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[2010] ZAGPJHC 192
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Watkins-Ball N.O and Others v Leggatt and Others (9325/08) [2010] ZAGPJHC 192 (24 November 2010)
IN
THE SOUTH GAUTENG HIGH COURT, JOHANNESBURG
(REPUBLIC
OF SOUTH AFRICA)
CASE
NUMBER: 9325/08
DATE:
24 NOVEMBER 2015
In the
application between
CHRISTOPHER JOHN
WATKINS-BALL
N.O
.................................................
FIRST
APPLICANT
JOHANNES
BHEKUMUZI MAGWAZA
N.O
..............................................
SECOND
APPLICANT
ROBERT MICHAEL
HEAD
...............................................................................
THIRD
APPLICANT
And
STEVEN
LEGGATT
.........................................................................................
FIRST
RESPONDENT
SHERIFF OF THE
HIGH COURT,
JOHANNESBURG
NORTH
........................................................................
SECOND
RESPONDENT
ELIXA (PTY)
LIMITED
.................................................................................
THIRD
RESPONDENT
JOSEPH ELWIN
HORNE
...........................................................................
FOURTH
RESPONDENT
THE COMPANIES &
INTELLECTUAL
PROPERTY
REGISTRATION OFFICE
(REGISTRAR OF
COMPANIES)
...................................................................
FIFTH
RESPONDENT
JUDGMENT
EF DIPPENAAR AJ
[1] This is an
application in which the Applicants, the trustees of the Nedbank
Group (1994) Employee Share Purchase Trust (“the
trust”),
seek certain declaratory relief regarding the validity of a pledge in
respect of 3578 Nedcor Limited shares owned
by the Fourth Respondent.
[2] At the outset of
the hearing, the Applicants sought an amendment of their notice of
motion altering the declaratory relief sought,
which was not opposed
and was accordingly granted.
[3] In its amended
notice of motion, the Applicants seek the following relief:
[3.1] A declaratory
order that the sale in execution of the 3 578 Nedcor limited shares
are subject to the pledge held by the trust
granted to it by the
Fourth Respondent as security for the Fourth Respondent’s
obligations in terms of a loan granted to
the Fourth Respondent by
the trust.
[3.2] A declaratory
order that the First Respondent as the purchaser of the shares,
pursuant to the sale in execution, acquired
the Fourth Respondent’s
interest in the shares subject to the pledge granted to the trust by
the Fourth Respondent.
[3.3] An order
directing the First and Third Respondents to pay the costs of the
application.
[4] The application
is opposed by the First and Third Respondents, the First Respondent
acting in his capacity as director of the
Third Respondent.
[5] Neither of the
parties has sought the referral of the matter to oral evidence and
the parties are in agreement that the matter
is to be determined on
the papers. I specifically asked Mr Smith, who appeared for the
Applicants whether a referral to oral evidence
would clarify the
issues surrounding the Nedbank documentation and the existence of the
pledge. He indicated that it would not
and disavowed any reliance on
a request for such referral. I have been specifically requested by
the Third Respondent to make a
finding on the existence of the pledge
in order to in order to resolve the issue as between the parties and
to avoid future litigation
on the same point.
[6] The issues to be
determined are: first; whether a valid pledge was in place in favour
of the trust at the time when the 3 857
Nedcor Limited shares (“the
shares”) were attached and sold by the Sheriff and secondly,
whether the First Respondent
acquired the shares subject to the said
pledge. In the original notice of motion, the Applicants sought the
setting aside of the
sale in execution, which relief has now been
abandoned.
[7] For its pledge,
the Applicants rely on a written loan agreement concluded on or about
12 May 1998 between the trust and the
Fourth Respondent in terms
whereof:
[7.1] the trust
agreed to lend the sum of R407 398.40 by payment to the Fourth
Respondent;
[7.2] the Fourth
Respondent was obliged and undertook to use the proceeds of the loan
solely and exclusively for the purpose of
the discharge of any
liability that the Fourth Respondent may have at the time of
signature of the loan or at any future date pursuant
to and/or
arising from the exercise by the Fourth Respondent of any option or
other right which the Fourth Respondent may have
obtained or in terms
of the trust and/or employee share option scheme;
[7.3] the Fourth
Respondent would not be entitled to dispose of any of the shares
until the loan granted to it by the trust had
been repaid in full;
and
[7.4] as security
for the loan granted to the Fourth Respondent by the trust the Fourth
Respondent pledged the shares to the trust.
