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[2022] ZAMPMBHC 25
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J.S.B and Another v C.H.B (3158/2019) [2022] ZAMPMBHC 25 (14 April 2022)
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Certain
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REPUBLIC OF SOUTH
AFRICA
IN THE HIGH COURT OF
SOUTH AFRICA
(MPUMALANGA DIVISION,
MBOMBELA)
CASE
NO: 3158/2019
REPORTABLE:NO
OF INTEREST TO OTHER
JUDGES:YES
REVISED: YES
14/04/2022
In
the matter between:
J[....]
S[....]
B[....]
First Applicant
EL
ROI
MOTORS
Second Applicant
and
C[....]
H[....]
B[....]
Respondent
J
U D G M E N T
MASHILE
J:
INTRODUCTION
[1]
The First Applicant and Respondent are estranged husband and wife
currently involved
in a hostile divorce. They are also co-directors
of the Second Applicant. The Applicants brought an application
against the Respondent
comprising Part A and B. Following argument
before Greyling-Coetzer AJ on 28 May 2020, the following order was
made on Part A:
“
1.
The Respondent’s Application for postponement is dismissed with
costs as on the scale between Attorney
and Client;
2.
The Respondent is to launch an Application for leave to institute a
counter-Application,
if at all, within 10 days (i.e 7 June 2020) from
date of this Order (i.e. 28 May 2020);
3.
The South African Institute of Chartered Account (“SAICA”)
is to appoint a suitable
person within 10 days of service of this
Order in terms of the provisions of Section 163(2)(f)(i) of the
Companies Act, 71 of 2008
(“the Act”), as a director of
the second Applicant. It is further directed that:[SIC]
3.1
SAICA is to appoint within 10 days of service of this Order, an
independent auditor, which person is
to report to this Court, within
45 days from either the date of this Order, or the date upon which
he/she receives the documentation
and information from the
Respondent, as alluded to in prayer 9 (including sub-prayers 9.1 to
9.3) infra, on any of the issues contemplated
in Section 163(2) of
the Act.
4.
The Respondent is interdicted and restrained from receiving any
payments from the clients
of the Second Applicant, whether directly
and/or indirectly, without prior authorisation from the Second
Applicant (excluding the
payments due in respect of the NIVARA
bakkies with Registration numbers [....] and [....], which the
Respondent is entitled to
receive for the purpose of servicing the
Finance Agreement with the financial institutions involved;
5.
The Respondent is interdicted and restrained from approaching any of
the clients of the second
Applicant in
relation to the affairs of
the second Applicant
which inter alia includes the collection of
monies and/or entering into further agreements;
6.
The conducting of the management and the affairs of the second
Applicant be continued on
the basis that should any deadlock arise
between the first Applicant and the Respondent regarding any
decisions required to be
taken in the furtherance of the affairs of
the second Applicant, then and in that event that person appointed in
terms of prayer
3 supra, shall exercise a decisive vote and determine
by his/her vote or support any potential deadlock that may arise
between
the first Applicant and the Respondent pertaining to the
conducting of the business and affairs of the second Applicant;
7.
The Respondent is interdicted from breaching his fiduciary duties by
inter alia entering
directly into agreements with clients of the
second Applicant and to the detriment of both the Applicants (my
underlining);
8.
Prayers 4 to 7 supra serves as interim interdictory relief, with
immediate effect, pending
the finalisation of part B of the Notice of
Motion and Counter Application, if any, to be instituted per 2 above;
9.
The first Applicant and Respondent is Ordered to provide to the
second Applicant and/or his
appointed auditor, the following
documentation and/or information: [SIC]
9.1
Complete bank account statements of all accounts held by the or under
the control of the First Applicant
and Respondent from January 2019
to May 2020;
9.2
A complete list of cash payments collected from clients from January
2019 to May 2020, if any;
9.3
All other financial information as requested by the financial auditor
in terms of 3.1 (12.3.1) above;
10.
The costs of part A of this Application to be reserved for
adjudication at the conclusion of part B;
11.
That the relief set out in part B of the Notice of Motion be
postponed sine die.”
[2]
In this Part B, the Applicants now seek to have the Respondent
firstly, removed as
a –co-director of the Second Applicant,
secondly, that he be declared a delinquent director as contemplated
in Section 162
of the Companies Act, 71 of 2008 (“the
Companies
Act&rdquo
;) and thirdly, that he be ordered to return certain
vehicles owned by the Second Applicant failing which the sheriff be
authorised
to remove them from his premises. In opposition, the
Respondent has raised several preliminary points, which he maintains,
will
be dispositive of the whole matter if upheld.
