About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: South Gauteng High Court, Johannesburg
SAFLII
>>
Databases
>>
South Africa: South Gauteng High Court, Johannesburg
>>
2012
>>
[2012] ZAGPJHC 267
|
|
Kensani Consortium (Pty) Ltd v Kensani Corrections (Pty) Ltd and Another (45666/2011) [2012] ZAGPJHC 267 (28 November 2012)
IN THE SOUTH GAUTENG HIGH COURT OF
SOUTH AFRICA
JOHANNESBURG
CASE NO: 45666/2011
DATE: 2012-11-28
In the matter between
KENSANI CONSORTIUM (PTY)
LTD
.....................................
Applicant
and
KENSANI CORRECTIONS (PTY)
LTD
..................................
First
Respondent
FIRST RAND BANK LTD
t/a RAND MERCHANT
BANK
...............................................
Second
Respondent
J U D G M E N T
WILLIS; J:
[1] The applicant has approached the
court by way of motion proceedings for an order in the following
terms:
1. Declaring that the applicant is
entitled to immediately withdraw the full proceeds standing to the
credit of the banking account
open and operated with the second
respondent under account number – 1923 DC00H00034 and
bearing the description Kensani
Security Deposit.
2. Directing the second respondent to
make payment to the applicant of the amount referred to in paragraph
1 above within a period
of seven days of granting of this order.
3. Directing that the costs of this
application be paid by any party opposing the application and, if
both the first and second
respondents oppose the application, that
the costs be paid by them jointly and severally, the one paying the
other to be absolved.
4. Further and/or alternative relief.
[2] In order to understand this matter
some background is first necessary. The Department of Correctional
Services wished to build
a maximum security prison in Louis Trichardt
(now known as Makhado). Such is the ingenuity the skill, the
brilliance of our prisoners
who have to be confined in maximum
security prisons that this maximum security prison required
technology, design and methods of
construction that were not possible
to be found in South Africa.
[3] If one wishes to build maximum
security prisons, the best place to look for prototypes is the United
States of America. It is
there that the Department of Correctional
Services went in order to obtain the skills and resources necessary
for the building
of the maximum security prison in question. The
issue has complicated by the fact that in order for the Department of
Correctional
Services to award a tender that tender had to be BEE
(Black Economic Empowerment) compliant.
[4] To further compound the problem,
among the dramatis personae were the usual suspects, viz., male
albinos of a pinkish hue who
were born in South Africa. These usual
suspects were willing to put in money by way of investment and also
to provide skill in
terms of raising the necessary finance.
[5] In order to deal with these
difficulties, a massive set of different agreements was drawn up
involving a number of different
parties including Wackenhut
Corrections Corporation based in the United States which later
changed its name to the GEO Group Incorporated,
The South African
Custodial Services (Louis Trichardt) (Pty) Ltd, the first respondent,
the applicant and banks including First
Rand Bank Ltd, BOE Merchant
Bank and various other banks as well as an entity known as the
SACS Security Trust, the SACS is
the South African Custodial
Services.
[6] Not only was the South African
Custodial Services Louis Trichardt Pty Ltd a party, but also an
entity known as ‘the Trust,
for the time being, for the SACS
Security Trust”. In addition, not only were there complex
agreements drawn up by a battery
of highly skilled lawyers around the
world, but the following accounts were opened:
1. A disbursement account.
2. A revenue account.
3. A debt service reserve account.
4. A compensation account.
5. The insurance account.
6. The construction insurance
account.
7. The maintenance reserve account.
8. The rectification account.
9. The fixed component upside
account.
10. The operational reserve account.
11. The indemnity account.
[7] For all I know, there may have
been more accounts opened if it were not for the fact that the
English language starts to run
out of epithets with which to describe
the different banking accounts which were opened. The reason, in a
nutshell, why these
complex agreements were drawn up and why there
was these different accounts, is that major investors and parties in
America were
not prepared to embark on this BEE project if there was
any risk that the tender would set aside and that they would lose
their
money.
[8] In other words, the project was
entirely ring-fenced with bank guarantees in the event of there being
any difficulties. I think
it fair to record that approximately every
second week when I am in Motion Court one has a situation where so
called ‘BEE
deals’ come to grief. The reason for this is
that, in my respectful opinion, you have strange bed fellows forced
into unnatural
relationships with one another. Before any one rushes
off the hill to report me to the Judicial Service Commission for
being a
racist or a ‘homophobe’, let me emphasise that
some of my best friends are black and gay. The reason why I refer to
this ‘unnatural relationship’ has nothing whatsoever to
do with race or sexual orientation, but everything to do with
universal human nature. If one searches the internet under ‘suddenly
acquired wealth’ one will see that there are all
sorts of
psychologists who have ventured opinions as to the psychological
maladies that afflict people who suddenly come into vast
sums of
money. There are neuroses, such as paranoia and narcissism and all
many of insecurities. Relationships with friends become
problematic,
so do relationships with relatives. One of the chief manifestations
of the problem is one known as greed.
