Offshore Development Company v Deloitte and Touche (I 1111-2006)
[2016] NAHCMD 191 (30 June 2016)
1
REPUBLIC OF NAMIBIA
REPORTABLE
HIGH COURT OF NAMIBIA, MAIN DIVISION, WINDHOEK
RULING ON APPLICATION FOR AMENDMENT
CASE NO. I 1111/2006
In the matter between:
OFFSHORE DEVELOPMENT COMPANY PLAINTIFF
and
DELOITTE & TOUCHE DEFENDANT
Neutral citation: Offshore Development Company v Deloitte and
Touche (I 1111-2006) [2016] NAHCMD 191 (30 June 2016)
CORAM: MASUKU J.
Date heard: 9 June 2016
Date delivered: 30 June 2016
FLYNOTE: Rules of court- Amendments of pleadings - rule 52 (4)
as read with 52 (5) of the rules of the Court- Exceptions rule 57 -
Company Law- Liability of directors, auditors and company officials
- Act 51 of 1951- CIVIL PROCEDURE-Award of costs in respect of
amendments/exceptions.
SUMMARY:The defendant filed an application to amend his plea in
terms of rule 52 (2) and rule 52 (5) of the rules of this court.
Plaintiff opposed the amendment on the basis that it would render
the defendant’s plea excipiable for the reason that the averments
in the proposed plea are void in terms of s.247 of the Company’s
Act 61 of 1973. Held -that amendment may be granted at any stage of
a proceeding and court has a discretion in the matter, to be
exercised judicially. Held further- that a court may permit an
amendment, even if it would render the pleading excipiable if
exceptional circumstances exist. Held further- that only if no
possible evidence can be led on the pleadings can an exception that
the pleading does not disclose a cause of action or defence be
upheld. Held further- that s.248 gives the court a discretion, in
appropriate circumstances, to excuse officers of a company
including auditors from liability for negligence, default, breach
of trust or duty, wholly or partly, if the court is convinced that
they have acted honestly and reasonably in the circumstances.
Further held that the effects of s.248 can only be decided once
evidence is led and not at exception stage, hence it would only be
fair and just to allow the amendment and consequently dismiss the
exception. Lastly, costs follow the event. As such the defendant is
ordered to pay costs occasioned by the amendment including those of
instructing and instructed counsel. Application for amendment
allowed and exception dismissed.
ORDER
1. The application for amendment of the defendant’s plea is
granted as prayed.
2. The amendment is to be effected within ten (10) days of the
date of this order.
3. The plaintiff is ordered to file its replication, if any,
within fifteen (15) days from the date of the filing of the amended
plea.
4. The matter is postponed to 17 August 2016 at 15:15 for case
management.
5. The defendant is ordered to pay the costs occasioned by the
amendment and such costs are to include the costs of one
instructing and one instructed Counsel.
RULING ON APPLICATION FOR AMENDMENT
Introduction
[1]Serving before court and submitted for determination is an
opposed application for the amendment of a plea filed by the
defendant. The application is brought in terms of the provision of
rule 52 (4) as read with rule 52 (5) of this court’s rules.
The parties
[2]The plaintiff is a company, with limited liability, duly
registered in terms of the company laws of this Republic, having
its principal place of business situate at Brendon Simbwaye Square
in Windhoek. The defendant, on the other hand, is a partnership of
public accountants and auditors, having its place of business at
Namdeb Centre. It offers services as accountants and auditors.
The claim and the defendant’s plea
[3]The plaintiff sued out a summons out of this court in which
it claims N$ 65,000,000 from the defendant, together with interest
thereon and costs of suit. The claim arises out of a partly written
and partly oral agreement entered into by the parties in 2002.
Shorn of all the frills, the agreement was for the defendant to
provide auditing services to the plaintiff from 1999 and succeeding
years.
[4]It was alleged that in performing those auditing services, it
was expressly, alternatively impliedly or further alternatively
tacitly agreed that the defendant would conduct such services
within generally accepted accounting practice and that the
defendant would perform those functions with due professional care
and diligence as required by the provisions of the Public
Accountants and Auditors Act.[footnoteRef:1] [1: Act No. 51 of
1951.]
[5]It is further averred that contrary to the above agreement,
the defendant failed to conduct its audits in accordance with
accepted standards and practice nor with due professional care and
skill. It is averred that the defendant acted negligently and
failed to verify certain investments in the amount of N$ 34,000.000
which were reflected as investments when in fact the said monies
were fraudulently misappropriated or lost, induced by certain
individuals mentioned in the particulars of claim. It is
accordingly claimed that as result of the gross incompetence,
negligence or recklessness of the said persons, the books of
account did not reflect a fair status of the plaintiff’s financial
position as at 28 February 2003.
