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[2010] ZAGPJHC 158
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Xynos and Another v Psaltis and Another (08/14261) [2010] ZAGPJHC 158 (15 September 2010)
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REPORTABLE
SOUTH GAUTENG HIGH COURT, JOHANNESBURG
CASE NO
:
08/14261
DATE:
15/09/2010
REPORTABLE
In the matter between:
XYNOS,
ATHANASIOS
.............................................................
First
Plaintiff
XYNOS,
ANTONIOS
.................................................................
Second
Plaintiff
and
PSALTIS,
ARISTIDIS
................................................................
First
Defendant
FROMAN,
MARK
.......................................................................
Second
Defendant
J U D G M E N T
MOSHIDI, J
:
INTRODUCTION
[1] The quest
for wealth based on implicit trust can sometimes have unfortunate
endings. The plaintiffs have instituted action
against the
defendants for the payment of the sum of R5 million, interest thereon
and costs. The plaintiffs allege that the latter
amount is based on
the lawful cancellation of an agreement in terms of which the
plaintiffs purchased a shareholding from the defendants
in a company
called Deslev Properties (Pty) Ltd (“
Deslev
”)
pursuant to the defendants’ failure to perform under the
agreement recording its terms (“
the
Deslev transaction
”).
This transaction is also variously referred to in evidence as the
“
Durban
development
”.
[2] In the
alternative, the plaintiffs’ claim for restitution of the
purchase price of R5million consequent upon what they
call material
misrepresentations on the part of the defendants in inducing the
plaintiffs to enter into the agreement of sale.
I shall set out more
fully, later, the basis of this claim.
[3] It is
common cause that the plaintiffs initially proceeded against the
defendants by way of motion proceedings (“
the
motion proceedings
”).
The defendants opposed the motion proceedings. On 30 August 2008,
Mailula J referred the motion proceedings to trial
in terms of Rule
6(5)(g) of the Uniform Rules of Court. The costs of the motion
proceedings were reserved. It is also common
cause that the
plaintiffs, as brothers, carried on their business transactions,
including the transaction in the present matter,
as a partnership at
all material times. They had absolute trust in each other in their
transactions to the extent that either
of them could act on behalf of
the other in his absence on several occasions. The evidence will
demonstrate the extent of the
trust.
[4] For the
sake of proper context, paras 1-21, and 28 of the declaration, which
contain Claims A and B are hereby reproduced as
follows:
“
1.
The first plaintiff is Athanasios Xynos (also known as Athos), an
adult businessman, who resides at 23 Private Road, Linksfield
Ridge,
Linksfield, Johannesburg.
The second plaintiff is Antonios Xynos (also known as Tony), an
adult businessman, who resides at 23 Private Road, Linksfield Ridge,
Linksfield.
At all times material hereto the first and the second plaintiffs
carried on business in partnership with each other (‘the
partnership’).
The first defendant is Aristidis Psaltis, an adult male
businessman, who resides at 9 Mundy Avenue, Morninghill,
Johannesburg.
The second defendant is Mark Froman, an adult male businessman,
who resides at 2 Sandwood Hill, Dunkirk Estate, Umhlali,
KwaZulu-Natal.
CLAIM A
On or
about the 23
rd
of November 2005, and at Johannesburg, the partnership, represented
by the second plaintiff, and the first defendant, acting
personally,
alternatively the second defendant, represented by the first
defendant, entered into a partly oral, partly written
agreement
(“the agreement”).
The
written part of the agreement is attached hereto as Annexure “D1”
and “D2”.
The material express, alternatively tacit, further alternatively
implied terms of the agreement were:
The
partnership would purchase and the first, alternatively the second
defendant would sell shares in a property-holding company
called
Deslev Properties (Pty) Limited (“Deslev”) worth R6
million.
The amount of R6 million payable by the partnership would be
paid as follows:
R1 265 000,00 will be paid by the first respondent in respect
of his admitted indebtedness to the partnership.
R3 735 000,00 will be paid by the partnership.
R1
million would not immediately be paid by the partnership although
the shares in respect thereof would be sold to the partnership.
The partnership would pay R2 million when the shares which it
acquired in Deslev had doubled in value.
The
“private agreement”
referred to in clause 1 of Annexure “D1” is the
document attached hereto as Annexure ‘D2’.
The
partnership complied with all of its obligations in terms of the
agreement and in particular has paid, and caused to be paid
all
amounts due by it.
In breach of the agreement, which breaches were material, the
first, alternatively the second defendant did not deliver the shares
in Deslev to the partnership.
Notwithstanding demand, and the lapse of a reasonable time, the
first, alternatively the second defendant has not remedied his
breach of the agreement.
In the premises:
The partnership was entitled to cancel the agreement;
The partnership has cancelled the agreement;
The first, alternatively the second defendant is liable to pay
to the partnership R5 million.
CLAIM B
Claim B is made in the alternative to Claim A and is made only if
it is found that the partnership was not entitled to cancel the
agreement as a result of the first, alternatively the second
defendant’s breach.
Prior to 23 November 2005 the first defendant acting personally,
alternatively representing the second defendant, represented to
the
partnership, which was from time to time represented by the first
and the second plaintiffs, that:
Deslev
was a company which owned property on the North Coast of
KwaZulu-Natal (“the Deslev property”).
Shares in Deslev could be acquired by the partnership.
Any
shares acquired by the partnership in Deslev would in due course b
e
acquired by another company (“Devco”) in exchange for
redeemable preference shares in Devco and Devco would develop
the
Deslev property:
(“the
representations”
).
The representations were material and made with the intention of
inducing the partnership to act thereon and to enter into the
agreement.
Relying on
the truth of the representations the partnership concluded the
agreement set out in paragraph 6 above.
Pursuant
to the conclusion of the agreement the partnership performed all of
its obligations and in particular paid, and caused
to be paid, all
amounts due by it.
The representations were false in that:
Shares in Deslev were not available for acquisition by the
partnership; and
Devco did not issue, and did not intend to issue, redeemable
preference shares in exchange for shares in Deslev.
As a
result of the representations, which are false, the partnership is
entitled to cancel the agreement and claim back its performance.
The partnership has cancelled the agreement, and tenders return
of any ordinary shares in Devco registered in its name.
In the
premises the first, alternatively the second defendant is liable to
pay to the partnership R5 million.
”
Paragraph 28 of the declaration reads as follows:
“
28.
In the result the first and the second defendants, jointly and
severally, are liable to pay to the partnership R5 million being
the
damages suffered by it in consequence of the false representations.
WHEREFORE,
the plaintiff’s claim against the first, alternatively the
second, further alternatively, the first and the second
defendants
jointly and severally:
Payment of R5 million.
Interest
on the aforesaid amount at the rate of 15,5% per annum a tempore
morae to date of payment.
Costs of suit.
Further
and/or alternative relief.
”
[5]
Claim
C, which is in the alternative to Claims A and B, was not pursued.
The defendants, in their amended plea, essentially admit
that an
agreement was entered into between the parties as alleged by the
plaintiffs in paras 6 and 7 of the declaration. Further
that clause 1
of the agreement provides that payment of the purchase price would be
“
as
per private agreement
”
(“
the
private agreement
”)
with first defendant a copy of the private agreement is attached to
the founding affidavit in the motion proceedings, marked
“AX2”.
