Industrial Development Corporation of South Africa v Sooliman (2013/21466) [2013] ZAGPJHC 179; 2013 (5) SA 603 (GSJ) (18 July 2013)

REPORTABLE

REPUBLIC OF SOUTH AFRICA

SOUTH GAUTENG HIGH COURT, JOHANNESBURG

CASE NO: 2013/21466

DATE: 18/07/2013

IN THE MATTER BETWEEN:

INDUSTRIAL DEVELOPMENT

CORPORATION OF SOUTH AFRICA …...........................................................APPLICANT

AND

SOOLIMAN, MOHAMMED.................................................................FIRST RESPONDENT

AST AFRICA TRADING 501 CC.....................................................SECOND RESPONDENT

AKBAR, KHADIJAH.............................................................................THIRD RESPONDENT

STANDARD BANK OF SOUTH AFRUCA LTD..............................FOURTH RESPONDENT

JUDGMENT

Headnote:

Rule 6(12) (c) application by a respondent for a reconsideration of an order taken urgently and without notice to the respondent – history of the controversy about whether further affidavits may be filed by the aggrieved respondent and/or the applicant traversed – purpose of a reconsideration is a full ventilation of the dispute as if the initial hearing had complied with the audi alterem partem principle and must be distinguished from a mere ‘review’ of the initial decision

Aggrieved respondent had filed an answer and had objected to the applicant filing a reply to the answer.

Held:

(a) If a respondent who invokes Rule 6(12)(c) chooses not to put up an answering affidavit, then the respondent likewise has no need, nor an opportunity, to put up a reply.

(b) If a respondent who invokes Rule 6(12)(c) chooses to file an answer, then the applicant may file a reply, which is, obviously, subject the general rules and practice about not introducing new matter illegitimately.

Per Sutherland J:

Introduction

1. On 19 June 2013, the applicant procured an interdict against the first, second and third respondents, freezing their bank accounts

with the fourth respondent and attaching certain movable equipment. The order was taken urgently and ex parte. This was the second such order taken, the first being on 4 June 2013, in respect of two trucks.

2. The order of 4 June has not been challenged. The first respondent, Sooliman and the third respondent, Akbar, who is the wife of the first respondent, seek a ‘reconsideration’ of the order of 19 June, as contemplated by Rule 6 (12)(c) which expressly provides therefor in the case if an urgent order taken against a person without notice. The two applicants for reconsideration shall be referred to as Sooliman and Akbar, the applicant as IDC. The second respondent, a close corporation of which both other

respondents are members has not sought a reconsideration.

3. An affidavit was filed by Sooliman in support of the reconsideration.

May a replying affidavit be admitted by the IDC ?

4. A preliminary controversy was ventilated about the propriety of an applicant in a rule 6(12)(c) application filing a replying affidavit, which was what IDC had done. An interlocutory application to strike out the replying affidavit was made. It was contended that no replying affidavit was permissible. Reliance was made on the decision in Basil Read (Pty) Ltd v Nedbank Ltd & Ano 2012 (6) SA 514 (GSJ).

5. There have been several Judicial pronouncements on the rule regarding the filing of affidavits in rule 6(12) (c) applications. In Rhino Hotel & Resort (Pty) Ltd v Forbes & Others 2000 (1) SA 1180 (W) at 1182B – D, Joffe J held that the ambit of Rule 6(12)(c) was such that the papers initially filed were alone permissible for the ‘reconsideration’. However, in Reclamation Group (Pty) Ltd v Smit 2004 (1) SA 215 (SECLD) at 218D - F, Froneman J allowed affidavits, ostensibly, from both parties, to be admitted. The rationale was that the decision at reconsideration stage had to take stock of the reality that circumstances may have evolved since the order had been granted. The judgment did not address the question of whether there ought to be a qualitative distinction to be drawn between an answering affidavit from the aggrieved respondent and a replying affidavit from the successful applicant.

6. Neither of these two decisions referred to the earlier decision by Farber AJ in ASDN Solutions (Pty) Ltd v CSDN Solutions CC & Others 1996(4) SA 484 (W) at 487D, where it was stated that:

“ Although no hard and fast rule need to be laid down, it seems desirable that a party seeking to invoke the rule ought in an affidavit to detail the form of reconsideration required and the circumstances upon which it is based.”

Plainly, Farber AJ encouraged the filing of an affidavit, the better to inform the court.