[6]Because the defendant gave the plaintiff’s financial position
a clean bill of health, including the investment of the amount of
N$ 34, 000.000, it is further averred, the plaintiff, relying on
the said financial position as confirmed by the defendant’s report,
invested a further amount of N$65.000.000 which was also lost to
the same persons referred to in the immediately preceding
paragraph. It is averred that the said amount constitutes damages
which the plaintiff claims is due to it from the defendant as a
result of their failure to act in a professional manner and with
the requisite duty of care and skill.
[7]The defendant, in its plea, denied liability for the amount
claimed or at all, relying on a management letter dated 8 March
2002. The paragraphs relating to the allegations of negligence and
failure to perform the professional services in line with the
requisite duty of care were denied. In addition, the defendant
filed a counterclaim for the payment of an amount of N$132 719 for
auditing services allegedly rendered to the plaintiff and which it
had, despite demand, failed to settle.
Notice of amendment
[8]By notice dated 2 December 2015, the defendant evinced an
intention to amend its plea. I do not find it necessary to quote
the said notice verbatim for the reason that opposition to the
amendment is limited and is only in respect of a few paragraphs of
the entire amendment sought. For that reason, I will only quote the
parts of the amendment sought to be impugned as the balance thereof
constitute no dispute at all. I will, for purposes of clarity, take
a cue from the plaintiff’s Counsel and underline the ‘offensive’
portions of the proposed amendment in so far as the plaintiff is
concerned. I do so presently.
[9]‘By inserting new paragraphs 2.5.4 and 2.5.5 to read:
“2.5.4 the defendant would, as part of the audit process,
request from management written confirmation concerning
representations made to the defendant in connection with the
audit;
2.5.5 the defendant would not be liable to the plaintiff for
loss suffered as a result of the defendant’s breach of the 1999
agreement, if the plaintiff was itself in breach of the 1999
agreement and its breach was the cause, alternatively, a material
cause, of its loss.”
By inserting new paragraphs 3.1 to 3.6 to read:
“3.1 In accordance with the 2003 agreement, the plaintiff,
represented by its Chief Executive Officer (Mr. Aboobakar) and its
Financial Controller and Head of Administration (Mr. Ortman), on 3
June 2003 provided written confirmation of representations made by
the plaintiff in the 2003 audit in a ‘LETTER OF REPRESENTATION’
annexed marked ‘P1.1’ (‘the letter of Representation’).
3.5 The plaintiff breached the 2003 agreement, read with the
Letter of Representation, in that:’
3.6 The defendant pleads that:
3.6.1 the plaintiff is not entitled to rely on a breach of the
2003 agreement by the defendant where, in relation to the same
subject matter and to reciprocal obligations, the plaintiff itself
was in breach of the 2003 agreement;
3.6.2 the breach complained of by the plaintiff relates to
information already known by the plaintiff and where the plaintiff
did not rely on the defendant to inform it of facts already known
to it;
3.6.3 the plaintiff was liable to protect its own interests
based on facts known only to it, and based on relationships with
persons known only to it and not to the defendant, and was not
vulnerable to the risk of loss arising out of the defendant’s
conduct.’
7.2 In amplification of the denial the defendant pleads
that:
7.2.1 the cause, alternatively the material cause of the
plaintiff’s loss was its own breach of the 2003 agreement,
alternatively its careless conduct both in making and managing of
the investment and the further investments claimed to comprise the
plaintiff’s loss.’
[10]It will be seen from the above underlined portions that the
opposition by the plaintiff appears in the main to be directed at
new paragraphs by which the defendant seeks to deny liability for
the claim based on the plaintiff’s own peculiar knowledge of facts
which it allegedly did not disclose to the defendant and which if
it did, would have allegedly placed the defendant on the qui vive
as it were and would have assisted the latter in carrying out its
duties to the plaintiff. In essence, and to put it in different
language, the defendant claims that the plaintiff is in a sense in
pari delicto and cannot, for that reason, claim damages from the
plaintiff as it is, so to speak in equal guilt of contravening the
provisions of the terms of the letter of engagement signed by both
contractants.
[11]The opposition to the amendment is premised on the basis
that the amendments sought by the defendant, if granted by the
court, would render the amended defendant’s plea excipiable for the
reason that the averments in the proposed plea are void in terms of
the provision of s. 247 (1) of the Companies Act, (the
‘Act).[footnoteRef:2] For purposes of completeness, I propose to
quote the said provision of the Act hereunder. It provides the
following: [2: Act No. 61 of 1973]
‘Subject to the provisions of subsection (2), any provision,
whether contained in the articles of a company or in any contract
with the company, and whether expressed or implied, which purports
to exempt any director or officer or the auditor of the company
from any liability which by law would otherwise attach to him in
respect of any negligence, default, breach of duty of trust of
which he may be guilty of in relation to the company or to
indemnify him against any such liability, shall be void.’
I shall revert to the import of the above provision and its
implications, if any, to the present case in due course.
