Khan NO & another v Maxprop Holdings (Pty) Ltd & another

The appellants, as joint trustees of the insolvent deceased estate of Colin Bernard Cowan, instituted action against Maxprop Holdings (Pty) Ltd to set aside payments made by Cowan to Maxprop as interest arising from an unlawful pyramid (Ponzi) scheme operated by Cowan. They alleged that these payments constituted dispositions without value under s 26(1) of the Insolvency Act 24 of 1936 and were thus impeachable. Maxprop joined Garlicke & Bousfield Inc, the attorneys whose trust account received and disbursed scheme funds, as a third party. The third party excepted to the particulars of claim on the basis that they did not disclose a cause of action, as it was not alleged that the funds paid formed part of Cowan’s estate or that he had a right of disposal over them. An exception was upheld and the appellants were granted leave to amend. The amended particulars were again found excipiable by the High Court, which refused the amendment and dismissed the claim. The trustees appealed to the Supreme Court of Appeal.

The appeal was upheld in part. Paragraphs 2 and 3 of the High Court’s order were set aside and replaced with an order granting the appellants leave to amend their particulars of claim in terms of rule 28. The appellants were ordered to pay the costs of the appeal.

The case reaffirms important principles of South African civil procedure relating to exceptions and amendments to pleadings. It confirms that the upholding of an exception disposes of the defective pleading, not the action itself, and that leave to amend is a matter of course unless the pleading is shown to be incurable. The judgment also clarifies the pleading requirements for impeachable dispositions under s 26(1) of the Insolvency Act, particularly the need to allege a right of disposal over property.