Tayob N.O and Others v City of Matlosana Local Municipality (1483/20) [2023] ZANWHC 95 (21 June 2023)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

IN

THE HIGH COURT OF SOUTH AFRICA

NORTH WEST DIVISION – MAHIKENG

CASE NO: 1483/20

Reportable: YES / NO

Circulate to Judges: YES / NO

Circulate to Magistrates: YES / NO

Circulate to Regional Magistrates:YES / NO

In the matter between:

MAHOMED MAHIER TAYOB N.O

1st APPLICANT

KGASHANE CHRISTOPH MONYELA N.O

2ND APPLICANT

EUGENE JANUARIE N.O

3RD APPLICANT

SHIVA URANIUM (PTY)

LTD

4TH APPLICANT

And

THE

CITY OF MATLOSANA LOCAL MUNICIPALITY

RESPONDENT

IN RE:

THE

CITY OF MATLOSANA LOCAL MUNICIPALITY

APPLICANT

AND

SHIVA URANIUM (PTY) LTD

RESPONDENT

Delivered: This judgment was handed down electronically by circulation to the parties' representatives via email. The date and time for hand-down is deemed to be 10h00 on 21 June 2022

JUDGMENT

REDDY

AJ

INTRODUCTION

[1] There are two applications that fall to be determined. The plaintiff sought leave as evinced in terms of section 133(1) (b) of the Companies Act 71 of 2008 for an institution of this action against the defendant (under business rescue protection), by default, a money judgment for the payment of rates in the sum of R31 003 00.00 and a declaratory order, declaring a resolution and the agreements concluded between the plaintiff and defendant pursuant to the resolution invalid, null and void ab initio. The latter relief was somewhat watered down, but needs no further enquiry given the ultimate conclusion that I have arrived at.

[2] The defendant countered that before the hearing of the trilogy of relief pursued by the plaintiff, the following relief filed by the defendant first be considered:

1. That the question of fact and law viz. whether the order sought by the respondent as set out in Claim One of the respondent's particulars of claim in the Principal Action ("Claim one") should be granted ("the Separate Question") to be determined at the outset and separately from any other question arising from or out of the Principal Action and, to give effect to this order be ordered:

1.1 That all further proceedings in the Principal Action be stayed until the Separate Question has been disposed of;

1.2 That the separate Question be determined in an application by the respondent as applicant ("the Moratorium application")

1.3 That the respondent be ordered to deliver a notice of motion together with an affidavit in the Moratorium application setting out the reasons why the respondent seeks an order in terms of Claim One of the Principal Action within 30 days of the date of any order made in terms hereof;

1.4 That, thereafter, the time periods for the exchange of affidavits as prescribed in Uniform Rule of Court 6 be followed in the Moratorium Application;

1.5 That the Registrar of the Honourable Court be requested to allocate a preferential date for the hearing of the Moratorium Application;

1.6 That costs of this application be costs in the Moratorium Application.

2. In the alternative to paragraph 1, that it be ordered in terms of Rule 27 that the applicants are entitled to plead to the respondent's particulars of claim in the Principal Action within 30 days of the

date of any order made herein and that the bar preventing the applicants from pleading be lifted accordingly and that the costs of this application be reserved for the determination in the Principal Action.

3. That further or alternative relief be granted to the applicants.

[3] A proper description of the litigants would be apt, and for the determination of the legal nexus amongst them. For the ease of reading, I intend to follow the designation of the parties as cited in the main action.

[4] The plaintiff is The City of Matlosana Local Municipality ("the municipality"). The municipality is a local government, municipality and, an organ of state and as such a legal entity with legal capacity as contemplated in section 2 of the Local Government Municipality System Act (Act 32 of 2000) read with the provisions contained in chapter 7 of the Constitution of the Republic of South Africa (Act 108 of 1996) and section 12 of the Local Government Municipal Structures Act (Act 117 of 1998).

[5] The defendant is Shiva Uranium (Pty) Ltd (in Business Rescue) a private company with limited liability and registration number 1[...], duly registered as such in terms of the statues of the Republic of South Africa with its physical address at 1[…] B[…] Street, Hartbeesfontein, and City of Matlosana, North West.

