SUMMARY
Background
A group of individuals in the Northern Cape had acquired NC Housing Services and Development Co Limited (the “Company”) that was to be utilised as a company to pursue commercial ventures in the Northern Cape. A dispute arose between Mr Mosalasuping Morudi (the “First Applicant”) and 70 other Applicants (collectively referred to as the “Applicants”) on the one hand, and Mr Scholtz Babuseng and Mr Seodi Mongwaketsi (the “Respondents”) on the other. The Applicants had made payments to the Company in order to acquire a shareholding therein, however, the Company had yet to compile a register of members and issue the shares and corresponding share certificates. The dispute between the Respondents and the Applicants was as to whom was entitled to shareholding in the Company and in what proportion.
On or about 23 March 2015, and in the High Court of South Africa, Northern Cape Division (the “High Court”), the Applicants launched an application claiming that there was a dispute as to who was entitled to the shares of the Company and the corresponding number of shares to be held by certain individuals within the body of shareholders of the Company. The First Applicant purported to act on behalf of the Company, whilst the Second and Fourth Applicants filed confirmatory affidavits in which they confirmed facts that related to them in the First Applicant’s opposition on behalf of the Company.
Pending the outcome of the Application, the High Court made an interim order. The order was, inter alia, that the board of directors of the Company comprising the First Applicant, the Second Applicant, the Third Applicant and the Respondents, were to convene a meeting of the shareholders to resolve to sell the Company’s major asset, namely shares in NWC Manganese Proprietary Limited for R250 000 000, and that the proceeds arising therefrom should be deposited in equal parts into the trust accounts of the parties’ respective attorneys. Pursuant to this interim order, the shareholders of the Company resolved to withdraw the Company’s opposition to the Application.
One week after the judgment being handed down, the First Applicant, purporting to act on behalf of the Company, instituted an urgent application to have the shareholders’ meeting and all resolutions passed declared unlawful. The urgent application was dismissed on the basis that the First Applicant lacked authority to bring the application in its capacity as a shareholder of the Company.
The issue was eventually referred to trial in the High Court. The Applicants were represented in their capacities as potential shareholders in the Company. Due to the Company withdrawing the Application, it was believed that the trial could proceed between the First, Second and Third Applicants and the Respondents. The High Court, however, took the view that the First, Second and Third Applicants were not properly before the court as they were cited as directors of the Company; and that since the Company had withdrawn its opposition, the First, Second and Third Applicants could no longer advance the Company’s interest, nor could they act in their personal capacities as shareholders of the Company as they were bound to the decisions made in terms of the resolution. The High Court refused to grant the First, Second and Third Applicants an audience, and instead ruled in accordance with the draft order as agreed between the First and Second Applicants and the Company.
The Applicants applied to the High Court for a rescission of the judgment in terms of rule 42(1)(a) of the Uniform Rules of Court (the “Rule”), providing that –
“The court may…mero motu [of its own accord] or upon the application of any party affected, rescind or vary:
- an order or judgment erroneously sought or erroneously granted in the absence of any party affected thereby…”.
The High Court held that the Applicants could not succeed under the Rule because all the Applicants were physically present in Court when the order was granted. The High Court reasoned that the Rule envisaged the physical absence of the party affected by the order concerned.
The Applicants appealed to the Supreme Court of Appeal (the “SCA”), however, a majority judgment upheld the High Court’s order and reasoning.
HELD
On 25 September 2018, the Constitutional Court handed down a judgment in an application for leave to appeal against the judgment of the SCA.
In a unanimous judgment written by Madlanga J, the Constitutional Court held that when an individual shareholder is cited as a “shareholder” in proceedings, she or he is a party to the litigation in her or his personal capacity. The reason for Madlanga J’s ruling was, inter alia, that the outcome of the trial at the High Court would have had a direct impact on the rights of each potential shareholder of the Company. The High Court ruled that it was obligated to ensure that anyone directly affected by its order, and with a direct interest therein, was joined to the proceedings.
Moreover, although the Rules require that a party must have been absent when the order was granted, the Constitutional Court held that whilst the Applicants were physically present, the High Court’s refusal to grant them an audience had the same effect as if they were not physically present.
On these grounds, the Constitutional Court granted the First to Fourth Applicants rescission in terms of the Rules and further granted the Applicants leave to intervene in the trial that has since been renewed by the rescission.
VALUE
Rescission of judgement, in terms of rule 42(1)(a) of the Uniform Rules of Court, is available to parties who were present at a hearing but were not allowed to participate in the proceedings, provided those parties are able to show prejudice and a direct interest in the proceedings.
Written by Saul Mayers and supervised by Jonathan Salant, 8 October 2018
