legal representation. As a result, and acting on the advice of his attorneys, he withdrew after handing in a document with the submissions prepared by his attorneys. He refused to give evidence or be cross-examined. He attended the appeal hearing and handed in submissions, but again was refused legal representation. The record in the CCMA reflects that his complaint, about being refused legal representation, was not pursued before the commissioner. Luis could not recall what other complaint he had about the appeal, save that he would not concede that the chair was independent. As regards the proceedings before the CCMA his complaint was that because of some confusion over the date for the hearing new counsel was briefed and only had two days to prepare before the hearing commenced. As a result he said that ‘due to lack of preparation we weren’t allowed to present our case fully’. This complaint was not borne out by an examination of the record of the CCMA proceedings. Whatever initial problems may have been experienced by counsel, and none were raised or appear from the record, the hearing proceeded on 18 March 2010 for five days and counsel cross-examined TCM’s witnesses, including Wayne and Iqbal, by reference to a detailed trial bundle. There is no indication from the transcripts that exist130 of his being hampered in doing this. The hearing was then adjourned from March to July when Andrea gave evidence and was cross-examined. Luis gave his evidence 130 That in respect of Iqbal is incompletely transcribed. 128 over two days in July and was cross examined for a further two days in September. Throughout there was no indication that counsel was insufficiently prepared or that Luis was deprived of the opportunity to present his case in full. [170] The CCMA was the only tribunal having jurisdiction in South African law to determine whether Luis had been unfairly dismissed from his employment. Its binding decision that he had not was plainly relevant to the same issue when raised in the s 252 proceedings. At the very least it raised a prima facie case for him to rebut that his dismissal had not been unfair. That was particularly so in view of the fact that he had invoked the jurisdiction of the CCMA to contest the fairness of his dismissal. Proof that his dismissal was unfair was a necessary precursor to his contention that as a result he had suffered unfair prejudice in his capacity as a shareholder. In my view the situation was closely analogous to that which applies in disciplinary proceedings involving advocates and attorneys, where the legal practitioner in question has been convicted of a crime by a competent court. That is taken as prima facie evidence that they committed the crime, but they are entitled to challenge the conviction and show on the record of the trial that they should not have been convicted. They are entitled to produce evidence other than that at their criminal trial to show that they were not guilty of the offence of which they had been convicted. [171] I can see no reason why that approach should not be adopted in relation to a CCMA arbitration. Luis was represented by counsel on the instructions of the firm of attorneys who had advised and represented him since the end of 2007 and which represented him in the trial of this action. He was in a position in this trial to contend on the record that the 129 CCMA commissioner had erred. He made no attempt to do so. Nor did he make any attempt to adduce evidence to show that the commissioner erred. In some respects, such as his contention that his counsel had insufficient time to prepare for the hearing before the CCMA, his case was not borne out either by the dates on which the hearing took place, the cross-examination of TCM’s witnesses or the detailed basis upon which his own evidence was led. In short, he presented no evidence and advanced no plausible reason for suggesting that the CCMA commissioner’s assessment that his dismissal was fair was flawed in any respect. Conclusion on dismissal [172] In the circumstances, the onus resting upon Luis of showing that his dismissal was unfair, either procedurally or substantively, was not discharged. It followed that while his dismissal may have prejudiced him, he was not unfairly prejudiced in his capacity as a shareholder by it. Insofar as his exclusion case rested on his dismissal as an employee apart from the legitimate expectation that he claimed he had to continued employment and status that case must fail. For those reasons, his primary case based on his exclusion should have failed. Absence of genuine negotiations and a fair offer [173] Luis and Jose’s third source of alleged unfair prejudice was that they were, as counsel put it, ‘locked in’ and unable to dispose of their shares in the company. Counsel submitted that there is prima facie unfair prejudice where a shareholder is locked in. He submitted that the lock-in was a vital part of the case and urged us to look at the justice of the situation because it involved people’s lives. There was a need for what he termed a commercial divorce. He argued that the shareholders agreement 130 itself was not the problem, it simply did not go far enough. The problem was that in this situation the minority shareholders were unable to extricate themselves and realise the value of their shares and this needed to be remedied. [174] There were two elements to the complaint concerning the failure to negotiate. The first was that Andrea had refused to engage in bona fide discussions or negotiations with the aim of permitting the plaintiffs to dispose of their shares, either to TCM, the remaining shareholders or a third party. The second was that Andrea had prevented Luis and Jose from having proper access to the financial documentation of TCM in order to arrive at a fair assessment of the value of their shares. It was contended that in order for them to comply with the requirements of clause 13 of the shareholders agreement it was first necessary for them to determine a fair value for their shares, based on adequate and accurate information. Only then could they market the shares and find a third party purchaser, which was a necessary precursor to them offering the shares to their co-shareholders on the terms they had been able to obtain in the open market. This involved considering whether, and if so to what extent, there was an obligation to provide that information and engage in negotiations with a view to enabling Luis and Jose to exit the company and dispose of their shares. [175] In regard to negotiations, although counsel submitted that the problem did not lie with the shareholders agreement, in my view that is precisely where it lay from the perspective of Luis and Jose. Luis admitted this when saying that: ‘In hindsight, what the agreement says and what it should have said is actually quite different.’ 131 In his affidavit in the s 252 application he had been more explicit saying that he had been advised that: ‘there are several glaring deficiencies and impracticalities in the agreement one of which has left me in an untenable position.’ His problem lay with the effect of clause 10, read with clause 13, of the shareholders agreement. Clause 10 dealt with various situations that would hinder a shareholder from performing their functions or place them under a disability. One of those was a shareholder leaving the employ of the company for any reason whatsoever. It provided that if they did so they were deemed to have offered their shares to the remaining shareholders on the terms set out in clause 13. That clause dealt generally with a shareholder wishing to dispose of their shares. It set out in considerable detail how any such disposal was to take place. There were separate provisions relating to Tony and Iqbal. If one of the other three shareholders wished to dispose of their shares, or some of them, they had to offer them to their co-shareholders at a price at which the disposing shareholder wanted to sell the shares to an identified third party. Thereafter there would either be a sale to the co-shareholders, or some of them, or to the third party. Any sale to a third party required the consent of the board of directors. The shareholders agreement did not impose an obligation on the remaining shareholders to engage in negotiations with the departing shareholder to acquire their shares. [176] Provisions restricting the disposal and transferability of shares may operate to the prejudice of a minority shareholder wishing to exit the company, by making it difficult for them to leave or creating a locked in situation. However, the basis upon which that situation was said to be unfairly prejudicial was never explained. These were the terms the parties had freely agreed. A claim that implementing them was unfair could only 132 be an attack on the fairness of the terms themselves. That amounted to nothing more nor less than saying that the shareholders agreement was unfair. Counsel rightly disavowed any such argument. It is not the court’s function under s 252 to pronounce upon the fairness of agreements freely entered into by persons of sound mind and contractual capacity. The argument that a mere loss of faith, confidence or trust in management constitutes unfair prejudice, unless arrangements are made to purchase the disaffected shareholder’s shares, amounts to claiming a unilateral right to withdraw from the company and would impose an obligation on the company or the remaining shareholders to find the money to enable this to happen. That is a compulsory purchase without agreement or wrongdoing in the form of unfairly prejudicial conduct. It is one thing to grant a remedy where the exercise of rights by the majority shareholders has caused unfair prejudice to the minority. It is something entirely different to confer upon a shareholder a right additional to those to which they have agreed in a shareholders agreement and at the same time burden the other shareholders with obligations they were not asked to undertake and never accepted. [177] In the present case Luis’s dismissal and Jose’s resignation triggered the deemed offer provisions in clause 10 of the shareholders agreement. The structure of clause 13 was that an offer would be put to the remaining shareholders in due course, but that was not for the purposes of negotiation. Its terms would be fixed by the terms of an offer the departing shareholders had obtained from a third party. They could either accept or reject those terms. Any negotiations outside those terms were entirely voluntary. There was no obligation on the remaining shareholders to negotiate outside the terms of the agreement to acquire their shares at a fair price. The plaintiffs were entitled to secure a third party offer to 133 purchase their shares, which they would then submit to the remaining shareholders under clauses 13.14 to 13.17. It is difficult to see how a failure to negotiate when one is under no obligation to do so can cause unfair prejudice to another shareholder. The request from the disaffected shareholder that the remaining shareholders should negotiate a basis for their departure was a request to depart from what the parties agreed in the shareholders agreement. The refusal to agree to that cannot on its own amount to unfair prejudice to the disaffected shareholder.131 Although not obliged to do so, Andrea had indicated a willingness to negotiate a basis for Luis and Jose to depart, but they were not prepared to accept his terms for doing so. In those circumstances he withdrew, but because the process was entirely voluntary on his part it could not give rise to unfair prejudice in the absence of his having given any other undertakings. [178] The plaintiffs’ heads of argument drew attention to a what they described as ‘Cornelli’s obnoxious and obstructive behaviour’ at the meeting on 18 February 2009. They suggested that the litigation ‘was necessitated to a significant degree’ by Andrea’s conduct. The submission, like a number of others, was long on adjectives and short on substance. Andrea had been asked to attend a meeting where the plaintiffs would propose that they exit the company and either TCM or the remaining shareholders would purchase their shares. Andrea’s attitude, formed against the background of Luis’s conduct since 2004, was straightforward. The plaintiffs wanted to leave the company and cease to 131 This is not a case such as Tomanovic v Global Mortgage Equity Corporation Pty Ltd op cit, fn 61, the facts of which appear to be unique. The parties held various businesses in a loose partnership and agreed to separate those interests. Various heads of agreement were concluded to give effect to the separation and as part of the process Mr Tomanovic resigned his directorships and forewent his salary replacing it with what were described as loans against the ultimate purchase price of his interest. The negotiations broke down and the other shareholder demanded repayment of the loans while refusing to restore Mr Tomanovic’s position as director and the payments made to him. That was held to be unfairly prejudicial to him. 134 be directors at all. As a sign of their good faith he wanted the two of them to stand down as executive directors immediately and accept a reduced remuneration. In return he would assist in finding a purchaser for their shares. In that way he would not be negotiating ‘with a gun to his head’. [179] That was a legitimate, if hard-nosed, negotiating position. The potential prejudice to the plaintiffs was limited because their goal in any event was to cease to be executive directors or to work for TCM. The judgment said that they could not have been expected to agree to him alone finding an interested third party to buy their shares. Why ever not? Like any other mandate they could have stipulated for a time period within which he was to do that and he had the advantage over anyone else of knowing the company intimately. Letting him find a purchaser meant there was little risk of problems arising with the requirement that a third party purchaser would require the approval of the board of directors to acquire the shares. Imposing this requirement also had its risks for Andrea and the company because, if the subsequent search for a purchaser was unsuccessful, he would be faced with the need to reinstate and possibly compensate the plaintiffs. If he refused, a claim that they had been unfairly prejudiced by giving up their executive directorships would inevitably follow.132 The approach taken by Andrea at the meeting may have been a hard line approach, but that was to be expected against the background of events and is not in any way unusual in commercial negotiations. Mr Geel accepted that his walking out was a form of negotiation. 132 See Tomanovic v Global Mortgage Equity Corporation Pty Ltd op cit, fn 61, where the failure to reach agreement on the terms of an agreed division of the business was held to have been unfairly prejudicial where the claimant had in good faith resigned his directorships and after the breakdown in negotiations the other party refused to reinstate him. 135 [180] In the heads of argument Andrea and the other shareholders were criticised for ‘insisting on strict obedience to the terms of the agreement’. There was, so the submission went, nothing to stop them from negotiating in good faith outside of the special provisions of the shareholders agreement. That is correct, but they were not obliged to do so and it was not unfair for them to ask that their agreement be honoured. Any different approach is nothing more than an endeavour to create an obligation to negotiate on terms for the disaffected shareholder to depart, even though the shareholders agreement imposed no such obligation. If upheld it would impale the appellants upon the horns of a dilemma. If they negotiated outside the items of the agreement, a failure to offer to purchase the plaintiffs’ shares at a price acceptable to them could be attributed to negotiating in bad faith. If they refused to negotiate outside the agreement their refusal could be characterised as acting in bad faith. Either way the outcome would create grounds for contending that there was unfair prejudice in the conduct of the company’s affairs. Upholding the argument would give the disaffected shareholder a unilateral right of withdrawal. The remaining shareholders would always be obliged to negotiate terms for the minority to depart and they would do so in the face of the threat that otherwise a court would impose terms upon them. But that is the very situation the shareholders agreement was designed to avoid, not only in relation to Luis and Jose, but in respect of all five shareholders. [181] The plaintiffs’ additional complaint was that they were obstructed in obtaining the financial information they needed in order to formulate a proposal that could be taken to potential purchasers for their consideration. The argument on unfair prejudice was that under clause 10 of the shareholders agreement once a deemed offer was triggered, 136 whatever the cause of that might be, the affected shareholder was entitled to whatever information they wished in order to be able to take their shares to potential buyers and solicit offers. This appears to have been treated as axiomatic, but I have difficulty in finding a legal basis for it. If such a right existed it must have been subject to some constraints. A shareholder would possess the audited accounts and that would be the ordinary starting point in valuing the company’s shares. It seems to me that disclosure of confidential information such as management accounts would require restrictions to ensure that their confidentiality would not be breached. That would be important, as buying the shares might only be of interest to someone in the same industry, or even a current competitor, as was apparent from Mr Geel’s evidence about whom he would approach as a possible purchaser of the shares. [182] In demanding this information Luis said that he was entitled to it in his capacity as both a shareholder and as a director. Insofar as the former was concerned reliance was placed upon clause 12 of the shareholders agreement. Clause 12.1 imposed upon the parties an obligation to procure that the company kept ‘proper and up to date accounting, financial and