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[2013] ZASCA 22
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Dulce Vita CC v van Coller and Others (192/12) [2013] ZASCA 22; [2013] 2 All SA 646 (SCA) (22 March 2013)
THE
SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT
REPORTABLE
Case
No: 192/12
In
the matter between:
DULCE
VITA CC
.......................................................................................................
APPELLANT
and
ADV
CHRIS VAN COLLER
........................................................................
FIRST
RESPONDENT
JACOBUS
HENDRIK SCHABORT
.......................................................
SECOND
RESPONDENT
THEODOR
WILLEM V D HEEVER
...........................................................
THIRD
RESPONDENT
PAUL
DANEEL KRUGER
.....................................................................
FOURTH
RESPONDENT
PHILLIP
DAVID BERMAN
.........................................................................
FIFTH
RESPONDENT
MAHOMED
BHAROOCHI
.........................................................................
SIXTH
RESPONDENT
HUSEIN
BHAROOCHI
.........................................................................
SEVENTH
RESPONDENT
THE
LIQUIDATORS OF SPITSKOP VILLAGE (PTY) LTD
(IN
LIQUIDATION)
..................................................................................
EIGHTH
RESPONDENT
MASTER
OF THE NORTH GAUTENG HIGH COURT
...........................
NINETH RESPONDENT
MASTER
OF THE HIGH COURT CAPE TOWN
......................................
TENTH
RESPONDENT
MR
W L STEENKAMP
......................................................................
ELEVENTH
RESPONDENT
GERT
PETRUS JACOBUS VAN ASWEGEN
.....................................
TWELFTH RESPONDENT
M
BHAROOCHI & ANOTHER
.......................................................
THIRTEENTH
RESPONDENT
MATTHYS
ISAK CRONJE NO
....................................................
FOURTEENTH
RESPONDENT
Neutral
citation
:
Dulce Vita v Chris van Coller
(192/12)
[2013]
ZASCA 22
(22 March 2013)
Coram:
MALAN, TSHIQI, MAJIEDT, PETSE JJA AND SOUTHWOOD AJA
Heard:
20 February 2013
Delivered:
22 March 2013
Updated:
Summary:
Neither the contravention of s 11 of the Banks Act 94 of 1990, by
accepting deposits from investors in a ‘public
property
syndication scheme’ as defined in Notice 459 issued in terms of
the Consumer Affairs (Unfair Business Practices)
Act 71 of 1988 –
nor the failure to comply with that Notice, by withholding the
prescribed information – render the
scheme itself or the
agreements entered into to give effect to the scheme, unlawful and
null and void ab initio
.
____________________________________________________________________________________
ORDER
____________________________________________________________________________________
On appeal from:
North Gauteng High Court (Pretoria)
(Ismail J sitting as court of first instance):
I The appeal is upheld
with costs such costs to be paid by the liquidators of Spitskop
Village Properties Ltd (in liquidation) and
to include the costs of
two counsel.
II The order of the court
a quo is set aside and replaced with the following order:
‘
The
rule nisi is discharged with costs, such costs to be paid by the
liquidators of Spitskop Village Properties Ltd (in liquidation).’
__________
_______________________________________________________________________
JUDGMENT
__________
_______________________________________________________________________
SOUTHWOOD AJA (MALAN,
TSHIQI, MAJIEDT AND PETSE JJA CONCURRING):
[1] The issues to be
decided in this appeal are (a) whether the ‘public property
syndication scheme’ (the scheme) carried
on by Spitskop Village
Properties Ltd (Spitskop) was unlawful and void ab initio by virtue
of the provisions of the Banks Act 94
of 1990 and the regulations
issued in terms of the Consumer Affairs (Unfair Business Practices)
Act 71 of 1988 (Business Practices
Act) and (b) whether all the
agreements entered into pursuant to that scheme, particularly the
agreements in terms of which investors
invested in the scheme, the
trust deed in terms of which the Steelpoort Debenture Trust (the
Trust) was created and the mortgage
bond registered over Spitskop’s
property in favour of the Trust, were unlawful and null and void ab
initio as the court a
quo (Ismail J, sitting in the North Gauteng
High Court, Pretoria) declared.
[2] At the centre of the
scheme were two men, Hendrik Christoffel Lamprecht (Lamprecht) and
Jacobus Johannes van Zyl (Van Zyl),
and the company of which they
were directors, Bluezone Property Investments (Pty) Ltd (Bluezone),
who conceived of and promoted
the Spitskop Property Development which
was the object of the scheme.