[9] There is nothing unique or unusual
in this phenomenon of greed. Indeed insights into the damaging
consequences of greed go
back at least as far as Biblical times. One
need only read the book of Proverbs where there are all sorts of
warnings about how
one should acquire wealth and how one should
relate to it. One need only need to refer to the gospel of Luke
where there are some
interesting discourses concerning wealth.
[10] On the one hand, one has a
problem with greed and on the other hand a problem with resentments
about paying the money. That
is precisely what happened in this
particular matter. There was a fall-out between BEE partners and the
matter was then referred
to trial. After a number of days of trial,
the parties reached a settlement before Monama AJ (as he then
was). The settlement
agreement reads as follows:
"The court grants an order;
1. Declaring the plaintiff to be
beneficially entitled to receive from the second defendant from the
proceeds standing to the credit
of the account opened and operated
with the second defendant (bearing the account 1923-DC 00H0034), the
sum of R4 371 305
deposited into such account with such
interest as accrued on such sum from date of deposit to date of
payment.
2. Directing that the second
defendant make repayment to the plaintiff of the amount referred in 1
above, upon such amounts becoming
repayable under and in terms of the
corporate guarantee agreement in common terms agreement, ANNEXURES
PC1 and PC2 respectively.
3. Directing that the first
respondent pay the costs of suit and in the event of the second
defendant defending this action directing
that the costs to be paid
by the first and second defendants jointly and severely the one
paying the other to be absolved, the
cost to include the cost of two
counsel."
[11] This agreement, and the court
order which was made, applied between Kensani Consortium Pty Ltd as
plaintiff (the same legal
person who is the applicant in this matter)
and Kensani Corrections Pty Ltd as the first defendant and First Rand
Bank Ltd as second
defendant – in other words, exactly the same
persons as are parties to this particular application before me.
[12] Although there was initially some
argument about the matter, it is quite clear, upon a plain reading of
clause 2, that the
order in clause 1 is dependent inter alia upon
certain amounts being due in terms of the ‘common terms
agreement’,
the so-called ‘CTA’. Mr Subel, who
appeared for the applicant, had an affinity for describing this as ‘a
time
clause’. To my mind, it is a suspensive condition but, in
the of the matter, it does not really matter. I accept that a
time
clause has the element of inevitability that a suspensive condition
does not have.
[13] One therefore needs to have
regard to what the so called CTA provided. The CTA agreement
provides as follows at Clause 4:
"4.1 As security for the
fulfilment of its obligations under this guarantee, the guarantor
shall simultaneously the executioner's
guarantee –
4.1.1 Deposit an amount equal to 50%
of the then prevailing deposit account into the bank account; and
4.1.2 Cede all its right, title and
interest in and to the bank account to the security trustee on the
terms and condition of the
cession.
4.2 For so long as this guarantee
remains in force and effect, the guarantor shall –
4.2.1 At such times as the security
trustee may request in writing, on first demand, deposit such further
amount into the bank
account as will, taking account of the increase
in the then required balance in the rectification account in
accordance with the
Consumer Price Index over the immediately
preceding year or such other period that may be applicable in the
circumstances; or
4.2.2 Be entitled, at any time, to
withdraw from the bank account such amount at will, taking into
account the then required balance
in the rectification account as
aforesaid, ensure that the guarantor will maintain the value of the
security deposit provided for
in Clause 4.1 at all times equal to 50%
of the difference between the then current balance in the
rectification account, and the
then required balance thereof as
contemplated in Clause 2.2 hereof."
[14] There was some argument as to
whether this clause did indeed envisage that it could be possible,
from time to time, that there
was more money in this particular bank
account at any particular time than was required in order to maintain
the guarantees. If
I understood Mr Hodes, who appeared for the first
respondent, correctly he did not persist with this point or if he
did, he did
so faintly, that this was not the correct interpretation.