other records’ in relation to its business and affairs and to produce its accounts according to accounting policies agreed by the board from time to time, which accounts were to be available for inspection at all reasonable times and upon giving reasonable notice to all shareholders. In amplification of that, management accounts consisting of a balance sheet, profit and loss account and cashflow statement, together with a written management report, were to be produced monthly within twenty-five business days of the end of each month. Audited AFS were to be produced with six months of the company’s financial year end. In addition there was an obligation ‘as soon as practicable’ to provide 137 shareholders with such other information as to the financial affairs and business of the company as the shareholder might reasonably request from time to time, including to explain any variations between budgeted and actual figures of the company for any period. [183] It does not appear to me that this clause was directed at enabling a shareholder to place otherwise confidential information before a third party adviser with a view to assessing what price the shareholder could hope to obtain for their shares. On its face its purpose was to provide shareholders with information that would enable them qua shareholder to keep track of their interest in the company and assess how it was doing. Luis demanded information for the purpose of placing it before Mr Geel and his team so that they could undertake a valuation of his and Jose’s shares. Increasingly, as time passed, the purpose of the information was to support a case that the accounts were inaccurate. I am not satisfied, without having had any detailed argument on this, that he was entitled to do so. Both the frequency and the extent of the information demanded seemed to exceed the reasonable information that this clause was designed to provide to the shareholders in for them to know what was happening in the company. Clause 12.2.2.3 suggests that the purpose of seeking other information was to investigate discrepancies between budgeted and actual figures and similar matters. [184] The plaintiffs’ heads of argument claimed that ‘all information should have been candidly made available’ but failed to address which information was information to which the plaintiffs were entitled or how that should be identified. On any basis the right to information was subject to a reasonableness limitation. However, the approach was that 138 anything Luis asked for he was entitled to receive.133 That was a startlingly wide and in my view obviously incorrect, claim. It is illustrated by the list of items contained in an email he addressed to Andrea on 10 July 2008, which asked for the following in electronic format for all TCM companies, divisions and subsidiaries including four property owning companies: ‘1) Draft Financials for 2008 incl. a List of items still to be finalised. 2) Daily balances of ALL bank accounts until 10/072008 (Daily Balances.xls spreadsheet) 3) Updated Management Accounts till end of May. 4) Updated Cash Flow Statements till the end of May 5) Combined (JBA 7 TCMSERVE) Age Analysis Report as of 29/02/2008 – Technology Corporate Management only 6) Copy of actual Bank Statements 01/05/08 to 30/06/08 – Stand 226 only 7) Balances on Shareholders Loan Accounts as of 30/06/2008 8) Copy of Leases for Midrand, Melrose Arch, Cape Town and Bedfordview 9) Budgets from 2009 Financial Year – Still Outstanding from previous request. Not surprisingly Andrea replied pointing out that Wayne had many tasks such as finalising AFS and budgets and that the requests would be looked at once he had time. A letter addressed to the plaintiffs’ attorneys on 7 October 2008 by TCM’s attorney complained of TCM being continually inundated with requests addressed to Andrea and Wayne for information. Those demands for information occurred during the period when Mr Geel was working on his first valuation, which was dated November 2008, and it seems probable that their purpose was to assist him in that task. The letter pointed out that TCM did not have to comply with unreasonable requests, nor was there any obligation on Andrea and Wayne to provide explanations in writing. 133 In evidence he said: ‘As far as I understand directors regardless of whether executive or not they’re entitled to all the information or all company related information, whatever they want.’ He appeared to be oblivious to the obvious limitation that the information sought must be for the purpose of his discharging his duties as a director. 139 [185] The heads of argument also dealt with a letter written by TCM’s attorney to Mr Geel after the abortive meeting saying that it appeared during the course of the meeting that he had been furnished with TCM’s confidential information to which he was not entitled without the consent of TCM’s board of directors. No doubt that was due to the contents of Mr Geel’s presentation. The information was specified as consisting of balance sheets, draft financial statements, management accounts, budgets, bank statements and other documentation. Clearly it referred to information furnished by Luis to Mr Geel for the purpose of the work Luis had employed Mr Geel to undertake for his own personal purposes. That is conceded in the heads of argument where it is said to have been to enable the plaintiffs to stipulate a price for the sale of their shares ‘or, later, to prepare their case’. In other words the requests were being used for the purpose of obtaining early discovery. They were not directed at any purpose under the shareholders agreement, nor had the information been sought for any purpose arising from Luis discharging his duties as a director of the company. There was nothing untoward in the company’s attorney writing to a third party who had been placed in possession of confidential information of the company asking for its return and warning that if it was further disclosed there would be consequences. In the commercial world information of that type may be disclosed for purposes of a due diligence or similar exercise, but it is almost invariably done in terms of a non-disclosure agreement to safeguard the confidentiality of the information. [186] While the plaintiffs failed to show that there were relevant documents to which they were entitled and which they were denied, if they were denied information to which they were entitled they had been 140 given a specific remedy to deal with this. That remedy lay under clause 12.2.3, but it was not invoked. There is also a difficulty with the claim that it was impossible for the plaintiffs to take a proposal to the market without the information that was allegedly withheld. It was not supported by any evidence of an attempt to identify suitable potential purchasers, or to test the waters in regard to price on the basis of the audited accounts that were freely available to the plaintiffs and their advisers. Unless that was done and it could be shown that the absence of particular data had proved a stumbling block in attracting potential purchasers, this was pure speculation. Lastly there was no evidence of the prejudice actually suffered as a result of the lack of information. Mr Geel produced lengthy and detailed reports setting a value on the shares of the company which formed the basis of their claims in both the s 252 application and in the present action. He does not appear to have experienced any difficulty in doing so and although he updated the reports several times over the years of the trial, during which more and more documents were disclosed in consequence of applications in terms of Rule 35(3), his valuation of R160 million never changed. [187] There was accordingly no substance in the contention that the plaintiffs were unfairly prejudiced by being denied access to TCM’s documents. There was also no basis for any adverse findings against Andrea for his reluctance to disclose documents that he did not think Luis was entitled to, or in his wishing to protect the confidentiality of the company’s documents. [188] For those reasons the plaintiffs argument based upon the failure to make a fair offer to purchase the shares, the alleged failure to negotiate and the failure or refusal to produce documents, could not succeed. It 141 follows that the secondary argument on behalf of Luis and Jose had to fail. That left as the only possible basis for the claim a breakdown of the relationships among the shareholders and a loss of trust and confidence in the leadership of Andrea, accompanied by a lack of probity on his part in the management of the company’s affairs. Although this was not separately argued nor clearly held to exist in the judgment, the high court made findings on each of the plaintiffs’ other complaints and the plaintiffs submitted that these findings were unimpeachable, although the submission was not developed in oral argument. It is accordingly necessary to consider whether the plaintiffs were entitled to relief in respect of those issues. Loss of trust and confidence due to a lack of probity [189] The fourth alleged source of unfair prejudice was that Andrea and the other directors had shown a lack of probity in their conduct of the affairs of the company and this, combined with the lock-in, amounted to unfair prejudice. This argument was common to Luis and Jose. It was not fully developed in the heads of argument, nor was it clearly set out in the high court’s judgment, although findings were made on various matters underlying the argument. Whether a proper factual foundation was laid for this must be determined. The starting point must be those matters pleaded in the particulars of claim that bear upon the issue. There are three. The first was the treatment of the Supplies Division. The second was a journal entry that was said to be an improper write-off of stock in an amount of R11.2 million in 2008. The third was an allegation that Andrea had conducted the business from 2007 to 2012 in a manner that caused the operating profit and EBITDA to be reduced; the operating expenses to increase substantially and the gross profit to climb by about 50%. This was ascribed to Andrea intentionally, alternatively recklessly, 142 failing to contain and/or reduce the operating expenses in proper proportion to its gross profit, in order that benefits might accrue to shareholders by way of dividends and the growth and well-being of the company and its ultimate profitability to shareholders would be ensured and protected. [190] On these three bases Luis accused Andrea and the other directors of conduct that would reveal a lack of probity. But he accepted under cross-examination that his accusations were not based on any facts known to him. In fact much of it was based on the analysis and opinions of Mr Geel. The high court made favourable findings concerning Mr Geel’s merits as a witness, accepted his evidence and reports about each of these three issues. The appellants vigorously attacked those findings relying on the judgment of this court in NPC.134 Surprisingly, the plaintiffs’ heads of argument did not deal with the attack or seek to rebut it. The members of the court were told with few exceptions that we did not need to read the documents in the record referring to financial matters unless specifically referred to. [191] It is unnecessary to endorse all the appellants’ criticisms of Mr Geel as a witness. However, those criticisms had merit. The following features of Mr Geel’s testimony should have given rise to caution, if not disquiet, in weighing his merits as a witness. (a) The terms of his engagement provided that he would not seek to establish the reliability of the information received from Luis and Jose and that he assumed no responsibility for the accuracy, reliability of completeness of that information. He did not 134 PriceWaterhouseCoopers Inc and Others v National Potato Co-operative Ltd and Others [2015] ZASCA 2; [2015] 2 All SA 403 (SCA) paras 96-114 (NPC) 143 investigate anything in the face of plausible and detailed explanations in affidavits that he had read; (b) He regarded Luis as his client and said that his responsibility was to Luis, although he later tried to say that he understood his obligations to the court as an expert witness; (c) After he had changed from being a commercial adviser on a possible sale of shares to an expert witness in an unfair prejudice case, his fee arrangement with Luis remained on a contingency basis under which he was to be rewarded depending on the amount for which Luis’s shares would ultimately be sold. That gave him an incentive to be partisan in his evidence. If a buy-out was made at his valuation of R160 million his fee would be of the order of R5 million; (d) To a considerable extent, insofar as the claim was based upon his evidence, it was being advanced on his advice and according to his analysis of the financial records of TCM. For example he accepted that, until he raised it, Luis had no idea of what EBITDA was. He accepted that the arguments in that regard were devised by him. In that situation there was a serious risk that he was seeking to justify himself. A fair reading of the record showed that this is what he did; (e) Neither his reports, nor his evidence in chief, disclosed any of these matters reflecting on his independence and impartiality as a witness whose duties were owed to the court and not to his client ; (f) A careful and fair-minded reading of his evidence showed that he was reluctant to make obvious concessions in answer to counsel’s questions; that he often gave lengthy and argumentative answers to simple and direct questions; that he was consciously trying to 144 foresee the direction of cross-examination and forestall it; and on some issues he was obviously evasive. All in all, Mr Geel was not wholly independent, nor balanced and impartial in his evidence. He quite explicitly adopted the approach of Luis, his client, that if there was anything that appeared odd or unusual to him, or about which he was unclear, that should be attributed to some improper or malign purpose on the part of Andrea and his fellow directors. That was not a proper approach for an expert witness to adopt. It also meant that his evidence should have been approached with a far higher degree of scepticism than it received. [192] Before examining the various instances of conduct that allegedly demonstrated a lack of probity, it is necessary to make one other preliminary comment about the approach to the evidence. The judgment and the heads of argument in this court emphasised and placed much store on the fact that the appellants closed their case without calling evidence. However, whether that justified an adverse inference being drawn, either generally or on a specific issue, depended on ‘the particular circumstances of the litigation’.135 [193] The closure of the appellants’ case did not mean that the court had to accept Luis’s allegations uncritically and at face value. They had to be weighed in the light of the documentary evidence and the general probabilities. The fact that on many issues Luis was contradicted by Jose should have been dealt with, but the judgment did not mention those contradictions. The general probabilities required that particularly careful consideration be given to the impact of Luis’s clear sense of grievance about his treatment. Throughout, this had manifested itself in allegations 135 Titus v Shield Insurance Co Ltd 1980 (3) SA 119 (AD) at 133E. 145 of conspiracies and dishonesty against his co-directors and senior executives in the company, although he could not point to a single fact to suggest that any of the individuals concerned had acted in any way dishonestly or failed to address matters independently and on the basis of their genuine belief as to what was best for the company. Before upholding his view that there was a conspiracy to get rid of him, some consideration needed to be given to whether his complaints in regard to the accounts and his accusations against Andrea and the other directors were a product of his obsession that there was a conspiracy against him. The other consideration was whether it was likely that the individuals concerned being willing to behave dishonestly in to be in Andrea’s good books. [194] Andrea drove the process on behalf of TCM, so it is his conduct that warrants the closest examination. In regard to the complaints about the management of the business and the suggestion that deliberate attempts were made to diminish the profits and reduce the value of the company, consideration needed to be given to why he or any of the other shareholders and directors would have done this when it would have been to their own financial detriment. Furthermore, whatever the merits of Mr Geel’s criticisms about the conduct of the auditors and the manner of presentation of the AFS, the business was clearly doing well. Whether it could have done better was wholly irrelevant. The allegation was that Andrea had set out to harm it and thereby to cause harm to Luis, by deflating the profits and the value of the shares, even though on both aspects he would have suffered the same harm as Luis. That would truly 146 be a case of shooting himself in the foot.136 There is no indication in the judgment that full account was taken of these problems. It proceeded simply on the basis that because the defendants closed their case without calling witnesses all of Luis’s complaints were undisputed. The protracted cross-examination of the witnesses and the concessions extracted from them, usually reluctantly, demonstrated that this was far from being the case. The Supplies Division [195] The issue in this regard was a factual one. Was the Supplies Division fully part and parcel of TCM, as were other divisions of the company, or was it effectively a separate entity run by Frank and Fabio (and later Iqbal as well) for their own benefit, whilst operating under the TCM umbrella? The plaintiffs claimed that it should be included on the basis that its trading activities were for the benefit of TCM and including it would add about R10 million to the value of TCM as well as contributing to its overall profitability. In treating it as separate, and trying to move it to a standalone company owned by Frank, Fabio and Iqbal, they argued that the true value of the TCM was diminished and that Andrea did this in to reduce the price payable for the plaintiffs’ shares. As that issue only arose after 2007 the implication was that it was a new development at that time when the problems between Luis and Andrea became more intense. In response, the defendants pleaded that the Supplies Division was created in 1995 for the purpose of ensuring continuity of TCM’s supply chain and to assist Frank by warehousing the former business of Sternco within TCM, while it would still be conducted for Frank’s personal risk and benefit. It was alleged that to the knowledge 136 The origin of the expression is the trench warfare in World War I where shooting oneself in the foot was resorted to in order to avoid further service. In other words it referred to deliberate self-harm, which is what Andrea was accused of. 147 of the plaintiffs it had always been operated as if it were a separate entity and all profits generated by it accrued to Frank and Fabio. From a legal and accounting perspective its treatment in the books and records of TCM might have posed some difficulties. However, no-one suggested that as between the shareholders of TCM, if the arrangements in respect of the Supplies Division were as the defendants described them, they could not, or should not, be given effect. [196] Much of the relevant material was common cause. The origins of the Supplies Division lay in Sternco (Pty) Ltd, a business importing heavy industrial equipment run by Frank. From the early days of TCM’s operations it also arranged for the importation of spare parts and other items on behalf of TCM. Both Luis and Jose gave evidence about this, but neither had a clear picture of precisely what Sternco was doing on behalf of TCM. Luis described them as freight agents. Asked to explain how TCM dealt with the issue when Sternco went into liquidation, he said: ‘At the time that Sternco went into liquidation, there aren’t many suppliers overseas that one can just shut the door on this one and move on to the next. You know this is very specialised equipment and there is a handful, really a handful of suppliers in all the countries right around … and it was very important for us to keep that supply line open and keep a good relationship with the provider, with the supplier of parts. In essence the supplier viewed us as the customer and Sternco was just the freight agent. You know the relationship was between TCM and the provider of the spare parts. So if we were to default on any payments the supplier would be reluctant to actually provide us with any more parts.’ (Emphasis added.) At that time TCM was not an IBM agent and were competing with IBM for this business. That was why it was important to keep the supply lines open. 148 [197] The evidence went on: ‘COURT: What did TCM then decide to do as far as this was concerned? LUIS: Well, TCM had to honour those payments for equipment – COURT: When you talk of payments, payments by Sternco to the suppliers? LUIS: I don’t – COURT: What are you actually talking about? LUIS: I don’t know exactly if the payment was done from, you know because there is a freight agent in the middle. COURT: But they are acting as you say as freight agents? LUIS: Yes, but from – COURT: But your suppliers TCM is paying for those suppliers, is it not? LUIS: I am not sure exactly how that works. I know with the import duties certain things have been cleared. Sometimes you have to pay the freight agent and the freight agent pays the supplier. COURT: Alright. LUIS: So you know I’m not too clear when it comes to how that whole operation fits together.’ He confirmed that TCM honoured the obligations of Sternco and paid the suppliers, thereby becoming a creditor of Sternco. [198] This showed that Sternco was more than a freight agent, because they were incurring the liability to the suppliers to pay for the goods. The description is rather more that of a purchasing agent on behalf of TCM, which seemed to accord with the evidence of Jose, who said: ‘In the very early days Sternco had been doing imports of equipment. Therefore they had the knowledge of how to transfer funds overseas. They had the knowledge and they had the contact for shipping agents. So they knew how to do things in that respect. We had never done that before. We had no idea what a shipping agent was, what a clearing agent was. How do you pay an invoice in South Africa, originating in the US and the UK? We had no idea of those. And since they did have the knowledge in the very early days they supplied us with that service. So I would source a part overseas and I would hand all the paperwork over to Sternco. They would arrange the 149 transfer of funds to that company. … They would arrange for Skyline to collect the goods. Skyline in turn had their own people doing the clearing of the goods. In other words paying the duties and import duties and so on, and at the end of the day they would give us a bill that included all that. So it was the price of the goods, the shipping, the clearing everything. It was very convenient.. We didn’t know how to do it. They did.’ [199] Comparing these two accounts, it is clear that Jose had a firmer grasp of the relationship between TCM and Sternco. He sourced the spares and parts that had to be imported and he dealt with Sternco in that regard. TCM was paying a fee to Sternco for this service and that would be included in the bill at the end of it all. His explanation also made it clear why TCM was concerned at Sternco going into liquidation and was willing to discharge its debts. It posed an existential threat to its own business. [200] Jose was unclear about the basis for Frank returning to the business after a brief hiatus. He said that he came back to carry on doing the imports for TCM. At the same time he carried on with Sternco’s business of importing heavy industrial machinery. He was still doing that business when Jose gave evidence in 2016. Jose understood that the Supplies Division was part of TCM and that Frank was paid a salary. The basis upon which this occurred does not appear to have been discussed with him. Luis’s evidence was that, after the liquidation of Sternco, Andrea mentioned to him that they were going to employ Frank ‘in order to keep the freight portion of the company or the importing of the spares going’. He said that he expressed concern as to how the company was going to carry that overhead and Andrea said that Frank would ‘bring in the industrial part of the Sternco division or Sternco, the company to help cover his overheads’. He was going to be an employee in receipt of a 150 salary and other benefits and on that basis Luis agreed that he would come into TCM and manage the imports. [201] The arrangement in regard to the industrial equipment obviously puzzled counsel who was leading Luis and he sought to clarify matters by way of a series of leading questions. This only served to create greater confusion as appears from the following passages in the evidence: ‘MR SLON: And you mentioned that he would retain the industrial, his other or Sternco’s erstwhile involvement in the importation of other goods, the Iscor … goods and various other goods that were involved in the earlier dispensation. LUIS: Well, the import of the goods really came into TCM, like I said to help subsidise Frank Cornelli’s overheads, you know overheads in the company because there wasn’t enough goods being freighted into the country to have him as a sole freight agent or a specialist in freight. It would have been a lot cheaper just to go to another freight agent outside the company, so he brought in the industrial part of the business to help subsidise his overheads in the TCM, the company. MR SLON: So the effect of all this was that Mr Frank Cornelli became an employee of the company. LUIS: That’s correct. Okay, that was the basis of the agreement that I reached with Mr Andrea Cornelli, that Frank Cornelli was going to be employed, would get the same benefits. He was always going to be paid monthly salaries and that’s really what the bases were. MR SLON: Yes, and he would then do your imports as he had done before under Sternco and he would do his own business, industrial goods in order to fund, in order to supplement his income to make it economical for him? LUIS: That’s correct. Mr SLON: It would still have nothing to do with TCM? LUIS: That’s correct. MR SLON: The industrial part. LUIS: Well, he was going to be employed, so that’s, you know the work flow as far as spare parts or computers happened, okay. 151 [MR SLON]:137 And Jose was still going to be, is still the … LUIS: Jose Diez … would place the orders as he normally did and Frank would manage the freight of the goods and run the industrial on the, you know, to subsidise his – COURT: You say subsidise? LUIS: Yes. COURT: What do you mean by that? LUIS: … There wasn’t enough imports of computer equipment, of computer goods to cover his cost to the company. Okay, so that’s how the industrials landed up in TCM, okay, because TCM, okay, never had anything to do, okay, with industrial parts. Okay we’re a computer company. So he brought in, okay, and the profits generated for that helped cover his cost to company as an employee. MR SLON: Did he have any obligation to TCM in regard to fees or costs that TCM would be either expressly or tacitly incurring by virtue of this arrangement? Was there any payback by him? LUIS: Nothing. Not as far as I know. MR SLON: And as I understand your version this became, the supplies division, this so-called supplies division is what grew out of this arrangement with Andrea? LUIS: Yes. That’s correct. Okay, that’s what the supplies division was. It was always a division. Okay, it was never going to be – it was owned by TCM. COURT: The profits derived from the sale of machinery, to whom would they accrue, industrial machinery? LUIS: Well, it belonged to the company to help cover his overheads. COURT: It belonged you say to – LUIS: It belonged to TCM. Okay, it was invoiced by TCM, okay. You know, TCM invoiced it for [inaudible] on a TCM statement to its customers. It was the business of TCM.’ [202] This lengthy and convoluted explanation failed to address any of the key points raised in the defendants’ plea. It was not disputed that the Supplies Division operated under the TCM umbrella, but that was not the 137 There is a gap in the record immediately before this passage and it appears that the name of counsel was omitted because the following passage is a response from Luis. 152 point of the defence, which was that it was located there to assist Frank, whose existing separate business importing heavy industrial machinery had been liquidated. If that business could be resuscitated and generate profits, why would income accruing from it be used to cover overheads incurred by a computer business that could source the modest services they received from Sternco from other freight agents? From TCM’s perspective, why would they wish to enter into the business of importing heavy machinery, when they were a highly successful computer business? The two businesses had no connection and combining them produced no synergies. From Frank’s perspective, why would he hand over to TCM a business that he could run successfully and in which TCM had no interest? The suggested arrangement made very little sense and the explanation given unravelled under cross-examination. [203] Cross-examination of Jose and Luis revealed that: (a) the Supplies Division worked in a separate section of the TCM premises; (b) the Supplies Division continued to import heavy industrial machinery, but no-one in TCM had anything to do with it and there is not a single reference to it in any of the documents in the record other than specific documents such as cheques and invoice reconciliations used to calculate what was due to the Supplies Division from TCM; (c) while TCM banked with Standard Bank, the Supplies Division banked with Mercantile Bank; (d) Frank and Fabio had signing powers on that bank account and were the only non-directors of TCM to have signing powers on bank accounts in the company’s name; 153 (e) the bank account had an overdraft facility which was secured by the pledge of a deposit account that TCM maintained with Mercantile Bank for the sole purpose of providing that security; (f) the bank account ran an overdraft even though TCM had ample funds of its own to discharge the overdraft and thereby avoid the incurrence of interest; (g) on occasions the Supplies Division borrowed amounts from TCM which were then repaid by deduction from amounts received from debtors; (h) the Supplies Division had its own employees; (i) the Supplies Division had its own debtors and creditors; (j) payments made to TCM in respect of accounts rendered to debtors by the Supplies Division were reconciled separately and paid over to the Supplies Division by way of cheques drawn on TCM’s bank account and deposited in the Mercantile Bank account; (k) administrative expenses incurred and paid by TCM Management (Pty) Ltd, the management company for the group, on behalf of subsidiary companies were recouped by charging a management fee. The Supplies Division was charged a management fee in the same way as subsidiaries; (l) TCM Management paid the salaries of all employees in the group, including subsidiaries, but in the case of the Supplies Division, it recovered the amount of the salaries paid from the division; (m) the salaries of Frank and Fabio, as with other employees of the Supplies Division, were fixed by them without reference to TCM management; (n) there were sales from the Supplies Division to TCM and vice versa; 154 (o) no management accounts were provided to the directors of TCM in respect of the Supplies Division until after the issue of summons in this case; (p) the Supplies Division operated entirely independently of TCM. These arrangements were completely different from those of other divisions, which had no employees of their own, no separate bank accounts or bank facilities and no separate debtors and creditors. Putting all these facts together it is plain that the Supplies Division operated as if it were an entity separate from TCM. [204] The Supplies Division continued Sternco’s main business of importing heavy industrial machinery. Jose confirmed that this line of business had nothing to do with TCM. Nobody at TCM had any involvement in it and no-one was interested in who the suppliers were, what was being imported into South Africa or why. Frank simply continued with Sternco’s business through the Supplies Division. The trial court appears to have accepted this because it said: ‘The importation of Sternco’s industrial or mining goods would be retained by Frank Cornelli and the benefits thereof would accrue to TCM in to subsidise the overheads which Frank Cornelli’s employment now presented to TCM.’ With respect it is unclear what the court had in mind with this statement. The idea that Frank was going to retain the business of importing industrial or mining goods, but the profits would accrue to TCM to cover TCM’s overheads made no sense. In what sense would he ‘retain’ the business when the profits would accrue to TCM? What was he retaining? If he was retaining the business presumably he would be liable for any losses, something that would have been in the forefront of everyone’s minds in the light of Sternco’s liquidation. Why would he agree to such an arrangement? 155 [205] Jose confirmed that the idea was to save what could be saved of the Sternco business in order to help Frank and that he would run the business of Sternco in the Supplies Division. This served the dual purpose of assisting Frank and not disrupting TCM’s importation of parts and equipment because Frank was familiar with that business. In other words it was an arrangement that suited both parties. The proceeds of importing heavy machinery were not subsidising TCM’s expenses in respect of Frank’s overheads to TCM. The revenues generated by the Supplies Division, whether generated from importing heavy machinery or dealing with TCM’s importation of spares and stock, were being used to pay its expenses, including Frank’s salary. When challenged to identify any time when profits from the Supplies Division accrued to TCM, Luis’s only suggestion was that the overdraft with Mercantile Bank had been reduced. But that did not involve any transfer of profits to TCM. [206] Luis’s suggestion that matters in regard to the bank account at Mercantile Bank were arranged so that TCM could monitor closely the financial viability of the business was not plausible. It would have been far easier and less costly, including avoiding the payment of interest on an overdraft and releasing the investment pledged as security for the overdraft, to operate the financial affairs of the Supplies Division in the same way as the other divisions of TCM through its bank account with Standard Bank. There would then have been no need to separate the Supplies Divisions receipts every month and pay them into the Mercantile Bank account. It is difficult to conceive of a clumsier and less effective method of monitoring the financial viability of the Supplies Division and no evidence was adduced to show that this was what was being done. Of course, if the losses and liabilities of the Supplies Division, as well as its 156 profits and assets, accrued to Frank and Fabio such monitoring would have been largely unnecessary. [207] One would have expected the argument on behalf of the plaintiffs in this court to address the way in which the Supplies Division operated and provide a plausible explanation for arranging its affairs in this fashion, but it was not addressed at all. It ignored the allegations in the plea as well as the detailed concessions about those operations by both Luis and Jose. The heads of argument suggested that the defendants relied solely on alleged contradictions between Luis and Jose and a challenge to the judge’s construction of the addendum to the sale of shares agreement dealing with the Supplies Division. As to the first the submission was that Andrea was available to be called as a witness, but was not called. The suggestion appeared to be that all the concessions on factual issues about the operation of the Supplies Division should be