The defendants further plead that the express, alternatively
implied, further alternatively, tacit terms of
the agreement as read
with the private agreement were that:
“
5.1
Plaintiffs’ purchased portion of the First Defendant’s
consortium shares in Deslev for the consideration of R6
000 000.00;
5.2
Various
amounts in the private agreement in the total sum of R2 265 000.00
would be credited toward the purchase consortium of R6
000 000.00;
5.3
Of
the said sum of R2 265 000.00, the sum of R1 000 000.00 was credited
on the basis that a sum of R2 000 000.00 would be repaid
as and when
the shareholding purchased had doubled in value and was sold. The
defendants further plead that subsequent to the
agreement and during
2006 the parties concluded an oral variation of the agreement as read
with the private agreement, in terms
whereof plaintiffs would no
longer purchase portion of the First Defendant’s consortium
shares in Deslev, but would purchase
from First Defendant 6 000 000
ordinary shares in a company called Royal Palm Property Holdings Ltd
(“Royal”) for the
purchase price consideration of R6 000
000.00. Further that pursuant to the varied agreement, as read with
the private agreement;
5.4
6
000 000 ordinary shares in Royal were issued to the plaintiffs, in
the name of the Second Plaintiff;
5.5
Plaintiffs
were credited with the sum of R2 265 000.00 toward the purchase
consideration of R6 000 000.00;
5.6
Plaintiffs
effected payment of the sum of R3 269 000.00 toward the purchase
consideration of R6 000 000.00;
5.7
That,
notwithstanding demand, plaintiffs have failed to pay the balance of
the purchase consideration remaining due, owing and payable
in the
sum of R466 000.00.
6.
In
the alternative, the defendants plead that in the event that it is
found that the parties did not enter into an oral agreement
varying
the terms of the agreement concluded on the 23/11/2005 “the
Deslev transaction”, the defendants aver that:
6.1
On
15/2/2007, the First Plaintiff took delivery of the share certificate
no. 119 certifying that the Second Plaintiff ‘is
the registered
proprietor of full paid upshares … in the capital of …
“Royal Palm Property Holdings Ltd”’;
6.2
Also
on the 15/2/2007 the First Plaintiff acknowledged receiving the
original share certificate no. 119 referred to in paragraph
5.1 above
recording that he did so ‘on behalf of Antonios Xynos’;
6.3
In
acting as aforesaid, the First Plaintiff, acting on behalf of the
partnership, accepted delivery of the share certificate no.
119 and
ownership in the shares of Royal Palm Property Holdings Limited (A
ordinary shares) in substitution of the shares referred
to in
paragraphs 7 and 8 of the plaintiffs’ declaration.
”
Based on the
averments in the plea, the defendants served and filed a counterclaim
in terms of which the defendants claim from the
plaintiffs’
payment of the said sum of R466 000,00, the balance of the purchase
consideration. However, at the commencement
of the trial, senior
counsel for the defendants, Mr Hoffman SC, conceded that the amount
of the counterclaim should properly read
R465 000,00.
[7] As stated
earlier, reference in the documents to “
the
partnership
”
is in fact reference to the plaintiffs. It is also common cause that
the reference to “
Athos
”
and “
Tony
”,
is reference to the first plaintiff and the second plaintiff,
respectively. On the other hand, reference to “
Ari
”
and “
Mark
”
is to the first defendant and the second defendant, respectively.
[8
]
Consequently, and based on the pleadings, and the motion
proceedings, the main issues for determination in this trial are the
following:
8.1
Whether
the plaintiffs in the agreement purchased from the defendants
cumulative preference shares in Deslev as they indeed contend,
or;
8.2
Whether
the plaintiffs purchased ordinary shares in Royal pursuant to the
subsequent oral variation of the agreement as contended
for by the
defendants. In fact, the evidence adduced on behalf of the
defendants, as shown later, contend that from inception
the
plaintiffs knew that they were purchasing ordinary shares in Royal;
or
8.3
Whether
there was any misrepresentations on the part of the defendants which
induced the plaintiffs to enter into the agreement;
and/or, finally,
8.4
Whether
the subsequent delivery by the defendants of 6 million ordinary
shares in Royal to the plaintiffs on 15/2/2007, constituted
delivery
in compliance with the agreements.
[9] It is
appropriate, in order to understand properly the relationship between
the parties, especially that of the trust between
the plaintiffs, on
the one hand, and that of reciprocal trust between the plaintiffs and
the first defendant, on the other hand,
to briefly sketch some
background. The plaintiffs and the first defendant emigrated from
Greece. The first defendant, although
of Greek origin, spent most of
his formative years in South Africa. Whilst in Greece, the first
defendant ran a sweet factory
there where he met the plaintiffs. The
latter wanted to buy shareholding in the sweet factory as they were
impressed with the
manner in which the defendant ran the business,
but were discouraged by the first defendant on the ground that the
sweet factory
was not performing well, and that the first defendant
intended to return to South Africa. In the late 1990’s, the
first
defendant returned to South Africa and set up a sweet factory
called Cartoon Candy in the Germiston area. Thereafter, and during
1999/2000, the plaintiffs, once in South Africa since 1971/2, met
with the first defendant at Cartoon Candy. Soon thereafter the
first
defendant introduced the plaintiffs to his business partner, Mark,
the second defendant. The plaintiffs had already set
up their own
business in South Africa from about 1973.
9
.1
During February 2004 the plaintiffs purchased 2,5% worth of shares
each in Cartoon Candy. Four months later, the plaintiffs
again
purchased further 1,6% each shares in Cartoon Candy. At the time,
the plaintiffs ran their own business, a soft-drink concern
called
Nature Fruit Juices, also in the Germiston area. In early 2004,
Mark, the second defendant, relocated to Durban, KZN, leaving
the
first defendant to manage Cartoon Candy. There were other business
transactions entered into between the plaintiffs and the
first
defendant, such as a joint venture to purchase sweet-making equipment
called the Chinese deal. In all the transactions,
the plaintiffs
made payment to the first defendant in cash and cheques drawn on
Nature Fruit Juices’ bank account. Most
of the above
background, and the chronology of events are common cause from the
evidence of the parties. In spite of the above,
I need to mention
that at the time the Deslev transaction was entered into on
23/11/2005, the parties were in dispute as the plaintiffs
were owed
monies pursuant to the aforementioned various transactions which the
first defendant refused to pay.
[10] I deal
with the agreement. Both the plaintiffs, as well as the first
defendant, testified extensively on the contents of
the agreement and
the true intention of the parties. The second defendant also
testified, to an extent. It is common cause that
the Deslev
transaction was recorded in writing in two documents, a written
agreement. The agreement was annexed as “AX1”,
pp 28-30
of the motion proceedings as well as a handwritten schedule of
payments, Annexure “AX2” on p 32 of the motion
proceedings. The latter annexure is the same as p 12 of the trial
bundle. The agreement Annexure “AX1” is probably
more
contentious than the schedule of payments, Annexure “AX2”.