The Spitskop
Property Development envisaged the subdivision of the property in
accordance with a general plan for the property showing
public
spaces, public amenities, road portions and at least 2,500
residential erven, which necessitated the design and construction
of
the requisite services and, generally, the design, planning and
construction of the township.
Lamprecht and Van Zyl were
businessmen and Bluezone was a member of the Bluezone group of
companies.
[3] The properties
involved are portions 6 and 7 of the farm Spitskop 333 which is
situated in Mpumalanga, and together measure
just over 198 hectares
(the property). From the date of its purchase by Spitskop on 3 July
2006, until the liquidation of Spitskop
on 21 August 2009 the
property remained agricultural land.
[4] On 23 April 2003 Blue
Dot Properties 1330 CC (Blue Dot), of which Lamprecht was the sole
member, purchased the property for
R1 000 057. On 1 August 2003 the
close corporation was converted to a company, Blue Dot Properties
1330 (Pty) Ltd, with an authorised
and issued share capital of R1 000
divided into 1000 ordinary par value shares of R1 each. Lamprecht was
the sole subscriber to
the memorandum of association and the sole
member and director. On 1 October 2003 Van Zyl acquired 100 shares
from Lamprecht and
became a director of the company. On 9 June 2004
the authorised share capital was increased to R2 000 divided into
2000 ordinary
shares of R1 each.
[5] On 18 March 2005
Bluezone was incorporated as a private company with an authorised
share capital of R1 000 divided into 1000
ordinary par value shares
of R1 each. On incorporation, Lamprecht was the sole director and his
family trust the shareholder. On
4 August 2005 Van Zyl, Durandt van
Zyl and Izak Jacobus Martinus van Niekerk also became directors and
on 18 August 2006 Herman
Bester became a director and company
secretary. All the shares were then held by trusts of which Van
Niekerk, Van Zyl, Durandt
van Zyl and one Paul de Waal were
beneficiaries.
[6] Bluezone was
incorporated to carry on business by means of property syndication
schemes and for this purpose ten other companies
were incorporated in
2005. These were joined in 2006 by Bluezone International Properties
(Pty) Ltd and Spitskop. Lamprecht was
a director of all these
companies. Van Zyl, Durandt van Zyl, Van Niekerk and Bester were also
directors of a number of these companies,
including Bluezone and
Spitskop. The modus operandi adopted was that Bluezone would find a
property to purchase and would then
identify a company in the group
to acquire and hold the property to be used in the syndication.
[7] On 30 March 2006 the
Minister of Trade and Industry, acting in terms of s 12(6) of the
Business Practices Act published Notice
459 of 2006 (Notice 459) in
Government Gazette No 28690 in which two ‘business practices’,
as defined in the Notice,
were declared unlawful with effect from 30
March 2006 and persons were directed to (a) refrain from applying the
unfair business
practices and (b) refrain at any time from applying
the unfair business practices.
The business practice
relevant in this case was defined as─
‘
the
business practice whereby the prescribed information, in part or
otherwise, as stipulated in annexure “A” is withheld
by
promoters or their representatives from investors or potential
investors in public property syndication schemes’;
a ‘public property
syndication scheme’ was defined as-
‘
the
assembly of a group of investors invited, by word of mouth or through
the use of electronic and print media, inter alia, radio,
television,
telephone, newspaper and magazine advertising, brochures and direct
mail, to participate in such schemes by investing
in entities, which
could be companies, close corporations, trusts, partnerships or
individuals,
whose sole asset(s) are commercial, retail, industrial or residential
properties, and where investors share in the
profits and losses in
these properties and or enjoy the benefits of net rental growth
therefrom through proportionate share of
income’;
and the ‘prescribed
information’ meant─
‘
the
prescribed information as stipulated in annexure marked “A”.’
A ‘promoter’
included a company and its directors and all other persons who were
actively involved in the forming and
establishment of a public
property syndication scheme. The Notice directed that promoters must
make available in a disclosure document
the prescribed information
(the details of which were set out in annexure ‘A’) to
investors who invest in or intend
to invest in public property
syndication schemes. The Notice also provided that any person who did
not comply with the requirements
of the Notice would commit a
criminal offence and would be liable on conviction to a fine not
exceeding R200 000 or to imprisonment
for a period not exceeding
five years, or to both that fine and that imprisonment.
