Larrett v Coega Development Corporation (Pty) Ltd and Others

JurisdictionSouth Africa
Citation2019 (3) SA 510 (ECG)

Larrett v Coega Development Corporation (Pty) Ltd and Others
2019 (3) SA 510 (ECG)

2019 (3) SA p510


Citation

2019 (3) SA 510 (ECG)

Case No

EL 1139/2013

Court

East London Circuit Local Division

Judge

Roberson J

Heard

December 11, 2018

Judgment

December 11, 2018

Counsel

S Cole for applicant.
S Symon SC
for the respondents.

Flynote : Sleutelwoorde

Company — Proceedings by and against — Derivative action — Leave — To continue proceedings on behalf of company — Leave will only be granted in respect of proceedings properly authorised at inception — Companies Act 71 of 2008, s 165(5). G

Headnote : Kopnota

Ms Larrett and Mr Ndzimela were directors of Independent Crushers Consortium (Pty) Ltd (the company). Ms Larrett had previously instituted action proceedings on behalf of the company against Coega Development Corporation (Pty) Ltd for outstanding payments in terms of a contract entered H into between the companies; in the alternative, it sought, based in delict, payment from Standard Bank. Importantly, such action had not been authorised, either by way of a court order pursuant to the bringing of a derivative action under s 165, or a resolution by the company's board of directors. So, in the present application proceedings before the High Court, Ms Larrett (as applicant) sought an order, in terms of s 165(5) of the I Companies Act 71 of 2008, authorising her to continue with proceedings in the name of and on behalf of the company. She claimed that a directors' resolution authorising legal proceedings by the company was impossible to obtain, given Mr Ndzimela's uncooperativeness. Standard Bank (as fourth respondent) opposed the relief sought on the basis, inter alia, that s 165 of the Act could not be resorted to in these circumstances where the proceedings J sought to be continued were at inception unauthorised.

2019 (3) SA p511

Held, that, in terms of s 165(5) of the Act, a person may apply to a court for leave A to continue, in the name of the company, only legal proceedings that had been properly authorised at inception. To grant leave to continue in respect of unauthorised legal proceedings — effectively ratifying them — would be to allow the avoidance of the requirements of s 165 for the bringing of a derivative action. Such conduct would be subversive of the plain and ordinary meaning of the section and its intention. (See [22] – [24].) B

Held, accordingly, that the proceedings in respect of which Ms Larrett sought leave to continue were not proceedings contemplated in s 165(5) of the Act. The application could therefore not succeed. (See [26].)

Cases cited

Carlkim (Pty) Ltd and Others v Shaffer and Others 1986 (3) SA 619 (N): distinguished C

Johannesburg City Council v Elesander Investments (Pty) Ltd and Others 1979 (3) SA 1273 (T): distinguished

Lewis Group Ltd v Woollam and Others 2017 (2) SA 547 (WCC): dictum in para [51] compared

Mbethe v United Manganese of Kalahari (Pty) Ltd 2017 (6) SA 409 (SCA): applied D

Merlin Gerin (Pty) Ltd v All Current and Drive Centre (Pty) Ltd and Another 1994 (1) SA 659 (C): distinguished.

Legislation cited

The Companies Act 71 of 2008, s 165(5): see Juta's Statutes of South Africa 2017/18 vol 2 at 1-469. E

Case Information

S Cole for the applicant.

S Symon SC for the respondents.

An application, in terms of s 165(5) of the Companies Act 71 of 2008, to continue proceedings in the name of the fourth respondent company. F Application dismissed.

Judgment

Roberson J:

[1] The applicant (Larrett) and the third respondent (Ndzimela) are the directors of the fourth respondent (the company). On 6 September 2013 G Larrett instructed her attorney to institute proceedings whereby the company as plaintiff claimed payment of R2 089 002,88 from the first respondent (Coega) in terms of a contract allegedly concluded between the company and Coega. In the alternative the company claimed, in delict, payment of the same sum from the second respondent (Standard Bank). It is common cause that at the time the summons was H issued the institution of the proceedings had not been authorised because there was no resolution to that effect by the board of directors.

[2] In this application Larrett seeks an order from this court authorising her to continue with the proceedings in the name of and on behalf of the I company, in terms of s 165(5) of the Companies Act 71 of 2008 (the Act). The application is opposed by Standard Bank. Section 165 of the Act provides:

'165 Derivative actions

(1) Any right at common law of a person other than a company to bring or prosecute any legal proceedings on behalf of that company is J

2019 (3) SA p512

Roberson J

abolished, A and the rights in this section are in substitution for any such abolished right.

(2) A person may serve a demand upon a company to commence or continue legal proceedings, or take related steps, to protect the legal interests of the company if the person —

(a)

is a shareholder or a person entitled to be registered as a shareholder, B of the company or of a related company;

(b)

is a director or prescribed officer of the company or of a related company;

(c)

is a registered trade union that represents employees of the company, or another representative of employees of the company; C or

(d)

has been granted leave of the court to do so, which may be granted only if the court is satisfied that it is necessary or expedient to do so to protect a legal right of that other person.

