About SAFLII
Databases
Search
Terms of Use
RSS Feeds
South Africa: Eastern Cape High Court, East London Local Court
SAFLII
>>
Databases
>>
South Africa: Eastern Cape High Court, East London Local Court
>>
2022
>>
[2022] ZAECELLC 27
|
|
Dr L Jamjam and Partner Incorporated and Another v Mbalekwa and Another (EL 1474/2022) [2022] ZAECELLC 27 (22 September 2022)
SAFLII
Note:
Certain
personal/private details of parties or witnesses have been
redacted from this document in compliance with the law
and
SAFLII
Policy
NOT REPORTABLE
IN THE HIGH COURT OF
SOUTH AFRICA
(EAST LONDON CIRCUIT
LOCAL DIVISION)
CASE
NO. EL 1474/2022
In
the matter between:
DR
L JAMJAM AND PARTNER
INCORPORATED
First
Applicant
LULAMILE
JAMJAM
Second
Applicant
and
LUNGILE
MBALEKWA
First
Respondent
STANDARD
BANK OF SOUTH AFRICA
Second
Respondent
JUDGMENT
HARTLE J
[1]
The second applicant approached this court
on an urgent basis seeking interim relief pending the institution of
an application to
wind up the first applicant (“the company”).
He does so both in his personal capacity and as a director of the
company
acting in furtherance of his fiduciary responsibilities
towards it.
[2]
The second applicant and the first
respondent are medical doctors and co-directors of the first
applicant who have conducted their
professional association under its
auspices. The first applicant is a private liability company.
[3]
There is clearly an acrimonious history
between the doctors that has been coming since June 2022. What or who
caused the division
or the reasons for it are not the court's concern
for present purposes. They appear to accept that their relationship
has irretrievably
broken down and that it is imperative that the
company be liquidated.
[4]
Negotiations
were underway to conclude their association on appropriate terms with
the assistance of their separate legal representatives.
For reasons
that remain unclear - although the first respondent appears to have
complained mid-August that “the lawyers are
not fast enough”,
he went off track and unilaterally appropriated to himself an amount
of R1 970 000.00 which he
withdrew from the company’s
bank account held with the second respondent on 31 August 2022. This
amount (short of R15 000.00
or so) represents approximately 50% of
the total funds in the company’s bank account as at the date of
the electronic transfer.
On 1 September 2022 he withdrew a further
sum of R30 000.00 from the account (although this only came to the
attention of the second
applicant after the launch of the present
application), bringing the total of claimed unauthorized withdrawals
to R2 000 000.00.
[1]
[5]
The second applicant complained in his
founding affidavit that the first withdrawal (this was all he had
knowledge of at the time)
was unexpected since the parties had agreed
through their legal representatives to attempt to end their
professional association
in an amicable manner, subject to an
appropriate agreement reached. The second applicant sought to reverse
the transaction after
his discovery but was unsuccessful.
[6]
This evidently prompted the launch of the
current application
inter alia
seeking repayment of the first sum withdrawn but not before the first
respondent was placed on terms to provide an undertaking
to repay the
company by 1 September 2022 pending the finalization of the now
inevitable liquidation proceedings.
[7]
Underpinning the necessity for the
additional remedy claimed was the applicants’ (valid as it
turns out) concern that given
the first respondent’s unilateral
withdrawal of the R1 970 000.00 he would re access the bank account
and withdraw more money.
A further fear was voiced that he would
follow through on a prior threat made to disrupt the medical
practice, prejudicing the
company, its creditors, staff, and patients
in the process. The second applicant foresaw that he might remove,
encumber, or alienate
the company’s other assets as well.
Indeed, the first respondent did not challenge the second applicant’s
averment
made in a supplementary affidavit filed on 5 September 2022
in which he revealed that not only had the first respondent
appropriated
the second sum of R 30 000.00 to himself after being
placed on terms to repay the first amount withdrawn, but that he had
also
attempted to remove half of the furniture from the company’s
leased premises on 2 September 2022 coinciding with his relocation
to
new premises.