[3]
The preliminary points raised by the Respondent are:
3.1
Lack of authority;
3.2
Lack of
locus standi;
3.3
Non-joinder of the State;
3.4
Adoption of incorrect procedure.
BACKGROUND
FACTS
[4]
Before traversing the preliminary points described above, it is
necessary to set out
the background against which this whole matter
arose. As part of the order of 28 May 2020, Greyling-Coetzer AJ
directed that:
4.1
The South African Institute of Chartered Accountants (“
SAICA”)
was to appoint an independent auditor to report to this court
regarding any issues as contemplated in
Section 163(2)
of the
Companies Act;
4.2
The
Respondent was interdicted from receiving any monies from clients
of the Second Applicant and from approaching any of the Second
Applicant’s clients;
4.3
A person be appointed by SAICA as a director of the Second Applicant
and that such a person
would exercise a decisive vote where the
parties reach a deadlock regarding the management of the Second
Applicant.
[5]
On 9 June 2020, the parties were advised that SAICA had appointed Mr
Theo Theophanous
(“Theophanous”) as the independent
auditor. Upon assumption of his duties in that capacity, Theophanous
informed the
parties that he required certain issues emanating from
the court order of 28 May 2020 clarified. The first of these was
whether
or not the roles of the director and independent auditor were
to be executed by one individual because if this was the intended
outcome, it would create a conflict of interest.
[6]
Furthermore, he wished to know whether or not the powers of the
proposed third director
would be limited to voting only in those
instances where the directors have deadlocked. Lastly, whether or not
his mandate was
limited to the revenue of the Second Applicant or
whether or not he could report on claims by parties for work done but
not compensated
for.
[7]
Responding to the questions by Theophanous, the attorney for the
Applicants stated
that the mandate was limited to that of an
independent auditor. That said, his mandate was limited to the four
corners of the court
order having regard to the relief claimed by the
Applicant against the Respondent. The attorneys of the Respondent for
the time
being then said that the mandate was premised on an
investigation of the factors listed in
Section 163(2)
of the
Companies Act. The
mandate was not only limited to an inspection of
the Respondent and the company, but includes the first Applicant. He
believed
that Theophanous could act as the third director.
[8]
It appears to be the Respondent’s contention that since he had
no difficulties
in Theophanous acting as a third director as well, if
the Applicants thought it improper for him to do so, it was incumbent
upon
them to approach SAICA for the appointment of a third director.
On 18 November 2020, Theophanous presented his draft report to the
co-directors. The report was critical of their flaws as co-directors
of the Second Applicant.
[9]
Theophanous established that the Respondent and the First Applicant
owed amounts of
R57 825.00 and R838 947.00 to the Second Applicant
respectively. Additionally, Theophanous noted that amounts received
and expended
by the co-directors on behalf of the Second Applicant
since inception had been characterised as their own. To this extent
the co-directors
failed to distinguish between them and the Second
Respondent as a separate legal entity.
[10]
Theophanous further observed that the co-directors did not cause the
Second Applicant to keep
proper accounting books as required in terms
of
Section 28
of the
Companies Act. As
though that was not
sufficient, no tax returns were submitted to SARS on behalf of the
Second Applicant for the years 2014 to 2020
and it was not registered
for VAT or as an employer for purposes of PAYE. A further damning
finding of Theophanous was that vehicles
which belonged to the Second
Applicant were used by the co-directors as their own.
[11]
The Respondent alleges that the First Applicant was not the happiest
person when it emerged that
as a director responsible for keeping the
books of the Second Applicant and in charge of control of the
administration of the Second
Applicant, Theophanous had incriminated
her too in the report as being a negligent director. Thereafter, the
attorney of the First
Applicant addressed a letter to Theophanous
describing his difficulties with the report.
[12]
The attorney required that Theophanous modify the report in a manner
that would show whether
or not he believed that the Respondent should
be removed as a director and be declared a delinquent director. On 27
January 2021,
Theophanous submitted his final report wherein he
pointed out that he has had regard to the First Applicant’s
letter and
associated allegations. Theophanous reported that he had
confronted the Respondent with the accusations against him. He was
persuaded
that the answers supplied by the Respondent were true.
