Francis George Hill Family Trust v South African Reserve Bank and Others

• Jurisdiction: South Africa
• Judge: Hoexter JA, Hefer JA, Kumleben JA, Nicholas AJA and Harms AJA
• Judgment Date: 30 March 1992
• Citation: 1992 (3) SA 91 (A)
• Hearing Date: 21 February 1992
• Court: Appellate Division

E Hoexter JA:

The appellant is the Francis George Hill Family Trust ('the Hill FT'). The Hill FT is the registered holder of half the issued shares in the second respondent, which is a private company known as Phoenix Chemicals (Pty) Ltd ('Phoenix'). The remaining half of Phoenix's issued shares are owned by the third respondent, which is the Hahn Family Trust F ('the Hahn FT'). The first respondent is the South African Reserve Bank ('the Reserve Bank').

By a written notice of attachment ('the notice') the Reserve Bank on 10 May 1989 attached 50% of the moneys deposited by Phoenix in various accounts with the Trust Bank of Africa Ltd. On notice of motion dated 19 September 1989 the Hill FT launched an application in the Transvaal G Provincial Division ('the Court a quo'). Citing respectively the Reserve Bank, Phoenix and the Hahn FT as respondents in its application the Hill FT sought the following relief: (1) leave to proceed in the application 'by derivative action' on behalf of Phoenix; (2) an order reviewing and setting aside the notice; and (3) an order directing the Reserve Bank (and H the Hahn FT in the event that the latter should oppose the application) to pay the costs of the application. In fact, neither Phoenix nor the Hahn FT opposed the application; and no affidavit on behalf of either was filed. The application was, however, resisted by the Reserve Bank.

Voluminous affidavits having been filed by both the Hill FT and Reserve I Bank, the opposed application came before McCreath J. The learned Judge dismissed the application with costs, including the costs consequent upon the employment of two counsel. The judgment of the Court a quo has been reported: Francis George Hill Family Trust v South African Reserve Bank and Others 1990 (3) SA 704 (T). With leave of McCreath J the Hill FT J appeals to this Court against the whole of the judgment of the Court a quo.

Hoexter JA

A Section 9 of the Currency and Exchanges Act 9 of 1933 ('the Act') empowers the State President to make regulations in regard to any matter relating to currency, banking or exchanges. The regulations may provide, inter alia, for the attachment by the Treasury of money, irrespective of the person in whose possession it may be, if such money is suspected of B having been involved in any act or omission which is suspected of constituting a contravention of the regulations. In pursuance of this power the Exchange Control Regulations 1961 ('the regulations') were promulgated. They have been amended from time to time. Regulation 22E provides that the Minister of Finance may delegate the powers conferred and assign the duties imposed upon the Treasury by any provision in the C regulations to any person. The Minister of Finance has so delegated his said powers and assigned its said duties to, inter alios, any Deputy Governor of the Reserve Bank. The attachment in question was signed by a Deputy Governor of the Reserve Bank.

In terms of reg 22D,

D '. . . any person who feels himself aggrieved by the attachment of money . . .'

under various paragraphs of regs 22A or 22C (which include those paragraphs in terms whereof the Reserve Bank attached the moneys of Phoenix)

E '. . . may bring an application in a competent Court for the review of any such attachment . . . and any such Court may set aside such attachment . . . on the grounds set out in the provisions of para (d)(i) or (iii) of s 9(2) of the Act'.

In terms of the trust agreement creating the Hill FT, the donor is Mr A F A Bassil ('Bassil'). The present trustees are Mr D J F Evans ('Evans') and Mr A Tugendhaft, the latter being an attorney and a director of Moss-Morris Mendelow Browde ('MMMB'). MMMB are the attorneys acting for the Hill FT. The present trustees of the Hahn FT are Mr P N Bird, Mr F C Fabrie, and Mr P W Wentzel, the last-mentioned being a partner in the firm of Biccari and Wentzel ('B & W'). B & W are the attorneys acting for the Hahn FT.

G Phoenix has the following four directors: Bassil and Mrs L Hill (both appointed to the board by the Hill FT); and Mr M D Hahn and his wife, Mrs J Hahn (both appointed to the board by the Hahn FT).

On 13 June 1989 MMMB wrote a letter to B & W in which the latter were asked to confirm

H '. . . that your clients will support an application to the Reserve Bank for the cancellation of the order made in terms of the notice, and should the Reserve Bank fail to agree to the cancellation, an appropriate application to Court in terms of s 22D of the Exchange Control Regulations to set the order aside'.