[8] The relevant
clause of the agreement in which the pledge is contained, provides as
follows:
“2.4 As
security for the Debtor’s obligations in terms of this loan,
the Debtor shall lodge with the trust in pledge
all shares in Nedcor
Limited acquired by him through the use of the proceeds of this
loan....together with such additional Nedcor
Ltd shares owned by the
Debtor as will from time to time constitute in value...not less than
two times the amount of the balance
of the capital of the loan
outstanding from time to time....”
[9] Relying on this
clause, the Applicants contend that the Fourth Respondent pursuant to
the conclusion of the agreement purchased
3488 ordinary Nedcor
Limited shares and pledged same to the trust and later purchased and
pledged further shares in a similar fashion,
so that, at the date of
the sale in execution, the total number of shares held in the Fourth
Respondent’s scrip account was
3 857. They further contend that
the Fourth Respondent is presently indebted to the trust in an amount
of R1 182 295.89, that the
amount of R407 398.48 advanced to purchase
the shares, together with interest (“the loan”) has not
been repaid to the
trust by the Fourth Respondent and accordingly
that the shares remain subject to the pledge granted to the trust by
the Fourth
Respondent in terms of the loan agreement.
[10] The Third
Respondent attacks the validity of the pledge on three main grounds:
First, that the pledge was not registered as
required by the Security
Services Act 36 of 2004 and consequently, no pledge was effected;
secondly, the underlying indebtedness
of the Fourth Respondent to the
trust has been extinguished and the pledge accordingly fell away and
thirdly, that factually, the
Applicants have failed to prove a valid
pledge.
[11] The relevant
common cause background facts are the following: During 2008 the
Third Respondent instituted action against the
Fourth Respondent
under case number 9325/08 in respect of monies lent and advanced by
it to the Fourth Respondent. Summary judgment
was granted in its
favour on 15 April 2008. Pursuant thereto, a writ of execution was
issued by the Third Respondent on 10 December
2008, the shares were
attached at the instance of the Third Respondent on or about 15
December 2008 and sold in execution to it
on 7 April 2009 by the
sheriff. The trust does not challenge the validity of the judgment
against the Fourth Respondent nor the
validity of the writ of
execution.
[12] The trust
received notice of the attachment at the time that the attachment was
effected in December 2008. The trust referred
the matter to the legal
department of Nedbank Limited (“Nedbank”). Nedbank (who
is not a party to this application
but whom the Applicants contend
assisted the trust in its administration) apparently gave an
instruction to BOE not to transfer
the shares at the request of the
Third Respondent. The trust did not at the time contact the sheriff
nor were directions or submissions
made to the sheriff or the Third
Respondent’s attorneys by the trust.
[13] The sale in
execution proceeded on 7 April 2009 and the shares were sold. There
is no challenge to the procedure followed
by the sheriff and no
contention is made that there were any irregularities in the sale per
se.
[14] The Third
Respondent contends that it is the rightful owner of the shares and
entitled to transfer thereof from BOE, thus having
purchased the
shares at the aforesaid sale in execution.
[15] Nedbank had
instituted two separate actions against the Fourth Respondent in this
court under case numbers 22527/06 and 829/07
respectively.
[16] Nedbank issued
summons under case number 06/22527 and obtained judgment against the
Fourth Respondent in respect of the loan
account here at issue.
[17] The Applicants
contend in reply that this judgment was erroneously obtained and
sough as Nedbank never had locus standi to
institute the action. No
steps have been taken by it to rescind the judgment, although it has
professed its intention to do so.
[18] The Applicants
explain the transactions which occurred thus:
[18.1] In order to
facilitate the financial and administrative record keeping of the
trust, Nedbank initially offered the trust
a facility to record the
entries on the accounts held by the trust with its employees on the
Nedbank system. This was merely an
administrative function.
[18.2] In order to
reflect debt owed to the trust by the Fourth Respondent, an account
with number 118100110 (“the loan account”)
was opened on
Nedbank’s system. This function was taken over by BOE
Stockbrokers (Pty) Limited (“BOE”) during
or about August
2008 and subsequently by its subsidiary, Molebedi Trust.
[18.3] Initially,
the trust received funding from Nedbank, which was during about
November 2006 taken over by BOE. Significantly
the nature and extent
of this funding is not explained on the papers.
[18.4] The Fourth
Respondent was advised that all existing loans would be transferred
from Nedbank to BOE. The aforesaid account
was later transferred to
an account at BOE under account number 1459627.