(3) A company that has been served with a demand in terms of subsection (2) may apply within 15 business days to a court to set aside the demand only on the grounds that it is frivolous, vexatious or D without merit.

(4) If a company does not make an application contemplated in subsection (3), or the court does not set aside the demand in terms of that subsection, the company must —

(a)

appoint an independent and impartial person or committee to investigate the demand, and report to the board on —

(i)

E any facts or circumstances —

(aa)

that may gave rise to a cause of action contemplated in the demand; or

(bb)

that may relate to any proceedings contemplated in the demand;

(ii)

the probable costs that would be incurred if the company F pursued any such cause of action or continued any such proceedings; and

(iii)

whether it appears to be in the best interests of the company to pursue any such cause of action or continue any such proceedings; and

(b)

within 60 business days after being served with the demand, or G within a longer time as a court, on application by the company, may allow, either —

(i)

initiate or continue legal proceedings, or take related legal steps to protect the legal interests of the company, as contemplated in the demand; or

(ii)

serve a notice on the person who made the demand, refusing H to comply with it.

(5) A person who has made a demand in terms of subsection (2) may apply to a court for leave to bring or continue proceedings in the name and on behalf of the company, and the court may grant leave only if —

(a)

the company —

(i)

I has failed to take any particular step required by subsection (4);

(ii)

appointed an investigator or committee who was not independent and impartial;

(iii)

accepted a report that was inadequate in its preparation, or was irrational or unreasonable in its conclusions or J recommendations;

2019 (3) SA p513

Roberson J

(iv)

acted in a manner that was inconsistent with the reasonable A report of an independent, impartial investigator or committee; or

(v)

has served a notice refusing to comply with the demand, as contemplated in subsection (4)(b)(ii); and

(b)

the court is satisfied that —

(i)

the applicant is acting in good faith; B

(ii)

the proposed or continuing proceedings involve the trial of a serious question of material consequence to the company; and

(iii)

it is in the best interests of the company that the applicant be granted leave to commence the proposed proceedings or continue the proceedings, as the case may be.

(6) In exceptional circumstances, a person contemplated in subsection (2) C may apply to a court for leave to bring proceedings in the name and on behalf of the company without making a demand as contemplated in that subsection, or without affording the company time to respond to the demand in accordance with subsection (4), and the court may grant leave only if the court is satisfied that —

(a)

the delay required for the procedures contemplated in subsections (3) to (5) D to be completed may result in —

(i)

irreparable harm to the company; or

(ii)

substantial prejudice to the interests of the applicant or another person;

(b)

there is a reasonable probability that the company may not act to E prevent that harm or prejudice, or act to protect the company's interests that the applicant seeks to protect; and

(c)

that the requirements of subsection (5)(b) are satisfied.

(7) A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that —

(a)

the proposed or continuing proceedings are by — F

(i)

the company against a third party; or

(ii)

a third party against the company;

(b)

the company has decided —

(i)

not to bring the proceedings;

(ii)

not to defend the proceedings; or

(iii)

to discontinue, settle or compromise the proceedings; and G

(c)

all of the directors who participated in that decision —

(i)

acted in good faith for a proper purpose;

(ii)

did not have a personal financial interest in the decision, and were not related to a person who had a personal financial interest in the decision;

(iii)

informed...

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2 practice notes
  • The escalation of corporate corruption during the Covid-19 pandemic: Is the anti-corruption framework of the Companies Act 71 of 2008 adequate?
    • South Africa
    • Juta Stellenbosch Law Review No. , October 2022
    • 27 October 2022
    ...(Pty) Ltd 2017 6 SA 409 (SCA); Lewis Grou p Ltd v Woollam 2017 2 SA 547 (WCC); Larrett v Coe ga Development Corporat ion (Pty) Ltd 2019 3 SA 510 (ECG) and MF Cassim The Ne w Derivativ e Action under th e Companies Act: G uidelines for Ju dicial Discret ion (2016) While the derivative ac tio......
  • Ex parte Goosen and Others
    • South Africa
    • Invalid date
    ...to practise as a Legal Practitioner and the Legal Practice Council is authorised to enrol the applicant as an [Attorney]/[Advocate].' J 2019 (3) SA p510 The Lastly, A we wish to express our gratitude to each of the counsel who, on behalf of the amici curiae, presented argument to us, which ......
1 cases
  • Ex parte Goosen and Others
    • South Africa
    • Invalid date
    ...to practise as a Legal Practitioner and the Legal Practice Council is authorised to enrol the applicant as an [Attorney]/[Advocate].' J 2019 (3) SA p510 The Lastly, A we wish to express our gratitude to each of the counsel who, on behalf of the amici curiae, presented argument to us, which ......
1 books & journal articles

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