1
[8] Spitskop was
incorporated on 18 April 2006 under the name of Copper Sunset Trading
236 Ltd with an authorised share capital
of R1 000 divided into 1000
ordinary par value shares of R1 each. On 18 April 2006 Lamprecht, Van
Zyl, Durandt van Zyl, Van Niekerk
and Bester were appointed its
directors. In June 2006 the company changed its name to Spitskop
Village Properties Ltd and also
changed its main object to ‘Property
Investments and Developments’.
[9] On 3 July 2006:
(a) Spitskop
and Blue Dot entered into an agreement in terms of which Spitskop
purchased the property from Blue Dot for a purchase
price of R118 300
000. This price included ‘an access fee’ of R26 million
which Spitskop would pay to Blue Dot for
allowing Spitskop access to
the property ‘for all purposes necessary . . . to obtain the
Requisite Consents’. This
access fee was to be paid within
seven days of signature of the agreement. Although the property was
undeveloped agricultural land
the agreement was not conditional on
Spitskop obtaining the right to develop a residential township on the
property. Blue Dot sold
the property to Spitskop voetstoots with no
rights or improvements. Payment of the balance of the purchase price
of R92 300 000
was to be effected on transfer of the property into
the name of Spitskop. Lamprecht signed the deed of sale on behalf of
Spitskop
and Van Zyl on behalf of Blue Dot. Both were present at the
two companies’ directors’ meetings when the resolutions
were passed to purchase and sell the property. The purchase price was
completely arbitrary and appears to have been a ‘thumb
suck’
on the part of Lamprecht and not based on a proper valuation of the
property. If it had been, the purchase price would
not have exceeded
R2 000 000;
2
(b) the authorised share
capital of Spitskop was increased to R425 000 divided into 425 000
ordinary par value shares of R1 each;
(c) Bluezone, as
promoter, issued a disclosure document which dealt in detail with the
scheme and the means by which investors could
purchase units issued
by Spitskop to enable Spitskop to raise the R425 million with which
it would acquire, develop and market
the property for the benefit of
the investors. Investors were promised interest on their investments
at about ten per cent per
annum during each of the three years that
it would take to complete the project and on completion could expect
a return on their
capital of 20 per cent. A unit consisted of a R1
share linked with a debenture of R999. An investor therefore had to
pay R1 000
for each unit, but in order to participate, had to
purchase at least 100 units; an investment of at least R100 000. The
terms and
conditions of the debentures were set out and the
disclosure document described the development project to be
undertaken by Spitskop
and provided a large amount of practical
detail;
(d) Spitskop and Bluezone
entered into a promoter agreement in terms of which Bluezone would be
paid a promoter’s fee for
promoting the scheme. The promoter’s
fee was R2 million, payable when the property was transferred into
the name of Spitskop,
plus 30% of actual nett sales in excess of the
projected nett sales of R524 770 000, payable on completion of the
project. For
purposes of the agreement, ‘completion’
meant that the residential erven comprising the development had been
commercially
exploited at the best prices available in the market.
Lamprecht signed the promoter agreement on behalf of both Spitskop
and Bluezone;
(e) Spitskop and African
Spirit Trading 261 (Pty) Ltd, of which Lamprecht was the sole
director, entered into a facilitator agreement
in terms of which, in
consideration for having facilitated the acquisition of the property
‘for a substantially discounted
purchase consideration’,
Spitskop undertook to pay to African Spirit Trading 261 (Pty) Ltd 15
per cent of the ‘junior
profit’ (the difference between
the actual project costs and the projected nett sales of R524 770
000) and 15 per cent of
the ‘senior profit’ (after
deducting the promoter’s fee, the actual nett sales in excess
of projected nett sales
of R524 770 000). Lamprecht signed the
facilitator agreement on behalf of Spitskop and Van Zyl on behalf of
African Spirit Trading
261 (Pty) Ltd;
(f) Van Zyl on behalf of
Spitskop and Nicolaas Johannes du Plessis signed the Steelpoort
Debenture Trust Deed. The obligations of
the Trust were (i) to
administer the rights of the debenture holders (the holders of the
linked units to be issued by Spitskop);
(ii) to ensure that
Spitskop was properly administered insofar as was necessary for the
purposes of the Deed; (iii) to register
and hold for the purposes of
the Deed the mortgage bond to be registered over the property in
favour of the Trustees to secure
the debentures; (iv) in the event of
a default of Spitskop as set out in the debenture terms and
conditions, to enforce the rights
of the debenture holders against
Spitskop in accordance with the terms and conditions of the
debentures and the powers of the Trustee
as set out in the Deed,
including the enforcement of the mortgage bond. In terms of the Trust
Deed Spitskop would pay the Trustee
a fixed annual fee of R120 000
payable in two instalments as well as a variable fee where the
Trustee was required to take active
steps in terms of the Deed.