To the above letter B & W made no formal reply. On 18 September 1989 MMMB informed B & W by fax that I

'. . . if you do not advise us by 5:00 pm tomorrow that your client is prepared to have Phoenix apply to Court to set aside the attachment order, our client will proceed derivatively'.

On the following day, 19 September 1989, B & W wrote to MMMB a letter in J the following terms:

Hoexter JA

A '1. We refer to your facsimile of 18 September 1989 and advise that we have, on behalf of the Hahn Family Trust, approached the South African Reserve Bank to obtain clarity with regard to the attachment by them of 50% of the funds of Phoenix.

2. We have been informed informally that attachment relates solely to the 50% interest of the Hill Family Trust and, as such, our client would B appear to have no interest in supporting your client in any application to have the attachment order set aside.

3. We are, however, awaiting a formal reply to our enquiry from the South African Reserve Bank and as soon as same is received by us we will revert to you.'

Without receiving any further communication from B & W the Hill FT on the C same date (19 September 1989) launched its application in the Court a quo.

In the application the founding affidavit was deposed to by Evans. Evans alleged that in view of the Hahn FT's

'. . . baseless and unlawful refusal to permit Phoenix to bring this application . . .',

D it was being brought derivatively on behalf of Phoenix. Further on Evans averred that, in view of the refusal of the Hahn FT 'and the directors nominated by it' to have Phoenix take steps to set aside the attachment, the Hill FT

'. . . had to bring this application in order to safeguard the assets of Phoenix'.

E In the Court a quo the Reserve Bank contended that on the papers the Hill FT had not established that it was legally entitled to approach the Court by way of a derivative action. McCreath J found it unnecessary to decide this particular issue. The learned Judge assumed in favour of the Hill FT (see at 705E-F of the reported judgment) that if the attachment F was unjustifiable the Hill FT would be entitled to bring the application on behalf of Phoenix,

'. . . notwithstanding the absence of any resolution by the latter which would have enabled the application to have been brought by that company in its own name'.

In regard to the matter of his client's locus standi counsel for the G Hill FT in his argument before this Court departed somewhat from the stance taken up in the founding affidavit. As his main argument counsel urged upon us that as a 50% shareholder in Phoenix the Hill FT was a 'person who feels himself aggrieved' by the attachment within the meaning of reg 22D. Counsel informed us that only if this main contention should not be upheld he would, in the alternative, contend that the Hill FT was H entitled to proceed on behalf of Phoenix by way of a derivative application.

It is convenient to dispose at once of the alternative contention. For two reasons it appears to me to be untenable. The first is that the Hill FT has failed entirely to establish that Phoenix's board of directors had decided, at any time before it launched its application in the Court a I quo, that Phoenix itself would not take legal action to have the attachment of its assets set aside. From a reading of the founding affidavit it is plain that the allegation made by Evans that 'the directors nominated' by the Hahn FT had 'refused' to let Phoenix take such legal steps is no more than inference based on the correspondence between MMMB and B & W to which reference has already been made. Such correspondence cannot, in my view, sustain the inference drawn by Evans. J Moreover, the bald allegation

Hoexter JA

A is unsupported by any proper documentary evidence derived from the company records of Phoenix. So far from producing any admissible evidence of a binding resolution passed thereanent at a properly constituted meeting of the board of directors of Phoenix, the founding affidavit does not go to show that at the relevant time the matter in issue had even informally engaged the attention of Mr and Mrs Hahn.

B Apart from these practical deficiencies in the founding affidavit, there is further a matter of principle which, so it seems to me, entirely precludes recourse by the Hill FT to a derivative action. It is trite that a company with limited liability is an independent legal person and separate from its shareholders or directors. In general, therefore, when a C wrong is alleged to have been done to a company the proper plaintiff to sue the wrongdoer is the company itself. In English law a derivative action constitutes an exception to that general rule. The exception is recognised when (1) the wrong complained of involves conduct which is either fraudulent or ultra vires and (2) the wrong has been perpetrated by directors or shareholders who are in the majority and so control the company. See, for example: Burland and Others v Earle and Others [1902] AC D 83 (PC); Edwards and Another v Halliwell and Others [1950] 2 All ER 1064 (CA) at 1066-7; Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No 2) [1982] 1 All ER 354 (CA). The principle underlying the exception to the general rule is expounded thus by Lord Denning MR in Wallersteiner v...