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REPUBLIC OF NAMIBIA
HIGH COURT OF NAMIBIA, MAIN DIVISION, WINDHOEKRULING 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
REPORTABLE
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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.
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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.
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[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.1
[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
1 Act No. 51 of 1951.
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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:’
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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
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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).2 For purposes of
completeness, I propose to quote the said provision of the Act hereunder. It provides
the following:
‘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.3 I shall, in this
regard, refer to different portions of the judgment where the proper approach is set out.
[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:
2 Act No. 61 of 19733 (I 601/2013, I 4084/2013) [2014] NAHCMD 306 (17 October 2014).
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‘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.
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[15] To buttress the position, the Supreme Court stated the following in the
unreported judgment of D B Thermal (Pty) Ltd v Quality Products4 regarding the
approach to amendment of pleadings:
‘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:5
‘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 4 Case No. SA 33/2010 at para 38.5 Ibid at para 39.
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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,6 states the following in this regard:
‘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
6 Civil Procedure in the Superior Courts, Butterworths, [Issue 51] p. B-189.
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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):7
‘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.
7 At para [19].
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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.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.
[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
8 Case No. 19/2014 delivered on 8 June 2016.
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[27] In its heads of argument, the plaintiff referred the court to LAWSA,9 where the
learned author states the following regarding the interpretation to be given to s. 247:
‘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
9 1st Reissue Vol. 4 Part 2 para 157.
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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. 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.
Section 248 of the Act – the defendant’s case
10 Supra footnote 1
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[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.
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[34] S. M. Blackman11 posits that the intention of the promulgation of the said
provision is the following:
‘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 & Lybrand12and in Singapore in JSI Shipping (S)
Pte Ltd v Teofoongwonglcoong (a firm)13.
[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:
11 ‘Exemption of directors from liability and section 247 (1) of the Companies Act’, 1973 at p.(Vol 2) 8-362.12 [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.
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“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
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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.14
[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 14 Ibid at para 167.
19
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),15
where the following is stated:
‘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.’
15 [1868] Ch 279 at 290.
20
[46] In In re London and General Bank (No.2),16 Lindley LJ considered the auditor’s
true functions in the following terms:
‘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,17 the Supreme Court expressed itself as follows:16 [1895] 2 Ch 673 (Re London).17 Ibid at para 111.
21
‘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.
22
[53] Finally, in the Van Straten case, 18referred to Indac Electronics (Pty) Ltd v
Volkskas Bank Ltd,19 where the following lapidary remarks were made:
‘. . . 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.
18 Ibid at para 150.19 1992 (1) SA 80B-D.
23
[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
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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