CASE LAW UPDATE

Facts: On invitation by the MEC for the Department of Police, Roads and Transport, Roadmac, together with other bidders, submitted bids regarding a tender for the maintenance of roadworks. Roadmac was unsuccessful as Tau Pele Constructions was awarded the bid. After receiving reasons for the decision, Roadmac launched review proceedings premised on the fact that the award of the tender to Tau Pele was not fair, transparent, competitive or cost effective. Pending the review proceedings, Roadmac applied for interim relief, seeking an interdict, which was granted. With immediate effect, the MEC was interdicted from giving instructions to Tau Pele to continue under the tender, and Tau Pele was interdicted from commencing with any further work. The order granting the interim interdict directed that the costs leading up to the hearing of the application for an interdict stand over for determination at a later stage.

Appeal: The review application was heard, and an order dismissing this application was delivered. Leave to appeal this order was granted by the High Court. The appellant, Roadmac Surfacing, appeals against the dismissal of the review application. Conspicuously, the costs aspect of the order remains unresolved, as the High Court failed to deal with it. This failure is the subject matter of one of the grounds of appeal raised by Roadmac. The issue to be determined is whether the judgment or order sought by Roadmac will have any practical effect or result.

Discussion: Roadmac argued that it was entitled to these costs. In addition, it stated that the High Court’s failure constituted a misdirection, the High Court having failed to direct itself to all the pertinent and relevant issues. Counsel for the respondent (the MEC) argued that both the merits and the costs held over were moot. However, during his argument, he was constrained to concede that finality had not been attained in the matter because of the outstanding determination of costs. Further, that the respondent was liable for the costs when the completion certificate was handed up from the bar, which necessitated a postponement. On the merits of the appeal, counsel for Roadmac argued that, even though the relief it sought in relation to the award of the tender was moot, and the appeal would have no practical result or effect, it was entitled to a declaration by the court in terms of section 172 of the Constitution that the administrative act of the respondent was invalid. When asked to what end such a declaration should be made, the response advanced was that it might open an avenue for a civil suit against the respondent.

Findings: The above is akin to Roadmac seeking advice from the court to bolster a further civil suit. Courts will not decide matters which are purely academic and will have no practical effect. The appeal on the merits is academic, moot and of no practical effect, as the works had been completed as far back as 2023. Since Roadmac successfully obtained the interim interdict, it was entitled to obtain the costs for the dates preceding the interdict order. It is not clear why the previous court did not deal with those costs when the court heard the application for the interdict. The High Court overlooked the costs. In these circumstances, it is in the interests of justice that the cost order of the review proceedings be amended. Roadmac argued that the failure of the High Court amounts to partial success on appeal in these exceptional circumstances, warranting a costs order in their favour. This argument has merit. This is more so because it was notified on the steps of this court about the completion certificate. It had already incurred the costs. Roadmac is successful to this extent.

Order: The appeal succeeds in part. The order of the High Court is varied by adding to the order that the first respondent is ordered to pay the wasted costs, which costs shall include the costs of two counsel, where so employed.

HUGHES JA (MABINDLA-BOQWANA JA, MOLEFE JA, KEIGHTLEY JA and MJALI AJA concurring)

Facts: Senqu Coal Trading used to operate a coal mine and entered into an agreement with Pindulo for the sale of coal. Despite having received payments, Senqu allegedly defaulted on its delivery obligations and Pindulo instituted winding-up proceedings against Senqu for its failure to repay over R6 million. The liquidators were appointed and pursuant to their appointment assumed control of Senqu’s assets, including its bank accounts. The liquidators discovered that while Senqu had ceased trading as early as 2019 its bank accounts remained active. They also learned that these bank accounts were apparently used by Cometa Trading and other entities controlled by a Mr Pritchard as cash holding accounts. It later surfaced that on the same day the sheriff served the winding-up application, payment of R710,763.92 was transferred from Senqu’s bank account to Cometa. This transfer was done by a representative of Cometa who had access to Senqu’s bank accounts.