The agreement, which is headed, “
Mark
Froman
”,
which is clear reference to the second defendant, is dated 30/8/2005,
although only signed on 23/11/2005 on p 29. It provides
as follows:
“
This
document serves to record the agreement between the investor and Mark
Froman, either acting in his own capacity or as a nominee
of a
company.
A & A
Xynos “the investor” agrees to invest the amount of
R6,000,000 (6 Million Rand) into the property known as
DESLEV
PROPERTIES (PTY) LTD
No 2004/022970/07. Payment will be as follows:
As per
private agreement with Ari signed at every payment received.
The purchaser will be a pro-rata shareholder in the above property
as per the original purchase price plus costs relating to the
acquisition by Mark Froman, as per clause 4 below.
It is
intended that in due course the immovable property shall by itself
or together with other properties in the immediate vicinity
be sold
into a holding company to be formed “Devco” which will
convert, re-zone, develop and sell stands within the
group.
Ownership by “Devco” will be either by acquiring shares
in the relevant companies or the properties themselves.
The
abovementioned property company and its shareholders will be party
to the overall development of the proposed township under
“Devco”
and will participate on a pro-rata basis at its cost of the shares
and loans in
DESLEV
PROPERTIES (PTY) LTD
,
relevant to the total costs of all the participating entities or
properties as per the budget, (This being R249 000 000.00 in
this
Budget).
A
shareholding pro-rata according to investment of 50% of the entire
issued share capital while Mark Froman and or his nominees
will own
the other 50% in “Devco”.
It is
intended that the shares in each separate property w
ill
be exchanged for shares in “Devco” (pro-rata to total
cost) and that your shares in the property will be acquired
by
“Devco” for redeemable cumulative preference shares in
“Devco”.
If it is
in the best interests of yourselves and myself from a tax or other
perspective the property will b
e
transferred to “Devco” for shares and preference shares
as per 5 above.
An agreement recording the above terms and other such terms as
are normally incorporated in agreements of this nature will be
entered into between ourselves.
Mark
Froman shall have management control of the affairs of the
individual property companies and Devco. In the event that for
any
reason he cannot exercise his duties Ari Psaltis will assume Mark
Froman’s responsibilities.
Furthermore,
provided that any sale/s of any stand/s in the proposed township are
at prices exceeding four times the “cost”
of such
stand/s, Mark Froman shall be authorized to conclude such sales on
behalf of “Devco”.
SIGNED ANTONIOS XYNOS
DATE 23-11-2005
SIGNED ARI PSALTIS SIGNED ANTONIOS XYNOS
pp. MARK
FROMAN INVESTOR
”
It is common
cause that the words in clause 1 of the agreement, “
A
& A Xynos
”
refer to the plaintiffs. It is equally common cause that the words,
“
Ari
”
in the sentence, “
as
per private agreement with Ari signed at every payment received
”,
refer to the first defendant. The significant words in clause 2 of
the agreement are, “
in
due course
”,
“
shall
”,
“
company
to be formed “Devco
””
and “
Devco
will
”.
In clause 5 the words are, “
your
shares in the property will be acquired by “Devco” for
redeemable cumulative preference shares in “Devco
””.
In clause 6, the significant words are, “
shares
and preference shares as per 5 above
”.
Similarly, in clause 7, the words are, “
An
agreement recording
”.
Clause 9 of the agreement, it is common cause, was scratched out by
consent pursuant to dissatisfaction therewith expressed
by the
plaintiffs. The agreement was signed by the first defendant, acting
on behalf of the second defendant, as well as the second
plaintiff on
behalf of the partnership, with the first plaintiff. The last page
of the written agreement on p 80 of the trial
bundle, is styled a
“
précis
to help each investor understand the total undertaking
”.
Paragraph 4 thereof provides:
“
Each
investor, because of the different time periods, was given a share of
a particular farm for the security of his investment,
pro-rata to the
value of the farm.
”
[11
]
It is common cause that although the agreement mentions R6m as the
purchase consideration, the plaintiffs paid only R5m but would
be
credited with the extra amount of R1m later. This explains the
reason for the action being based on restoration of R5m. It
was
further common cause, and this accorded with the evidence of the
second defendant, that the entity referred to as “
Devco
”,
in the agreement, was never formed. In this regard, the second
defendant testified that Devco was in fact Royal. Both
the
plaintiffs, on the other hand, testified that they never knew or were
never told of Royal at the time of the agreement until
much later.
The plaintiffs also testified that since they trusted the first
defendant implicitly, and that as the first defendant
refused to
refund the partnership the monies owing to them at that stage based
on previous transactions, they thought that the
only manner to access
their money was to invest in the Durban development. They aver that
they were in fact persuaded by the first
defendant to enter into the
Deslev transaction. However, the averment of persuasion was
vociferously denied by the defendants.
The plaintiffs further
testified that in addition to the assurance that the partnership was
contracting for redeemable cumulative
preference shares in the Deslev
transaction, they felt secured in the investment based on the
acquisition of farms and immovable
property as well as land in the
Durban development. They were assured by the first defendant that
the investment would treble
or more in value in a few years time.
This after both plaintiffs had travelled to Durban on separate
occasions where they were
hosted by the second defendant at his
Ballito residence, and showed the extent of the Durban development.
The plaintiffs’
airfares to Durban were paid for by the
defendants. This is common cause. In his evidence, the second
defendant dealt extensively
with the Durban development, as will be
seen later.
[12
]
The terms of the payment are recorded on the handwritten schedule of
payments, Annexure “AX2” p 32 of the motion
proceedings,
as well as p 12 of the trial bundle. These terms were largely
confirmed as being common cause in the motion proceedings,
although a
much better and reliable mechanism of recordal would have been
expected from such seasoned business persons as the plaintiffs
and
the first defendant. However, once more, implicit trust in each
other appears to have been the overriding factor. All the
inscriptions are admittedly in the handwriting of the first
defendant. Both the plaintiffs signed at the bottom of the page.
The first defendant also signed. The parties also initialled
together with the first defendant against every single payment made
to the first defendant. The total purchase for the plaintiffs’
shares in the Deslev transaction, as stated earlier, would
be R6m.
In para 18.6(a) of the answering affidavit in the motion proceedings,
the first defendant stated:
“
Applicants
purchased portion of my consortium share in Deslev for the purchase
price of R6million (Annexure “AX2”) particularly
refers
to “purchase of Ari Consortium Share”.
There
would be a pro rata shareholder in Deslev “as per original
purchase price” plus costs relating to the acquisition
by
Second Applicant as per clause 4 therein. I point out that Annexure
“AX2” refers to the percentage interest in
the “Ari
Consortium Share” as “± 1,2048”.
”
Annexures
“AX1” and “X2” are dated 23/11/2005, and
contain common cause payments and dates made by the plaintiffs
to the
first defendant. The payments cover the period 25/11/2005 to
approximately 20/5/2006. The annexure also contains various
amounts
credited by the first defendant to the plaintiffs in respect of the
various transactions entered into prior to the Deslev
transaction.
In the middle of the page, the annexure has the following
inscription, “
Agreement
with Tony + Arthur concerning Durban 6 0000.000 purchase of Ari’s
Consortium Shares
”.
