Commissioner: Companies & Intellectual Property Commission v Independent Music Performance Rights Assoc and Another (37475/2020) [2020] ZAGPPHC 668 (23 November 2020)

IN THE HIGH COURT OF SOUTH AFRICA

(GAUTENG DIVISION, PRETORIA)

(1) REPORTABLE: YES

(2) OF INTEREST TO OTHERS JUDGES: YES

(3) REVISED

REPORTABLE

CASE NO: 37475/2020

In the matter between:

THE COMMISSIONER: COMPANIES &

INTELLECTUAL PROPERTY COMMISSION

Applicant

and

INDEPENDENT MUSIC PERFORMANCE RIGHTS ASSOC First Respondent

STANDARD BANK OF SA LTD Second Respondent

JUDGMENT

NGALWANA AJ

A. The Landscape

[1] Litigation need not be a zero-sum contest. Courts are not (or at least are not supposed to be) referees in a gladiator sport where the winner makes off with all the spoils and the vanquished

suffers the ignominy and financial ruin of defeat. A court should, within legally permissible bounds, be able to resolve

disputes without using the law, or its own grasp of the law, as a blunt instrument to inflict wounds on the unsuccessful litigant that could take many years to heal. Far more efficacious for a court to render judgment that resolves a dispute between litigants, than one that vindicates and affords bragging rights to one party and certain ruin to another. Indeed, courts should be more in the mould of Solomon than either Pontius Pilate or the Grim Reaper.

[2] The facts of this case, and the issues it raises, lend themselves to a win-win outcome but tinged with a stern warning for the erring party.

[3] The Independent Music Performance Rights Association (“IMPRA”) is a not-for-profit outfit. Until 20 July 2020 it was one of two collecting societies accredited by the Companies and Intellectual Property Commission (“the CIPC” or “the Commissioner”) as a Collecting Society pursuant to Regulations on the Establishment of Collecting Societies in the Music Industry (“the Regulations”) under the Copyright Act, 98 of 1978. The aim of Collecting Societies is captured in Regulation 6(2) as being

“to administer public playing rights effectively and efficiently, to maximise the economic exploitation of the rights entrusted by the rightholders for their direct benefit and not to generate or accumulate unneeded profits in the hands of the collecting society

itself, and to distribute the proceeds of such exploitation equitably amongst its members. A collecting society shall distribute at least 80% amongst its members, and not more than 20% shall be retained by the collecting society after distribution to defray its costs or apply otherwise.”

[4] In short, they are entities accredited by the CIPC to distribute royalties to copyright owners, their licensees and performers.

[5] The CIPC is an organ of state established under the department of trade and industry in terms of s 185(1) of the Companies Act, 71 of 2008. Among other things, it regulates the functioning of collecting societies.

[6] The Commissioner alleges that IMPRA is failing to administer public playing rights effectively and efficiently. He says IMPRA is dissipating funds that should be distributed to copyright owners, licensees and performers. He refuses to renew IMPRA’s accreditation to keep performing that function. IMPRA has taken that decision on review.

B. The Problem: Non-Disclosure of material facts in ex parte Applications

[7] In the meantime, and pending the determination of the review application, on 13 August 2020, the Commissioner secured an anti-dissipation order against IMPRA from a Judge of this division. As is the norm in matters of this sort, he did so on an urgent basis and without giving prior notice to IMPRA. The order was interim in nature – again, as is the norm – pending determination of IMPRA’s accreditation as a Collecting Society pursuant to the Copyright Act, 1978. He called on IMPRA to show cause on 30 September 2020 why the order should not be made final (a rule nisi).

[8] On 30 September 2020, the rule nisi was by agreement extended by a different Judge to 16 November 2020 and argument was finally heard by me on 19 November 2020. I am grateful to both Counsel for helpful submissions both in writing and orally.

[9] As Counsel for the Commissioner was at pains to impress upon the court, the accreditation of IMPRA is not an issue that is before this court for determination. Thus, neither the niceties nor the irregularities of the Commissioner’s refusal to renew IMPRA’s accreditation as a Collecting Society need trouble this court. Those are issues for the review court. Here we are concerned only with whether the provisional anti-dissipation order of 13 August

2020 should be made final (confirmed) or set aside (discharged). Only to the extent that lack of accreditation is advanced by the Commissioner as a basis for confirming the rule nisi, may it be permissible in my view to peek into the accreditation argument.