The court’s general policy towards amendments
[12]The court’s policy towards amendments, particularly with the
advent of judicial case management, was stated with absolute
clarity and completeness by a Full Bench of this court in I A Bell
Equipment (Pty) Ltd v Roadstone Quarries CC.[footnoteRef:3] I
shall, in this regard, refer to different portions of the judgment
where the proper approach is set out. [3: (I 601/2013, I 4084/2013)
[2014] NAHCMD 306 (17 October 2014).]
[13]At para [40], the court reasoned as follows:
‘The right to amend pleadings at any stage of the proceedings
has not been removed by the rules of court, either before or in the
new rules’.
And at para [49], the court said:
‘The unchanged position under the rules of court at the time the
matter was argued and now is that an amendment may be granted at
any stage of a proceedings and that the court has a discretion in
the matter, to be exercised judicially. The common law position
that a party may amend at any stage of the proceedings as long as
prejudice does not operate to the prejudice of the opponent
remains, save that, like every other procedural right, it is also
subject to the objectives of the new judicial case management
regime applicable in the High Court. That includes the imperative
of speedy and inexpensive disposal of causes coming before the High
Court.’
[14]Finally, at para [55], the court laid the following guiding
principles, which I will quote selectively, with regard to facts of
the present matter:
‘Regardless of the proceedings where it is brought, the
following general principles must guide the amendment of pleadings:
Although the court has a discretion to allow or refuse an
amendment, the discretion must be exercised judicially. An
amendment may be brought at any stage of a proceeding. The
overriding consideration is that the parties, in an adversarial
system of justice, must decide what their case is; and that
includes changing a pleading previously filed to correct what it
feels is a mistake made in the main pleadings. . . A litigant
seeking the amendment is craving the indulgence of the court and
therefore must offer some explanation for why the amendment is
sought. The case for an explanation why the amendment is sought and
the form it will take will also be determined by the nature of an
amendment. The less significant the amendment, the less the
formality for the explanation. . . The more substantial the
amendment, the more compelling the case for an explanation under
oath. . . The discretion to allow late amendments must not be
exercised punitively, and each case, must be considered on its own
facts, balancing the need to do justice between the parties by
ensuring that the court allows them to ventilate the real issues
between them, and the interests of the administration of justice.
It has become common practice in our courts for parties to bring
substantial amendments on the eve of trial, fully aware it is going
to be opposed, and in that way, effectively secure a postponement.
I cannot think of a practice more pernicious and subversive of the
proper and orderly administration of justice than that’.
I will revert to some of these guiding principles at the
appropriate juncture.
[15]To buttress the position, the Supreme Court stated the
following in the unreported judgment of D B Thermal (Pty) Ltd v
Quality Products[footnoteRef:4] regarding the approach to amendment
of pleadings: [4: Case No. SA 33/2010 at para 38.]
‘The established principle that relates to amendments of
pleadings is that they should be “allowed in order to obtain a
proper ventilation of the dispute between the parties . . . so that
justice may be done”, subject of course to the principle that the
opposing party should not be prejudiced by the amendment if the
prejudice cannot be cured by an appropriate costs order, and where
necessary, a postponement.’
[16]Lastly, and directly in relation to an amendment sought
where it is alleged that same is excipiable, the court reasoned
thus in D B Thermal:[footnoteRef:5] [5: Ibid at para 39.]
‘A further principle governing amendments is that a pleading may
not be amended if the result would be excipiable on the basis that
the amended pleading would not disclose a cause of action. Again a
court may permit an amendment, even if it would render the pleading
excipiable, if exceptional circumstances exist. In order for a
pleading to disclose a cause of action, it must set out every
material fact, which would be necessary for the plaintiff to
provide to support his or her right to the order sought.’
[17]These are some of the principles that the court may,
depending on how the case pans out, call in aid as it deals with
the amendment, subject of course to the further issue of the proper
approach to such amendments where they are in the form of an
exception, as dealt with in the succeeding paragraphs of this
judgment.
[18]The defendant, in support of its application, filed an
affidavit explaining why the amendments are sought. What is clear
from the affidavit is that after the action was instituted some
time back, the parties went into hibernation as it were and the
action became dormant for some five or so years. When judicial case
management became operative, the matter was rescuscitated back to
life. At that point, the parties were called upon to make discovery
and during which process certain documents discovered by the
plaintiff brought certain facts to light and which have
necessitated the amendment sought. In the main, the amendment
sought is to allow the defendant in its plea, to raise the defence
sought to be precluded by the provision of s. 247 of the Companies
Act aforesaid. To this extent, I am of the view that the reason for
the amendment sought is explained on oath as required by the I A
Bell case.
