A group of individuals from previously disadvantaged communities formed NC Housing Services & Development Co Ltd (NC Housing), a public company, to access commercial opportunities. Capital was raised through share subscriptions. In 2002, the board resolved to sell shares to an investor to acquire an interest in Meriting Investments. The investor (Van Rensburg) later sold these shares to the third respondent (Mongwaketsi) for R300,000. In 2004, shareholders passed a resolution allowing shareholders to increase their stakes by depositing money. The second respondent (Babuseng) claimed to have made deposits entitling him to additional shares. NC Housing was deregistered in 2007 for failing to file tax returns but was later re-registered. Disputes arose regarding shareholding when a need arose to approve the sale of NC Housing's main asset (shares in NWC Manganese). Babuseng and Mongwaketsi launched an application to determine the correct shareholding and governance of NC Housing. Morudi and others initially opposed but on 19 April 2013, shareholders resolved to withdraw NC Housing's opposition. Morudi's group challenged this resolution, but their challenge was dismissed. Morudi and others were physically present in court when the main application was granted by consent between Babuseng, Mongwaketsi and NC Housing, but were not given a hearing. They later applied for rescission of this order, which was refused by Lever AJ. They appealed this refusal.
The appeal was dismissed with costs, including costs of two counsel.
An applicant for rescission of judgment must demonstrate: (1) sufficient cause, which requires a reasonable and acceptable explanation for the default; and (2) a bona fide defence which prima facie carries prospects of success. Where a court order dismissing an application to set aside a corporate resolution is not appealed and becomes final, that resolution stands and binds the parties. If a valid corporate resolution authorized withdrawal of opposition to proceedings, parties bound by that resolution cannot subsequently establish a bona fide defence to those proceedings. An appellate court will only interfere with a lower court's exercise of discretion if the power was not properly exercised - namely, if the court exercised discretion capriciously, was moved by a wrong principle of law, or had an incorrect appreciation of the facts.
The dissenting judgment of Molemela AJA expressed important observations on shareholders' rights under the Companies Act 71 of 2008: (1) Section 161 grants shareholders the right to apply to court for orders determining and protecting their rights, independently of the company; (2) Section 157 provides extended standing allowing shareholders to act as a group or class; (3) Directors may be personally liable under section 77 for various contraventions, giving them a legal interest to defend allegations in their personal capacity; (4) Where shareholders are cited as respondents and allegations are made that could result in personal liability or prejudice to their shareholding, they have locus standi in both their capacity as shareholders and (where applicable) as directors; (5) A company's withdrawal of opposition does not necessarily extinguish individual shareholders' rights to oppose proceedings that directly affect their interests; (6) The court's discretion in rescission applications must be influenced by considerations of justice and fairness having regard to all facts and circumstances; (7) Physical presence in court does not necessarily mean an order was not made "in the absence" of a party if that party was denied a hearing. The dissent also noted that courts should interpret the Companies Act in a manner that advances rather than limits the remedies it provides (per section 158).
This case clarifies the requirements for rescission of judgment under both the common law and Rule 42(1)(a) of the Uniform Rules. It emphasizes that for a rescission application to succeed, applicants must show: (1) a reasonable and acceptable explanation for their default, and (2) a bona fide defence with prima facie prospects of success. The case demonstrates that an appellate court's scope to interfere with a lower court's discretion is limited and will only occur where the discretion was not judicially exercised. The dissenting judgment provides important analysis of shareholders' locus standi under the Companies Act 71 of 2008, particularly sections 77, 157, 158 and 161, regarding shareholders' rights to challenge decisions affecting their interests independently of the company itself. The case also illustrates the binding effect of unchallenged court orders and corporate resolutions in subsequent litigation. It highlights tensions between corporate decision-making and individual shareholder rights in the context of BEE investment vehicles.