[10] IMPRA seeks to persuade this court to set aside the order for what it says is failure by the Commissioner to make full disclosure of material facts, his pleading of untruths, and his failure to satisfy jurisdictional facts for anti-dissipation orders. On the jurisdictional facts aspect, Counsel says the Commissioner (a) has failed in his founding affidavit to indemnify IMPRA for damage that may be occasioned by the ex parte order if ultimately found to have been unnecessary, or to show risk of uncompensatable loss if the ex parte order were not granted and (b) to plead and show that the alleged secreting of funds was done “with the intention of defeating the claims of creditors”. For these reasons, IMPRA says, the order must be set aside, with costs on a punitive attorney and client scale.

[11] The Commissioner, on the other hand, says the rule should be confirmed. Counsel says because IMPRA is currently not accredited as a Collecting Society, it has no authority to remain in possession of the funds that are presently subject to the anti-dissipation order. Counsel says the facts on which IMPRA relies for the proposition that the Commissioner failed to make full disclosure are relevant only for the determination of the review of the accreditation decision in due course. He says the giving of an indemnity or undertaking for damage that may be caused to IMPRA by the granting of the ex parte order is context-specific and not a jurisdictional fact of general application in all anti-dissipation applications. In this regard, Counsel says, because IMPRA is a not-for-profit entity, it incurred no damages by the granting of the ex parte order. On the second jurisdictional fact – failure to plead and show intention to defeat the claims of creditors – Counsel for the Commissioner says this has been pleaded and shown.

[12] The problem, then, that requires resolution is whether the Commissioner, in his ex parte application, made full disclosure of all material facts and whether he met the jurisdictional facts for an anti-dissipation order. It is the answer to this question that will determine whether the order is to be confirmed or set aside.

C. The Solution: Principles, Discretion, Confirm or Discharge

[13] The law is settled on the requirements for an ex parte order[1]. Both Counsel are agreed on this. It is thus unnecessary to embark on a review of the authorities. It is, in my judgment, sufficient to point out that at their core, the following broad principles can be distilled from the authorities and they are by no means an exhaustive list. They are:

(a) full disclosure of all material facts which might influence a court must be made in ex parte applications;

(b) failure of full disclosure of such facts, or suppression of such facts, may result in rescission of the ex parte order whether such failure was willful or negligent;

(c) that the ex parte applicant does not believe the respondent’s version of facts that have been conveyed to the applicant, or believes the respondent’s defence to be ethereal, is not a valid basis for suppressing or not disclosing it;

(d) the duty of full and fair disclosure is imposed because orders granted without notice to affected parties are a departure from a fundamental principle of the administration of justice, namely, audi alteram partem;

(e) the law sometimes allows a departure from the audi alteram partem principle in the interests of justice but in those exceptional circumstances the ex parte applicant assumes a heavy responsibility in order to neutralise the prejudice that the affected party suffers by his or her absence;

(f) the ex parte applicant must also speak for the absent party by disclosing all relevant facts that s/he knows or reasonably expects the absent party would want placed before the court;

(g) the ex parte applicant must disclose and deal fairly with any defences of which s/he is aware or which s/he may reasonably anticipate;

(h) in particular, the ex parte applicant must disclose all relevant adverse material that the absent party might have put up in opposition to the order. In this respect, s/he must exercise due care and make such enquiries and conduct such investigations as are reasonable in the circumstances before seeking ex parte relief;

(i) even where the ex parte applicant has endeavoured in good faith to discharge his or her duty as an ex parte applicant, s/he will be held to have fallen short of the required standard if the court finds that matter s/he regarded as irrelevant

was sufficiently material to require disclosure;

(j) the test is objective;

(k) the court has a discretion, which must be exercised judiciously, when confronted with non-disclosure of material facts;

(l) an ex parte order may be set aside for non-disclosure or suppression of material facts even if the same relief could be obtained in a subsequent

application by the same applicant on the same facts against the same respondent.