disregarded, because Andrea had not testified and said that the concessions were correctly made. That is both a novel submission and plainly wrong. Once counsel had put to Luis and Jose how the Supplies Division operated, and they had confirmed that the propositions being put to them were correct, there was no need to call Andrea to give evidence about those matters. Where there were differences between the evidence of Luis and Jose, and on the facts set out in paragraph 203 I do not think there were, Jose’s evidence could not be rejected. He was a good witness who on these issues made concessions more readily than Luis and seemed not to be affected by any particular hostility towards Andrea. Unlike Luis he regularly voted in favour of accepting the annual audited accounts and in favour of Andrea continuing in his role as chairman of the company as well as supporting his remuneration package He also signed the addendum and voted to place the Supplies Division in a separate company with Frank, Fabio and 157 Iqbal as its shareholders. His only concern was it continuing to use the TCM name. [208] It is no part of this case for us to decide on the precise legal effect of the arrangements in regard to the Supplies Division, or whether and, if so, how it should have been dealt with and disclosed in TCM’s accounts. The fact that the trading operations of the Supplies Division were being conducted under the TCM name with accounts being rendered and made payable to TCM through its Standard Bank account might have resulted in any claims arising from those operations being pursued against TCM. Luis may have been technically correct in saying that in its current form it was part of the business of TCM, but it added nothing in terms of either profits or losses to the AFS, so the effect was neutral. However, that is not the issue confronting us. We are concerned with whether Luis and Jose have been unfairly prejudiced by this arrangement of its affairs. In answering that question their awareness of the arrangement and acquiescence in it was the important issue. If they were aware of and acquiesced in it they cannot claim to have been unfairly prejudiced by it.138 [209] Mr Geel’s evidence in regard to the change in presentation of the annual accounts in 2009 to show a separate balance sheet for the Supplies Division was addressed to the wrong issue. The only express mention of the Supplies Division in the accounts for the previous years was a note that first appeared in the 2004 accounts under contingent liabilities that ‘The company’s call account is pledged to the value of R2 800 000’. In 138 Blackman, op cit, fn 52, p 9-41 to 9-42: ‘An applicant cannot complain of conduct that was carried out with his acquiescence or agreement, and still less of something done with his co-operation or collaboration.’ The principle flows from Irvin and Johnson Ltd v Oelofse Fisheries Ltd; Oelofse v Irvin and Johnson and Another 1954 (1) SA 231 (E) at 243A-B and was recently affirmed in this court in Parry v Dunn-Blatch and others, op cit, fn 12, para 48. 158 2005 this note was expanded to say that the pledge was ‘as security for the Supplies Division’s current account with Mercantile Bank’. Thereafter the note remained the same until it was dealt with separately in 2009, where it was said that the management of the Supplies Division share in 100% of the profits of the division. The note did not suggest that this was a new arrangement. Apart from this note, the accounts prior to 2009 do not indicate how the affairs of the Supplies Division were dealt with. If the arrangement for which the defendants contended were not correct and only contrived in 2008 and 2009, that could have been exposed quite readily by looking at the books and accounts for the Supplies Division, but those were not asked for, nor produced. The inference is that the Supplies Division indeed operated as if it were an entirely separate entity from TCM. It was irrelevant in those circumstances whether its trading operations were included in TCM’s overall accounts or omitted, as long as they neither increased nor decreased the trading profits shown in the accounts. Mr Geel considered this question and his conclusion was that in each year that he reviewed any profits before tax of the Supplies Division were distributed to Frank, Fabio and Iqbal so that the profits of TCM were unaffected by it and the value of the Supplies Division to TCM was nil. [210] Luis was well aware of how the Supplies Division was being conducted. He said that he signed 95% of the cheques for the division. These reflected the transactions described earlier. In regard to the employment of the Frank and Fabio there was a revealing exchange in November 2002 about grading of employees for the purpose of the December bonus. Mr Sarkis asked Andrea how he should deal with the rating of directors and apparently furnished a list of names. The response was that all directors should be given a two rating and then Andrea 159 suggested ratings for four individuals including both Frank and Fabio at a two rating. This email was copied to Luis, Tony, Jose and Frank. Luis’s reply had a detailed comment about Frank, but said that he did not know exactly what duties Fabio performed and therefore could not comment. Andrea’s response to Luis was: ‘As for Supplies … the rating is irrelevant as they have self-jurisdiction on their ratings, salary and bonuses. Our help (at month end) is due to the strict cash management we require to protect our investment at Mercantile.’ Luis did not question this statement. An independent jurisdiction over ratings, salaries and bonuses was wholly consistent with the Supplies Division operating as an independent entity outside the control of TCM. The latter’s only concern was to protect its investment with Mercantile Bank that had been pledged to secure the overdraft of the Supplies Division. [211] Two other facts bear upon this issue. The first is that all the financial statements in the record commencing with the 2002 year up until 2008 showed that Frank and Fabio had made substantial long term, interest-free, unsecured loans to TCM. In 2002 these were R891 711 (Frank) and R581 597 (Fabio). These loans substantially exceeded those of Andrea and Luis. They had been reduced by 2008 to R425 104 and R358 698 respectively. Neither Luis nor Jose could explain them. Employees do not ordinarily lend money to their employers, but people with an interest in a business do. Mr Geel explained that they arose as a result of the practice at the end of each financial year of granting bonuses to the two of them in order to eliminate from TCM’s accounts any profits earned by the Supplies Division. The bonuses were either partially paid out, or not paid out at all, depending on the cash position of the Supplies Division. In other words the distribution of the bonuses and their 160 retention as loans, effectively to the Supplies Division, was entirely consistent with the defendants’ explanation of the arrangements with the Supplies Division. [212] The second factor is the addendum to the sale of shares agreement referred to in paragraph 7 that Luis refused to sign, but Jose signed. That accompanied the addendum showing how the price of the shares purchased by Iqbal had been computed and contained the following two paragraphs: ‘3 Iqbal further agrees that he is aware that the division known as the TCM Supplies Division has reflected a nil net asset value in computing the purchase price. 4 All the parties are aware that the profits losses, assets and liabilities of the TCM Supplies Division accrue for the benefit of Frank Cornelli and Fabio Cornelli.’ The addendum was prepared by the defendants’ attorney and signed by Andrea, Tony, Jose and Iqbal. Jose said in evidence that he signed it because he though it right at the time. Paragraphs 3 and 4 contained statements of fact, not expressions of opinion. The judgement noted this evidence, but said that paragraph 4 was ambivalent (I think this should read ambiguous) and that the clause was capable of meaning that the business properly belonged to TCM, but the financial benefits would accrue to Frank and Fabio. I can detect no ambiguity that would limit it to the financial benefits. It said that the profits, losses, assets and liabilities would accrue for the benefit of Frank and Fabio. The liabilities and the losses cannot be ignored. Those were also for Frank and Fabio’s account. Mr Geel had made the same error in saying that Frank and Fabio did not take risk. Collectively the profits, losses, assets and liabilities encompassed the whole of the business of the Supplies Division. That was why paragraph 3 of the addendum said that nothing had been included in the purchase price payable by Iqbal in respect of the Supplies 161 Division. Jose said he signed the addendum as an accurate reflection of the factual position. Luis did not explain at the time why he would not sign it, nor did he send an email or in any other way query the correctness of the statements in the addendum. When Andrea sought board approval for housing the business of the Supplies Division in a separate company at a board meeting on 9 September 2008 Jose voted in favour of the resolution explaining that his only concern was the continued use of the TCM name because if things went wrong it could redound to the detriment of the group. [213] If the addendum was factually incorrect, it would have created a situation where the signatories had signed a formal document intended to have binding legal effect knowing that its contents were false. It is improbable that Jose and Tony would have been happy to sign it without protest. Iqbal would have taken it at its face value, because he was recorded at the board meeting on 9 September 2008 as saying that he had always understood the Supplies Division to be a ‘Frank and Fabio company’. He indicated that he was happy for them to have a BEE partner other than himself. There is no reason to think that the addendum was drafted to lend support to a description of the situation of the Supplies Division that the signatories knew to be incorrect. On the contrary the probabilities point in favour of it being a correct record of the position. All the directors other than Luis, including Wayne and Ms Bhula, confirmed the position at the 9 September 2008 board meeting. [214] The issue in relation to the Supplies Division was not whether it was owned by and a division of TCM. Nor was it whether the arrangement was properly reflected in the accounts of TCM. The issue 162 was whether Luis and Jose had been unfairly prejudiced by the implementation of the arrangements between TCM and Frank and Fabio which had been in place since 1995. The arrangements meant that the Supplies Division operated de facto for the benefit of Frank and Fabio. Luis and Jose knew that from the beginning and acquiesced in it. Luis’s claim to have been unfairly prejudiced by the arrangement was without merit and his endeavour to obtain a financial benefit from that business appears opportunistic. There was nothing secret about the arrangement and it was discussed and implemented entirely openly. The arrangement did not demonstrate a lack of probity on the part of Andrea. The high court erred in concentrating on the question of ownership of the Supplies Division and ignoring the arrangements under which all concerned had agreed that it would operate. There was nothing dishonest about them and they did not support the proposition that Andrea showed a lack of probity in dealing with the Supplies Division. [215] For the sake of completeness I should deal briefly with two other points. The first is that Mr Geel devoted part of his report to the Supplies Division. He had no personal knowledge of the basis upon which the Supplies Division had been established or the arrangements made in that regard. In the circumstances his report and his evidence on this was irrelevant. It is significant that everything he said about it was directed at establishing a value for Luis and Jose’s shares. This was a feature of his evidence. Including the Supplies Division added R10 million to his valuation of the business. The other point is that, after Luis’s refusal to sign the addendum to the Sale of Shares agreement, Andrea tried to separate the Supplies Division by moving it into a separate company in which the shareholders would be Frank, Fabio and Iqbal. While an off-the-shelf company was acquired for that purpose no such transfer ever 163 took place because of the dispute over the situation of the Supplies Division. It was alleged in the particulars of claim that a transfer had occurred and the plaintiffs’ heads of argument in this court said that there was a transfer. This was incorrect. Although the company was formed prior to the transfer being approved by the board of TCM, that was because it was acquired as an ‘off the shelf’ company from someone who provided that service. The complaint about the formation of the company arose from an incorrect reading of the company’s founding documents. In the result there was no merit in the claims about the Supplies Division and the manner in which it was operating. Luis and Jose were not subjected to any unfair prejudice thereby. The R11.2 million write-off [216] The first issue pleaded in regard to financial matters was that Andrea procured an undervaluation of the inventory of TCM of a value of approximately R11.2 million. Mr Geel identified this as an issue. He explained that when undertaking the valuation he used the management accounts with which he was furnished, but agreed to wait to update the report in the light of the audited AFS. However, these differed materially from the management accounts: ‘as a result of a number of “period 13” or audit adjustments, with the principal adjustment relating to a stock write-off of R11.2 million.’ He noted that Luis and Jose disagreed with the adjustments and were strongly of the view that rather than writing off or making provision for inventory obsolescence there was a need to write up the inventory values because of saleable inventory stored in separate locations not being included in the inventory count. The only other reference in his report to this ‘inventory write-off of R11.2 million’ noted that it had the effect of 164 reducing finished goods from the management balance of R18.3 million to the R7 million in the AFS. [217] In his founding affidavit in the s 252 application Luis referred to the fact that in the 2008 AFS the auditors had made a number of adjustments, ‘with the principal adjustment relating to inventory write-downs and write-offs in an amount of R11.2 million’. He said that this did not make sense and confirmed what he had said to Mr Geel, namely that there needed to be a stock write-up due to saleable stock. He said that all stock on hand was usable, had intrinsic value and a net realisable value that exceeded its cost. [218] In dealing with this adjustment Mr Geel said: ‘I said the major discrepancy that made no sense at all was the significant adjustment that was being provided for or raised in the draft audited financial statements and that was in the area of inventory where there was a significant decrease in the value that was being shown as inventory in these draft financial statements, in comparison with what we had seen in the draft management accounts. I say material and I will go there I’m sure in due course. It was to the extent of an adjustment of some R11.2 million, and that is very material in the financial statements of TCM.’ He added that there were some other adjustments, but the principal one was in the inventory area. The judge clarified that he was talking about the inventory adjustment in the AFS. Mr Geel confirmed this and said that there had been a material difference on the EBITDA number ‘and it all arose [due] to, principally arose [due] to [an] R11.2 million adjustment to inventory’. For him this was important because the adjustment of this inventory would have had the effect of increasing his opening figure for EBITDA. He explained that the adjustment was made by a single journal entry of a globular figure of R11.2 million. This effected the adjustment between the management accounts and the audited accounts of R11.2 165 million. In his view, given the nature of the business this was impossible. The write-off could only have applied to inventory, as TCM’s historic practice in regard to maintenance spare parts was to write them off as expenses when purchased and not capitalise them. [219] In the course of the trial while Mr Geel was under cross-examination the judge ordered the expert witnesses to meet and minute their agreements and disagreements concerning this journal entry. The minute of this meeting reflects the following: ‘8 Geel accepts and understands that the journal entry on page 810 removes the closing balances at 28 February 2007 financial year (i.e. the opening inventory balances at 1 March 2007 for the 2008 financial year) for the relevant accounts and this was understood and is confirmed … This journal is not disputed. 9 Geel’s concerns are of a different nature namely that when comparing the balance of each component and location of inventory as at 28 February 2007 per location, there is no explanation for the significant reduction of these balances. … 11 Whilst Geel understands the R11.2 million journal as … being the reversal of the opening balances, the material difference in the components and locations of the inventory as noted above and not followed up by the auditors are his real concerns. Geel realises … that the R11.2 million arises from opening balances of inventory, which required reversal. This is correctly reversed.’ The minute goes on to refer to an explanation Wayne gave to Mr Geel concerning a change in the system for recording inventory that occurred during the 2008 financial year and continues: ’13 Geel remains concerned that there is no evidence of physical stock count of the take on inventory balances into the perpetual system. Impey indicated that this is correct but that [certain documents in the Trial Bundle} do not deal with any inventory counts. Any adjustment was made at year end, namely 28 February 2008. 14 Geel remains concerned about the conduct of the auditors and evidence (or lack thereof) in verifying the physical inventory at year end 28 February 2008. 