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Brangus Ranching (Pty) Ltd v Plaaskem (Pty) Ltd (AR 450/08)  ZAKZPHC 66; 2011 (3) SA 477 (KZP) (28 September 2010)
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IN THE HIGH COURT OF SOUTH AFRICA
CASE No : AR 450/08
In the appeal of:
BRANGUS RANCHING (PTY) LIMITED …......................................Appellant
PLAASKEM (PTY) LIMITED …...................................................Respondent
VAN ZÿL, J.,
The appellant appeals against a judgment in the High Court of KwaZulu-Natal, Pietermaritzburg, in terms of which Msimang J (as he then was) in that Court (the Court below) dismissed an application for the rescission of a judgment granted by default of appearance on 1 November 2007 against the appellant, as the defendant in the initial proceedings. Such judgment was granted by the Registrar of this Court in terms of Rule 31(5) of the Uniform Rules of Court. The present appeal to the Full Court is with the leave of the Court below.
Rule 31(5)(a) provides that;
" Whenever a defendant is in default of delivery of
notice of intention to defend or of a plea, the plaintiff, if he or she wishes to obtain judgment by default, shall where each of the claims is for a debt or liquidated demand, file with the registrar a written application for judgment against such defendant: Provided that … "
The respondent in the application for rescission, as well as appeal, was the plaintiff in the action instituted against the appellant. In its combined summons respondent claimed payment of R369 428-25, interest and costs in respect of the balance alleged to be due, after passing certain credits, for agricultural chemicals sold and delivered to appellant from time to time.
Of interest are the allegations, set out in the Particulars of Claim, alleging that the original supply agreement was concluded on or about 1 October 2004 between appellant and a company called UAP Agrochemicals (Pty) Limited (UAP). As a result UAP commenced supplying appellant from 1 November 2004 until 3 January 3005, after which plaintiff continued the supply to appellant until the final consignment of 18 February 2005.
The introduction of respondent and its substitution for UAP is explained in the Particulars of Claim on the basis that these two concerns had concluded, by 3 January 2005, what is referred to as a “sale of business agreement”. The result was that UAP ceded its book debts, inclusive of the debt then owing to UAP by appellant, to respondent. At the same time it ceded and assigned to respondent its rights and obligations to supply appellant with further agricultural chemicals. In the result, so it is alleged, respondent then “…complied with UAP’s obligations with effect from 3 January 2005 under the agreement” and continued to supply appellant on the same terms as negotiated between appellant and UAP.
The summons commencing action contained details relevant to the appellant and in particular reflected its service address as “ … its principal place of business at 218 Boom Street, Pietermaritzburg, KwaZulu-Natal.”. After issue the summons was sent to the Sheriff for service upon appellant. The Sheriff’s deputy duly repaired to the given address, where he reported serving the combined summons upon appellant in the following manner:
“RETURN OF SERVICE
On the 27th of September 2007 @ 14h25 I C. G. G. Charles duly served a copy of the attached , SUMMONS & PARTICULARS OF PLAINTIFF’S CLAIM & ANNEXURE(sic) A TO D, upon Mrs K. Abrahams, a person apparently over the age of 16 years and apparently incharge (sic) of the premises for the within named Defendant , BRANGUS RANCHING (PTY) LTD, at its principal place of business , 218 Boom Street, Pieteramritzburg, at the sametime (sic) explaining to her the nature and contents thereof.”
In the absence of an appearance to defend the respondent, after expiry of the dies induciae, applied to the Registrar for and obtained judgment by default, as aforementioned. By registered letter dated 15 November 2007 and addressed to appellant at its stated address, respondent’s attorneys then advised it of the judgment and demanded satisfaction thereof in terms of section 345(1)(a) of the Companies Act 61 of 1973, on threat of liquidation proceedings to be taken against appellant. This letter was received by Mrs Abrahams (“Abrahams”), who is referred to in the return of service relevant to the summons and passed on to Mr G. P. Porrit, the sole director of appellant (“Porrit”). This set in motion the chain of events giving rise to the unsuccessful application for rescission before the Court below and the present appeal.
The facts, which emerge from the affidavits filed in the course of these proceedings, indicate that the address at 218 Boom Street, Pietermaritzburg, KwaZulu-Natal, was at all material times, according to Porrit, “..the administrative office for various companies in which (he was) associated..” and that Abrahams was employed “..as a bookkeeper who works at..” that address. Consequently the address was not at any time the “principal place of business” of the appellant, nor was Abrahams ever its employee. However, it subsequently appeared and became common cause that this address was, at all material times, the registered address of the appellant.
