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[2013] ZASCA 113
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MedX (Randburg)(Pty) Ltd v Branfield (676/2012) [2013] ZASCA 113 (18 September 2013)
THE SUPREME COURT OF APPEAL OF
SOUTH AFRICA
JUDGMENT
NOT REPORTABLE
Case No: 676/2012
In
the matter between:
MEDX (RANDBURG) (PTY) LTD
.....................................................................
APPELLANT
v
ANDREW
SHAUN BRANFIELD
...................................................................
RESPONDENT
Neutral citation:
MedX
(Randburg)(Pty) Ltd v Branfield
(676/12)
[2013] ZASCA 113
(18
September 2013).
Coram:
Brand, Maya, Wallis,
Petse JJA
et
Zondi AJA
Heard:
27 August 2013
Delivered: 18 September 2013
Summary: Incorporated company –
claim against director personally for debts of company pursuant to
memorandum of incorporation
prescribed by s 53
(b)
of
Companies Act 61 of 1973 – defence based on express undertaking
on behalf of creditor not to hold director personally
liable –
credibility issue as to whether undertaking was given.
___________________________________________________________________
ORDER
___________________________________________________________________
On appeal from:
A full court of
the South Gauteng High Court, Johannesburg (Tsoka J with Carelse J
and Dörfling AJ concurring, sitting on
appeal against a judgment
of Sibeko AJ):
1 The appeal is upheld with costs.
2 The order of the court a quo is set
aside and replaced with the following:
‘
The appeal
is dismissed with costs.’
___________________________________________________________________
JUDGMENT
___________________________________________________________________
BRAND JA
(MAYA, WALLIS,
PETSE JJA
et
ZONDI AJA CONCURRING):
[1] The appellant, Medx (Randburg)
(Pty) Ltd (Medx), instituted action in the South Gauteng High Court,
Johannesburg, against the
respondent, Dr A S Branfield (Branfield)
for payment of about R365 000. The claim arose from a lease
agreement between Medx
and a company, Dr A S Branfield Incorporated
(the company). The basis upon which Medx sought to hold Branfield
personally liable
for the debts of the company arose from the
provision in the memorandum of association of the company to the
effect that the directors
of the company shall be liable jointly and
severally with the company for the debts and liabilities of the
latter contracted during
their periods of office. The provision is,
of course, prescribed for companies designated ‘incorporated’
or ‘Inc’
by s 49(4) read with s 53
(b)
of
the Companies Act 61 of 1973.
[2] While admitting that he was a
director of the company when the debt in favour of Medx was incurred,
Branfield nonetheless denied
liability. In essence his denial rested
on an express oral agreement between him and Mr Brian Wylie (Wylie),
the director in control
of Medx, that despite the stipulation in the
memorandum of association of the company, Medx would not hold
Branfield liable for
its claims against the company. Wylie in turn
denied that he ever entered into an agreement of that kind. In the
event, the existence
of this alleged oral agreement constituted the
crucial dispute between the parties.
[3] Despite the narrow ambit of the
dispute and the relatively modest amount involved, the case followed
a meandering and costly
path through the courts. As an opening
gambit, Medx sought to enforce its claim against the company and
Branfield, jointly and
severally, in the magistrates’ court.
While Branfield successfully raised a plea that the magistrates’
court had no
jurisdiction to entertain the claim against him,
judgment was granted by default against the company for the amount
claimed. As
a next step Medx tried to secure judgment against
Branfield by way of motion proceedings in the High Court. In his
opposing affidavit
Branfield, for the first time, relied on the plea
of an oral agreement between him and Wylie that Medx would not hold
him personally
liable for the debts of the company. Because of the
dispute of fact thus arising, the application was dismissed with
costs.
[4] Undeterred by these two setbacks,
Medx then instituted the action which eventually resulted in this
appeal. At the trial the
parties were in agreement that the onus to
prove his defence of an oral agreement rested on Branfield. At the
end of the proceedings
Sibeko AJ held that Branfield had failed to
rebut that onus. In consequence he granted judgment as prayed in
favour of Medx with
costs. Branfield’s appeal to the full court
was however successful in that Tsoka J – with Carelse J and
Dörfling
AJ concurring – set aside the order by the court
of first instance and replaced it with an order dismissing Medx’s
claim with costs. The present appeal against the judgment of the full
court is with the special leave of this court.
