Atkinson v Rare Earth Extraction Co Ltd

• Jurisdiction: South Africa
• Judge: Comrie J, Van Reenen J and Cleaver J
• Judgment Date: 13 September 2001
• Citation: 2002 (2) SA 547 (C)
• Docket Number: A325/2000
• Hearing Date: 31 January 2001
• Counsel: W G Burger SC (with him D M Davis) for the appellant. R D McClarty SC (with him G W Woodland) for the respondent.
• Court: Cape Provincial Division

Van Reenen J:

On 4 December 1998 the appellant brought an urgent application for the provisional winding-up of the respondent.

The application was based on the grounds that the respondent had not commenced its business within one year of its incorporation or had suspended its business for at least one year (s 344(c) of the Companies Act 61 of 1973 (as amended)) (the Companies Act) and that D it was just and equitable for it to be wound up because, first, the respondent's substratum had disappeared because the realisation of its main object had become impossible of attainment and, secondly, the respondent's management had been conducted in a manner engendering a lack of confidence therein. E

The respondent opposed the application.

Erasmus AJ dismissed the application with the costs of two counsel.

The learned Judge found that the appellant had failed to make out a prima facie case that the respondent had failed to commence its business within one year of its incorporation or had suspended its business for a whole year. He also found that the F appellant had failed to show that there was a justifiable lack of confidence in the respondent's management or that its substratum had disappeared because it lacked sufficient funds to pursue its main object of 'prospecting for, mining and processing minerals'. The learned Judge, furthermore, refused the appellant's request to refer the issue as to whether the respondent's substratum had G disappeared for viva voce evidence because he had come to the conclusion that the prospects were slim that such evidence would tilt the balance of probabilities in the appellant's favour.

The appellant applied for leave to appeal against the learned Judge's judgment and petitioned the Chief Justice for such leave after the application had been refused. H

Although the appellant in her petition to the Chief Justice sought leave to appeal on a number of grounds, leave to appeal was granted in the following terms:

'Leave to appeal to the Full Court of the Cape Provincial Division against the judgment of the Court a quo is granted I solely upon the ground that the Court a quo erred in refusing to refer the question of whether or not the company was or would be able to raise the capital required to enable it to mine for the hearing of oral evidence thereanent, or alternatively, failing to order particular deponents to affidavits to appear and be examined and cross-examined thereon.'

The Court in Ngqumba en 'n Ander v Staatspresident en Andere; Damons J

Van Reenen J

NO en Andere v Staatspresident en Andere; Jooste v Staatspresident en Andere 1988 (4) SA 224 (A) at A 246G - 247B confirmed that when leave to appeal has been restricted to specific grounds, the ambit of the appeal is circumscribed thereby. However, as it is open to a respondent who is not seeking any variation of the order given against an appellant to pursue any argument open to him, her or it without having to note a cross-appeal (see Sentrale Kunsmis Korporasie (Edms) Bpk v NKP B Kunsmisverspreiders (Edms) Bpk 1970 (3) SA 367 (A) at 395H - 396A), the view that an appeal is so limited, in the case of civil matters, applies to appellants only. Accordingly, viewed from the appellant's perspective, the only matter for decision in this appeal is whether or not the Court a quo erred in refusing to refer the issue of whether the respondent would be able to raise the capital required C to enable it to re-open and operate the Steenkampskraal mine ('the capitalisation issue') for the hearing of oral evidence.

The Court a quo accepted, and it appears to be common cause between the parties, that if the appellant succeeds in showing that the respondent would not be able to raise sufficient capital to enable it to reopen and operate the mine, she would have succeeded D in discharging the onus that the respondent has lost its substratum.

A company's substratum has disappeared if it is established that it has become objectively impossible for it to achieve its object (Re Suburban Hotel Co (1867) 2 Ch App 737 at 750; Taylor v Welkom Theatres (Pty) Ltd and Others 1954 (3) SA 339 (O) E at 350C - E; Joubert (ed) The Law of South Africa (1st re-issue), volume 4 part 3 para 127; Meskin Henochsberg on the Companies Act at 704 - 5). The impossibility of a company achieving its main object may be established by proof that it lacks the necessary capital or the ability to raise capital to pursue such object (see Re Diamond Fuel Company (1879) 13 ChD 400 (CA); F Re Bristol Joint Stock Bank (1890) 44 ChD 703; Re Kitson & Co Ltd [1946] 1 All ER 435 (CA) at 440B - C; Pienaar v Thusano Foundation and Another 1992 (2) SA 552 (B); Alpha Bank en Andere v Registrateur van Banke en Andere 1996 (1) SA 330 (A)). G

As on the respondent's own assessment an amount of R31,6 million was needed to recommission and operate the Steenkampskraal mine; a rights issue to procure that amount was aborted by the respondent's board of directors on 27 November 1997; and the respondent has since been able to attract only one investment, namely that of Fedsure Asset Management (Pty) Ltd (Fedsure Asset Management), which on 25 May 1998 by means of a private placing H took up 1 373 917 shares for which it paid R1 030 437, the appellant in her founding affidavit asserted that 'there is no basis whatsoever on which anyone can reasonably hold the view that the respondent is objectively able to realise its object'.

