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[2021] ZAGPPHC 22
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Du Preez v Van Rooyen (26156/20) [2021] ZAGPPHC 22 (18 January 2021)
REPUBLIC
OF SOUTH AFRICA
IN
THE HIGH COURT OF SOUTH AFRICA
GAUTENG
DIVISION, PRETORIA
(1)
REPORTABLE: NO
(2)
OF INTEREST TO OTHER JUDGES: NO
(3)
REVISED
18
January 2021
CASE
NO: 26156/20
In
the matter between:
SONJA
DU PREEZ
Applicant
and
PETRUS
WILLEM VAN
ROOYEN
Respondent
In
re:
STITCHED
FLAGS AND BANNERS CC
(Reg
No: 2006/0991963/23)
This
judgment is issued by the Judge whose name is reflected herein and is
submitted electronically to the parties/their legal representatives
by email. The judgement is further uploaded to the electronic file of
this matter on Caselines by the Judge or his/her secretary.
The date
of this judgment is deemed to be 18 January 2021.
JUDGMENT
COLLIS
J
INTRODUCTION
(1)
This
is an opposed application wherein the applicant as per the Notice of
Motion
[1]
applies in
terms of section 36(1) read with section 36(2) of the Close
Corporation Act 69 of 1984, for the following relief:
1.1
That the 15% membership of the respondent in the
Close Corporation Stitched Flags and Banners CC (Reg No:
2006/0991963/23) be and
is hereby terminated;
1.2
That the applicant shall be the owner of 100% of
the membership interest of and in the Close Corporation aforesaid;
1.3
That it be declared that the ‘Memorandum of
Agreement’ between the parties dated the 16
th
March 2020 is null and void alternatively, terminated and of no force
and effect and that all any monies paid by the applicant
to the
respondent in execution thereof are to repaid by the respondent to
the applicant;
1.4
Any Association Agreement between applicant and
respondent be and is hereby set aside;
1.5
That the applicant’s costs of the
application to be paid by the respondent.
BACKGROUND
(2)
By way of background the applicant and the
respondent are members of Stitched Flags and Banners CC (“the
Corporation“),
holding 85% and 15% membership interest
respectively.
(3)
On 16 March 2020 the parties concluded a written
agreement/contract of sale of the respondent’s 15% membership
interest in
the corporation to the applicant (“the contract”).
In respect of the sale of contract the purchase consideration of
R 1
250 000-00 was payable in instalments.
(4)
The
applicant defaulted on her payments of the purchase price. She also
repudiated the contract. The respondent accepted this repudiation
and
cancelled the contract. This transpired on 5 June 2010
[2]
.
(5)
Pursuant thereto, the applicant launched the
present proceedings seeking the relief as set out in her Notice of
Motion.
(6)
The
respondent as mentioned opposes the relief and also filed a
counter-application for damages as a result of the applicant’s
breach of contract. Simultaneously, the respondent also tendered the
transfer of his 15% membership interest against the payment
of the
amount claimed of damages.
[3]
COMMON
CAUSE ISSUES
(7)
As per
the Joint Practice Note
[4]
the following
appears to be common cause facts. During 2016 the respondent
commenced employment in the business being run at the
moment in the
CC.
(8)
At the time the business was being run as the
sole proprietorship of the applicant, but as a common venture between
the applicant
and her then husband, mainly under her husband’s
supervision.
(9)
A few years later, during 2019 the respondent was
given 15% membership in the CC, with the applicant retaining 85%. For
his membership
interest, the respondent was not required to pay
equity of valuable consideration for it. During this time the
aforesaid business
was being run in and by the CC, and all business
assets in use were the assets that the applicant had as sole
proprietor and which
assets had never been sold to the CC.
(10)
Around December 2019 the relationship between the
applicant and the respondent as two members of the trading CC had
broken down
and in terms of an agreement between them the respondent
had sold his 15% membership to the applicant. The consideration for
his
15% membership interest was to be paid by the applicant in
instalments.
(11)
The applicant proceeded to pay two instalments,
totalling R275 000 and thereafter repudiated the agreement, which
repudiation was
accepted by the respondent and the agreement was
thereafter cancelled.
(12)
As per the counter application the unpaid portion
of the purchase price i.e. R975 000,00 is being claimed by the
respondent as damages.
ISSUES
FOR DETERMINATION
AS
PER THE APPLICANT
(13)
This court as per the applicant was to determine
whether the applicant’s claim for cancellation of the
respondent’s
15% membership in the CC can be upheld in terms of
section 36 of the Close Corporation Act.