[8]
Unbeknown to the applicants, between
placing the first respondent on terms and the first appearance of the
application on the unopposed
motion court roll on 6 September 2022,
his erstwhile legal representatives, Messrs. Tunzi Attorneys had
responded to the demand.
Their email is dated 1 September 2022, but
only came to the attention of the applicants’ attorneys after
the delivery of
the first respondent’s answering affidavit on 8
September 2022. It transpired that it had been sent by his then
attorneys
to the applicants’ attorney’s offices, to an
e-mail address of a secretary who was on sick leave at the time. The
letter,
which was only accessed after the fact, states as follows:
“
In
response to your e-mail of 31st August 2022 our client wishes to
state that he has only transferred the funds to his personal
account
to save them, has no intentions to use or (embezzle) them, other than
to protect them after realizing that your client
continues to make
withdrawals from the business account despite having been advised to
stop in our previous correspondence.”
[2]
[9]
If the email had been brought to the notice
of the applicants’ attorneys prior to the launch of the present
application this
may have rendered it superfluous or have impacted
what remedy or relief was then still necessary or appropriate, but
the matter
took a somewhat strange turn thereafter.
[10]
When the application was first called on 6
September 2022 amidst a busy motion court roll and upon the
indication given that the
first respondent wished to oppose and
indeed launch a counter application, counsel who appeared for the
first respondent was evidently
quite reluctant to furnish any
undertaking at all on his behalf to safeguard the funds pending the
hearing of the urgent application
for interim relief. Since the
parties wished to file additional papers, I considered that it was
necessary pending the exchange
of these that it be established where
the monies were at that point and that the court receive an
undertaking that the funds ostensibly
taken by the first respondent
not be utilized (and the bank account not be accessed further) until
I could hear counsel on the
ensuing Friday. I accordingly prevailed
upon the parties to adopt some form of consensus in this respect.
[11]
In consequence of this expectation an
undertaking was given by the first respondent, but also by the second
applicant, that the
company’s funds would be out of reach for
until I could hear the matter.
[12]
The undertaking given by the first
respondent, which I incorporated in the order I granted postponing
the matter until 9 September
2022 (and which I consequently extended
pending the delivery of this judgment), was stated thus:
“
The
first respondent undertakes not to access or utilize the R1 970
000.00, removed from the first applicants bank account on 31
Aug
2022, and the R30 000.00 removed from the first applicant bank
account on 1 September 2022, and which amounts are currently
in the
first respondent's personal banking account (held with ABSA Bank,
branch number 63200500], until this application (and any
counter
application) is finalized.”
[13]
The first respondent did not challenge the
application based on the claimed urgency and conceded unequivocally
that the company
must be liquidated. He however opposed the relief
sought on the basis that the withdrawal of the funds from the
company's banking
account amounted to a lawful exercise of his
rights. Quite contrary to the placatory approach adopted in Messrs.
Tunzi Attorney’s
email dated 1 September 2022 (of which he said
nothing in his answering affidavit) he sang a different tune under
the auspices
of his new attorneys who were substituted on 8 September
2022.
[14]
Justifying his claim that his withdrawal of
the R2 000 000.00 was entirely lawful, he explained that prior
to the falling out
between the parties they had adopted a somewhat
casual approach to the management of the company’s affairs. In
this respect
they had enjoyed the freedom to access its bank account
for monies needed for their personal use, evidently with no questions
asked,
and without a prior resolution required. By way of example, he
adverted to the fact that the second applicant had himself drawn
a
sum of R999 424.61 (this conclusion drawn from a sample of Tax Type
reports indicating transactions over a random period) that
had
nothing to do with either him or the company but was entirely for his
personal use and in keeping with how they ran the affairs
of the
company.