[5] The outcome of the appeal turns
exclusively on issues of fact. Those issues are to be determined
against the background that
follows. At the beginning of 1999 Medx
started a back and neck rehabilitation centre in Randburg. For that
purpose it imported
equipment costing roughly R1 million. After it
started the practice the Health Professions Council insisted,
however, that the
centre should be under the control of a medical
doctor which Wylie, who was in control of Medx’s affairs, was
not. He was
a chartered accountant. In consequence there were some
exploratory exchanges between Wylie and Branfield who, at the time,
had
been his family physician for some ten years, about the latter
becoming involved in the clinic. Subsequently Wylie presented
Branfield
with a written proposal. This was towards the end of
September 2002.
[6] In broad outline the proposal was
that Branfield and nine other doctors, who all practised at Medicross
in Randburg, should
establish a multidisciplinary practice which
would lease its premises and equipment from Medx. According to the
proposal the benefit
for Medx would be the rental derived from the
lease while the doctors participating in the practice stood to earn a
handsome profit
after a few years. The proposal also gave some
consideration to whether the new practice should be conducted as an
incorporated
company or by way of a partnership between the
participating doctors. In leaning towards an incorporated company the
proposal inter
alia stated under the heading ‘Limited
liability’ that:
‘
Partners
in a partnership have unlimited liability, whilst the liability of
shareholders in an incorporated company is limited to
liabilities
contracted by the company.’
Under the heading ‘Bridging
finance from Bank’ the proposal further stated that:
‘
To
finance working capital. Surety will be given by all the doctors in
proportion to their shareholding.’
During examination-in-chief Branfield
was asked by his own counsel how he understood the statement
concerning liability of an incorporated
company. To this he
responded:
‘
That
if I involved myself I would not be placing myself at financial
risk.’
[7] It is common cause that on 18
October 2002 Wylie presented and explained the same written proposal
to the ten doctors, including
Branfield, at whom it was aimed.
Towards the end of November 2002 it became apparent, however, that,
apart from Branfield, none
of the other doctors would become part of
the practice. This appears from an e-mail dated 22 November 2002 in
which Branfield informed
Wylie that:
‘
I
don’t mind filling in my section but none of the other doctors
are too keen to get involved at this stage. The biggest concern
remains financial that they are going to acquire debt. Until this is
proven to them I do not see too many becoming involved.’
[8] In the meantime, according to
Branfield’s version, there was a meeting between him and Wylie
on 3 October 2002 at a Portuguese
restaurant in Randburg where Medx’s
then bookkeeper and Wylie’s girlfriend at the time, Ms Bronwen
Frylinck, was also
present. At the meeting where, so Branfield
testified, he explained to Wylie that he had previously been involved
in a partnership
where he was held liable for the debts of one of his
partners and that he was therefore determined not to expose himself
to any
personal financial risk again. Thereupon, so Branfield
testified:
‘
Wylie
. . . said I was not putting myself at financial risk and this
venture would not cost me a cent out of my own pocket. And
those are
Mr Wylie’s words . . . Those were the exact words that he
used.’
[9] Frylinck was called to testify on
behalf of Branfield. She corroborated his version of a meeting
between him and Wylie which
took place in her presence at a
Portuguese restaurant in Randburg during about October 2002. Although
she had no independent recollection
of exactly what was said, she
could remember that Branfield was wary about exposing himself to
financial risk and that Wylie repeatedly
assured him that there was
no personal risk to Branfield at all. She also testified that the
relationship between her and Wylie
subsequently came to an end. This
appears to have happened during about June 2004. By all accounts it
is clear that the termination
of the relationship was acrimonious and
unpleasant in the extreme. This is illustrated by an interdict
obtained by Frylinck against
Wylie restraining him from assaulting
her to which Wylie retaliated by laying criminal charges against
Frylinck for theft.
