Don Mahon

IS IT CORRECT TO BRING AN EVICTION APPLICATION IN THE MAGISTRATE’S COURT? – A CRITICISM OF THE NDUNA DECISION by Don Mahon

MGAdvocate Commercial Law, eviction, lease, property , , ,

“The reward for success in St Paul is eviction” – Barbara Harris

A few years ago, I had the opportunity to argue a full bench appeal dealing with a residential eviction under the Prevention of Illegal Eviction and Unlawful Occupation of Land Act 19 of 1998 (“PIE). The impact of this legislation on companies whose business is the leasing of residential property cannot be overstated.

In the appeal, the court was called upon to consider the correctness of the decision of Hlope J in the matter of NDUNA V ABSA BANKK LTD AND OTHERS 2004 (4) SA 453 (C).

THE JUDGMENT

The Nduna matter was an application to review and set aside an order made by the magistrate’s court for the eviction of the appellant from a certain property occupied by her.

The question which was considered was whether or not the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998 (“PIE”) endows the magistrate’s court with jurisdiction to hear eviction proceedings brought before it by way of application as opposed to action.

The argument on behalf of the first respondent was as follows:

  • the magistrate’s court has no jurisdiction to make an order for eviction or ejectment upon application as opposed to proceedings instituted by way of summons.  Section 29 (1) (b) of the Magistrate’s Courts Act 32 of 1944 provides that the magistrate’s court shall have jurisdiction in “actions of ejectment against the occupier of any premises or land within the district”.
  • The magistrate’s court does not have jurisdiction to entertain applications for ejectment against the occupier of any premises or land.  The magistrate’s court should be approached only by way of action as opposed to motion proceedings.  Given that the proceedings in the Court a quo were initiated on motion as opposed to summons or action, the magistrate erred in entertaining such application and acted ultra vires the provisions of section 29 (1) (b) of the Magistrate’s Courts Act.
  • Thus, the order for eviction made by the magistrate falls to be reviewed and set aside.

In considering the arguments before him, his Lordship Mr Justice Hlophe put forward a number of propositions which brought him to his conclusion.  These propositions were as follows:

  • in the case of PEDRO AND OTHERS V GREATER GEORGE TRANSITIONAL COUNCIL 2001 2 SA 131 (C), although it was not argued that the magistrate had no jurisdiction to entertain proceedings initiated by way of motion, the full Court assumed in favour of the appellant that the magistrate did have jurisdiction to entertain proceedings initiated on motion.  His Lordship Mr Justice Hlophe was of the view that time had not invalidated the assumption made by the Court.  After considering the legal question raised in the Nduna case, his Lordship Mr Justice Hlophe was more then convinced that the Court was correct in assuming in the Pedro case that the magistrate’s court has jurisdiction to entertain applications for ejectment brought under the PIE on motion proceedings;
  • in paragraph 3 to the preamble of the PIE it is stated that land owners have a right “to apply to a Court for an eviction order in appropriate circumstances”.  In terms of section 9 of the PIE “a magistrate’s court has jurisdiction to issue any order or instruction or to impose any penalty authorised by the provisions of this Act”.  On this basis, it is clear that the intention of the Legislature was to confer jurisdiction on the magistrate’s court to entertain applications for eviction proceedings
  • the third proposition was that it was not uncommon for statutes to confer civil jurisdiction on the magistrate’s court.  An example which was given was section 6 of the Promotion of Administrative Justice Act 3 of 2000.
  • A further proposition was that pertaining to the use of the word “proceedings”. Erasmus & Van Loggerenberg contend that the word “action” in section 29 (1) has the narrower meaning of proceedings initiated by summons.  Thus an application for the delivery of property or for permanent final ejectment may not be brought in the magistrate’s court.  However, the latter limitation does not apply to proceedings for eviction in terms of the PIE and the Extension of Security of Tenure Act 62 of 1997. Section 4 (1) of the PIE stipulates that “notwithstanding anything to the contrary contained in any law or the common law, the provisions of this section apply to proceedings by any owner or person in charge of land for the eviction of an unlawful occupier”.  The word proceedings, it was stated, can be interpreted to include applications.  There was no reason in his Lordship Mr Justice Hlophe’s view why the word “proceedings” should be given a narrow meaning, that is, limited only to actions.  On the contrary, the learned Judge relied on the cases of ASSISTANT TAXING MASTER V SHENKER, SHENKER AND GROSS 1953 (4) SA 281 (T) and S V SWANEPOEL 1979 1 SA 478 for the view that the word “proceedings” should be given a wide meaning so as to include applications;
  • A further consideration was that section 5 of the PIE deals with urgent proceedings for eviction.  It was stated that it was hard to imagine how one could initiate urgent proceedings by way of action or trial.  Section 5 therefore compels the use of application proceedings for the eviction of an unlawful occupier.  There is no reason why one section of the PIE would allow the use of application proceedings but not otherwise.
  • In any event, the learned Judge stated that he failed to see what benefit could conceivably be derived from denying a magistrate’s court jurisdiction to entertain application proceedings for eviction.  Such an interpretation could only serve to frustrate the clear object of the statute, namely, to regulate informal settlement in an orderly and proper fashion which marks a clear departure from the pre-1994 policies of the past.  Such an interpretation would run counter to the spirit and values that underlie the Constitution of the Republic of South Africa Act 108 of 1996.

