Ex parte Gore and Others NNO

• Jurisdiction: South Africa

Ex parte Gore and Others NNO
2013 (3) SA 382 (WCC)

2013 (3) SA p382

Citation	2013 (3) SA 382 (WCC)
Case No	18127/2012
Court	Western Cape High Court, Cape Town
Judge	Binns-Ward J
Heard	December 14, 2012
Judgment	February 13, 2013
Counsel	JA Newdigate SC for the applicants.

Flynote : Sleutelwoorde B

Company — Legal personality — Separate identity — Common-law doctrine of 'piercing corporate veil' — Case law considered and principles restated — Supplemented (not substituted) by introduction of statutory basis for disregarding corporate personality — Companies Act 71 of 2008, s 20(9).

C Company — Legal personality — Separate identity — Statutory basis for disregarding corporate personality — Supplementing (not substituting) common-law doctrine of piercing corporate veil — Companies Act 71 of 2008, s 20(9).

Company — Legal personality — Separate identity — Statutory basis for disregarding corporate personality — Remedy available whenever illegitimate D use of concept of juristic personality adversely affecting third party in way that reasonably should not be countenanced — In instant case, conduct of controllers of companies who treated group in way not drawing proper distinction between separate personalities of constituent members, within ambit of provision — Companies Act 71 of 2008, s 20(9).

E Company — Legal personality — Separate identity — Statutory basis for disregarding corporate personality — Meaning of undefined term 'any interested person' who may apply for such relief — Person having direct and sufficient interest in relief sought — Companies Act 71 of 2008, s 20(9).

Headnote : Kopnota

F Section 20(9) of the Companies Act 71 of 2008 (the Act) provides, inter alia, that '(i)f, on application by an interested person . . . a court finds that . . . any act by or on behalf of the company, constitutes an unconscionable abuse of the juristic personality of the company as a separate entity, the court may declare that the company is to be deemed not to be a juristic person in respect of any right, obligation or liability of the company . . . G specified in the declaration . . . .'

The provision, while introducing a statutory basis for piercing the corporate veil, evinces no express intention to replace the common law. Nor is there any identifiable discord between it and the common-law approach hitherto adopted by the courts. If anything, the width of the provision — indicative of an appreciation by the lawgiver that the provision might find application in H widely varying factual circumstances — appears to broaden the bases upon which the courts have hitherto been prepared to grant relief that entails disregarding corporate personality. It would, in view of the established predisposition against categorisation in this area of the law, and the elusiveness of a convincing definition of the pertinent common-law principles, I be proper to regard s 20(9) as supplemental to — rather than substitutive of — the common law. (Paragraphs [30] – [33] and [34] at 397E – 398E and 399D – E, paraphrased.)

Section 20(9) affords a firm but very flexibly defined basis for the remedy, which will inevitably operate to erode to the foundation of the philosophy that piercing the corporate veil should be approached with an a priori diffidence. By expressly establishing its availability simply when the facts of a case J justify it, the provision detracts from the notion that the remedy should be

2013 (3) SA p383

regarded as exceptional or 'drastic'. The term 'unconscionable abuse of the A juristic personality of a company' postulates conduct in relation to the formation and use of companies diverse enough to cover the descriptive terms 'sham', 'device', 'stratagem' and the like used in earlier cases. The provision brings about that a remedy can be provided whenever the illegitimate use of the concept of juristic personality adversely affects a third B party in a way that reasonably should not be countenanced. The unqualified availability of the remedy in terms of the statutory provision also militates against an approach that it should be granted only in the absence of any alternative remedy. (Paragraph [34] at 399A – F.)

The relevant improprieties involved in the current case involved the controllers of the companies treating the group in a way that drew no proper distinction C between the separate personalities of the constituent members, and in using the investors' funds in a manner inconsistent with what had been represented. The first-mentioned category of impropriety constitutes an unconscionable abuse by the controllers of the juristic personalities of the relevant subsidiary companies as separate entities, and brings the case within the ambit of the statutory provision. (Paragraph [33] at 398G/H – I.) D

Cases Considered

Annotations

Case law

Southern Africa

ADT Security (Pty) Ltd v Botha and Others [2010] ZAWCHC 563: dictum E in paras [16] – [18] considered

Airport Cold Storage (Pty) Ltd v Ebrahim and Others 2008 (2) SA 303 (C): compared

Al-Kharafi & Sons v Pema and Others NNO 2010 (2) SA 360 (W): dicta in paras [34] – [35] considered

Amlin (SA) Pty Ltd v Van Kooij 2008 (2) SA 558 (C): dicta in paras [15] and [23] considered F

Botha v Van Niekerk en 'n Ander 1983 (3) SA 513 (W): dictum at 525F compared

Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd and Others 1995 (4) SA 790 (A): applied G

Dadoo Ltd and Others v Krugersdorp Municipal Council 1920 AD 530: referred to

Ebrahim and Another v Airport Cold Storage (Pty) Ltd 2008 (6) SA 585 (SCA) ([2009] 1 All SA 330): dicta in paras [15] and [17] considered