[15] Quite plainly, clause 4.2
envisages that, provided there are surplus funds above that necessary
to maintain the guarantee,
these could be paid out. The other
interpretation would require that the funds remain there until the
year 2027. Given the fact
that one had expert lawyers on all sides
preparing the documentation, it is inconceivable that it could have
been the intention
of the parties that money due should be have to
wait until 2027 for pay out, that surplus money should loll about in
this account
unutilised until the year 2027. There was also an
argument that the CTA agreement provided for the Kensani Corrections
to be the
party rather than the Kensani Consortium but again, after
some argument, if I understood Mr Hodes correctly, he conceded that
clause
2 of the order granted by Monama AJ on 19 May 2010 necessarily
required (and that this was in fact the intention of the parties)
that it was to be read as if the surplus was to be paid to the
applicant.
[16] Accordingly, it is clear that, if
there are surplus funds in this relevant bank account, the applicant
is entitled to receive
those surplus funds.
[17] There was also an argument about
whether a so called ‘arbitration clause’ in an agreement
entered into that may
have affected the parties prior to 2010 and a
so called ‘exit agreement’ that was entered into prior to
2010 should
apply. There is no merit in these submissions precisely
because, at a later date, all that was superseded by an agreement
made
with the concurrence of the parties and made an order of court
in May 2010.
[18] The question then arises whether
there were indeed fund surplus in the account to the requirements
necessary to maintain the
particular guarantees. The following
allegations are made in the founding affidavit by the applicant.
"10.5 During or about December
2010 I, as a Director of the applicant, considered the quarterly
report of GEO (that is the
successor to the American Company
Wackenhut Corrections Corporation) and having done so discovered on
page 23 thereof that GEO
had been paid a dividend of $3 900 000 by
SACS during a 39 week period ending 3 October 2010. A copy of
page 23 of the GEO
quarterly report is attached hereto marked "FA5".
The full report will if required by the above honourable court be
made available at the hearing of this application.
10.6 As the applicant had never been
advised by either SACS or the second respondent that the amount of
ZAR7 500 000 index had
been paid into the rectification account on 22
February 2011. A letter, a copy of which is annexed hereto marked
"FA6"
was directed to SACS advising that the payment of any
dividend without the deposit required in terms of 6.13 of the CTA
having
been made was in breach of the CTA. The applicant demanded
the SACS to rectify its breach within five business days of "FA6",
failing which it would take steps to enforce its rights in terms of
the CTA.
10.7 On 30 March 2011 a letter was
received from SACS addressed to the applicant, a copy of which is
annexed hereto marked "FA7"
in which SACS advised inter
alia that there had been no breach of Clause 6.15.1 of the CTA.
Without saying so in so many words
SACS implied that the amount of
ZAR7 500 000 (index) had been deposited into the rectification
account.
10.8 It has subsequently been
established by the applicant and become common cause between the
parties to this application that
the amount of ZAR7 500 000 (index)
had been deposited into the rectification account and that there
currently exists no difference
between the current balance and the
required balance in the rectification account."
[19] In the answering affidavit, the
first respondent replies as follows:
"The fact that dividends were
paid during or about October 2010 does not mean that the dividends
were automatically be paid
or payable for each and every year going
forward during the life of the prison. If the rectification account
is depleted as a
result of a Schedule F, defaults event SACS will no
longer thereafter be entitled to pay dividends to shareholders."
[20] Mr Hodes, who was not shy to
remind me that he had been in practice as an advocate for 48 years,
sought to educate me as to
the law relating to the admissibility of
hearsay evidence. The experience was refreshing. If I understand Mr
Hodes' argument
correctly, it is that inadmissible evidence carries
with it a permanent stain. It is indelible. It cannot be removed. It
is rather
like the ink from an octopus: once it penetrates a garment
it remains there forever. The imagery is mine and not Mr Hodes'. I
accept full responsibility for it. While I look forward to the
golden jubilee celebrations which will no doubt be around the corner
when Mr Hodes celebrates his 50 years of successful practice as
an advocate, I regret to record that I remained unilluminated
by his
particular interpretation of the law relating to the admissibility of
hearsay evidence.
[21] Mr Hodes referred me, with a
flourish, to the case of the President of the Republic of South
Africa and Another v South African
Rugby Football Union and Others
2000 (1) SA 1
(CC). He submitted (and here I am in full agreement
with him) that every lawyer in South Africa knows about this case.
It is
indeed a very well known case, perhaps because two great South
African passions, rugby and politics collided with one another,
ultimately in the Constitutional Court. Mr Hodes referred me
especially to the passage in paragraph [105] which is never to be
forgotten not only, by lawyers, but also is never to be forgotten by
judges throughout South Africa. The Constitutional Court issued
a
stern rebuke to the High Court for having regard to evidence of a
hearsay nature as to what President Nelson Mandela had said
and done
and which President Mandela had not admitted. The facts in this
particular case are clearly distinguishable. As I
recorded in the
answering affidavit, the first respondent admits having received the
alleged dividend in question.