[10] But to resume the chronological
sequence of events: when it became apparent towards the end of 2002
that Branfield would be
the sole participant in the multidisciplinary
practice, he informed Wylie of his intent to use the company, which
was dormant at
the time, as the vehicle for this purpose. So it
happened that at the beginning of January 2003 the company started
the multidisciplinary
practice in the premises and using the
equipment of Medx although the leases for these were only concluded
in March 2003. At the
end of January 2003 it became apparent that the
company was in financial difficulty in that it could not pay the
rental for the
premises and the equipment to Medx nor could it pay
the salaries of its employees.
[11] This situation gave rise to an
exchange of e-mails between Wylie and Branfield on 30 and 31 January
2003, which proved to be
of some relevance. It started with a
suggestion by Wylie that Medx would agree to a postponement of rental
payments for two months
and that it would lend the company an amount
of R30 000 until April 2003 for payment of salaries. This led to
a query by Branfield:
‘
What
if the INC [ie the company] does not have the funds by April 2003? Is
it fair to charge me all the interest when it is a joint
venture
between both of us? . . . This is a joint venture. Surely I should be
liable for 50% of the amount.’
In response to this query Wylie
explained in an e-mail of 31 January 2003, that the multidisciplinary
practice was not a joint venture
but was solely owned by the company
and that Medx’s position was that of a lessor and a
moneylender. Then the e-mail continued
as follows:
‘
MedX
does not have all the cash to lend to your company – I am in
absolute good faith putting myself at risk by lending MedX
money so
that it can lend it to your company. . . . [Y]ou are not personally
liable for anything and are therefore not at risk
at all in a
personal capacity.’
[12] The reasoning by Sibeko AJ
underlying his finding in favour of Medx, went along the following
lines. What Branfield’s
defence amounted to, he held, was that
Medx had waived its right to claim payment from Branfield personally
in terms of the provision
to that effect in the company memorandum of
association. In order to succeed with this defence, so he further
held, Branfield had
to establish that at the time of the oral
agreement Wylie was aware of the provision in the company’s
memorandum of association,
the benefit of which he is alleged to have
waived. In this light, so Sibeko AJ concluded, the defence of waiver
could not succeed,
since Branfield tendered no evidence that Wylie
was aware of the provision of the company’s memorandum of
association at
the time of the alleged oral agreement. ‘This is
more so’, he said, because ‘on the evidence tendered, no
agreement
had been reached at that time [when the alleged oral
agreement was concluded in October 2002] as to the identity of the
entity
through which the multidisciplinary practice would be
conducted.’
[13] Although the full court found no
difficulty with the proposition of law that underlies Sibeko AJ’s
conclusion, it disagreed
with his findings of fact. In the view of
the full court this finding could not be sustained in the light of
the express statement
in the written proposal prepared by Wylie, that
if the multidisciplinary practice were to be conducted through the
medium of an
incorporated company, the shareholders would only
attract personal liability for contractual claims against the
company. As I see
it, however, the full court and Sibeko AJ were
talking about two different things. While the full court held that
Wylie was plainly
aware of the legal implications of using the medium
of an incorporated company in general terms, Sibeko AJ found that
Wylie did
not know in October 2002 of Branfield’s intention to
use an incorporated company as the vehicle for the multidisciplinary
practice. Thus understood, they were both right. It is common cause
that in October 2002 it was not foreseen by anyone that Branfield
would conduct the multidisciplinary practice on his own, let alone
that he would do so through an incorporated company. That much
was
implicitly accepted on behalf of Branfield when an application to
amend his plea was sought and obtained after both he and
Frylinck had
given evidence. According to the amended version of the plea Wylie
agreed that Branfield would not be held personally
liable by Medx for
any debts incurred by any incorporated entity of which Branfield was
a director or shareholder, in a multidisciplinary
practice to be
established at Medx’s premises. Hence the import of the
amendment was that Wylie’s alleged undertaking
was no longer
limited to the debts of the company, but pertained to any
incorporated body in which Branfield was a director or
shareholder.
