Motala v Master of the North Gauteng High Court, Pretoria (92/2018) [2019] ZASCA 60;

CASE NAME: Motala v Master of the North Gauteng High Court, Pretoria (92/2018) [2019] ZASCA 60; [2019] 3 All SA 17 (SCA); 2019 (6) SA 68 (SCA) (17 May 2019).

HEARED: The Supreme Court of Appeal of South Africa

CORAM: Leach, Wallis, Mathopo and Van der Merwe JJA and Dlodlo AJA

DELIVERED: 17 May 2019

CASE SUMMARY

Mr. Enver Motala, the appellant, identifies as a “liquidator and administrator of estates.” In 1999, he started working in that industry and established a prosperous practice. He serves as a director of a trust corporation, known in the documents as “SBT Trust,” with its main office located in Johannesburg. Prior to this, the appellant was on the Master’s pan. The respondent in this appeal is the Master appointed by the Gauteng Division of the High Court in Pretoria under s. 2(1)(a)(ii) of the Administration of Estates Act 66 of 1965.

The ethical conduct and the objectivity of liquidators and business rescue professionals are crucial to the integrity of South Africa’s insolvency and business rescue system and the Motala v Master of the North Gauteng High Court, is a seminal ruling in this matter, that offers a crucial court ruling on the fiduciary duties of liquidators. In this case the appellant, Enver Mohamed Motala, “was removed from the Master’s panel of approved liquidators and trustees following his involvement in the liquidation of the Pamodzi Group, a gold mining conglomerate with over R1 billion in debt. 

Mr Motala had secretly loaned R3 million to Aurora Empowerment Systems (Pty) Ltd, the preferred bidder for the Pamodzi mines, without disclosing this to the Master or his fellow liquidators. He also failed to cooperate with an inquiry into the liquidation process and was found to have lied under oath about his previous criminal convictions and based on these reasons the High Court found his removal to be just. The question before the court was whether the Master’s decision to remove Motala was exercised within the statutory powers.”

LEGAL ISSUES 

The Supreme Court of Appeal had to decide on the following questions: whether Motala’s removal as a liquidator by the Master qualifies as administrative action under PAJA. Secondly if whether the removal was in accordance with the legality, reasonability, and equity principles of the constitution; Whether the steps taken by the Master met the requirements of PAJA section 3(1); Whether the appellant was unable to serve as a provisional or final liquidator in 2011 in accordance with Section 372(f) of the Companies Act. Lastly if whether the Master’s discretion under Insolvency Act section 54(1)(a) was appropriate.

THE PARTIES ARGUMENTS

Morals argued that in his dismissal section 3(1) of the PAJA, which ensures procedurally fair administrative action, was violated because the removal constituted an administrative action that adversely harmed his rights.He further provides that the audi alteram partem rule was violated as he was not given a meaningful chance to address the accusations, there was also a violation of section 5 PAJA and the accountability norms outlined in the constitution, the Master failed to give acceptable justification. According to Fedsure Life Assurance Ltd v Greater Johannesburg TMC and Pharmaceutical Manufacturers Association of SA, the use of public authority must be legitimate and reasonable, however, there was no logical link between the facts and the conclusion, and the choice was swayed by extraneous factors.

Master argued that section 54(1)(a) of the Insolvency Act, which permits the removal of a trustee or liquidator for good reason, gave her the authority to act, and therefore the removal was necessary to safeguard creditors and maintain trust in the insolvency system. The conclusion was logical and required to maintain the liquidators’ fiduciary duties as court officers. The Master insisted that sufficient notice and justification were provided, arguing that administrative law norms were not broken..

FACTORS THAT INFLUENCED THE COURTS DECISION 

• FIDUCIARY DUTIES 

Section 76(3) provides for fiduciary duties to be followed by directors which is to act in good faith and for the right reason; in the company’s best interests; and with the level of care, skill, and diligence that one could reasonably expect from an individual performing the same duties related to the company as that director; and possessing the general knowledge, expertise, and experience of that director. In support to this Miller provides that a fiduciary has the duty of loyalty which firmly prohibits conflicts of interest and conflicts of duty, under penalty of powerful remedies that deprive fiduciaries of any gains earned in breach. It has to do with always acting in the beneficiary’s best interest and prioritizing their welfare, by abstaining from acting in any way that would jeopardize the welfare of the beneficiary. 

