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2011
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[2011] ZAGPJHC 13
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Mark NO and Another v Zelbree Investments (Pty) Ltd and Others In re: Zelbree Investments (Pty) Ltd and Another v Discovery Life Investment Services (07903/11) [2011] ZAGPJHC 13 (15 March 2011)
In the south Gauteng high court
(Johannesburg)
CASE NO: 07903/11
Date of hearing: 10 March 2011
Date of judgment: 15 March 2011
In the matter between:
RICH STEPHEN MARK
NO.
.................................................................................
1
ST
Applicant
LOUW TOBIAS JOHN
NO
...................................................................................
2
ND
Applicant
and
ZELBREE INVESTMENTS (PTY)
LTD
....................................................................
1
ST
Respondent
OUTSPAN PLACE (PTY) LTD
…...........................................................................
2
ND
Respondent
SELMA
RICH
......................................................................................................
3
RD
Respondent
In Re:
ZELBREE INVESTMENT (PTY) LTD
…..................................................................
1
ST
Applicant
OUTSPAN PLACE (PTY) LTD
…............................................................................
2
ND
Applicant
and
Discovery life investment
services
.............................................................
Respondent
___________________________________________________________________________
Judgment
___________________________________________________________________________
MOKHARI AJ
This
application came before this Court on Friday, 25 February 2011 by
way of an urgent application (“main application”).
The
parties to the main application are Zelbree Investment (Pty) Ltd;
Outspan Place (Pty) Ltd; Selma Rich (“first, second
and third
applicants in the main application”) and Discovery Life
investment Services (Pty) Ltd (“the respondent
in the main
application”). Rich Stephen Mark and Louw Tobias John (“first
and second applicants in the intervention
application”)
somehow came to know about the main application, and on 24 February
2011, filed an intervention application
seeking leave of the Court
to be joined as second and third respondents in the main application
(“if successful, the effect
of it would be that Discovery
becomes the first respondent”). The intervention application
was heard simultaneously with
the main application in the Urgent
Court of 25 February 2011. Wepener J, heard the application in the
urgent Court and made an
order postponing the main application and
the intervention application to the opposed motion of 08 March 2011
with time frames
set for the exchange of outstanding affidavits.
When
the matter was argued before me on 10 March 2011, all outstanding
affidavits, both in the main and the intervention application
had
been exchanged. Mr Mundell , who appeared for the intervening party
informed the Court that it would be convenient for me
to first hear
and entertain the intervention application, and depending on the
outcome thereof, the main application would be
entertained. The
effect of it was the separation of the two applications. This
approach was endorsed by Mr Da Silva, who appeared
with Mr Ascar for
the respondents in the intervention application. I dealt with the
matter as proposed by the parties. To avoid
confusion, the parties
herein, will be referred to as they appear in the intervention
application.
The
respondents have sought in the main application an order that
Discovery Life Investments Services (Pty) Ltd (“Discovery”),
release to the first and second respondents investments made by the
first and second respondents with Discovery to the first
and second
respondents. Discovery has initially opposed the relief sought and
then withdrew its opposition. Discovery abides
the decision of the
Court in the main application. The third respondent is the sole
director of the first and second respondents.
She is married to
Maurice Rich (“called Mickey”). They have two children,
a son and a daughter. The first applicant
is the son and one Sharon
is the daughter.
The
third respondent and her husband established two trusts (“Emzed
Trust – Stephen and Emzed Trust – Sharon”)
for the
benefit of their two children (“first applicant and Sharon”).
The first applicant and the second applicant
(“a chartered
accountant”) are trustees of Emzed Trust – Stephen, and
Sharon and Mickey are trustees of the
Emzed Trust– Sharon.
Mickey is no longer of a sound mind. He has been placed under
curatorship in terms of an order of
the North Gauteng High Court on
22 December 2010.
The
third respondent and her husband incorporated two companies (“the
first and second respondents”) also for the
benefit of their
two children. Emzed Trust – Stephen, holds 50% of the issued
share capital in the first and second respondents,
and Emzed Trust –
Sharon, holds the remaining 50% of the issued shared capital in the
first and second respondents.
The
first and second respondents have invested certain monies with
Discovery. The third respondent, in her capacity as the sole
director of the first and second respondents, instructed Discovery
to release the investments to the first and second respondents.