7. Then Wepener AJ (as he then was) in Oosthuizen v Mijs 2009 (6) SA 266 (W) addressed the issue. The judgment usefully and lucidly collects the relevant caselaw on the subject, and I do not again traverse the ground thus presented. At 270C in Oosthuizen, Wepener J categorically differed from The Rhino Hotel doctrine of ‘no affidavits at all, and at 269H – 270B, he endorses the approach of Farber AJ in ASDN Solutions, cited above. Wepener J held:

“I am of the view that a court that reconsiders any order should do so with I the benefit not only of argument on behalf of the party absent during the granting of the original order but also with the benefit of the facts contained in affidavits filed in the matter. The applicant filed an affidavit in support of its 'set down' for a reconsideration. The respondent filed an answering affidavit and a reply was served and filed. If a court had to reconsider the order granted on an urgent basis in the absence of a party, by limiting the hearing to permitting a party to supply additional argument and utilising the record of the original application only, a court would be closing its eyes to the facts placed before it that could have led to a completely different result when the order was originally granted in the absence of the one party. B I am consequently of the view that a court should consider all the permissible facts disclosed in the affidavits before it.”

8. Saldulker J in Basil Read was called upon to decide whether to allow a hitherto successful applicant to file another affidavit which was designed, on her findings, to ‘bolster’ the initial case made out when the aggrieved respondent had not file an answer. She refused to permit that outcome and rightly so. At [17] – [21] the case law was traversed and at [22] and at [37] she held as follows:

“[22] It appears that the authorities and the additional judgments referred to by Wepener J in the Oosthuizen case, all support the proposition that a party that seeks a reconsideration of an urgent order made in his absence if it wishes to, may present facts on affidavit which a court may take into account in reconsidering the order. However, none of these judgments provide the authority for the contention that an applicant for an urgent order may supplement its original founding affidavit with additional matter when faced with an application for reconsideration under rule 6(12)(c). The Rhino case, in my view, remains the authority for the proposition that a party in the position of the opposing party is entitled to seek a reconsideration on the original application without reference to anything else”

“[37] To permit a litigant who has sought an order, without notice in terms of rule 6(12), against a party whose rights were affected by the order granted in the urgent court, to file a supplementary founding affidavit in a reconsideration application by the aggrieved party, is to afford him another opportunity to bolster the original application, especially where the aggrieved party has not filed any affidavits. Furthermore, to allow a litigant to do so would be to create an untenable precedent contrary to the function and the purpose of rule 12(6)(c). It would not redress the imbalances, the injustice and the prejudice resulting from the order sought and granted in his absence.” ( Emphasis supplied)

9. As expressly pointed out in the dictum at [22], none of the decisions pointedly address whether or not an applicant can or cannot file a reply when an answer has been filed by the aggrieved respondent, save only for Rhino Hotel case which denies space for any affidavits, an approach which is out of step with the authorities both before and after it was decided in 2000. In Basil Read, what Sadulker J did was to refuse to let an applicant make out a better case in a further affidavit than in the founding affidavit. In my view that is as far as that decision went. It is axiomatic, on well established principles, that a reply is not a place to amplify the applicant’s case, its function is limited to refutation of the respondent’s answer. ( See: Standard Bank of SA v Sewpersadh & Another 2005 (4) SA 148 (C) at [21]) What is not dealt with in Basil Read is the question of an appropriate reply; ie a reply to challenge the answering affidavit when it raises material matter not addressed in the founding affidavit and not culpably omitted from the founding affidavit. If the dictum in Basil Read was intended to lay down a hard and fast rule, which would inhibit that, then I must respectfully disagree that such an approach is appropriate to rule 6(12) (c) applications.

10. The critical phrase in the Rule is “reconsideration of the order”. The rationale is to address the potential or actual prejudice because of an absence of audi alterem partem when the ex parte order was granted. The rule is not a ‘review’ of the granting of the order. A ‘reconsideration’ is, as has been often said, of wide import. It is rooted in doing justice in a particular respect; ie to allow the full ventilation of the controversy. In my view it would be a pretence at justice to craft a mechanical approach which disallowed a full ventilation which would be the outcome, if a relevant reply, if any, was to be prevented. The object of the rule should be, ex post facto, to afford an opportunity for a hearing afresh as if there had been no earlier non-observance of the audi alterem partem doctrine. To disallow a reply, on principle, serves no sound principle or policy that is consistent with the aim of full and proper ventilation of disputes, which is what a ‘reconsideration’ ought to be about.

