Atkinson v Rare Earth Extraction Co Ltd

• Jurisdiction: South Africa
• Citation: 2002 (2) SA 547 (C)

Atkinson v Rare Earth Extraction Co Ltd
2002 (2) SA 547 (C)

2002 (2) SA p547

Citation	2002 (2) SA 547 (C)
Case No	A325/2000
Court	Cape Provincial Division
Judge	Comrie J, Van Reenen J and Cleaver J
Heard	January 31, 2001
Judgment	September 13, 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.

Flynote : Sleutelwoorde

Company — Winding-up — Application for — Dispute of fact — Referral for B hearing of oral evidence — Axiomatic that question whether to refer dispute for hearing of oral evidence arising only after Court reaching conclusion that, on consideration of all affidavits, probabilities not favouring applicant — Court then to enquire into prospect of probabilities tilting in favour of applicant by examination and C cross-examination of deponents — Fundamental difference between two stages of enquiry — First stage requiring assessment, in accordance with clearly defined criteria, of where probabilities lying in respect of disputed factual issues — Second stage entailing exercise of discretion in consideration of prospects of oral evidence tilting probabilities in favour of party bearing onus — Because of such fundamental D difference, evidence relied upon for concluding that applicant failed to make out prima facie case not decisive of second stage of enquiry.

Company — Winding-up — Application for — Dispute of fact — Referral for hearing of oral evidence — Where affidavits not showing balance of probabilities in favour of applicant — In exercising discretion whether to refer dispute of fact for hearing of oral evidence, Court to large E extent to be guided by prospect of oral evidence tilting balance of probabilities in favour of party on whom onus probandi resting — Court more inclined to allow hearing of oral evidence if probabilities evenly balanced than in probabilities favouring respondent — Court less likely to do so where probabilities weighing against applicant. F

Appeal — Generally — Leave to appeal granted upon restricted terms — Such terms not precluding respondent from relying upon such other defences or answers as might be available beyond ambit of terms to which appellant restricted. G

Headnote : Kopnota

The appellant had applied in a Provincial Division for the provisional winding-up of the respondent mining company on the grounds, inter alia, (a) that it had suspended its business for at least one year; and (b) that it would be just and equitable that the company be wound up because its substratum had disappeared, making the realisation of its main object impossible. The Court a quo had dismissed the application, one reason being that the appellant had failed to show that the company's H substratum had disappeared because it lacked sufficient funds to pursue its main object. It had refused leave to refer that issue for viva voce evidence on the grounds that the prospects of such evidence tilting the balance of probabilities in the appellant's favour were slim. Leave to appeal to a Full Bench was granted, on petition to the Chief Justice, 'solely upon the grounds that the Court a quo erred in refusing to refer the question I 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 or, alternatively, failing to order particular deponents to affidavits to appear and be examined and cross-examined thereon'.

The applicant's case that there was no basis upon which the view could reasonably be held that the respondent would objectively be able to achieve J

2002 (2) SA p548

its object was based on the following: the respondent's own assessment was that it required R31,6 million to re-open and A operate the mine; a rights issue to raise that amount had been aborted by the board of directors on 27 November 1997; and the respondent had since then been able to attract only a single investment of R1 030 437 by a private placing of shares.

The respondent, through one of its directors, one B, who was also a senior manager of Fedsure Asset Management (Pty) Ltd, responded to the appellant's assertion in five affidavits deposed to between B 19 February and 19 August 1999, in which he elaborated on plans which had been put in place to raise an initial amount of R31,6 million. It was submitted for the appellant that those affidavits, read in the context of the allegations and comments in the affidavits filed for the appellant, revealed so many improbabilities and inconsistencies that there were reasonable grounds for doubting B's averments regarding the steps taken to capitalise the respondent and that the C only proper course would have been to refer the matter for oral evidence.

