Cooper and Others NNO v SA Mutual Life Assurance Society and Others

• Jurisdiction: South Africa
• Citation: 2001 (1) SA 967 (SCA)

Cooper and Others NNO v SA Mutual Life Assurance Society and Others
2001 (1) SA 967 (SCA)

2001 (1) SA p967

Citation	2001 (1) SA 967 (SCA)
Case No	528/98
Court	Supreme Court of Appeal
Judge	Smalberger JA, Vivier JA, Harms JA, Zulman JA and Mpati AJA
Heard	November 7, 2000
Judgment	November 22, 2000
Counsel	P G Robinson SC (with him T Bosch) for the appellants (the main heads of argument were drawn by M du P van der Nest).; L S Kuschke SC (with him P B J Farlam) for the first and second respondents (the main heads of argument were drawn by A J Nelson SC).; No appearance for the third respondent.

Flynote : Sleutelwoorde B

Company — Winding-up — Liability for fraudulent or reckless conduct of company's business — Companies Act 61 of 1973, s 424(1) — Requirement that person sought to be held liable was party to carrying on of business of company in liquidation — Such person must C have joined company in common pursuit — Section 424(1) not extending to person who, while carrying on own business, incidentally enabling company to carry on its business — Company using independent brokers employed by financial institution to market its products to members of public — Such brokers pursuing own business ends and not carrying on business of company — Master authorising subpoena in terms of s 414(2) D for examination of financial institution's legal advisor with regard to brokers' liability under s 424(1) — Subpoena set aside on grounds that information placed before Master not forming basis for fair grounds for suspicion of liability under s 424(1). E

Headnote : Kopnota

The appellants were the joint liquidators of two companies which had been conducted as one, a major part of whose business was the acceptance of money from the public by way of deposits, purportedly against the issue of secured debentures or as subscriptions for redeemable preference shares. The business was conducted fraudulently and a large number of members of the public lost substantial amounts of money. To market their products the companies made use of independent F brokers, often employed by other financial institutions, including the first respondent insurance company. It appeared that many of the brokers had been incompetent or negligent in recommending investments in the companies.

Although investors' claims in delict against brokers and their employers had nothing to do with the winding up of the companies, the appellants felt that G

2001 (1) SA p968

they had a duty to assist investors. To this end investors were asked to cede their claims to the appellants in their A capacity as trustees for a common pool but, instead of suing individual brokers and their employers, the appellants utilised ss 414(2) and 415 of the Companies Act 61 of 1973 to subpoena and interrogate brokers in the hope of exerting sufficient pressure to procure settlements. This procedure was successfully challenged and the appellants then instituted actions against certain financial institutions and the B brokers in their employ who had marketed the products of the companies in liquidation products. One such action was instituted against the first respondent and brokers it employed. The claims were founded upon s 424 of the Act and, in the alternative, on delict. The appellants applied to the Master in terms of s 414(2) for the issue of a subpoena to enable them to interrogate the second respondent, the first respondent's chief legal advisor, on all the issues in the C particulars of claim. The Master's ruling, authorising the subpoena, restricted the examination of the second respondent to matters relating only to s 424 liability arising from the summons and specifically disallowed questions relating to negligence or delict if they were not relevant to the s 424 claims. The subpoena was set aside on review in a Provincial Division. In an appeal, D

Held, that while an applicant under s 414(2) for the examination of a witness was not required to make out a prima facie case that there had been misfeasance or actionable conduct of any kind, the Master would have to be satisfied that there were fair grounds for suspicion and that the person proposed to be examined could probably give information about what was suspected. The Master would E only be able to form the required opinion on the basis of facts which created fair grounds for suspicion. (Paragraph [13] at 974I - 975A/B.)

Held, further, that in order to fix liability under s 424(1) the following had to be established: (1) that the business of the company had been carried on (i) recklessly, (ii) with intent to defraud creditors, or (iii) for any fraudulent purpose; and (2) the F person concerned had to (a) have been a party to the carrying on of the business and (b) have had knowledge of the facts from which the conclusion could properly be drawn that the business of the company had been or was being carried on (i) recklessly, (ii) with intent to defraud creditors, or (iii) for any fraudulent purpose. (Paragraph [14] at 975A/B - D/E.) G

Held, further, that the fact that the first respondent had never been a party to the carrying on of the business of the companies and that the s 424 claim against it was therefore ill-conceived did not mean that the second respondent could not be called to testify and produce documents about the possible s 424 liability of the brokers. (Paragraph [17] at 976D.)

