Lewis Group Ltd v Woollam and Others

• Jurisdiction: South Africa

Lewis Group Ltd v Woollam and Others
2017 (2) SA 547 (WCC)

2017 (2) SA p547

Citation	2017 (2) SA 547 (WCC)
Case No	9900/2016
Court	Western Cape Division, Cape Town
Judge	Binns-Ward J
Heard	October 11, 2016
Judgment	October 11, 2016
Counsel	PB Hodes SC (with D Goldberg) for the applicant.; Anton Katz SC (with HN de Wet and D Lubbe) for the first respondent.

Flynote : Sleutelwoorde B

Company — Shares and shareholders — Shareholders — Derivative action — Use of derivative action to obtain order declaring director delinquent — Two remedies distinct — Use of derivative action in delinquency proceedings, while not expressly forbidden, would be vexatious in absence of standing to proceed derivatively — Companies Act 71 of 2008, s 162 and s 165. C

Company — Directors and officers — Directors — Declaration of delinquency — Through derivative action — Whether vexatious — Companies Act 71 of 2008, s 162 and s 165.

Company — Directors and officers — Directors — Declaration of delinquency — Serious misconduct entailing dishonesty, wilful misconduct or gross negligence D required — Companies Act 71 of 2008, s 162(5)(c).

Headnote : Kopnota

Woollam, a shareholder in the applicant company (the Lewis Group), wanted to use the derivative action in s 165 of the 2005 Companies Act — a codification of the common-law derivative action — to compel the Lewis Group to have four of its directors (the second to fifth respondents) declared E delinquent under s 162 of the Act. The declaration would bar them, during its validity, from being directors of any company. Woollam listed six complaints for which he wanted the directors declared delinquent, including the selling of employment insurance to pensioners and self-employed people, and the charging of compulsory warranties and delivery fees (see [4]). F

To begin the s 165 action, Woollam served a demand on the Lewis Group (under s 165(2)) to commence s 162 proceedings against the directors. The Lewis Group argued that this amounted to vexatious litigation since s 162 proceedings were available to Woollam personally, and asked the court to set aside Woollam's demand.

Held

For a company or its shareholders to obtain a declaration of delinquency in respect of a director they must show serious wrongdoing in the form of dishonesty, wilful misconduct or gross negligence. Establishing 'ordinary' negligence, poor business decision-making, or misguided reliance on incorrect professional advice would not be enough (see [18]). H

In considering the preliminary question of whether Woollam would be allowed to proceed derivatively when he had standing to proceed personally for the same relief, it had to be kept in mind that s 162 and s 165 had distinct objects: the former was for the protection of the public interest, and the latter for the protection of the legal interests of a specific company. Section 162 did not engage the legal interests of the company in the sense intended in s 165(2). (See [39] – [40].) I

It was not within the scheme of the Act that shareholders should ordinarily seek to proceed derivatively to obtain the remedy in s 162. The rationale for derivative proceedings, whether under the common law or s 165, was to afford a means, in the interests of justice, for redress to be obtained where the proper (corporate) plaintiff declined to seek it. This rationale was absent J

2017 (2) SA p548

where the person, who would otherwise suffer an injustice by reason of the proper plaintiff's failure to act, had personal standing to seek the indicated relief (see [49]).

While ss 162 and 165 did not expressly exclude the use of the derivative action procedure in s 162 proceedings, there was nothing in Woollam's complaints or the contents of his demand that would give him standing to proceed derivatively for relief that he was able to claim personally, and in the B circumstances his resort to s 165 was indeed vexatious (see [50], [52]).

Since none of Woollam's complaints fell within the ambit of s 162(5)(c) (dishonest or grossly negligent conduct), there was in any event no merit in his demand to have the directors declared delinquent at the instance of Lewis (see [53], [58] – [83]).

C As to the burden of proof: The assertions in a s 165(2) demand had to show that the company had a cognisable claim to declarations of delinquency against the directors (see [53]). To assess this, the court would look at the content of Woollam's demand in the context of the evidence adduced in the s 165(3) proceedings, but he was not required to show that the claim enjoyed good prospects of success (see [53]). The company had the onus of D showing on a balance of probabilities that the demand was frivolous, vexatious or without merit, but there was no inherent probability in favour of either side (see [55] – [56]).

Cases cited

Southern Africa

Amdocs SA Joint Enterprise (Pty) Ltd v Kwezi Technologies (Pty) Ltd 2014 (5) SA 532 (GJ): dictum in para [17] doubted E

Cassim and Another v Voyager Property Management and Others 2011 (6) SA 544 (SCA): dictum in para [16] discussed

Communicare and Others v Khan and Another 2013 (4) SA 482 (SCA): referred to

Ex parte Gore and Others NNO 2013 (3) SA 382 (WCC): referred to F

Fedsure Life Assurance Co Ltd v Worldwide African Investment Holdings (Pty) Ltd and Others 2003 (3) SA 268 (W): doubted

Francis George Hill Family Trust v South African Reserve Bank and Others 1992 (3) SA 91 (A): dictum at 97B – G applied

Gates v Gates 1939 AD 150: dictum at 155 applied

Gihwala and Others v Grancy Property Ltd and Others 2017 (2) SA 337 (SCA) ([2016] 2 All SA 649; [2016] ZASCA 35): applied G