[19]What remains for the court to consider, at this juncture,
regard had to the nuggets of wisdom in the D B Thermal case quoted
above, is whether the reasons proffered by the plaintiff as a basis
for the opposition to the amendment sought do pass muster. In this
regard, it must be examined whether the pleading in the proposed
amended state would indeed be excipiable as alleged by the
plaintiff, on the basis that it does not disclose a defence, regard
had to the said section of the Companies Act. Alternatively, and in
the event it is found that the said pleading is excipiable, the
question may then turn to whether there are any exceptional
circumstances that exist in the instant case that would justify the
court, notwithstanding the excipiable nature of the proposed
pleading, to allow same to be amended as stated in para [16]
above.
[20]It is, however, prudent, before doing so, to briefly have
regard to the approach to exceptions by the courts in so far as
this may be necessary. I do so for the reason that where an
amendment is opposed on the basis that same would be excipiable, it
is prudent and may be necessary for the court to deal with the
application for amendment as though it was an exception proper.
[21]The learned author Harms,[footnoteRef:6] states the
following in this regard: [6: Civil Procedure in the Superior
Courts, Butterworths, [Issue 51] p. B-189.]
‘If the grounds of objection are appropriate to an exception the
application should be dealt with as if it is an exception. To allow
the amendment in the sure knowledge that the defendant will
immediately note an exception makes little sense. Applications for
amendment should not deteriorate into mini-trials since amendment
proceedings are not intended or designed to determine factual
issues such as whether the claim has become prescribed. Likewise,
an amendment will not be allowed if the particulars of claim do not
disclose a cause of action; it would be an exercise in futility. An
amendment may also not be allowed to place on record an issue for
which there is no supporting evidence, where evidence is
required’.
[22]The approach advocated by the learned author strikes me as
eminently correct and sensible for the reason that if the court
were to grant an amendment that appears excipiable because it is
just to do so in the circumstances or because of exceptional
circumstances that the court finds to exist, as stated in the D B
Thermal case (supra), the party opposing the said amendment would
then be entitled to file an exception and this would result in the
court having to deal with the exception in addition to the
amendment application just disposed of. This would inevitably
result in two interlocutory proceedings on the same case and
involving the same issue, a phenomenon our judicial case management
system frowns upon. In this regard, the court may well have to make
two rulings relating to the same issue, whereas dealing with the
amendment as if it were an exception in one interlocutory
proceeding would avoid a work of supererogation and would also
conduce to the efficient use of court time and resources as much as
it would save the parties costs for the hearings and
preparation.
[23]Regarding the overriding objectives of judicial case
management and interlocutory proceedings I have referred to above,
the Supreme Court had this to say in the Van Straten case
(infra):[footnoteRef:7] [7: At para [19].]
‘Those objectives include the facilitation of the real issues in
dispute justly and speedily, efficiently and cost effectively as
far as practicable by saving costs by, among others, limiting
interlocutory proceedings to what is strictly necessary in order to
achieve a fair and timely disposal of a cause or matter.’
For that reason, it will be clear that stripped to the bones,
although the opposition is to an amendment, in essence, it is in
fact one that raises an exception and which the court could be
eminently capable of dealing with and disposing of in one swoop, by
dealing with the issue on its true essence i.e. beyond the
transient and intermediate issue of an amendment. I accordingly
proceed to deal with the court’s approach to exceptions
presently.
Courts’ approach to exceptions to pleadings
[24]The proper approach to exceptions has recently been restated
by the Supreme Court in Alwyn Petrus Van Straten NO V Namibia
Financial Institutions Supervisory Authority and
Another.[footnoteRef:8] There, the court deals with the approach to
exceptions to pleadings both on the bases that same disclose no
cause of action and where it is alleged it is vague and
embarrassing. I shall confine myself to the former as that appears
to be the complaint in the instant case. [8: Case No. 19/2014
delivered on 8 June 2016.]
[25]At para 18, the Supreme Court stated the following:
‘Where an exception is taken on the grounds that no cause of
action is disclosed or is unsustainable on the particulars of
claim, two aspects are to be emphasized. Firstly, the facts alleged
in the plaintiff’s pleadings are taken as correct. In the second
place, it is incumbent upon every interpretation which the pleading
can reasonably bear, no cause of action is disclosed. Stated
otherwise, only if no possible evidence can be led on the pleadings
can disclose a cause of action, will the particulars of claim be
found to be excipiable’.
[26]I now proceed to deal with the basis of the complaint as
raised by the plaintiff in the instant matter and properly
understood, it would seem that the mainstay of the exception is
that the defence sought to be raised by the defendant is void for
contravening the provisions of s. 247 of the Companies Act. I deal
with the import of that provision below.
The import of s. 247 of the Act – the plaintiff’s case
[27]In its heads of argument, the plaintiff referred the court
to LAWSA,[footnoteRef:9] where the learned author states the
following regarding the interpretation to be given to s. 247: [9:
1st Reissue Vol. 4 Part 2 para 157.]
