CLIFFE DEKKER HOFIIIEYR

Office of the State Attorney

Email: EbSnyman@justice.gov.za

Email: AMarshScott@justice.gov .za

Attention: E Snyman I A Marsh-Scott

cc: Werksmans Attention: Rael Gootkin Email: rgootkin@justice.gov.za

Dear Sirs

Our Reference

Account Number

Your Reference

Direct Line Direct T elefax

Direct Email

Date

REDISA/ MINISTER OF ENVIRONMENTAL AFFAIRS/ CASE NO. 9675/2017

1 We refer to this matter.

2 We deliver herewith our clients' Heads of Argument.

Yours faithfully

pp L~ciLl!fct:J' RICHARD MARCUS CLIFFE DEKKER HOFMEYR INC #4782985v1

CHAIRMAN AW Pretorius CHIEF EXECUTIVE OFFICER B Williams CHIEF FINANCIAL OFFICER ES Burger

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3 July 2017

DIRECTORS: JOHANNESBURG JA Aukema CD Baird G Barkhuizen-Barbosa R Beerman E Bester P Bhagattjee BSS Boikanyo R BonnetTE Brincker B Brown K Caddy N Cara HLE Chang CWJ Charter NS Comte CJ Daniel J Darling EF Dempster S Dickson RE Eliasov L Erasmus P Erasmus JJ Feris TS Fletcher L Fran9a TG Fuhrmann F Gattoo MZ Gattoo SB Gore J Govender L Granville AJ Hofmeyr 0 Honey WH Jacobs WH Janse van Rensburg CM Jesseman JCA Jones T Jordaan BL King J King Y Kleitman J Latsky AM le Grange FE Leppan' CJ Lewis BC Maasdorp JL Mackenzie Z Malinga G Masina NN Mchunu B Meyer WJ Midgley R Moodley A Moolman MG Mphafudi BP O'Connor A Patel GH Pienaar V Pillay DB Pinnock NA Preston AW Pretorius TZ Rapuleng AG Reid JR Ripley-Evans M Serfontein P Singh-Dhulam L Smith T Suliman FP Swart M Treurnicht D Vallabh C van der Berg HR van der Merwe JJ van Dyk WPS van Wyk NJ von Ey JG Webber JG Whittle DA Wilken B Williams LD Wilson MP Yeates Nl Zwane

DIRECTORS: CAPE TOWN TN Baker RD Barendse T J Brewis MR Collins A de Lange W de Waal LF Egypt GT Ford S Franks DF Fyfer SAP Gie J Gillmer JW Green AJ Hannie AM Heiberg PB Hesseling RC Horn S Immel man JH Jacobs JAD Jorge A Kariem JA Krige IJ Lessing GC Lumb RE Marcus Sl Meyer V Munro J Neser FT Newham G Orrie§ CH Pienaar' L Rhoodie MB Rodgers BJ Scriba S Singh GJ Stansfield BPA Strauss DM Thompson CW Williams T J Winstanley

EXECUTIVE CONSULTANTS: AC Alexander M Chenia HS Coetzee PJ Conradie NW Muller AM Potgieter JM Witts-Hewinson

CONSULTANTS: A Abercrombie JMA Evenhuis" Prof A Govindjee EJ Kingdon FF Kolbe

SENIOR ASSOCIATES: F Ameer-Mia A Bezuidenhout AS Bezuidenhout L Brunton L Chance N Du Sart T Erasmus TV Erasmus KJ Keanly N Loopoo HJ Louw MM Mailula NS Mbambisa NL Meyer A Mhlongo N Mia T Moodley V Moodley MB Mpahlwa JLW Njuguna KT Nkaiseng AP Pillay M Somrey J Strydom FJ Terblanche T Tosen R Valayathum

CLIFFE DEKKER HOFMEYR SERVICES PROPRIETARY LIMITED DIRECTORS: GC Badenhorst ES Burger JA Cassette TR Cohen AB Hoek MW Linington B Williams

'British ~Dutch §Cape Town Managing Partner

Cliffe Dekker Hofmeyr Inc. Reg No 2008/018923/21

IN THE HIGH COURT OF SOUTH AFRICA

(WESTERN CAPE DIVISION, CAPE TOWN)

CASE NO: 9675/2017

In the matter between:

THE MINISTER OF ENVIRONMENTAL AFFAIRS

and

RECYCLING AND ECONOMIC DEVELOPMENT

INITIATIVE OF SOUTH AFRICA NPC

(Registration Number: 201 0/022733/08)

Applicant

Respondent

HEADS OF ARGUMENT ON BEHALF OF THE DIRECTORS OF THE

RESPONDENT ("REDISA")

INTRODUCTION

1. This is the anticipated return day in terms of rule 6(8) of a provisional

order of liquidation granted ex parte against the REDISA on 1 June

2017.1 Although REDISA is a solvent company, it was provisionally

liquidated at the instance of the applicant who (so it will be submitted) did

not have locus standi to bring the application. The founding papers were

1 AA 1 , pp 1145-1148

2

based largely on inadmissible hearsay evidence and material facts were

not disclosed to the court. There are five reasons raised in limine as to

why the rule nisi issued on 1 June 2017 should be discharged having

regard only to the founding papers. These are:

1.1 the applicant had no locus standi to bring the application;

1.2 there was no prima facie case for any relief made out;

1.3 the remedy of winding up RED ISA on just and equitable grounds

is not appropriate in the circumstances;

1.4 an ex parte application was not available to the applicant; and

1.5 the scope of the order is overbroad.

