Mangaung Metropolitan Municipality v Van Zyl N.O and Others (3275/2016) [2021] ZAFSHC 314 (9 December 2021)

IN THE HIGH COURT OF SOUTH AFRICA,

FREE STATE DIVISION, BLOEMFONTEIN

Case number: 3275/2016

In the matter between:

MANGAUNG METROPOLITAN MUNICIPALITY Applicant

and

THOMAS CHRISTOPHER VAN ZYL N.O. 1st Respondent

CHAVONNES BADENHORST ST CLAIR COOPER N.O. 2nd Respondent

ELRICH RUWAYNE SMITH N.O. 3rd Respondent

Q. CIVILS (PTY) LTD (IN LUQUIDATION) 4th Respondent

HEARD ON:

26 AUGUST 2021

JUDGMENT BY: DANISO, J

DELIVERED ON: 09 DECEMBER 2021

[1] This is an opposed application for the rescission of a default judgment granted against the applicant, Mangaung Metropolitan Municipality (the municipality) on 11 August 2016.

[2] The factual background is the following: The municipality had awarded two contracts to the fourth respondent. Contract T1327B for heavy rehabilitation of the Kenneth Kaunda road and contract T1305B1 for the resealing of the road. During September 2015 to December 2015 three certificates were issued for payment for the work done by the fourth respondents, being certificate 8 (contract T1305B1) for the amount of R4 863 013.22, certificate 10 for an amount of R8 451 208.67 and certificate 11 for R612 719.78 (contract T1327B).

[3] On 25 February 2016 the municipality effected payments in the amounts of R612 719.78 and R8 451 20.67 in relation to certificates 10 and 11 respectively. The amount of R4 863 013.22 for certificate 8 was unpaid and it is in that regard that on 14 July 2016 the fourth respondent launched an application (the main application) seeking to hold the municipality liable for the unpaid amount.

[4] The main application was unopposed as a result a default judgment was granted in the absence of the municipality on 11 August 2016.

[5] Before turning to the issues to be considered in this application there is a point in limine raised by the respondents that needs to be addressed.

[6] Mr. Voster, on behalf of the respondents argued that this application is destined to fail for want of compliance with the statutory provisions of section 359 of the Companies Act[1] in that, the fourth respondent was placed in liquidation on 15 February 2018. The first, second and third respondents (the liquidators) were appointed as joint liquidators on 04 April 2018. The municipality proceeded with the application without having notified the liquidators in writing of its intention to persist with the application as provided for in section 359 (2) (a) or alternatively, seek the court’s indulgence in terms of section 359 (2) (b) to condone its failure to deliver the notice. The application is accordingly deemed to have been abandoned.

[7] Mr. Grobler, on behalf of the municipality countered that the current application does not fall under the purview of section 359 (1)(a). In this application, the municipality does not seek a declaration of rights but an order to set aside the default judgment obtained against it.

[8] Section 359 (2) provides:

“(a) Every person who, having instituted legal proceedings against a company which were suspended by a winding-up, intends to continue the same, and every person who intends to institute legal proceedings for the purpose of enforcing any claim against the company which arose before the commencement of the winding­ up, shall within four weeks after the appointment of the liquidator give the liquidator not less than three weeks' notice in writing before continuing or commencing the proceedings.

(b) If notice is not given the proceedings shall be considered to be abandoned unless the Court otherwise directs."

[9] In their submissions both counsel sought reliance on King Pie Holdings (Pty) Ltd v King Pie Pinetown (Pty) Ltd; Kind Pie Holdings (Pty) Ltd v Kind Pie Durban (Pty) Ltd,[2] essentially where the court held at page 187 that:

“In my judgment the phrase ‘civil proceedings’ where it appears in section 359(1) of the Act must be limited in its application to proceedings in which, as De Villiers CJ said in Collet v Priest, an order in the nature of a declaration of rights or giving or doing something is sought against the company in question.”

[10] According to the respondents King Pie supports their contention that this application falls in the category of “civil proceedings” therefore considered to be abandoned where the municipality has failed to comply with the provisions of section 359. On the other side, it is submitted that this authority supports the municipality’s argument that the application is not one falling under provisions of section 359 the municipality was thus not required to notify the liquidators of its intention to proceed with the application.

[11] I’m in agreement with the municipality’s contentions. Section 359 (2) is intended for the benefit of liquidators. It imposes an obligation on the creditors of a company in liquidation who intends to institute legal proceedings to give notice to liquidators within the stipulated period, this affords the liquidator an opportunity investigate the claim in order to decide whether to launch a defence or settle the claim.[3]

[12] The municipality is not a creditor. The application is not intended to be a suit against the respondents or for an order that the respondents “shall do something”[4] but for the court to provide the municipality with an opportunity to defend the claim. There is accordingly no merit to the respondents’ objection the point in limine is dismissed.

[13] I now turn to the rescission application. In the founding affidavit the applicant relies on the provisions of Rule 42(1)(a) of the Uniform Rules of Court and avers that the order was erroneously granted as the municipality did not receive the main application in good time to be able to file the opposing affidavit and that the amount upon which the judgment was granted had already been settled.[5]

[14] During the hearing of the application Mr. Grobler conceded that the application was launched on an erroneous basis. There was no such an error accordingly Rule 42(1)(a) does not apply. It was his argument that the fact that the application was brought under Rule 42 does not bar the court from deciding the application under another rule, namely Rule 31 (2) (b).

[15] Rule 31(2)(b) provides that an applicant against whom default judgment has been granted may, within 20 days after the applicant has obtained knowledge of that default judgment apply to court to set it aside. The court may, on good cause shown, set that judgment aside.

