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
>>
2016
>>
[2016] ZAGPJHC 162
|
|
Geldenhuys and Others v Orthotouch Limited and Others; In re: Highveld Syndication Investors v Orthotouch Limited (42334/2014) [2016] ZAGPJHC 162 (25 May 2016)
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
LOCAL DIVISION, JOHANNESBURG
CASE
NO: 42334/2014
DATE:
25 MAY 2016
In
the matter between:
JURIE
JOHANNES
GELDENHUYS
............................................................................
First
Applicant
ARTHUR
BRADY
COCHRANE
...............................................................................
Second
Applicant
SHARON
ANN
VLOK
...................................................................................................
Third
Applicant
And
ORTHOTOUCH
LIMITED
........................................................................................
First
Respondent
DEREK
PERDOE COHEN
N.O
.............................................................................
Second
Respondent
HANS
KLOPPER
N.O
...............................................................................................
Third
Respondent
HIGHVELD
SYNDICATION NO 15
LTD
............................................................
Fourth
Respondent
HIGHVELD
SYNDICATION NO 16
LTD
................................................................
Fifth
Respondent
HIGHVELD
SYNDICATION NO 17
LTD
................................................................
Sixth
Respondent
HIGHVELD
SYNDICATION NO 18
LTD
...........................................................
Seventh
Respondent
HIGHVELD
SYNDICATION NO 19
LTD
.............................................................
Eighth
Respondent
HIGHVELD
SYNDICATION NO 20
LTD
...............................................................
Ninth
Respondent
HIGHVELD
SYNDICATION NO 21
LTD
...............................................................
Tenth
Respondent
HIGHVELD
SYNDICATION NO 22
LTD
.........................................................
Eleventh
Respondent
NICOLAS
GEORGIOU
..........................................................................................
Twelfth
Respondent
ZEPHAN
PROPERTIES (PTY)
LTD
..............................................................
Thirteenth
Respondent
NICOLAS
GEORGIOU
N.O
............................................................................
Fourteenth
Respondent
MAUREEN
LYNETTE GEORGIOU
N.O
.........................................................
Fifteenth
Respondent
JOSEPH
CHEMALY
N.O
....................................................................................
Sixteenth
Respondent
GEORGE
NICOLAS
GEORGIOU
................................................................
Seventeenth
Respondent
MICHAEL
NICOLAS
GEORGIOU
................................................................
Eighteenth
Respondent
HENDRIK
JACOBUS
MYBURGH
.................................................................
Nineteenth
Respondent
BOSMAN
& VISSER (PTY)
LTD
......................................................................
Twentieth
Respondent
PICKVEST
(PTY)
LTD
...................................................................................
Twenty-first
Respondent
HEINRICH
PIETER
MOLLER
................................................................
Twenty-second
Respondent
WILLEM
MORKEL
STEYN
.......................................................................
Twenty-third
Respondent
BAREND
STEFANUS VAN DER
LINDE
.................................................
Twenty-fourth
Respondent
FREDERICK
JULIUS
REICHEL
.................................................................
Twenty-fifth
Respondent
EUGENE
KRUGER
INC
..............................................................................
Twenty-sixth
Respondent
THE
COMPANIES AND INTELLECTUAL PROPERTY
COMMISSION
OF SOUTH AFRICA
(CIPC)
........................................
Twenty-seventh
Respondent
And
THE
HIGHVELD SYNDICATION INVESTORS
(“the
Main Application”)
In
re:
The
ex parte application of:
ORTHOTOUCH
LIMITED
(Registration
number: 2010/004096/06)
Application
for the sanctioning of a Scheme of Arrangement in terms of section
155(7) of the Companies Act, no 71 of 2008
(“the
ex parte application”)
JUDGMENT
SPILG,
J:
25
May 2016
INTRODUCTION
Each
applicant had invested in one of a number of public companies that
were formed as property syndications. Each company was
established
to acquire certain specified properties. The properties typically
comprised smaller shopping centres around the country.
The
eight companies are the fourth to eleventh respondents, being
Highveld Syndication no 15 Ltd going consecutively up to Highveld
Syndication no 22 Ltd. It is evident that they are associated
companies, with at least a common controlling mind. They will be
referred to collectively as the Highveld Syndications.
In
terms of the prospectus of each company the capital raised was to be
utilised to fully pay for and procure unencumbered title
to the
specified properties, many of which, it was stated, had already been
acquired. The prospectuses were not provided to the
court as they
were not considered necessary for present purposes.