The first plaintiff is also known as Arthur. In the end, Annexure
“AX2” shows that an amount of R1 265 000,00
was in
settlement of amounts owed to the plaintiffs by the first defendant,
which amount constituted a credit towards settlement
of the purchase
consideration of the Deslev transaction. This was not in dispute.
Based on the schedule of payments on Annexure
“AX2”, the
following was also not in dispute. An amount of R1m was to be
credited to the plaintiffs until such time
as the shares in the
Deslev transaction had doubled in value, and were sold, at which
point they would pay R2m. Annexure “AX2”
shows a balance
of R3 735 000,00 payable by the plaintiffs in terms of the share sale
agreement. Of this amount, the sum of R3
270 000,00 was in fact paid
by the plaintiffs and acknowledged by the first defendant on Annexure
“AX2”. This left
the balance of R465 000,00, which forms
the basis of the defendants’ counterclaim.
[13
]
The evidence of the plaintiffs, where it conflicts directly with
that of the defendants in regard to the Deslev transaction,
ought to
be evaluated in the light of several factors in order to establish
the probabilities. These factors include that they
had a long and
ongoing business relationship with the first defendant. During this
period, and leading up to the Deslev transaction,
huge amounts of
cash, accompanied by informal recordkeeping, exchanged hands. The
plaintiffs knew the first defendant from Greece
as a businessman.
They had excessive trust in the first defendant. Their relationship
was good until February 2007 when the plaintiffs
became aware of the
share certificate from Royal showing that they had in fact been
issued with ordinary shares, as opposed to
redeemable preference
shares. The relationship worsened when there was a physical fight
between the second plaintiff and the first
defendant at the Annual
General Meeting of Royal in Durban on 31 May 2007.
[14
]
The evidence of the plaintiffs must also be viewed in the light of
what appears to be their limited command of the English language.
Although astute and experienced businessman, they testified that
their understanding and command of the English language was below
that of the first defendant. In the trial, the plaintiff testified
through the assistance of a Greek interpreter, which was not
the case
with the first defendant. There was also the undisputed evidence
that during consultations with their legal team in preparation
of the
trial, the plaintiffs made use of the same Greek interpreter.
[15
]
The evidence of the plaintiffs as to how, why, and what was told to
them by the first defendant, when they entered into the Deslev
transaction, was complimentary and credible, although lacking in
eloquence. The first plaintiff testified that the first defendant
did not tell them that there were two different types of shares, i.e.
original investors’ shares, and consortium shares,
in the
Durban development. They were told that the investment was through
Deslev which offered all the guarantees in property,
farms and
immovable property. They were told that Devco, mentioned in the
agreement, would be the holding company. He, however,
conceded that
the consortium shares were valued at R249m, and the founder shares at
R249m, giving a total value of the development
at R498m. However,
the first plaintiff testified that he was told by the first defendant
that the partnership would acquire preference
shares in Deslev which
to him meant secured and founding shares, as opposed to ordinary
shares, which carried less value. He understood,
and accepted that
the preference shares in Deslev will be exchanged for Devco shares in
accordance with the written agreement.
When put to him in
cross-examination that the first defendant’s version would be
that the words, “
no
cap
”,
“
no
int
”,
on p 12 of the trial bundle, the schedule of payments, meant “
no
capital
”
and “
no
interest
”,
with reference to the first defendant’s consortium shares, the
first plaintiff replied that that was a subsequent
allegation. He
denied that the first defendant explained that the partnership
purchase consideration of R6m equalled 1,2048% of
the total Durban
development. The first defendant was in a great hurry, and simply
made him sign the document when payment of the
two cheques was made
on that particular occasion. The first plaintiff denied that the
first defendant explained in detail, each
and every clause of the
agreement on pp 77, 78 and 79 of the trial bundle. In this regard,
it is interesting that when he testified
in cross-examination on this
aspect, the first defendant was driven to concede that he did not in
fact explain each and every clause.
It is further significant that
on several occasions when the plaintiffs made payment to the first
defendant, it was the latter
who wrote out the partnership cheques
and completed the chequebook stub. I mention this simply to
demonstrate, once more, the
implicit trust the plaintiffs had in the
first defendant.
[16
]
The first defendant testified that when he collected the share
certificate from the auditors of the defendants in Johannesburg
on 15
February 2007, the share certificate was in an envelope. He signed
for the collection. He did not immediately open the envelope
until
much later. When he did open the envelope, he discovered two matters
which caused him great dissatisfaction. First, was
that the shares
were ordinary shares in Royal, as opposed to preference shares in
accordance with the agreement. The second was
that the shares were
in the name of the second plaintiff only, and not in the name of the
partnership (both plaintiffs), in terms
of the agreement. He was
cross-examined closely in this regard. He conceded quite readily that
he did not immediately confront
the receptionist where he collected
the share certificate to query the discrepancy. Neither did he
consult his accountant or legal
adviser until about October 2007,
which resulted in the present litigation. The 6 million ordinary
shares were issued in Royal
on 14 August 2006. The first plaintiff,
however, remained adamant that he did not delay unduly in confronting
the first defendant
about the incorrect share certificate. Both the
plaintiffs denied in evidence the version of the first defendant that
subsequently
the plaintiffs approached the first defendant to buy
back the shares as they had financial problems. The version of the
second
plaintiff as to the events after the receipt of the ordinary
share certificate, was that they constantly pestered the first
defendant
about their investment in the Durban deal. So much so that
the first defendant invited him to the Annual General Meeting of
Royal
on 31 May 2007, in order for him to find out for himself as to
what happened to the partnership investment. The second plaintiff
denied in cross-examination that he attended the Annual General
Meeting as a shareholder of Royal. It is common cause, as stated
earlier in this judgment, that the second plaintiff had an
altercation with the first defendant at the Annual General Meeting.
In the view I take in this matter, the criticism levelled against the
first plaintiff regarding his conduct after collecting the
share
certificate, was unwarranted. The horse had already bolted,
resulting in prejudice to the plaintiffs. The rest of the version
of
the second plaintiff, especially regarding the Deslev transaction,
accorded with that of the first plaintiff. Both the plaintiffs
also
denied vehemently that the Deslev transaction was subsequently varied
orally in terms of which they agreed to accept ordinary
shares in
Royal, as contended by the defendants. The plaintiffs said that they
did not at any stage enter into an agreement with
Royal. In fact,
when examined on this aspect, the second plaintiff testified, “
This
is a vast lie. How is it possible that I being engaged in business
for so many years in this country, accept an oral agreement
and
accept to cancel my securities which I have with DESLEV and my
shares, preferential shares, to get ordinary shares, in a company
which offers me no security, whereas DESLEV was giving me security in
a specific property?