The
actual amounts sought to be released are not in issue. They actually
appear in the main application as R1 477 132.35
and
R2 699 447.76 respectively. It would appear that due to
correspondence addressed to Discovery by the first applicant’s
legal representative, imploring Discovery not to release the
investments, Discovery has indeed not released the funds to date,
hence the main application was brought.
The
applicants seek leave of this Court to intervene in the main
application. They assert that they have a direct and substantial
interest in the outcome of the main application and for that reason
they ought to be joined as second and third respondents
respectively. The first, second and third respondents
(“respondents”) oppose the application. They contend
that
the applicants have no legal interest in the main application
nor its outcome. They merely have a financial interest in so far
as
they assert to be trustees of Emzed Trust – Stephen, which in
turn holds a 50% shareholding in the first and second
respondents.
The respondents further submit that the applicants have no
locus
standi
to intervene in the main application.
They submit that the shareholder has no business in the running or
management of the internal
affairs of a company. The directors can
do as they wish with the internal affairs of the company, invest and
withdraw funds of
the company without the shareholders consent. So
the argument goes that the third respondent as the sole director of
the first
and second respondents is entitled in law, as she did, to
invest the first and second respondents’ monies with Discovery
and to withdraw them at her own will without the consent of
shareholders. A further argument was made on respondents’
behalf that the first applicant has abandoned or waived any right or
entitlement to the benefit accruing to Emzed Trust –
Stephen.
In pursuing this point, the respondents relied on notes of certain
conversations that took place between Bester and
the first
applicant, recoded on pages 126 to 132 of the paginated papers.
The
applicants dispute that they have no
locus
standi
to intervene. They also dispute that
the first applicant has abandoned or waived his right to claim any
benefit accruing to Emzed
Trust – Stephen. The applicants
submit that the first and second respondents are not trading
companies. They are dormant
companies which own an asset (“the
investment”), which is to the benefit of the shareholders. The
applicants submitted
that they have a legal interest in the outcome
of the main application. The applicants have launched a liquidation
application
which is pending before the North Gauteng High Court and
that pending the finalisation of that application, the respondents
should
be interdicted from receiving monies invested with Discovery.
It was argued that if such monies are released to the respondents,
they will dissipate them. The third respondent has abdicated her
duties as director to Sharon, would give the money to Sharon.
That
the applicants have a well founded apprehension that Sharon (with
the knowledge of the third respondent) will dissipate
those assets
(“the investments”). The applicants’ concern is to
ensure that Sharon does not acquire control
of the funds of the
first and second respondents. If the applicants are not allowed to
intervene and interdict the release of
the funds, the third
respondent and Sharon will dissipate them prior to the finalisatiion
of the liquidation applications and
to the prejudice of the Emzed
trust-Stephen.
Both
counsel referred me to the decision of this Court in
Shapiro
vs South African Recoding Rights Association Ltd (Galeta
Intervening)
2008 (4) SA 145
(W)
. In
this judgment, Gautschi AJ, gave a detailed exposition of Rule 12 of
the Uniform Rules of Court. Mr Da Silva, relied on an
extract in
paragraph 12 of the judgment on page 150 which reads as follows:
“
The Learned authors have clearly in mind a
direct and substantial interest in the sense of an interest in right
which is the subject
matter of the litigation and not merely a
financial interest which is only an indirect interest in such
litigation. Such an interest
is referred to as a legal interest in
the subject matter of the action which could be prejudicially
affected by the judgment of
the Court.”
Mr
Da Silva submitted that the applicants have failed to demonstrate a
legal interest but only showed a financial interest. The
applicants
did not dispute that they have a financial interest in the subject
matter of the main application. They however denied
that they only
have a financial interest. It was submitted on their behalf that the
applicants have also demonstrated a legal
interest. Rule 12 provides
that:
“
12. Any person entitled to join as a plaintiff
or liable to be joined as a defendant in any action may, on notice to
all parties,
at any stage of the proceedings apply for leave to
intervene as a plaintiff or a defendant. The Court may upon such
application
make such order, including any order as to costs, and
give such directions as further procedure in the action as to it may
seem
meet.”