CORRECTNESS OF THE JUDGMENT

Reliance on the Pedro case

Although the learned Judge does state that the full Court assumed in favour of the appellant that the magistrate didn’t have jurisdiction, the learned Judge does not say on what basis they made that assumption.

It is not apparent from the judgment in the Pedro case that the question of jurisdiction was even considered by the Court, let alone raised.  It is submitted therefore that, on a reading of the judgment in the Pedro case, it becomes apparent that jurisdiction was not considered let alone assumed.

It therefore cannot be said that the Court assumed that the magistrate had jurisdiction and this judgment cannot serve as authority for the proposition that the magistate’s courts do have jurisdiction under those circumstances.

The preamble to the Act and section 9 thereof

The fact that paragraph 3 to the preamble states that land owners have a right “to apply to a court…” does not take the matter any further.  The inability to apply to a magistrate’s court on application as opposed to action does not extinguish the right of a land owner to apply to a court.

The landowner will still be able to apply to a magistate’s court by way of action and, even if the land owner were not able to apply to the magistate’s court, the landowner would still be able to apply to a High Court.  A High Court is still “a court” and therefore still falls within the wording of the preamble.

The fact that a magistate’s court has jurisdiction to “…issue any order or instruction or to impose any penalty authorised by the provisions of the Act” has absolutely no bearing whatsoever on the manner or procedure which a litigant must undertake in order to obtain such an order, instruction or penalty. Section 9 therefore, it is submitted, does not in anyway indicate an intention to confer jurisdiction to entertain applications for eviction.  The wording of this section does, however, indicate an intention to confer jurisdiction to issue an order, instruction or penalty.  To state that “it is clear that the intention of the Legislature was to confer jurisdiction on the magistrate’s court to entertain applications for eviction proceedings…” is therefore, with respect, a non sequitur.

Other statutes conferring civil jurisdiction on the Magistrate’s court

A specific example which was given of a situation where a statute confers jurisdiction on a magistate’s court was that of the Promotion Of Administrative Justice Act 3 of 2000.  While it is accepted that there are many statutes which confer civil jurisdiction on the magistate’s court, it must be pointed out, that this is not the issue.  The question is not whether the magistate’s court has jurisdiction to give orders for eviction, the question is whether, in such a case, the Court must be approached on action or application.

The example which is given, in the case of the Promotion of Administrative Justice Act, does not dictate that a cause of action based on that Act must be instituted by way of either action or application proceedings.

“Action”, “Application” and “Proceedings”

The starting point is to state that the magistrate’s court only has jurisdiction insofar as such jurisdiction is conferred upon it by statute.  It does not have inherent jurisdiction like the High Court.

The realms of the magistrate’s jurisdiction are governed by the magistate’s courts Act, particularly, in chapter 6 thereof.  Obviously, the relevant section with regard to this application is section 29 which relates to jurisdiction in respect of causes of action.

It can therefore be accepted that the magistate’s court only has jurisdiction in respect of those causes of action as outlined in section 29 or if jurisdiction is conferred on the magistate’s court in respect of other causes of action in terms of some other legislation.

It is noteworthy that every subsection in section 29 specifically makes use of the word “actions”.  A proviso thereto is the use of the words “including an application for liquidation” in subsection (fA).

Insofar as all the other causes of action aside from ejectment are concerned, it is accepted law that the magistate’s court does not have jurisdiction to hear applications in respect of those causes of action.  It is submitted that this Court cannot have any difficulty with that proposition and as much is stated by Erasmus and Van Loggerenberg (The Civil Practice of the Magistrate’s Courts, Service 11, 2003).  It is therefore only with regard to applications for ejectment in terms of PIE and the extension of security 10-year Act which give some difficulties.