It
however appears that the net rental income from the shopping centres
acquired would be distributed on a monthly basis to investors
presumably in the form of dividend income. It is alleged that the
investment proved attractive particularly for pensioners. This
is
understandable as the scheme promised a regular monthly income return
while the value of the capital base, comprising the properties,
was
likely to appreciate over time or at least remain intact.
The
applicants alleged that the prospectuses intimated that each
contract for the purchase of the properties in question was
available for inspection. The applicants however claim that the
seller was not in fact the owner of many of these properties.
It was
subsequently ascertained that the purported seller of the
properties, which it is alleged was not named in the prospectus,
turned out to be Zephan Properties (Pty) Ltd (‘
Zephan’)
.
It is the thirteenth respondent.
Each
prospectus mentioned that Zephan had concluding a ‘
head
lease’
in terms of which it
would leaseback the properties from the particular Highveld
Syndication and in turn sub-lease to the existing
tenants.
Accordingly each Highveld Syndication would not itself conclude a
lease with the individual tenants but would look to
Zephan for a set
rental for the entire centre and presumably Zephan would in turn
charge its own rental to the sub-tenants.
It
is also alleged that the prospectuses contained an undertaking in
terms of which Mr N Georgiou, Zephan and the N Georgiou Trust
would
buy back the shares after five years for the same price at which
they were originally bought, thereby also warranting or
representing
to investors that their investment was safe. Some R3.6 billion was
invested by members of the public into the eight
Highveld
Syndication companies.
Each
Highveld Syndication was placed under business rescue in about
December 2011. Hans Klopper, who is the third respondent,
was
appointed the business rescue practitioner of each company. In terms
of the business rescue plan(“
the
plan
”) which was adopted at a
duly convened meeting under section 151 of the Companies Act 71 of
2008 (“
the Act”)
Orthotouch was to purchase each Highveld Syndication and in the
interim pay interest. The investor creditors then proceeded to
receive a pro-rated portion of the rental income under the
distribution plan.
All
the Highveld Syndications were lumped together for business rescue
purposes in respect of the distribution of rental income
although
transfer of the properties had only taken place in the case of
Highveld Syndication no’s 15 to 18.
In
terms of the business rescue plan the properties of Highveld
Syndication no’s 15 to 18 were to be transferred to Orthotouch
However
Orthotouch subsequently failed to comply with the terms of the plan
and on 7 October 2014 a scheme of arrangement was
proposed between
Orthotouch and its creditors under section 155 of the Act.
It
is evident that from at least the time the arrangement was proposed
that investors were considering instituting a class action.
The
application to initiate a class action was served on 18
November and a notice of opposition was delivered on
24 November.
The class action is intended to be brought on behalf of the
investors against a number of directors and other individuals
in
relation to the affairs of the companies.
The
intended class action seeks relief on a number of grounds;
enforcement
of the buy-back agreements since the 5 year period ended in August
2014;
fraudulent
or negligent misrepresentations contained in the
prospectuses;
fraudulent,
reckless or negligent conduct in the handling of investor funds by
directors or others;
personal
liability for the fraudulent or reckless conducting of the
investment schemes in the companies;
transgression
of statutory provisions prohibiting the release of funds received
from investors in property syndication schemes
without
simultaneously giving transfer of the property to the relevant
investment vehicle, which also has a criminal sanction.
This
court was not provided with the application in that case. However it
appears that Zephan is controlled by Nicolas Georgiou,
the twelfth
respondent. He is also the managing director of Orthotouch which is
the first respondent.
The
applicants contend that 6 300 individual investors,
representing 9 700 claims, have already confirmed their
participation
in the class action. Orthotouch and Klopper
contend that there are between 17 000 to 18 000 investors
in the
companies but the figure of affected claimants could be up to
23 000. It is unclear whether this represents the total number
of individuals or the total number of claims (which would be higher
because an individual may have invested in more than one
of the
companies).
However,
prior to service of the application to institute a class action, a
meeting of the investors (being presumably being the
only affected
class of relevant creditor or member for purposes of section 155(2))
was held on 12 November to consider the proposal.
The report of Mr
Derek Cohen who presided at the meeting was prepared and on 26
November my brother Moshidi J sanctioned the
arrangement. In law the
scheme of arrangement therefore became binding on all creditors of
the Highveld Syndications.
In
December the investors commenced receiving the first of nine
payments due under the arrangement.
On
3 March 2015 the present applicants launched an application to
rescind the judgment sanctioning the arrangement alternatively
an
application for leave to appeal. I will refer to this as the main
application unless the context indicates otherwise.
They
did not give notice of the main application as required by rule 42(2)
on all parties whose interests may be affected; namely
all the
investors who in terms of
section 155(8)
of the
Companies Act are
bound by the scheme.