166 15 Impey is concerned that the inventory balances at 28 February 2007 may not be reliable due to the lack of reliability of the [replaced] system, which was under the control of De Sousa.’ [220] Everything Mr Geel had said prior to this point conveyed that his criticism of the audited accounts was based on the auditors making the disputed journal entry of R11.2 million. His evidence had been that this was a straightforward write-off or write-down of stock values. There was no justification for it. The concession that it was nothing of the sort, but an entry that needed to be made in order to reverse and thereby remove the closing balances from the previous year, undermined all of his evidence. He tried to shift the focus to his perception of the absence of evidence of a physical stock count to determine the inventory balances for take-on into the new system, saying that he remained concerned about the conduct of the auditors and the lack of evidence of a verification of the physical inventory. He concluded that they had only attended at the Midrand branch. But a concern about the quality of an auditor’s work was irrelevant to the pleaded claim that Andrea had procured an undervaluation of inventory for the ulterior purpose of reducing the value of the plaintiffs’ shares, which is the claim in the particulars of claim. In any event he ignored the fact that Luis said that the auditors had attended stock counts at all five main branches with one Van Schalkwyk, then the national logistics manager, who reported directly to Jose as the logistics director. [221] With respect, the manner in which the judgment dealt with this issue was unsatisfactory. In the first place the judge persisted in referring 167 to the journal entry as a stock write-off,139 when it was nothing more than a standard adjustment to remove the closing balances from the previous year’s accounts. He then said that Mr Geel’s evidence of ‘the stock write-off’ called for an answer from the defendants. As Mr Geel conceded that the journal entry was not a stock write-off, it is hard to see what evidence the court had in mind. The problem was compounded by the judge citing a statement by counsel that Andrea would testify that there was no understatement of inventory and that the journal entry was ‘an accounting adjustment’. This was precisely the concession made by Mr Geel. Nonetheless the judge went on to say that Andrea should have entered the witness box to explain the reasons for the non-existent stock write-off and added that it was reasonable to suppose that he would not have been able credibly to explain the reasons for it. The fact of the matter is that the R11.2 million journal entry was not a stock write-off and the endeavour by Mr Geel to divert attention away from the fact that he had wrongly taken an innocuous accounting entry as evidencing unexplained impropriety, should have been rejected. In the result, there was no merit in this ground for alleging that Luis and Jose were subjected to unfair prejudice. Inventory, maintenance spare parts and EBITDA [222] These three issues took up a considerable part of the trial via the evidence of Mr Geel and added considerably to the bulk of the documents in the record. They should not have done so because they were not pleaded and were not germane to any issue that was properly raised in the pleadings. The only pleaded issue was that Andrea intentionally or recklessly failed to control operating expenses to the detriment of the 139 This section of the judgment is headed ‘R11.2 MILLION STOCK WRITE-OFF’ and is described as a stock write-off thereafter in paras 242-244, 247 and 251 to 254 of the judgment. 168 company’s ability to pay dividends and its long-term well-being. A comparison of Mr Geel’s consolidated report and the withdrawn notice of amendment shows that the latter was based on the former. The notice of amendment sought to extend the period under consideration to include 2013. The extension related to the value of inventory on hand and maintenance spare parts as well as alleging that with effect from the financial year 28 February 2013 these had incorrectly been brought into account as an asset under the category ‘property, plant and equipment’ and depreciated. It sought to update the EBITDA allegations to include 2013. This was novel and came from the 2013 changes to Mr Geel’s report. The discussion of maintenance spare parts came in its entirety from Mr Geel’s 2013 report, albeit that this source was not identified as such in the consolidated report. [223] Despite the withdrawal of the application to amend, the plaintiffs went ahead and led the evidence of Mr Geel on all the matters covered by the proposed amendment. The end result was that virtually all of his evidence and the bulk of the documents relating to it dealt with issues not raised in the pleadings and in consequence were inadmissible. An objection to the evidence on inventory, maintenance spare parts and EBITDA being led was rejected when the trial recommenced at the beginning of 2014. When it resumed in 2015 the court permitted the financial evidence to be further extended to include the 2014 year. It became the heart of the case and in going beyond the pleadings forced the defendants to engage with numerous collateral issues that had no relevance to the pleaded case. This should not have happened. The plaintiffs should have been confined to the pleaded issues. 169 [224] This is not mere pedantry or formalism. I am well aware that pleadings exist for the benefit of the court and that in certain circumstances the conduct of the parties may be such as to broaden the scope of the dispute and the issues to be dealt with in the trial. But I am also mindful of the remarks of Harman J in Unisoft140 quoted in the high court’s judgment that: ‘Petitions under s 459 have become notorious to the judges of this court – and I think also to the Bar – for their length, their unpredictability of management, and the enormous and appalling costs which are incurred upon them by reason of the volume of documents likely to be produced. … In the circumstances it behoves the court, in my view, to be extremely careful to ensure that oppression is not caused to parties, respondents to such petitions, or indeed, petitioners upon such petitions, by allowing the parties to trawl through facts which have given rise to grievances but which are not relevant conduct within the very wide words of the section.’ The particulars of claim underwent a substantial amendment in 2012 shortly before the first date for hearing. The attempt to amend them again before the hearing resumed was abandoned. In those circumstances the court should have been alert to any attempt to expand the issues by the back door route of claiming that it was ‘corroborative and evidential’, which was the justification put forward by counsel for the plaintiffs. What it was said to corroborate was never clear and the court treated it as if the issues had been broadened. [225] As far as this appeal is concerned there is no reason not to hold the plaintiffs to their counsel’s disavowal of any intention to broaden the scope of the case beyond the pleaded issues and the period they covered. They alleged that: (a) Andrea conducted the business of TCM from 2007 to 2012 during which period EBITDA before dividends received declined; 140 Re Unisoft Group Ltd, op cit, fn 40, p 611f-i. 170 operating expenses increased substantially; and gross profit increased by about fifty percent. Specific amounts were given in respect of the 2007 and 2012 years based on the approved AFS for those years. (b) Andrea had, during the same period, either intentionally or recklessly failed to contain or reduce operating expenses to a proper proportion of gross profit, such that the benefits might accrue to the shareholders, particularly the plaintiffs, by way of dividends and the growth, well-being and ultimate profitability to shareholders, particularly the plaintiffs, were properly ensured and protected. The issues arising from these allegations were extremely narrow. The figures referred to in (a) were admitted, so that there was no issue in that regard. No impropriety on the part of Andrea and the board was said to arise on the basis of the figures on their own. The sting of the complaint was that, but for Andrea’s intentional or reckless failure to contain or reduce operating expenses to a proper proportion of gross profit, greater benefits would have accrued to shareholders and the long term growth, well-being and ultimate profitability of TCM to shareholders and the plaintiffs in particular would have been ensured and protected. [226] Paragraph 260 of the judgment correctly identified this as the issue, but then went on to say that there had been a reduction of the dividends paid to shareholders and this had negatively impacted on the value of TCM shares. TCM commenced paying dividends in the 2005 tax year, when it paid a dividend of R8 million. That was the year in which Iqbal joined the company. No dividend was paid in the 2006 tax year, but dividends of R10 million each were paid in the 2007 and 2008 tax years. In each of 2009 and 2010 it paid two dividends totalling R15 million and 171 in 2011 a single dividend of R15 million. In 2012 the single dividend rose to R16 million. The judgment said that dividends had been reduced, but that was factually incorrect for those years and incorrect for all the years for which information was available. In 2013 two dividends totalling R16 million were paid. In each of 2013, 2014 and 2015 two dividends totalling R18 million were declared and paid. A first dividend of R6 million had been paid for the 2016 tax year. These payments showed that Mr Geel’s gloomy prognostication that if matters continued the prospect of receiving a dividend might disappear entirely was unfounded, as was the same view expressed by Luis in his founding affidavit in the s 252 application. [227] The period from 2006 to 2012 was a period of consistent growth of the company in regard to both revenue and gross profit. The plaintiffs relied on Mr Geel’s evidence to contend that all was not as it seemed and that by intentionally or recklessly failing to control expenses Andrea reduced the benefits to which shareholders were entitled and damaged the growth, well-being and ultimate profitability of the company. This was a difficult case to establish given the obvious profitability and growth of TCM during this period. It was not enough for the plaintiffs to show that Andrea might have done a better job of running the company, or could possibly have improved its performance had he adopted different policies. That was irrelevant and would not constitute unfair prejudice. In any event Mr Geel’s evidence did not remotely justify that allegation or indeed seek to do so. He rather grudgingly conceded under cross-examination that, notwithstanding his dire predictions, TCM was not failing. His attitude was that: ‘The contention is if things were to continue, and I’m talking now that EBITDA percentage and decline as it had then there’s trouble, but currently it’s liquid. It’s cash 172 positive. It’s got a quick ratio. It’s got a current ratio all that are positive and the debtors collection days are positive.’ He accepted that it was a good solid company that had weathered the storm of the recession. It did not have attorneys chasing debtors. It had good customers, good products from good suppliers and a reliable income stream. The notion that Andrea was not keeping a close eye on costs was based solely on the comparison with the comparative companies that are dealt with below in paragraph 232. At the end it was no more than uninformed guesswork on his part. [228] Mr Geel sought to justify the claim that Andrea was damaging the company in two ways. First he sought to suggest that inventory and maintenance spare parts, which latter first came up in his 2013 report, had been understated in TCM’s AFS. In the combined 2013 report, after referring to the R11.2 million stock write-off, Mr Geel said that consideration of the 2008 audited accounts led him to conclude that the inventory figures were unrealistic and probably materially understated. Luis told him that the inventory adjustments did not reflect reality, but needed to be increased and that this was ‘a deliberate ploy by the CEO to understate the results and thereby the ultimate value of TCM’. Mr Geel undertook an analysis of the inventory figures in the audited accounts. He concluded, on the basis of a couple of cryptic entries written by an unknown audit clerk in the audit notes for 2008 and his own views on how the company would operate, that it was improbable that the figures in the audited accounts were correct. His original valuation of the TCM group in 2008 on the basis of the management accounts was R348 million, but he adjusted it to R430 million on an inventory value of R33.9 million provided by Luis without any supporting information. 173 [229] This approach was illustrative of the significant flaws of Mr Geel as a witness and his evidence generally. He had no knowledge of how the business operations of TCM were conducted and did not accept Wayne’s explanations or take up his offers to assist him.141 He was contractually bound to rely on what Luis told him and his conditions of contract excluded any obligation to investigate the accuracy of that information. This resulted in him relying on the undocumented and unsupported say-so of a witness with a manifest grievance. He ignored Jose’s view that the stock records were unreliable, even though they were under Luis’s and Jose’s control. He criticised the auditors without checking his concerns with them. He said that stock counts had not occurred or not been attended by the auditors, when Jose said they had occurred and the auditors were present. He queried the exclusion of inventory of R33.8 million in the face of an explanation by the auditors that this had been sold to FNB, invoiced and set aside. He accepted Luis’s word that there was somewhere a secret warehouse with a significant inventory of unidentified stock. The evidence showed that this was a storeroom referred to as either ‘Andrea and Justines’s store’ or the ‘magpie store’ that everyone knew about. 141 Andrea and Wayne explained at a meeting the 2013 change in the way maintenance spare parts were accounted for, namely that in 2012 TCM had acquired some large maintenance contracts, called BTR (‘below the router’) contracts, where they would have to stock and supply the spare parts to perform their maintenance obligations, whereas previously they had contracts with the OEMs (‘original equipment manufacturers’) under which they paid a quarterly premium to the OEM’s in return for which the OEM’s would supply the maintenance spare parts they needed on very short notice so that it was unnecessary to maintain high levels of stock. Mr Geel dismissed this explanation without further investigation because: ‘This explanation completely contradicts de Sousa’s, Diez’s and our understanding of TCM’s business operations as well as contradicts with the details of maintenance spare balances held from 2007 to 2013 as per the Spares Valuation Reports discussed below.’ 174 [230] Although not pleaded, the topic of maintenance spare parts142 loomed large at the trial having emerged in the 2013 consolidated summary. Mr Geel and Professor Wainer said that the method of accounting for these adopted in 2013 was incorrect and ignored the relevant provisions of the International Financial Reporting Standards. This was irrelevant because it had no impact on the period from 2008 to 2012 to which the plaintiffs had, through counsel, expressly confined their complaints. At that time and for more than twenty years prior to 2013 the company’s practice had been to write the cost of spare parts off as an expense on acquisition. Mr Geel knew this and Luis and Jose did not suggest that they were unaware of that being the practice. It was therefore not prejudicial to their interests as shareholders because there is no unfair prejudice where the shareholders were fully aware of, and did not object to, the practice in question.143 [231] Mr Geel’s EBITDA analysis was the basis for his suggesting that TCM was poorly managed and that costs were not being properly controlled. His reasoning in his first summary was that the decline in EBITDA, despite an increase in revenue, was due to significant increases in staff costs, management fees and other operating expenses since 2008 and this ‘indicated a degree of inefficient management of the operating expenses’. There was no evidence of Andrea intentionally or recklessly failing to control the expenses. Mr Geel expressed the view that ‘TCM is significantly worse off than it was in 2008’, but that was obviously not the case, nor had TCM suffered ‘value erosion and destruction’. 142 Maintenance spare parts were spare parts kept in store to enable TCM to undertake maintenance obligations in terms of maintenance agreements with clients, while inventory are parts and machines kept as stock for sale. 143 Blackman, op cit, fn 52, 9-41 (RS 3) sv ‘Applicant cannot complain of conduct to which he acquiesced or in which he participated.’ See the cases in fn 138 ante. 175 [232] Mr Geel based this evidence on his comparison of TCM’s performance with that of three JSE listed technology companies that he referred to as CoCos (Comparative Companies). His conclusion was that TCM’s performance was ‘contrary to the performance of the other CoCos over this same period where they have shown growth’. The appropriateness of these comparisons was challenged because Mr Geel knew nothing about the businesses of the three companies (or TCM) and selectively extracted information from their published accounts to show TCM in a bad light. None of them were competitors of TCM, two were investment holding companies and two derived the bulk of their revenue from outside South Africa, so they were not truly comparable. The criticisms were forcefully and persuasively advanced in the appellants’ heads of argument and the plaintiffs’ counsel wisely made no endeavour to defend the comparison, or the arguments advanced by Mr Geel in reliance on them. [233] The basic flaw in Mr Geel’s testimony was that he was unable to escape from the fetters of his original mandate of placing a value on TCM because Luis wanted to exit the company and realise the value of his shares. His original report in November 2008 had been drafted with that in mind and it is apparent from reading the reports tendered as expert summaries that his true purpose was to highlight matters that in his view would increase the value of Luis’s and Jose’s shareholding as a starting point in a negotiation for their shares to be purchased by the company or the other shareholders. There was nothing wrong with his trying to do that when he was looking to help them sell their shares. There was everything wrong in his continuing with that approach once he became an expert witness in the trial. In a revealing comment in evidence in chief he said: 176 ‘In the view of Professor Harvey Wainer and myself, the extent of the profits recorded in the financial statement directly affects the valuation of the shares.’ His evidence and the documents shows that this mindset never changed and it explains much of the superfluous material in Mr Geel’s reports and his evidence. The plaintiffs were seeking to have their co-shareholders purchase their shares and wished to maximise the price. Influenced by the fact that he was acting on a contingency fee basis, Mr Geel had a similar interest. Conclusion [234] No matter how widely Mr Geel cast his net it did not support the three grounds pleaded in support of a contention that Andrea and his co-directors had acted with a lack of probity in regard to these matters. Accordingly, the fourth alleged source of unfair prejudice also fails. Favourable treatment of Iqbal [235] The pleadings identified three issues in regard to Iqbal as supporting a claim of unfair prejudice in relation to Andrea’s treatment of him. The first was the endeavour to amend the sale of shares agreement with a view to reducing the purchase price he was to pay for his shares and to give him an extension of time within which to pay it. There was no merit in this point as the proposed amendment was blocked by Luis. The second was the conclusion of the retention agreements. The third was the payment of bonuses. These two can be dealt with fairly briefly. The retention agreements [236] There were nine of these executed at approximately six monthly intervals from 1 October 2008 until 18 July 2012. Each of them provided for payment to Iqbal at three monthly intervals of an amount of R625 000 177 styled as a Cash Retention Payment. The first of them was executed by the company after Iqbal had made arrangements and paid Luis and Jose for their shares. The retention agreements provided that if Iqbal left the company’s employment during the retention period he would be obliged to repay the retention amount for that period. The particulars of claim described these agreements as a sham which unduly favoured the Trust or Iqbal at the expense of Luis and Jose and the other shareholders. [237] It is unclear what the plaintiffs meant by saying that the retention agreements were a sham. The judge found that they were simulated transactions, but in what sense is unclear. He said that they were not retention agreements and their true commercial purpose was to assist Iqbal in paying for the shares. That may have been the motive for concluding the agreements, but it did not make them simulated transactions. As explained in Roshcon144 a simulated agreement is a disguised transaction where the parties do not intend it to have effect according to its apparent tenor, that is, the effect which its terms convey. It requires not only a dishonest intention, but also the existence of a different and unexpressed agreement or tacit understanding between the parties that is the ‘real’ agreement. [238] What is singularly lacking in this case is any indication of what the ‘real’ agreements, as opposed to the ‘simulated’ retention agreements, were. The retention agreements were clear that Iqbal would be paid the amounts specified in return for maintaining his current level of contribution as assessed by Andrea and still being in the employ of the company until three months after the expiry of each period and not have 144 Roshcon (Pty) Ltd v Anchor Body Builders CC and Others [2014] ZASCA 40; 2014 (4) SA 319 (SCA) and the authorities cited there especially Zandberg v Van Zul 1910 AD 302 at 309 and Commissioner of Customs and Excise v Randles Brothers & Hudson Ltd 1941 AD 369 at 395-6. . 178 given notice to terminate that employment, or having had his employment terminated for cause, before that date. If he died the day after receiving a payment his estate would have to repay it. The motive for entering into the agreements may well have been to assist him in paying for the remaining shares he had purchased from Andrea and Tony,145 but that did not make the agreements other than they appeared to be on the face of it. The fact that someone is employed out of motives of benevolence, or paid more than their services are worth, does not mean that the contract is not one of employment. There was nothing simulated about the retention contracts which were concluded openly and on straightforward terms. [239] The retention agreements were only concluded after discussion at a board meeting on 9 September 2008. Both Luis and Jose were at the meeting and Iqbal withdrew while the subject was discussed. The reasons for concluding the agreements appear from the minutes of that meeting. The key elements were managing key contracts and for BEE purposes. At the meeting although Luis raised some concerns about the terms of the draft agreements tabled by Andrea, the clauses he raised did not appear in the final agreements. He said that he was happy with the amounts suggested. Jose said that in principle he agreed with it. However Luis voted against the motion and Jose and Iqbal abstained. It passed with the support of the remaining directors. [240] The judgment said that there was obviously no need to enter into any retention agreement in order to guard against the loss of Iqbal’s services. It did so on the basis that there was no evidence that he wished to leave and because he was generously remunerated. It ignored the discussion at the board meeting on 9 September 2008, where genuine 145 Before any of the retention agreements were concluded Iqbal had paid Luis and Jose for their shares. 179 concerns were raised about the prospect of losing Iqbal and the impact that would have on the business. Neither Luis not Jose said that these fears were misplaced or that restraint agreements were a sham. Tony raised the question of his age, then nearly seventy, and the need to keep him working. When those contemporaneous discussions are considered, the conclusion that there was no basis for the restraints was not justified. Bonuses [241] The pleaded complaint was that Andrea drastically reduced the bonuses to which Luis and Jose were ordinarily entitled with a view to humiliating them and benefitting others in to win their loyalty. The evidence showed that each year a bonus pool was established to cover all bonuses and bonuses were then awarded on the basis of an assessment of performance. In the result annual bonuses fluctuated on the basis of the amount of the bonus pool and the assessment of the individuals concerned of whom there were a number. It is correct that in one or two years Luis and Jose received no or smaller bonuses than others, but beyond their saying that this was victimisation there was no factual basis upon which the court could judge whether the amount of the bonuses had been fairly determined. It was not established that their treatment in regard to bonuses was unfairly prejudicial to them. TCM’s payment of litigation costs [242] The last pleaded ground of unfairly prejudicial conduct was that Andrea had procured that the funds of TCM were used for the purpose of discharging the legal costs incurred by the defendants in the s 252 application proceedings that were dismissed. This was said to be to the financial detriment of TCM. It was based upon what in the United 180 Kingdom is referred to as the legal costs principle, described as follows in Crossmore Electrical:146 ‘The company is a nominal party to the [unfair prejudice petition], but in substance the dispute is between the two shareholders. It is a general principle of company law that the company’s money should not be expended on disputes between the shareholders: see Pickering v Stevenson (1872) L.R.14 Eq 322.’ We were not referred to any South African authority on the point but it is endorsed by the authors of Blackman:147 ‘It is a general principle of company law that the company's money should not be expended on disputes between shareholders. The general rule is that the company has no business whatever to be involved in such an application, on the principle that the company's moneys should not be expended on disputes between shareholders and in particular its moneys ought not to be used to defend the majority shareholders in what is essentially a dispute between them and other shareholders. The use of the company's funds by the majority in defending the application is a misuse of the company's funds, confers a distinct financial advantage on the majority, and prejudices and discriminates against the applicant; it is both unfair and infringes the basic principle that the powers and funds of a company may be used only for the purposes of the company.’ (Footnotes omitted.) [243] The principle is well-established in England and in many such petitions in that jurisdiction the company is not even joined to the proceedings. In the absence of an undertaking to be personally responsible for the legal costs the majority shareholders may be restrained by an injunction from causing the company to incur expenditure on legal or professional services for the purposes of the petition or any other aspect of the dispute,148 including a counterclaim by the company at the 146 Re Crossmore Electrical and Civil Engineering Ltd [1989] BCLC 137 (Ch D) at 138. 147 Blackman, op cit, fn 52, 9-54 (RS 2). 148 Gott v Hauge [2020] EWHC 1473 para 53. 181 instance of the majority shareholders. The following summary of the application of the principle in Koza149 is apposite. It reads: ‘It is clear from these judgments that, whatever the procedural context in which the issue arises, the court is concerned to identify the true substance of the proceedings and that which constitutes the real contest. If the real contest is between parties other than the company itself, it will be a misfeasance for the company's directors to cause its funds to be expended on the legal costs of that contest. That does not of course mean to say that there may not be some legal expenditure which it is proper for the company itself to incur in the context of a shareholders' dispute. The incurring of legal costs in relation to the company's obligation as a party to give disclosure is one such example. There will be others, but they are limited to those aspects of the dispute in respect of which the company has its own independent interest to protect.’ [244] In general the principle is a sound one and unless the company will be affected by the relief sought in an unfair prejudice case it will probably be unnecessary for it to be joined. If the implementation of any order made will require the company’s co-operation, or the company is directly affected, for example, where a buy-out is sought against the company itself, it must be joined. However, that does not mean that the company should enter the lists or bear the costs of defending the unfair prejudice claim. That will remain a dispute between the shareholders in which it is not and should not be a contestant. It may incur and pay costs on certain matters where its own interests are at stake, for example over matters of disclosure or whether the terms of the relief being sought are appropriate. [245] Matters become complicated where the joinder of the company is pursuant to a claim for substantive relief against it. That was the case in 149 Koza Ltd v Koza Altin Işletmeleri AS [2021] EWHC 786 (CH) para 66. 182 the s 252 application and is the case here. In that situation, the assumption made in the high court that the company is purely a nominal defendant and should not be incurring any costs in defending the action is unduly facile. That assumption was reflected in the findings on the merits in this action and the various costs orders made by the high court. An order that the company buy back shares will affect it because compliance may place an undue strain on its resources to the actual or potential detriment of its creditors. It may even threaten the viability of the company. Although it might have no interest in whether the minority shareholder has been subjected to unfair prejudice, it would be directly affected by an order to purchase their shares. How the company should respond in that situation will depend on the facts of the particular case. Prima facie it should not bear all the costs of defending the s 252 claim, but it is entitled to resist the relief claimed against it. Where the allegations by the disaffected shareholder impinge on the company directly, for example, where it is contended that its accounts are not a true reflection of its business or that it is engaged in fraudulent trading, there may be a need for it to defend its business reputation. If left unchallenged, such allegations might have potentially disastrous consequences for the business, leading to its bankers withdrawing support or its suppliers refusing it credit. [246] Deciding on the proper approach for the company to adopt introduces the possibility of a conflict between the personal interests of the majority shareholders and the interests of the company. One cannot resolve these potential complexities by adopting an a fortiori rule that in all instances it is improper for the company against which relief is sought to resist that claim on its merits and incur costs in doing so. I do not agree with the English case cited in paragraph 314 of the High Court’s judgment that there is a ‘heavy onus’ on the company to justify such 183 expenditure. That is judicial hyperbole. The simpler approach is to ask whether on the evidence the company’s funds were properly expended in its own interests. [247] The complaint in the pleaded case was that TCM paid the costs of opposing the s 252 application.150 That application was dismissed on the basis that once the answering affidavit was delivered it was apparent that there was an irresoluble dispute of fact on the papers. The court ordered each party to bear its own costs up to the date of filing of that affidavit and ordered Luis and Jose to pay the costs thereafter. The costs to which the complaint related were therefore those incurred by TCM up to and including the filing of that affidavit and the attorney and client component of the costs after that date. We were not informed as to the amounts involved but, even if it is assumed that procuring that the company pay these costs was unfairly prejudicial to Luis and Jose, the remedy would not be a buy-out order. The obvious order, if the majority shareholders improperly arranged for the company to expend its funds defending a claim brought against them by an aggrieved minority shareholder, would be one that compelled the majority to reimburse the company for the funds improperly expended, not an order that TCM purchase the shares of Luis and Jose for a consideration of R160 million or such other amount as the court might determine as the fair value of their shares. 