Historically, before the promulgation of the PIE, it was accepted that these cause of action, too, fell within the ambit of this provision and therefore, before the promulgation of the PIE, one could not approach the magistate’s court for an order for ejectment by way of application.

His Lordship Mr Justice Hlophe states that he can see no purpose which would be served by allowing such causes of action only on action.  But that is not the test.  Conceivably the same could be argued in respect of all of the other subsections.

The magistate’s court can therefore only be approached on action in respect of those causes of action set out in the subsections to section 29, and, on application in respect of those specific applications envisaged in terms of the rules of Court such as summary judgment (because the rules of Court make provision for such applications) or on any interlocutory application as is allowed by rule 55 (9).

Due to the fact that, historically, and before the promulgation of the PIE, actions for ejectment could only be instituted by way of summons and not on notice of motion, it is submitted that, in order for the magistrate’s court to have jurisdiction to hear such matters on application, the Legislature, in promulgating the PIE must have specifically intended, not only to regulate new extensive procedures in relation to obtaining an order for eviction, but also have specifically intended that the Court now be allowed to be approached by way of application and not by action.  The Legislature must therefore have specifically intended a change to this section.

It is trite law that when an Act is promulgated, and if it repeals a particular section of a prior Act, that prior Act will no longer be of force and effect insofar is that specific section is concerned.  However, where a subsequent Act does not repeal a prior Act, those two Acts must be read insofar as is possible in such a way so that they do not conflict with one another.  (See EX PARTE THE MINISTER OF JUSTICE: IN RE R V JEKELA 1938 AD 370 377; PRINCIPAL IMMIGRATION OFFICER V BHULA SUPRA 335; MINISTER OF THE INTERIOR V ESTATE ROOS 1956 2 SA 266 (A) 271C; TLELIMA V SEBOKENG MANAGEMENT BOARD 1967 1 SA 603 (T) 605H–606A; AMALGAMATED PACKAGING INDUSTRIES LTD V HUTT 1975 4 SA 943 (A) 949H.)

Only where the two provisions are reconcilable, can it be inferred that the previous provision has been repealed.

Therefore, due to the fact that section 29 of the magistate’s court Act has not been specifically repealed by the PIE, the PIE and section 29 must be interpreted in such a way that, insofar as is possible, they are consistent with one another.

To interpret the word “proceedings” as it appears in the PIE as including both actions and applications is completely inconsistent and contradictory to the provisions of section 29 of the magistate’s court act.  Bearing in mind that the Court must give an interpretation and must read the two provisions so that they are consistent with one another the only interpretation that can be given to the word proceedings is proceedings subject to what is contained in section 29(1). Therefore, the only meaning that can be given to the word proceedings is a meaning which is consistent with that as set out in the magistate’s court Act and therefore can only mean actions of ejectment in the sense that they are instituted by summons.

If the intention of the Legislature was to repeal section 29 they would have specifically repealed it.  As they did not specifically repeal it the Court must give an interpretation which is consistent with section 29.

His Lordship Mr Justice Hlophe relies on two judgments in support of the proposition that the word proceedings is a very wide term and, on that basis, there is no reason in his view why the word “proceedings” should be given a narrow meaning that is, limited only to actions.

However, neither of the judgments relied upon by his Lordship dealt with the word “proceedings” in the context of the jurisdiction which is conferred in terms of section 29.  In other words, they were completely different considerations.  The Court, in those cases, did not have to interpret the word “proceedings” in a manner which is consistent with another piece of legislation.  In those cases, the Court merely had to give a meaning to the word “proceedings” and any limitation thereof by another piece of legislation did not come into play.

The fact that the PIE contains the words “notwithstanding anything to the contrary contained in any law or the common law…” does not take the matter any further as the word actions is not “contrary” to the word proceedings.  The word “actions” is contrary to the word “applications”.

Therefore, if the word “proceedings” is only interpreted to include actions it does not render the provision in PIE meaningless or nugatory.  The word “proceedings” will still have a meaning and will still give effect to the purpose of the legislation and the intention of the Legislature.

The Judge relies on a passage in Erasmus and Van Loggerenberg in which the submission is made that the limitation does not apply to proceedings for eviction in terms of the PIE and The Extension of Security of Tenure Act 62 of 1997.

If one has regard to The Extension of Security of Tenure Act it becomes apparent that the reason why the limitation does not apply is because, in that Act, the provision is directly contradictory.  Section 17 (4) states that “…until such time as rules of Court for the magistate’s courts are made by the rules board for courts of law for the conduct of proceedings under the Extension of Security of Tenure Act, the rules of procedure applicable in civil actions and applications in a High Court apply mutatis mutandis in respect of any proceedings in a magistate’s court in terms of The Extension of Security of Tenure Act”.