[15]
Against this background he purported to
justify his withdrawal of the two amounts in contention as follows:
“
I
drew the amount of R2 000 000.00 (two million rand) from
the first applicant’s account on the basis of my and
the second
applicant’s old management style of the affairs of the first
applicant referred to above. First, I drew a sum
of R1 970 000.00
(one million, nine hundred and seventy thousand rand). I utilized it
for personal use. It was not enough
for the personal debts I wanted
to defray. I then drew another sum for R30 000.00
(thirty-thousand rand). I utilized it for
personal use, paying debts
that I have accumulated over the years. I am in no position to pay
the money that the second applicant
seeks I should pay back to the
account of the first applicant. This should cater for the question
whether the relief sought in
paragraphs 2 and 3 of the notice of
motion by the second applicant can competently be sought and
granted.”
[16]
In
reply the second applicant agreed in respect of past payments that
the doctors were allowed the freedom, within the company’s
financial constraints and under discussion with their accountant at
the time, to make personal withdrawals (the in-principle agreement
being to draw a salary of approximately R100 000.00 each per month),
but claimed that such withdrawals hardly exceeded R160 000.00
per
month. He emphasized that it was certainly not within their
contemplation that either of them could draw R 2 000, 000.00 for
personal use, a notion that is simply ludicrous if not unlawful and
in clear contravention of the Companies Act.
[3]
He further denied that he had withdrawn the sum of R999 424.61 for
his personal use citing the incorrect attribution of association
expenses to him in the “Tax Type” reports relied upon by
the first respondent for the purportedly unfounded accusation
that he
was taking personal advantage at the expense of the company. He
clarified that the true nature of each transaction would
be corrected
in the accounting going forward. He attached bank statements from the
company’s business bank account for the
preceding six months to
demonstrate the true pattern of their respective drawings, which on
the face of it do not reflect amounts
exceeding the monthly average
contended for by him.
[17]
Not surprisingly he alluded to the
purported justification recorded in the first respondent’s
attorney’s email dated
1 September 2022 that had in the
meantime come to light and pointed out that the stated objective in
it of the withdrawal of the
R1 970 000.00 blatantly contradicted
his present claim that he had used up the money transferred to his
personal bank account,
considered himself lawfully entitled to it,
and had no intention of repaying it.
[18]
Rather startingly, the first
respondent thereafter (on 9 September 2022) denied that he had
instructed his erstwhile attorneys to
record in the letter of 1
September 2022 that he was keeping the money he had withdrawn safe.
In this respect he sought to set
the record straight in an affidavit
co-incidentally filed in substantiation of an interlocutory
application for condonation for
the late delivery of his answering
affidavit filed last minute before the hearing that this was
factually incorrect.
[19]
In the affidavit he attributes his delay in
filing papers late to a fall out he had with Messrs. Tunzi Attorneys
as follows:
“
The
reason for my default is that I had a fallout with my previous
attorneys, Messrs Tunzi Attorneys, after my discovery, at midday
on
Wednesday, 07 September 2022 of the fact that they had written a
letter to the second applicant’s attorneys and suggested
that I
was keeping the money I had withdrawn when in fact that was factually
incorrect. I then had to look for a new attorney,
my current
attorneys of record who had no knowledge nor history of the matter.
That letter is now relied upon by the second applicant
and is
attached to the replying affidavit.”
[20]
His disclaimer does not explain why he
failed to mention the factual inaccuracy at all in his answering
affidavit filed the day
before, although I accept that the discovery
of the disavowed email may have occurred after the fact. More
significantly however
the “explanatory affidavit”(sic)
says nothing about his undertaking that was made an order of court or
the probable
inference to be drawn from it which is that on 6
September 2022 he must still have been in possession of the money and
able fairly
to give it. Was he misleading this court? If he felt
constrained to reject the ostensible assurance given by Messrs. Tunzi
attorneys
that he was keeping the money safe, why not the undertaking
given to the court as well? In my view this strange situation placed
an obligation on the first respondent to deal with the contrary
inference, which is that he is in contempt of this court’s
order of 6 September 2022 by taunting that he used up all the monies
to pay his personal debt after giving the assurance that he
would
not. He has not taken this court into his confidence to show how he
used the money and why he says it is not possible to
repay it. To
compound matters he rather mischievously suggests that the fact that
the vast sum of R2 000 000.00 has been dissipated
caters for the
question whether the relief prayed for by the applicants in the
notice of motion that he repay the monies unilaterally
taken (pending
the liquidation proceedings) can competently be sought and granted.