‘The provision renders invalid, not only all provisions that
purport to exempt the director from liability in the event of its
being breach of a duty, but also all provisions that purport to
exempt him from his duties. This is because this section of the
Companies Act not merely renders void a provision which, but for
this section, would exempt a director from liability of the kind
specified (thus leaving it open for the articles to determine what
constitutes a breach of duty). Rather, it renders void a provision
that has its purpose the exemption of a director from such
liability, which, but for that provision, would have attached to
him for breach of duty. Hence it renders void both the provision
that purports to exempt a director from liability arising from a
breach of a duty and the provision that purports to release a
director from duty; for in both cases the provision purports to
relieve a director from liability . . . which would otherwise
attach to him’.
[28]It must be mentioned that the said provision does not only
deal with the exemption of a director. It also deals with the
exemption of an auditor. This is plain from the excerpt of the
provision quoted in para [11] above. For that reason, it would
appear to me that the reference to the exemption of a director in
this passage should refer to the exemption of an auditor as well.
Put simply, the provision renders void any exemption in any
provision in legislation or even in any contract that purports to
grant immunity to a director or auditor for breach of a duty that
would otherwise attach liability to him in respect of any
negligence, default, breach of duty of trust or which seeks to
indemnify the said director or auditor from liability.
[29]It is accordingly plain from a reading of the defendant’s
proposed amendment, that the plea sought to be introduced by the
defendant has the ominous and deleterious effect of seeking to
exempt the auditor from liability, by claiming that the plaintiff
was itself in breach of its duties to the defendant in terms of the
agreement signed by the parties in 1999. In this regard, it is
claimed and sought to be alleged in the amended plea that no
liability should attach to the auditors because the matters in
relation to which it is claimed the defendant was negligent, were
matters which the plaintiff already knew. In other words, it is
alleged that the plaintiff cannot sue the defendant on the basis of
the fact (to be proved) that the plaintiff was itself in breach of
the very agreement it seeks to rely on for its claim.
[30]There is no gainsaying that a plain reading of the proposed
amended plea shows that what the defendant attempts to do in its
plea, is to seek to protect the defendants from liability, an issue
specifically proscribed by s. 247, which renders it void i.e. of no
force and effect. It is for this very reason that the plaintiff
claims the intended amendment would be rendered excipiable and this
appears eminently correct regard being had to the nomenclature used
by the law giver and what appears to have been the mischief sought
to be prevented by the promulgation of the section under
consideration.
[31]The plaintiff also contends that to allow the amended
portions of the plea complained of would enable the defendant to
escape its duties and obligations in terms of the provisions of
s.300 and 301 of the Act, which have been incorporated in some
sections of the Public Accountants and Auditors Act.
[footnoteRef:10] It was accordingly argued that to allow the
auditor to shirk its responsibility imposed by the Companies Act
and the Public Accountants and Auditors Act would be tantamount to
transferring the auditor’s statutory duties and obligations to the
company or its management. In this regard, it was further argued
that an auditor could safely contract out of its statutory duties,
something that would be an unconscionable anathema and which the
court should not allow to eventuate. The purpose of s. 247, as
submitted, was to ensure that the auditor performs his or her
statutory duties properly and with the requisite degree of
professionalism, skill and care. [10: Supra footnote 1]
Section 248 of the Act – the defendant’s case
[32]The argument of the defendant is a horse of a different
colour. I must mention that the defendant has, in its heads of
argument analysed the impact of the intended amendment to a few
intricate defences. These defences are interesting work of high
legal art and finesse. In view of the nub of the plaintiff’s ground
of opposition, particularly as articulated in the brief but concise
and incisive oral argument by Mr. Frank, I am of the view that for
purposes of this case, it is prudent to confine the judgment solely
to the issue raised by the plaintiff in relation to the provisions
of s.247. I will, in this regard, confine the argument to the
provisions of s. 248 of the same Act and consider whether they in
any way impact or should serve to ameliorate the harshness of the
provisions of s. 247. I follow this trajectory also for the reason
that this was the main prong of attack adopted by the defendant’s
Counsel, Mr. Van der Nest in his insightful and captivating
argument.
[33]S. 248 (1) reads as follows:
‘If in any proceedings for negligence, default, breach of duty
or breach of trust against any director, officer or auditor of a
company it appears to the Court that the person concerned is or may
be liable in respect of the negligence, default, breach of duty or
breach of trust, but that he has acted honestly and reasonably, and
that, having regard to all the circumstances of the case, including
those connected with his appointment, he ought fairly to be excused
for the negligence, default, breach of duty or breach of trust, the
Court may relieve him, either wholly or partly, from his liability
on such terms as the Court may think fit.’