This is a directly contradictory provision to that which is contained in section 29 of the magistate’s courts act.  It cannot be reconciled with that Act and therefore applications in terms of this Act are possible in the magistate’s court.  The difference in wording to that which is contained in the PIE must not be overlooked.

There is no similar provision in the PIE which expressly and specifically says that applications can be used in eviction proceedings.

Urgent applications

Urgent applications have always been available to a litigant when approaching a magistate’s court.  Even in those other cases set out in section 29, a litigant is entitled to proceed by way of urgent application.

He must, however, ask for interim relief pending the outcome of an action to be instituted.

The fact that the PIE envisages urgent eviction proceedings does not change the situation.

An application for an interim order is an interlocutory application and can therefore be instituted by means of application proceedings (See JORDAN V PENMILL INVESTMENTS CC 1991 (2) SA 430 (E))

In any event, the section appears, with respect, to have been misinterpreted by the learned Judge.  The section does not make provision for urgent proceedings for a final eviction order.  The section makes provision for the institution of urgent proceedings “for the eviction of an unlawful occupier of that land pending the outcome of proceedings for a final order…” (Emphasis added).  Clearly, what is envisaged in the circumstances, is that a litigant may approach the Court on application for an interim eviction order pending the outcome of an action to be instituted.  This has always been the case, even before the promulgation of PIE.  The reason for this is that section 55 (9) specifically makes provision for interlocutory orders on application proceedings.  An order for eviction pending the outcome of proceedings to be instituted is, by its very nature, and interlocutory order.  (See JORDAN V PENMILL INVESTMENTS CC 1991 (2) SA 430 (E)).

It is therefore submitted that the fact that section 5 of the PIE provides for a litigant being able to approach a Court on an urgent basis does not have a bearing on the question of whether the Court can grant a final order for eviction on application as opposed to action.

Spirit and values of the Constitution

His Lordhsip Mr Justice Hlophe does not state why “such an interpretation could only serve to frustrate the clear object of the statute, namely, to regulate informal settlement in an orderly and proper fashion”.  The learned Judge appears to contend that approaching the Court for an eviction order on action does not constitute “an orderly and proper fashion” for seeking such an order.

It is respectfully submitted that this proposition is clearly untenable.

CONCLUSION

For the reasons stated above, it is respectfully submitted that the decision in the Nduna matter was incorrectly decided. Unfortunately, no majority judgment of the court was given in the appeal which I argued and the Nduna judgment has seems to have been consistently applied thereafter.

WHEN DIRECTORS PARALYSE A COMPANY – DIRECTORS’ ABILITY TO PREVENT THE CONVENING OF SHAREHOLDERS’ MEETINGS By Don Mahon

MGAdvocate Commercial Law, Company Law, meetings, shareholders , , , , , , ,

“Meetings are indispensible when you don’t want to do anything.” 

– John Kenneth Galbraith

The New Companies Act, 71 of 2008 (“the Act”) brought with it material changes to the machinery by which shareholders can convene shareholders’ meetings.  In terms of the previous Companies Act, two shareholders could convene a shareholders’ meeting by delivering notice of the meeting to the other shareholders (section 180 of the Companies Act 61 of 1973) .

In terms of the New Act, the procedure is a bit more complicated.

Section 61(1) of the Act provides that “the Board of a company or any other person specified in the company’s Memorandum of Incorporation or Rules, may call a shareholders’ meeting at any time”.

Section 61(3) states that “… the Board of a company or any other person specified in the company’s Memorandum of Incorporation or Rules, must call a shareholders’ meeting if one or more written and signed demands for such a meeting are delivered to the company, and –

(a)  each such demand describes the specific purpose for which the meeting is proposed; and

(b)  in aggregate, demands for substantially the same purpose are made and signed by the holders, as of the earliest time specified in any of those demands, of at least 10% of the voting rights entitled to be exercised in relation to the matter proposed to be considered at the meeting.”

Therefore, in terms of the New Act, a shareholders’ meeting cannot be convened by a shareholder but must be convened by “the Board of a company, or any other person specified in the company’s Memorandum of Incorporation or Rules”.

Whilst it is true that certain resolutions may be adopted by the shareholders without the holding of a shareholders’ meeting (see section 60(1)), there are certain instances where a shareholders’ meeting is required.  Take the following example:

Let us assume that a company has two directors, one of whom is the sole shareholder and the other is a rogue director who intends utilising his position on the board to act to the detriment of the company and its shareholders (for the purposes of this example, we shall call him Mr X).