[10] The Disclosure
Document (issued by Bluezone) referred to a number of professionals
who were going to be involved in implementing
the scheme:
(a) Honey Attorneys, who
were to receive into their trust account all funds received from
investors. Honey Attorneys also prepared
the Disclosure Document and
attended to the transfer of the property from Blue Dot to Spitskop;
(b) PDC Projects (Pty)
Ltd (PDC), which was to be appointed as project manager. Lamprecht on
behalf of Bluezone orally appointed
PDC at a fee of R220 000 per
month for a period of three years, which meant that PDC would be paid
a total of R7.92 million
excluding VAT;
(c) LED Inc, which was
appointed as the auditor.
[11] Bluezone provided
brokers with brochures and copies of the disclosure document and they
commenced the marketing of the scheme
to investors. In terms of the
scheme the investors were required to complete the application form
and pay the purchase price of
the units to Honey Attorneys. Some
investors did this before the offer was formally made in the
disclosure document on 3 July 2006.
By that date Honey Attorneys had
already received more than R20 million from investors. Subsequently,
about twelve hundred investors
subscribed for the units and by early
2009 all the units were taken up. Between 3 July 2006 and 31 December
2007 Spitskop received
approximately R350 million and by May 2008 the
full amount of R425 million.
[12] On 23 July 2007,
without insisting on transfer into its name, Spitskop paid the full
purchase price of the property (R118 300 000)
to Blue Dot.
Spitskop also paid VAT on the transaction which amounted to R16
million. The directors of Blue Dot immediately divided
the proceeds
of the sale. Lamprecht received R95 653 000; Van Zyl received
R5 500 000 and Bluezone R11 223 000.
[13] On 20 November 2007
Blue Dot transferred the property into the name of Spitskop and
Spitskop registered a mortgage bond in
favour of the Trust to secure
the indebtedness of Spitskop to the Trust in an amount of R425 000
000 and an additional amount of
R850 000 for costs.
[14] In the meantime,
Spitskop had from 3 July 2006 disbursed large amounts to Bluezone and
the various professionals that it had
employed. By 31 December 2007
Spitskop had received R351 491 254 and disbursed R269 939 305.
Despite making little or no progress
with the development, Spitskop
continued to disburse its funds. Although a large proportion of the
professional fees were disbursed
by 4 March 2009, there had been no
physical development of the property.
[15] It seems clear that
the property development was doomed to fail. Land claims had been
registered in terms of the Restitution
of Land Rights Act 22 of 94;
the holders of mineral rights over the property had not consented to
the development; Spitskop had
difficulty in complying with the
Provincial and Local Authorities’ requirements for the
establishment of the township and
there was no certainty that the
company would be able to provide the bulk services of water,
electricity and sewerage.
[16] In August 2009 a
number of investors brought an urgent application for the liquidation
of the company. It was common cause
that Spitskop had lost its
substratum and was unable to continue its operations. On 21 August
2009 the North Gauteng High Court,
Pretoria (Bertelsmann J) granted a
final order of liquidation.
[17] Shortly afterwards
the Master of the Western Cape High Court, the tenth respondent,
appointed Theodor Willem van den Heever,
the third respondent, Paul
Daneel Kruger, the fourth respondent and Phillip David Berman, the
fifth respondent, as provisional
liquidators of Spitskop.
[18] A first meeting of
creditors of Spitskop was arranged for 22 October 2009 to be held
before an officer of the Master of the
High Court, Cape Town, the
eleventh respondent.
[19] On 15 October 2009
Mahomed Bharoochi and Husein Bharoochi, in their capacities as
trustees of the MB Gran Trust, an investor
in Spitskop, urgently
sought and were granted in the North Gauteng High Court, Pretoria
(Molopa J) under case number 63649/2009
an order declaring that the
scheme operated by Spitskop Village Properties Ltd (in liquidation)
was unlawful. This final relief
was granted without service of the
papers on any other investors (there were more than 1200) who
obviously had a direct and substantial
interest in the relief sought,
or any other interested party. The papers were served only on the
three provisional liquidators
and the fourth respondent, Kruger,
acting without a mandate, instructed an advocate to appear on behalf
of the liquidators and
consent to the order, which he did.