2. Read with the answering papers, there are three additional reasons why

the rule should be discharged, namely

2.1 non-disclosure in the founding papers;

2.2 there is still no prima facie case made out by the applicant for

the relief sought;

2.3 lack of urgency.

We will deal with each of these grounds in turn.

3

1: LOCUS STANDJ2

3. The Companies Act, 2008 grants standing in various contexts.

3.1 The winding up of solvent companies may only be done by the

company or its creditors. 3 These provisions apply to a non-profit

company. 4

3.2 Winding up and liquidation of companies are provided for in

terms of the provisions of the Companies Act, 1973.5

3.3 Standing to apply for business rescue is addressed in chapter 6

of the Companies Act, 2008.6

3.4 A derivative action may now be brought by a shareholder,

director or prescribed officer of a company or a related company,

a registered trade union, or with the leave of the CourU

3.5 Any person who has suffered any loss or damage as a result of

another person's contravention of a provision of the Act is given

standing to launch a civil action.8

2 Answering affidavit, paras 36-39, pp 976-977 3 Section 80( 1) and 79(2), read with item 9 of schedule 5; cf Henochsberg on the Companies Act, 71 of 2008, vol 1, p 311 4 Section 1 0 of the Act 5 Section 224(3) of the New Companies Act, read with schedule 5, item 9 6 cf section 129(1) and 131 (1) 7 Section 165(2) 8 Section 208(2)

4

3.6 Alternative procedures for addressing compliance or securing

rights as envisaged in section 156 may be applied for by a

person:

"(a) directly contemplated in the particular provision of this Act;

(b) acting on behalf of a person contemplated in paragraph (a) who cannot

act in their own name;

(c) acting as a member of, or in the interest of, a group or class of affected

persons, or an association acting in the interest of its members; or

(d) acting in the public interest, with leave of the court. "9

4. But this last procedure has nothing to do with and does not apply to the

winding up of a solvent company or, for example, bringing a derivative

action. 10 As Henochsberg op cit observes:

"Section 157(1) specifies those who have locus standi to make use of the remedies listed

in s156 and who may therefore apply to the Court, the Companies Tribunal, the Panel or

the Commission to address complaints or secure rights." 11

5. As we have submitted earlier:

9 Section 157(1) 10 cf section 157(3) 11 At 548

5

5.1 Section 157 applies to the alternative procedures for addressing

complaints or securing rights pursuant to section 156 of the Act;

these two sections form part of Chapter 7 of the Act, dealing with

Remedies and Enforcement.

5.2 Even if section 157(1 )(d) were to have applied to applications for

winding up envisaged in sections 79 and 81 of the Act, 12 there

would be a further reason why section 157 could not have been

relied upon by the applicant. It can never be in the public

interest to wind up a solvent company at the instance of a third

party and against the wishes of the company itself. Applicant's

contention, namely that she is dealing with public funds in the

pre-1st February 2017 era13 is wrong, as a first read of the Plan

shows. 14 REDISA's funds are administered at the behest of the

Producers (as defined in the Plan), and are not paid into the

National Revenue Fund. We will address this aspect more fully

hereunder. There is also, unsurprisingly, no power given to the

applicant in the Plan15 to move for the winding up of REDISA, as

one has, for example in the case of medical schemes, where the

Registrar may apply to Court for a medical scheme to be wound

12 This is the subsection relied upon by the applicant: founding affidavit, para 116, p 186 13 Founding affidavit, para 112, p 184; section 138 of the Waste Act, 59 of 2008 was introduced with effect from 1 February 2017; answering affidavit, paras 86-88, pp 1003-1004; paras 100-107, pp 1007-1009 14 Sections 28 and 29 of the Waste Act, read with BM2, para 13, p 219 and para 17, p 220 15 BM2, pp 192 and following

6

up.16

6. The rule should accordingly be discharged as the applicant does not have

locus standi to apply for the winding-up of RED I SA.

2: NO PRIMA FACIE CASE WAS MADE OUT IN THE FOUNDING PAPERS

7. Whether the applicant has demonstrated an entitlement to the relief that

she seeks must be viewed against the requirement that a party in

application proceedings must demonstrate in its founding papers that he

or she enjoys a cause of action against the respondent( s) in that

application. It was pointed out in Director of Hospital Services v Mistry17:

"When, as in this case, the proceedings are launched by way of notice of motion, it is to

the founding affidavit which a Judge will look to determine what the complaint is. As

was pointed out by Krause J in Pountas' Trustee v Lahanas 1924 WLD 67 at 68 and as

has been said in many other cases:

an applicant must stand or fall by his petition and the facts alleged

therein and that, although sometimes it is permissible to supplement the

allegations contained in the petition, still the main foundation of the

application is the allegation of facts stated therein, because those are the facts

which the respondent is called upon either to affirm or deny.'