11. It is true, that if a respondent chooses not to put up an affidavit and to confine the counter attack to purely what was before the court when it initially granted the ex parte order, there is no room for the respondent to put up a further affidavit (still less a so-called ‘supplementary founding affidavit’; an ill-titled crafty manipulation of the court process that should be stamped out ruthlessly). Such was the case in Basil Read. In such a case, the stance of the parties on reconsideration would be identical to that had they come before a court on notice in the ordinary way. The norm for application proceedings is achieved.

12. Accordingly, in my view:

12.1 If a respondent who invokes Rule 6(12)(c) chooses not to put up an answering affidavit, then the respondent likewise has no need nor an opportunity to put up a reply.

12.2 If a respondent who invokes Rule 6(12)(c) chooses to file an answer, then the applicant may file a reply, which is, obviously, subject the general rules and practice about not introducing new matter illegitimately.

13. For these reasons, I allowed the applicant’s replying affidavit.

The reconsideration

14. The purpose of a rule 6(12)(c) reconsideration was captured by Farber AJ in ISDN Solutions (Supra) at 486H – 487D where he stated:

“The Rule reads as follows:

'A person against whom an order was granted in his absence in an urgent application may by notice set down the matter for reconsideration of the order.'

It came into operation on 29 November 1991.Counsel were unable to refer me to precedent dealing with the construction thereof. Nor was I able to find any.

The Rule has been widely formulated. It permits an aggrieved person against whom an order was granted in an urgent application to have that order reconsidered, provided only that it was granted in his absence. The underlying pivot to which the exercise of the power is coupled is the absence of the aggrieved party at the time of the grant of the order.

Given this, the dominant purpose of the Rule seems relatively plain. It affords to an I aggrieved party a mechanism designed to redress imbalances in, and injustices and oppression flowing from, an order granted as a matter of urgency in his absence. In circumstances of urgency where an affected party is not present, factors which might conceivably impact on the content and form of an order may not be known to either the applicant for urgent relief or the Judge required to determine it. The order in question may be either interim or final in its operation. Reconsideration may involve a deletion of the order, either in whole or in part, or the engraftment of additions thereto.

The framers of the Rule have not sought to delineate the factors which might legitimately be taken into reckoning in determining whether any particular order falls to be reconsidered. What is plain is that a wide discretion is intended. Factors relating to the reasons for the absence, the nature of the order granted and the period during which it has remained operative will invariably fall to be considered in determining whether a discretion should be exercised in favour of the aggrieved party. So, too, will questions relating to whether an imbalance, oppression or injustice has resulted and, if so, the nature and extent thereof, and whether redress is open to attainment by virtue of the existence of other or alternative remedies. The convenience of the protagonists must inevitably enter the equation. These factors are by no means exhaustive. Each case will turn on its facts and the peculiarities inherent therein.”

( see too: Froneman J in Reclamation Group (Supra) at 218G – 219A)

15. The thrust of the application was that Sooliman was a fraud and a thief. It was alleged that in his capacity as a senior employee of IDC he was in control of various companies who were indebted to the IDC. His role was to disgorge from such companies, repayment of the sums owed to the IDC. This involved managing them and disposing of their assets to pay these debts. His role was one of utmost good faith. He was in charge of two companies pertinent to the application, Hans Merensky Products (HMP) and Zebra Pellets (Zebra), for the purposes of extracting repayments.

16. The allegations in the Founding Affidavit are that Sooliman, in course of disposing of the assets of HMP, disposed of them for less than fair value under circumstances that warrant the inference that irregularities were committed by him in the process. Secondly, whilst in control of Zebra, he caused many payments over a period of about a year to be made from Zebra to the second respondent for fictitious transport services supposedly rendered. Further, using these ill gotten gains, he acquired two items of heavy machinery used in the timber industry, a Chipper and a Debarker.

17. The order covers the equipment and bank accounts of the second respondent and Sooliman’s personal bank account. Akbar is a member of second respondent and is interdicted from operating its bank account. Further, the house and the bond account in respect of which Sooliman and Akbar each have a 50% interest is covered, and thus, Akbar, who it is common cause, must be regarded as an innocent party, is implicated and inconvenienced by the interdict, the IDC not persisting with its initial contention that she be regarded as a joint wrongdoer by virtue of her membership of the second respondent.