[20] This order resulted
in the rejection of the investors’ claims which were presented
at the first creditors’ meeting
by Nicolaas Johannes du
Plessis, the trustee of the Trust. Du Plessis presented the claims on
the basis that the agreements to
invest and the debentures issued by
Spitskop were valid. The eleventh respondent was persuaded by the
liquidators’ representatives
that this was not correct.
[21] On 16 March 2010,
Gert Petrus Jacobus van Aswegen, the twelfth respondent, launched an
application in the North Gauteng High
Court, Pretoria, under case
number 16556/10 in which he sought as against the three provisional
liquidators, Van den Heever, Kruger
and Berman and the Bharoochis and
others, inter alia, (a) an order that the order granted in case
number 63649/09 on 15 October
2009 be rescinded and set aside; (b)
that the rejection of Van Aswegen’s and the other 1212
debenture creditors’ claims
at the first meeting of creditors
be set aside; (c) that the nomination of Van den Heever and Kruger as
final liquidators be set
aside; (d) that, pending any further orders
in case number 63649/09 (i) the Steelpoort Debenture Trust be
continued to be recognised
as a Trust in terms of its Trust Deed and
(ii) the Master of the High Court, Gauteng, appoint Matthys Isak
Cronjé as trustee
of the Trust.
[22] The second, third,
fourth, fifth and eighth respondents opposed the application and
Kruger deposed to an affidavit on behalf
of the liquidators. The
Bharoochis did not oppose the application but filed an affidavit to
explain the circumstances and reasons
for bringing the urgent
application.
[23] The
application was heard in November 2010. Only Van Aswegen and the
second, third, fourth, fifth and eighth respondents were
represented.
The parties agreed that the order made on 15 October 2009 must be set
aside and, after some debate, the court issued
a rule nisi
3
with the return date on 9 February 2011. The crucial
parts of the order were (a) that the syndication scheme conducted by
Spitskop
was declared illegal in terms of the Banks Act 94 of 1990
and in terms of the regulations issued in terms of the Harmful
Business
Practices Act 71 of 1988 and (b) that all agreements of
whatsoever nature pursuant to the syndication scheme were declared
null
and void ab initio,
particularly (i) the
agreements in terms of which investors invested in the scheme; (ii)
the trust deed of the Steelpoort Debenture
Trust and (iii) the
mortgage bond registered over the property in favour of the Trust.
[24] The return date was
extended to allow for two parties to intervene in the proceedings. On
8 February 2011 Matthys Isak Cronjé,
the new trustee of the
Trust, applied for leave to intervene to oppose the confirmation of
the rule and on 1 June 2011 the appellant,
Dulce Vita CC (Dulce
Vita), did the same. Kruger filed further affidavits in answer to the
intervening parties’ affidavits.
[25] On the
extended return date only the liquidators and the appellant were
represented. None of the applicants in case numbers
63649/09 and
16556/10 appeared. The court confirmed the rule at the instance of
the liquidators who had launched a counter application
for the relief
sought in the rule nisi.
The
court a quo seems to have accepted an argument that the scheme was
illegal because it was based on ‘common law fraud’
and
consequently that the agreements were all
contra
bonos mores
but did
not deal with the issues referred to in the rule nisi.
Unfortunately, neither the court that issued the rule
nisi nor the court that confirmed the rule satisfactorily explained
why the
scheme and the agreements entered into pursuant to the scheme
were unlawful. These are the two substantive issues to be decided
in
this appeal.
[26] Before
considering these issues it is necessary to decide the preliminary
issue raised by the liquidators just before the hearing
in this
Court: that Dulce Vita had no locus standi to oppose the order sought
in the rule nisi and has no locus standi to appeal
against the
confirmation of the rule.
4
According to the argument this is because Dulce Vita
failed to show that it was an investor in the scheme. This requires a
consideration
of the way this was averred by Dulce Vita and dealt
with by the liquidators in the affidavits.
[27] Dulce Vita’s
application to intervene was supported by a short affidavit deposed
to by Quintin Olivier, a chartered accountant,
who was a member of
the close corporation. Olivier attached to this affidavit a second
affidavit which he had deposed to, in which
he set out Dulce Vita’s
evidence and contentions in some detail. In the first affidavit he
alleged that in August 2007 Dulce
Vita had invested an amount of R100
000 in Spitskop. In the second affidavit he repeated this allegation
and stated that Dulce
Vita was a creditor of the company in
liquidation. The fourth respondent, Kruger, answered both affidavits
in the same way. He
did not dispute the allegations. He merely noted
them and observed that Dulce Vita had not annexed any of the
documents which it
should have received in order to substantiate the
investment and accordingly that it could not be determined ‘at
this stage’
whether or not Dulce Vita was in fact an investor.