[14] There is no dispute that there has been, in at least one respect, a failure on the Commissioner’s part to make full disclosure of material facts to the court. For example, the Commissioner concedes in his replying affidavit in these proceedings that he did not disclose to the court that IMPRA had made an undertaking not to transact on the bank account that is now subject to the anti-dissipation order. He says

“It is significant to state that if I had been aware of the undertaking, my approach to the matter could have been different, but the application would still have been launched for ancillary relief, and may also not have been launched on an ex parte basis.”

[15] There the curtain fell. Firstly, as was held in REDISA[2], the fact that an ex parte applicant would still obtain the same relief even if s/he had not proceeded ex parte is not a valid basis for confirming a provisional order that had been obtained irregularly on an ex parte basis by suppression or non-disclosure of material facts. Secondly, the Commissioner’s explanation for the non-disclosure

is that he was not aware of the undertaking, and therefore that

“there was no deliberate and/or premediated act to mislead the Honourable court, or willingly and significantly withholding that there was an undertaking given.”

[16] Counsel for the Commissioner also sought to impress upon the court that this non-disclosure was not deliberate or done in bad faith. But this is hardly the standard, even if the Commissioner were taken at his word. Whether non-disclosure of material facts was deliberate or inadvertent is, on my reading of the authorities, irrelevant for purposes of deciding whether to confirm the rule nisi or to discharge it. The negligent or deliberate nature of the non-disclosure, it seems to me, may be a factor only in determining

the scale at which costs should be made, where appropriate.

[17] The fact of the undertaking by IMPRA not to transact on the bank account in question was material to the granting of the ex parte order by Justice Basson. This is so because one of the principal bases for the order being sought in this fashion was that

“there is likelihood that the money currently held in its [IMPRA’s] account would be secreted out of the account.”

[18] Had the court been aware of IMPRA’s undertaking not to transact on that account, I am satisfied that the court might (as that is the standard) have been influenced by it not to grant the order on an ex parte basis without first hearing IMPRA’s defence.

[19] In the result, there is no question that the Commissioner failed to make a full disclosure of a material fact. IMPRA’s undertaking not to transact on the account in question disposes of the Commissioner’s apprehension or fear of a “likelihood that the money currently held in its account would be secreted out of the account”. That becomes particularly so when the undertaking is made part of an order of court.

[20] It is thus not necessary to traverse each of the other instances of non-disclosure or suppression of material facts as alleged by IMPRA. It is also, in my judgment, not necessary to resolve the interesting issue of whether or not jurisdictional facts – in the form of the pleading of an indemnity and the pleading of an intention to defeat the claims of creditors – have been satisfied. What remains is the exercise of this court’s discretion.

D. Discretion

[21] As previously indicated, non-disclosure (even suppression) of material facts in ex parte applications need not result, ineluctably, in the setting aside of the ex parte order. Each case should be considered on its own merits and factual matrix, and the court has a discretion it must exercise judiciously.

[22] In the exercise of discretion in order to determine whether to confirm or to set aside the ex parte order, regard must be had to numerous factors, including (a) the extent of the non-disclosure, (b) the question whether the judge

hearing the ex parte application might have been influenced by proper disclosure, (c) the reasons for non-disclosure, and (d) the consequences of setting the provisional order aside.[3] Having considered all these factors, and what I consider to be a most efficacious outcome in the circumstances, I am satisfied that the more judicious exercise of the discretion favours the setting aside of the ex parte order, subject to some reasonable safeguards to which Counsel have agreed.

[23] Counsel for the Commissioner sought to persuade the court that because IMPRA is currently not an accredited Collective Society, it has no authority to remain in possession of the funds in its account. As I understand the submission, it is that if this court were to set aside the anti-dissipation ex parte order for non-disclosure of material facts, the effect would be to place funds in the hands of an entity that has no authority to administer them. Counsel also submitted that there is no damage to IMPRA since it is a not-for-profit entity.