The
authors of superior Court practice, Erasmus, make a distinction
between intervention as of right, and intervention as a matter
of
desire. Such will also be determined by whether the intervention is
sought to be joined as a plaintiff/applicant or as a
defendant/respondent. The materiality of the joinder will also
depend on the subject matter of the action or application and
whether the outcome of the judgment would prejudicially affect the
party that seeks to intervene. Rule 12 provides the Court with
the
wider discretion which it must exercise judicially whether
intervention should be granted. Unlike Rule 10, Rule 12 is not
dependent on whether the action brought, and for which the party
seeks to be joined, depends upon the determination of substantially
the same question of law or fact which, if separate actions were
instituted, would arise on such action. Counsel were in agreement
that the approach by Gautschi AJ in Shapiro, is the correct approach
in that a direct and substantial interest in the subject
matter of
the litigation, which could be prejudiced by the judgment of the
Court is a factor that must be demonstrated. The applicant
to the
intervention must also show that the application is made seriously
and is not frivolous, and that the allegations made
by the applicant
constitute a prima facie case or defence. However, it is not
necessary for the applicant to satisfy the Court
that he will
succeed in his case or defence. In
Shapiro v
South African Recording Rights Association Ltd supra,
Gautschi
AJ declined to follow the following judgments:
Minister
of Local Government and Land Tenure & another vs Sizwe
Development and others: In Re: Sizwe Development vs Flagstaff
Municipality
1991 (1) SA 677
(Tk); Ex Parte Sudurhavid (Pty) Ltd: In
Re: Namibia Marine Resources (Pty) Ltd vs Ferina (Pty) Ltd
1993 (2)
SA 737
(Nm); Ex Parte Pearson and Hutton NNO
1967 (1) SA 103
(E);
United Watch and Diamond Co. (Pty) Ltd and others vs Disa Hotels Ltd
and another
1972 (4) SA 409
(C); Ex Parte Moosa: In Re: Hassim vs
Harrop-Allin
1974 (4) SA 412
(T); and Registrar of Banks vs Rigal
Treasury Private Bank Ltd (under curatorship) and another (Rigal
Treasury Bank Holdings
(Ltd) intervening)
2004 (3) SA 560
(W).
Mr
Da Silva also referred me to another decision of this Court in
Letseng Diamonds Ltd vs JCI Ltd and
others; Trinity Asset Management (Pty) Ltd and others vs Investec
Bank Ltd and others 2007(5)
SA 564 (W)
.
In Letseng, a similar point was raised in which the
locus
standi
of the applicant to the intervention
was challenged. In that matter, the proceedings were concerned with
the right of a shareholder
to institute proceedings for a
declaratory order in which he sought to declare the loan agreement
concluded between the company
(JCI) and Investec Bank (“the
third party”) invalid. It was asserted there that the
shareholders were not party to
the agreement and did not have
locus
standi
. Bleiden J, upheld the
point
in limine
and found that the shareholders
did not have
locus standi
.
In upholding the
point in limine
,
Bleiden J had found that the shareholders merely have a financial
interest and not a legal interest. Mr Mundell brought to
the
attention of Mr Da Silva during argument that Bleiden J in Letseng,
had been overturned on appeal to the Supreme Court of
Appeal (“SCA”)
in the matter of
Trinity Asset Management
(Pty) Ltd vs Investec Bank and others Case No: 574/07
(2008) ZASCA
158
(27 November 2008)
. In the majority
judgment in which Jafta (“as he then was”) dissented,
the majority found that the shareholder does
have
locus
standi
to bring an application to ask for a
declarator to set aside an agreement in which he was not a party.
Despite the rule in
Foss vs Harbottle
[1843] EngR 478
;
(1843)
2 Hare 461
, the SCA found that a shareholder
who has demonstrated a direct and substantial interest in the
subject matter may institute
proceedings to set aside an invalid
agreement concluded by the company.
Mr
Da Silva submitted that in dealing with disputes of fact, I need to
apply Plascon Evans test (See Plascon Evans Paints Ltd
v Van
Riebeeck Paints (Pty) Ltd
[1984] ZASCA 51
;
1984 (3) SA 623
(A)) and deal with
disputes of facts on the respondents’ version. Applying this
test, I need to accept the respondents’
version that the first
applicant abandoned/waived any right to benefit from the trust or
the two companies (first and second
respondents) and that I must
reject the applicants allegation that the third respondent has
abdicate her duties and responsibilities
as director of Sharon. Mr
Mundell disputed this approach and submitted that in the application
for leave to intervene, the matter
is approached on the basis that
the assertions made by the applicants to intervention, whose
locus
standi
is being challenged, have to be
accepted as correct. Thus, I need to approach the matter on the
applicants’ version. In
my view in considering application for
leave to intervene, I need not decide at this stage disputes of
facts, because the same
disputed facts may be dealt with by the
Court hearing the main application. This does not mean that an
applicant who seeks to
intervene, and whose
locus
standi
is challenged, need not satisfy the
Court that it has the necessary
locus standi
.