Held, further, as to whether the brokers had been party to the carrying on of the business of the companies, that a party to the H carrying on of a company's business was one who had joined with the company in a common pursuit. Section 424(1) did not extend to those who, while carrying on their own business, incidentally enabled the company to carry on its business. The brokers in this instance had been pursuing their own business ends and had not been carrying on the business of the companies in liquidation in any manner. No facts placed I before the Master or the Court could create a suspicion to the contrary. (Paragraph [17] at 976G/H - 977B.)

Held, further, as to whether the Master had had fair grounds for a suspicion that the first respondent and the brokers had had knowledge of facts from which a conclusion might properly be drawn that the business of the companies was being carried on recklessly or with an intent to defraud or with a J

2001 (1) SA p969

fraudulent purpose, that all the facts placed before the Master pointed in the opposite direction. (Paragraph A [18] at 977B - C.)

Held, accordingly, that the Master had had no grounds for authorising the issue of the subpoena and that the subpoena had correctly been set aside on review. (Paragraph [20] at 977F - F/G.)

The decision in the Transvaal Provincial Division in SA Mutual Life Assurance Society and Others v Cooper and Others NNO confirmed on appeal. B

Cases Considered

Annotations

Reported cases

Anderson and Others v Dickson and Another NNO (Intermenua (Pty) Ltd Intervening) 1985 (1) SA 93 (N): considered

Beinash v Wixley 1997 (3) SA 721 (SCA): referred to C

Bernstein and Others v Bester and Others NNO 1996 (2) SA 751 (CC) (1996 (4) BCLR 449): referred to

Brummer v Gorfil Brothers Investments (Pty) Ltd en Andere 1999 (3) SA 389 (SCA): referred to

Durr v ABSA Bank Ltd and Another 1997 (3) SA 448 (SCA): considered

Ensor NO v Syfret's Trust and Executor Company (Natal) Ltd 1976 (3) SA 762 (D): referred to D

Ex parte Brivik 1950 (3) SA 790 (W): dictum at 791E - H approved

Fisheries Development Corporation of SA Ltd v Jorgensen and Another; Fisheries Development Corporation of SA Ltd v AWJ Investments (Pty) Ltd and Others 1980 (4) SA 156 (W): referred to

Gilbey Distillers & Vintners (Pty) Ltd and Others v Morris NO and Another 1991 (1) SA 648 (A): applied E

Howard v Herrigel and Another NNO 1991 (2) SA 660 (A): dictum at 673I - 674A applied

James v Magistrate, Wynberg, and Others 1995 (1) SA 1 (C): applied

Katz v Colonial Realty Trust (Pty) Ltd 1954 (4) SA 302 (W): compared

Ozinsky NO v Lloyd and Others 1995 (2) SA 915 (A): dictum at 917G - I applied F

Powertech Industries Ltd v Mayberry and Another 1996 (2) SA 742 (W): dictum at 749D - I approved and applied

Simon and Another v The Assistant Master and Others 1964 (3) SA 715 (T): applied.

Statutes Considered

Statutes G

The Companies Act 61 of 1973, ss 414(2), 424(1): see Juta's Statutes of South Africa 1999 vol 2 at 1-214, 1-217.

Case Information

Appeal from a decision in the Transvaal Provincial Division (Roux J). The facts and the nature of the issues appears from the judgment of Harms JA. H

P G Robinson SC (with him T Bosch) for the appellants (the main heads of argument were drawn by M du P van der Nest).

L S Kuschke SC (with him P B J Farlam) for the first and second respondents (the main heads of argument were drawn by A J Nelson SC).

No appearance for the third respondent. I

In addition to the authorities cited in the judgment of the Court, counsel for the parties referred to the following:

AECI Ltd and Another v Strand Municipality and Others 1991 (4) SA 688 (C)

Broadway Mansions (Pty) Ltd v Pretoria City Council 1955 (1) SA 517 (A) J

2001 (1) SA p970

Ex parte De Villiers NO: In re MSL Publications (Pty) Ltd (in Liquidation) 1990 (4) SA 59 (W) A

Fourie v Braude and Others 1996 (1) SA 610 (T)

Hudson v Hudson and Another 1927 AD 259

Hülse-Reutter v HEG Consulting Enterprises (Pty) Ltd 1998 (2) SA 208 (C) B

Lane and Another NNO v Magistrate, Wynberg 1997 (2) SA 869 (C)

Lordon NO v Dusky Dawn Investments (Pty) Ltd (in Liquidation) (Pearmain and Another Intervening) 1998 (4) SA 519 (SE)

Mathebe v Regering van die Republiek van Suid-Afrika en Andere 1988 (3) SA 667 (A)

Milward v Glaser 1950 (3) SA 547 (W) C

Minister van Suid-Afrikaanse Polisie en 'n Ander v Kraatz en 'n Ander 1973 (3)...