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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.

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[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