[13]
He elaborated that the amounts owed by the co-directors to the Second
Applicant remained the
same. He went on to state that he noted
several contraventions of the directors failing to cause the company
to report in terms
of the
Companies Act. He
added that the directors
also did not ensure, as they were required to do, that the company
was registered and reported in terms
of the
Tax Administration Act 28
of 2011
and pay over the appropriate taxes.
[14]
Finally, he found that the co-directors did not pay over or report to
the Second Applicant. The
First Applicant acknowledged her debt to
the Second Applicant in terms of funds received from clients into her
own personal bank
account after the deduction of expenses incurred on
behalf of the Second Applicant. As such, she had unhindered access to
the funds
of the Second Applicant, which contrary to the
Companies
Act, she
used for her personal expenses.
[15]
Theophanous found that the directors, specifically the First
Applicant as the financial director,
failed to:
15.1
Keep accurate and complete accounting records;
15.2 Compile
annual financial statements
15.3
Submit income tax returns;
15.4
Register for VAT; and
15.5
Register as an employer for PAYE purposes.
[16]
Both co-directors can be declared delinquent directors, says
Theophanous. However, that cannot
be done without disastrous
consequences to the Second Applicant whose business may not endure
the declaration. Theophanous recommends
instead that in line with
Section 163(2)
of the
Companies Act, the
co-directors should:
16.1
Cease accepting monies belonging to the Second Applicant into their
respective bank accounts;
16.2
Deposit the monies into the bank account of the Second Applicant;
16.3
Compile accounting records and financial statements;
16.4
Submit tax returns to SARS;
16.5
Register the Second Applicant as an employer with SARS for PAYE
purposes.
[17]
The First Applicant is disgruntled with the contents of the final
report. She does not believe
that firstly, Theophanous had a mandate
to investigate and make findings against her, secondly, that he
should have accepted that
the Respondent incurred expenses on behalf
of the Second Applicant after the court order was granted and
thirdly, that he recognised
that the summary of expenses was correct.
She now wants this Court to ‘turn a blind eye’ to all
findings and recommendations
made against her by Theophanous.
[18]
In her letter to Theophanous she advises him that the Respondent had,
in contravention of the
agreements concluded between the Second
Applicant and the various clients, admitted having persuaded the
latter to make payments
directly to him. She alleges further that
subsequent to the court order, the Respondent advised the clients to
make payments neither
to him nor the Applicants. In substantiation of
this, she annexes two documents purporting to be telephone
transcripts of conversations
between the Respondent and her, one
dated the 4
th
of August 2020 and the other, the 8
th
of March 2021.
[19]
The Respondent contends that the purported telephone transcripts are
not admissible as evidence
because they have not been verified.
Besides, the court does not know who recorded or transcribed them,
where, when and under which
circumstances. However, in the event that
the court nonetheless admits the transcripts, it ought to note that
he stopped payments
into his account and not the Applicants’.
For similar reasons, the Respondent finds the second transcription
objectionable.
[20]
Regarding the second transcription, it is the Respondent’s
assertion that the vehicles
have always been freely accessible to the
First Applicant for collection. He denies ever prohibiting access to
them. He admits,
however, accusing the First Applicant of
appropriation and use of the business proceeds of the Second
Applicant for her personal
benefit and means. He alleged further that
a greater number of the vehicles were in a disrepair state making
them useless for income
creation for the Second Applicant.
[21]
Although the court order of 28 May 2020 does not direct the
Respondent to return any vehicles
to the Applicants, the First
Applicant contends that the Respondent’s refusal to allow her
access to the vehicles is in violation
of the court order of
Greyling-Coetzer AJ. The vehicles whose return is being sought are
either registered in the name of the Second
Applicant, which has been
deregistered by the Companies and Intellectual Properties
Commissioner (the Commissioner”), or
an entity known as Country
Cloud Trading 54 with Registration Number: 2004/008941/23 (“Country
Cloud”). Accordingly,
Greyling-Coetzer AJ’s refusal to
grant an order returning the vehicles to the Applicants ought to be
understood in that context.
I will explore this more fully below. Now
that the background matrix have been set out, it is appropriate to
turn to the points
in
limine
that the Respondent has raised
prior to dealing with the merits.
LOCUS STANDI
[22]
The Respondent argues that neither Applicant has
locus
standi
to claim the return of the vehicles mentioned in the notice of motion
using
rei
vindicatio
as
a remedy. For the Applicants to succeed with a claim for the return
of the vehicles, they are required to allege and prove that
the
ownership of the vehicles vests in them and that they are in the
possession of the Respondent. Both Applicants have failed
to do this.
