Rescission Refused: Negligence Is Not Good Cause Under Rule 42(1)(a) Or The Common Law

In Municipal Employees Pension Fund v Ntabankulu Local Municipality, the SCA was required to determine whether the Municipal Employees Pension Fund ("the MEPF") had established grounds for the rescission of a default judgment granted against it, either under Uniform Rule 42(1)(a) of the Uniform Rules of Court or in terms of the common law.

Factual background

Prior to September 2013, employees of the Ntabankulu Local Municipality ("Ntabankulu") were members of the South African Municipal Workers Union Provident Fund ("SAMWU Fund"). Following representations by the MEPF, 101 employees terminated their SAMWU Fund membership, and their contributions were redirected to the MEPF. In an earlier judgment, the SCA found this transfer to be unlawful and invalid as it bypassed the statutory process under the Pension Funds Act 24 of 1956. Accordingly, Ntabankulu was ordered to pay R45 968 219.20 in arrear contributions to the SAMWU Fund.

The MEPF refunded R19 928 666.19 to Ntabankulu, but a shortfall of R5 127 149.63 remained. Ntabankulu issued summons to recover the shortfall, and the summons was served on the MEPF on 25 March 2022. The MEPF failed to file a notice of intention to defend. Default judgment was granted against the MEPF on 22 September 2022. Despite having received both the summons and default judgment, the MEPF took no steps to immediately challenge the judgment and a writ of execution was served on the MEPF on 3 May 2023. The MEPF’s rescission application was eventually filed on 11 July 2023.

Rule 42(1)(a): the default judgment was not erroneously granted

The MEPF first sought recission under Rule 42(1)(a), contending that the default judgment had been “erroneously granted” in its absence. The Court rejected this argument. Relying on Freedom Stationery (Pty) Ltd v Hassam and Others and Lodhi 2 Properties Investments CC v Bondev Developments (Pty) Ltd, the Court reaffirmed that the phrase "erroneously granted" in Rule 42(1)(a) concerns the procedure followed to obtain the judgment. It does not encompass a situation in which a defaulting party subsequently raises a defence to the claim. Where a plaintiff was procedurally entitled to obtain judgment in circumstances where the defendant had failed to defend the proceedings, the judgment is not rendered “erroneous” because the defendant later raises a defence.

The SCA further relied on the Constitutional Court's decision in Zuma v Secretary of the Judicial Commission of Inquiry into Allegations of State Capture (“Zuma”), which confirmed that Rule 42(1)(a) exists "to protect litigants whose presence was precluded, not those whose absence was elected." The MEPF was properly served at its registered office, and nothing procedurally precluded the MEPF from participating in the legal proceedings. The MEPF’s absence was the result of its own employees' failure to act.

Furthermore, the MEPF argued that the return of service cited an incorrect case number. Relying on Botha v Smuts and Another, the SCA held that an applicant must stand or fall by the case made out in its founding affidavit and may not raise new factual grounds at a later stage of the proceedings.

Common law rescission: no reasonable explanation for the default

The requirements for rescission at common law, as reaffirmed in Colyn v Tiger Food Industries Ltd and Chetty v Law Society, Transvaal, are that the applicant must provide a reasonable explanation for its default, demonstrate good faith and establish a bona fide defence with prima facie prospects of success. These requirements are conjunctive.

The MEPF's explanation was that an employee tasked with instructing attorneys, failed to do so due to her hectic schedule. No employee or official followed up on the matter between the date of service of the summons and the service of the writ of execution, a period of over thirteen months. The Court found this explanation to be plainly inadequate and held that it amounted to gross negligence. As the Constitutional Court held in Zuma, "an unsatisfactory and unacceptable explanation remains so, whatever the prospects of success on the merits."

The delay in bringing the rescission application reinforced this conclusion. A number of months elapsed between service of the default judgment and the filing of the recission application. The court found that the explanation that a legal manager had resigned and that a new appointee required time to investigate did not account for the period of complete inactivity between October 2022 and May 2023.

Conclusion

The judgment confirms that Rule 42(1)(a) is concerned solely with procedural regularity and affords no relief to a party whose absence from the proceedings was the product of its own failure to act. At common law, the position is equally clear, an applicant for rescission must provide a reasonable explanation for its default. Gross negligence will not suffice, regardless of the strength of the defence on the merits.

Order

The appeal was dismissed with costs, including costs of two counsel where so employed.