(14)
Secondly, this court is to determine whether the
sale agreement in question is enforceable or not. The applicant
contends that the
agreement is null for vagueness and if the court is
against this finding the agreement can nevertheless be rescinded in
terms of
the court’s power under section 36(2).
AS
PER THE RESPONDENT
(15)
As per the respondent, this court was to
determine whether the contract whereby the respondent sold his 15%
membership interest
ought to be declared as contended for by the
applicant null and void, alternatively declared terminated and of no
force and effect.
(16)
Conditional, upon the granting of the aforesaid
declaratory relief whether the applicant is entitled to repayment of
the R275 000
paid in terms of the contract.
(17)
Again, conditional upon the granting of the
aforesaid declaratory relief, the setting aside of the association
agreement between
the parties and the concomitant termination of the
respondent’s membership interest in the corporation in terms of
section
36(1) of the Close Corporation Act 69 of 1984.
(18)
The court is also called upon to determine the
respondent’s counter application.
(19)
The
applicant in order to succeed with the relief she seeks comes the
overall (
onus
).
[5]
(20)
What will be required of an applicant is to show
with evidence the relevant facts required to sustain the relief as
set out in section
36(1) and section 36(2) of the Close Corporation
Act and a court will evaluate such evidence on a balance of
probability.
(21)
The above finding was made in the decision Geaney
v Portion 117 Kalkheuwel Properties CC and Others
1998 (1) SA 622(T).
ENABLING
LEGISLATION
(22)
Section 36 of the Close Corporation Act provides
as follows:
“
36 Cessation
of membership by order of Court-
(1)
On application by any member of a corporation a
Court may on any of the following grounds order that any member shall
cease to be
a member of the corporation:
(a)
Subject to the provisions of the association
agreement (if any), that the member is permanently incapable, because
of unsound mind
or any other reason, of performing his or her part in
carrying on of the business of the corporation;
(b)
that the member has been guilty of such conduct
as taking into account the nature of the corporation’s
business, is likely
to have a prejudicial effect on the carrying on
of the business;
(c)
that the member so conducts his or her in matters
relating to the corporation’s business that is not reasonably
practicable
for the other member or members to carry on the business
of the corporation with him or her; or
(d)
that circumstances have arisen which render it
just and equitable that such member should cease to be a member of
the corporation.
Provided that such
application to a court on any ground mentioned in paragraph (a) or
(d) may also be made by a member in respect
of whom the order shall
apply.
(2)
A Court granting an order in terms of subsection
(1) may make such further orders as it deems fit in regard to-
(a)
the acquisition of the member’s interest
concerned by the corporation or by members other than the member
concerned; or
(b)
the amounts (if any) to be paid in respect of the
member’s interest concerned or the claims against the
corporation of that
member, the manner and times of such payments and
the persons to whom they shall be made; or
(c)
any other matter regarding the cessation of
membership which the Court deems fit.”
(23)
In his discussion on section 36(1) of the Act
Meskin Henochsberg on the Close Corporation Act Issue 3, com 82
states that:
“
A corporation
is essentially a partnership between the members which as such (and
unlike a partnership at common law) is a separate
legal persona. The
legislature’s recognition of this fact is the reason for the
enactment of this provisions. Its purpose
is to empower the court to
dissolve the association between the members without winding up the
corporation on the ground that such
would be just and equitable as
envisaged by section 68(d), in circumstances, which, in the context
of a partnership would warrant
its dissolution.”
(24)
A
contract is an agreement between parties which gives rise to personal
rights and corresponding obligations.
[6]
(25)
“
An
agreement is a contract only if it comprises a number of essential
elements, the all-important are being that the agreement is
one for
performance or non-performance in the future by one or more of the
parties.”
[7]
(26)
The
other essentials are that the parties must have legal capacity to
contract;
[8]
that they
must seriously intend to bind themselves,
[9]
and the
agreement must not be contrary to statute law, public policy or good
morals in its formation, performance or purpose.
[10]
(27)
If any
one or more of the essential elements is lacking the agreement is
void of legal effect from the beginning. No order of court
is
required to set the agreement aside for its non-existent.
[11]
APPLICANT’S
VERSION
(28)
On the
applicant’s version she started her business known as Stitched
Flags and Banners CC, together with her former husband
Thomas Reid Du
Preez during 2005. By 2014 her business had grown to such an extent
that it employed several dedicated personnel
amongst others, the
respondent as a general manager.
