Kanyhm Estates (Pty) Ltd and Others v Swaziland Industrial Development Co. Ltd and Others (1217/2014) [2019] SZHC 45 (11 March 2019);

IN THE HIGH COURT OF ESWATINI

JUDGMENT 

 

CASE NO: 1217/14

In the matter between:

KANHYM ESTATE (PTY) LTD                                                 1^ST PETITIONER 

NGWANE MILLS (PTY) LTD                                                    2^ND PETITIONER

VALLEY FARM CHICKENS (PTY) LTD (In liquidation)         3^rd PETITIONER

 

In re:  

 

SWAZILAND INDUSTRIAL DEVELOPMENT                         

COMPANY LIMITED                                                               PETITIONER

 

JOHAN JACOB RUDOLPH                                                      1^st RESPONDENT

JOHAN JACOB RUDOLPH III                                                 2^ND RESPONDENT

 

Neutral Citation:           Kanyhm Estates (Pty) Ltd and 2 Others vs. Swaziland Industrial Development Co. Ltd and 2 others (1217/14) [2019] SZHC 45 11^th March 2019.  

 

Coram:                           MLANGENI J.

 

Heard:                            4^th March 2019

 

Delivered:                      11^th March 2019

 

 

Summary:             Civil procedure – petition converted into a trial in respect of two distinct issues – application made under Rule 33(4) of the High Court rules for separation of the issues, one to be dealt with before the other.

The two issues for trial are:-

1. Whether the Respondents are to be held personally liable for the debts of a company in liquidation, in terms of s361 of the Companies Act 2009,  

 

1. The solvency or insolvency of the Respondents.

 

Main basis for the application for separation being that, depending on the outcome of the hearing on personal liability of the Respondents, it may or may not be necessary to enquire into the Respondents’ solvency or insolvency.

 

In such application court has a discretion, “convenience” is the determinant factor.Meaning of “convenient” discussed.

 

Application granted with costs, including costs of counsel in terms of s68 (2) of the High Court rules.

 

[1]      This matter has a long and chequered history.  It started off in 2014 as a liquidation and sequestration petition before the High Court.  Its life at the High Court was highly eventful, and it eventually went to the Supreme Court on appeal.  By order of the Supreme Court granted on the 30^th November 2017 in Civil Appeal Case 07/2017, the matter is back in this court.

 

[2]      Much of the history that I have referred to above is not relevant for purposes of the present judgment.  I will touch only upon the parts that I consider to be relevant.  In its judgement referred to above the Supreme Court referred the matter back to this court for trial on specific issues.  For the sake of completeness and accuracy I reproduce the relevant part of the order of the Supreme Court below:-

 

“4.     That the matter be and is hereby referred back to the court- -a-quo for oral evidence regarding the questions of liability or otherwise of the Appellants and the 3^rd Respondent and the solvency or insolvency of the Appellants in determining whether or not the provisional sequestration orders are to be confirmed or discharged…….”.

[3]      Both sides understood the essence of the order of the Supreme Court and captured it in the following terms:-

“The issues for determination as stipulated by the Supreme Court of Swaziland are ‘the questions of liability (to the petitioners) or otherwise’ of Johan Jacob Rudolph and Johan Jacob Rudolph 111 and Valley Farm Chickens (Proprietary) Limited (in liquidation) and ‘the solvency or insolvency of Johan Jacob Rudolph and Johan Jacob Rudolph 111 ‘in determining whether or not the provisional orders are to be confirmed or discharged’[1] ”

 

[4]      The petition proceedings were converted into a trial and oral evidence was to be heard, starting on the 2^nd October 2018.  On this date the matter did not proceed because the Respondent’s attorney was unavailable due to appointment as an acting judge of the Supreme Court.  By consent, new dates were set starting on the 4^th March 2019.  During the intervening period prodigious amounts of documents were discovered in terms of the rules and all indications were that the trial would proceed as scheduled.

 

[5]      Then, on the 26^th February 2019 the Respondents launched an application in terms of Rule 33(4) of the High Court, seeking an order directing that:-

“1.     ……the issue of personal liability of the Respondents for the debts of the Third Petitioner be separated from all other issues in term of Rule 33 (4)………

And

2.      Directing that the question of the solvency or insolvency of the Respondents be stayed pending a decision on the issue of personal liability,”

          and costs.

          The application is opposed.

 

[6]      Rule 33(4) is in the following terms:-

“If it appears to the court mero motu or on the application of any party that there is, in any pending action, a question of law or fact which it would be convenient to decide either before any evidence is led or separately from any other question, the court may make an order directing the trial of such question in such manner as it may deem fit and may order that all further proceedings be stayed until such question has been disposed of.”