150 The judgment dealt with the matter as if the complaint extended to the costs of the present action, but that was not the pleaded case. If the company paying the costs of defending the action were to be considered the court needed to take into account that Luis and Jose did not bring proceedings to prevent it from doing so and that the s 163 application was directed not at stopping this but at procuring that TCM pay their legal costs as well. 184 Jose’s claim [248] Insofar as Jose’s claim ran in parallel to and was based on the same grounds as that of Luis there is no need to say anything further. It was distinct in that prior to 2004 his status as a shareholder was no more than a spes and he was not a director at all. He may have had an expectation of being made a shareholder but that expectation was satisfied when he and Tony received 10% stakes from Luis and Andrea at around the time of the BEE deal with Iqbal. From 2004 onwards he could hardly lay claim to having an expectation of being a director, because his appointment to that role was dependent on Luis nominating him for that position. As to his expectations of participation in the day to day management of the business that was dependent on his continued employment and subject to the qualification of there being no legitimate grounds for the termination of that employment. [249] Given those limited expectations the difficulty facing Jose was that he was still working for TCM in 2009, when the s 252 application was brought; in 2010 when the present action was commenced; and even in 2012 when this action first came to trial. He had not been excluded from the company as an employee and remained an executive director, who actively participated in board meetings. The treatment of which he complained in his evidence was treatment that affected him as an employee, but not as a shareholder. Whether it would have given rise to a claim before the appropriate labour tribunals is neither here nor there. It did not give rise to him suffering any unfair prejudice in his capacity as a shareholder. That is no doubt why the attempt was made in 2013 to expand the scope of the case in order to include within it the circumstances leading up to the termination of his employment. But the 185 application for an amendment was withdrawn and counsel for Jose nailed his colours to the mast of the period specified in the pleadings, that is, the period up until 2012. As with virtually all of his objections, counsel’s objection to Jose giving evidence about the circumstances leading up to his dismissal was rejected, but it should have been upheld. [250] For those reasons Jose’s case had to stand or fall with the case advanced on behalf of Luis based on issues other than Luis’s exclusion from employment and participation in the day to day management and operations of the business. Conclusion on unfair prejudice [251] The plaintiffs’ case that the affairs of the company had been conducted, principally by Andrea, in a manner that was unfairly prejudicial, unjust or inequitable to them was not established. Section 252 does not confer a right to exit a company on the grounds of a breakdown in the relationship between or among the shareholders, or to demand that the remaining shareholders make a reasonable offer to acquire the shares of the disaffected shareholder. Accordingly, the failure to negotiate terms to enable Luis and Jose to exit and realise the value of their shares was not unfair prejudice, as it was not coupled with prior unfair prejudice that they had suffered on some other basis. TCM ceased to be a small domestic company managed by its founders in a manner akin to a partnership. It became a very large company that for essential business reasons changed its shareholding structure in 2004 and regulated that structure in a formal fashion through the terms of the sale of shares agreement and, in particular, the shareholders agreement. As a consequence of those changes, to which both Luis and Jose were parties, they did not have a legitimate expectation of continued employment and 186 status. As that formed the basis for their main argument that they had suffered unfair prejudice by being excluded from participation in the day to day management of the operations of the company their main argument had to fail. Luis did not show that his dismissal was unfair and gave rise to unfair prejudice in his capacity as a shareholder. That disposed of the second basis for the claim. The claim based on a refusal to negotiate terms for their withdrawal in the absence of other unfair prejudice was legally unsound. Lastly the claim that Andrea conducted the affairs of the company or treated the plaintiffs in a manner that showed a lack of probity and constituted unfair prejudice to them in their capacity as shareholders was not established on the facts. [252] Mindful of the risks in classifying a s 252 claim into categories and dealing with those categories as discrete claims, instead of treating the claim as a single claim consisting of different elements and arising from a number of separate events, I have considered whether there is any basis for taking the events that have been proved and viewing them collectively to see whether they show that the plaintiffs suffered unfair prejudice. There are two reasons why that must result in a negative answer. The first is that it was for the plaintiffs to identify the course of conduct which was unfairly prejudicial to them and they have not done so. Their case consisted of an unconnected series of events on which they have tried to project a deliberate pattern of behaviour by Andrea designed to force them out of the company. Whether those events were taken individually or collectively they did not establish that. The second reason is that this is not how they presented their case. That rested firmly on the proposition that this was a small domestic company of the nature of a partnership between Luis and Andrea giving rise to Luis having certain legitimate expectations concerning his role in TCM. Once that foundation was not 187 established, the remaining elements of unfair dismissal and failure to make an offer or enter into reasonable negotiations to enable their exit fell away. [253] The appeal must accordingly succeed on its merits. The high court’s order must be set aside and appropriate orders made in relation to the costs of the action. However, before dealing with those it is necessary to say something about the order granted by the high court and then to deal with the fair trial issue. The high court’s order [254] The high court ordered TCM to purchase the shares of the plaintiffs and to take transfer of them at a purchase consideration to be determined by a referee ‘of the nature of and akin to’ a referee appointed in terms of s19bis of the Supreme Court Act 59 of 1959.151 It gave directions as to the basis upon which the referee was to determine the value of the plaintiffs’ shares. It then dealt with the costs of the action and the reserved costs of the s 163 application and the associated application for recusal; the wasted costs of the postponement of the trial on 2 October 2012; and the costs relating to the withdrawn application for leave to appeal and the application in terms of rule 35(3) brought on 4 December 2015. The appeal’s success means that the order must be set aside, but the following comments are made for the guidance of courts seized with matters of this kind in the future. [255] Before making a buy-out order against TCM the high court needed to consider whether any unfair prejudice suffered by the plaintiffs had 151 The reference to the 1959 Act was presumably dictated by s 52 of the Superior Courts Act 10 of 2013. 188 been resolved by the two offers TCM made to purchase Luis and Jose’s shares and, if not, whether it was in a position to determine the appropriateness, of making such an order against TCM. Both needed to be considered against the background that it had been agreed and ordered that the issue of the value of the plaintiffs’ shares would be separated from the remaining issues in the case. [256] Under the heading: ‘Where the prejudice lies’ the judgment held that the defendants had not made a fair or proper offer to purchase Luis and Jose’s shares. Two offers were made in the course of the litigation. The first was one of approximately R54 million on 3 December 2014, accompanied by a valuation from Grant Thornton, the company’s auditors. The second was made on 17 February 2016, accompanied by a further valuation from the same firm, of R50 094 000 for Luis’s shares and R11 037 000 for Jose’s shares. The judge said the first offer was suggestive of an absence of bona fides by Andrea and that he found it hard to accept that the second offer was a genuine, valid and bona fide offer. On that basis he concluded that Andrea and the other shareholders failed or refused to engage in bona fide discussions or negotiations with the aim of permitting Luis and Jose to dispose of their shares at a fair value. [257] As the value of the shares was by agreement not before him, the judge was in no position to assess whether either offer was a fair offer in regard to amount and payment. Insofar as curing unfair prejudice was concerned that was the primary question. As both offers were substantial and supported by valuations from the auditors,152 whether they were fair offers could only be decided once the value of the shares had been 152 Not the auditors whose work attracted criticism from Mr Geel. 189 assessed. The plaintiffs’ attorneys said that the first offer was a genuine offer, but no reasons were given for allowing it to lapse. Nor was Grant Thornton’s valuation criticised. It appears to have been prepared on a similar basis to those of Mr Geel and his team from KPMG. The second offer came at a very late stage of the proceedings on 17 February 2016, giving a short period for acceptance, which the judge said was inadequate. He therefore concluded that it was not a genuine and bona fide offer. It is a novel proposition that, because an offer is made at a late stage of proceedings, it is not to be regarded as genuine and bona fide. Had it been accepted it would not have been so characterised. Also the judge refused to receive the valuation on which the offer was based so could not assess whether it was genuine. [258] Insofar as the appropriateness of making a buy-out order against TCM was concerned the high court needed to consider the impact of such an order on the company, but it was not in a position to do so because by agreement it had not received any evidence in regard to the value of the shares. It was accordingly not possible to determine whether the company was in a position to pay the indeterminate amount that was to be determined by the referee. If payment of that amount would seriously damage TCM’s finances or its commercial viability, there was no mechanism for addressing and revisiting that question. The horse of TCM’s obligation to purchase the shares would already have bolted and as the referee was appointed as an expert not an arbitrator the scope of any challenge to the determination was limited.153 153 The judge referred to his majority judgment in Perdikis v Jamieson 2002 (6) SA 356 (W) para 5. This reference was unaffected by the Supreme Court of Appeal overruling the majority judgment on the point in issue in that case in Tamilram v Trustee, Lukamber Trust and Another [2021] ZASCA 173; 2022 (2) SA 436 (SCA) para 15. 190 [259] This had implications going beyond the shareholder dispute. The purpose of a buy-out order is not to bring the company to its knees. It is to remedy the unfair prejudice by enabling the disaffected shareholders to leave and realise their investment. The remedy is a broad equitable one. Considering its impact on the company, its employees, creditors and customers was essential in determining what should be made. While Mrs Oberem might not have had a direct and substantial interest in the outcome of the case, she had a more general interest in whether all of Luis’s shares were sold or whether half were preserved to be transferred to her as part of the liquidation of the joint estate. Over a thousand employees were interested in the future of their jobs. A number of extremely large nationwide businesses were dependent upon TCM’s maintenance services. There is also the concerning factor that the order fixed the date of valuation as the date of the judgment, that is, 31 March 2017. That was eight years after Luis had been dismissed and four years since Jose had resigned. The figures we have, which do not take the picture up to the date of judgment, show that this was a period of substantial growth of the company. The court needed to consider whether the plaintiffs were entitled to benefit from any increase in the value of the shares during the period when they had no involvement in the operations of the company. It could not do that in the light of the fact that the valuation of the shares and the date upon which such valuation was to be made were not before the court. Had it been appropriate for it to make an order, and the respondents had pursued their claim for a buy-out order against TCM, the court should have confined its order to declaratory relief in regard to its finding that there had been unfairly prejudicial conduct in terms of s 252. 191 Fair trial issues [260] At the outset, counsel for the applicants raised various issues relating to the fairness of the trial. He indicated, however, that the applicants preferred the case to be decided on the merits, because, if the fair trial points succeeded, that would result in a remittal to the court below for the trial to commence anew – a prospect that no one relished. The fair trial points concerned some unfortunate interchanges between the judge and leading counsel for the defendants; interventions in, and the imposition of deadlines on, the cross-examination of witnesses; and restrictions on both the subject-matter of evidence154 and cross-examination. [261] The fairness of a trial is distinct from any question of bias although the two may overlap. No issue of bias was raised in this case. The difference between the two is that whether a trial was fair is a matter of objective judicial assessment, while possible bias is assessed through the eyes of the notional fair-minded and informed observer. A trial is unfair where judicial conduct disrupts the presentation of the case on one side or otherwise prevents the court from properly appraising the case on its merits. That is what is said to have occurred in this case. [262] A preliminary question facing us was whether we were obliged, irrespective of our view of the merits, to determine the fair trial issues. The Supreme Court in the United Kingdom addressed the question in 154 A key issue was Luis’s allegation that he was unfairly dismissed. He was reluctant to permit cross-examination arising from the record of evidence in the CCMA hearing. When counsel told him that, if the fairness of the dismissal remained in issue, he would need to call all eleven witnesses who had given evidence in those proceedings unless it could be agreed that the record of that evidence should stand as evidence in the trial, the judge responded without argument that he would not permit that to happen. 192 Serrafin v Malkiewicz,155 where the unfairness was directed at the claimant, a litigant in person. Lord Wilson said; ‘What should flow from a conclusion that a trial was unfair? In logic, the order has to be for a complete retrial. As Denning LJ said in the Jones156 case … “No cause is lost until the judge has found it so, and he cannot find it without a fair trial, nor can we affirm it.’ Lord Reed observed during the hearing that a judgment which results from an unfair trial is written in water.’ [263] This is the converse situation, where the allegation of unfairness is made by the defendants and the plaintiffs assert that the trial was fair. In that situation I think that the court is not bound to make a final determination of the question, and it may tailor its response to the unfairness to suit the circumstances. In Hamman v Moolman this court held that it could deal with the case on the information before it, but affording the factual findings of the judge less weight than would normally be given to the findings of a trial judge and a similar approach has been taken in some other cases.157 In this case we were firmly of the view after the hearing that the appeal had to succeed on its merits. The plaintiffs said that the trial was fair, so there can be no prejudice to them in deciding the case on its merits. [264] It is desirable nonetheless to make a limited number of observations for the guidance of judges who have to deal with long and 155 Serrafin v Malkiewicz and others [2020] UKSC 23 para 49. 156 Jones v National Coal Board [1957] 2 All ER 155 (CA). This has been cited with approval in a number of decisions of this court, eg S v Cele 1965 (1) SA 82 (A); Hamman v Moolman 1968 (4) SA 340 (A); S v Rall 1982 (1) SA 828 (A) and the Constitutional Court, albeit in a slightly different context viz S v Basson 2007 (3) SA 582 (CC) para 33. 157 In that case the alleged unfairness was directed at the defendant. The court overturned the judgment in favour of the plaintiff and dismissed the claim. In Solomon and Another NNO v De Waal 1972 (1) SA 575 (A) the judge’s interventions were hostile to the plaintiff’s case. The court found that as demeanour of the witnesses was not a key aspect of their credibility, the case could be decided and the appeal upheld on the written record. I have reservations whether it would now be accepted that the court could on its reading of the record uphold the trial court’s judgment as occurred in Rondalia Versekeringskorporasie van SA Bpk v Lira 1971 (2) SA 586 (A). 193 complex matters such as this. In more leisurely times courts, while not acting as ‘silent umpires’ to use Lord Denning’s expression, were more inclined to leave the conduct of the case to counsel and to limit interventions to elucidating evidence, making procedural rulings and rulings on admissibility, and preventing long-winded and unnecessary evidence in chief or abusive or repetitive cross-examination. With courts under far greater pressure than in the past, a more active case management role is expected of the judge. The Constitutional Court in S v Basson158 approved the following statement by Harms JA in this court, that:159 ‘Fairness of court proceedings requires of the trier to be actively involved in the management of the trial, to control the proceedings, to ensure that public and private resources are not wasted, to point out when evidence is irrelevant, and to refuse to listen to irrelevant evidence. A supine approach towards litigation by judicial officers is not justifiable either in terms of the fair trial requirement or in the context of resources.' [265] In a trial of the length of this one, with copious documents and a good deal of technical evidence on financial matters, the task of the judge is an onerous one. A balancing act is required because ‘there is a thin dividing line between managing a trial and getting involved in the fray’.160 It is inevitable that on occasions the participants, including the judge, will show signs of stress and impatience, but greater restraint in expressing their feelings is required of judges. The stresses imposed upon the judge when the emotions of the parties run high as they did in this case are particularly great. At one stage the judge described it as a war and counsel for the plaintiffs said that it was a most unpleasant trial. The 158 S v Basson, op cit, fn 156, para 33. 159 Take and Save Trading CC and Others v Standard Bank of SA Ltd 2004 (4) SA 1 (SCA) para 3. 160 Ibid, para 4. 194 task of the judge in that situation is onerous and unenviable. I emphasise two matters. Judicial tolerance of the technique of cross-examination adopted by the cross-examiner is essential. Some cross-examiners are pithy, quick and to the point, focussing on the relevant and ignoring the dross. They are few and far between. Many cross-examinations are long and tedious and much of the content may seem to the judge of little relevance. But extreme patience is called for and intervention is only warranted where it is necessary to elucidate a point, or where it is clear that the questions are irrelevant or repetitious.161 Where the intervention takes place at a late stage and involves the imposition of time constraints, the greatest caution is called for, in order to ensure that the cross-examiner may complete their task and cover the appropriate material required for a proper discharge of their duty towards their client.162 [266] The second point is the need to be particularly careful to avoid giving the impression of favouring a particular view of the qualities of a witness, or the relevance or merits of an issue, and allowing this to influence the approach to the conduct of the case. It is inevitable that judges form prima facie views, sometimes strong prima facie views, about issues in a case. Nonetheless, they must be careful not to allow those views to affect the conduct of the trial in a way that unfairly prevents the one party from fully presenting their case. Whether their prima facie views are correct can only be determined when every relevant witness has testified in full and the judge has heard the arguments on both side. The danger is that, when prima facie views are given effect during the running of the trial, they may affect the one party’s ability to present its case fully. That is when unfairness occurs even when it is unintended. 