What is clear, is that the said section was promulgated in order
to give the court, in appropriate cases, the discretion to excuse
officers of a company, including auditors from liability for
negligence, default, breach of trust or duty, whether in whole or
in part, where the court is convinced that they have acted honestly
and reasonably in all the circumstances connected with their
appointment with the company.
[34]S. M. Blackman[footnoteRef:11] posits that the intention of
the promulgation of the said provision is the following: [11:
‘Exemption of directors from liability and section 247 (1) of the
Companies Act’, 1973 at p.(Vol 2) 8-362.]
‘These provisions are designed to protect honest directors,
officers and auditors, and ought not to be construed in a narrow
sense, and for this reason it has been held that the court may
grant relief from liability for damages for breach of
contract.’
I have, despite a diligent search been unable to find any cases
locally or in the Republic of South Africa, for that matter, that
deal with the application of the said subsection from the courts
and how the section is to be applied and the examples of
circumstances where it has been previously applied.
[35]The defendant’s legal team referred the court to the
application of equivalents of this section in at least two
jurisdictions and they importuned the court to adopt the same
interpretation. Two cases, in this regard, were referred to and
these were in England and Wales in Barings plc v Coopers &
Lybrand[footnoteRef:12]and in Singapore in JSI Shipping (S) Pte Ltd
v Teofoongwonglcoong (a firm)[footnoteRef:13]. [12: [2003] EWHC
1319 (Ch); [2003] Lloyd’s Rep IR 566, per Mr. Justice Evans-Lombe.]
[13: [2007] 4 SLR 460; [2007] SGCA 40, per V.K. Rajah J.A. writing
for the majority of the Court.]
[36]In England and Wales, the section in question is s. 727 of
the Companies Act, of 1985. I can vouch that the wording of the
said section is in pari materia with the section quoted above. In
dealing with the interpretation of the said provision, the Court
stated the following at para 1128 of the judgment:
‘As has been frequently remarked, there is an obvious paradox in
the wording of section 727. It allows a defendant who has been
found liable for negligence to be excused wholly or partially on
the ground that he acted “honestly and reasonably” and, in the
light of all the circumstances of the case, “ought to be excused”.
A number of judges have had to consider how a negligent defendant
can be found to have acted reasonably. As Hoffman L.J. remarked in
Re D’ Jan of London [1993] BCC 646, at page 649:
“and compelling as also to demand a conclusion that a person had
acted unreasonably for the purposes of the exculpatory section,
nevertheless that section is to be taken to directing its attention
to a much wider area of concern – both in point of scope and time
frame. The examples relied upon by the defence as cited by Moffat J
seem to me apt illustration of the issues involved.”’
[37]After considering some relevant authorities, the court
concluded the treatise as follows at para 1133 and having reviewed
the evidence:
‘I conclude from the above authorities that section 727 is
available to me if D&T acted honestly and reasonably. They may
have acted reasonably for the purposes of the section even though I
have found them to have acted negligently, if they acted in good
faith and their negligence was technical or minor in character, and
not “pervasive and compelling”. Nor am I limited to consideration
of the nature of D&T’s fault, but may take into account wider
considerations, such as in D’ Jan the economic reality that the
defendant and his wife owned the entire company. Similar
considerations weighed with the court in Re Duomatic [1969] 2 Ch
365.’
[38]In the Singaporean case of JSI Shipping case, the court
considered the provisions of 391 of the Companies Act, which I must
once again note, are couched similarly with our s. 248 word for
word. That court, in deciding the matter before them, also referred
to the Barings case. At para 163, the court reasoned as
follows:
‘In our view, we agree that the court should not hesitate, in a
proper case, to relieve a person from the harsh and oppressive
consequences arising from the strict application of the law,
particularly in an instance where the person had acted honourably,
fairly and in good faith as judged by the standards of a similar
professional background.’
[39]At para 168, the court, in dealing with the element of
reasonableness stated the following:
‘The determination of reasonableness for the purposes of this
section is not to be limited by the specific breach, but can
encompass wider considerations such as the nature of the audit and
other relevant circumstances. In particular, we note the views of
the authors of a leading treatise to the effect that the court is
required to take into account all relevant circumstances in
considering whether an auditor ought to be excused, an analysis
which, in their own words, “ought surely to include the conduct of
the directors”.
In particular, the court held that the auditor could be excused
from liability if his conduct, though found to be negligent, is
underpinned by three epithets captured in the relevant section,
namely reasonableness, honesty and fairness.[footnoteRef:14] [14:
Ibid at para 167.]
[40]It appears from the foregoing cases that the equivalent of
s. 248 has been applied in other jurisdictions to exculpate company
directors, officers and auditors in circumstances where they may
have been negligent in the conduct of the company affairs. The
degree of exculpation may be relative, it would seem, ranging from
total or partial exculpation, depending on the circumstances of the
case. In this regard, it would seem that the operative criteria for
the court to exercise its discretion in favour of such officers,
including auditors who may have been negligent, include the
honesty, reasonableness and fairness in the conduct of their
duties. In this regard, it must be further added, it would seem
that the degree of negligence must not be egregious, outlandish,
pervasive or compelling.