Application: The liquidators were of the view that since the transfer from Senqu’s account to Cometa was after the commencement of the winding-up proceedings it constituted a disposition in an attempt to place Senqu’s property beyond the reach of its creditors. It made a demand to Cometa to repay the funds, which was refused. Consequently, the liquidators sought this court’s intervention under section 341(2) of the Companies Act 68 of 1973 to recover the disposition.

Discussion: Section 341(2) sets out four requirements that an applicant must establish to void a disposition. Thus far, two of these requirements have been satisfied: (i) a disposition was made, and (ii) it occurred after the commencement of Senqu’s winding-up, when Senqu was unable to pay its debts. The remaining issues to be determined are whether the funds in question were the property of Senqu and whether the disposition was in fact made by Senqu. Mr Pritchard is identified as the sole director and controlling mind behind Senqu and is also a director of Cometa. An important consideration in this matter is the status of the money that was held in Senqu’s bank account. Especially, in the context of the facts of this matter, as Cometa alleged that the funds in the account were not Senqu’s but rather belonged to Cometa. (See the discussion from para [21] on the status of money in a bank account.) Once funds are deposited into a bank account, ownership transfers to the bank, who in turn becomes indebted to the account holder. The law is clear that the depositor loses ownership, and any claim to the funds by a third party must be pursued against the account holder, not the bank.

Findings: While Cometa could have treated the account as its own, until such time as the bank had been informed of the position, the obligations owed by the bank, in respect of the funds, accrued to Senqu. Cometa attempted to engage with the bank after the winding-up process have already commenced to delink the account and transfer it to Cometa. This request the bank denied, as it was entitled to do, since its obligation was with Senqu. Cometa’s claim that it genuinely believed the funds in the account were its own may be important in assessing bona fides and good faith, but does not absolve it of liability. The account was held in Senqu’s name and remained active even after Senqu ceased trading. Regardless of Cometa’s internal understanding, the legal ownership of the funds remained with Senqu, and the transaction occurred after the winding-up process had commenced. The mere belief in ownership, absent any formal arrangement with the bank to transact on Senqu’s account with its own funds, cannot override the statutory protections afforded to creditors.

Order: Cometa is to pay the applicants the sum of R710,763,92 and interest.

MONTZINGER AJ

Facts: In 2015, Dr Smuts, who is a nature conservationist, was appointed as the respondent’s (Kromelboog’s) sole director until his removal in 2021. The respondent is a company that engages in livestock farming. It is solely owned by a trust named Tamarisk. Dr Smuts was also a trustee and an executive officer of a not-for-profit charitable trust, Landmark. Tamarisk, Landmark and the respondent concluded a written management agreement in terms of which Landmark was appointed as a manager of the properties that the respondent had purchased. Dr Smuts was given Tamarisk’s notice of intention to remove him as a director in terms of section 71 of the Companies Act 71 of 2008. The reasons stated for his removal included a breakdown in trust between himself and Tamarisk; the insolvency position of the respondent; his alleged disparaging remarks about Tamarisk; and a clear conflict of interest that had arisen as a result of the two positions he held, as a director of the respondent and as a trustee of Landmark.

Appeal: Dr Smuts attended a section 71 meeting at which he was legally represented. After making representations, Dr Smuts was removed as a director of the respondent. The respondent brought an application in the High Court to declare Dr Smuts a delinquent director. The High Court found the grounds for declaration of delinquency to have been met. The issue in this appeal is whether an order declaring the appellant a delinquent director in terms of section 162 of the Companies Act 71 of 2008 was justified.

Discussion: Dr Smuts was clearly in a conflicted position. He was a sole director but rendered to the respondent invoices for his personal financial interest without obtaining authorisation from its shareholder. He demanded documents as part of the scheme to accept possession of the properties belonging to the respondent shortly before he was removed as a director. He caused the respondent’s bank account to be frozen; used its funds to be paid for legal fees, while the company was in a dire financial position; he caused a donation to be paid to Landmark (where he had a personal financial interest) without the shareholder’s authorisation; and transferred funds belonging to the respondent to Landmark. That conduct clearly amounts to gross abuse of the position of a director and infliction of harm on the respondent as contemplated in section 162(5)(c)(i) and (iii) of the Act.