[24] On the damage point, Counsel for IMPRA says the damage caused by the anti-dissipation order is reputational. This, in my view, is not an insignificant consideration, especially in light of the wounding allegations made by the Commissioner against it, and which IMPRA was not given an opportunity to answer before the order was granted. While I am not suggesting that this was the Commissioner’s intention, officials exercising statutory powers ought to be discouraged from flexing their official sinews on the slightest suspicion of impropriety, however tenuous the basis for the suspicion. The responsibility to keep public officials in check on the wanton use of their considerable powers must ultimately fall upon the courts which must be the ultimate protectors of the rule of law and not surrogates for the subversion of it. I am alive to the fact that the CIPC, while located within the trade and industry ministry, does not form part of the public service. But the considerable statutory powers it (and the Commissioner) enjoys make it necessary to keep judicial reigns tight around its broad shoulders in order to keep possible wanton abuse of those powers in check.

[25] As regards the argument that IMPRA should not be placed in a position to administer the funds in question because it lacks the accreditation that authorises it to do so, several considerations emerge. First, it is the Commissioner (or the CIPC) that has refused to renew IMPRA’s accreditation on grounds that are being challenged by IMPRA. He cannot be allowed to engineer the very climate that disqualifies IMPRA, and then rely on that disqualification to keep IMPRA out in the cold. Second, having relied on the lack of accreditation point for the proposition that IMPRA has no authority to administer the funds in question, it cannot lie in the mouth of the Commissioner to say the basis for refusing accreditation is a matter only for the review court and not this court. In other words, the Commissioner cannot open the accreditation door when it suits him to advance his case, but then shut the door when IMPRA wants to walk in and state its case.

[26] On a conspectus of the pleadings and authorities, and in light of the cautionary undertaking that I propose making an order of court, I am satisfied that a case has been made out for the exercise of my discretion in favour of setting aside the ex parte order. Both Counsel, with whom I have conferred before including the undertaking so as to ensure an order that is capable of reasonable implementation without causing needless harm to either party, seem to agree that making IMPRA’s undertaking part of the order that I propose to make is a reasonable resolution of the dispute between the parties.

[27] That leaves the matter of costs.

D. Costs: The Standard for Attorney and Client Scale

[28] I am satisfied that a case has been made out for an order of costs on attorney and client scale. The Constitutional Court[4] has relatively recently restated the standard for costs on this scale. It said:

“[223] More than 100 years ago, Innes CJ stated the principle that costs on an attorney and client scale are awarded when a court wishes to mark its disapproval of the conduct of a litigant.[5] Since then this principle has been endorsed and applied in a long line of cases and remains applicable.[6] Over the years, courts have awarded costs on an attorney and client scale to mark their disapproval of fraudulent, dishonest or mala fides (bad faith) conduct;[7] vexatious conduct;[8] and conduct that amounts to an abuse of the process of court.[9]

(footnotes in original text)

[29] While I cannot say the Commissioner’s conduct – as evinced by his averments in the founding and replying affidavits, on the one hand, read together with IMPRA’s answering affidavit, on the other – meets the standard of bad faith, fraud or dishonesty, there is enough, in my assessment, to find vexatiousness and abuse of the court process.

[30] The standard for determining bad faith has been defined by the Constitutional Court as follows:

“The correct approach to determining the existence of bad faith is therefore one that recognises that bad faith exists only when the office-bearer acted with the specific intent to deceive, harm or prejudice another person or by proof of serious or gross recklessness

that reveals a breakdown of the orderly exercise of authority so fundamental that absence of good faith can be reasonably inferred and bad faith presumed.”[10] [11]

[31] Based on the Commissioner’s own concession in relation to the non-disclosure of IMPRA’s undertaking not to transact on the account in question – which in my judgment was a material fact and comprises one of the principal bases for the granting of the anti-dissipation order on an ex parte basis – I am satisfied that the Commissioner has displayed vexatious conduct and abuse of the court process. Conduct is vexatious if it is calculated to annoy or harass. The Commissioner’s swashbuckling approach is characterized by his rushing to a Judge in private, armed only with facts favourable to his purpose but giving scant regard to facts that may reasonably be in IMPRA’s favour which were conveyed to him or the CIPC. For example, the Commissioner knew that IMPRA disputes the bases for the refusal to renew its accreditation as a Collecting Society. This is because IMPRA, through its attorneys, conveyed this to him and even threatened a review, which it has now launched. He knew that IMPRA denies that it is secreting funds to the detriment of copyright owners, licensees and performers. On 28 July 2020, IMPRA’s attorneys even gave an undertaking in writing to the Commissioner’s attorneys that IMPRA had “absolutely no intention of dissipating or secreting from its account the funds in its possession. In the circumstances, the undertaking that you seek from our client is hereby given”. That written undertaking was given more than two weeks before the Commissioner launched his ex parte application on 13 August 2020. He says he had not received it. This is improbable. Two weeks is a very long time in the lead-up to an urgent application with potentially drastic consequences and brought ex parte. That the Commissioner disbelieved IMPRA does not justify approaching a Judge in chambers, without affording IMPRA an opportunity to be heard, for an anti-dissipation order, especially when he knew that IMPRA had an explanation for the challenges to distributing funds to members. It was incumbent on an ex parte applicant to place that explanation before the ex parte Judge, not suppress it because he does not buy it.