The relevant portion of rule 4 reads as follows;
(1) (a) Service of any process of the court directed to the sheriff ….. shall be effected by the sheriff in one or other of the following manners:
(i) - (iv) …..
(v) in the case of a corporation or company, by delivering a copy to a responsible employee thereof at its registered office or its principal place of business within the court's jurisdiction, or if there be no such employee willing to accept service, by affixing a copy to the main door of such office or place of business, or in any manner provided by law;"
It is clear, by reference to rule 4(1)(a)(v), that the Registrar ought not, upon the facts before her at the time, to have been satisfied that there had been proper service upon the appellant for purposes of granting judgment by default against it. This is because service, by leaving a copy of the document at the place of residence or business of the person to be served, relates to service upon an individual in terms of rule 4(1)(a)(ii) where the document served may be left with a person apparently in charge of the premises at the time of delivery, being a person apparently not less than sixteen years of age.
Where a company is to be served the rule requires service by delivery of a copy of the document to a responsible employee of the defendant company and that such delivery should take place at the registered office of the defendant company, or at its principal place of business. Although the summons (incorrectly as it turned out) stated that the address at 218 Boom Street, Pietermaritzburg, was the principal place of business of the appellant, the return did not report service upon Mrs Abrahams as a responsible employee of the appellant (defendant) company, but rather upon her as the person apparently in charge of the premises at the time of delivery.
The appellant elected not to avail itself of rule 31(5)(d) which provides that " Any party dissatisfied with a judgment granted or direction given by the registrar may, within 20 days after he has acquired knowledge of such judgment or direction, set the matter down for reconsideration by the court." Instead it launched an application for rescission of the default judgment. In so doing it based the application upon the provisions of rule 42(1)(a), alternatively upon rule 31(2)(b).
Rule 42(1)(a), under the heading "Variation and Rescission of Orders" provides that;
"(1) The court may, in addition to any other powers it may have, mero motu 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;"
while rule 31(2)(b), on the other hand, reads that;
" (b) A defendant may within 20 days after he has knowledge of such judgment apply to court upon notice to the plaintiff to set aside such judgment and the court may, upon good cause shown, set aside the default judgment on such terms as to it seems meet."
It was argued on behalf of the appellant before the Court below that the default judgment had indeed been erroneously sought and granted in the incorrect belief that the return of service complied with the requirements of rule 4(1)(a)(v) and that rescission in terms of rule 42(1)(a) should follow. However, the Court below found, by reason of the fact that the summons was in fact served at the registered office of the appellant, that there had been substantial compliance with the requirements of the rule, presumably a reference to rule 4(1)(a)(v) and that it would accordingly not be a proper exercise of the Court's discretion to grant the application for rescission in those circumstances.
Service at the registered office of a company, in the absence of a responsible employee thereof, by delivery of the document to be served to a person at such address (not being an employee of the company) willing to accept such service, has been recognised as good and proper service which is preferable to merely attaching the process, for instance, to the outer principal door of the premises (see: Chris Mulder Genote v Louis Meintjies Konstruksie (Edms) Beperk 1988 (2) SA 433 (T)).
The appellant initially sought to argue that the Court below improperly exercised its discretion and that it should, once an error of the required type was identified, as a matter of course have granted rescission in terms of rule 42(1)(a). Mr Watt-Pringle, who appeared for the respondent in the appeal before us, however submitted that the court considering rescission is not confined to the record of proceedings which was before the Registrar when the judgment by default was granted and that it is entitled to decide whether procedurally the respondent was entitled to obtain judgment by default against the appellant. In developing his argument counsel for the respondent referred, inter alia, to Lodhi 2 Properties Investments CC and Another v Bondev Developments (Pty) Ltd 2007 (6) SA 87 (SCA). In that matter STREICHER JA at page 95 E - G remarked that;
" However, a judgment to which a party is procedurally entitled cannot be considered to have been granted erroneously by reason of facts of which the Judge who granted the judgment, as he was entitled to do, was unaware, as was held to be the case by Nepgen J in Stander. See in this regard Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) 2003 (6) SA 1 (SCA) ( 2 All SA 113) in paras 9 - 10 in which an application in terms of Rule 42(1)(a) for rescission of a summary judgment granted in the absence of the defendant was refused notwithstanding the fact that it was accepted that the defendant wanted to defend the application but did not do so because the application had not been brought to the attention of his Bellville attorney. This Court held that no procedural irregularity or mistake in respect of the issue of the order had been committed and that it was not possible to conclude that the order had erroneously been sought or had erroneously been granted by the Judge who granted the order. "
Accordingly, so it was submitted, the respondent was procedurally entitled to obtain judgment by default against the appellant by reason of the actual service of the summons upon the appellant at its registered office. This was so despite the fact that the Registrar should not have been satisfied with the form of the return of service and the fact, accepted for purposes of argument, that although the summons was actually served upon Abrahams, for some inexplicable reason she never brought it to the notice of the appellant's director, so that prior to judgment being entered against it, the appellant remained unaware of the existence of the summons.