[22] Mr Hodes also relied very heavily
on the case Gore v Amalgamated Mining Holdings
1985 (1) SA 294
(C)
where Vos J dealt with inadmissible evidence. Vos J says the
following at 296:
"The reply to these averments was
that the respondent had no knowledge, but moved to strike them out as
hearsay or not being
the best evidence."
He then continues:
"There was no admission of their
correctness by the respondent, hence there was no question of
accepting their correctness."
Again, the facts of that case were
distinguishable from the present case. In the present case the
payment of the dividend is expressly
admitted.
[23] Ever since the case of R v
Perkins
1920 AD 307
, it has been trite that in civil proceedings a
party cannot object to answers which it has elicited under
cross-examination. In
such instances, the contested evidence becomes
admissible. That is precisely what has happened in this particular
case. In any
event there is also the law of Evidence Amendment Act,
No. 45 of 1988 which gives the court the power in certain
circumstances
to admit hearsay evidence.
[24] If one has regard to the fact
that there is a baldness of protestation about there being funds
available, that the facts as
to whether there are funds available or
not is peculiarly within the knowledge of the first defendant, the
fact that the second
respondent has agreed to abide the decision of
the court and has not protested that if the funds are, as sought by
the applicant
to be withdrawn, were to happen, it will be left
exposed as a guarantor, one is tempted, on the basis of the law of
Evidence Amendment
Act 45 of 1988, to conclude that even if this
evidence is hearsay it is nevertheless admissible. It is not
necessary to go that
far, tempting that may be. I have also taken a
precaution, which I have discussed with counsel, of insisting that
the court order
should expressly provide that there are to be no
funds paid over to the applicant in the event that the necessary
minimum in terms
of the CTA agreement is not maintained.
[25] In all the circumstances, the
applicant is entitled to succeed in terms of a draft which was
prepared which fully reflects
my intentions in this matter. I shall
make an order in terms of a draft marked ‘X’. For the
sake of completeness I
shall read this out into the record so that
there is no risk in the event that (as so often happens in this
court) the order goes
missing, there will be any doubt as to what
the court ordered. I also make it clear that once I have delivered
(pronounced upon)
the order, counsel are free to photocopy with my
clerk copies of this order so that there is no room for any doubt as
to what the
intention of the court is.
[26] This is the draft order marked
‘X’:
1. Subject to 2 below:
1.1 It is declared that the
applicant is entitled to withdraw against the proceeds standing to
the credit of the banking account
open and operated with the second
respondent under account number – 1923 DC00H00034 and
bearing the description –
Kensani –security deposit ("the
bank account").
1.2 The second respondent is directed
to make payment to the applicant of the amount withdrawn as provided
in 1.1 above within
a period of seven days from the date of grant of
this order or a written instruction from the applicant to the second
respondent,
whichever is the later.
2. The applicant's entitlement to
withdraw from the bank account as provided for in 1.1 above and the
second respondent's obligation
to make payment in terms of 1.2 above
is subject to there being an entitlement for the guarantor to
withdraw from the bank account
such amount as will, taking into
account the then required balance in the rectification account ("the
rectification account")
(i.e. as defined in Clause 1.2.14 of the
corporate guarantee ANNEXURE "FA3" to the applicant's
founding affidavit ("the
corporate guarantee") ensure that
the first respondent (as guarantor under the corporate guarantee)
will maintain the value
of the security deposit provided for in
Clause 4.1 of the corporate guarantee, at all times equal to 50% of
the difference between
the then current balance in the rectification
account, and the required balance thereof as contemplated in Clause
2.2 of the corporate
guarantee.
3. The respondent is directed to pay
the cost of this application. Such cost to include the cost
occasioned by the employment
of senior counsel.
That is the order in terms of the
draft marked ‘X’.
Counsel for the applicant: Adv A.
Subel SC.
Counsel for the first respondent: Adv
P. B. Hodes SC (with him, Adv A Moultrie).
No appearance for the second
respondent.
Attorneys for the applicant: Fluxmans
Incorporated.
Attorneys for the first respondent
Coetzee van Rensburg Inc.
No appearance (no attorneys) for the
second respondent.
Date of hearing: 26 November 2012.
Date of judgment: 28 November 2012.