We also have a duty of care, which calls on fiduciaries to act responsibly in carrying out their mandates by making wise decisions that safeguard the interests of a beneficiary. It may entail weighing possibilities carefully and making logical decisions based on a thorough analysis of the information at hand. 

Additional there is also a duty of prudence where fiduciaries must exercise the utmost professional skill, prudence, and risk-critical awareness when handling matters and making choices pertaining to beneficiaries’ interests. While in the duty to disclose they are required to act in an entirely honest manner by revealing all pertinent facts that might affect their capacity to fulfil their fiduciary responsibilities and the welfare of their beneficiaries’ interests. 

However, there are specific duties that are imposed to a liquidator which is to inform the Master and to expose information to the Master. Therefore, Motala had the same duties which were to act in good faith, the duty to act with care by taking decisions that would benefit Pamodzi mine, the duty to disclose his previous convictions and examine the affairs or transactions of the company such as the loan he made prior, and to maintain honesty and loyalty to the company. However, he acted ultra vires and did the opposite of his fiduciary duties.

• BREACH OF DUTIES 

In Standard Bank of South Africa v The Master of the High Court & others “The court found that the liquidators had lost the required objectivity and had improperly failed to dispute a large claim proven by the holding company, as results they were removed as liquidators for having breached their fiduciary duties.” The old Companies Act provides for the removal of liquidators in South Africa in section 372 (f) which provides that any “liquidator who has ever been found guilty of theft, fraud, forgery, uttering a fake document, or perjury and was sentenced to jail without the possibility of a fine or to a fine exceeding twenty rand.” While Section 379 (b) grants the Master the authority to dismiss a liquidator who does not fulfil their obligations or adhere to legal demands. 

Even though the old companies act has been substantially repealed by the 2008 Act, some of its provisions such as section 379 still remain applicable to liquidation proceedings until they are repealed by new legislation and so far there has not been any. In support to this we have section 60 (b) of the Insolvency Act which authorises the Master to remove trustees if he has not fulfilled any obligation placed on him by the Act or complied with a valid request made by the Master. Therefore, in the Motala case the Master had acted according to his powers as she had the authority to remove Motala from his position as a liquidator and trustee because he had contravened with sections 379 (b) of the old Companies Act and section 60 (b) of the Insolvency Act.

In the Ma-Afrika Groepbelange (Pty) Ltd & another v Millman and Powell NNO & another the court will “hold that good cause exists only if it is satisfied that removal of the liquidator will be to the general advantage and benefit of all persons interested in the winding-up of the company.“  Furthermore, Motala in his appeal argued that the Master had unlawfully exercised her position and that his dismissal was both irrational and procedurally unfair. He claimed that the ruling was irrational and infringed upon his right to just administrative treatment. 

In addressing this claim, the Supreme Court of Appeal cited section 3(1) of the PAJA, which provides that “an administrative action which materially and adversely affects the rights or legitimate expectations of any person must be procedurally fair.” The Court concluded that the Master had given Motala a reasonable chance to address the accusations made against him and had given sufficient justification for the dismissal. As a result, the Supreme Court of Appeal concluded that the ruling did not amount to an abuse of power and was procedurally reasonable.

The court also took into account section 6(2)(f)(ii) of PAJA which permits judicial review in cases where an administrative action is not “rationally connected to the purpose for which it was taken,” and by using the reasonableness test established in Masetlha v. President of the Republic of South Africa the SCA came to the conclusion that the Master’s choice was reasonable in relation to the statutory objective of appointing capable, reliable executors in estate proceedings. In order to satisfy the requirements of the rule of law and legality under PAJA, the court upheld the Master’s actions as being not only rational and legal but also procedurally fair. Initially the court used the constitutional criteria of legality to demonstrate that there was a reasonable connection between the decision and the aim of the power.