[12]
(29)
Around
2017, her marriage to her former husband fell apart and at some stage
during the divorce negotiations it was suggested to
them that they
should “gift” the respondent with a 10% stake in the
business whilst she and her former husband shared
the rest of the
ownership.
[13]
(30)
Her divorce was finalized during 2018 and as part
of the divorce settlement she paid her former husband an amount of R
3 040 000,00
(Three Million Fourty Thousand Rand) for the goodwill of
the business.
(31)
The
business and all its assets were then left to her and as a result she
resolved to increase the offering of 10% stake to the
respondent to
15%. This was done to secure his loyalty and commitment to her and to
the business and in facilitating of this offer
around July 2018 an
“Association Agreement” was drawn up by her
attorneys.
[14]
This, the
respondent received “free of charge” in return for his
utter most dedication to the business and to herself
as his business
partner, albeit that their relationship was somewhat strained and
distant.
(32)
By way
of example the respondent appropriated himself the title “managing
member”, when this was never discussed with
her and when it was
discovered that two sales employees were running their own side
business whilst being employed by the CC, he
refused to dismiss
them.
[15]
(33)
During
or about August 2019 the respondent informed her that she had made
the work environment impossible for him and that he wanted
“out”.
The applicant wanted instead to “fire” him, but on legal
advice received, decided to rather buy
him out.
[16]
As a result
annexure “H” was then signed by both of them
[17]
on 16 March
2020.
(34)
This
agreement the applicant contends is void in that the matter of “sale
claims” is incapable of comprehension or definition
or
performance. She further contends that the agreement is also wholly
unenforceable, unconscionable as well as unfair. Moreover,
that at no
time was she advised by her then legal team about the better option
available to her in terms of section 36 of the Close
Corporation Act,
to actually get rid of the respondent.
[18]
(35)
By
reason of the “lockdown” and the complete cessation of
the business, she became unable to meet further payments as
envisaged
by annexure “H” and as a result requested extensions and
postponements for payments.
[19]
(36)
Her current set of attorneys were thereafter
engaged and the present application pursued.
(37)
On her
version, had she received the advice of removal of the respondent in
terms of section 36 of the Close Corporation Act, she
would never
have acceded to signing annexure “H”. As there is nothing
left of the relationship between herself and
the respondent it is on
this basis that she contends the provisions of section 36(1)(c)
and/or section 36(1)(d) have been fulfilled.
[20]
(38)
Furthermore,
as a result of the lockdown she seeks financial assistance and the
respondents continued membership is an obstacle
as long as he is a
member of the CC and the CC cannot obtain financial assistance
without his suretyship or consent.
[21]
(39)
The respondents continued membership has thus
incapacitated the corporation as envisaged by section 36(1)(a) and is
prejudicial
to the welfare of the corporation [section 36(1)(b)] in
that without access to credit it will be impossible to overcome the
setbacks
by the lockdown.
RESPONDENT’S
VERSION
(40)
The
respondent at the outset denies that the applicant has made out a
case for the relief claimed by her.
[22]
(41)
In
amplification thereof he denies that she has allege facts to have the
sale agreement declared “null and void” and
for it to be
set aside.
[23]
(42)
Furthermore,
he denies that a case has been made out by her for the cessation of
his membership interest in terms of section
36(1) of the
Act.
[24]
(43)
In
addition the respondent contends that the current application is
nothing more than a disingenuous attempt by the applicant to
circumvent her remaining obligations in terms of the sale of
membership interest agreement.
[25]
(44)
The
decision to exit the corporation was conveyed to the applicant in a
letter directed by his attorneys to the applicant’s
legal
representative and that this had transpired around December 2019. In
the said letter the irreparable breakdown of the relationship
between
applicant and the respondent was highlighted.
[26]
(45)
In the
said letter directed by his attorney, the provisions of section
36(1)(b) and section 36(1)(c) were also brought to her attention.
[27]
(46)
As per
the respondent after months of correspondence being exchanged between
the applicant and his representatives, the parties
eventually reached
consensus on the terms of the sale agreement of his membership
interest on 16 March 2020, which terms are disclosed
in annexure “H”
to the founding affidavit.
[28]
It is on this
basis that he asserts that himself and the applicant concluded the
sale agreement with open eyes and had reached consensus
as to the
purchase price, the
merx
and
the intension to sell his member’s interest.
(47)
What followed on the day thereafter was a payment
made by the applicant in the amount of R 250 000 and a further
payment of R25000
around May 2020.