See,
Goudini
Chrome (Pty) Ltd v MCC Contracts (Pty) Ltd
[1]
and
Graham
v Ridley
[2]
.
[23]
It was argued on behalf of the Applicants that despite ownership of
the vehicles vesting in Country
Cloud, the Second Applicant would
deal with them as its own. This is extraordinary and cannot happen as
to accede to the request
will divest Country Cloud of its legitimate
ownership of the vehicles. Besides, this Court has not been given any
legal framework
within which such can occur. Accordingly, it is
rejected as devoid of any merit.
[24]
To the extent that the Respondent has established that ownership of
the vehicles legally vests
in Country Cloud, they cannot be returned
to either Applicant as both lack
locus standi
. These vehicles
are items 3.9 to 3.12, 3.17 to 3.19 and 3.21 to 3.26 of the notice of
motion. These vehicles are
: Ford Focus [....], Ford Bantam [....],
Isuzu KB 200 [....], VW Jetter [....], BMW 520 [....], Ford Ranger
[....], BMW 320 [....],
Colt Bakkie [....], Nissan Almera [....],
Nissan Hardbody [....], Nissan Navara [....], Nissan Navara [....]
AND Nissan Xtrail
[....]
. The evidence before court is
unambiguous - the registered owner of these vehicles is Country
Cloud. Moreover, Country Cloud has
been deregistered and could not be
part of these proceedings. In the circumstances, neither Applicant
can claim their valid return.
[25]
Turning to those vehicles registered in the name of the Second
Applicant, the First Applicant
has not shown that the Second
Applicant, in whose name the vehicles are registered, has given her
the necessary authority to claim
their return. In the absence of a
resolution emanating from the Second Applicant to that effect, the
First Applicant does not have
locus standi
. In the result, the
point in
limine
pertaining to
locus standi
is upheld.
NON-JOINDER
[26]
Here the argument is that since the vehicles whose return is sought
are registered in the name
of Country Cloud, which has been fully
deregistered leaving ownership of its assets vacant, the State has
ex
lege
assumed ownership of those assets. As such, the State has
become a party with a direct and substantial interest sufficient to
warrant
its joinder. The non-joinder of the State to these
proceedings is as such, fatally defective and the application cannot
succeed.
[27]
As I have tersely alluded to
supra
, the complete
deregistration of Country Cloud did not only divest it of the
ownership of its assets including the vehicles but
its existence
legally ceased as contemplated in
Section 82(2)
, which provides that
once the Commissioner has received a certificate in terms of
Section
1
, he must firstly, record the dissolution of the company in the
prescribed manner and secondly, remove the name of the company from
the companies register.
[28]
Upon the cessation of the existence of a company, ownership of its
assets become vacant. It is
trite that once this occurs, the State
takes over ownership of such assets. See,
Rainbow
Diamonds (Edms) Bpk en Andere v Suid
Afrikaanse
Nasionale Lewensassuransiemaatskappy
[3]
and
G
Walker Engineering CC t/a Atlantic Steam Services v First Garment
Rental (Pty) Ltd
[4]
.
If Country Cloud is not in existence anymore, it stands to reason
that the State, which has taken over ownership of the assets,
has a
direct and substantial interest in these proceedings. I am in
agreement with the Respondent that the non-joinder of the State
has
catastrophic consequences for the case of the Applicants.
MOTION
OR ACTION
[29]
The Respondent is unwavering that the Applicants ought not to have
brought these proceedings
by way of motion. He contends that given
The nature of the matter and the relief sought, the appropriate
procedure would have been
to institute an action. This application,
continues the Respondent, is riddled with genuine material disputes
of fact.
[30]
These disputes of fact concern ownership of the vehicles, possession
of the vehicles claimed,
the First Applicant’s authority to
institute legal proceedings on behalf of the Second Applicant, as
well as which director
has behaved recklessly in the conduct of the
Second Applicant’s business and stands to be removed and/or
declared a delinquent
director.