[32] For all these reasons, the Commissioner’s conduct was in my judgment vexatious and an abuse of the court process. That, in my view, justifies a costs order on an attorney and client scale.

[33] Counsel for IMPRA also intimated that it is troubling for an officer of the court (an advocate in the form and shape of the Commissioner) to advance untruths under oath and suppress material facts in an ex parte application. He did not press that issue in argument and I see no pressing need to take it further, particularly in light

of the fact that (having disposed of the matter based on the Commissioner’s own concession in relation to non-disclosure of IMPRA’s undertaking not to transact on the account in question) I have considered it unnecessary to assess the veracity of each of the other allegations of non-disclosure or suppression of material facts made against the Commissioner. I can only trust that the mere fact that an allegation of this sort should be made by a senior legal practitioner in relation to an official who has at his disposal statutory powers conceivably to harass and prejudice those over whom he exercises such power, is enough to ensure that he – and other officials in similar position – exercises the powers conferred upon him with the greatest care. Officials, whether public, private or hybrid, should be reminded that statutory power does not confer license to bully those over whom they exercise that power. Theirs is the power to serve.

[34] In the result, I make the following order:

(a) The rule nisi issued on 13 August 2020 is discharged.

(b) The application is dismissed with costs on the attorney and client scale, including costs consequent upon the employment of two counsel.

(c) Pending the determination of the review of the Applicant’s accreditation decision, the First Respondent is directed not to

transact on the bank account into which the funds in issue are received and/or held, except only for distributing such funds to

members on prior written notice to, and approval of, the Applicant, and such reasonable administration expenses as the First Respondent

may from time to time require to defray, and which may not exceed the amount or percentage provided for in regulation 6(2) of the Regulations.

(d) Should the First Respondent act in breach of the order in (c) above, the Applicant shall have the right to consider such breach as a material factor in its assessment of the First Respondent’s application for re-accreditation regardless of the outcome of the review application pending the final determination of which the order in (c) above is subject.

V NGALWANA

ACTING JUDGE OF THE HIGH COURT

GAUTENG DIVISION OF THE HIGH COURT, PRETORIA

Electronically submitted therefore unsigned

Delivered: This judgement was prepared and authored by the Judge whose name is reflected and is handed down electronically by circulation to the Parties/their legal representatives by email and by uploading it to the electronic file of this matter on CaseLines. The date for hand-down is deemed to be 23 November 2020.

Date of hearing: 19 November 2020

Date of judgment: 23 November 2020

Appearances:

Attorneys for the Applicant: State Attorney (Pretoria)

Counsel for the Applicant: Adv. R Masipa (079 261 0063)

Adv. X Shibe-Nkosi (083 524 1604)

Attorneys for the 1st Respondent: EnsAfrica

Counsel for the 1st Respondent: Adv. JM Suttner SC (082 412 2981)

Adv D du Plessis (083 600 8600)

[1] Recycling and Economic Development Initiative of South Africa NPC v Minister of Environmental Affairs 2019 (3) SA 251 (SCA) (“REDISA”), at paras 45-52, and authorities cited therein

[2] 2019 (3) SA 251 (SCA) at para 50

[3] REDISA (supra) at para 52

[4] In Public Protector v South African Reserve Bank (CCT107/18) [2019] ZACC 29; 2019 (9) BCLR 1113 (CC); 2019 (6) SA 253 (CC) (22 July 2019)

[5] Orr v Solomon 1907 TS 281. See Nel v Waterberg Landbouwers Ko-Operatieve Vereeniging 1946 AD 597 at 609 where it was held: “Now if a trial judge is satisfied that a defendant's conduct in connection with the subject matter of the proceedings was fraudulent that seems to me a ground on which he may be entitled in a particular case to exercise his discretion in favour of an award of attorney and client costs to the successful party.”