[6] The defendant has been the subject of business rescue proceedings since the 20 February 2018. At present the defendant is represented by its business rescue practitioners ("the BRP"). For the sake of brevity, the defendant in business rescue, includes the BRPs as a collective.

[7] Stripped of the verbiage, the defendant contends that the application for an order that the moratorium application be first determined before any question of fact or law be determined.

Background facts

[8] It is common cause that at the time of the service of the combined summons, the defendant was still under business rescue. A notice of intention to defend was delivered on the 10 November 2020. The defendant was barred on 17 March 2021.

[9] Notwithstanding being non-suited the defendant filed a plea. Preceding the filing of the defendant's plea, the rules of court prescribe that a substantive application for condonation be made due to the non -compliance with the Uniform Rules of Court. Given the litigating stance of the defendant, the plaintiff enrolled the action on an unopposed basis; contending that the defendant was not properly before the court. It is on this basis that the plaintiff sought the relief pursued.

[10] Afore a consideration of the plaintiff's primary relief is given due attention, even in the absence of the defendant's interlocutory relief, section 133(1) (b) of the Companies Act 75 of 2008("the CA") finds peremptory application. It reads:

"During business rescue proceedings, no legal proceeding, including enforcement action, against the company, or in relation to any property belonging to the company, or lawfully in its possession, may be commenced or proceeded with in any forum except-

(a) With the written consent of the practitioner; or

(b) With the leave of a court and on any terms the court considers suitable”

[11] The moratorium on legal proceedings against a company during business rescue proceedings is of cardinal importance as it provides a breathing space to enable a company to restructure its affairs and also allows the practitioner/s together with the company's creditors and effected parties, an opportunity and time to formulate a business rescue plan. See: Murray & Another NNO v FNB Westbank 2015 [3] SA 438(SCA) at para 14.

[12] It is against this legal framework, that the plaintiff, correctly so, sought leave in terms of section 133 of the CA, for the institution of the action and the ancillary relief claimed.

The defendant's moratorium application (section 133 of the Companies Act 75 of 2008)

[13] The defendants contend that the moratorium claim cannot be determined without a full investigation into the circumstances of the principal action as well as the developments and prognoses of the business rescue proceedings. Resultantly, the defendants seek a substantive order that the moratorium claim be separated from all other questions, and the issues in the principal action be adjudicated on before any other question.

[14] As far as the money order judgment is concerned with respect to the outstanding rates, business rescue proceedings are aimed at precisely dealing with same. The defendant contends that

"the payment claim is not a claim for a liquidated amount because it is dependent on the "Third Claim", a claim for the selfreview of the Municipality's administrative action, "the Review Claim." This is so because absent the successful review and setting aside of the Municipality's own conduct, the two contracts referred to in the Principal Action will remain standing and the Municipality's claim for payment will set off against the amounts admittedly owing by the Municipality to Shiva Uranium. "

[15] Notwithstanding, the defendant being placed in business rescue on 20 February 2018, continuous bickering amongst business rescue practitioners ("BRP") and ensuing legal challenges made the execution of BRP's mandate dilatory. This discord amongst the BRP's circumvented the expeditious conclusion of the business rescue process. To this end, for the last two years the business rescue process had effectively been suspended. There has however been a change.

[16] The duly recognized BRPs have reached an impasse which has resulted in the business rescue process only now gaining momentum. On 24 October 2022, the following is accentuated by the current BRP

"24. Althouqh a draft business rescue plan had been formulated by the oriqinal BRPs (Messrs Knoop and Klopper). the plan was not adopted. The BRPs are now workinq on a plan which is to be placed before the creditors in terms of section 151 of the Companies Act within, hopefully, the next few weeks."

The plaintiff's stance regarding the moratorium claim

[17] The plaintiff in principle is amenable to the moratorium claim being first adjudicated. Where the plaintiff parts ways with the defendant, is that there is no reason for defendant and the BRP to be afforded a second bite of the cherry. A need for further affidavits is unnecessary so the plaintiff opines, as all the issues have already been ventilated and dealt with in the affidavits filed in the opposed application for default judgment. The contention ran that all affidavits have been exchanged and a determination of the relief proposed by the plaintiff can be adjudged within the prism of all the collective affidavits.