161 S v Cele 1965 (1) SA 82 (A). 162 C/f SAP SE v Systems Applications Consultants (Pty) Ltd and Another [2024] ZASCA 26 paras 23-29. 195 For that reason it is often wise to reserve decisions having final effect, such as costs orders, until the end of the trial. [267] Only a few comments are necessary on the issues giving rise to the fair trial complaint. The first is that the reported judgment ascribes the delays in the case to a deliberate endeavour to delay the proceedings, the fault being laid at the door of leading counsel and Andrea. In fairness to both of them, while they were by no means blameless in relation to the protracted and diffuse course that the trial took, laying all the blame on them was unjustified. The expansion of the issues; uncooperative witnesses; repeated inconclusive judicial interventions and the debates that followed; the s163 application; and Mrs Oberem’s participation; all contributed substantially to the pedestrian progress of the case. None of the protagonists was free from responsibility for the delays that beset the trial. [268] The primary complaint related to the judge’s decision to curtail the cross-examination of both Mr Geel and Luis. In the case of Luis that precluded counsel from asking questions on matters that were undoubtedly pertinent to the decision in the case. Prima facie that was an irregularity in accordance with the principle expressed in the following terms by Schreiner JA:163 ‘The disallowance of proper questions sought to be put to a witness by cross-examining counsel is an irregularity which entitles the party represented by the cross-examiner to relief from a Higher Court, unless that Court is satisfied that the irregularity did not prejudice him.’ There is no doubting the judge’s right to curtail cross-examination where it is repetitive, irrelevant or an attack on the witness’s credibility on 163 Distillers Korporasie (SA) Bpk v Kotze 1956 (1) SA 357 (A) at 361H. 196 collateral issues, but it is a power to be exercised with great caution. As this court stressed in Cele,164 in view of the important role that cross-examination plays in our system of evidence, any decision by a judge to curb its exercise, by disallowing questions or restricting the time allowed for that purpose, must be approached with patience and discernment. An important consideration will be whether similar constraints were placed upon counsel for the other party so as to avoid the impression of disparate treatment of the two sides of the case, and the stage that has been reached in the cross-examination when the restriction is imposed. [269] As regards the unfortunate exchanges between the judge and leading counsel it would have been better had they not occurred. We fully understand the frustration that the trial judge must have felt in this case in the light of his perception that it was being dragged out and unduly delayed and the obdurate approach adopted by counsel to every aspect of the case. Nonetheless exchanges between the judge and counsel may have an impact on the lay litigants and judges must be alert to avoid any impression that their personal feelings about counsel and the manner in which counsel is conducting the trial are influencing their ability to consider and weigh the issues in a dispassionate and impartial way. I endorse the sentiment expressed by Ploos van Amstel J that:165 ‘It is important that presiding officers treat legal representatives who appear before them with courtesy and respect. This is part of the right of access to courts which is guaranteed in our Constitution. A litigant who sees his legal representative being treated with disrespect by a presiding officer may well feel that he is not getting a fair hearing or form the perception that the presiding officer is not as impartial as she should be. This has the potential to erode the confidence of the public in our courts. There are very few problems in court that cannot be dealt with firmly but politely.’ 164 S v Cele, op cit, fn 161, at 91B-G. 165 Absa I-Direct Ltd v Lazarus NO and Another, op cit, fn 244 para 9. 197 [270] Despite any deficiencies there may have been in the conduct of the trial it is nonetheless possible for us to reach a clear conclusion and determine the appeal on the merits, as requested by the appellants’ counsel, without making a finding on the fair trial issue. That seems to us desirable. The parties would prefer a decision on the merits and given the passage of time it is in the interests of justice that this dispute be brought to a conclusion without the expenditure of further judicial resources upon it. I accordingly refrain from saying anything further on the issue. Costs [271] The costs of the appeal and the trial must follow the result. They should include the costs of two counsel. There are however separate appeals in relation to certain costs orders made by the trial court in the course of the proceedings. In each case the second to fifth appellants were ordered to pay costs jointly and severally, the one paying the others to be absolved, on the scale as between attorney and client. I will deal with each in turn. Fortunately I can be brief because the judgment dealt with two of these orders in a single paragraph containing no reasons and the third order was mentioned in one brief paragraph. All three orders were clearly founded on the judge’s view that the defendants’ approach to the litigation had been obstructive and that there was no merit in their opposition to the claim. As that has been held to be mistaken the costs orders must be revisited. [272] The first related to the adjournment of the trial in October 2012 when it was first set down. The case had been set down for ten days and the parties said that they were unable to give the Deputy Judge President an assurance that it would be finished in that time. He accordingly refused to allocate a judge to hear the matter as it would become part- 198 heard. An attempt by the defendants to have a judge allocated to deal with an argument that the delay was occasioned by the failure to deliver a summary in respect of the evidence of Professor Wainer was rebuffed by the Deputy Judge President. Where costs are incurred and wasted in that situation the trial court does not ordinarily waste further judicial time investigating in granular detail the causes of, or responsibility for, the adjournment. The parties had underestimated the time taken to complete the trial and given the length of time it in fact took the Deputy Judge President was clearly justified in refusing to allow it to commence. The wasted costs occasioned by the adjournment should be costs in the cause. [273] The second set of costs were those attendant upon the application to amend the particulars of claim dated 9 December 2013 and the Rule 35(3) notice dated 4 December 2015. The application for amendment was withdrawn and the Rule 35(3) notice was not pursued. I can see no justification for requiring the defendants to pay these costs. The plaintiffs should be ordered to pay them jointly and severally, the one paying the other to be absolved, including the costs of two counsel. [274] The third set of costs related to the s 163 application brought by Luis and ultimately not pursued further, notwithstanding defendants’ counsel expressing concern on various occasions that it would be resuscitated. That application led to the defendants seeking the judge’s recusal from hearing that application, but not the trial itself. Recusal was apparently argued extensively166 over two days. We did not receive detailed argument on the merits of either application. Having read both, each had their strengths and weaknesses. 166 The record of the argument was not included in the record on appeal, but reference to the portion of the transcript excluded from the record shows that it ran to nearly 200 pages over two days of argument leaving aside the procedural issues that were debated before the argument. 199 [275] On the s 163 application this judgment has already held that the judge was correct in his conclusion that the company was obliged to pay the dividend to Luis and not to Mrs Oberem. Whether TCM was wrong to withhold payment and issue an interpleader notice was, as the judge said, an interesting question. It became an academic question when Luis and Mrs Oberem settled the issue and I see no good reason to revive it. Whether success on that question would have translated into success in the s 163 application was another matter altogether. The judgment says that the launch of the application was both necessary and reasonable and the relief sought therein justified. I have doubts in regard to the first two propositions and considerable reservations about the court’s power to grant the relief sought. The glaring problem confronting the application was that it was brought under the equivalent of s 252 in the 2008 Act, seeking an order that TCM pay Luis and Jose’s costs of the litigation. Part of the plaintiffs’ case in this action was that it was improper for the company to expend its funds on a dispute among the shareholders. That is a general principle that is endorsed in this judgment, but then the old adage that what is sauce for the goose is sauce for the gander comes to mind. If it was wrong for the defendants to cause the company to expend its funds in a dispute with the minority shareholders, I fail to see on what basis it was proper to ask the court to compound the impropriety by making the company pay the minority shareholders’ costs as well. The remedy was to stop the majority from abusing their position by way of an interdict, joined with an order to repay TCM any costs that should not have been paid from its resources. 200 [276] Insofar as the recusal application was concerned the judge had made two orders for costs against Andrea, Tony and the Trust, but not TCM. In each instance he rejected submissions that he should reserve the costs as it was inappropriate for him to determine whether TCM was purely a nominal defendant at that stage. This judgment holds that he was incorrect in the view that TCM was a nominal defendant in the light of the substantial relief sought against TCM. The point of the recusal application was that he was being asked in the s163 application to rule that, because TCM was a nominal defendant, it had improperly been funding the other defendants’ defence to the s 252 application and this action. Because of the strong views he had already expressed on the ‘nominal defendant’ point, it was submitted that he should recuse himself. Luis had deposed to an affidavit in which he said that those strong views were a reason why it was particularly appropriate for him to deal with the s 163 application. Against that background it cannot be said that a careful lawyer could not reasonably have advised the defendants to bring the recusal application. But that does not mean that it would have succeeded. If as contended the judge had effectively pre-empted the decision in respect of one of the grounds of unfair prejudice, there may have been merit in the judge’s response that an application for recusal would need to encompass the trial as well as the s 163 application. [277] Accordingly, the outcome of these two applications was neither clear nor inevitable. These were interlocutory issues raised in the middle of a lengthy trial. In the absence of full argument it seems undesirable to determine either issue definitively in these proceedings. The order of the trial court cannot stand because of the misdirections on which it was based. The fair order to be made at this stage is that each party should bear their or its own costs in relation to both applications. 201 The order [278] In the result it is ordered that: 1 The application by the intervening applicant for conditional leave to intervene is dismissed and the intervening applicant is ordered to pay the costs of opposition by the first and second respondents in the main application, such costs to include the costs of one counsel. 2 The application for leave to appeal is upheld with costs, such costs to include the costs of the application for leave to appeal before the high court and the costs of two counsel. 3 The appeal is upheld with costs, including the costs of two counsel and the judgment of the High Court is altered to read as follows: (a) The plaintiffs’ claim is dismissed with costs, such costs to include those consequent upon the employment of two counsel. (b) The costs of the adjournment on 2 October 2012 including the costs consequent upon the employment of two counsel are to be costs in the cause in the action. (c) The plaintiffs are ordered jointly and severally, the one paying the other to be absolved, to pay the costs of the application to amend the particulars of claim dated 9 December 2013 and the costs of the application in terms of Rule 35(3) dated 4 December 2015, such costs to include those consequent upon the employment of two counsel. 202 (d) Each party is to bear his or its costs of the application in terms of s 163 of the Companies Act 71 of 2008 and in respect of the recusal application by the first applicant. __________________________ M J D WALLIS ACTING JUDGE OF APPEAL 203 Appearances For applicants: Ian Green SC (with him P Cirone) Instructed by: Roy Stoler Attorneys, Sandton; Honey Attorneys, Bloemfontein For respondents: A Subel SC (with him B M Slon) Instructed by: Amanda Martin Attorneys, Sandton; Matsepes Inc, Bloemfontein. For intervening party: K J van Huyssteen (Attorney); Fluxmans Inc, Sandton.

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 March 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 Technology Corporate Management (Pty) Ltd and Others v De Sousa and Another (613/2017) ZASCA 29 (26 March 2024) The SCA today upheld an appeal from the Gauteng Provincial Division, Johannesburg in De Sousa and Another v Technology Corporate Management (Pty) Ltd and Others 2017 (5) SA 577 (GJ). In doing so it set aside the High Court’s order that Technology Corporate Management (Pty) Ltd (TCM) purchase the shares of tow minority shareholders Messrs Luis de Sousa and Jose Diaz. Mr de Sousa and Mr Andrea Cornelli had established TCM in 1987 as a business providing computer repair services. It had been successful and the company grew and obtained a number of major clients. During this period Mr de Sousa and Mr Cornelli were the sole shareholders holding equal shares in the business although minor shareholdings had been promised to two other employees. In 2004 with a view to addressing BEE issues faced by the company a new shareholder was introduced on the basis that he would acquire a 25.1% shareholding in the company. This was a successful move and the company prospered. However, the relationship between the shareholders was no longer based on the personal relationship between the original shareholders but was governed by a formal shareholders agreement between the shareholders now numbering five as the two employees had acquired small stakes in the company. The relationship between the original shareholders deteriorated markedly from November 2007 and Mr de Sousa, together with Mr Diaz, commenced efforts to exit the company and realise their shareholdings in it. In early 2009 Mr de Sousa was first suspended from employment and then dismissed as a result of a formal independent disciplinary hearing. He appealed unsuccessfully against his dismissal and then challenged it before the CCMA. After an 11 day hearing his dismissal was held to be both procedurally and substantively fair. An application for relief in terms of s 252 of the Companies Act 61 oof 1973 was dismissed on the basis that there was a dispute of facts on the papers. Mr de Sousa and 2 Mr Diaz then brought the present action claiming an order that the company, TCM, alternatively the other shareholders acquire their shares for a price they assessed at R160 million. After a trial that ran for 80 days they succeeded in obtaining an order that TCM purchase their shares at a price to be determined by a referee. Leave to appeal was refused but the SCA granted leave to argue the application for leave to appeal, and if successful, to argue the appeal. The primary basis for the claim was a contention that TCM was a small domestic company of the nature of a partnership between the two founding shareholders. The High Court upheld this contention, but the SCA held it to be inconsistent with the changes brought about by the introduction in 2004 of an outside shareholder and the conclusion and terms of the shareholders agreement. No unfair prejudice was caused to the plaintiffs in their capacity as shareholders by conducting the affairs of the company in accordance with the shareholders agreement, which was inconsistent with the continuation of the suggested quasi-partnership between the founding shareholders. Nor was it unfair to the plaintiffs that the memorandum of association and the shareholders agreement did not afford them a right to exit the company and require the company or the other shareholders to acquire their shares so as to enable them to realise their capital. In regard to Mr de Sousa’s dismissal, the SCA held that the finding by the CCMA was prima facie evidence of the fairness of the dismissal and no evidence had been led to show that the commissioner’s decision was wrong. A number of other grounds were advanced but the SCA held that they did not amount of unfair prejudice to the plaintiffs in terms of s 252. Given its conclusion on the merits the SCA held that it was unnecessary for it to express a final view on the defendants’ contention that they had not been afforded a fair trial. --------oOo--------