[41]It would appear to me in the instant case that the otherwise
compelling case made by the plaintiff challenging the
sustainability of the amendment proposed in the light of the
provisions of s. 247 must be tampered by the provisions of s.248,
which essentially allow the court, in exercise of its discretion,
based on the attendant facts, to ameliorate the otherwise harsh and
unbridled oppressive effects of s.247, which prevents company
officials, including auditors, from claiming any defence where they
are guilty of negligence.
[42]I am of the considered opinion that in the circumstances, it
is only fair and just to allow the amendment prayed for in view of
the fact that for the court to decide whether the effects of s.248
decisively and particularly whether the facts attendant to the
matter do bring the matter within the purview of s. 248 will
require the leading of evidence. This court is certainly
ill-placed, on the allegations before it presently, to decide the
matter with any degree of finality at this stage.
[43]It must be stressed in my view, that the decision as to
whether this court should attach the same meaning and approach to
s.248 can be done once the evidence is led. That process can
hopefully usher the court into a position where it can carefully
consider and assess the evidence led and neatly place the court in
the vantage position to finally decide whether the actions of the
defendant in this case fall within the rubric of the decisive
epithets of reasonableness, honesty and fairness in all the
circumstances of the case as encapsulated in s. 248.
[44]It would appear to me that the case in question,
particularly on the interpretation to s.248 potentially raises a
new approach to the liability of company directors, officers and
auditors in this jurisdiction. Depending on how the court views the
evidence at the end of the day, it would be presumptuous for this
court, at this stage and without hearing, assessing the evidence
that the defendant may lead, to close the door in final fashion on
the defendant’s face, only on the basis of the provisions of what
appears, from the plaintiff’s argument, to be the decisive and
fatal effects of the provisions of s.247.
[45]The approach I advocate above, must be viewed particularly
considering the duties of auditors as stated by Lopes LJ in In re
Kingston Cotton Mill Company (No.2),[footnoteRef:15] where the
following is stated: [15: [1868] Ch 279 at 290.]
‘The duties of auditors must not be rendered too onerous. Their
work is responsible and laborious and the remuneration moderate. .
. Auditors must not be made liable for not tracking out ingenuous
and carefully laid schemes of fraud when there is nothing to arouse
their suspicion, and when those frauds are perpetrated by tried
servants of the company and are undetected for years by the
directors. So to hold would make the position of an auditor
intolerable.’
[46]In In re London and General Bank (No.2),[footnoteRef:16]
Lindley LJ considered the auditor’s true functions in the following
terms: [16: [1895] 2 Ch 673 (Re London).]
‘His business is to ascertain and state the true financial
position of the company at the time of the audit, and his duty is
confined to that. But then comes the question, How is he to
ascertain that position? The answer is, By examining the books of
the company. But he does not discharge his duty by doing is without
enquiry and without taking any trouble to see that the books
themselves shew the company’s true position. He must take
reasonable care to ascertain that they do so. Unless he does this
his audit would be an idle farce. . . An auditor, however, is not
bound to do more than exercise reasonable care and skill in making
inquiries and investigations. . . Such I take to be the duty of the
auditor: he must be honest – i.e., he must not certify what he does
not believe to be true, and he must take reasonable care and skill
before he believes that what he certifies is true. What is
reasonable care in any particular case must depend upon the
circumstances of that case.’
[47]The above excerpts illustrate lucidly what the duties and
responsibilities of an auditor are. Implicit in these are examples
where the auditors may have done what is required of them and what
goes wrong may be due to other factors not connected or not
sufficiently connected to their lack of diligence or poor
performance. These are issues which are sought to be raised by the
defendant in the instant case and which must, in my view be
ventilated in a trial and not be brought to a screeching halt by an
exception at this stage.
[48]I am of the considered view that the court should be allowed
to consider the evidence and on the facts, decide whether the
actions of the defendants, together with that of the plaintiffs
would fall within the ameliorating effects of s.248. It would, in
my view be presumptuous to willy-nilly interpret s.247 as
non-suiting the defendant without considering the effects and
implications of s.248, after evidence has been led.
[49]In the Van Straten case,[footnoteRef:17] the Supreme Court
expressed itself as follows: [17: Ibid at para 111.]
‘The balancing of the competing interests which arise in and
evaluating whether public policy and the legal convictions of the
community would result in a finding that the conduct complained of
was wrongful and susceptible to an Aquilian remedy in damages are
exercises best undertaken at the conclusion of the trial after the
full matrix has emerged’.
