Recycling and Economic Development Initiative of South Africa NPC v Minister of Environmental Affairs

• Jurisdiction: South Africa

Recycling and Economic Development Initiative of South Africa NPC v Minister of Environmental Affairs
2019 (3) SA 251 (SCA)

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Citation	2019 (3) SA 251 (SCA)
Case No	1260/2017; [2019] ZASCA 1
Court	Supreme Court of Appeal
Judge	Cachalia JA, Saldulker JA, Van Der Merwe JA, Molemela JA and Rogers AJA
Heard	January 24, 2019
Judgment	January 24, 2019
Counsel	G Budlender SC (with L Kelly) for the appellant in case Nos 1260/17 and 188/18; JG Dickerson SC (with K Reynolds) for the appellant in case Nos 1279/17 and 187/18.; G Woodland SC (with J Rust) for the respondent in case Nos 1260/17 and 188/18.; J Muller SC (with B Swart SC and J Myburgh) for the respondent in case Nos 1279/17 and 187/18.

Flynote : Sleutelwoorde

Company — Winding-up — Application — Locus standi — Extended standing to apply for remedies under s 157 of Companies Act, 2008 — Whether Minister of Environmental Affairs qualifying as 'person' who may invoke s 157(1)(d) for standing in public interest — Companies Act 71 of 2008, s 157(1)(d). G

Company — Winding-up — Application — Grounds — Just and equitable to do so — Availability of alternative means to address complaint — Court to be satisfied applicant having no alternative means to address complaint before granting winding-up order on basis that it would be just and equitable to do so — Companies Act 71 of 2008, ss 81(1)(c)(ii) and 81(1)(d)(iii). H

Practice — Applications and motions — Ex parte application — Impermissible use of — Court to vindicate audi alteram partem rule by discharging provisional order so obtained.

Practice — Applications and motions — Ex parte application — Uberrima fides I rule as to disclosure of facts — If not observed, court to discharge provisional order so obtained when it would not have been granted had fair disclosure been made.

Headnote : Kopnota

The respondent (the Minister) brought two urgent ex parte applications in the High Court for the provisional winding-up of, respectively, the Recycling J

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and A Economic Development Initiative of South Africa (Redisa) and Kusaga Taka Consulting (Pty) Ltd (KT), both solvent at the time. Redisa was a non-profit company and an organ of state responsible for the implementation of a waste-tyre recycling scheme (the Plan) promulgated by the Minister in November 2012. As contemplated in the Plan, KT was the management company appointed to implement the scheme.

The B Plan entailed the creation and management of a national network for collecting waste tyres, storing them and delivering them to recyclers for processing. It was funded from a waste-tyre management levy that tyre manufacturers paid to Redisa in terms of the Waste Tyre Regulations, [*] with 20% of such levy allocated under the Plan to administration which included the fee payable to the management company. This funding model was C however changed during 2016, so that as of February 2017 Redisa was no longer entitled to collect tyre levies from producers but instead became dependent on an allocation of funds from the Department of Environmental Affairs (which in the event was not forthcoming).

In the latter part of 2016 Redisa launched two review applications challenging the new funding model, both of which were still pending in a different D division of the High Court at the time of the Minister's ex parte applications. Earlier, in February 2016, the Department of Environmental Affairs appointed iSolveit to conduct an audit of Redisa. Relying on iSolveit findings adverse to Redisa, the Minister (on 29 November 2016) issued a directive withdrawing the Redisa Plan. This directive was however withdrawn following a legal challenge by Redisa. Then, in May 2017, Redisa E presented a business plan to the Department in which it explained that unless the funding issues were resolved, it would scale back its operations from 1 June 2017 and that it had already informed stakeholders that it would have to 'wind down' its operations. Shortly afterwards, on 1 June 2017, the Minister launched the urgent ex parte applications for the F winding-up of Redisa and KT. The justification for bringing it on an urgent ex parte basis was that Redisa's May 2017 presentation raised immediate concerns about the unlawful dissipation of funds (see [86]).