Hülse-Reutter v Gödde 2001 (4) SA 1336 (SCA) ([2002] 2 All SA 211): dicta in paras [23] and [24] considered and qualified H

Jacobs en 'n Ander v Waks en Andere 1992 (1) SA 521 (A): referred to

Knoop NO and Others v Birkenstock Properties (Pty) Ltd and Others [2009] ZAFSHC 67: dictum in para [23] considered

Macadamia Finance Bpk en 'n Ander v De Wet en Andere NNO 1993 (2) SA 743 (A): dictum at 748B – D considered I

Ritz Hotel Ltd v Charles of the Ritz Ltd and Another 1988 (3) SA 290 (A): dictum at 314H – 316B considered

The Shipping Corporation of India Ltd v Evdomon Corporation and Another 1994 (1) SA 550 (A): dictum at 566F applied

Wambach v Maizecor Industries (Edms) Bpk 1993 (2) SA 669 (A): dictum at 675D – E considered. J

2013 (3) SA p384

Australia A

AGC (Investments) Ltd v Commissioner of Taxation (Cth) (1992) 92 ATC 4239 (23 ATR 287): considered

Briggs v James Hardie & Co (Pty) Ltd (1989) 16 NSWLR 549 (NSWCA): dictum at 567 considered

Gorton v Federal Commissioner of Taxation (1965) 113 CLR 604: considered

Pioneer Concrete Services Ltd v Yelnah (Pty) Ltd (1986) 5 NSWLR 254 (SCNSW): dictum at 264 considered. B

Canada

Kosmopoulos v Constitution Insurance Co [1987] 1 SCR 2: considered.

England C

Adams and Others v Cape Industries plc and Another [1990] Ch 433 ([1991] 1 All ER 929): considered

Alliance Bank JSC v Aquanta Corporation and Others [2011] EWHC 3281 (Comm): considered

Alliance Bank JSC v Aquanta Corporation and Others [2012] EWCA Civ 1588: referred to D

Antonio Gramsci Shipping Corporation and Others v Stepanovs [2011] EWHC 333 (Comm) ([2011] 1 Lloyd's Rep 647): dictum in paras [21] – [24] considered

Atlas Maritime Co SA v Avalon Maritime Ltd, The Coral Rose (No 1) [1991] 4 All ER 769 (CA): dictum at 779 considered E

Ben Hashem v Al Shayif and Another [2008] EWHC 2380 (Fam) ([2009] 1 FLR 115; [2008] Fam Law 1179): dicta in paras [159] – [164] applied

DHN Food Distributors Ltd and Others v Tower Hamlets London Borough Council [1976] 1 WLR 852 CA ([1976] 3 All ER 462): referred to

Littlewoods Mail Order Stores Ltd v McGregor [1969] 3 All ER 855 (CA): referred to F

Merchandise Transport Ltd v British Transport Commission [1962] 2 QB 173) [1961] 3 All ER 495: dictum at 518 compared

Re H and Others [1996] 2 All ER 391 (CA) ([1996] 2 BCLC 500): dictum at 401j considered

Salomon v Salomon & Co [1897] AC 22 (HL) ((1895 – 9) All ER Rep 33): referred to G

VTB Capital plc v Nutritek International Corp and Others [2012] EWCA Civ 808: dictum in paras [79], [82] and [87] considered

VTB Capital Plc v Nutritek International Corp and Others [2013] UKSC 5: dicta in paras [79], [122], [123] and [128] considered

Wallersteiner v Moir; Moir v Wallersteiner [1974] 1 WLR 991 (CA) ([1974] 3 All ER 217): referred to H

Woolfson v Strathclyde Regional Council 1978 SLT 159 (HL): referred to

Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia (No 2) [1998] 1 WLR 294: dictum at 305 applied.

Statutes Considered

Statutes I

The Companies Act 71 of 2008, s 20(9): see Juta's Statutes of South Africa 2011/12 vol 2 at 1-297.

Case Information

JA Newdigate SC for the applicants.

Ex parte application. The order is in para [37]. J

2013 (3) SA p385

Judgment

Binns-Ward J: A

[1] The order set out at the end of these reasons for judgment was made on 14 December 2012. It was made in terms of s 20(9) of the new Companies Act (Act 71 of 2008). [1] I indicated at the time that I would provide reasons for the order later. [2] Those reasons now follow. B

[2] The order granted the relief sought by the liquidators of 41 companies to permit certain of the assets of those companies to be dealt with as if they were the property of the holding company. The relief that had been asked for entailed selectively disregarding the separate personalities of a number of companies in a group of companies and treating their C residual assets (that is, the assets remaining after the payment of the secured creditors and 'trade creditors' of each company) as the assets of the holding company for the purposes of settling what have been described as the 'investors' claims'. The essential basis for the...