”
[17
]
The first and the second defendants testified. The first defendant
confirmed all the common cause issues alluded to earlier
in this
judgment. The plaintiffs pestered him to invest in the Durban
development because the plaintiffs decided that the Durban
deal
sounded more exciting than Cartoon Candy, and that they wanted to
make more money. The Durban development was divided into
consortium
shares, and investor shares, on a 50/50 basis. He telephoned the
second defendant and asked him what document to give
to the
plaintiffs for investment purposes. The second defendant advised
that the Deslev properties’ document should be used,
this led
to the signing of the agreement with the plaintiffs reflected on pp
77, 78 and 79 of the trial bundle, on 23 November
2005. At that time
the first defendant was a member of the Durban development but he
held no shares in Royal. His shares were
reflected in Deslev, and
possibly other companies at the time, and he wanted the plaintiffs to
be comfortable that they had something
in hand. Devco was just a
name for the proposed holding company, and became Royal. Various
farms and land were purchased by different
companies, about 10 farms
in fall. In the end, all the entities were incorporated into Royal
and shares were issued. He denied
that there was ever a question of
Deslev shares or the issue thereof to the plaintiffs. The first
defendant further testified
that the plaintiffs knew from inception
that they were purchasing shares in Royal, and the latter did not
offer cumulative preference
shares. On receipt of his shares from
Royal, he instructed his auditors to transfer 6 million shares to the
plaintiffs. The shares
were issued in the name of the second
plaintiff since he only signed the agreement. Thereafter, there was
no complaint from the
plaintiffs regarding their shares. He
testified that, in fact, the plaintiffs subsequently approached him
to buy back the shares,
which he declined. The second plaintiff
attended the Annual General Meeting in Durban on 31 May 2007, and
knew fully that everything
there concerned Royal. With regard to the
defendants’ counterclaim for R465 000,00, the first defendant
conceded that the
plaintiffs had in effect paid this amount. He had
simply forgotten about the payment.
[18
]
The cross-examination of the first defendant produced a slightly
different slant on his evidence-in-chief. This is that, although
he
was emphatic in evidence-in-chief that he took the trouble of
explaining to the plaintiffs every single clause of the agreement,
he
was, however, compelled to concede that this did not happen. He was
not a director of any of the companies in Durban. He did
not know if
Devco acquired properties or shares in Deslev. I observe that this
must be so since the correspondence show that the
process of forming
Devco was never undertaken. According to the evidence of both
defendants, Devco was in fact Royal, which owned
shares in Deslev in
November 2005. The second defendant was a nominee shareholder in
Deslev. The first defendant testified that
it was immaterial to him
whether the plaintiffs received shares in Deslev on the
recommendation of the second defendant, or shares
in Royal, as long
as the plaintiffs were comfortable. They had secured investment
provided by immovable property and land. He
denied that he told the
plaintiffs they would receive preference shares or that they would
receive something out of the ordinary.
The first defendant, could
however, not explain satisfactorily why he forgot that the plaintiffs
had in fact made to him payment
of the amount of R465 000,00 forming
the subject-matter of the counterclaim. Similarly, he could not
provide a plausible explanation
why he initially denied his
handwriting on the cheques of the plaintiffs. In this regard, in my
view, the evidence given later
by his attorney of record, Mr Dunn
Hirschowitz, did not take the matter any further in favour of the
first defendant. When questioned
as to which party he was
contracting with regarding the sale of shares, the first defendant
answered that the agreement was with
both the plaintiffs. On further
being questioned as to the reason why the share certificate was in
the name of the second plaintiff
only, the first defendant gave a
rather wishy-washy response. In short, he said that the second
plaintiff never approached him;
that it was not his problem; that he
could not change the shares etc. However, he conceded that if the
share certificate was
issued in error, he could have phoned the share
transfer secretaries, and instructed them to rectify the matter. He
was never
told that the plaintiffs had a problem with the shares
being in Royal, as opposed to Deslev, until at Court.
[19
]
It was the evidence of the first defendant that at the time of the
agreement, the second defendant was a nominee shareholder
in Deslev,
he was holding shares of all the companies, and had shares in Deslev.
He was referred to his answering affidavit in
the motion
proceedings, at para 18.2, on p 80, where he alleged:
“
Although
Second Respondent was registered as the sole shareholder in the
various companies, including Deslev, he was holding such
shares as
nominee for:
A
consortium owning 50% of the shares of the various companies,
including Deslev. I owned 25% of the consortium interest;
(b) 50% of
the shares of various companies was owned by investors.
”
The first
defendant replied that it was his belief that the second defendant
could transfer shares and do what he wanted in various
companies on
behalf of the first defendant and other shareholders. When it was
pointed out to him that it was incorrect since
the register of
members share transfers, in respect of Deslev on p 102 of the trial
bundle showed that it was Royal that was the
sole shareholder of
Deslev, in terms of a transfer transaction on 30/6/2005, some four
months before the Deslev transaction, the
first defendant agreed. He
was compelled to concede that Royal had become the sole shareholder
in Deslev, and that the second defendant
was not registered as such.
[20
]
The second defendant testified in great detail about the origin and
extent of the Durban development. He bought various farms
and
properties, sugarcane fields, and developed them into Palm Lake
Estate, as shown on Exhibits “D1” and “D2”
the maps. The development stretched North from Durban, along the
coast, on the N2 highway, with the beach on the one side. It
stretched about 10 km along the N2 highway. About 1 400-1 500
hectares of land was purchased, and investors were invited to invest.
Approximately eleven companies were created, which held various
pieces of immovable property. The agricultural land was to be
placed
in a holing company, and later rezoned into various portions, such as
residential, commercial or educational etc. Thereafter,
finished
products, like apartments such as flats, would be sold. In this
fashion, about 244 apartments were built. Once all the
required land
was acquired such land and companies were to be consolidated into
what became known as Royal. The rest of the evidence
of the second
defendant on the development was not in dispute and therefore
unnecessary to detail further. The total value of
the shares was
around R498 m.
20.1
He
confirmed that he recommended to the first defendant that the
plaintiffs should be given the Deslev agreement. He confirmed
that
he hosted the plaintiffs at his Ballito home, prior to the Deslev
transaction, and showed them the development, which was
in the
formation stage. Deslev held three immovable properties purchased,
of which two properties had been rezoned as part of
the 620 hectares
of rezoned land. He held shares in Deslev as nominee prior to the
transfer to Royal in August 2005. He acquired
Royal in 2003 which
was previously known as Larbrad Property (Pty) Ltd. Devco was, in
fact, Royal. The latter issued only ordinary
shares, and not
redeemable preference shares. He said that if approached by the
plaintiffs with the request, he would have been
able to procure the
transfer of Deslev shares from Royal to them. The immovable property
in Deslev has been transferred to Royal
as part of the consolidation.
The plaintiffs knew of Royal prior to the Deslev transaction. In
cross-examination, and as in the
case of the first defendant, the
witness was referred to the allegations in para 18.2 at p 80 of the
motion proceedings, the answering
affidavit. He denied that when the
Deslev transaction was entered into, the shares in Deslev were
already in Royal. In relation
to the Deslev’s members shares
register transfers, p 102 of the trial bundle, he agreed that on
30/6/2005 he had transferred
100 ordinary shares to Royal. The rest
of the cross-examination of the second defendant elicited somewhat
unconvincing versions.
[21] Mr Dunn
Hirschowitz, the defendants’ attorney of record, was the final
witness for the defendants. He gave evidence
on a limited aspect
only. I had previously in this judgment alluded to his evidence. It
is unnecessary, for purposes of this
judgment, to expand further on
his evidence, save for the observation that his evidence,
regrettably, does not advance in any meaningful
manner the
explanations of the first defendant as to why he initially denied his
handwriting on the cheques written out of the
chequebook of the
plaintiffs. I reserve for later comment the impressions made by the
various witnesses in this trial, as well
as the probabilities
emerging from the evidence as a whole.