(48)
The
respondent further alleges that given various email exchanges between
the legal representatives that she (the applicant) at
all times were
desirous to honour her obligations in terms of the sale agreement and
at no point tried to avoid fulfilling same,
[29]
but that she
had experience challenges with the Covid 19 pandemic to comply with
her payment obligations.
(49)
The
respondent contends the utter about turn came about when she changed
legal teams and repudiated the sale agreement, which repudiation
was
accepted by him.
[30]
ANALYSIS
(50)
This court in determining therefore as to whether
the contract in issue is void
ab initio
the
court must carefully consider whether the essentialia of a contract
has been met.
(51)
The essentialia for a contract of sale are the
following:
(a)
The parties must have agreed to purchase and
sell;
(b)
on the thing purchased; and
(c)
on the price.
(52)
There can be no valid contract of sale unless the
parties have agreed expressly or tacitly on a purchase price. The
object sold
must be identified or identifiable and the purchase
price.
(53)
In the
present instance both applicant and respondent had reached consensus
on the irretrievable breakdown of the fiduciary relationship
between
them. They further had reached agreement that as a result of this
breakdown that the respondent would exit the corporation
and that in
exchange for him exiting the corporation that the applicant would
purchase his membership interest from him. The price
for his
membership interest was even agreed upon and it was agreed upon that
this price would be paid in instalments, and the consensus
reached by
them was eventually recorded in annexure “H” to the
founding affidavit.
[31]
(54)
Ex facie
the
affidavits the terms set out in annexure “H” and how it
all came about are all common cause facts between the parties.
It is
also common cause between them that at all material times the parties
were assisted with legal representation, and that the
applicant, upon
her change in legal team, had repudiated the sale agreement. Prior to
this point in time, she was desirous to fulfil
her obligations in
terms of the contract of sale so concluded.
(55)
Upon assessing the probabilities; the inescapable
conclusion to be drawn, is that there exists no basis for a finding
by this court
that annexure “H” so concluded is void
ab
initio
and no such finding will be made by
this court.
(56)
On the
affidavits presented before this court, the applicant is in breach of
her obligations in terms of the contract of sale entered
into with
the respondent, which repudiation was accepted by the respondent.
[32]
As a result
of this repudiation on her part, the respondent suffered damages,
which forms the basis of his counter application.
(57)
In the alternative, the applicant is seeking that
the contract concluded with the respondent be declared terminated and
of no force
and effect.
(58)
On the evidence set out in the respective
affidavits, the applicant herself repudiated the contract by failing
to pay sale price
as agreed between the parties, which repudiation as
previously mentioned, was accepted by the respondent. The acceptance
of repudiation
of the contract was also conveyed to the applicant as
previously mentioned.
(59)
To rely on repudiation the innocent party (i.e.
in this case the respondent), must allege and prove the following:
(a)
repudiation of a fundamental term of the contract
- that is conduct the exhibits objectively a party’s deliberate
and unequivocal
intention not to be bound by the contract;
(b)
an election by the innocent party to terminate;
and
(c)
communication
of the election to the guilty party.
[33]
(60)
The founding affidavit contains no allegation to
support the alternative relief to declare the contract terminated and
of no force
and effect and it thus follows that the alternative
relief cannot be granted.
(61)
The party who asserts that the other party has
repudiated the contract may seek as relief either of the following:
(a)
restitution;
(b)
damages, usually assessed at the agreed date of
performance: See Novick v Benjamin
[1972] 2 ALL SA 510
(A);
(c)
specific performance of accrued rights.
(62)
In the absence of the applicant succeeding with
her relief to declare the contract void
ab
initio
or terminated no basis exist for any
money paid by her to be repaid.
(63)
As to
her relief sought to have the Association Agreement set aside the
onus
rests on the applicant to allege and prove a cause, reason or flaw
existing at the time when the Association Agreement was concluded
which now entitles her to repudiate and claim
restitutio
in integrum.
[34]
In the event
of the applicant succeeding to have the association agreement set
aside, the resultant effect would be to have the
respondent’s
membership interest returned in favour of the applicant.
(64)
As per the Notice of Motion no such ancilliary
relief is sought by the applicant, nor have any case therefore been
pleaded. Consequently,
I find, she cannot succeed with this portion
of the relief which she also seeks.
(65)
What remains is then the termination of the
respondent’s membership interest ito section 36(1) of the Close
Corporation Act.
(66)
In carefully having considered the applicants
pleaded case, at best the respondent’s membership is to be
terminated on account
of circumstances, which renders it just and
equitable as provided for in terms of section 36(1)(d).