Findings: Dr Smuts’ actions also amount to gross negligence, wilful misconduct and breach of trust within the contemplation of section 162(5)(c)(iv). He made it clear, at one point, that he stood by the decision he had made. He also admitted other events but justified them. He was intent on protecting the project at all costs to the detriment of the respondent whose interests he ought to have protected as a director. He acted as if he was entitled to treat the respondent as merely a vehicle to pursue his project, instead of a separate juristic entity, the interests of which he had a statutory duty to protect. Even after receiving the notice indicating that he was acting in a conflict of interest, objectivity escaped Dr Smuts, he continued with his actions regardless. No matter how disconcerted he might have been about the JV fallout, he was not released from the fiduciary duties he owed the respondent. The High Court’s order, declaring Dr Smuts a delinquent director within the contemplation of section 162(5) of the Act, was correct.

Order: The appeal is dismissed with costs.

MABINDLA-BOQWANA JA (DAMBUZA JA, MOLEFE JA, HENDRICKS AJA and BAARTMAN AJA concurring)

Facts: Mr Kingscott (applicant) is a candidate engineer and applied to have his General Work Visa changed to a Critical Skills Visa (CSV) contemplated in section 19(4) of the Immigration Act 13 of 2002. His application was rejected and he appealed to the Director-General who rejected the appeal. The applicant then lodged a further appeal to the Minister. The Minister dismissed his appeal and reasoned that in terms of the Critical Skills List under the category “Engineering”, no provision is made for candidate engineers. A critical skills work visa contemplated in section 19(4) of the Immigration Act must be in line with the content of the Critical Skills List and for an applicant who is registered as a professional engineer.

Application: The applicant seeks to review and set aside the decision taken by the Minister and that the court order the Minister to issue the applicant with a CSV, alternatively, that the application for the CSV be remitted back to the Minister for reconsideration. Counsel for the Minister invited the court to obiter deal with what appears to be a growing scourge in the engineering profession where candidate engineers perform the work unsupervised and for a long period of time. A candidate engineer is not allowed to work unsupervised. See the discussion from para [10].

Discussion: It is clear from the text of section 19(4) that exceptional skills or qualifications are contemplated. A candidate engineer cannot be seen as an individual possessed with exceptional skills or qualifications. A candidate engineer, which is what the applicant was registered as, cannot be said to be a greater than usual engineer. A candidate engineer cannot work alone without supervision. A candidate engineer is not a skill contemplated in section 19(4). The applicant alleged under oath that he was employed as a Manufacturing Manager. This being an attempt to bring himself within the list of critical skills. However, the contract of employment reveals that OE Bearings (Pty) Ltd employed him as a Production and Design Engineer and not a Manufacturing Manager. A Manufacturing Manager contemplated in the list must be a professional engineer and not a candidate engineer.

Findings: When the Minister concluded that, based on the Engineering Council of South Africa registration category, the applicant lacked the necessary critical skills, the Minister was not materially influenced by any error of law. The decision to dismiss the application for CSV cannot by stretch of any imagination be unlawful nor unconstitutional. The Minister did not act irrationally since his decision is related to the purpose for which the power exercised was given. The purpose is to ensure that critical skills are retained in the Republic of South Africa. Where a skill is not critical, there is no purpose served to retain such a skill. The means used by the Minister to establish if the applicant was registered as a professional engineer is one that is rationally connected to the purpose of section 19(4) of the Immigration Act. The decision to dismiss the CSV application was taken on a sound legal basis and it is not arbitrary nor capricious. The decision does not offend the principle of legality since it is lawful and rational.

Order: The application for review is dismissed. The applicant is to pay the costs of this application on a party and party scale taxable or to be settled at scale B.

MOSHOANA J