In the light of the respondent's reliance upon the decision in Lodhi (supra) Mr Hunt, who appeared for the appellant in the appeal, quite correctly did not press further for rescission based upon the provisions of rule 42(1)(a), but instead turned to the alternative ground based upon rule 31(2)(b).
For rescission to be granted in terms of rule 31(2)(b) the appellant needs to establish "good cause". In Saraiva Construction (Pty) Ltd v Zululand Electrical and Engineering Wholesalers (Pty) Ltd 1975 (1) SA 612 (D), Howard J (as he then was) commented at page 613 B-D that;
" In terms of Rule 31 (2) (b) the Court has a discretion to set aside a default judgment ‘upon good cause shown.’ The Rules contain no definition of ‘good cause’ but the Courts have provided one, in effect, by laying down certain requirements which an applicant must comply with before he can be held to have shown good cause or, what is practically synonymous, ‘sufficient cause’ for various kinds of procedural relief."
In the present matter Abrahams, in her affidavit supporting the founding affidavit of appellant’s director Porrit, denied any recollection of ever having been served with the summons intended for appellant. As part of its answering affidavits the respondent delivered an affidavit by the Deputy Sheriff Mr C. G. G. Charles (“Charles”), confirming that he actually served the summons, intended for appellant, upon Abrahams. In addition he annexed to his affidavit a copy of the covering letter, from the respondents attorneys of record, bearing a signature attributed to Abrahams herself. According to him Abrahams affixed her signature thereto, at his request, at the time of service of the summons on 27 September 2007 at 14h25. In reply Porrit merely reiterated that Abrahams did not recall receipt of the summons, but that he was unable to dispute the averments made by Charles. Significantly no replying affidavit was delivered by Abrahams. Despite the lack of detail in the explanation offered by Abrahams, the Court below appears to have accepted her version of the default, namely an administrative error on her part resulting in the appellant not being told of the existence of the summons prior to judgment being entered against it.
Consequently the Court below based its refusal of the application for rescission upon the perceived lack of substance in the defences to the respondent’s claims, as put up in the application for rescission by the appellant. These were twofold, namely that the appellant wished to put the respondent to the proof of the validity of the cession of rights from UAP to the respondent and secondly that the cession, if proved, was foundational to the appellant's intended claim in reconvention against the respondent for damages, alleged to have been suffered by way of crop failure resulting from the defective products delivered by UAP. In this regard the appellant drew attention to the fact that, prior to the present action by respondent, UAP had sued it for payment for the same supplies and in defending that action, the appellant had counterclaimed for damages amounting to some R12 million. Thereafter UAP had withdrawn its action, but the counterclaim remained pending. The appellant wished, in defending the action then instituted by the respondent, also to counterclaim against it and possibly consolidate the hearing of the two trials.
The Court below found that, by merely referring to the cession in passing as an alleged cession and in reply indicating an intention to place the validity of the "purported" cession in issue, but without motivating the grounds for the alleged invalidity, the appellant had not advanced a bona fide defence for purposes of rescission of the judgment. The Court further held that the intended claim in reconvention likewise did not provide grounds for a defence in law because "… our law does not enable a debtor to assert against a cessionary an illiquid claim it has against a cedent (National Bank v Marks and Aaronson 1923 TPD 69; Mannesmann Engineering and Tubes (Pty) Ltd v LTA Construction Ltd 1972 (3) SA 773 (W)) " and that no facts were put up in support of the appellant's suggestion that the cession was mala fide and contracted with the intention to frustrate appellant's claim in reconvention.