[14] As I see it, Sibeko AJ’s
problem with Branfield’s case was removed by the amendment to
his plea. According to the
amended version Wylie’s oral
undertaking of 3 October 2002 was not limited to the debts of
the company. Hence the fact
that the involvement of the company was
at that stage unknown, was no longer of any consequence. If one were
therefore to accept
Branfield’s amended version, namely that
Wylie’s undertaking not to hold Branfield liable extended to
the debts of
any incorporated body which Branfield would choose as a
vehicle for his participation in the multidisciplinary practice,
Medx’s
claim against him personally would be in conflict with
that undertaking. On the acceptance of that version the full court
could
therefore not be criticised for dismissing Medx’s claim.
[15] Hence the outcome of the appeal
is entirely dependent on issues of credibility. Can it be said that
Branfield had established
his version of the disputed facts on a
balance of probabilities? The full court, as we know, found that he
did. From the court’s
judgment it is plain that its credibility
finding was motivated by the court’s conclusion that three
considerations rendered
Branfield’s version more probable.
These were: (a) that because of his personal experience Branfield
would be unwilling to
attract the risk of personal liability; (b)
that the other medical doctors declined to become involved in the
multidisciplinary
practice precisely because of their reluctance to
attract the risk of personal liability; and (c) Wylie’s e-mail
of 31 January
2003 in which he assured Branfield that ‘you are
not personally liable for anything and therefore not at risk at all
in a
personal capacity’. In argument counsel for Branfield
contended that there was a further consideration in favour of his
version,
namely, that Wylie was desperate to ensure Branfield’s
involvement in the multidisciplinary practice. I propose to deal with
these four considerations in turn.
[16] I start with the consideration
introduced by counsel, that Wylie was desperate to ensure Branfield’s
involvement in the
practice. This consideration is plainly a valid
one. The Health Professions Council insisted that the centre
established by Wylie
on behalf of Medx should be under the control of
a medical doctor. Without the involvement of a doctor, the equipment
imported
for the price of about R1 million would therefore be
gathering dust. The only question is whether Wylie was desperate
enough to
forego the comfort of the doctor’s personal
liability. We know that initially ten doctors were interested. The
only reason
why they eventually declined to become involved is that
they were not prepared to run the risk of personal liability. Ten
doctors
were obviously better than one. Logic therefore dictates that
if Wylie was prepared to forego the comfort of personal liability
of
the shareholders in an incorporated company, he could easily take ten
doctors on board by giving them the very undertaking that
he
allegedly gave to Branfield. The same logic defeats Branfield’s
argument that Wylie obviously believed that one doctor
was better
than none. For the same price he could actually get ten instead of
one. The fact that he did not pay the price of giving
this
undertaking to all ten, in my view, favours his version that he was
not prepared to do so at all.
[17] This leads me to a consideration
that swayed the court a quo, namely that it was unlikely that
Branfield could expose himself
to the risk of personal liability
while nine other doctors were not prepared to do so. Again this
consideration has some attraction.
But it must be borne in mind that
on his own version Branfield had his reasons for wanting to enter
into the practice. Apart from
being a general practitioner, he has a
master’s degree in sports medicine and it had always been his
vision, so he said,
to establish the type of comprehensive sports
medicine clinic envisaged in Wylie’s written proposal.
Moreover, Branfield
stood to make substantial profits if he was able
to properly follow the business model contained in the proposal.
Indeed the defence
relied upon by the company in the magistrates’
court revolved around Branfield’s dissatisfaction that the
handsome
profits forecasted in the proposal had not been made. In my
view it is therefore not unlikely that Branfield had more confidence
in the financial future of the practice than the other nine doctors.
[18] With regard to the written
proposal there are, in my view, considerations that indeed tend to
favour Wylie’s version.
As we know, the proposal was sent to
Branfield towards the end of September 2002 and presented and
explained by Wylie to the other
nine doctors on 18 October 2002. The
agreement relied upon by Branfield was allegedly concluded on 3
October 2002. The written
proposal specifically referred to the
liability of shareholders in an incorporated company – which
was the suggested vehicle
for the proposed practice – for the
contractual liabilities of the company. In addition it referred to
the likelihood that
the company would have to borrow working capital
from the bank and that the bank would require suretyships from the
individual
shareholders. It is common cause that Wylie was not
prepared to release the other nine doctors from their personal
liability towards
Medx. But if Wylie were to exonerate Branfield from
personal liability shortly before his meeting with the other nine,
this would
in all likelihood become known to them. In fact, I believe
he and Branfield would be obliged to reveal this exoneration to them.
