CASE LAW UPDATE

Facts: The applicant (Prudential Authority) applied for the sequestration of the Dlaminis. The application was founded on two grounds. The first was that they had committed an act of insolvency by failing to comply with a directive issued by the Authority in terms of section 83(1) of the Banks Act 94 of 1990 directing them to repay money they had obtained by carrying on the business of a bank in contravention of that Act. The second was that, in terms of section 84(1A)(a), the Dlaminis were factually insolvent. Following the section 12 directive by the Governor, and the subsequent inspection of the Dlaminis’ affairs, they were found to have obtained money by conducting the business of a bank without being registered as a bank and without being authorized to do so. The TVI scheme was held by the court, in Kruger v Joint Trustees of the Insolvent Estate of Paulos Bhekinkosi Zulu [2016] ZASCA 163, to have amounted to the unlawful carrying on of the business of a bank and a pyramid scheme in contravention of the Banks Act. The High Court dismissed the application on the basis that the Authority had failed to show that the Dlaminis were prima facie insolvent and relied further upon the exercise of its discretion.

Appeal: This is an appeal against the judgment and order of the KwaZulu-Natal Division of the High Court, in which it dismissed the appellant’s application for the provisional sequestration of the joint estate of the first and second respondents in terms of sections 83(3)(b) and 84(1A)(c) of the Banks Act 94 of 1990. The issues are, first, whether sections 83 and 84 of the Banks Act require proof of factual insolvency for the sequestration of a person under those sections, or whether mere proof of non-compliance with a directive issued under section 83 is a sufficient ground for sequestration. Secondly, whether the court may interfere with the High Court’s discretion to refuse the application.

Discussion: It was submitted on behalf of the Authority that the High Court erred in dismissing the application for the provisional sequestration of the Dlaminis on the basis that the Authority failed to establish that the Dlaminis were prima facie insolvent. This was not the only basis of its application. The Authority based its application both on section 83(3)(b) and section 84(1A)(c) of the Banks Act and, so it contended, either of the two sections was sufficient to found a case for the sequestration of the Dlaminis’ joint estate. The High Court did in fact err in dismissing the application. It is common cause that the Authority’s application was founded on sections 83 and 84 of the Banks Act. The Dlaminis failed to repay the amount within the period stipulated in the repayment directive. They also did not challenge the directive by way of review despite being entitled to do so. Therefore, the Dlaminis were, in terms of section 83, deemed to have committed an act of insolvency. There is no public policy reason for reading the sections so as to limit the power of the Authority to seek sequestration as contended for by the Dlaminis. On the contrary, the whole purpose of the provisions is to ensure that people who have contravened the Act should be held accountable to repay the monies unlawfully obtained. Public policy requires that the Authority ought to be properly empowered to secure this objective, not hamstrung by having to establish two bases for sequestration, as suggested by the Dlaminis.

Findings: The High Court misdirected itself in exercising its discretion against the granting of the sequestration order. The evidence established that the Dlaminis obtained money through their participation in the TVI scheme which entailed carrying on the business of a bank without being authorized to do so. The amount which they were directed to repay was disclosed in the directive that was issued and they failed to repay it as directed. In terms of section 83, they were deemed to have committed an act of insolvency. In terms of section 84(1A)(f), the Authority is regarded as a creditor and he or she has the same rights of a creditor in terms of the law relating to liquidation and insolvency. From the evidence adduced by the Authority, there is reason to believe that it will be to the advantage of creditors if the Dlaminis’ joint estate is sequestrated. The Authority should have been granted the provisional sequestration order. It discharged the onus on a balance of probabilities regarding the amount which the Dlaminis unlawfully obtained by conducting a business of a bank in contravention of the Banks Act; the Authority directed them to repay the amount; and the Dlaminis failed to repay the amount. As a result of their failure, section 83 of the Banks Act deemed them to have committed an act of insolvency which entitled the Authority to apply for the sequestration of their joint estate. There is reason to believe that their sequestration will be to the advantage of creditors.

Order: The appeal succeeds with costs. The joint estate of the respondents is to placed under provisional sequestration in the hands of the Master.