 

There is no doubt that the sub-section gives a discretion to the court, through the use of the word “may”.  It is also settled that discretion has to be exercised judicially.  The South African equivalent of our Rule 33(4) has, since 1987, gone a step further by making it imperative for the court, upon application of any party, to make such order “unless it appears that the questions cannot conveniently be decided separately.”

 

[7]      The basis of the application is canvassed in the founding affidavit of one of the interlocutory applicants, Johan Jacob Rudolph 111, who is the Second Respondent in the main proceedings for liquidation and sequestration.  From the wording of the sub-rule, as quoted above, it is clear that the determinant consideration is convenience.  I will come back to this aspect in due course.

 

[8]      It is trite that a company is a legal entity that is separate from its shareholders and/or directors, with its own rights and duties.  On this basis shareholders, directors and/or anyone entrusted with managing the business affairs of the company is ordinarily not liable for its debts.  This position is so well-entrenched that there is no need to make reference to any legal authority.  I do, nonetheless, refer to the landmark case of SALOMON V SALOMON AND CO[2], which has been followed by all common law jurisdictions.  In this country, and in many other jurisdictions, it has been recognized that the acts or omissions of those who are in control of the business affairs of the company may be responsible for bringing the company to its knees, through acts of recklessness or fraud.  In such event it is perfectly rational that those entrusted with conducting the business affairs of the company may be held to be personally liable for the debts of the company which are occasioned by their recklessness or fraud.  In this country this is provided for in Section 361 of the Companies Act 2009.

 

[9]      It is under this Act, and this Act only, that the court may, upon the application of any interested party, “declare that any person who knowingly was a party to the carrying on of the business in such manner, shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the court may direct.” For the avoidance of doubt I repeat, that it is only the court that may make such declaration, and in terms of the interpretation section[3] court means the “High Court” and under certain circumstances may refer to the Magistrates’ Court.  It follows that unless and until such officer of the company has been competently declared to be personally liable he/she may not be held so liable.  This, in the main is the basis for the application for separation of the issues that the Supreme Court has directed to be adjudicated upon by this court.

 

[10]    The interlocutory applicant, through the affidavit of Johan Jacob Rudolph III (JJRIII) avers that the personal liability of the First and Second Respondents for the debts of the Petitioner “is dependent on a declaration by the court in terms of Section 361 of the Companies Act 2009……on the basis provided in that section.”[4] Further, at paragraph 6 of the Founding Affidavit, the deponent submits that:-

 

“……….there is no point in determining solvency or insolvency unless the Respondents’ liability for the alleged debts was first determined by a declaration by the court”.

 

[11]    In simpler terms, it must first be found that they are personally liable before the enquiry is made whether they have the means to pay or not.  Put differently, it would be futile to spend time and energy determining whether they have the means to pay, in the event that they are eventually found not to be personally liable.

 

[12]    My first impression was that this application has a sound basis.  The paperwork that has been put together for the intended trial, comprising pleadings and discovered documents, is no less than ten kilogrammes, probably much more than that.  The ferocity of the contestants, as evidenced by the history of the matter, gives a firm indication that there will be nothing like a stroll in the park, at any stage of the proceedings.  It would therefore be most undesirable if time and resources are spent on an aspect of this enquiry that might in the end be of no consequence.  As I have indicated above, the approach that is advocated in the application instantly appeared to me to be pragmatic.

 

[13]    I had one major reservation.  Sitting in a lower court, as I do, it would not be good to appear to be interpreting the judgment of a superior court.  This concern was effectively allayed by Advocate Flynn, for the Interlocutory Applicant, who submitted that the Supreme Court, in its judgment and orders, actually separated the issues.  In this regard I refer to paragraph 27(4) of the Judgment of The Supreme Court[5], which is on these terms:-

“……the matter be and is hereby referred back to the court-a-quo for oral evidence regarding the questions of liability or otherwise of the Appellants and the 3^rd Respondent and the solvency or insolvency of the Appellants in determining whether or not the provisional sequestration orders are to be confirmed or discharged……”.

 

[14]    Of some significance but less relevance for purposes of this judgment, is the fact that the higher court consciously abstained from pronouncing on the procedure to be followed[6] in a quest to have a declaration in terms of Section 361 of the Companies Act 2009.  It is clear, however, that an “application” has to be made by an interested party, for the court to make the declaration. Although the petitioners did not do this when they could have done so, it would be harsh and costly to require that an application be launched specifically for that purpose, especially in view of the voluminous and wide –ranging allegations and counter-allegations which are already before court and which include the subject of Section 361.  These pleadings, and the oral evidence that will be led, will surely provide enough material to determine what needs to be determined.