[22] I deal
with the question whether the issuing of ordinary shares in Royal to
the plaintiffs (second plaintiff only) by the
defendants, even if
assuming in favour of the defendants that the agreement was varied
orally, constituted performance in terms
of the agreement. It is
trite that generally, contracts, properly entered, should be upheld,
and that performance in terms thereof
should be in accordance with
the agreement. In
Van
Diggelen v De Bruin and Another
1954
(1) SA 188
(SWA), at p 192H, Claassen J, said:
“
In
coming to a decision in this case as to whether there must be
performance “
in
forma specifica”
or
whether performance “
per
aequipollens”
will
suffice, it seems to me that I should proceed along the following
lines.
(1) The Court must gather
from the surrounding circumstances what the
parties
contemplated
. It
must take into consideration everything which can give a clue to the
intention of the parties. It must seek to find out what
the parties
would have wished if their minds had been specially directed to the
question whether the condition was to be fulfilled
“
in
forma specifica”
or
by an equivalent act. See
Wessels
para. 1335.
Hanomag
SA (Pty.) Ltd v Otto.
,
1940 C.P.D. 437
at p. 443;
Robertson
Municipality v Jansen
,
1944 C.P.D. 526.
(2) If however the
circumstances afford no clue then there is a presumption that the
condition must be performed “
in
forma specifica” (Wessels
para.
1337. Pothier
Oblig
.
206). This presumption is rebuttable by the promisor, but it cannot
be rebutted where it is clear from the terms of the contract
and the
surrounding circumstances that performance “
in
forma specifica”
was
stipulated in the contract.
Wessels
paras. 2638-9.
(3) …
…
(5) The Court's paramount
concern is always, within the frame-work of the law, to do justice
between man and man. It will be guided
by the terms and circumstances
of the contract under consideration. Thus in cases where the promisor
has discharged the
onus
mentioned in (2)
above, there may be circumstances falling short of impossibility, and
even where there may have been some fault
on the part of the
promisor, and where the Court may nevertheless come to the conclusion
that the promisor's performance or tendered
performance amounted to
substantial performance (
Cheshire
and Fifoot
p. 352,
1st. Ed.), or is of such a nature that the promisee can be
compensated in damages for any shortfall. (
Strachan
v Prinsloo
,
1925
T.P.D. 709
at p. 717).
”
In the present matter, and based
on the above legal principles, the issuing of ordinary shares to the
partnership, as opposed to
cumulative preference shares in Deslev,
was clearly not performance in terms of the agreement. This is so,
irrespective of what
the defendants’ version conveys. The
agreement, and the surrounding circumstances support the version of
the plaintiffs
wholly on all probabilities. As shown later, there is
a huge and marked difference between ordinary shares and cumulative
preference
shares in company law.
[23] However, in the present
matter the defendants do not contend that it was impossible to
perform strictly in terms of the agreement.
Instead, they rely on an
alleged subsequent oral agreement varying the terms of the Deslev
transaction. In the alternative, the
plaintiffs contend that the
delivery of 6 million ordinary shares in Royal on 15/2/2007, and the
acknowledgement of receipt thereof
by the first plaintiff, on behalf
of the second plaintiff, constituted an acceptance of the Royal
shares in substitution of the
shares purchased in terms of the Deslev
transaction. The alleged oral variation of the agreement is capable
of disposal with relative
ease, in the next paragraph.
[24] Both plaintiffs, when they
testified, denied vociferously that they ever agreed to orally vary
the agreement. The second plaintiff
gave cogent commercial reasons
for such denial. In this regard, paras 5 and 6 of the defendants’
plea read as follows:
“
5.
During 2006 and at Johannesburg, Plaintiffs acting personally, First
Defendant acting personally and First Defendant on behalf
of Second
Defendant, concluded an oral variation of the agreement as read with
the private agreement, in terms whereof Plaintiffs
would not purchase
portion of First Defendant’s consortium share in Deslev
Properties (Pty) Ltd, but would purchase from
First Defendant 6
million ordinary shares in Royal Palm Property Holdings Ltd for the
purchase consideration of R6 000 000,00.
6. Pursuant to the agreement
(as varied), as read with the private agreement:
6 million ordinary shares in Royal Palm Property Holdings Ltd
were issued to Plaintiffs (in the name of Second Plaintiff);
Plaintiffs were credited with the sum of R2 265 000,00 toward
the purchase consideration of R6 000 000,00;
Plaintiffs effected payment
of the sum of R3 269 000,00 toward the purchase consideration of R6
000 000,00.
”
There is plainly no particularity
of the time and place, and date of the alleged oral variation of the
agreement. Similarly, on
the same aspect, in para 18.7 of the
answering affidavit in the motion proceedings, the defendants failed
to provide details of
the alleged oral variation. The plaintiffs’
denial of such alleged oral variation was not seriously challenged.
The defendants
allege the oral variation and it was incumbent on them
to prove such allegation, in the circumstances of the case. The
alleged
oral variation was important to the plaintiffs in that it
purported to remove their rights under the agreement. In
Government
v Thorne and Another NNO
1974 (2) SA 1
(A), at 8H, it was held that an implied variation of an
important provision in an agreement, should not be lightly presumed.
In
the present matter, the allegation of an oral variation is highly
improbable, not only on the evidence of the plaintiffs, but also
based on the consistent manner in which the parties kept recordings,
even though informally, of their various business transactions.
I
conclude therefore that there was no such oral variation.
[25] The allegation of the
defendants that the acceptance by the plaintiffs of the ordinary
shares in Royal constituted substituted
performance was only
introduced by way of an amendment. This was at the commencement of
the trial. The amendment is clearly in
conflict with the unambiguous
provisions of clauses 5, 6 and 7 of the agreement. It will be
recalled that clause 5 of the agreement
states,
inter
alia
, that: “
Your
shares in the property will be acquired by “Devco” for
redeemable cumulative preference shares in “Devco”.
”
On its turn, clause 6 states, “…
the property will be transferred to “Devco” for shares
and preference shares as per 5 above
”.
This accords with the evidence of the plaintiffs. In
Kovacs
Investments 724 (Pty) Ltd v Marais
2009 (6) SA 560
(SCA), at para [16], Mpati P said:
“
[16]
The principle that emerges from these decisions, and others not
mentioned
here, including decisions of this court, is that provided the
obligations under a written agreement are to be complied
with in
full, performance of one of the obligations in a manner different
from that stipulated in the written agreement, and accepted
by the
other party, would be considered as sufficient, or substantial,
compliance and the obligation as having been discharged.
And where
the different manner of performance was at the request of one party,
and orally (or tacitly) agreed to by the other,
the fact of such
performance, ie that the obligation has been discharged, may be
proved by extrinsic evidence. The agreement for
a different manner of
performance does not have to be in writing.