16 Section 51 of the Medical Schemes Act, 131 of 1998; see also section 5 of the Financial Institutions (Protection of Funds) Act, 28 of 2001 17 1979 (1) SA 626 (A) at 635 H- 636 B

7

Since it is clear that the applicant stands or falls by his petition and the facts therein

alleged,

'it is not permissible to make out new grounds for the application in the

replying affidavit'."

(emphasis added)

8. It is also not permissible for the applicant to seek to remedy the

deficiencies inherent in her founding papers, by means of a replying

affidavit:

"The general rule which has been laid down repeatedly is that an applicant must stand or

fall by the founding affidavit and the facts alleged in it, and that although sometimes it is

permissible to supplement the allegations contained in that affidavit, still the main

foundation of the application is the allegation of facts stated there, because those are the

facts that the respondent is called upon either to affirm or to deny. The Appellate

Division has held that it is not permissible to make out new grounds for an application in

a replying affidavit. If the applicant merely sets out a skeleton case in supporting

affidavits, any fortifying paragraphs in the replying affidavit will be struck out. "18

(emphasis added)

18 Herbstein & Van Winsen The Civil Practice of the High Courts of South Africa 51h Ed at 440 -441

8

9. The respondent is entitled to have the issue of whether the applicant has

made out a proper case in the founding papers determined on a

consideration of the founding papers only, without reference to answering

affidavits or whatever new (or expanded) matter the applicant seeks to

rely on in her replying papers:

"It is appropriate that I should at this point make some observations about the procedure

adopted by the respondents. It is always open to a respondent in proceedings instituted

by way of petition to take the point, by way of a preliminary objection, that the petition

does not make out a prima facie case for the relief claimed. "19

(emphasis added)

10. As we demonstrate below, much of the applicant's founding papers

consists of impermissible hearsay evidence. Stripped of that hearsay

evidence there is little, or nothing, of her case that remains.

11 . The applicant relied for relief on the views of unidentified members of the

Department20 and the iSolveit report of 3 February 201721 which she

summarises in her founding affidavit over some 20 pages.22 No official of

the Department identified him or herself to confirm these views, neither

19 Bader v Weston 1967 ( 1) SA 134 (C) at 136 B; Lourenco and Others v Fere/a (Pty) Ltd and Others (No 1) 1998 (3) SA 281 (T), 2918-L 20 BM76, para 4, p 901 21 Founding affidavit, para 85.18, p 197; BM70, pp 694-765 22 From pp 145-164

9

was the report confirmed on oath by its author( s ). The deponent to the

founding affidavit clearly had no first-hand knowledge of the facts relied

upon and the opinions expressed. Surprisingly, no serious endeavour

was made to address the hearsay relied upon by the author( s) of the

iSolveit report. This is fatal to applicant's case. As Majiedt JA observed

in a unanimous judgment of the SCA:

"[14] Mr Theron (assisted by Ms Schmidt) prepared his report and reached his

conclusions solely on the basis of the books of account and other source

documentation provided by his client, the appellant. A glaring omission from

the appellant's papers is a confirmatory affidavit from his spouse who, as stated,

wrote up the books of account of the business. The absence of such an affidavit

confirming the correctness of the infonnation furnished to Mr Theron to enable

him to prepare his report is fatal. Without that affidavit Mr Theron's report

constitutes inadmissible hearsay. "23

12. Whether the Court, in granting the rule on 1 June 2017, considered the

admissibility of hearsay evidence relied upon by the applicant, we do not

know.

13. The Court could however, we submit, never have formed the opinion that

the evidence should be admitted in the interests of justice:24

23 Wright v Wright 2015 (1) SA 262 (SCA) 2680-F 24 Section 3( 1) of the Law of Evidence Amendment Act, 45 of 1988; cf founding affidavit, para 129, pp 190-192

10

13.1 To allow hearsay evidence in an ex parte application by a

government minister to provisionally liquidate a private company

is startlingly inappropriate.25

13.2 The nature of the evidence points to an alleged accounting

expert who had expressed his/their views some five months

earlier; no endeavour was alleged to have been made to get a

confirmatory affidavit; in explicably, a copy of the iSolveit report

was for the first time furnished to RED ISA as part of the founding

papers.26

13.3 The purpose for which the iSolveit report was tendered was

clearly to show that the REDISA board, particularly Mr Erdmann

(who the applicant gratuitously observes, "is of German

descent") will dissipate public funds under its control.27 What the

applicant relies upon for condonation is that:

" ... the evidence is tendered for the purpose of obtaining a winding up of the

Respondent upon the ground that it is just and equitable to do so, and that

evidence provides the circumstances for demonstrating this ground mostly on

the basis of adverse allegations contained in documents originating from the

25 cf founding affidavit, para 129.1, p 190 26 BM76, para 6, p 908; answering affidavit, paras 153 and 155, p 1021 27 Founding affidavit, para 108, p 182; para 112, p 184