[18] In short, the plaintiff contends that the interlocutory application constitutes an abuse of the court process and is nothing but a veiled attempt to introduce new grounds of opposition through the proverbial backdoor, and also at the eleventh hour.

Discussion

[19] There was no business rescue plan, up until the morning of the hearing. Counsel for the plaintiff objected vociferously to the introduction of this business rescue plan from the bar and argued that the admission of same will constitute a trial (application) by ambush. Notwithstanding counsel for the plaintiff being afforded an opportunity to peruse the business rescue plan, the introduction of same was still opposed, by the plaintiff. Resultedly, I found that the business rescue plan to be inadmissible at this belated stage, given the objection of the plaintiff and the legal ramifications that follow the presentation of the business rescue plan. It is irrefutable that the business rescue plan existed.

[20] Whilst I am alive to the contention by Counsel for the plaintiff regarding the irregular manner in which the interlocutory application of the defendant was presented, the discretion still remains that of the court.

[21] The homely legal metaphor finds application, in that it is permissible in certain circumstances for a substantive application to be made for due consideration by a court, in the exercise of its discretion within the purview of section 133(1 of the CA. In Booysen v Jonkheer Boerewynmakery 2017 (4) SA 51 (WCC) at para. 54 the following was posited

"there is no one size-fits-all approach to be followed and what will be required, and what will be sufficient. will depend on the circumstances of each particular matter. It will in each case be a matter for the court's discretion to be exercised judicially on the basis of considerations of convenience and fairness. and what will be in the interests of justice.”

[22] Section 133 (1) (b) of the CA does not specify the criteria or procedural requirements that must be met in order to obtain the leave of the court; the court enjoys a wide and unfettered discretion to make an order on "any terms the court considers suitable." It is implicit that the court's discretion must be dictated by the interests of justice. The section 133 moratorium requires the permission of either the business rescue practitioner or the court, before a party can institute legal proceedings against a company in business rescue. In Timasani (Pty) Ltd (in business rescue) v Afrimat Iron Ore (Pty) Ltd [2021] ZASCA 43, it is stated that this moratorium is not without its limits. It goes without saying that if the BRPs do not consent, section 133(1) (a) of the CA does not find application.

[23] In Arendse and Others v Van der Merwe NO and Another (2015/40324) [2016] ZAGPJHC 292, Boruchowitz J succinctly set out the legal position as follows:

[10] I am unaware of any judgment, and none has been referred to me, in which the test to be applied by a court in deciding whether to grant leave in terms of s 133(1)(b) has been formulated. There is authority for the proposition that a court being asked for leave to proceed against business rescue must receive "a well-motivated application for that so that it could apply its mind to the facts and the law if necessary and then be in a position to make a ruling in accordance with any terms it may consider suitable in peculiar circumstances" (see Merchant West Working Capital Solutions (Pty) Ltd v Advanced Technologies & Engineering Co (Pty) Ltd 2013 JDR 1019 (GSJ) para 67). And, in Redpath Mining SA (Pty) Ltd v Marsden NO and others [2013] ZAGPJHC 148 at paragraph [711, the same learned Judge held that: "only in exceptional circumstances may a court permit litigation against a business rescue plan or related thereto." It is to be noted that in neither of these cases did the court lay down a general test or pronounce on what constitutes "a well-motivated application", or define the minimum threshold that must be met for an applicant to obtain such leave.

[11] Section 133(1)(b) does not specify the criteria or procedural requirements that must be met in order to obtain the leave of the court. Ex facie the provision, the court would appear to enjoy a wide and unfettered discretion to make an order on “…any terms the court considers suitable". That being the position, it is implicit that the court's discretion must be dictated by the interests of justice. It is also implicit that the discretion must be exercised judicially, having regard to the purpose and objects of s 133(1) (b), read in the context of the Act as a whole. Considerations of fairness and convenience are fundamentally important.

[12] To properly contextualise the section, reference should be made to the following provisions of the Act. Section 5 stipulates that the Act must be interpreted and applied in a manner that gives effect to the purposes set out in s 7. Section 7(k) provides that one of these purposes is to "provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders".