Grancy Property Ltd v Gihwala [2014] ZAWCHC 97: referred to

Gundelfinger v African Textile Manufacturers Ltd and Others 1939 AD 314: discussed

Itzikowitz v Absa Bank Ltd 2016 (4) SA 432 (SCA) ([2016] ZASCA 43): discussed

Kalinko v Nisbet and Others 2002 (5) SA 766 (W) ([2002] 3 All SA 294): referred to H

Letseng Diamonds Ltd v JCI Ltd and Others 2009 (4) SA 58 (SCA): discussed

Mbethe v United Manganese of Kalahari (Pty) Ltd 2016 (5) SA 414 (GJ): dictum in para [90] criticised

McCrae v Absa Bank Ltd [2009] ZAGPJHC 7: referred to I

McLelland v Hulett and Others 1992 (1) SA 456 (D): doubted

Moti v Moti and Hassim Moti Ltd 1934 TPD 428: discussed

MV Stella Tingas: Transnet Ltd t/a Portnet v Owners of the MV Stella Tingas and Another 2003 (2) SA 473 (SCA): referred to

S v Dodo 2001 (3) SA 382 (CC) (2001 (1) SACR 594; 2001 (5) BCLR 423; J [2001] ZACC 16): referred to

2017 (2) SA p549

Sammel and Others v President Brand Gold Mining Co Ltd A 1969 (3) SA 629 (A): compared

Thurgood v Dirk Kruger Traders (Pty) Ltd 1990 (2) SA 44 (E): dictum at 49H – 50A applied

Trinity Asset Management (Pty) Ltd and Others v Investec Bank Ltd and Others 2009 (4) SA 89 (SCA): discussed B

TWK Agriculture Ltd v Forestry Co-operative Ltd and Others 2006 (6) SA 20 (N): doubted

Van Zyl v Loucol (Pty) Ltd 1985 (2) SA 680 (NC): dictum at 685G – I applied

Wimbledon Lodge (Pty) Ltd v Gore NO and Others 2003 (5) SA 315 (SCA) ([2003] 2 All SA 179): dictum in para [18] discussed. C

Australia

Maher v Honeysett and Maher Electrical Contractors [2005] NSWSC 859: referred to

Re HIH Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler [2002] NSWSC 483 ((2002) 42 ACSR 80): compared D

Rich v Australian Securities and Investments Commission 220 CLR 129 (209 ALR 271; 78 ALJR 1354; [2004] HCA 42): compared

Swansson v AR Pratt Properties (2002) 42 ACSR 313 ([2002] NSWSC 583): referred to.

Canada E

Dusik v Newton (1985) 62 BCLR 1 (CA) (1985 CanLII 406): referred to

Farnham v Fingold [1973] 2 OR 132 (CA) (33 DLR (3d) 156; 1973 CanLII 523): referred to

Goldex Mines Ltd v Revill [1974] 54 DLR (3d) 672 (On CA) (1974 CanLII 433) 216: discussed F

Shield Development Co v Snyder [1976] 3 WWR 44 (BCSC): referred to.

England

Burland and Others v Earle and Others [1902] AC 83 (PC): referred to

Edwards and Another v Halliwell and Others [1950] 2 All ER 1064 (CA): referred to G

Foss v Harbottle (1834) 2 Hare 461 (67 ER 189): discussed

Johnson v Gore Wood & Co (a firm) [2001] 1 All ER 481 (HL): referred to

Official Receiver v Wadge Rapps & Hunt (a firm) [2003] UKHL 49 ([2003] 4 All ER 18 (HL)): discussed

Pavlides v Jensen and Others [1956] Ch 565: referred to H

Percival v Wright [1902] 2 Ch 421: referred to

Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No 2) [1981] Ch 257: referred to

Prudential Assurance Co Ltd v Newman Industries Ltd and Others (No 2) [1982] Ch 204 (CA) ([1982] 1 All ER 354): referred to I

Re Lo-Line Electric Motors Ltd [1988] Ch 477: compared

Re Sevenoaks Stationers (Retail) Ltd [1991] Ch 164: compared

Secretary of State for Trade and Industry v Goldberg (No 2) [2003] EWHC 2843 (Ch) ([2004] 1 BCLC 597): referred to.

New Zealand

Coleman v Myers [1977] 2 NZLR at 297 (CA): referred to. J

2017 (2) SA p550

A Legislation cited

The Companies Act 71 of 2008, s 162 and s 165: see Juta's Statutes of South Africa 2015/16 vol 2 at 1-373 and 1-376.

Case Information

PB Hodes SC (with D Goldberg) for the applicant.

Anton Katz SC (with HN de Wet and D Lubbe) for the first respondent. B

An application under s 165(3) of the Companies Act 71 of 2008 for the setting aside of a demand served on the applicant by the first respondent under s 165(2).

Order C

(a)

The demand dated 20 May 2016, served on the applicant by the first respondent in terms of s 165(2) of the Companies Act 71 of 2008, is hereby set aside in terms of s 165(3) of the said Act.

(b)

The first respondent is ordered to pay the applicant's costs of suit in D the application in terms of s 165(3) of the Act, including the costs attendant on the application to strike out the...