The test is however on a lower scale. I only need to be satisfied
that prima facie the applicant has demonstrated a direct and
substantial interest (“the legal interest”) in the
subject matter of the litigation. Mr Mundell referred me to the
SCA
judgment of Trinity Asset Management supra. In paragraph 37 of the
judgment, Farlam JA, writing for the majority, stated
that:
“
In the circumstances of this case, it would be
recalled, the assertions made by the appellants, whose locus standi
is being challenged,
have to accepted as correct. Thus we must
assume, for the purposes of considering whether the appellants have
locus standi, that
their assertion that the loan agreement is invalid
is correct. If that is so they must be able to apply to interdict the
holding
of the meeting before which materially incorrect information
regarding the legal status of the agreement has been put by the
directors.”
Applying
the same principle to the facts of this matter, I need to approach
the matter on the basis that the assertions made by
the applicants
that the first and second respondents are dormant entities which are
not trading; which only have an asset; which
is to the benefit of
the shareholders (“Emzed Trust – Stephen and Emzed Trust
– Sharon”), which ought
to be shared by them equally,
must be regarded as correct. Furthermore, the assertion by the
applicants that the first applicant
has not abandoned or waived his
right or entitlement to the benefits accruing to Emzed Trust –
Stephen or the shareholding
of Emzed Trust – Stephen in the
first and second respondents must be accepted as correct. Similarly,
the allegation that
the third respondent has abdicated her
responsibilities as the director to Sharon and that in fact Sharon
runs the activities
of the first and second respondents and the well
founded apprehension that should the funds be released, Sharon with
the knowledge
of the third respondent will dissipate them, thereby
causing the applicants prejudice are correct.
At
this stage the acceptance of applicants version does not mean that
the respondents’ version is rejected or disbelieved.
The
respondents will still be entitled to challenge the applicants’
allegations in this regard when the main application
is heard. Once
I accept the applicants’ version, and deal with the
application on that basis, the corollary is that the
applicants, as
trustees of the Emzed Trust – Stephen, which is in turn a 50%
shareholder in the first and second respondents
have established
their
locus standi
to
intervene in the main application. A shareholder is in certain
limited and/or exceptional circumstances entitled to intervene
or
institute legal proceedings on behalf or against the company if
he/she can demonstrate harm, actual or potential, direct and
substantial interest in the subject matter of the litigation. I am
satisfied that the applicants have demonstrated a direct and
substantial interest both legal and financial, to the subject matter
of the litigation in the main application, and that they
stand to
suffer prejudice if the intervention is not allowed. I am also
satisfied that the application is not frivolous in
the circumstance.
For
these reasons, I find that prima facie the applicants have made out
a case for the relief that they seek in the notice of
motion. The
costs of the hearing of 25 February 2011 were reserved. I do intend
to deal with those costs. They shall remain so
reserved for
determination by the Court hearing the main application. Similarly,
I do not intend to grant any cost order against
any of the parties
in the intervention application. I also intend to reserve the costs
of the intervention application for determination
by the Court
seized with the main application. This is for obvious reasons that
the applicants on the one hand and the respondents
on the other are
each seeking a punitive costs order against one another. This is
premised on the historical facts of the accusation
and counter
accusation relating to earlier correspondence that were exchanged
between the parties before the main application
was brought and it
will be the Court seized with the main application which will be in
a better position to make a final order
as to costs after the matter
is ventilated in full before it.
In
the circumstances, I make the following order:
the
first and second applicants are granted leave to intervene in the
main application and be joined as second and third respondents
respectively;
the
first, second and third respondents shall as they appear in the
main application, be the first, second and third applicants;
Discovery
Life Investment Services (Pty) Ltd shall be the first respondent;
the
costs of this application are reserved for determination by the
Court that will be seized with the main application.
W R MOKHARI A J
Acting Judge of the South Gauteng High Court
Appearances:
For the applicants: A.R.G Mundell SC, instructed by
Marie-Lou Bester Inc Attorneys
For respondents: C.A Da Silva SC with C C Ascar,
instructed by Paul Leisher & Associates Attorneys