The respondent, through Mr Keith Leonard Bright (Bright), one of its directors, disputes the assertion that it is objectively impossible for the respondent to achieve its main object and avers that plans I had been put in place to enable it to raise an initial amount of R31,6 million so as to enable it to commence with full-scale mining and processing operations at the mine.

The onus to make out a prima facie case for the winding-up of the J

Van Reenen J

respondent rested on the appellant. The expression 'prima facie' in the context means a balance of A probabilities in favour of the appellant on a consideration of all the affidavits (see Provincial Building Society of South Africa v Du Bois 1966 (3) SA 76 (W) at 78E; Kalil v Decotex (Pty) Ltd and Another 1988 (1) SA 943 (A) at 979A). Where in an opposed application for a provisional order of winding-up the affidavits do not reveal a balance of probabilities in favour of an applicant, no B prima facie case has been established and a provisional order cannot be granted. In such circumstances the Court nevertheless has a discretion to allow the hearing of oral evidence in an appropriate case. The concept 'discretion', in this context, means a discretion in a wide sense (see Knox D'Arcy Ltd and Others v Jamieson and Others 1996 (4) SA 348 (A) at 361D - 362D; C Shepstone & Wylie and Others v Geyser NO 1998 (3) SA 1036 (A) at 1044 - 5). Accordingly, a Court of appeal is in as good a position as a Court a quo to decide whether or not a matter should be sent for oral evidence (see Scott v Scott 1947 (2) SA 345 (T); Hilleke v Levy 1946 AD 214). A Court of appeal will interfere with the exercise by the Court a quo of its D discretion only if satisfied that it was not exercised judicially or arrived at as a result of an error in the application of a principle (see Weinder Properties (Pty) Ltd v Gutstein 1952 (4) SA 265 (C) at 273H - 274A; Cresto Machines (Edms) Bpk v Die Afdeling Speuroffisier SA Polisie, Noord-Transvaal 1970 (4) SA 350 (T) at 365G). In exercising the discretion with which it has been imbued a Court should to a large extent be guided by the prospects of viva E voce evidence tilting the balance of probabilities in favour of the party bearing the onus probandi.

The requirement that if there are disputes of fact the Court, before granting an order on the papers, must be satisfied that viva voce examination and cross-examination will not disturb the balance of probabilities was formulated by Tindall J in Mahomed v F Malk 1930 TPD 615 at 618 - 19. Although that matter was a Full Bench appeal against the granting of a final order of sequestration by the Transvaal Provincial Division, that requirement is applied in motion proceedings generally (see, for example, Hilleke v Levy (supra at 219); Wiese v Joubert en Andere 1983 (4) SA 182 (O) at 201D - 202A) and stems from a recognition of the undesirability of attempting to resolve disputes of G fact without the advantage of viva voce evidence (see Da Mata v Otto NO 1972 (3) SA 858 (A) at 865G - H). If the probabilities are evenly balanced a Court will be more inclined to allow the hearing of oral evidence than if they favour the respondent. The more the scales are depressed against an applicant, H the less likely it is that a court would exercise its discretion in favour of referring a disputed factual issue for oral evidence (see Kalil v Decotex (Pty) Ltd and Another (supra at 979G - I)).

It is implicit in the narrow basis on which leave to appeal has been granted that the Court a quo's finding that the appellant had not made out a prima facie case for the winding-up of the respondent is unassailable. That finding could have been I arrived at only if the Court a quo had formed the view that, as regards the issue of the disappearance of the respondent's substratum, the probabilities were evenly balanced or favoured the respondent. The correctness of that view is not an issue in this appeal. What is in issue is whether there is a prospect that, if the J

Van Reenen J

capitalisation issue were to be referred to oral evidence, the balance of probabilities thereanent could be tilted in favour of the appellant. A

As regards the general approach to the question whether disputed factual issues should be referred for oral evidence, Leon J said the following in Sewmungal and Another NNO v Regent Cinema 1977 (1) SA 814 (N) at 819A -...