The merits of these defences were again the subject of debate before us during the hearing of the appeal. Counsel for the appellant indicated that the appellant stands or falls upon whether a bona fide defence has been demonstrated and that this issue was limited to the effective validity of the cession upon which the respondent's cause of action is based.
It is convenient at this point to review the factual averments upon which the appellant relies. In its founding affidavit, deposed to by its sole director Porrit, the appellant sets out some background to the claims against it. As already indicated, it appears that it had previously purchased agricultural chemicals from UAP Agrochemicals KZN (Pty) Limited ("UAP"), that a dispute arose and that UAP then instituted action against appellant claiming payment for goods sold. This action was defended, appellant claimed damages from UAP in reconvention but on or about 14 September 2007 and shortly before the matter came to trial, UAP had filed a notice withdrawing its claim and tendering costs, thereby leaving the appellant's claim in reconvention still pending. In the particulars of claim forming part of the combined summons, issued on 27 September 2007 and whereby the respondent commenced the present action against the appellant, it is alleged that on or about 3 January 2005 UAP had sold its business to the respondent in terms of a written agreement, which was too voluminous to be annexed to the summons, but inspection and copying of which was tendered to the appellant. It is further alleged that pursuant to the said sale UAP had ceded to the respondent what is referred to as "continuing contracts" and from one of which the claim against the appellant arose. A copy of such cession forms annexure "D" to the particulars of claim. Respondent accordingly claims as against appellant as the cessionary of UAP.
In recounting the background of the matter in dealing with appellant's defence to the respondent's claims against it, Porrit refers to the agreement of sale between UAP and respondent as "an agreement allegedly entered into" and that respondent "claims a Cession" and to "the alleged cession" and complains that “..it would be grossly unfair and contrary to the laws of cession to preclude Applicant/Defendant from airing these issues (a reference to its claim in reconvention against UAP) in defence to the claim brought by Respondent/Plaintiff and that, in any event, it will be necessary to consolidate this action with Case No. 2131/2005 to cure any prejudice to Applicant/Defendant and further that the witnesses and the evidence will be largely the same”.
The essence of the defence the appellant envisages in its founding papers does not relate to an attack upon the actual conclusion of the cession, as alleged in the respondent’s particulars of claim and a copy of the cession document being attached as annexure “D”. Instead it relates to the consequences of the cession which are viewed as unfair because an unliquidated claim for damages against a cedent is not ordinarily available as a defence by way of counterclaim against a cessionary (Van Zyl v Credit Corporation of South Africa Ltd 1960 (4) SA 582 (AD) at 591).
The respondent, having pointed this fact out in its answering affidavit, elicited from appellant the response that it intends, at the trial, to “.. place the effect and validity of the purported cession in issue ..” because it is not bound by the defences raised in the litigation involving UAP. The Court below in regard to this issue found that the appellant did not pertinently raise the validity of the cession as a defence and that “Not even a bald statement to the effect that the cession is not valid is made in the founding affidavit.”. With regard to the complaint that respondent’s reliance upon the cession would be grossly unfair, as referred to above, the Court below held that this was “ .. a far cry from alleging that the cession was concluded with the intention to frustrate the applicant’s efforts to prosecute its claim-in-reconvention and that the respondent was party to this mala fide intention”. As a result it held that this “.. defence did not disclose the existence of an issue which is fit for trial”.
In terms of rule 32(2)(a) a Court may, upon “good cause” shown, rescind or set aside a judgment which had been granted by default. This requirement was originally introduced in 1936 and in regard thereto Schreiner JA remarked that “.. applicant had always been obliged to set out the reasons why he did not appear, as well as the grounds of his defence, but it was only in 1936 by another amendment that the application was required to be on affidavit. It seems clear that by introducing the words 'and if good cause be shown' the regulating authority was imposing upon the applicant for rescission the burden of actually proving, as opposed to merely alleging, good cause for rescission, such good cause including but not being limited to the existence of a substantial defence” (Silber v Ozen Wholesalers (Pty) Ltd 1954 (2) SA 345 (AD) at 352 F-G). The onus is upon the applicant for rescission to establish that such good cause exists in the circumstances of each case (Silber v Ozen Wholesalers (supra) at 353G-H).
As pointed out by the Court below, in Colyn v Tiger Food Industries Ltd t/a Meadow Feed Mills (Cape) 2003 (6) SA 1 (AD) at 9 E-F that “.. the Courts generally expect an applicant to show good cause (a) by giving a reasonable explanation of his default; (b) by showing that his application is made bona fide; and (c) by showing that he has a bona fide defence to the plaintiff's claim which prima facie has some prospect of success”.