On
21 April 2015Orthotouch brought a notice under
rule 30A
setting out
the grounds for declaring the application an irregular proceeding.
This was followed up on 8 May with a substantive
application to set
aside the main application.
On
15 May the applicants delivered a notice of intention to oppose the
rule 30A
application. This was shortly prior to the set down date
for the hearing of the main application.
The
main application was set down for 19 May but could not proceed
because the judge allocated to hear the matter was on long
leave.
The
applicants subsequently delivered an opposing affidavit to the
rule
30A
application on 4 June and a short time later, on 15 June, also
brought an application for substituted service.
After
these events Orthotouch served a replying affidavit to its
rule 30A
application and subsequently an answering affidavit to the
application for substituted service.
On
6 August my brother Francis J dismissed an urgent application
brought by the applicants to stay the scheme of arrangement process
and to put a hold on the finalisation of the liquidation and
distribution account (“
L&D
account”
) in terms of the
arrangement. The application was held not to be urgent. The
court did not deal with the merits but found
that the application
could have been brought much sooner and that the applicants had
sought to use the notification regarding
the L&D account as the
peg on which to justify urgency.
Shortly
afterwards the applicants delivered a replying affidavit to their
application for substituted service. Application was
again made for
the matter to be heard as a special motion and came before me on 15
March 2016.
Orthotouch’s
rule 30A application is supported by the 3
rd
to 16
th
respondents. They are Hans Klopper in his representative capacity,
the eight Highveld Syndication companies, Nicolas Georgiou (Georgiou)
personally, Zephan, and the trustees of the N Georgiou Trust, being
Georgiou, Maureen Georgiou and Joseph Chemaly in their representative
capacities
THE
APPLICATIONS BEFORE COURT
There
are two applications before me;
Orthotouch’s
application of 21 April under
rule 30A
to set aside or dismiss the
application to rescind the order sanctioning the scheme of
arrangement
The
applicants’ application of 15 June for substituted service.
Although
the applicants have sought substituted service they have not
conceded that their main application to rescind the order
sanctioning the scheme fails to comply with the rules of court.
ORTHOTOUCH’S
APPLICATION UNDER
RULE 30A
Orthotouch,
supported by the 3
rd
to 16
th
respondents contend that the rescission application is defective
because the applicants failed to join and serve on all the affected
persons, who would include the investors in each of the Highveld
Syndications, or first to have applied for substituted service.
They
argue that the failures to first have complied with
rule 42(2)
for
service on all persons affected by a rescission application or
rule
4(2)
read with 5(2) in regard to substituted service is fatal.
The
applicants have identified 17 298 investors but, as stated earlier,
the number according to the Klopper and Orthotouch could
be up to
23 000. It however appears that the applicants to date have the
de facto
support
of 6300 investors.
It
hardly bears repeating that every investor is affected by the
rescission application since they have received monthly income
under
the sanctioned arrangement.
In
my view the starting point is whether the applicants could have
obtained details of all the investors in order to comply with
the
provisions of
rule 42(2)
, let alone
rule 4
at the time the main
application was launched.
In
the applicants’ affidavit opposing the
rule 30A
application it
is evident that despite written request the attorney representing
Cohen who is Natalie Lubbe and Associates Inc
failed to provide the
list of investors and details of those who voted for and against the
arrangement. The same attorneys represent
Orthotouch in the present
proceedings. It is evident from the papers as a whole that the
applicants will not get ice in winter
from any of the respondents who
have opposed the application for substituted service unless ordered
to do so by the court.
Secondly,
the application for rescission has not yet been heard. Accordingly
there can be no prejudice to provide a means whereby
the applicant’s
right to a hearing in order to convince a court that the arrangement
should not have been sanctioned. Nor
as far as I am aware can the
rules of court deprive a person of such a right where any failure to
comply can be resolved prior
to the hearing date. None have been
suggested by either
Mr Brett
or
Mr Rossouw
for
the respondents. Accordingly a failure to comply with
rule 42(2)
at
this stage cannot be fatal since it can always be cured.
There
is a further aspect. The rules regarding service and joinder are by
their nature flexible. Indeed substituted service can
be sought at
any stage, even after a matter has been brought before court and the
judge is dissatisfied with the purported service.
Cases involving
large numbers of occupiers of land or buildings come readily to
mind.
There
also appears to be no reason why defective service cannot be condoned
in the absence of a formal application provided the
court is
satisfied that the circumstances precluded service under the ordinary
rules and where the process as served would have
been expected to
come to the attention of each affected person. The rules do not take
away the court’s power to condone a
failure of strict
compliance with service in appropriate circumstances. Furthermore the
court always has a discretion to condone
a departure from the rules
provided it is exercised judicially and there is no prejudice to an
affected party.