The challenges

18. The overall contention is that the IDC concealed facts relevant to the application. Undoubtedly, a material non-disclosure in this sort of application would be fatal to its prospects for it would amount to a fraud on the court. Despite this overarching remark, the contention was not seriously pressed, rather a critique of supposed deficiencies was the hall mark of the respondent’s case. One overall supposed weakness was to suggest that one Naidoo whose ferreting was alleged to be the fount of the data upon which the frauds were unmasked had not said what credentials he possessed to embark upon a forensic exercise. The character of the facts relied upon however call for no forensic expertise and seem in my view to be quite within the capabilities of a literate person with common sense. The point cannot assist the respondents.

The HMP Assets

19. The challenges by Sooliman to the HMP allegations are twofold. First, that the IDC has no locus standi to complain of a fraud in respect any irregularity in dealing with HMP’s assets, assuming that there were thefts and frauds. Secondly, the facts set out in the Founding Affidavit do not demonstrate any prima facie wrongdoing by Sooliman.

20. The premise of the notion that the IDC has no standing relates to the nature of the relationship between IDC and HMP. Essentially, IDC lent money to HMP. The Founding Affidavit alleges a joint venture but that relationship is nowhere substantiated, and the allegation can be ignored. HMP defaulted on the loan. The two shareholders, Singisi Forest Products (Pty) Ltd (SFP) and Financiera Maderera SA (FINSA), in an agreement with IDC, undertook to pay the whole of HMP’s debt to IDC. Hence, so it was argued, if HMP’s assets were fiddled, it was up to them to cry fraud: the IDC has no interest in the assets of HMP.

21. This perspective is incorrect. First, the agreements in terms of which the two shareholders assumed a liability for HMP’s debts were guarantees of the debt not a transfer of liablity. HMP remained the debtor. Moreover, IDC had notarial bonds both general and special over the assets of HMP. This was IDC’s security for the debt. FINSA had paid its half share of the IDC’s entitlement. SFP had agreed to pay its share off in instalments over a period enduring into 2017. Plainly, the need for security in the form of the bonds was still necessary and functional. The interest of the IDC in the assets has been demonstrated.

22. Moreover, the alleged fraudulent dealing with the assets of HMP by Sooliman, was carried out whilst Sooliman was an employee of IDC and its agent in disposing of the assets. The two shareholders were entitled to the benefit of the value derived from such disposals in reducing their own liability. If the IDC’s agent defrauded them the IDC would be at risk of a diminished payment from each, because they would be entitled to a credit for value as on an honest disposal of the assets.

23. The second leg of the challenge was that no irregularity had been shown. This took the form of a critique of the averments in the Founding Affidavit. A degree of criticism was appropriate, but there was not enough to unsuit the IDC. The facts adduced show that on 15 February 2011 a valuation of all the assets of HMP reflected a value of some R5million. On 10 June 2011, a sale of certain assets took place under the management of Sooliman to ‘Industry International’ for R1million. The IDC alleges a R4million

discrepancy explicable as a fraud.

24. That contention is exaggerated, but not incorrect. However, even on the most generous analysis, a significant evaporation of value occurred. The list of assets, sold for R1milion, were valued at R2.4 million in February 2011. Sooliman, the man in charge, does not explain why they were sold for less than half the valuation after only four months. Reliance is placed solely on a letter of 17 June 2011 in which Sooliman put to Coetzee, an employee of HMP, in effect an ultimatum to take the deal unless he, Coetzee, could better it. From the bar it was argued that the fairly achieved price is not necessarily the valuation figure. It is a pity that assertion was not in the affidavit with an explanation why it was so in these circumstances.

25. Moreover, proceeding on the premise that the unexplained discrepancy can be overlooked, the fate of the other R2.4 million of assets is not explained by the man who was in charge at the time. Even assuming the value was again halved, when and where did the things go? There is reference to stock being taken by the shareholders, but this component of the assets, on the valuation of 15 February, only amounts to R120,000 of the R5million. The discrepancy is manifest, and if theoretically, this defence had been available to the court on 19 June, it could not have prevailed. More importantly, there is no cogent flaw in the basis alleged to infer the suspicion of fraud regardless of the magnitude of the discrepancy.

