Stratford and Others v Investec Bank Ltd and Others

• Jurisdiction: South Africa
• Court: Constitutional Court
• Judge: Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Leeuw AJ, Madlanga J, Nkabinde J, Van Der Westhuizen J and Zondo J
• Judgment Date: 19 December 2014
• Citation: 2015 (3) SA 1 (CC)
• Hearing Date: 02 September 2014
• Docket Number: CCT 62/14 [2014] ZACC 38
• Counsel: LJ van Rensburg (attorney) for the appellants. BJ Manca SC (with ML Norton) for the first respondent. AM Breitenbach SC (with N Mangcu-Lockwood) for the second respondent.

Leeuw AJ (Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, G Jafta J, Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo J concurring):

Introduction

H [1] This is an appeal against the final sequestration order and dismissal of a counter-application by the Western Cape Division of the High Court, Cape Town [1] (High Court), the Supreme Court of Appeal having refused leave to appeal. In terms of the Insolvency Act [2] a sequestration order granted against a debtor has the effect of suspending contracts of service of the debtor's employees with immediate effect. [3] The effect of I the suspension is that the employees are not entitled to any remuneration

Leeuw AJ (Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo J concurring)

and no employment benefits accrue to the employees, [4] save for A unemployment benefits [5] in terms of s 35 of the Unemployment Insurance Act. [6]

[2] An amendment to the Insolvency Act in 2002 inserted s 9(4A). [7] It provides that a copy of the sequestration application must be furnished to employees of the insolvent debtor before an order for provisional B sequestration may be granted. [8] The Supreme Court of Appeal in Gungudoo [9] interpreted this amendment to apply only to employees of the insolvent's business, to the exclusion of domestic employees. [10] The appellants assert that this interpretation is wrong and that domestic employees [11] must be included in the term 'employees' in s 9(4A).

Parties C

[3] The first appellant (Mr Stratford) is a chartered accountant and former director of several companies that formed part of the Pinnacle Point Group which was engaged in the business of developing luxury properties in Nigeria, the Seychelles and South Africa. D Pinnacle Point Group Ltd (PPG Ltd), its holding company, had dual listings on the

Leeuw AJ (Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo J concurring)

A Nigerian and Johannesburg Stock Exchanges. PPG Ltd has since been placed in final liquidation and an enquiry into its affairs has commenced. Before its liquidation Mr Stratford was the non-executive deputy chairperson of PPG Ltd, as well as a director of a number of its subsidiary companies.

B [4] The second appellant (Ms Stratford) has been joined in these proceedings in terms of s 17 of the Matrimonial Property Act [12] by virtue of her marriage to Mr Stratford in community of property. The third appellant (Mr Ngoma), the fourth appellant (Mr Dlokolo) and the fifth appellant (Mr Adonis) (together, the domestic employees) are employed by Mr and Ms Stratford (Stratfords) as a domestic worker, gardener and C handyman, respectively.

[5] The first respondent, Investec Bank Ltd (Investec), is a financial institution conducting business as a private bank in accordance with the company and banking laws of the Republic of South Africa. The second respondent, the Minister of Justice and Constitutional Development (Minister of Justice), and the third D respondent, the Minister of Labour, are joined in these proceedings in terms of rule 5 of the rules of this court. The Minister of Justice opposes the appeal while the Minister of Labour does not.

Litigation history E

[6] Investec entered into various agreements with Mr Stratford, in terms of which he bound himself as surety and co-principal debtor, jointly and severally, with various entities in the Pinnacle Point Group. Almost all these entities are either in liquidation or have been sequestrated. Investec also entered into a loan agreement with Mr Stratford. The Stratfords F were unable to satisfy a judgment debt of over R19 million granted in favour of Rand Merchant Bank.

[7] On 29 May 2012 Investec launched sequestration proceedings on an urgent basis against the Stratfords in the High Court, alleging that the Stratfords owed it over R240 million, plus interest. A candidate attorney, G employed by the attorneys representing Investec, furnished a copy of the notice of motion and the founding affidavit to the Stratfords. She also enquired from the Stratfords whether they had a domestic employee. The Stratfords informed her that they had a domestic worker, but did not disclose that they also had two other domestic employees in their H employ. The candidate attorney then left a copy of the petition [13] on the kitchen table for the identified domestic worker, Mr Ngoma, without directing that the Stratfords bring it to the attention of the domestic worker.