It was submitted for the respondent that, even if the appeal were successful and the appellant thereafter succeeded in showing that it would be just and equitable that the respondent be wound up, the appeal should be refused because the application for winding-up would in any event be refused for the following reasons: (a) as a member, the appellant had the alternative remedy afforded by s 347(2) D of the Companies Act 61 of 1973 of selling her shares and her seeking the winding-up of the respondent instead of pursuing the alternative remedy was unreasonable; (b) in terms of s 354(2) the Court should have regard to the wishes of the majority of creditors and members and, in this instance, shareholders representing 61,7% of the equity opposed the winding-up; and (c) the application was not bona fide and constituted an abuse of E the process of the Court.

Held, that, viewed from the appellant's perspective, the only matter for decision in the appeal was whether or not the Court a quo had erred in refusing to refer for the hearing of oral evidence the issue of whether or not the respondent would be able to raise the capital required to enable it to re-open and operate the mine. (At 552B/C - C/D.) F

Held, further, that a company's substratum would have disappeared if it were established that it had become objectively impossible for it to achieve its object. This could be established by proof that it lacked the necessary capital or the ability to raise capital to pursue such object. (At 552D/E - F.)

Held, further, that, in exercising its discretion whether to allow the hearing of oral evidence in an opposed application for a G provisional winding-up where the affidavits did not reveal a balance of probabilities in favour of the applicant, a Court should to a large extent be guided by the prospects of oral evidence tilting the balance of probabilities in favour of the party on whom the onus probandi rested. (At 553E.) If the probabilities were evenly balanced the Court would be more inclined to allow the hearing of oral evidence than if they favoured the respondent, while the more the H probabilities weighed against an applicant, the less likely the Court would be to exercise its discretion in favour of referring a disputed factual issue for oral evidence. (At 553G/H - H/I.)

Held, further, given the narrow basis on which leave to appeal had been granted, that what was in issue was whether there was a prospect that, if the capitalisation issue were referred to oral I evidence, the balance of probabilities on that matter could be tilted in favour of the appellant. (At 553J - 554A.)

Held, further, that when B's assertions regarding the proposed capitalisation of the respondent and Fedsure Asset Management's involvement in that process were assessed, it had to be borne in mind that those facts lay J

2002 (2) SA p549

peculiarly within his knowledge; could not directly be refuted; and, accordingly, had carefully to be A scrutinised. (At 557G - H.)

Held, further, that B's assertions in his five affidavits regarding the proposed capitalisation and Fedsure Asset Management's involvement therein lacked consistency and were in certain respects contradictory. He had failed to provide particulars of how the amount of R31,6 million was to be apportioned between equity and borrowings and of how much progress, if any, had been made regarding the latter. B That lack of particularity was difficult to reconcile with his repeated statements that negotiations were far advanced and his later statement that agreements had been reached in principle. Further doubts about the reliability of his assertions were raised by the following: (a) the profitability of the mine, which was to attract institutional lending, was predicated on the product's being sold at US $1 500 per ton, whereas Chinese exporters were selling the C commodity at US $1 007.80 per ton; (b) the respondent's attorneys had halted attempts to verify that certain of the institutions named by B were in fact prepared to become involved in the capitalisation of the respondent; and (c) despite admitting that documents existed, B had made available no documents of significance regarding the 'far advanced' plans to capitalise the respondent. (At 557H/I - 558F.) D

Held, further, that it was axiomatic that, in opposed winding-up proceedings, the question whether any disputed issues of fact should be referred to oral evidence in terms of Rule 6(5)(g) of the Uniform Rules of Court could only arise after the Court had reached the conclusion that, on a consideration of all the affidavits, the probabilities did not favour the applicant. Because of the reluctance of Courts to decide disputes on affidavit, E the next step was to enquire whether there was a prospect of the probabilities being tilted in favour of the applicant by the examination and cross-examination of the deponents. (At 558I - 559A/B.)

Held, further, that there was a fundamental difference between the two stages of the enquiry: the first entailed an assessment, in accordance with clearly-defined criteria, of...