26. There was an ancillary allegation that Sooliman had cancelled the auction of the goods by lying that the IDC executive wished to utilise the assets for some well meaning but implausible social responsibility scheme. Sooliman’s riposte was that the scheme was indeed authorised by the credit committee. In one of the few pertinent contents of the replying affidavit it was alleged that the minutes of the credit committee reflect no such decision. This dispute of fact, if it is indeed one, is about a peripheral aspect which can be ignored.

The Zebra Transactions

27. The Founding Affidavit sets out, with documentary corroboration, a long series of transactions in which Sooliman, as IDC’s agent, caused payments to be made by Zebra to the second respondent. It is alleged that Zebra and the second respondent had no relationship and that no cause existed for services to have been rendered by the second respondent to Zebra. These allegations are baldly denied and no attempt is made to rebut or deny the facts as alleged. Instead, the challenge of Sooliman is to pick away at the affidavit to impute deficiencies in the case made out.

28. It was argued that no-one from Zebra deposed to a confirmatory affidavit, an audacious assertion when it is common cause that

Sooliman was the man in control at the very time, and his signature appears on dozens of documents processing the very payments. A similar remark is vainly made about the absence of an affidavit from someone in the IDC’s financial management department or the person who had formal authority to sign off on the payments from Zebra, one Zambane. Criticism is also advanced that certain

documents attached do not tie up with others and with the allegations relating to a purchase made supposedly by him from Zebra or IDC in respect of the equipment attached under the order. In this respect the allegations of the IDC are vague and supported by supposition, but are also, importantly, based on a document given to the IDC by Sooliman in purported proof of payment for the equipment. Its ambivalence does not in those circumstances attract cogent criticism.

29. In my view, the contention that the allegations are without substantiation is an exaggeration.

The impact of the order on Sooliman

30. The second respondent is the alter ego of Sooliman for all practical purposes. The efficiacy of the order on the second respondent will be largely nugatory, if not also applicable to Sooliman. No grounds exist to vary the order in respect of the second respondent.

Moreover, given the absence of a full disclosure by Sooliman of his other personal assets, and his complete financial position, there are no facts to consider in the context of a possible variation to ameliorate some genuine hardship from which he may suffer. The allegations of prejudice are bald and devoid of substantiation in the absence of such disclosure.

The Impact of the order on Akbar

31. The personal rights of Akbar are seriously affected only in respect of the house and the bond account. Her membership of the second respondent is relevant only in so far as she is inhibited from acting in her capacity as an authorised signatory on the account. The assets are not hers, although she self- evidently, as a member, has an interest. Her interests as a member however must be subordinated to the fate of the second respondent.

32. Undoubtedly, her rights and interest in her half share of the property and its bond account are intrusive. Whenever a legitimate

attachment is made on property jointly held that is a inevitable result. However, that affect can be ameliorated if a proper case is made out why the inhibition ought to be varied during the interim period before finalisation of the main proceedings. No attempt to set out such case has been made, which would have required full disclosure of her financial position to assess the cogency if the assertion.

The overall balance of convenience

33. Under this rubric it was contended that the IDC had quite enough security for it to be satisfied pending the outcome of the action. Thus, it was argued that the IDC did not really need to tie up the bank accounts and make the second respondent’s efforts to trade either impossible or very difficult and intrude so deeply into the personal lives of Sooliman and Akbar. Thus is certainly a factor to weigh. However, given the estimated quantum of the claim, running into millions, and the risk of dissipation, measured in the context of alleged criminal conduct, ie theft and fraud, the balance in my view does not swing in their favour.

Conclusions

34. In my view no justifiable grounds exist to alter the order.

35. Accordingly, it is ordered that:

35.1 The application in terms of Rule 6(12)(c) is dismissed.

35.2 The first and third respondents shall pay the Applicant’s costs of opposition, including the costs of two counsel.

_____________________________________

ROLAND sutherland

Judge of the South Gauteng High Court,

Johannesburg

17 July 2013

Hearing: 17 July 2013-07-17

Delivered orally: 18 July 2013

Edited: 19 July 2013

For Applicant:

Adv L. Morison SC, with him, Adv R. Keightley,

instructed by Bibi Rihkotso Attorneys

Ref: Mt B Rikhotso

For First and Third Respondents

Adv N. Alli,

instructed by Abba Parak Inc

Ref: -