[8] The application was set down for hearing in the High Court on I 4 June 2012. By agreement between the parties it was heard only on 15 October 2012. Cloete AJ refused an application for a postponement

Leeuw AJ (Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo J concurring)

by the Stratfords and granted a provisional order of sequestration. On A 24 October 2012 the sheriff served a copy of the provisional order of sequestration on Mr Stratford and Mr Ngoma and, on 30 October 2012, a copy was served on Ms Stratford, Mr Adonis and Mr Dlokolo. A rule nisi was issued in terms of the provisional sequestration order calling upon the Stratfords, and all interested parties, to show cause why a final B sequestration order should not be granted on 26 November 2012. The Stratfords opposed the sequestration application on 23 November 2012 and baldly denied that Investec had a liquidated claim against them [14] and that they had committed an act of insolvency as required by s 8(b) of the Insolvency Act. [15] On the same date the domestic employees filed an application to intervene as applicants in the proceedings, which C was granted.

[9] In February 2013 the domestic employees — together with the Stratfords — launched a counter-application joining the Minister of Labour and the Minister of Justice and seeking an order declaring that: D (1) s 9(4A) is unconstitutional in that it indirectly discriminates against domestic employees; and (2) failure to notify them of the sequestration proceedings amounted to a breach of their constitutional right to fair labour practices and the right of access to courts. They submitted that, had they been given prior notice of the provisional sequestration proceedings, they would have sought legal assistance and opposed the E application.

[10] The constitutional challenge was not raised at the time the answering papers were filed. They explained that this was because they were not aware of the judgment of Gungudoo. They, however, pointed out that F they believed at the time that the definition of 'employees' in s 9(4A) was wide enough to be interpreted as including domestic employees. They consequently contended that Gungudoo's interpretation of 'employees' is incorrect.

[11] Investec presented evidence to the High Court which indicated that G the Stratfords had made various dispositions of property and moneys, through the Pinnacle Point Group and other entities, which had the

Leeuw AJ (Mogoeng CJ, Moseneke DCJ, Cameron J, Froneman J, Jafta J, Khampepe J, Madlanga J, Nkabinde J, Van der Westhuizen J and Zondo J concurring)

A effect of prejudicing the creditors as envisaged by s 8(c) [16] of the Insolvency Act. Investec detailed known assets as well as an extensive list of potentially impeachable transactions to a total of over R37 million.

[12] On 14 August 2013 the High Court (Mantame J) found that the Stratfords had committed an act of insolvency and had failed to explain B their financial situation. [17] The court further found that Investec had proved, on a balance of probabilities, that there were prospects of pecuniary benefit to creditors. The court was satisfied that a proper investigation by the trustee would likely uncover a substantial amount of assets from the Stratfords' joint estate.

C [13] With respect to the constitutional challenge in the counter-application, the court held that compliance with the provisions of s 9(4A) is peremptory and that failure to comply with the section would result in the discharge of the rule nisi. Nonetheless, the court concluded that the provision did not require the petition to be served on each and every domestic employee or that it be brought directly to the attention of the D employee or that each employee be personally advised of the sequestration application. [18] The court expressed the view that the Stratfords and the domestic employees had interpreted the statute more broadly than what the legislature had intended. [19] The court gave effect to the decision in Gungudoo and held that, given the protections in the LRA and the Basic E Conditions of Employment Act [20] (BCEA), the domestic employees could not argue that they had been discriminated against. [21] Furthermore, the court concluded that in any event the domestic employees had not lost their employment and had failed to present valid grounds to oppose the granting of the provisional sequestration order.

F [14] The court further held that the petition had in any event actually been served on the domestic employees when the candidate attorney left the petition on the kitchen table of the Stratfords' household, and that it was 'rather absurd' to argue that the domestic employees had not been 'served' with the petition. [22] Consequently, the court held that since there was compliance with s 9(4A) in respect of domestic employees, it was G not necessary to determine the constitutional challenge to the section. The Stratfords' estate was placed under final sequestration and the counter-application dismissed with no order as to costs.

[15] The appellants sought leave to appeal directly to this court. That H application was dismissed as it was not in the...