[5] Orr v Solomon 1907 TS 281. See Nel v Waterberg Landbouwers Ko-Operatieve Vereeniging 1946 AD 597 at 609 where it was held:

“Now if a trial judge is satisfied that a defendant's conduct in connection with the subject matter of the proceedings was fraudulent that seems to me a ground on which he may be entitled in a particular case to exercise his discretion in favour of an award of attorney and client costs to the successful party.”

[6] Limpopo Legal Solutions v Eskom Holdings Soc Limited [2017] ZACC 34; 2017 (12) BCLR 1497 (CC) at paras 35 and 37; South African Liquor Traders’ Association v Chairperson, Gauteng Liquor Board [2006] ZACC 7; 2009 (1) SA 565 (CC); 2006 (8) BCLR 901 (CC) at para 48; and Swartbooi v Brink [2003] ZACC 25; 2006 (1) SA 203 (CC); 2003 (5) BCLR 502 (CC) at para 27.

[7] MEC for Economic Affairs, Environment and Tourism v Kruisenga [2010] ZASCA 58; 2008 (6) SA 264 (SCA) at paras 77–80; Law Society, Northern Provinces v Mogami [2009] ZASCA 107; 2010 (1) SA 186 (SCA) at para 31; Davis above n 30 at para 28; Nordbak (Pty) Ltd v Wearcon (Pty) Ltd 2009 (6) SA 106 (W) at 117H; Bernert v Swanepoel 2009 (4) All SA 440 (GSJ) at 443b–d; Spieth v Nagel 1997 JDR 0375 (W) at 18; Friederich Kling GmbH v Continental Jewellery Manufacturers; Speidel GmbH v Continental Jewellery Manufacturers 1995 (4) SA 966 (C) at 975I-976E; BEF (Pty) Ltd v Cape Town Municipality 1990 2 SA 337 (C); Jooste v Minister of Police 1975 (1) SA 349 (E) at 356–7; Simmons v Gilbert Hamer & Co Ltd 1962 (2) SA 487 (D) at 496H-498C; Van Dyk v Conradie 1963 (2) SA 413 (C) at 418E; and Suzman Ltd v Pather and Sons 1957 (4) SA 690 (D) at 690G-691A.

[8] Thunder Cats Investments 49 (Pty) Ltd v Fenton 2009 4 SA 138 (C) at paras 33–4; Page v ABSA Bank Ltd t/a Volkskas Bank 2000 (2) SA 661 (E) at 667A-F; SA Droëvrugtekoöperasie Bpk v SA Raisins (Edms) Bpk 1999 3 All SA 245 (NC) at 254-7; Ernst & Young v Beinash 1999 (1) SA 1114 (W) at 1148D-G; Van Deventer v Reichenberg 1996 (1) SACR 119 (C) at 129B-D; and Delfante v Delta Electrical Industries Ltd 1992 (2) SA 221 (C) at 233B-G.

[9] Law Society of SA v Road Accident Fund 2009 (1) SA 206 (C) at paras 21-6; Alton Coach Africa CC v Datcentre Motors (Pty) Ltd t/a CMH Commercial 2007 (6) SA 154 (D) at para 40; Hudson v Wilkins 2003 (6) SA 234 (T) at para 20; Rhino Hotel & Resort (Pty) Ltd v Forbes 2000 (1) SA 1180 (W) at 1184J-1185B; Lourenco v Ferela (Pty) Ltd (No 1) 1998 (3) SA 281 (T) 300C-H; Mahomed & Son v Mahomed 1959 (2) SA 688 (T) at 692B-693B; and Hayes v Baldachin 1980 (2) SA 589 (R) at 595D.

[10] Public Protector v SARB, at para 72 (minority judgment)

[11] Réjean Hinse v Attorney General of Canada 2015 SCC 35 at paras 48 and 53. The Supreme Court of Canada adds at para 52 that “[a] simple fault such as a mistake or a careless

act does not correspond to the concept of bad faith”.