If the shareholder in the company wants to remove Mr X as a director, he requires a meeting of shareholders to be convened in terms of section 71(1).

Section 71(1) states that “Despite anything to the contrary in a company’s Memorandum of Incorporation or Rules, or any agreement between a company a director, or between any shareholders and a director, a director may be removed by an ordinary resolution adopted at a shareholders’ meeting by the persons entitled to exercise voting rights in an election of that director, subject to subjection (2).”

Therefore, in order for the shareholder of the company to remove Mr X as a director, it would need to convene a shareholders’ meeting by following the machinery provided for in section 60(1) of the Act.  Thus, the shareholder would be required to send a demand to the company that a meeting be convened for that purpose.

However, before the meeting can be convened, the Board of Directors would have to call for the shareholders’ meeting.

Naturally, in the example provided, Mr X would, no doubt, refuse to vote in favour of a resolution by the board to convene a meeting of shareholders which is to be convened for the purposes of removing him as a director.

Thus, if the relevant sections of the Act are strictly interpreted, Mr X would be able to simply block any resolution of the board to convene the meeting at which he is to be removed.

The absurdity which arises from this state of affairs is self-evident.  A strict application of the sections of the Act allowed a rogue director to effectively paralyse the functioning of the company and prevent his removal.

However, the provisions of section 61(1) and 61(3) are peremptory in that, upon receipt of a demand by a qualifying shareholder to convene a shareholders’ meeting, the board of a company “must call a shareholders’ meeting”. [My emphasis]

The limited grounds upon which it would seem that the board can elect not to convene the meeting are those provided for in section 61(5) which provides that “a company, or any shareholder of the company, may apply to a court for an order setting aside a demand made in terms of sub-section (3) on the grounds that the demand is frivolous, calls for a meeting for no other purpose than to reconsider a matter that has already been decided by the shareholders, or is otherwise vexatious”.

In S v Cooper and Others 1977 (3) SA 457 (T) at 476, the Court held that “… the word ‘frivolous’ in its ordinary and natural meaning connotes an application characterised by lack of seriousness, as in the case of one which is manifestly insufficient … these words have been used according to the decided cases in respect of pleadings and actions which were obviously unsustainable or manifestly groundless or utterly hopeless and without foundation”.

In Bisset and Others v Boland Bank Ltd and Others 1991 (4) SA 603 (D) at 608 the Court held that “vexatious” means “frivolous, improper, instituted without sufficient ground, to serve solely as an annoyance to the defendant”.

This section would, however, have limited application in the example provided as it would be unlikely that the board, upon considering the demand to convene the meeting, resolved to bring an application to court to set the demand aside on this basis.

So what is the solution where Mr X is able to paralyse the board by procuring a deadlock situation upon the consideration of a demand to convene the shareholders’ meeting?

The right to participate in a meeting and the right to vote are rights inherent in the ownership of shares and it is thus not competent for the Board of Directors to frustrate or impede that right by not holding a shareholders’ meeting (see Cassim et al: “Contemporary Company Law”, 2nd Ed. at p371 and authorities cited therein).

In the example provided, Mr X would clearly have a conflict of interests when considering a demand to convene a meeting of shareholders which seeks to have him removed as a director.  Perhaps therein lays the solution.

Section 76(2) of the Act provides that:

  “A director of a company must –

(a)  not use the position of director, or any information obtained while acting in the capacity of director –

(i)             to gain an advantage for the director, or for another person other than the company or a wholly owned subsidiary of the company; or

(ii)           to knowingly cause harm to the company or a subsidiary of the company.”

Thus, it is arguable that the patent conflict of interest which Mr X would have in the consideration of a resolution to convene a shareholders’ meeting by the Board of Directors, would require Mr X to recuse himself from any consideration of the resolution to be adopted.

Therefore, the only solution appears to be for the other director to adopt the view that Mr X, due to his conflict of interest, is not entitled to vote on a board resolution to convene a meeting upon the shareholders’ demand.  If that is so, the other director would be entitled to exercise the sole vote in favour of convening the shareholders’ meeting which, in light of Mr X’s conflict of interest, would be valid and binding upon the company.

Once the board of the company, through the vote exercised by the director who is also a shareholder, has resolved to convene the meeting, it would merely be a question of delivering a notice to convene the shareholders’ meeting on the company letterhead.

Despite what is set out above, practitioners would be well advised, when drafting a Memorandum of Incorporation for a company to be formed, to make provision for the convening of shareholders’ meetings by any qualifying shareholder, rather than simply relying on the provisions of section 60(1).