Presumably, because its allegations were not disputed, Dulce Vita did
not file
a replying affidavit.
[28] Counsel for the
liquidators contended that Dulce Vita cannot be a member because
Dulce Vita’s name does not appear in
the lists of investors
attached to the Trustee’s affidavit which was submitted in
proof of creditors’ claims at the
first meeting of creditors
and which had been filed earlier in these proceedings.
[29] By the time Kruger
deposed to his affidavit he had been a liquidator of the company for
about two years. He had played a leading
role in the litigation and
he obviously had access to its books and records. In these
circumstances it cannot be found that Kruger’s
affidavit
created a dispute of fact on the issue of whether Dulce Vita had paid
R100 000 to become an investor in the scheme. Kruger
did not
pertinently dispute Olivier’s allegations about the investment
and he somewhat disingenuously attempted to create
doubt about its
veracity. If Kruger had denied the allegations Dulce Vita could have
dealt with the issue in a further affidavit.
In my view the proper
approach to the situation is that outlined in
Wightman t/a JW
Construction v Headfour (Pty) Ltd & another
[2008] ZASCA 6
;
2008 (3) SA 371
(SCA) para 13:
‘
A
real, genuine and bona fide dispute of fact can exist only where the
court is satisfied that the party who purports to raise the
dispute
has in his affidavit seriously and unambiguously addressed the fact
said to be disputed. There will of course be instances
where a bare
denial meets the requirement because there is no other way open to
the disputing party and nothing more can therefore
be expected of
him. But even that may not be sufficient if the fact averred lies
purely within the knowledge of the averring party
and no basis is
laid for disputing the veracity or accuracy of the averment. When the
facts averred are such that the disputing
party must necessarily
possess knowledge of them and be able to provide an answer (or
countervailing evidence) if they be not true
or accurate but, instead
of doing so, rests his case on a bare or ambiguous denial the court
will generally have difficulty in
finding that the test is satisfied.
I say “generally” because factual averments seldom stand
apart from a broader matrix
of circumstances all of which needs to be
borne in mind when arriving at a decision. A litigant may not
necessarily recognise or
understand the nuances of a bare or general
denial as against a real attempt to grapple with all relevant factual
allegations made
by the other party. But when he signs the answering
affidavit, he commits himself to its contents, inadequate as they may
be, and
will only in exceptional circumstances be permitted to
disavow them. There is thus a serious duty imposed upon a legal
advisor
who settles an answering affidavit to ascertain and engage
with facts which his client disputes and to reflect such disputes
fully
and accurately in the answering affidavit. If that does not
happen it should come as no surprise that the court takes a robust
view of the matter.’
The liquidators must live
with the consequences. They cannot now rely on other documents in the
record to refute Dulce Vita’s
allegations that it made the
investment. It is therefore accepted that Dulce Vita was and is a
creditor of Spitskop and had locus
standi to oppose the confirmation
of the rule nisi and has locus standi in this appeal. I now turn to
the real issues in the appeal.
[30] The
liquidators’ case was based solely on contraventions of Notice
459 and s 11 of the Banks Act.
5
Before the court a quo could declare the whole scheme
and the agreements entered into pursuant thereto unlawful and null
and void
ab initio,
it had to find in respect of
one or both of the alleged contraventions:
(a) that Spitskop or
Bluezone had contravened the relevant provision;
(b) that a contravention
of the relevant provision rendered the whole scheme unlawful; and
(c) that if the whole
scheme was unlawful, that rendered all the agreements entered into
pursuant to the scheme unlawful and null
and void ab initio.
In making these findings
the court had to bear in mind that a scheme, as defined in this
notice, is a systematic plan for the development,
marketing and
selling of a property, or properties, for the benefit of the
investors who invest in the scheme. To achieve their
object the
promoters must enter into a multiplicity of agreements, first, to
obtain the necessary finance from the investors, and
then to acquire,
develop, market and sell the property or properties. Against that
background I shall first consider the contravention
of Notice 459.
[31] The provisions of
the Notice have already been referred to. They clearly and
unambiguously declare the two defined ‘business
practices’
unlawful. The relevant ‘business practice’ is the
withholding of the prescribed information. The appellant
does not
dispute that Spitskop and Bluezone withheld prescribed information in
a number of important respects. There was therefore
a contravention
of the Notice.