[18.5] It is
alleged, without detailed explanation that the opening of the loan
account on the Nedbank system did not extinguish
the debt owed to the
trust or relinquish the pledge of the shares to the trust, but merely
recorded the Fourth Respondent’s
indebtedness to the trust.
[19] On 2 November
2006 and prior to the summons being issued against the Fourth
Respondent by Nedbank, the amount of R861 730.89
reflecting the
outstanding amount owed by the Fourth Respondent in respect of the
purchase of the shares was repaid to Nedbank
the previous funder of
the trust by BOE. It may accordingly well be that on the papers, the
indebtedness of the Fourth Respondent
was not to Nedbank but to BOE,
but that is not an issue which I am called upon to decide.
[20] I do not
however agree with the Applicants’ contention that these facts
indicate that the liability is one of the Fourth
Respondent to the
trust. The payment by BOE to Nedbank rather indicates that the
liability was to Nedbank. The details of the agreement
between
Nedbank and BOE have not been disclosed in the papers and I shall
refrain from speculating on this issue.
[21] The Applicants
in their founding affidavit as proof of the underlying indebtedness
between the trust and the Fourth Respondent
rely on a certificate of
balance which however reflects that the debt is owed to BOE and does
not render any support for their
version. In the replying affidavit
it is stated that the certificate is wrong and it is replaced by a
document which reflects that
as at 31 July 2009, the Fourth
Respondent was indebted to “Nedcor Group (1994) Employee
Purchase Trust Ltd”, which
is also not the trust. These
documents are inherently contradictory and do not support the
Applicants’ version.
[22] The First and
Third Respondents contend that the actions of Nedbank and the
available documentation indicate that the liability
of the Fourth
Respondent to the trust was in the circumstances extinguished and
that Nedbank took over the liability of the trust,
which was later
transferred to BOE. It is common cause that no pledge of the shares
exists in favour of Nedbank or BOE.
[23] The First and
Third Respondents further contend that the loan amount has been
repaid and accordingly that the pledge on the
shares had been
extinguished as a result of the judgment taken by Nedbank.
[24] In my view and
on a conspectus of the papers:
[24.1] BOE was of
the view that the debt was owed by the Fourth Respondent to it as
certified in the founding papers;
[24.2] Nedbank was
until recently of the view that the Fourth Respondent’s debt
was owed to Nedbank, as was certified in proceedings
against the
Fourth Respondent in this court by Nedbank;
[24.3] The latter
view was shared by the Applicants as it was Nedbank (and not the
Applicants on behalf of the trust) that issued
summons claiming the
debt from the Fourth Respondent;
[24.4] Nedbank
confirmed the existence of the Fourth Respondent’s liability to
it under oath in the summary judgment proceedings
launched by it in
which it claimed the debt from the Fourth Respondent;
[24.5] On receipt of
the Fourth Respondent’s affidavit resisting the aforesaid
summary judgment application in which he sets
out the origin of the
loan account in terms of which the shares were purchased, Nedbank,
who employs each of the Applicants, persisted
in its application and
took judgment against the Fourth Respondent for the amount
outstanding.
[24.6] The
Applicants’ contentions that all the previous official bank
actions taken, including the certificates previously
issued, the
summons issued against the Fourth Respondent and the judgment taken
against him, were all incorrect, remain unmotivated
and are in my
view not satisfactorily explained.
[24.7] The only
objective evidence that the trust proffers to support the allegation
that this loan account arrangement was not
a relationship between
Nedbank and the Fourth Respondent is that there was a “funding
agreement” between Nedbank and
the trust and later between BOE
and the trust following a transfer from Nedbank to BOE. Pursuant to a
notice in terms of Rule 35(12),
the Applicants could however not
produce or identify any funding agreement and the Applicants could
not even state whether it was
a written or verbal agreement. In my
view, this is a distinct shortcoming in the Applicants’ case
and it appears that the
Applicants are attempting to reconstruct a
case from inferences drawn from documents which do not support such
inferences.
[24.8] The trust’s
reliance on the various statements attached to their papers do not
assist their cause in that the transfer
from Nedbank to BOE records
the initiating transaction in the BOE account as “Nedbank loan
repayment” and does not
refer to the trust. In my view, and
from the available evidence and documents, there is no probability
emerging therefrom that
the money was owed to the trust. The converse
appears more probable.