11

Respondent. "28

14. The applicant justifies her reliance on hearsay evidence in her founding

papers by invoking the provisions of section 3 ( 1) of the Law of Evidence

Amendment Act 45 of 1988 ("the LEA Act").29

15. This section reads as follows:

"Subject to the provisions of any other law, hearsay evidence shall not be admitted as

evidence at criminal or civil proceedings, unless -

(a) each party against whom the evidence is to be adduced agrees to the admission

thereof as evidence at such proceedings;

(b) the person upon whose credibility the probative value of such evidence depends,

himself testifies at such proceedings; or

(c) the court, having regard to -

(i) the nature of the proceedings;

(ii) the nature of the evidence;

(iii) the purpose for which the evidence is tendered;

2s Para 129.3, p 191 29 Founding affidavit, para 129, p 190- 192

12

(iv) the probative value of the evidence;

(v) the reason why the evidence is not given by the person upon whose

credibility the probative value of such evidence depends;

(vi) any prejudice to a party which the admission of such evidence might

entail; and

(vii) any other factor which should in the opinion of the court be taken into

account,

is of the opinion that such evidence should be admitted in the interests of justice. "

16. In her founding affidavit, the applicant deals with each of the

requirements set out in sub-section 3 (c) of the LEA Act, in separate sub-

paragraphs. Most of those sub-paragraphs purport to rely on the fact that

the evidence relied upon by the applicant in her founding papers either

originated from REDISA, or was not disputed by it. (This ignored that the

complaints had been mentioned in a letter dated 1 November 2016,30

responded to by REDISA on 30 November 201631 and dealt with by

iSolveit in their report of 3 February 2017. 32)

17. So, for example, the applicant says the following at paragraphs 129.3 and

30 BM64, p 608 31 NM66, p 618 et seq 32 BM70, p 694 et seq

13

129.4 of the founding affidavit:33

"129.3 the purpose for which the evidence is tendered: the evidence is tendered for the

purpose of obtaining a winding-up of the Respondent upon the ground that it is

just and equitable to do so, and that evidence provides the circumstances for

demonstrating this ground mostly on the basis of adverse allegations contained

in documents originating from the Respondent;

129.4 the probative value of the evidence: given that a number of adverse allegations

are contained in documents originating from the Respondent, those allegations

are objectively speaking and in effect admissions which the Respondent made

against its own interest and can therefore be accepted as true; moreover, a

chronological analysis of the various documents reveal a consistent modus

operandi on the part of the Respondent and its representatives which, with

respect, lends credence to the allegations contained in the Founding Affidavit."

18. In the process the applicant ignores REDISA's version without engaging

with it.34 The applicant does not say that officials in her Department who

had allegedly considered these explanations were unavailable or

unwilling to given confirmatory affidavits, nor does she explain (properly)

why she did not obtain confirmatory affidavits to support her reliance on

accounting matters.

33 p 191 34 BM66, pp 618-639

14

19. The probative value of the evidence in the iSolveit report is not addressed

by the applicant.35 What she pointedly ignores is REDISA's exculpatory

version of 1 November 2016, which fully answered all the Department's

queries.36

20. Why was no confirmatory affidavit obtained?

"... because of the urgency of the matter, there was no time to obtain confirmatory

affidavits."37

This cannot be correct: preparing the founding papers must have taken

days, if not weeks to prepare. It was possible to obtain the applicant's

signature to the founding affidavit in South America. The iSolveit report

was in the possession of her Department for some five months before the

application was launched. Did anyone ask iSolveit to depose to a

confirmatory affidavit? Did they refuse? If so, why? None of these

questions were addressed in the ex parte application.

21. As to prejudice to REDISA if no evidence on oath is adduced, the Court

was told that:

" ... given that the larger part of this evidence originates from the Respondent, and given

that the Respondent had more than sufficient time to deal with the various issues raised

35 Founding affidavit, para 129.4, p 191 36 A-BM66, pp 618-639 37 Para 129.5, p 191

15

over time (sic), there can be no prejudice to the Respondent if such evidence is

admitted."38

22. Again BM66 to the founding papers was not referred to. As to other

factors which might deserve mentioning, what was not referred to in the

founding affidavit was audi alteram, that REDISA had not been given an

opportunity to deal with the latest iSolveit report, and the misleading

nature of paragraph 10 of the applicant's letter of 30 May 2017. 39 (We

will deal with that in more detail hereunder.)

23. There is no basis for this court to accept into evidence the final iSolveit

report. In this regard:

23.1 The final iSolveit report is dated 3 February 2017. There can be

no doubt that the applicant (or her Department) have had the

iSolveit report in her I their possession for many months.

23.2 It is also plain from the founding papers that there was

substantial engagement with iSolveit by the Department during

the course of the preparation of the final iSolveit report. It should

therefore not have been difficult for the applicant to obtain the

necessary confirmatory affidavits from iSolveit.

