- November 21, 2022
- |Concise Law Reports (CLR), Labour Law
LEGISLATION/PRACTICE – CLOSE CORPORATIONS ACT 26 OF 1988 – LIFTING THE CORPORATE VEIL – WHETHER CREDITOR MUST PROCEED BY WAY OF NOTICE OF MOTION OR ACTION PROCEEDINGS
During December 2016, Swakop Uranium purchased a forklift from Lubbe Motor Group CC (LMG CC), at all times duly represented by Mr. Lubbe for the amount of N$763 770, 26. It is alleged that LMG CC was. Swakop Uranium paid the purchase price, and the forklift was delivered. Upon taking delivery, Swakop Uranium realized that the forklift was not suitable for the intended purpose, and on 13 October 2017 entered into another agreement with LMG CC – again represented by Mr. Lubbe. In terms of the latter agreement, Swakop Uranium would purchase another forklift for the amount of N$1 245 763, 93 and the previous forklift would be returned to LMG CC, and the payment made for it would be used as part of the payment for the new forklift. LMG CC never delivered the new forklift to the appellant and Swakop Uranium therefore alleges that the close corporation is indebted to it in the amount of N$763 770, 26 being the difference between the purchase price for the new forklift and the amount paid for the defective one.
The appellant (Swakop Uranium) approached the High Court seeking a declarator that the second respondent (Mr Lubbe), as sole member is personally liable for the debts of a close corporation, represented nomino officio by the first respondent as its liquidator – in terms of section 64(1) of the Close Corporations Act 26 of 1988 (the Act); on the ground that Mr Lubbe was party to the business of the corporation being carried on recklessly, with gross negligence or with intent to defraud any person or for any fraudulent purpose. Section 64(1) of the Act provides that in such circumstances, ‘a Court may on the application’ of the Master, or any creditor, member or liquidator of the corporation, declare that any person who was knowingly a party to the carrying on of the business in any such manner, shall be personally liable for all or any of such debts or other liabilities of the corporation as the Court may direct, and the Court may give such further orders as it considers proper for the purpose of giving effect to the declaration and enforcing that liability.’
Mr. Lubbe had raised a special plea to Swakop Uranium’s particulars of claim, relying on Teichmann Plant Hire (Pty) Ltd v Coetzee (HC-MD-CIV-ACT 2016-03173) [2017] NAHCMD 61(8 March 2017), that to invoke section 64(1) of the Act, Swakop Uranium should have but failed to institute proceedings by way of notice of motion in terms of Rule 65 of the Rules of the High Court and not by action.
If a creditor wishes to lift the corporate veil so as to hold a close corporation’s member(s) personally liable for the corporation’s debts, should he or she do so only on notice of motion, or can he or she also proceed by way of action proceedings? The High Court held, following Teichmann Plant Hire (Pty) Ltd v Coetzee (Teichmann), that such a creditor must proceed by way of notice of motion to the exclusion of action proceedings. The appeal lies against that order.
DAMASEB DCJ (MAINGA JA and FRANK AJA concurring) considered the appeal and held that:
- The word ‘application’ is not a term of art but an ordinary word of the English language to which the High Court Rules assigned a specific meaning – and which, had it not been so defined, would not exclude action proceedings. In the absence of a definition of the word application in the Act and because the legislature had not by reference to another statute or known practices of the courts, assigned the word a technical meaning, the default position is that the word must be given its ordinary grammatical meaning of a ‘formal request to court’. If the word is given its ordinary grammatical signification, it can include either avenue available for instituting court proceedings.
- Because the legislature had not excluded recourse to action proceedings either expressly or by necessary implication, action proceedings should not be excluded as an alternative avenue for instituting court proceedings in terms of s 64(1) of the Act.
As a result, the appeal was upheld, with costs, and the matter was High Court order was replaced with an order dismissing the special plea with costs. The matter was remitted to the High Court (managing judge) for further case management in terms of the Rules of the High Court.
Swakop Uranium (Pty) Ltd v McLaren Ian Robert and Another (SA 64-2020) 2022 NASC (21 November 2022)