[16] Good cause involves a reasonable explanation for the default. The applicant must also demonstrate its bona fides and show that the application is not merely intended to delay the respondents’ claim and that the applicant has a bona fide defence to the respondent’s claim which prima facie has some prospect of success.[6]

[17] On the facts germane to this matter, the main application and the subsequent notice of set down were duly served on the municipality.

[18] Inexplicably, the municipality’s founding affidavit does not allude to the reasons for the municipality’s failure to timeously oppose the main application. In an attempt to rectify this omission, the municipality has set out to explain its default in the replying affidavit wherein it lays the blame squarely at the door of its attorney, Mr. Bahlekazi.

[19] The municipality explains that it has always been its intention to oppose the application. Mr. Bahlekazi was duly instructed to file the notice to oppose the application but for some unknown reason, Mr Bahlekazi only filed the notice to defend some two hours after the judgment was granted.

[20] This explanation is inadequate and implausible. Despite the inadequacy of the explanation, it is impermissible to rectify an omission in a founding affidavit in a replying affidavit. See Bayat and Others v Hansa and Another 1955 3 SA 547 (A) at 553D E and Titty's Bar and Bottle Store v A B C Garage and Others 1974 4 SA 362 (T).

[21] As the respondents rightly countered, the municipality’s case must appear in its founding affidavit. A party ought to stand or fall by its notice of motion and the averments made in its founding affidavit.

[22] Taking into consideration the above-mentioned factors I find that the municipality’s explanation with regard to the reason why it did not oppose the application and the circumstances thereof cast doubt on its submission that it was not in wilful default.

[23] It has been said that an application for rescission is never simply an enquiry of whether or not to penalise a party for its failure to follow the rules and procedures laid down for civil proceedings in our courts. Wilful default on its own is not a ground for refusing the application, the grounds of an applicant’s defence to the claim are also a factor that the court must consider as a good defence may compensate for a poor explanation.[7]

[24] In this matter, I’m not persuaded that the defences raised by the municipality constitute a bona fide defence which prima facie has a prospect of success. The municipality denies that it is indebted to the fourth respondent and submits that the only payments that were due to the fourth respondents were in relation to certificates 10 and 11 (contract T1327B) for R612 719.78 and R8 451 20.67 respectively. Payment in that regard was made by the municipality on 25 February 2016. Annexures “CN3” and “CN4” of the founding affidavit are referred to as copies of the proof of payment.

[25] The municipality continues to state that the judgment amount of R4 863 013.22 (certificate 8) is accounted for in the payment of R8 451 208.67 (certificate 10) therefore, there is no payment due to the fourth respondent in respect of this certificate.

[26] The municipality submits that certificates 7 and 8 were actually created as replacement of certificates 10 and 11 when the municipality discovered that the amounts due in respect of those certificates exceeded the approved contract (T1327B) amount. It was however determined that certificates 7 and 8 would not be valid under those circumstances as a result, the certificates were withdrawn and the fourth respondents were ultimately paid what was due in respect of certificates 10 and 11. The fourth respondents are thus not entitled to claim the payment sought in respect of certificate 8.

[27] I find that the municipality’s assertion that certificate 8 was merely an attempted replacement of certificate 10 to be preposterous. Certificates 10 and 11[8] relate to the road rehabilitation work done in terms of contract T1327B while certificate 8 pertains to the road resealing work done in terms of contract T1305B[9]. It is also important to note that the scope of work done is specified in the said certificates which in my view, gainsays the municipality’s contention that that no work was performed in terms of certificate 8. Furthermore, as correctly pointed out by the respondents, the municipality’s confirmation of the default judgment and the abandonment of the rescission of judgment disentitles it to the orders it seeks in this application.[10]

[28] In my view, the municipality’s abandonment of the rescission application also militates against the assertion that the municipality is desirous of defending the claim, most importantly, that it has raised a triable issue which prima facie has a prospect of success.

[29] There is accordingly no good reason to rescind the judgment. I have also found no reason why the costs should not follow the result.

[30] In the premises, the following order is granted;

(1) The application is dismissed with costs.

N S DANISO, J

APPEARANCES:

Counsel on behalf of Applicant:

Adv. S. Grobler, SC

Instructed by: Rampai Attorneys

BLOEMFONTEIN

Counsel on behalf of Respondents: Adv. A. Vorster

Instructed by: Cox Yeats Attorneys

C/O Thebe Attorneys

[1] Act No 61 of 1973.

[2] 1998 (4) All SA 179 D.

[3] Umbogintwini Land & Investment Co v Barclays National Bank Ltd 1987 (4) SA 894 AD at para 910 F-911A.

[4] Page 186 supra at fn 2.

[5] Paragraphs 6 to 22 of the Municipality’s founding affidavit.

[6] EH Hassim Hardware (Pty) Ltd v FAB Tanks CC [2017] ZASCA 145 (13 October 2017).

[7] De Witts Auto Body Repairs (Pty) Ltd v Fedgen Insurance CO Ltd 1994 (4) SA 705 (E) 711 E-G.

[8] Annexure “QF9”and “QF10” of the respondents’ answering affidavit.

[9] Annexure “QF8” of the respondents’ answering affidavit.

[10] On 17 October 2019 the employee of the municipality dispatched a letter to the respondents’ erstwhile attorneys Hannes Peyper Attorneys in which he wrote: “…The Municipality hereby confirm that the order of 11 August 2018 (sic) and thereby will no longer proceed with the rescission application relating to the order of the 11th August 2016 and hereby abandon all its rights in terms of the order…”