[13] Business rescue is defined in s 128(1)(b) to mean proceedings that facilitate the rehabilitation of a financially distressed company by providing, among other things, for the temporary supervision and moratorium on the rights of claimants, and the development and implementation of a plan to rescue the company.

[14] Section 133(1) is a general provision providing for a moratorium on legal proceedings against a company under business rescue. The moratorium is central to the business rescue process since it provides the crucial breathing space to enable the company to restructure its affairs. This allows the practitioner, in conjunction with the creditors and other affected parties, to formulate a business rescue plan desiqned to achieve the purpose of the process without the distraction of havinq to deal with leqal proceedinqs (see Cloete Murray NNO v First Rand Bank Limited t/a Wesbank 2015 (3) SA 438 (SCA) at 441 para 14); Chetty t/a Nationwide Electrical v Hart & another NNO 2015 (6) SA 424 (SCA) at paras 35 and 39; Elias Mechanicos Building & Civil Engineering Contractors (Pty) Limited v Stedone Developments (Pty) Ltd and others 2015 (4) SA 485 (KZD) at paras 7, 9 and 11).

[24] The conundrum before this Court prima facie appears to be intertwined with its core being the business rescue plan. Business rescue is envisioned to have cardinal objectives. It provides crucial breathing space or a period of respite to enable a company to restructure its affairs, and that it was aptly described that a moratorium is a cornerstone of all business rescue procedures. See: Cloete Murray and Another NNO v FirstRand Bank Ltd t/a Wesbank 2015 (3) SA 438 (SCA).

[25] A business rescue plan is a plan developed and, if approved, implemented by the business rescue practitioner/s, which set out the fine points in which the practitioner/s envisages that the company will be rescued. The plan is the zenith of the business rescue process.

[26] In the exercise of my discretion within the purview of section 133 (1) (b) of the CA, the business rescue plan properly disclosed, would undoubtedly be a crucial factor. The interests of justice

unquestionably requires of this Court to duly consider the effect, if any, of the business rescue plan. Crucially, both litigants will be afforded an opportunity in their respect affidavits to provide an updated chronology of events, since the failed attempt by the defendant to ventilate the business rescue plan.

[27] In the premises, there is merit in the defendant's application, that the question of law be first determined. As far as costs are concerned, there is no basis to deviate from the usual costs orders in applications of this nature.

Order

[28] That the question of fact and law viz. whether the order sought by the respondent as set out in Claim One of the respondent's particulars of claim in the Principal Action ("Claim One") should be granted ("the Separate Question") be determined at the outset and separately from any other question arising from or out of the Principal Action and, to give effect to this order, it be ordered:

28.1 That all further proceedings in the Principal Action be stayed until the Separate Question has been disposed of;

28.2 That the Separate Question be determined in an application by the plaintiff as applicant ("the Moratorium Application");

28.3 That the plaintiff be ordered to deliver a notice of motion together with an affidavit in the Moratorium Application setting out the reasons why the plaintiff seeks an order in terms of Claim One of the Principal Action within 30 days of the date of any order made in terms hereof;

28.4 That, thereafter, the time periods for the exchange of affidavits as prescribed in Uniform Rule of Court 6 be followed in the Moratorium Application;

28.5 That The Registrar of the Honourable Court be requested to allocate a preferential date for the hearing of the Moratorium Application in conjunction with the secretary of Acting Judge Reddy, who will continue to case manage the motion.

28.6 That the costs of this application, be costs in the business rescue.

A

REDDY

ACTING

JUDGE OF THE HIGH COURT

NORTH WEST DIVISION, MAHIKENG

Appearances:

Date of Hearing: 03 November 2022 Date of Judgment: 21 June 2023 Counsel for the Plaintiff: Adv JP Van Den Berg SC Attorney for Plaintiff: LB INC. Attorney C/O Maree& Maree Attorneys 11 Agate Avenue Mahikeng Tell: 018 381 7495/7947 Counsel for Defendant: Adv PF Louw Attorney for Defendant: Smit Sewgoolam Inc C/O Smit & Stanton Inc 29 Warren Street Golfview Mahikeng Tel: 018 381 0180/1/2