[32] As far as the second
and third questions are concerned it is clear that the purpose of the
notice was to declare only the two
defined business practices
unlawful. There is no indication in the notice that the Minister
intended that if promoters withheld
the prescribed information in
relation to a particular scheme that scheme would also be unlawful.
The notice simply cannot be sensibly
interpreted in that way.
Nevertheless the liquidators’ counsel contended that even if
this was not expressly stated in the
Notice it was clearly the
intention that if promoters withheld prescribed information in
relation to a particular scheme the scheme
itself would be unlawful.
In this regard reliance was placed on the provisions of Notice 1135
of 1999 issued by the Minister on
6 June 2009 in terms of s 12(6) of
the Business Practices Act in connection with
inter alia
‘pyramid
proportional schemes’ as defined, as well as the unreported
judgment of Hartzenberg J in
Philip Fourie NO & others v
Christiaan Serfontein Edeling & others
TPD Case No 1288/2003
February 2003 which was confirmed on appeal on the relevant issue by
this Court in
Fourie NO & others v Edeling NO & others
[2005] 4 All SA 393
(SCA). Hartzenberg J found that Notice 1135
identified a ‘pyramid scheme’ as a ‘harmful
business practice’
and declared it unlawful and further that
the scheme in question was such a pyramid scheme and was therefore
unlawful. Consequently
he found that the effect was that all
individual contracts were void. He also based this finding on the
fact that every investment
contract was
contra bonos mores
because the pyramid scheme was fraudulent in terms of the common law.
On appeal to this Court the finding does not appear to have
been the
subject of any debate. The Court said simply─
‘
[a]ll
loans made to the scheme were ─ in the light of at least the
provisions of s 11 of the Banks Act 94 of 1990 and a prohibition
under the Consumer Affairs (Unfair Business Practices) Act 71 of 1988
─ illegal and therefore void; this proposition of law
is
uncontested.’
[33] There
is a marked difference between the wording of the two notices which
clearly reflects the difference in intention. In
Notice 1135 the
intention is clearly to outlaw pyramid schemes. In Notice 459 the
intention is clearly to outlaw the business practices
and not the
public property syndication schemes. If the Minister had intended to
do so she could easily have provided for this
expressly. There would
also be good commercial reasons for not declaring the whole scheme
unlawful because the promoters withheld
prescribed information. The
information concerned could be insignificant and have no effect on
the viability of the scheme and
investors may wish to remain invested
in the scheme to receive the benefits which they anticipated. The
Minister was obviously
satisfied that the severe criminal sanction
contained in the Notice be the only consequence of a contravention.
6
The liquidators’ reliance on Notice 1135 and the
two judgments is therefore misplaced. The fact that the promoters did
not
disclose the prescribed information and were guilty of not
complying with the requirements of Notice 459 therefore did not have
the effect that the whole scheme or any part of it was unlawful.
Consequently there was no basis for finding that all the agreements
entered into pursuant to the scheme were null and void ab initio.
[34] As far
as the Banks Act is concerned the first question to be answered is
whether Spitskop contravened the provisions of s
11 which prohibits
any person from conducting the business of a bank unless such person
is a public company and is registered as
a bank in terms of the Banks
Act.
7
The primary business of a bank is defined in the Act as
‘the acceptance of deposits from the general public (including
persons
in the employ of the person so accepting deposits) as a
regular feature of the business in question’. The word
‘deposit’
is broadly defined and it is not in dispute
that by receiving payment for the debentures Spitskop accepted
deposits from the general
public as a regular feature of its
business. Most of the argument dealt with the question of whether
Spitskop’s acceptance
of the deposits against the issue of
debentures was excluded from ‘the business of a bank’
because of the then provisions
of para (
ee
)
of the definition or whether this was nullified by a notice issued
pursuant to para (
cc
)
of the definition with which Spitskop’s debentures admittedly
did not comply. Because of the view I take of the other questions
it
is not necessary to deal with this issue.
[35] The
difficulty facing the liquidators is simply that neither of the last
two questions can be answered in the affirmative.
The liquidators
have not explained how the contravention of the Banks Act could
result in the whole scheme being unlawful. There
is no provision in
the Banks Act which provides or even indicates that if the promoter
of a public property syndication scheme,
in contravention of the
Banks Act, raises funds by accepting loans against the issue of
debentures this would have the effect that
the whole scheme is
unlawful. Furthermore, this Court in
Gazit
Properties v Botha & others NNO
2012 (2)
SA 306
(SCA) held that a contravention of the Banks Act does not
result in the illegality of the agreements in terms of which deposits
are made.
