Subject index outline

Kingdom Films and others v Kaplan NO and another [2016] JOL 36001 (GJ)

Directors- Aquilian action against-when possible

Particulars of claim – Exception to – Failure to disclose cause of action – Onus of proof

The respondents were appointed as final liquidators of a company (“KWS”) which operated in the tourism industry. They brought an Aquilian action against 11 defendants. Having delivered their particulars of claim, they were served with a notice of exception from the defendants, indicating that the particulars of claim failed to disclose a cause of action. Although offered an opportunity to amend the particulars of claim, the respondents did not share the view of the excipients and declined to amend. That led to the raising of the exception in the present proceedings.

The excipients were accused of acting unlawfully, or unlawfully failing to act, thereby causing harm to KWS in the form of as prospective financial loss. That potential financial loss was the “damage” which the respondents sought to recover from the excipients. It was that aspect of the claim, as reflected in the particulars of claim, that formed the subject matter of the exception.

The third excipient (Richardson) was a director of KWS. The respondents’ cause of action centred around Richardson’s having entered into an agreement on behalf of KWS, so as to provide himself with the opportunity to extricate himself from his co-shareholder by destroying the business of KWS while at the same time diverting all its business and business opportunities to some of the other excipients. The amount claimed by the respondents as damages represented a loss of profits for 20 years from the date the agreement referred to above was cancelled.

In the alternative, the respondents claimed against the sixth excipient, the amount by which the alleged “potential value of the business of KWS” was diminished, on the basis that it had unlawfully repudiated the said agreement.

Held that the excipients bore the onus of showing that the respondents had failed to disclose a cause of action in their particulars of claim. They would only discharge such onus if they were able to demonstrate on every possible interpretation that the particulars of claim, read as a whole, failed to disclose a cause of action.

The essence of the exception was that the law of delict only recognises a claim for damages if the plaintiff had suffered at least some of the damages as at the date when the particulars of claim were delivered. As at that date, the plaintiff must show that its patrimony has been diminished. Until its patrimony has actually been diminished there is no claim recognisable in law. The claim instituted by the respondents did not represent an actual loss, but potential loss.

Damage or loss is one element of an Aquilian action. The other four are act or omission, unlawfulness, fault and causation. Each element has to be proven on a balance of probabilities by the plaintiff for the claimant to succeed in its claim.

Our law recognises prospective pure economic loss as part of the damages sustained by a plaintiff that calls for compensation. However, the common law rule is that prospective damages may be awarded as ancillary to accrued damages, but such a claim has no separate, independent force as ground for action. As KWS had yet to suffer any damage, it did not have a cause of action. The exception was therefore upheld.

Prior to being placed under final liquidation KWS primarily conducted the business of tourism venture. The third excipient, Kevin Richardson ("Richardson"), was a director of KWS. He held 50% of the issued share capital of KWS. The other 50% was held by Alan Friedland ("Friedland").

The excipients all stand accused of acting unlawfully, or unlawfully failing to act, with fault and thereby causing harm to KWS, which harm is identified as prospective financial loss. This potential financial loss is the "damage" they seek to recover from the excipients. They seek other relief too. However, while the claim for monetary compensation for the damages is by no means the only relief they seek, it is a crucial aspect of the relief claimed. It is this aspect of the claim, as reflected in the POC, that forms the subject-matter of the exception.

. The averments: Richardson misappropriated monies and other assets belonging to KWS;Richardson misappropriated income or other benefits of KWS and essentially had these transmitted to Kingdom Films, KRWS, The Lion Whisperer and Predator;Richardson fraudulently orchestrated the cancellation of the Welgedacht agreement;Richardson engineered a situation where KWS found itself unable to pay its debts so that KWS is liquidated;Richardson and/or Kingdom Films, KWRS, The Lion Whisperer and Predator unlawfully and improperly competed with KWS

1^ JDR=Juta’s unreported online, from May 2013.

2^ This “rule” has become popular recently, see Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investments Holdings (Pty) Ltd and another 2015 (4) SA 449 (WCC)

3^ Already discussed in December 2015 but now a reported case

4^ Already discussed in December 2015 but now a reported case

5^ Already discussed December 2015 now reported case

6^ Already discussed December 2015

7^ Already discussed in December 2015 but now a reported case

8^ Already discussed December 2015 now reported case

9^ Already discussed December 2015

10^ This “rule” has become popular recently, see Orestisolve (Pty) Ltd t/a Essa Investments v NDFT Investments Holdings (Pty) Ltd and another 2015 (4) SA 449 (WCC)

11^ Already discussed in December 2015 but now a reported case

12^ Already discussed December 2015 now reported case

13^ Already discussed December 2015