[21]
I am astounded by his lack of appreciation
of his fiduciary responsibilities if not his audacity and contempt
shown to this court.
It is not for this court to glean between the
lines what the position is or to wonder about his intention not
formally or properly
accounted for in the papers. In my view I am
entitled to rely on his undertaking given on 6 September 2022 and to
accept that he
is able to bring the monies back into the company’s
coffers. In any event he should not be permitted to benefit from his
wrongdoing.
[22]
Whilst the claimed arrangement between the
doctors might have been perfectly acceptable and in accordance with
their association
agreement prior to the breakdown in their
relationship, the acknowledgement of both that the winding up of the
company was inevitable
irrevocably changed the legal landscape. I am
moreover satisfied that the total sum withdrawn by him, even if
personal withdrawals
of large sums of money might have been
countenanced before, cannot be justified on the basis claimed by him
and especially not
under the present circumstances where the doctors
were evidently still in negotiations to determine a basis upon which
to terminate
their professional association.
[23]
The first respondent has also not taken
this court into his confidence concerning the reason why he
disassociated himself from the
settlement negotiations, but he could
have been under no illusion, certainly by the time the undertaking
was sought from him on
31 August 2022 to repay the initial sum of
money back in the company’s bank account, that his conduct was
considered unlawful
vis-à-vis
the company and in breach of his fiduciary duties as co-director.
[24]
Still, he persisted with his high handed
and unlawful conduct, I infer to make the point that he will not be
dictated to as indicated
in a WhatsApp message he sent to the second
applicant on 26 June 2022, the contents of which I need not repeat
here.
[25]
The first respondent has ostensibly
overlooked the fact that the first applicant it is a separate and
distinct entity from its shareholders
and its directors, as well as
the peculiar duty resting on both him and the second applicant in
their capacities as co-director,
to act
bona
fide
and in the best interests of the
company. The first respondent has made himself egregiously guilty of
violating those duties and
acting in a manner prejudicial to the
company. The suggestion that the monies withdrawn - which he had
ostensibly hoped to appropriate
to himself permanently, amounts to
simple drawings is to be rejected as patently absurd.
[26]
The
appropriation leaves the company at risk of not being able to meet
payment of its expenses, most notably staff salaries and
its
commitment to SARS for its tax liability. The further obvious effect
is that the second applicant’s claim to 50% of the
eventual
profits of the company, once determined, has been compromised.
[4]
[27]
I am satisfied that the applicants have
established the requisite requirements for the grant of an interim
interdict and that the
first applicant necessarily requires
protection against the unlawful interference of its rights, as does
the second applicant to
fair and due process through the liquidation
proceedings since the settlement negotiations have reached a clear
impasse.
[28]
Before concluding, the first respondent
ironically raised a technical objection to the second applicant’s
authority to represent
the company claiming that it was not properly
before court in the absence of a resolution of a meeting of its
directors resolving
that an application for and in its name be
instituted. He also filed a notice in terms of Uniform Rule 7
demanding a copy of the
resolution of directors which he
self-evidently knows not to exist.
[29]
The second applicant has however
satisfactorily explained in my view that apart from vindicating his
personal interest in the matter
by insisting on a lawful dissolution
of the company, he was obliged in accordance with his fiduciary duty
towards the company to
look out for its interests as well against the
unlawful interference by the first respondent with the running of its
business.
Indeed, I would have been surprised if he did not act with
alacrity to ensure its institutional interests from being compromised
under these unique circumstances where the large sum of money
withdrawn from its bank account amounts to an irregular distribution
within the meaning of the definition in the Companies Act, to its
obvious prejudice.
[30]
A
formal resolution is not always required in order to give an
individual the necessary authority to act in legal proceedings on
behalf of a juristic person, and indeed in this instance I do not
consider it fatal to the application, against the background
of the
ostensible breach of the first respondent’s fiduciary
responsibilities owed to the company both in terms of the common
law
and section 76 of the Companies Act by him having made off with R 2
000 000.00 of its funds vital to its liquidity and ability
to meet
its financial commitments
inter
alia
to its staff and SARS ,that the elusive resolution now insisted upon
was not provided.