38 Para 129.1, pp 191 and 192 39 BM76, p 909

16

23.3 The applicant does not take the court into her confidence and

explain what steps were taken to obtain a confirmatory report

from iSolveit, if any. There is, for example, not a shred of

evidence that a representative of iSolveit was even requested to

depose to a confirmatory affidavit.

23.4 In dealing with the requirements of section 3 (1) (c) (v) of the

LEA Act, Zeffertt and Paizes state in The South African Law of

Evidence. 40

''The reception of the evidence in Hlongwane's case was due largely to the

fact that the declarants were justifiably afraid that violent reprisals would

follow if they testified. So, too, in S v Staggie and Another, where an

application was made for the complainant in a rape case to testify in camera

and via closed circuit television. Evidence was given by the investigating

officer that she was terrified to testify for fear of reprisals by the gang of

which the accused was the leader. It was clearly in the interests of justice to

receive this evidence: there were clear reasons why she could not testify at

this stage of the proceedings, as great prejudice to her might have ensued and

it would have frustrated the application and dealt a nullity to the question of

whether the testimony ought to have been heard directly or in camera. And in

W elz and Another v Hall and Others the evidence was received where the

reason for not testifying was that the declarant was a revenue official who was

40 2nd Ed say the following at 409

17

bound by legislation to an oath of secrecy."

23.5 What seems to be plain is that this sub-section is generally

invoked in circumstances where confirming the evidence to be

relied on may have serious consequences for the person

concerned. It is not to be invoked where, to put it bluntly, the

applicant simply has not bothered to get a confirmatory affidavit

from iSolveit.

24. Absent the final iSolveit report and confirmation from departmental

officials, there is no basis on which this Court can find that it would be just

and equitable to wind-up REDISA.

3: JUST AND EQUITABLE WINDING-UP

25. The applicant seeks to wind-up REDISA - a company which, it is

common cause, is solvent- on the basis that it is just and equitable to do

so.

26. The applicant sums up her case for such relief, as follows:

"I also submit with respect that it is just and equitable that the Respondent be wound up.

On its own version the Respondent is presently solvent, but only for the next few weeks

or so. In the meantime we are faced with a situation where millions of Rand have

disappeared within a matter of months from the cash reserves of the Respondent without

any explanation, against a background and history of an absolute lack of openness and

18

transparency concerning the disbursement and distribution of public funds collected

from the general motoring public by a Respondent with a record of lack of proper

governance in its corporate affairs. "41

(emphasis added)

27. The Companies Act, 2008 provides for the winding-up of a solvent

company on a just and equitable basis in terms of section 81 ( 1 )(d). The

relevant sub-section provides as follows:

"( 1) A court may order a solvent company to be wound up if-

(a) ...

(d) the company, one or more directors or one or more shareholders

have applied to the court for an order to wind up the company on

the grounds that-

(i) the directors are deadlocked in the management of the

company, and the shareholders are unable to break the

deadlock, and-

(aa) irreparable injury to the company is resulting, or

may result, from the deadlock; or

41 Founding affidavit, para 130, p 192

19

(bb) the company's business cannot be conducted to the

advantage of shareholders generally, as a result of

the deadlock;

(ii) the shareholders are deadlocked in voting power, and have

failed for a period that includes at least two consecutive

annual general meeting dates, to elect successors to

directors whose terms have expired; or

{iii) it is otherwise just and equitable for the company to be

wound up;"

(emphasis added)

28. Although section 344(h) of the 1973 Companies Act does not apply to

solvent companies, the case law dealing with that section is still

relevant. 42

29. It has been held that the "just and equitable" ground in section 81 (1 )(d)

should not be interpreted so as to include only matters similar to the other

grounds stated in section 81 ( 1 ), and that the examples of deadlock given

in section 81(1)(d) are not exhaustive and do not limit section 81(1)(d)(iii);

42 Henochsberg supra at 328; Item 9(2) of Schedule 5 of the 2008 Act; Mulley v Lilly Valley (Pty) Ltd [2012] 1 All SA 187 (GSJ); Budge v Midnight Storm Investments 256 (Pty) Ltd 2012 (2) SA 28 (GSJ) at [3]

20

it extends to all cases of deadlock.43 It is usually in context of a deadlock

that this provision is relied upon.

30. The 'just and equitable" ground for winding up postulates not facts only

but a broad conclusion of law, justice and equity as a ground for winding

up.44

31. A decision as to what is just and equitable involves a balancing of the

interests of the individuals affected with the interests of good governance

and the smooth administration of justice; it entails first a judgment on the

facts and then the exercise of a judicial discretion.45

32. Subject to the comments in the Rand Air judgment to which we refer

below, section 81 (1) (d) of the Companies Act, 2008 is not confined to

cases analogous to the grounds mentioned in other parts of the section.46

There is no general rule as to the nature of the circumstances that have

to be present, or a fixed category of circumstances which provide a basis

for a just and equitable winding up. 47

43 Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic Prospecting and Investment (Pty) Ltd and Others [2014] 1 All SA 474 (SCA) at [14] 44 Henochsberg supra at 328(1 ); Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic Prospecting and Investment (Pty) Ltd and Others supra at [15] 45 Henochsberg supra at 328(1 ), citing Weare and Another v Ndebele NO and Others 2009 (1) SA 600 (CC) at [42] 46 Apco Africa Incorporated v Apco Worldwide (Pty) Ltd and Another 2008 (5) SA 615 (SCA) at [16] 47 Swift v Finbain 1984 (3) SA 441 (W) and Erasmus v Pentamed Investments (Pty) Ltd 1982 ( 1) SAA 178 (W) at 181C-H