ZONDI JA (SEEGOBIN AJA and KEIGHTLEY AJA concurring)

MBATHA JA and KGOELE JA dissenting from para [44]

Facts: The applicant operates as a mining facility and the matter concerns the open cast mining facility at its premises. The applicant recognises three registered trade unions at the mining facility, namely AMCU, NUM and Solidarity and over time the applicant has entered into various collective agreements with the aforesaid trade unions. As these unions meet the threshold of 15% representativity of the bargaining unit, they are afforded collective bargaining and organisational rights. The third respondent (NUPSAW or the union) approached the applicant to enter into a recognition agreement and to be afforded organisational rights, as it managed to recruit 15% of its members and therefore met the required threshold. The applicant refused to recognise NUPSAW because it held the view that the union did not fall within the scope of the mining sector. NUPSAW referred an organisational rights dispute to the CCMA. The arbitrator found that it would be unwise to categorize or limit the scope of a trade union solely based on its name.

Review: The arbitrator held that there is no legal prohibition on a trade union either limiting their scope to a particular sector or industry or adopting a more open approach. The arbitrator rejected the applicant’s argument that clause 6.1 of the union’s constitution should be read with reference to its name and "all workers" refer to all workers within the public service and related industries. He found that in terms of its constitution, NUPSAW was entitled to organise within the mining sector and should they have sufficient representation of at least 15%, they should be granted organisational rights. The applicant seeks to review the arbitrator’s findings.

Discussion: According to the applicant, the arbitrator, by confining the enquiry and interpreting the provisions of clause 6.1 of NUPSAW’s constitution, misdirected himself in that he confined the inquiry too narrowly, endorsed an approach which would wreak havoc in collective bargaining, afforded an interpretation which is diametrically incongruent and at variance with the objectives of the Labour Relations Act 66 of 1995 and fundamentally encroached on the terrain of specialised trade unions that have legitimately and compellingly narrowed their registered scope to specialised areas of activity, as was envisaged in the LRA. NUPSAW submitted that clause 6.1 of its constitution was intentional to allow organisation and recruitment as members of all workers within the Republic of South Africa. The constitution of a trade union informs the employer and the trade union on whether a particular union is entitled to recruit members and to have organisational rights in a specific sector. Clause 6.1 of NUPSAW’s constitution provides the answer and it is not dependent on the view or the opinion of the applicant. If the Registrar is satisfied that the applicant meets the requirements for registration, he/she must register the applicant by entering the applicant’s name in the register of trade unions, issue a certificate of registration and send the said certificate and a certified copy of the registered constitution to the applicant.

Findings: NUPSAW is a registered trade union, and the Registrar has registered its amended constitution, signifying that the Registrar was satisfied that the amended constitution met the requirements for registration. Clause 6.1 does not record or define any specific industry, service, sector or trade to which the workers must belong to become members of NUPSAW. A proper interpretation dictates that the union would be entitled to represent members only within the sectors, trades, entities, undertakings and or occupations for which it is registered in terms of the scope of its constitution. Applying the rules of interpretation, it is evident that the purpose and intention of NUPSAW’s constitution was to include all workers in South Africa within its scope of membership, as is specifically provided for in the constitution. NUPSAW’s constitution sets out the membership qualifications and by implication, its scope in broad terms. The Registrar has certified and accepted the amended constitution and as such, the Registrar was clearly satisfied that the constitution provided the qualifications for and admission to membership. NUPSAW’s constitution does not limit its scope to any specific region, sector or industry and therefore the mining industry is not excluded. There is no merit in any of the grounds for review as the arbitrator’s decision was rational and reasonable.

Order: The review application is dismissed.

PRINSLOO J

Facts: Dr Hlophe is a leader of the opposition in the National Assembly, and a Member of Parliament elected on the party list of the first applicant, the MK Party. It was in that capacity that Dr Hlophe was designated, by the National Assembly, to take up one of the six seats on the JSC. A full court sitting in the Western Cape interdicted and restrained Dr Hlophe from participating in the processes of the JSC. The full court’s order stands as a fact. The primary question is whether the JSC acted rationally by refusing the MK Party’s request that its forthcoming sitting be postponed until the legal controversy surrounding Dr Hlophe’s designation to the JSC is resolved.

Application: The applicants seek two kinds of relief, one in the alternative to the other. The primary and final relief they seek is an order declaring a decision of the JSC to proceed with its October 2024 sitting to be irrational, unlawful and unconstitutional. In the alternative, the applicants seek interim relief restraining the JSC from proceeding with its work until a final decision about the rationality of its refusal to postpone its October 2024 sitting is taken, or until the controversy about the designation of the second applicant, Dr Hlophe, as one of its members, is resolved.