The Minister's grounds for seeking the winding-up of both companies was that it would be 'just and equitable' to do so as contemplated ss 81(1)(c)(ii) and 81(1)(d)(iii) of the Companies Act 71 of 2007. In respect of Redisa the Minister's founding affidavit made out the case that it would be just and G equitable to do so because, firstly, Redisa's directors had not disclosed their relationship with or significant shareholding in KT, which enabled them to misappropriate public funds by using KT as their vehicle to unlawfully channel funds collected by Redisa under the Plan for their personal benefit; and secondly, that Redisa's May 2017 presentation revealed a rapid H depletion of its cash and reserves. In respect of KT the Minister contended that its winding-up was just and equitable because its existence was entirely dependent upon the money it generated through the Redisa Plan. (See [93].)

Not being one of the class of applicants in s 81 who may bring an application for winding up a solvent company, the Minister in both applications also I applied for leave in terms of s 157(1)(d) to bring the applications, which

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was granted, as were the provisional liquidation orders the Minister had A sought. Upon learning of the provisional orders, Redisa and KT applied, also urgently, for the provisional orders to be discharged. They, inter alia, disputed the allegation in the Minister's founding affidavit, that she and the Department had only 'discovered during May 2016, when the Department received a report from iSolveit', that certain of Redisa's executive directors had an interest in KT, and that a copy of the management contract between B Redisa and KT had been withheld by the parties. They also questioned the Minister's founding affidavit's non-disclosure of the pending litigation between the parties.

The applications were consolidated and judgment given, finally winding-up both entities on 'just and equitable' grounds. In the court a quo and in the present case — Redisa's and KT's appeal to the Supreme Court of Appeal — C the Minister advanced additional grounds, not made out in her papers but presented orally, that Redisa's directors had abused KT's corporate personality and contravened item 1(3) of sch 1 of the 2008 Act and the equivalent provisions in Redisa's memorandum of incorporation (MOI) (see [95] – [98]). And on appeal the Minister abandoned reliance on s 81(1)(c)(ii) and/or s 81(1)(d)(iii) to sustain the finding that it was 'just D and equitable' to wind up the appellants. Instead, the Minister contended that, as a public interest litigant, she could rely on any of the substantive grounds in s 81 of the Act to apply to wind-up a solvent company (see [149]).

Redisa's and KT's grounds of appeal (see [6]) and the Minister's additional submissions raised the following issues: (1) whether the factual findings of E impropriety against Redisa and KT were sustainable, having been refuted in their answering papers; (2) whether there were proper grounds for a resort to ex parte proceedings; (3) whether, having elected to proceed ex parte, the Minister had failed in her strict duty to disclose all relevant material to the court; (4) whether it was shown that ordering their winding-up would be 'just and equitable'; (5) whether the Minister was a public interest litigant F with standing in terms of s 157(1)(d) and was therefore entitled to rely on any of the substantive grounds for liquidating a solvent company set out in s 81(1) of the Act; (6) whether Redisa's directors had abused KT's corporate personality and contravened item 1(3) of sch 1 of the 2008 Act and the equivalent provisions in Redisa's memorandum of incorporation (MOI).

Held by the majority G

As to (1): Aside from a dispute regarding calculation of the management fee, it was thus common cause that the fees KT received from Redisa fell within the 20% allocation that the Minister had approved (at [18]). The Minister's version that she and the Department had only discovered that certain of Redisa's executive directors had an interest in KT during May 2016 was not correct. In reply to the answering papers, she accepted that the Redisa H executives' interest in KT had been known since at least the receipt of Redisa's financial statements for the 2014 financial year (at [24] and [30]). There remained a dispute of fact on the papers as to whether the management contract was withheld from the Minister and the Department but in accordance with the rule regarding evidence in motion proceedings, Redisa's version must be accepted (at [25]). I

As to (2): It was a fundamental principle of the administration of justice that relief should not be granted against a person without allowing such person to be heard; very rarely was a case so urgent that there was no time to give notice. In some cases there may be a reasonable and substantiated apprehension that giving notice would defeat the applicant's legitimate purpose in seeking relief. In such cases a court may be willing to dispense J

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with A the need to give notice but this power should be exercised with great caution and only in exceptional circumstances. The procedure adopted was even more objectionable when the applicant's case rested largely on untested hearsay, which it was in this case. Even taking the founding papers in isolation, the Minister failed woefully to justify the ex parte proceedings. The court a quo said that the Minister had made out a sufficient case that B urgent and drastic action was...