21

33. Categories typically identified include: the disappearance of the

company's substratum; illegality of the objects of the company and fraud

connected in relation to it; a deadlock; oppression and grounds similar to

the dissolution of a partnership.48 In Rand Air the Court described five

broad categories applicable to an application for winding-up on the just

and equitable basis:

"The first is the disappearance of the company's substratum. Where the company was

formed for a particular purpose for instance, and that purpose can no longer be achieved

at all, its raison d'etre , its substratum has gone and it may be fair and equitable to the

incorporators under those circumstances to wind it up. There are a variety of

circumstances which can possibly lead to the disappearance of a company's substratum.

Secondly, illegality of the objects of the company and fraud committed in connection

therewith. If a company is promoted in order to perpetrate a serious fraud or deception

on the persons who are invited to subscribe for its shares, it is the kind of case in which

the persons who are defrauded in that fashion can take the promoters to Court and,

provided the circumstances demand that, ask that the company be wound up.

The third is that of deadlock which results in the management of companies' affairs,

because the voting power at board and general meeting level is so divided between

dissenting groups that there is no way of resolving the deadlock other than by making a

winding up order. The kind of case which falls most frequently to be dealt with under

this heading is the one where there are only two directors or only two shareholders,

48 Rand AIR (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 (W) at 350C-H

22

usually in a private company, who hold equal voting shares or rights and have

irreconcilably fallen out.

Fourthly, grounds analogous to those for the dissolution of partnerships. Where the

company is a private one and its share capital is held wholly or mainly by the directors

and it is in substance a partnership in corporate form, the Court will order its winding up

in the same kind of situation that it would order the dissolution of a partnership on the

ground that it is just and equitable to do that.

Fifthly, there is oppression. Where the persons who control the company have been

guilty of oppression towards the minority shareholders whether in their capacity as

shareholders or in some other capacity, a winding up order in suitable cases may be

made. This is in addition to other remedies in the Companies Act, which are available to

oppressed minorities to obtain not only dissolution, but also a money judgment."

34. It is only the second of these grounds that could have application in the

present application. The applicant contends - on various occasions in

the founding affidavit - that there has been a disappearance of "public

funds". 49

35. These suggestions are wrong, especially before the commencement of

Act 13 of 2016:so

35.1 Prior to Act 13 of 2016 the levy on tyres was not paid into the

49 Founding affidavit, para 105, p 181; para 110, p 183; para 117, pp 186-187 5° Founding affidavit, para 17, p 16

23

National Revenue Fund; how that levy was to be collected and

spent was agreed in the Plan; the only obligations that REDISA

had to discharge vis-a-vis the Minister, via the National

Centralised Computer System, was to have the plan audited in

terms of IFRS requirements51 and annually to provide statistical

data. The management of the plan is REDISA's responsibility.

35.2 The plan was proposed by REDISA, 52 a non-profit company

representing person who produce waste in the tyre industry, the

"Producers". 53 The plan was conceptualised by REDISA after it

consulted all concerned. 54 It envisaged further contracts

between REDISA and third parties to implement the plan. 55

35.3 The idea is that, on a polluter pay principle, the Producer's levy

will be used by REDISA to dispose of the Producer's waste

products at no cost to them56 while creating business and

employment opportunities in the process. 57

35.4 REDISA was to have independent auditors, and was to appoint

51 Para 24 of 8M2, p 224 52 In terms of section 28(7) of the Waste Act 53 8M2, p 200, p 203 and P 205; cf section 29(1) of the Waste Act; see also Retail Motor Industry Organisation and Another v Minister of Water and Environmental Affairs & Another 2014 (3) SA 251 (SCA), [40] and [41] 54 8M2, p 206 55 8M2, p 210 56 8M2, pp 219 and 210 57 p 221

58 BM2, pp 226-7

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an external management company. 58 The SCA described the

Plan thus:

"[30] The plan contains many of these features. It is general in its

application, imposing obligations on all who subscribe to it and all

those who will, once it is given effect to, enter into contractual

relationships with REDISA. It creates a system by which waste

tyres will be managed over a period of time. It is concerned with

the implementation of that system rather than aspiration. It

operates prospectively. It has an indefinite life span, but, according

to reg 12(1), it must be revised and resubmitted to the minister

every five years (or sooner ifneeds be). In terms ofreg 11(4), an

approved plan must be published in the Government Gazette. It

contains the framework within which action will be taken to deal

with waste tyres in an environmentally acceptable way. In my

view, therefore, the plan is an instrument of subordinate legislation.