8
In
Gazit
the
Court had to decide whether an agreement to lend money to a company
which was unlawfully carrying on the business of a bank
in
contravention of s 11 of the Banks Act was unlawful because it was
‘tainted’. The court held that there is nothing
in the
Act which leads to that conclusion and that the provisions of s 83
‘which empower the Registrar of Banks to direct
the repayment
of money unlawfully obtained while unlawfully carrying on the
business of a bank to repay such money, lead[s] ineluctably
to the
opposite conclusion’.
9
This conclusion in the judgment, contrary to the
respondents’ counsels’ contention, is directly on point
and has not
been attacked as clearly wrong. It follows that if the
loan agreements were not unlawful none of the other agreements such
as the
Trust Deed and Mortgage Bond were unlawful.
[36] The court a quo
therefore erred in finding that the whole scheme was unlawful because
Spitskop had contravened the provisions
of Notice 459 and s 11 of the
Banks Act and accordingly that the agreements entered into to
implement the scheme were null and
void ab initio. Accordingly the
appeal must be upheld.
[37] Despite this
conclusion it is clear that the promoters of the scheme, Lamprecht,
Van Zyl, Durandt van Zyl, Van Niekerk and
Bester, used a number of
legal instruments to induce the gullible and the injudicious to
invest large amounts of money in a scheme
which, when properly
analysed, never had a reasonable prospect of succeeding. It is also
clear that some of the promoters abused
their positions to pay
themselves very large amounts from the funds which Spitskop had
received. The evidence indicates that some,
if not all, of the
promoters, and possibly others, carried on the business of Spitskop
recklessly or with intent to defraud the
investors and are both
civilly and criminally liable in terms of section 424 read with s 441
of the Companies Act 61 of 1973; that
the promoters, and possibly
others, did not comply with the requirements of Notice 459 and
therefore committed a criminal offence
punishable by a fine not
exceeding R200 000 and or imprisonment for a period not exceeding
five years, or by both that fine and
that imprisonment; and that the
promoters contravened s 11 of the Banks Act 94 of 1990 and are liable
to a fine or to imprisonment
for a period not exceeding ten years or
to both such fine and imprisonment.
[38] The following order
is made:
I The appeal is upheld
with costs such costs to be paid by the liquidators of Spitskop
Village Properties Ltd (in liquidation) and
to include the costs of
two counsel.
II The order of the court
a quo is set aside and replaced with the following order:
‘
The
rule nisi is discharged with costs, such costs to be paid by the
liquidators of Spitskop Village Properties Ltd (in liquidation)’.
________________________
B R SOUTHWOOD
ACTING JUDGE OF APPEAL
APPEARANCES
APPELLANT: K J Kemp SC
(with him B Pretorius)
J P Kuyshaar Attorneys,
c/o Burenu Avenue & Kerk Street, Pretoria
Christo Dippenaar
Attorneys, Bloemfontein
RESPONDENTS: 2
nd
,
3
rd
, 4
th
, 5
th
and 8
th
: C
E Puckrin SC (with him M A Badenhorst SC and J Hershensohn)
Schabort Incorporated,
Pretoria
Symington & De Kok,
Bloemfontein
1
This
is what the Business Practices Act provides in ss 12(7) and 15.
2
In
2003
the property was purchased as agricultural
land for R1 057 000. By 2006 it was still undeveloped agricultural
land with no township
rights. The valuations attached to the
disclosure document were ‘desktop valuations’ on the
basis that the property
had township rights.
3
This
order was sought by the liquidators. A draft order was handed to the
court by the liquidators’ counsel.
4
The
point was not raised before the court a quo.
5
That
appears clearly from the affidavits and the order sought by the
liquidators before Pretorius J.
6
See
eg
Lupacchini NO & another v
Minister of Safety and Security
2010
(6) SA 457
(SCA) paras 17 and 18;
Lynn
NO v Coreejees
2011 (6) SA 507
(SCA)
paras 7 and 10.
7
Corpclo
2290 CC t/a U-Care & another v Registrar of Banks
[2013] 1 All SA 127
(SCA);
[2012] ZASCA 156
para
2.
8
P
aras
7 and 10.
9
Para
10;
Oilwell (Pty) Ltd v Protec
International Ltd & others
2011
(4) SA 394
(SCA) para 19.