[25] Furthermore,
the Applicants do not in their founding papers, make out a case for a
pledge and seek to do so in reply. This
approach should not be
countenanced. See: Johannesburg City Council v Bruma Thirty Two (
Pty) Ltd,
1984 (4) SA 87
(T); Triomf Kunsmis (Edms) Bpk v AE&CI
Bpk,
1974 (2) SA 261
(W). For the reasons stated above, I am in any
event not satisfied that the further evidence provided in the
replying affidavit
makes out a case for a valid pledge.
[26] The Third
Respondent, based on the available documents, contends that after the
loan agreement had been concluded between the
trust and the Fourth
Respondent, an account was opened by Nedbank and not the trust for
the Fourth Respondent and that Nedbank
had debited the loan account
with the purchase price of the shares and paid the Fourth
Respondent’s liability to the trust.
It accordingly assumed the
debt and from that time, the loan agreement which existed was between
the Fourth Respondent and Nedbank
and not the agreement relied on by
the Applicants, which fell away as the underlying debt was
extinguished when the principal debt
owed to the trust by the Fourth
Respondent was discharged. It is trite law that if the underlying
debt was distinguished, the pledge
fell away. See: Standard Bank of
SA Limited v Neethling NO,
1958 (2) SA 25
(C) 30A-D and Grobler v
Oosthuizen,
2009 (5) SA 500
SCA, paragraph [20].
[27] In my view,
there is merit in this argument. This construction is borne out by
the contents of the papers filed in the aforementioned
proceedings
under case number 06/22527 and is supported by the version of the
Fourth Respondent provided under oath at the time
in summary judgment
proceedings under case number 07/829. Ex facie the documentation
relied upon in the application papers, the
indebtedness of the Fourth
Respondent was to Nedbank and later to BOE and no liability to the
trust appears therefrom. The Applicants
bear the risk of any
confusion occasioned hereby in the absence of a request for a
referral to oral evidence to clarify these issues.
[28] It appears from
a conspectus of the papers that the Applicants have in the
circumstances in my view failed to discharge any
onus regarding the
underlying indebtedness of the Fourth Respondent to it.
[29] Moreover, no
pledge was registered in terms of and as required by Section 43 of
the Security Services Act 36 of 2004. It is
common cause between the
parties that the statements of account which were sent to the Fourth
Respondent bear no sign of any pledge
being held over the shares,
either by Nedbank, BOE or the trust and the records of Nedbank and
BOE do not bear any endorsement
to this effect, as is required by
rules 6.7.2 and specifically 6.7.4.3 of the Rules of Share
Transactions Totally Electronically
Limited (“STRATE”)
published under GN2190 in GG20476 of 23 September 1999, as amended.
Rule 6.7.4.3 provides: “Where
a Participant records a pledge or
cession to secure a debt on behalf of a Client in a Securities
account ... it must, in its statements
to its Clients, indicate which
Securities have been pledged or ceded and specify the nominal amount
or number of such Securities...”.
[30] No registration
of the pledge appears ex facie the relevant documents and there is no
notification of the pledge to third parties
without reference to
extrinsic evidence as is required by the Security Services Act. See:
Ikea Trading and Design AG v BOE Bank
Limited,
2005 (2) SA 7
(SCA),
p15, paragraphs [13] to [22]. There also appears to have been no
compliance with Section 91(A) of the Companies Act, 1973
as the
shares were and remain to be listed as uncertificated securities in
terms of the said section. At the time of the attachment,
there was
no pledge registered and consequently no valid pledge was affected.
[31] Mindful of the
test enunciated in relation to the adjudication of motion proceedings
in Plascon-Evans Paints Ltd v Van Riebeeck
Paints (Pty) Ltd,
[1984] ZASCA 51
;
1984 (3)
SA 623
(A) at 634 – 635, the Applicants have, in my view,
failed to prove that they are entitled to relief and have not proved
the existence of a valid pledge.
[32] In light of the
amendment of the Applicants’ notice of motion, it is not
necessary for me to deal with the issue whether
the existence of a
pledge precludes a sale in execution. In my view, such relief was
properly abandoned by the Applicants as the
Uniform Rules of Court
provide for such eventuality in Uniform Rule 45(8) and 45(10).
[33] I accordingly
make the following order:
[33.1] The
application is dismissed with costs.
EF DIPPENAAR
ACTING JUDGE OF
THE HIGH COURT
Date of hearing :
10 May 2010
Date of judgement
: 24 November 2010
For Applicants :
Adv H Smith
Cliffe Dekker
Hofmeyer Inc
For First and
Third Respondents : Adv DA Turner
Adv K S McLean
Knowles Husain
Lindsay Inc