• BUSINESS RESCUE PRACTITIONERS 

Just like liquidators in the Motala case, business rescue comprises of business rescue practitioners who are expected to maintain impartiality, independence and honesty as per the requirements of Section 138(1)(e). Therefore, should they be found to have had failed to disclose material interests they will be removed in the same way as Motala however, for business rescue practitioners section 139 (2) of the Companies Act governs their removal.

The court James v Magistrate, Wynberg & others held that a liquidator may be removed from position in terms of section 379(2) if he loses his independence or sides with one party or faction in a dispute concerning the winding-up, or manifests hostility to an interested party.

Moreover, the Motala case’s judgement was sourced on the conduct and independence that practitioners are required to possess, of which Motala had failed to possess in his position. Courts have emphasised that business rescue practitioners must be impartial and free from conflicts of interest to ensure that the process is fair. Therefore, Motala appointment was challenged regarding his impartiality and independence and because he did not comply with the required standards he had to be removed from office.

THE MOTALA CASE ANALYSIS; JUDGEMENT AND CRITICISM 

The Supreme Court of Appeal on 17 May 2019 upheld the Master’s decision, finding that the Master had acted within his powers because Motala’s conduct breached the fiduciary duties of a liquidator and compromised the integrity of the insolvency process.”Upon its decision the judge Leach JA reviewed the High Court’s a quo and held “With due respect, I find certain of the reasoning of the court a quo to be somewhat confusing” The Supreme Court of Appeal ruling is a morally sound articulation of fiduciary responsibility in the fields of law and estate planning. The court in this case had confirmed that such appointments are obligations subjected to criticism rather than privileges by acknowledging the importance of an executor’s role in the public trust. Through ensuring that fiduciaries or trustees are above reproach, particularly in situations when mismanagement or personal insolvency may jeopardise an executor’s capacity to execute their fiduciary duties, the ruling serves the public good. 

The Supreme Court of Appeal’s use of the rationality and legality principles supports the idea that public servants must behave in a way that is legal, reasonable and equitable in a way that is consistent with the constitution’s criteria established in the case of Masetlha and other significant instances. In estate management, where vulnerable beneficiaries frequently rely on qualified executors to perform honourably, it affirms the Master’s monitoring function as a vital safeguard against possible exploitation. 

CONCLUSION  

The Supreme Court of Appeal’s decision was just and rational as it upheld legal authority by protecting public interest rights while enhancing the principle of accountability, integrity and impartially during a fiduciary’s hold of office. The court’s judgement together with the Companies Act, PAJA, the use of journals and relevant case law have proved that the Master had acted within the scope of her powers and the process was procedurally fair and rational. It has been proved that Motala had indeed acted ultra vires and unethical during his position in office. 

BIBLIOGRAPHY 

Books

• Smith, Linde & Calitz Hockly’s Law of Insolvency textbook.

Case Law 

• James v Magistrate, Wynberg & others 1995 (1) SA 1 (C) 14.
• Ma-Afrika Groepbelange (Pty) Ltd & another v Millman and Powell NNO & another.
• Masetlha v President of the Republic of South Africa 2008 (1) SA 566 (CC).
• Motala v Master of the North Gauteng High Court, Pretoria (92/2018) [2019] ZASCA 60; [2019] 3 All SA 17 (SCA); 2019 (6) SA 68 (SCA) (17 May 2019).
• Standard Bank of South Africa v The Master of the High Court & others 2010 (4) SA 405 (SCA).

Journals 

• • Benadie “Court clarifies Business Rescue Practitioners personal liabilities resulting from misconduct”. 
  • De Beers “Invalid court orders” Constitutional Court Review 2019 Volume 9, 284.
  • Joubert & Calitz “To be or not be? The role of private enquiries in South African Insolvency law.
  • Miller “Justifying Fiduciary Duties.” McGill Law Journal / Revue de droit de McGill, volume 58, number 4, June 2013, p. 976.
  • Rasure “What Is a Fiduciary Duty? Examples and Types Explained” 2024.

Legislation 

• Companies Act 61 of 1973.
• Companies Act 71 of 2008.
• Promotion of Administrative Justice Act 3 of 2008.