[31]
The general rule is that the determination of which procedure to
choose is contingent upon whether
or not the existence of genuine
material dispute of fact should have been foreseen. An anticipation
of disputes of fact inexorably
ties a litigant’s hands to
institute trial proceedings. This is apparent from the case of
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions Ltd
[5]
where the aforegoing was confirmed when the court held:
“…
There
are certain types of proceeding (e.g., in connection with insolvency)
in which by Statute motion proceedings are specially
authorised or
directed... There are on the other hand certain classes of case (the
instances given…are matrimonial causes
and illiquid claims for
damages) in which motion proceedings are not permissible at all. But
between these two extremes there is
an area in which…according
to recognised practice a choice between motion proceedings and trial
action is given according
to whether there is or is not an absence of
a real dispute between the parties on any material question of fact”
[32]
Where a disputes of fact arise during motion proceedings, Uniform
Rule of Court 6(g) provides
that:
“
Where
an application cannot properly be decided on affidavit the court may
dismiss the application or make such order as to it seems
meet with a
view to ensuring a just and expeditious decision. In particular, but
without affecting the generality of the aforegoing,
it may direct
that oral evidence be heard on specified issues with a view to
resolving any dispute of fact and to that end may
order any deponent
to appear personally or grant leave for him or any other person to be
subpoenaed to appear and be examined and
cross-examined as a witness
or it may refer the matter to trial with appropriate directions as to
pleadings or definition of issues,
or otherwise. It is trite that the
use of the word may, is an indication that the court has a discretion
whether to dismiss the
application or to hear oral evidence on
specified matters or refer the whole case to trial. The discretion
ought to be used sensibly”.
[33]
In some instances, the consequences of making a wrong decision on
whether to launch motion proceedings
or institute an action could be
grave for the party who has launch the application. In this regard it
is proper to refer to the
Room Hire case
supra
once again
where the following is stated:
“…
application
may be dismissed with costs, particularly when the applicant should
have realised when launching his application that
a serious dispute
of fact was bound to develop. It is certainly not proper that an
applicant should commence proceedings by motion
with knowledge of the
probability of a protracted enquiry into the disputed facts not
capable of easy ascertainment…what
is essentially the subject
of an ordinary trial action.”
[6]
[34]
Given the background of this matter, it is evident that it descends
from a matrimonial dispute,
an acrimonious divorce. Matrimonial
matters being part of those cases where litigation by way of motion
is barred, it follows that
the Applicants ought to have anticipated
the various disputes of fact mentioned supra. See, the Room Hire case
at paragraph 32
above. Other than the nature of this case being
matrimonial in nature, I agree with the Respondent that it should
have dawned upon
the Applicants from the exchange of correspondence
between the legal representatives that disputes of fact would be
inescapable.
[35]
It is staggering that the Applicants have attached the aforesaid
correspondence containing the disputes
to their Founding Affidavit.
Moreover, some of these follow from arguments traversed in Part A of
the application and the admission
of the First Applicant that some of
the vehicles are registered in the name of Country Cloud. The
Applicants should, at that juncture,
have sought the transfer of this
application to trial. This lack of foresight is one that should
attract censure from this court.
LACK OF AUTHORITY
[36[
I have carefully considered this point in
limine
and am of the
view that it carries no weight at all. The Respondent should have
embarked on the procedure provided in Uniform Rule
of Court 7(1) to
challenge the First Applicant’s authority. The ‘horses
have bolted’ and the Respondent must
live with his decision. In
the greater scheme of things though, he remains triumphant because
this point in
limine
is not decisive of the outcome of this
judgment.
CONCLUSION
[37]
Due to the approach that I have adopted on the points in
limine
,
it will be unnecessary to deal with whether or not the Respondent
should be removed as a director of the Second Applicant or be
declared a delinquent director. In the result, the application fails
and I make the following order:
The
application is dismissed with costs.
B
A MASHILE
JUDGE
OF THE HIGH COURT OF SOUTH AFRICA
MPUMALANGA
DIVISION, MBOMBELA
This
judgment was handed down electronically by circulation to the parties
and/or parties’ representatives by email. The date
and time for
hand-down is deemed to be 14 April 2022 at 10:00.
APPEARANCES:
Counsel
for the Applicant:
Adv AA Basson
Instructed
by:
Day Attorneys
C/O Du – Toit
Smuts & Partners
Counsel
for the Respondent: Adv AM Raymond
Instructed
by:
Jasper van der Westhuizen & Bodenstein C/O VZLR Attorneys.
Date
of Judgment:
14 April 2022
[1]
(1993)
1 All SA 259 (A)
[2]
1931
TPD 476
[3]
1984
(3) SA 1 (A)
[4]
(2011
(5) SA 14 (WCC)) [2011] ZAWCHC 261
[5]
1949
(3) SA 1155 (T)
[6]
See
also, Lombaard v Droprop CC and Others
2010 (5) SA 1
(SCA).