”
See also
Telcordia
Technologies Inc v Telkom SA Ltd
[2006] ZASCA 112
;
2007 (3) SA 266
(SCA). It is clear that in the absence of an agreed
variation, altering the content of the performance contracted for, as
found
above, performance in a manner different from that stipulated
in a written agreement, and accepted by the other party, must be
performance of what was contracted for in full.
[26] Based on the above legal
principles, and as found earlier in this judgment, the delivery of
ordinary Royal shares was not
acceptable performance. In terms of
the agreement, in particular clauses 5, 6 and 7, the plaintiffs were
clearly entitled to shares
in Deslev, and later, in a written share
swop agreement, they became entitled to redeemable cumulative
preference shares in Royal,
the company into which all the immovable
properties, land and farms was consolidated. The manner of the
performance by the defendants
by delivering ordinary shares in Royal
as they did, also constituted inadequate performance in terms of the
agreement for other
compelling reasons. These are that, the first
plaintiff never became a shareholder even though he was part of the
contracting parties.
The Royal shares issued were in the name of the
second plaintiff only. In addition, the second plaintiff was reduced
to the ranks
of an ordinary minority shareholder in Royal with no
preferent rights whatsoever. Furthermore, the value of the rights the
plaintiffs
should have had in Deslev was never ascertained. Indeed,
the second defendant testified that no valuation of Deslev’s
immovable
property was carried out prior to the transfer of two out
of three portions thereof to Royal. This meant that the defendants
were
in no position to contend that the value of what should have
been delivered to the plaintiffs, namely shares in Deslev, was
substituted
with rights of equal value in Royal. For that to have
even been contended, the defendants would have had to have compared
the
value of the rezoned properties in Deslev at the time they were
transferred, with the value of 1,2048% holding in Royal after the
transfer. Both the defendants testified that they “
were
not very specific about things
”.
They simply disregarded the plaintiffs’ contractual rights.
As stated earlier, both plaintiff were persistently
unhappy with the
ordinary shares in Royal after they received the share certificate,
in spite of the defendants’ contention
to the contrary.
However, the first defendant conceded that since he now knew what a
preference share was, an ordinary share was
not the same thing as a
preference share. The denial of the defendants that the plaintiffs
were unhappy with the ordinary shares
issued, begs the question why
there was a physical altercation between the first defendant and the
second plaintiff at the Annual
General Meeting of Royal in Durban on
31 May 2007. Furthermore, the subsequent unsuccessful contention of
the defendants that
the written agreement was varied orally, lends
credence to the view that the issuing of the ordinary shares in
Royal, was not in
accordance with the agreement. In addition, it is
trite that there is a vast difference between an ordinary share in a
company
and a redeemable preference share, especially if one has the
right, as the plaintiffs had, to negotiate the terms pertaining to
the redemption of the shares and the transfer of the preference they
were to enjoy. (See
Henochsberg
on the Companies Act, Vol. 1, p 145.) Preference shares rank above
ordinary shares (see
In
re Powell Cotton’s Re-Settlement
,
Henniker-Major and
Others v Powell Cotton and Others
[1957] 1 All ER 404).
On the other hand, preference shares are
cumulative, i.e. the shareholder has a contractual right in the
absence of a dividend
in any particular year that a dividend shall be
paid out of subsequent profits before any other dividend is paid.
[27] In the present matter, the
probabilities overwhelmingly favour the version of the plaintiffs.
The conclusion that the defendants
have not delivered what they were
obliged to do in terms of the Deslev transaction, became
irresistible.
[28] However, if I am incorrect
in the determination of the plaintiffs’ Claim A above, I
believe that the plaintiffs should
still succeed in Claim B, based on
misrepresentations. I now deal briefly with the plaintiffs’
Claim B. It is plainly unnecessary
to repeat all the evidence in
this regard. The pleaded misrepresentations are briefly that the
shares in Deslev could be acquired
by the partnership (the
plaintiffs) by entering into the Deslev transaction. That any shares
acquired by the partnership in Deslev
would in due course be acquired
by Devco (Royal) in exchange for redeemable cumulative preference
shares in Royal. The plaintiffs’
attorneys of record wrote
numerous letters to various entities enquiring about their clients’
shares in Deslev. One such
letter was addressed to Mr Gareth Jones
of Royal on 14 April 2008. On the same day an email was sent by Mr
Gareth Jones, which
read,
inter
alia
, that, “
While
I note your agreement says that Antonios Xynos
(second
plaintiff)
will be
issued shares first in Deslev and then those shares will be swopped
for shares in Devco, I can confirm that this leg of
the transaction
never took place. … In my opinion the transaction mentioned in
the contract has been carried out in full,
all be it with certain
intermediate steps omitted.
”
(my insertion). This, in my view, shows once more, that the
agreement, especially in regard to the Deslev transaction,
was not
adhered to by the defendants. The defendants denied these
allegations and advanced defences pertinent only to the plaintiffs’
Claim A. Indeed, on the defendants’ own version, the second
defendant was registered as a sole shareholder in Deslev and
was
holding the shares as a nominee. This is contained in para 18.2 of
the answering affidavit in the motion proceedings, quoted
earlier in
this judgment. The phrase, “
purchase
of Ari consortium shares
”
plainly meant that the first defendant was the seller as the
beneficial owner of “
his
consortium share in Deslev
”,
and that the second defendant was a party to the agreement as nominee
owner of the shareholding in Deslev. In this regard,
para 18.4 of the
answering affidavit alleged, “
Lengthy
negotiations ensued between me and the applicants in regard to their
acquiring a portion of my consortium share which eventually
led to
the conclusion of Annexures “AX1” and “AX2”
to the founding affidavit. As appears therefrom, I
signed Annexure
“AX1” on behalf of Second Respondent, who was the party
to the agreement because he was the nominee
owner of the shareholding
in Deslev. I was duly authorised to do so.
”
The contention advanced on behalf of the defendants that the second
defendant was not a party to the agreement, was therefore
clearly
without any merit.
[29] Both the plaintiffs
testified that they were enticed to enter into the agreement by the
first defendant who guaranteed them
security and comfort. They were
also assured that their investment in Deslev would treble or more in
a relatively short space
of time. However, the plaintiffs conceded
in cross-examination that they had not had sight of any of the
documents about the Deslev
company, such as the memorandum of
association or the articles. Further that the plaintiffs did not know
who the directors of Deslev
were. The plaintiffs also conceded that
at the time, they were not in a position to know what was going on,
which company was
being purchased, which sold or whether there were
any consolidations going on. They trusted the first defendant
implicitly, as
stated earlier. However, the truth of the matter was
that some five months before the Deslev transaction the second
defendant
had transferred his shares in Deslev to Royal on 30/6/2005.
This is borne out by the share transfer in Deslev, on p 101 of the
trial bundle. This meant that at the time of the Deslev transaction,
(23/11/2005), Royal was the 100% registered shareholder of
Deslev.
Accordingly, at the time of the transaction, the second defendant was
not even a registered owner of shares in Royal.
On the other hand,
the first defendant had never been a registered owner of shares in
Deslev. Neither could he have been the beneficial
owner through the
second defendant as he alleged. Furthermore, Royal did not issue,
and did not intend to issue, redeemable cumulative
preference shares.
Preference shares were never part of its authorised share capital.
