Section 417 of the Companies Act 61 of 1973 (1973 Act), makes provision for private insolvency enquiries to be conducted into the affairs of a company that is unable to pay its debts and has been placed under compulsory liquidation. Section 417 of the 1973 Act empowers a court or the Master to investigate the affairs of a company, while section 418 of the 1973 Act permits a court or the Master to delegate such investigative powers to a commissioner.
An insolvency enquiry is essentially a fact-finding mission aimed at uncovering any mismanagement of the company in liquidation or misconduct on the part of its officers, which may have resulted in its liquidation. Therefore, it is not surprising, considering the inquisitorial nature of the proceedings, that the independence or bias of a commissioner may be challenged by a disgruntled witness.
This is what transpired in Fernandes v Niel N.O and Others (8923/2021) 2022 ZAGPPHC 492. The applicant was summoned to appear before a Commission of Enquiry (Enquiry), established to investigate the affairs of the sixth respondent, Swifambo Rail Leasing (Pty) Ltd, which underwent compulsory liquidation in 2019. During the proceedings, the applicant, dissatisfied by the conduct of the commissioner towards him and his attorney, launched an application seeking an order declaring the commissioner (cited as the first respondent) not fit and proper to act as a commissioner of the Enquiry and the setting aside of his appointment thereto, in as far as it relates to the applicant’s attendance at the Enquiry. The main basis for this application was bias, or at a minimum the reasonable perception of bias on the part of the first respondent. The applicant also requested a punitive cost order against the commissioner in his personal capacity (cited as the second respondent).
The applicant was the general manager of a grape growing business operated on a farm owned by Okapi Farming (Pty) Ltd (Okapi Farming), in which the applicant was also a shareholder. The dispute as to the actual or perceived bias was a result of certain questions posed by the commissioner to the applicant in relation to the source of the funds used by the applicant to acquire 40% of the shares in Okapi Farming.
The applicant argued that the commissioner’s use of the words “suspicions” and “money laundering” when questioning the applicant about the funds, that may have emanated from the sixth respondent, constituted bias on the part of the commissioner. The applicant further alleged that the commissioner was hostile toward the applicant’s attorney and stated that telling the applicant’s attorney to stop making a mockery of the Enquiry amounted to “strong language” being used by the commissioner. The applicant contended that the commissioner failed to advise the applicant, during the issuing of the summons and the Enquiry, that he was obliged to answer questions relating to money laundering, even though the answers to such questions may amount to self-incrimination. The applicant contended that all these issues amount to a reasonable perception of bias or actual bias.
The commissioner both in his professional and personal capacity opposed the application on the grounds that the applicant’s reference to the commissioner’s conduct, choice of language and alleged hostility towards the applicant were not sufficient to found a claim of actual or alleged bias on his part. The commissioner argued further that the application was an abuse of process, and that the applicant was not acting in good faith.
Well-established test for bias
The court deferred to the well-established test for bias, confirmed in President of the Republic of South Africa & Others v South African Rugby Football Union & Others 1999 (4) SA 147 (CC), which asks whether a “reasonable, objective and informed person would on the correct facts reasonably apprehend that the judge [or chairperson of an enquiry] has not or will not bring an impartial mind to bear on the adjudication of the case”.
The court held that relief will not be easily granted if it is against the benefit of all interested parties, however a court does have a discretion to remove a commissioner that has not acted in accordance with the principles of natural justice which require that a commissioner act fairly and impartially at all times. A delicate balance is to be struck between the various competing interests for the benefit of all parties, and in doing so the context and circumstances are important considerations.
In terms of the timing of the application for recusal, the court acknowledged, in order to minimise disruptions, that it is more likely to grant an application for recusal at the start of an enquiry than at the end. The court took issue with the fact that the applicant only objected to the questioning after being asked about the source of the funding for the purchase of the shares in Okapi Farming, despite the applicant having received the summons detailing the “suspicions” of the origins of the aforementioned funds. According to the court, the applicant should have objected to these aspects of the summons upon receipt of the summons, before testifying or during testifying.
With regard to the commissioner’s use of the word “suspicions” during the Enquiry, the court viewed this within the context of the summons and the purpose of the Enquiry. Paragraph 3 of the summons recorded the concerns relating to the origin of the funds used to purchase the shares in Okapi Farming and the need for the applicant to testify to this. The court reasoned that the use of the word “suspicions” did not demonstrate any foregone conclusion, on the contrary, it indicated that there was merely a suspicion, which could only be confirmed upon further investigation, questioning and evidence.
Dealing with disrupted proceedings
When dealing with the issue of the commissioner’s attitude and expressed annoyance towards the applicant’s attorney, the court relied on Schutte v Can der Berg & Ord NNO 1991 (2) SA 717 (C), wherein it was said that “justifiable annoyance” of a commissioner, even if blatantly expressed, seems to be a “highly questionable basis for a successful recusal application”. The court concluded that while the commissioner’s choice of words was unfortunate, any annoyance felt by the commissioner, on its own was not enough to warrant his recusal. Additionally, the court sympathised with the commissioner who was attempting to control the proceedings which were being disrupted by the applicant’s attorney who was speaking at length without justification.
The court swiftly handled the applicant’s allegation relating to self-incriminating testimony by referring to the long-standing dictum in Ferreira v Levin NO and Others’ Vryenhoek and Others v Powel NO and Others 1996 (1) BCLR 1, that no incriminating testimony given in terms of section 417(2)(b) of the 1973 Act can be used in criminal proceedings against that person.
Accordingly, the court held that the applicant had failed to demonstrate a basis for actual bias, or a reasonable apprehension of bias and the application was dismissed in its entirety.
In handling the request for a punitive cost order, the court was not convinced by the applicant’s argument that the commissioner, in his professional capacity, erred in opposing the application rather than merely filing a report, and held that that the commissioner, in his personal capacity was entitled to defend any claim for a cost order to be granted against him in his personal capacity. The court rejected the request for a punitive cost order based on its finding that there was no objectionable conduct on the part of the commissioner justifying an award of this nature. A cost order was instead granted against the applicant.
In light of the above, it is clear that the success of a recusal application is dependent on the facts and circumstances of each case and the courts adopt a balancing approach which favours the interests of all the parties involved. A frustrated or annoyed commissioner and any reference to suspicious activity or dealings by the commissioner during questioning, on its own is not enough to warrant a claim of bias, particularly in the context of an insolvency enquiry which is established to investigate suspicious activity.