[50]I am of the considered view that there are competing
interests in this matter as well and these will emerge from what I
have said before. In the premises, I am of the view that the full
import of the competing positions that appear to be ushered by what
appear to be the discordant provisions of ss. 247 and 248, would
require the adduction of evidence. That evidence and full legal
argument, after all the evidence is in, would place the trial
court, rather than this court, dealing as it does with
interlocutory matters in the absence of evidence, at the vantage
point to fully investigate the effects of s.248 on the case,
considering same in tandem with the evidence led. This, in my
opinion, is the proper and fair approach to the matter and one that
would apply if this matter was dealt with as an exception.
[51]I am of the view that in the light of what is persuasive
authority cited above, it is high time that the defences availed to
auditors amongst others, by the interpretation accorded to s.248,
should be recognized and applied in appropriate cases in this
jurisdiction. The reasoning of the courts in both England and
Singapore, is in my view in line with logic, principle and the
demands of justice and fairness. As a result, I do not find any
meaningful reason not to adopt the approach of those courts for
application in our jurisdiction.
[52]I am accordingly of the view that the defendant should be
allowed to amend its plea as proposed in order to enable it to
raise the defences it seeks to and the trial court can be properly
placed to poignantly consider, in the light of the evidence,
whether the import of s.248 has the effect contended for by the
plaintiff in the first place. It would also, having regard to the
evidence, decide whether or not a case for absolving the defendant
from liability, whether partially or in full, is made out in terms
of s. 248.
[53]Finally, in the Van Straten case, [footnoteRef:18]referred
to Indac Electronics (Pty) Ltd v Volkskas Bank Ltd,[footnoteRef:19]
where the following lapidary remarks were made: [18: Ibid at para
150.] [19: 1992 (1) SA 80B-D.]
‘. . . at the stage of deciding an exception a final evaluation
and balancing of relevant policy considerations should . . . not be
undertaken.’
I accordingly heed that admonition, considering the weighty
issues that arise and the potentially decisive effect that this
case, after trial may have on the duties and liability of auditors
in the company law of this Republic. I would therefore grant the
amendment sought and in effect dismiss the exception at this
stage.
[54]Should I be found to have erred in my considerations and
prima facie view of the applicability of the provisions of s.248 as
dealt with in the cases referred to above and the effect it may
possibly have on s. 247, and that the pleading sought to be amended
is excipiable as alleged, I am nonetheless of the opinion that the
sheer weight of the issues at stake, their novelty and the possible
development of Company Law and the duties of directors, officers
and auditors, that may be yielded by allowing the amendment in the
circumstances, in my view constitute an exceptional circumstance
within the meaning of the D B Thermal case as quoted in para [16]
above. For that reason, I am of the considered view that this court
should sanction the proposed amendment, as I hereby do.
Costs
[55]The question of costs presents some difficulty in this
matter. This arises from the fact that the proceedings were brought
as one type of interlocutory but were dealt with as a different
type. In my view, the ruling on costs differs, depending on which
interlocutory it is. In the instant case as it was essentially an
amendment sought and the court has effectively granted it, the
authorities suggest that an applicant for an amendment essentially
seeks an indulgence from the court.
[56]In the instant case, I am of the view that the opposition to
the amendment, as seen from the issues discussed in this ruling,
were weighty and of great moment. The opposition was therefor not
in any way frivolous or vexatious. This would for that reason point
to an order for costs having to be granted to the plaintiff in the
circumstances.
[57]On the other hand, as the matter was effectively dealt with
as though it was an exception, the end result was to effectively
not uphold the exception. As is apparent from the judgment, in the
circumstances, it would mean that the ordinary rule that costs
follow the event should be issued. On a mature consideration of all
the facts however, and in exercise of the discretion reposed in the
court in matters of costs, I am of the view that it would be unfair
and unjust in the circumstances to mulct the plaintiff with costs
as it was brought to court by the defendant, who found it fit to
apply for an amendment, which has been effectively granted. The
fact that the court dealt with the application as though it was an
exception in my view does not, and should not detract from the fact
that the matter was brought to court as an application for
amendment and the costs that ordinarily follow in amendments
applications should therefore apply.
[58]In the premises I grant the following order:
1. The application for amendment of the defendant’s plea is
granted as prayed.
2. The amendment is to be effected within ten (10) days of the
date of this order.
3. The plaintiff is ordered to file its replication, if any,
within fifteen (15) days from the date of the filing of the amended
plea.
4. The matter is postponed to 17 August 2016 at 15:15 for case
management.
5. The defendant is ordered to pay the costs occasioned by the
amendment and such costs are to include the costs of one
instructing and one instructed Counsel.
____________
TS Masuku
Judge
APPEARANCES:
PLAINTIFF: M. Van der Nest SC, with him R. Heathcote and D
Smit
Instructed by Theunissen, Louw & Partners
DEFENDANT:T. Frank SC, with him E. Schimming-Chase
Instructed by Engling, Stritter & Partners