[31] The way in which the plan has been made requires brief comment.

Usually legislative instruments are drafted by drafters who work for

the legislative functionary concerned. That, as this case shows, is

not the only way in which subordinate legislation can come into

being. In this case the drafting of plans has, in effect, been

outsourced to private individuals. Once the efforts of the draft of a

plan meet with the approval of the minister, she gives legal effect to

25

the plan by approving it and publishing it in the Government

Gazette. This is an example of what Hoexter calls negotiated rule-

making."59

36. Any Producer must subscribe to a plan. If it does not subscribe to the

REDISA Plan, it has to subscribe to an integrated waste management

plan prepared in terms of the Waste Act.60 The Waste Tyre Management

Fee provided for in Plan is not collected by SARS but by REDISA. It is

not spent in accordance with revenue legislation, but by REDISA in a

predetermined ratio. 61 It is as little public funds as are the fees collected

by a private school from parents of students attending the school.

37. The just and equitable ground can accordingly not be relied upon on the

basis that REDISA deals with public funds. This is still the position even

after the implementation of Act 13 of 2016. Once monies collected by the

National Revenue Fund from the Producers are paid to REDISA, this may

change. No such payments have as yet been made.

4: EX PARTE APPLICATIQN62

38. An ex parte application in terms of rule 6(4)(a) is not suitable to wind up a

59 Retail Motor Industry (supra) at paras [30] and [31] 60 Section 49(3)(a) 61 8M2, p 226 62 Answering affidavit, para 35, p 976

26

solvent company63 especially where neither the company nor any of its

creditors are the applicant.

39. In terms of the practice directions of the Western Cape Division of the

High Court, notice of intention to apply for a provisional order of

liquidation shall be given to the company concerned prior to the filing of

the application, except where the court is satisfied that it would be in the

interests of the company or of the creditors to do so, or that the company

has knowledge that such application is to be made.64 No such allegation

is or could have been made in the founding papers.

40. The purported reason for the ex parte application is explained by the

applicant as being an alleged fear that knowledge of the application by

REDISA would expedite endeavours to dissipate public funds under its

control, that REDISA would sabotage the computer system used by it, or

that evidence may be destroyed.65 No evidence to substantiate these

suggestions has been produced.

41. A further example of the applicant's unfounded allegations in regard to

the alleged dissipation of public funds is her statement at paragraph

94.15.2 of the founding affidavit66 that REDISA may have "succeeded to

63 See Erasmus Superior Court Practice 2nd ed, vol 1, 01-60 64 Practice direction, para 30(2) and (3) 65 Founding affidavit, paras 112-115, pp 184-185 66 p 171

27

transfer R30 million of public funds, intended for the implementation of

the Redisa Plan, out of the country." (As is pointed out in the answering

affidavit67, this money was used to acquire machinery required for the

implementation of the Plan. Moreover, full information in regard to the

acquisition of the machinery, its delivery and location in the country was

supplied to the applicant. The machinery has in fact been inspected on

site by members of the Department.)

42. The reasons suggested in any event cannot be relied upon for an ex

parte winding up order. What the applicant seeks under the guise of a

winding up application is a form of Mareva injunction coupled with Anton

Pillar relief.68

43. But the requirements of an anti-dissipatory order have not been

addressed by the applicant in her founding papers:

"The question which arises from this approach is whether an applicant need show a

particular state of mind on the part of the respondent, i.e. that he is getting rid of the

funds, or is likely to do so, with the intention of defeating the claims of creditors.

Having regard to the purpose of this type of interdict, the answer must be, I consider,

yes, except possibly in exceptional cases. As I have said, the effect of the interdict is to

prevent the respondent from freely dealing with his own property to which the applicant

lays no claim. Justice may require this restriction in cases whether the respondent is

67 Answering affidavit, para 413, p 1126 68 Knox D'Arcy Ltd & Others v Jamieson & Others 1996 (4) 348 (A)

28

shown to be acting mala fide with the intent of preventing execution in respect of the

applicant's claim. However, there would not normally be any justification to compel a

respondent to regulate his bona fide expenditure so as to retain funds in his patrimony

for the payment of claims (particularly disputed ones) against him. I am not, of course,

at the moment dealing with special situations which might arise, for instance, by contract

or under the law of insolvency. ''139

44. These allegations could never responsibly have been made by the

applicant in view of, for example, the transitional business plan presented

to her on behalf of REDISA on 31 May 2017, the day before the ex parte

application was moved.7° This business plan was (inexplicably) not

disclosed to the court by the applicant when the matter was moved

(presumably in chambers) on 1 June 2017.

45. Also on this ground the rule should be discharged, and a special order of

costs should be granted against the applicant.

5: THE SCOPE OF THE ORDER IS OVERBROAD

46. Paragraph 7 of the order granted by the Court on 1 June 2017 provides:

"It is directed that the powers of the provisional liquidator be extended to include the

power and the authority to continue to conduct the business of the respondent as a going

69 Knox D'Arcy at 372 G-1 70 AA6, pp 1185 and following

29

" concern.