Discussion: The JSC acted rationally in refusing to postpone its October 2024 sitting. The JSC’s decision to proceed with its October 2024 sitting did not infringe, even prima facie, any of the MK Party’s or Dr Hlophe’s rights. Assuming in the applicants’ favour that their constitutional rights have been limited, the source of any such limitation was the full court’s order, not the JSC’s conduct in light of that order. The Chief Justice pointed out that the full court accepted that the JSC would lawfully be able to continue its work in Dr Hlophe’s absence. She also disclosed that the JSC had made its decision in view of section 18(2) of the Superior Courts Act 10 of 2013. The essence of the position spelled out in the JSC’s letter was that the full court’s decision is an “interlocutory order not having the effect of a final judgment” under section 18(2) of the Act, meaning that an application for leave to appeal would not automatically suspend it; that the full court’s order prevented the JSC from proceeding in Dr Hlophe’s presence; and that the JSC’s work could nonetheless lawfully proceed in Dr Hlophe’s absence. This position is not irrational.

Findings: Dr Hlophe’s absence from the October 2024 sitting of the JSC is not merely justified, it is mandated by the full court’s order. The fact of the full court’s order is justification enough for Dr Hlophe’s absence. The JSC was correct to conclude that it could lawfully proceed in Dr Hlophe’s absence. Dr Hlophe was restrained from participating the JSC’s work because he is a former Judge removed from office for gross misconduct. It was not suggested that the JSC was wrong to conclude that it could not proceed in Dr Hlophe’s presence. None of the reasons the JSC gave for refusing to postpone its October 2024 sitting were so tainted by mistakes of fact or of law as to render the decision to proceed irrational. The JSC’s decision to proceed with its October 2024 sitting was plainly rational. It is the full court, and not the JSC, which has decided that Dr Hlophe may not participate in the JSC’s proceedings. The JSC was required to act in light of the full court’s decision, which it must treat as valid and binding. The applicants cannot demonstrate, even prima facie, that the JSC’s decision to proceed was taken in breach of any of their rights.

Order: The application is dismissed.

WILSON J

Facts: Mr De Kock and the deceased were married  to each  other. Their marriage was terminated by her death in 2018. Two minor children were born of the marriage. The deceased and Ms Scholtz were identical twins. Ms Scholtz is thus Mr De Kock’s former sister-in-law and the aunt of the two minor children. The minor children are the joint heirs in the estate of the deceased. In terms of the deceased’s will, Ms Scholtz is the executrix in the deceased estate. She is also a practising attorney. In 2014 the deceased was awarded R7,067,736.80 by the RAF following injuries she had sustained in a motor vehicle accident. The funds were paid into the trust account of her attorneys. The deceased instructed her attorneys to pay over the nett proceeds of R5,600,000 into the trust account of her twin sister, Ms Scholtz. The funds were transferred to an investment account managed by Ms Scholtz.

Application: Before the court of first instance, Mr De Kock brought the application in his nominal capacity as the guardian of his two minor children. He sought an order compelling Ms Scholtz to render an account for the R5,600,000 and for the debatement of that account, and for the payment to the deceased estate of whatever amount was found to be due to it. The application was dismissed by the court of first instance. On appeal to it, the full court upheld Mr De Kock’s appeal.

Discussion: The court of first instance accepted Ms Scholtz’s explanation that she had expended the payments on the specific instructions of the deceased, and that the deceased was satisfied with how the monies were disbursed. On appeal, the issue remains whether Ms Scholtz was obliged to account for the R5,600,000. Mr De Kock predicated the duty to account on his allegation that Ms Scholtz stood in a fiduciary relationship with the deceased. Ms Scholtz emphasised that she never acted as the deceased’s attorney in relation to her RAF award. The money was kept in Ms Scholtz’s trust account only for four days. Once the money was transferred to the investment account, Ms Scholtz’s mandate as an attorney, and any ancillary fiduciary relationship there might have existed, was terminated.

Findings: The records reveal that the bulk of the money was paid to the deceased. It is common cause that the twin sisters shared a warm, close and trusting relationship. The funds were under Ms Scholtz’s control for approximately four years before the deceased’s passing. This is sufficiently long enough for the deceased to have demonstrated her dissatisfaction, if any, about Ms Scholtz’s management of her funds. There is no hint of that. It is also important to bear in mind that the deceased was a person with full mental capacity. She was entitled to dispose of her assets in a manner she deemed fit during her lifetime. Her children, in whose interests Mr De Kock purports to act, have no right at law to question her financial decisions during her lifetime.

Order: The appeal is upheld with costs including costs of two counsel. The order of the full court is replaced with one dismissing the appeal.

MAKGOKA JA and MBHELE AJA (NICHOLLS JA, HUGHES JA and MOLEFE JA concurring)