Mr
Brett also challenged the efficacy of bringing an application for
rescission at the same time as an application for leave to
appeal.
Provided the papers cover both contingencies there appears to be no
reason for a party to preclude itself by reason of
time limits from
pursuing both avenues where there is uncertainty. It also tactically
precludes the opponent from contending
that whatever course is
chosen that the other course was the correct one. In the present
case there is enough before me, if regard
is had to the unique but
readily comprehendible procedure of notifying those affected of a
meeting to consider a proposed arrangement
that will be subject to
court sanction without further notice, to indicate the difficulties
that the applicants would face if
forced to make a prior election.
Moreover
it is assumed that if the applicants are met with a challenge to the
main application properly being one for rescission
that they would
then deal with this aspect as a point of law, obtain finality and
then, if necessary, simply request a set
down for leave to
appeal before the judge who sanctioned the arrangement. In this way
no point could be taken that the application
for leave to appeal
itself was out of time.
It
is therefore clear that the application for rescission alternatively
for leave to appeal is not fatally defective.
Finally
on this point it is necessary to give a definitive decision on
whether in the circumstances of this case it is necessary
to join
every investor in the rescission application in order to comply with
rule 42.
Rule 42(2)
only requires notice to all affected parties.
The actual application brought before the court to sanction the
scheme identifies
who brought it and as long as the persons
identified in the citation are cited in the rescission application
there can be no
quarrel. That has taken place.
Notice
to every other affected party may therefore be given without being
formally joined. It would be a task of supererogation
to join over
17 000 investors let alone the 23 000 suggested by
Orthotouch and Klopper.
If
regard is had to the cost incurred by Cohen in just sending notices
to investors, in regard to the meeting called under section
155(2)
of the Act to consider the proposed arrangement, then it is
evidently beyond the present individual applicants to give
formal
notice by joining or serving through the sheriff, let alone by
registered post or email, on each investor together with
all
relevant documents. The cost would be in the region of R600 000.
It is not disputed that most of the investors are elderly
and that
every investor would have lost a significant percentage of their
investment. Moreover a number of investors would have
passed away
and therefore their rights would have been bequeathed or otherwise
have devolved on others.
It
is therefore evident that requiring joinder as a
sine
qua non
to
proceeding with a rescission application under rule 42 would result
in lengthy delay before the matter could ever be heard
and in
exorbitant costs which would negate the right of the applicants, and
the over 6 000 investors who expressly
support them, of access
to justice. Rules of court are there to facilitate justice;’
not result in undue delay or deprivation
of the very right sought to
be exercised. They must be read so as not to frustrate the ability
to bring a bona fide application
and they must be applied in harmony
with the right of access to justice, the right to be notified and
heard on a matter that
may prejudicially affect a person’s
rights or interests and the right to a fair trial under section 34
of the Constitution
[1]
.
While
not pertinently sought, but necessarily following on the arguments
presented, I therefore also positively find that joinder
of all the
investors in the rescission alternatively leave to appeal
application is unnecessary.
APPLICATION
FOR SUBSTTUTED SERVICE
I
have already found that there is before the court a competent
application for substituted service and that it is unnecessary
to
join each of the investors in the main application.
I
have also dealt with the factual difficulties of identifying every
investor both by reason of the apparent recalcitrance of
Klopper,
Cohen and Orthotouch, who are the only ones who are likely to have
accurate lists of the subscribers, and by reason
of such lists not
taking into account the identity of the executors or beneficiaries
in cases where the investor has passed away.
At
this juncture I should deal with Mr Brett’s contention that
there is somehow a right to privacy issue involved in the
lists of
investors. In the present case this is a red herring by reason of
the provisions of rule 42, the purpose for obtaining
their names and
the obvious entitlement that ordinarily arises under section 26(2)
of the Act. The first respondent has not suggested
any impediment
that might deprive the applicants of that right bearing in mind that
his own client, Klopper and Cohen would have
accessed the lists for
the same purpose as is now sought by the applicants.
The
prohibitive cost of bulk post or emailing the documents that would
have to be served also may frustrate the ability to proceed
with the
case. I have also considered utilising SENS. However it appears that
this method of notification adopted by the JSE
is limited to listed
companies.
It
is further evident from the number of investors who allegedly
attended the meeting to vote on the arrangement that the phenomenon
of voter apathy was prevalent.
In
my view the first step is to secure the list of all investors. Due
to the conduct of the relevant respondents it is necessary
that they
provide the lists to the applicants. This will include the list that
Cohen has of the names and contact details of
all those who attended
the section 155(2) meeting to vote on the arrangement. They
obviously cannot be accused of voter apathy.