But how would he explain this to them? On what basis would he be able
to resist their insistence, which was bound to follow, that
they be
exonerated from personal liability on the same basis as Branfield?
[19] This brings me to the
consideration that, because of his personal experience in the past,
Branfield would be unwilling to attract
personal liability, which was
referred to by the full court as the phenomenon of ‘once bitten
twice shy’. Purely at
face value, the consideration again
appears to be a weighty one. But of course, it must be seen in
context. Part of the context
is that the relationship in which
Branfield was bitten was one of partnership and the debts for which
he was held liable were the
personal debts of a partner, not the
debts of the partnership. Of further significance, I believe, is
Branfield’s own evidence
as to how he understood Wylie’s
proposal with regard to the legal effect of an incorporated company,
namely:
‘
[T]hat
if I involve myself I would not be placing myself at a financial
risk.’
What all this means in sum, as I see
it, is that Branfield had thought that he could avoid the
difficulties he previously encountered
because of a partnership by
making use of an incorporated company instead. But this, of course,
leaves no room for Branfield seeking
and obtaining immunity from
Wylie against personal liability for the debts of the company.
According to his understanding, that
immunity would follow as a
matter of course.
[20] Finally there is Wylie’s
e-mail of 31 January 2003 in which he assured Branfield that ‘you
are not personally liable
for anything and therefore not at risk at
all in a personal capacity’. Wylie’s explanation for this
e-mail is that
it was said in the context of the Medx loan of R30 000
to the company for the payment of salaries. On a proper analysis of
the e-mails I think that this is probably true. It was argued on
behalf of Branfield that the assurance was unsolicited. But I
do not
believe that is so. Branfield was complaining about his risk of being
held liable for interest on the loan if the company
did not have the
funds to repay by April 2003. Wylie thereupon explained that the true
state of affairs was the other way around
in that it was he, Wylie,
who was ‘putting himself at risk by lending MedX money so that
it can lend it to your company’.
Branfield, on the other hand,
so Wylie explained, was not liable in terms of the loan agreement
that Wylie had prepared ‘with
the help of Legal Write’
which ‘does
not
require you to commit yourself
personally to the loan’.
[21] Unlike the full court I am
therefore not persuaded that the inherent probabilities favour
Branfield’s version. On the
contrary, I believe they go the
other way. In addition there are other features of Branfield’s
case that I find disturbing.
So, for instance, one wonders, if this
immunity against personal liability was so important to him, why
Branfield did not refer
to it in any of his many e-mails or insist
that it be recorded in the lease agreements. And why was it only
raised for the first
time in his opposing affidavit in the High Court
motion proceedings which followed the magistrates’ court
litigation? I do
not suggest that these considerations are in
themselves decisive but they do tend to add weight to Wylie’s
case. Of course
I have not lost sight of the evidence of Ms Frylinck.
But other than what was suggested to her by way of blatantly leading
questions,
her evidence seems to amount to little more than this:
Branfield was worried about his exposure to personal liability. Wylie
thereupon
repeatedly assured him that he did not lay himself open to
any financial risk at all. That could easily have been said in the
context
of a secure investment. However, be that as it may, apart
from Ms Frylinck’s potential motive to prejudice Wylie, I
regard
her evidence of insufficient weight to swing the balance in
favour of Branfield’s version. In this light I believe the
appeal
should be upheld with costs.
[22] It is ordered:
1 The appeal is upheld with costs.
2 The order of the full court is set
aside and replaced with the following:
‘
The appeal
is dismissed with costs.’
__________________
F D J BRAND
JUDGE OF APPEAL
APPEARANCES:
For
Appellant: A THOMSON
Instructed
by: W P STEYN ATTORNEY
JOHANNESBURG
Correspondents:
HONEY ATTORNEYS
BLOEMFONTEIN
For
Respondent: G KAIRINOS
Instructed
by: DOUGLAS McCUSKER ATTORNEYS
JOHANNESBURG
Correspondents:
MATSEPES INC
BLOEMFONTEIN