However, the Courts have shied away from defining the concept of “good cause”. In the early decision of Cairns’ Executors v Gaarn 1912 AD 181 at 186 Innes JA remarked that “It would be quite impossible to frame an exhaustive definition of what would constitute sufficient cause to justify the grant of (an) indulgence. Any attempt to do so would merely hamper the exercise of a discretion which the rules have purposely made very extensive, and which it is highly desirable not to abridge.” Those remarks have since been echoed in many subsequent decisions. In Silber v Ozen Wholesalers (supra) at 352 H – 353A Schreiner JA remarked that “The meaning of 'good cause' in the present sub-rule, like that of the practically synonymous expression 'sufficient cause' which was considered by this Court in Cairn's Executors v Gaarn, 1912 AD 181, should not lightly be made the subject of further definition. For to do so may inconveniently interfere with the application of the provision to cases not at present in contemplation.” In the light thereof James JP stated in Kritzinger v Northern Natal Implement Co Ltd 1973 (4) SA 542 (N) at 546 A-C that “A consideration of the various cases on the subject of good cause shows that there is an understandable reluctance to give the phrase a circumscribed and inelastic meaning and it is, I think, clear that each case must stand on its own facts. It appears, however, to be generally accepted that good cause cannot be held to be satisfied unless there is evidence not only of the existence of a substantial defence but, in addition, of a bona fide desire by the applicant to raise the defence if the application is granted.”
The reason for this reluctance to circumscribe the meaning of “good cause” appears from the well known passage from the judgment of Smalberger J (as he then was) in HDS Construction (Pty) Ltd v Wait 1979 (2) SA 298 (E) at 300 H – 301 A, where it was stated that “In determining whether or not good cause has been shown, and more particularly in the present matter, whether the defendant has given a reasonable explanation for his default, the Court is given a wide discretion in terms of Rule 31 (2) (b). When dealing with words such as ‘good cause’ and ‘sufficient cause’ in other Rules and enactments the Appellate Division has refrained from attempting an exhaustive definition of their meaning in order not to abridge or fetter in any way the wide discretion implied by these words (Cairn's Executors v Gaarn 1912 AD 181 at 186; Silber v Ozen Wholesalers (Pty) Ltd 1954 (2) SA 345 (A) at 352 - 3). The Court's discretion must be exercised after a proper consideration of all the relevant circumstances.”
In the present matter the Court below considered the issues at length and in the exercise of its discretion came to the conclusion that the appellant had not demonstrated a defence which was “fit for trial”. It therefore concluded that the appellant had failed to establish a bona fide defence which amounted to “good cause” for setting aside the judgment as granted by default and refused the application for rescission. This Court, sitting as it does on appeal, will not readily interfere with a discretionary decision of the Court below because “The power of interference on appeal is limited to cases of vitiation by misdirection or irregularity, or the absence of grounds on which a court, acting reasonably, could have made the order in question. The Court of appeal cannot interfere merely on the ground that it would itself have made a different order.” (per Corbett JA (as he then was) in Attorney-General, Eastern Cape v Blom and Others 1988 (4) SA 645 (A) at 670 D-F).
Mr Hunt indicated during the course of his address that the appeal stands or falls upon the notion whether the appellant had established a bona fide defence in the application for rescission and that such issue was effectively limited to the attack upon the validity of the cession forming part of respondent’s cause of action. The Court below concluded that no bona fide defence had been established in regard to the cession. I am not persuaded that that the Court below in all the circumstances misdirected itself or committed any irregularity in coming to its conclusion. Nor, in my view, is there any reason to suggest the absence of grounds upon which the Court below, acting reasonably, could have made the order in question. Accordingly there is no basis upon which this Court is entitled to interfere. I would therefore propose that the appeal be dismissed, with costs.
VAN ZÿL, J.
I agree and it is so ordered. _______________________
JUDGMENT RESERVED: 3RD AUGUST 2009
JUDGMENT HANDED DOWN: 28TH SEPTEMBER 2010
COUNSEL FOR APPELLANT: ADV. C P HUNT SC
(Von Klemperers Attorneys)
COUNSEL FOR RESPONDENT: ADV. C E WATT-PRINGLE SC (Venn Nemeth & Hart Inc.)