47. This order is, with respect, not capable of being enforced, as it does not

address where the funding for the business of REDISA would come from,

how the provisional liquidators will conduct the business without the co­

operation of REDISA's employees; and how the provisional liquidators

are to proceed without an amendment to the Plan, which amendment has

not been agreed to or promulgated.

THE FOUNDING PAPERS, READ WITH THE ANSWERING AFFIDAVIT

6: NON-DISCLOSURE

48. Once a rule is anticipated in terms of rule 6(8), the Court may consider

the discharge of the rule in view of what is disclosed in the answering

affidavit.

"The proper approach is to consider the facts as set out by the applicant together with

any facts set out by the respondent which the applicant cannot dispute, and to decide

whether, with regard to the inherent probabilities and the ultimate onus, the applicant

should on those facts obtain final relief at the trial. The facts set up on contradistinction

by the respondent should then be considered, and if they throw serious doubt on the

applicant's case the latter cannot succeed."71

71 LA WSA 2nd Ed, Vol 11, para 404

30

49. She failed to disclose her recent complimentary public remarks about

REDISA. 72

50. The applicant's failure to disclose highly relevant facts to the court when

the ex parte application was moved is addressed in more detail and

explained by REDISAJ3

51. In addition, the applicant discussed the "final" iSolveit report of 3 February

201774 over pages in her founding papers, 75 but failed to furnish the

document to REDISA, who only saw it as an annexure to the founding

affidavit. This omission was not brought to the attention of the court, nor

explained.

52. She made innuendos about REDISA's probity in the founding papers

which were clearly unwarranted.76

53. Also on this basis the rule should be discharged and the applicant

ordered to pay the cost of the application on the attorney and own client

scale.

72 Answering affidavit, para 48, pp 983-985 73 Answering affidavit, paras 16-17, p 970 and paras 40-48.4, pp 977-985; Founding affidavit, para 30, p 41; para 85.17, p 137, paras 52-54, pp 987-991 74 BM70 75 Founding affidavit, para 89, pp 145-164 76 Founding affidavit, para 94, pp 165-172; cf answering affidavit, paras 401-419, pp 1121-1128

31

7: STILL NO PRIMA FACIE CASE

54. Read with the answering affidavit, no prima facie case is being made out

to have warranted a provisional winding up order:

54.1 Not only had the iSolveit report of 3 February 2017 not been

given to REDISA to comment on, 77 but the complaints raised by

the Minister had been fully addressed in the 30 November 2016

letter by RED ISA which (only) her Department seems to have

considered. 78

54.2 The deponent deals with the 30 November explanations:

54.2.1 by not addressing it; 79

54.2.2 by ignoring REDISA's version;8o

54.2.3 by ignoring documents handed to her in the past as

being "baseless";81

54.2.4 by casting slurs and innuendos at RED I SA. 82

77 Answering affidavit, para 207, p 1 034 78 BM76, para 4, p 901; BM66, pp 614-639; answering affidavit, para 149-152, p 1020; answering affidavit, para 113-115, p 1012 79 Para 85.1, pp 124 and 125 80 Para 85.2, p 125; para 85.3, p 126 81 Para 85.4, pp 126 and 127; cf para 6 of BM66 on p 619 plus annexure 5 on p 639; para 85.12, p 132; cf BM66, p 629; para 85.13, p 132; cf 866, para 6.4.1, pp 630/1 82 Para 85.13, pp 132-134

32

55. "A" to BM66 without its annexures is incomplete and unintelligible.

Whether the applicant or any of her officials have ever read any of these

annexures is unlikely. The Court who granted the order on 1 June 2017

probably did not have access to them.

8: LACK OF URGENCY

56. Although it is late in the day to raise urgency, this is the first opportunity

REDISA has to do so. The following facts merit mention:

56.1 The deponent signed the founding affidavit in Sao Paolo on 30

May 2017. She obviously had to give instructions to her lawyers

to prepare the 193 page document plus the answers thereto. In

a letter carrying the same date addressed by her to REDISA she

invites the latter to participate "in the public participation phase of

(the consideration of the possible withdrawal of my approval of

the RED/SA plan)."83 Not only is this positively misleading,

having regard to the events of 1 June 2017, but it belies any

urgency: no suggestion is made in the 30 May 2017 letter, to

quote from the founding affidavit, that REDISA "has resolved to

commence winding up procedures on 1 June 2017"84 or that Mr

Erdmann could have registered "any number of registered

83 BM76, para 10, p 909 84 Founding affidavit, para 105, p 181

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external non-profit companies carrying on activities within the

Republic to be nominated by directors of (REDISA) and to which

the entire net value of (REDISA) may be transferred."85

56.2 The very same day the deponent relied on these grounds for

urgency and brought an ex parte application to wind up a solvent

company.

CONCLUSION

57. It is submitted that the rule nisi should be discharged, and that the

applicant should be ordered to pay the costs of the application on the

scale as between attorney and client.

85 Founding affidavit, para 108, pp 182-183

SCHALK BURGER SC

ANDRESMALBERGERSC

Chambers, Cape Town

3 July 2017