 

[15]    The main thrust of the petitioners’ opposition to the present application for separation of the two issues and dealing with one at a time, is that they have an abundance of evidence that shows that the Rudolphs were reckless and fraudulent in running the business affairs of the Third Petitioner, Valley Farm Chickens (Pty) Limited (in liquidation), and that they will in all probability be held personally liable, and that the solvency issue will then be immediately relevant.  It is now on record that the expert evidence upon which is based the argument of personal liability will be subject challenge[7] at the hearing of oral evidence.  It appears to me that it would be significantly cumbersome to deal with the two separate subjects simultaneously, even if there might be overlap in respect of some of the evidence and some of the witnesses, in as much as evidence of solvency (or lack of it) of the Rudolphs is not likely to have much common ground with evidence of recklessness and fraud in running the business affairs of the Third Petitioner. 

 

[16]    The Petitioners also submit that at the trial the issue of solvency or insolvency of the Rudolphs “will take little time to determine”[8]. The deponent could well be convinced about this, but the reality may be otherwise when the hearing unfolds.  Indeed, the history of this matter shows that not much will come on a silver platter.  The petitioners also touch upon the long and contentious history of the matter and that “regardless of whether or not this court finds in favour of the petitioners or the Rudolphs, there will be a further appeal or appeals[9]”. And then at paragraph 15.4 of the same affidavit the deponent states: “Whatever the outcome, there will be a further appeal.” The less said about these latest assertions the better.  It does suggest that for some litigants litigation is very much akin to an ego trip - an expensive one at that.

 

[17]    The issue of the deed of suretyship by JJRIII in favour of Kanhym Estates (Pty) Ltd is, in my view, of no relevance to the present application.  One day the evidence may or may not show that the deed is valid and binding, but to lump this up together with the enquiry in terms of Section 361 of the Companies Act 2009 can only make the work of all concerned more difficult and certainly less convenient than otherwise.

 

[18]    The petitioners, now Respondents, make the further argument that the Rudolphs have not disclosed any material upon which it could be gleaned that they are either solvent or insolvent and have not in this application disclosed their assets and liabilities.  That may be so, but do they have to do that at this stage? Perhaps, given that they are seeking a discretion of the court they may have done so, but as the legal authorities show the discretion whether to separate or not is not informed by any one consideration alone.

 

THE LAW

[19]    The key word is “convenience”. Convenience in this context has been described as being wider than facility or ease[10].  It connotes appropriateness, fitting and fair – in all the circumstances of the case.  It is not the convenience of any one party only, or the court only, but it is the convenience of all concerned[11] that must be put to the test.  Such considerations must include the effect of the separation upon the likely duration of the trial, the complexity of the issues and the extent to which they overlap, whether the interests of justice and the parties would be better served if the issues are separated.

 

[20]    The court is called upon to carefully weigh the advantages against the disadvantages of separation, in my view in an objective manner.  As was stated in INTERNATIO (PTY) LTD v LOVEMORE BROTHERS TRANSPORT CC[12], there is also the question of prejudice to either party.  His Lordship Miller J. captures the position in the following manner:-

“Ordinarily, if it were to appear to the court that the duration of the trial would be substantially curtailed by a preliminary hearing……it would probably grant the application, but even then, it would not necessarily do so because the nature of the case may be such that the proper consideration of overall convenience may involve factors other than those relating only to actual duration of the court hearings.[13]

 

[21]    Per Coetzee J,

“Clearly, this is not a mere formality.  The convenience must be demonstrated and the court must have sufficient information to enable it to decide upon this procedural step, meaningfully…..”[14]

          I certainly have enough information at my disposal.

 

CONCLUSION

[22]    The interlocutory applicants have succeeded in persuading me that it would be convenient to separate the issues in terms of Rule 33(4) of the High Court rules.  Apart from other considerations, I foresee a significant amount of prejudice to the Rudolphs through an enquiry into their personal affairs even before a determination is made that they are personally liable for the debts of the Third Petitioner.  Such an enquiry will surely come at a cost, and what if one day it is found that they are not to be held personally liable?  

 

[23]    On the basis of the aforegoing, the application is granted.  I make the following orders:-

23.1   The issue of personal liability of the Respondents for the debts of the Third Petitioner be separated from all other issues in terms of Rule 33(4) of the High Court Rules;

23.2   The question of the solvency or insolvency of the respondents is hereby stayed pending a decision on the issue of personal liability;

23:3   Costs will be costs in the main matter.  

 

__________________________

MLANGENI J.

 

For The Petitioners:     Advocate G. Hoffman S.C. Instructed by Robinson Bertram.

 

For the Respondents (Interlocutory Applicants): Advocate P.E. Flynn

Instructed by Currie–Wright Associates.