This is confirmed by Royal’s register
of members shares
transfers on p 104 of the trial bundle. It is supported by Royal’s
memorandum of association. The email
from Mr Gareth Jones of 11
April 2008, quoted partly earlier in this judgment, once more become
relevant. It is on p 82 of the
trial bundle. Paragraph 4 of this
email read:
“
Please
note however that this agreement seems to be between Anthonios and
Ari Psaltis. Ari Psaltis is a shareholder in Royal Palm
Property but
he is not a director or officer of either RPPH or Deslev. He is in
no way able to bind either company in any transaction.
”
There is therefore no doubt from
the evidence that the misrepresentations were made with the intention
of inducing the somewhat
gullible and unsuspecting plaintiffs to
enter into the Deslev transaction. The second defendant produced the
document on B77 of
the trial bundle on which the Deslev transaction
was based. On the version of the first defendant, with regard to the
share sale
agreement concluded with the plaintiffs (partnership), it
is doubtful whether there was proper compliance with the provisions
of
sections 92 and 221(1) of the Companies Act 61 of 1973. The
former section prohibits a company from allotting or issuing shares
to a subscriber unless the full issue price or consideration for such
shares had been paid to and received by the company. On
the other
hand, the Iatter provision prohibits a director from allotting or
issuing shares without the prior approval of the company
in a general
meeting. In the present matter, it appears highly unlikely that
Deslev in fact obtained such prior approval in general
meeting. I
conclude therefore that the plaintiffs were entitled to cancel the
Deslev transaction and to claim payment of the purchase
consideration
of R5m against their tender to return the 6 million ordinary shares
in Royal.
[30] The issue of the defence of
non-payment of the sum of R465 000,00 being the balance of the
purchase price, which formed the
basis of the counterclaim, required
brief discussion only. It was conceded during the trial, that the
plaintiffs had in fact paid
this amount. In fact the amount was
overpaid when the first defendant wrote out two cheques totalling
R500 000,00 from the partnership
chequebook, and the first plaintiff
signed the cheques. The first defendant also filled in the
counterfoil. These cheques, of
R330 000,00 and R170 000,00
respectively, were presented and honoured in September 2006, as was
shown from the bank statements
of the partnership business, Nature
Fruit Juices CC. The counterclaim was served in November 2008.
There was clearly no basis
for such a counterclaim which remained
unwithdrawn throughout the trial. The evidence of the first
defendant, as supported by
his attorney of record, Mr Hirschowitz, as
to why he denied his handwriting on the cheques, was plainly
untrustworthy. The evidence
exposed the first defendant as
unreliable and lacking integrity. He abused the trust that the
plaintiffs had placed in him. It
was only after the plaintiffs’
attorneys of record had engaged the services of a handwriting expert
who confirmed the first
defendant’s handwriting on the cheques,
that the first defendant relented. His feeble evidence was that he
had simply forgotten
that the payment was made. This was highly
improbable, especially that it was by far not an insignificant amount
paid by cash
cheques. It was more than plain that the first
defendant was intend on conducting a
mala
fide
defence in order
to delay the plaintiffs’ claim and cause unnecessary costs in
the pursuit thereof. I have already previously
in this judgment
alluded to the unsatisfactory aspects of the first defendant’s
evidence on issues unrelated to the counterclaim.
There are, indeed
several other unsatisfactory aspects to his evidence. These are all
on record. It is also clear that the second
defendant operated in
cahoots with the first defendant throughout to prejudice the
plaintiffs. He made common cause in the defence.
On the other hand,
the plaintiffs have both testified with candour. They gave
consistent versions on all the material aspects
of this somewhat
difficult matter. The evidence of the plaintiffs, where necessary, is
corroborated by the various documents, and
I could find no reason not
to accept their evidence. The criticism levelled against the
plaintiffs by defendants’ counsel,
that they “
were
shocking witnesses. They did not answer a single question in a
simple way
”,
etc, was plainly without merit at all. This was certainly not the
impression of the Court. In my view, where there was
a delay in
answering questions, this was clearly as a result of the services of
the Greek interpreter. On several occasions during
the trial, the
interpreter requested permission from the Court to first consult her
Greek dictionary prior to interpreting the
evidence. The bottom-line
was that the plaintiffs remained credible and consistent. They never
contradicted themselves, or each
other. The defendants’
defences call to be rejected, and the plaintiffs must succeed for all
the aforesaid reasons. The
plaintiffs were entitled to cancel the
agreement and tender return of the ordinary shares.
[31] I deal with the issue of
costs. The costs ought to follow the result. However, counsel for
the plaintiffs, Ms Cane, argued
strenuously for a punitive costs
order based on several grounds. These grounds include the defendants’
conduct in alleging
disputes of fact in the motion proceedings which
resulted in the present trial; the defendants’ changing
defences on the
merits; the present defence of substituted
performance in regard to the Deslev transaction, and the pursuance of
the defendants
to the end of a feeble counterclaim. I have given
careful consideration to all these submissions. This is commonly a
discretionary
matter. I do not agree entirely with all the arguments
advanced by the plaintiffs’ counsel in this regard. I do,
however,
feel that a punitive costs order will be appropriate in
regard to the counterclaim only in the circumstances of the case.
See
in this regard
Law
Society, Northern Provinces v Mogami
2010 (1) SA 186
(SCA) para [31]. As stated earlier, the counterclaim
has no merit at all. It should never have been brought in the first
place.
[32] Prior to concluding, I need
to mention one matter. That is the slight delay in handing down
judgment. At the end of the
trial, I informed the parties that I was
due to go on long leave in April. The parties kindly agreed to have
the record available
to me in order to prepare judgment prior to my
departure. The complete record came to my attention in the first
week of June 2010
only, on my return to chambers. I did my utmost to
finalise the judgment speedily thereafter. However, this was not
made any
easier by the current and continuing industrial action by
employees of the court. The delay, if any, is regretted.
[33] In the result the following
order is made:
The first defendant and the
second defendants are ordered, jointly and severally, the one paying
the other, to be absolved, to
pay the plaintiffs jointly, the sum of
R5 000 000,00 (Five Million Rand), against the tender of the 6
million ordinary Royal
shares.
Interest on the aforesaid amount
at the rate of 15,5% per annum
a
tempore morae
to date
of payment.
Costs of suit.
The counterclaim is dismissed
with costs, payable jointly and severally the one paying the other
to be absolved, on an attorney
and client scale, including the
reasonable costs of the handwriting expert as well as the costs
reserved in the motion proceedings.
______________________________
D
S S MOSHIDI
JUDGE OF THE SOUTH GAUTENG
HIGH COURT, JOHANNESBURG
COUNSEL
FOR THE PLAINTIFFS J M A CANE
INSTRUCTED BY ALAN ALLSCHWANG &
ASSOCIATES INC
COUNSEL FOR THE DEFENDANTS G I
HOFFMAN SC
ASSISTED BY S M WENTZEL
INSTRUCTED BY HIRSCHOWITZ
FLIONIS ATTORNEYS
DATE OF HEARING 12 FEBRUARY
2010 – 22 FEBRUARY
2010
DATE
OF JUDGMENT 15 SEPTEMBER 2010