[5]
[31]
On the issue of an appropriate remedy, I am
satisfied that the order below is necessary to maintain the
status
quo
pending the finalization of the
anticipated liquidation proceedings which I was assured last week
would be launched within five
days of the hearing. Since the first
respondent was paid his regular drawings on 29 August 2022 according
to the bank statements
provided, the R2 000 000.00 must immediately
be reimbursed to the company. Whilst the R30 000.00 appears to be a
tit for tat for
payment by the company to the second applicant and
his spouse for rental of the company’s business premises
(because of the
circumstances that have rendered it necessary for him
to acquire his own premises for practice elsewhere), that is
something to
be taken up with the appointed liquidator in due course.
[32]
Given that the first respondent has already
vacated the business premises of the company, it is in my view
unnecessary to accede
to prayer 4.3 denying the first respondent the
use of or access to the company’s business premises pending the
liquidation
process.
[33]
The
applicants have asked for attorney and client costs. In my view the
impatience and selfishness of the first respondent (entailing
the
breach of his fiduciary duty to act
bona
fide
and in the interests of the company by putting his personal interests
above those of the company), the self-help employed by him,
and the
contempt shown to this court warrant costs being awarded against him
on a punitive scale.
[6]
[34]
I issue the following order:
1.
The first respondent is to repay to the
first applicant the sum of R1 970 000.00 within 72 hours of this
order.
2.
The payment in terms of paragraph 1 above
is to be effected to the first applicant’s banking account,
with details as below:
Account holder:
Dr L JamJam and Partners Inc.
Bank:
Standard Bank of South Africa
Account type:
Current account
Account number:
[....].
3.
The first respondent is interdicted and
restrained from:
3.1
removing, encumbering and/or alienating the
first applicant’s assets, and
3.2
accessing and/or utilizing the first
applicant’s funds including funds held under bank account with
the second respondent
under account number [....].
4.
The interdict set out in paragraphs 3 above
shall operate pending the finalization of the liquidation proceedings
which are to be
launched within five days of this order.
5.
The first respondent is to pay the costs
this application on the scale as between attorney and client.
B HARTLE
JUDGE OF THE HIGH
COURT
DATE OF
HEARING:
9 September 2022
DATE OF
JUDGMENT: 22
September 2022*
*Judgment deemed
delivered at 09h30 on this date by email to the parties.
APPEARANCES
:
For the applicants:
Ms. N Molony instructed by Bate Chubb & Dickson Inc., East London
(ref. Mr. P Van Zyl).
For the first
respondent: Ms. S Mashiya instructed K B Mabanga Inc. Attorneys, East
London (ref. Mr. Mabanga).
For the second
respondent: No appearance.
[1]
The second sum appears to have been transferred out of the company’s
bank account on the evening of 31 August 2022 already
but only
reflected as a debit on the 1
st
.
The transaction however clearly followed the dispatch of the second
applicant’s attorney’s demand referred to in
par [6]
above sent by email on the 31
st
at 18h19.
[2]
What previous correspondence is being referred to was not clarified.
[3]
No
71 of 2008. See definition of “distribution” in section
1, read with section 46 as well as section 76 that spells
out the
standard of conduct expected from directors that extends beyond the
common law duty by compelling them to act honestly,
in good faith
and in a manner that they reasonably believe to be in the best
interests of, and for the benefit of, the company
served by them.
[4]
These
conclusions evidence the clear right of both applicants asserted in
the founding affidavit.
[5]
See
in this regard Graham v Park Mews Body Corporate & Another
2012(1) SA 355 (WCC) at [16]-[19].
[6]
The
applicants asked for a further order that I refer the first
respondent’s conduct to the National Director of Public
Prosecutions for further investigation. This is to my mind
unnecessary. I cannot equate his impetuousness to criminal intent.