However
among those are investors who have actively joined in the class
action. On adequate written proof that they support the
class action
and support the rescission application, which may be done by a round
robin list with their names, identity numbers
and signatures it
appears unnecessary that they be served with papers, unless they
specifically request so in writing.
That
leaves the balance of investors who still appear to represent the
majority of those affected. The requirement of giving
notice
must however not ultimately frustrate the ability to have the
application heard on its merits with adequate safeguards
that anyone
wishing to oppose it is likely to have acquired knowledge of the
application. In this regard I bear in mind that
investors may prefer
to go along with the arrangement.
In
my view a hybrid solution appears appropriate in order to secure the
likelihood of notice to the greatest number of persons
with due
regard to cost, avoiding delay in the disposal of the application
and the right to have the dispute resolved fairly.
ORDER
I
accordingly order that:
The
Rule 30A application is dismissed.
It
is declared that the joinder of all investors in the application
for rescission alternatively for leave to appeal (“
the
main application”)
is
unnecessary.
The
first and third respondents are to jointly provide to the
applicants’ attorneys of record by no later than 6 June
2016
a list agreed between such respondents, of all persons who were
entitled to vote in respect of the arrangement and
to whom notice
thereof was given;
The
second respondent is to provide to the applicants’ attorneys
of record by no later than 6 June 2016 a list of all
persons who
voted, whether in person or by proxy in favour of or against the
approval of the arrangement
Each
such list shall contain a list of all known contact details,
including email addresses and cellphone numbers, with leave
granted
to the applicants to approach this court on the same papers, duly
supplemented, if they contend that information available
to such
respondents of email addresses and cellphone numbers has not been
provided.
The
applicants shall no later than 11 July 2016;
i.
Give notice of the main application on
each persons who voted at the meeting in terms of
section
155(2)
of the
Companies Act convened
on 12 November 2014 to consider
the proposed scheme of arrangement provided that;
1.
it shall be unnecessary to give notice to
any person who has expressly waived in writing an entitlement
to receive such application;
it being sufficient for such purpose if
such person has signed a round robin list against their names, and
provided his or
her identity number (or in case of a company the
responsible person’s name and the entities name and
registration number),
or has otherwise in writing expressly
associated with the class action and the application;
2.
such notice shall be by way of email or
sms, or failing which by registered post, stating that;
a.
the founding papers in the main application
are accessible and available for reading and download on the website
‘hsaction.co.za”;
b.
stating the date of hearing of the main
application and the time period for filing a notice of opposition
which shall be 10 days
from date of confirmed transmission, and the
time period for filing opposing papers being 20 days from
date of such
confirmed transmission;
c.
and in the case of emails reproducing the
same contents as the notice which is to appear in the
newspapers as set in the following
paragraph while the sms shall
contain a link to the aforesaid website;
ii.
Give notice to all the investors referred
to in the founding papers in the main application by;
1.
publication of a notice in the Sunday
Times, The City Press and Rapport newspapers at least three weeks
before the hearing;
2.
by making available for reading and
download, and keeping so available, the founding papers in the main
application on the website
“hsaction.co.za”;
a.
the contents of such notice in the
aforesaid newspapers shall be similar to the notices which appeared
in the Sunday Times and Rapport
on 15 March 2015, except for the new
date of hearing and that the time period for filing a notice of
opposition which shall be
10 days from date of publication, and the
time period for filing opposing papers being 20 days from
date of such publication;
The
first and third to sixteenth respondents inclusive shall pay the
costs of R30A application, including the costs of two counsel,
jointly and severally the one paying the other to be absolved;
The
costs in the application for substituted service shall be costs in
the main application unless the court hearing that application
directs those costs to be costs in any other application or action,
in which case such costs will be costs in that other proceeding.
SPILG,
J
DATES
OF HEARING: 15 March 2016
DATE
OF JUDGMENT: 25 May 2016
LEGAL
REPRESENTATIVES:
FOR
APPLICANTS: Adv S Burger SC
Adv
C Maree
Adv
T Du Preez
Theron
& Partners c/o BDK Attorneys
FOR
FIRST RESPONDENT: Adv Brett SC
Adv
J Smit
Nathalie
Lubbe & Associates Inc
FOR
3
rd
to
16
th
RESPONDENTS: Adv PF Rossouw SC
Adv
M Mostert
Faber
Goerts Ellis & Austin Inc
Kyriacou
Inc
[1]
Section
34
Access
to courts
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court
or, where appropriate, another independent and impartial tribunal or
forum.