(67)
In amplification of this ground the applicant
avers that the respondents continued membership serves as an
impediment to the corporation’s
financial flexibility, and in
addition to this it is common cause that the fiduciary relationship
between the parties had broken
down irretrievably.
(68)
To my mind, the objective of section 36(1) and
section 36(2) of the Close Corporation Act, is precisely what was
envisaged with
the conclusion of the contract of sale i.e. the
termination/cessation of the respondent’s membership interest
against any
amount to be paid in respect of the member’s
interest concerned.
(69)
On the conspectus of the evidence presented, this
will therefore be just and equitable result.
(70)
In relation to the counter-application same is
premised and the contract of sale concluded between the parties and
the subsequent
cancellation by the respondent.
(71)
In terms of this contract of sale the purchase
price for the respondent’s membership interest was agreed to be
R1 250 000
with the applicant having paid R275 000 towards the
purchase price. This leaves a balance of R 975 000,00 and in the
event of the
contract of sale not having been breached by the
applicant, this balance would have been paid by the applicant.
(72)
As previously mentioned an innocent party in the
event of repudiation may either seek restitution/damages or specific
performance.
(73)
In casu
, the
respondent accepted the repudiation and cancelled the contract and
what was due to him (his loss) at that point forms the
basis for his
counter application. On the evidence presented the respondent has
discharged his
onus
to
succeed with his counter application.
ORDER
(74)
In the result the following order is made:
74.1
In terms of section 36(1)(d) of the Close
Corporation Act the 15% membership interest of the respondent in the
Close Corporation
Stitched Flags and Banners CC (Reg No:
2006/0991963/23) be and is hereby terminated, against payment by the
applicant to the respondent
of the amount of R 975 000 in terms of
section 36(2)(c) of the Act.
74.2
Upon receipt of such payment mentioned in
paragraph 74.1 the respondent is directed to effect transfer of his
15% interest in the
corporation to the applicant.
74.3
The applicant shall thereafter be the owner of
100% of the membership interest of and in the Close Corporation
aforesaid.
74.4
The respondent’s counterclaim is upheld,
with costs.
C.J.
COLLIS
JUDGE
OF THE HIGH COURT
Appearances
Counsel
for the Applicant : Adv. B.G Savvas
Attorney
for the Applicant : Venn & Muller
Incorporate
Counsel
for the Respondent : Adv. J. Lubbe
Attorney
for the Respondent : Schuler Heerschop Pienaar
Date
of Hearing
: 10 November 2020
Date
of Judgment
: 18
January 2021
Judgment
transmitted electronically.
[1]
Notice
of Motion Index 001: 1–3.
[2]
Founding
Affidavit 001 – 79 Annexure ‘K’.
[3]
Counter
Application para 201 Index 004: 64 onwards
[4]
Joint
Practice Note Index 008: 14 - 19
[5]
Smyth
and Another v MEW
2010 (6) SA 537
(SCA) at 543E para [26].
[6]
Registrar
of Deeds v Ferreira Deep Ltd 1930 AD 180.
[7]
Wille’s Principles of the South African Law (Juta 6
th
Ed) 301.
[8]
Conradie
v Rossouw 1919 A.D. 320.
[9]
Conradie
283, 314; 324.
[10]
Wille’s
Principles of South African Law (Juta 6
th
Ed) 302.
[11]
Harrismith
Board of Executors v Odendaal 1923 A.D. 537.
[12]
FA
para 10 Index 001 – 6.
[13]
FA
para 12 Index 001 – 7.
[14]
FA
para 19 Index 001 – 10.
[15]
FA
para 24 & 25 Index 001 – 12.
[16]
FA
para 41 Index 001 – 16.
[17]
Annexure “H” Index 001 – 55.
[18]
FA
para 46 Index 001 – 17.
[19]
FA
para 48 Index 001 – 18.
[20]
FA
para 52 Index 001 – 19.
[21]
FA
para 54 Index 001 – 19.
[22]
AA
para 18.1 Index 004 – 7.
[23]
AA
para 18.2 Index 004 – 7.
[24]
AA
para 18.3 Index 004 – 7.
[25]
AA
para 24 Index 004 – 10.
[26]
AA
para 37.1 Index 004 – 14 and Annexure “PR3”.
[27]
AA
para 37.6.1 Index 004 – 15.
[28]
AA
para 57 Index 004 – 22.
[29]
AA
para 66 Index 004 – 25.
[30]
AA
para 75 Index 004 – 27.
[31]
AA Annexure Part 2 Index 004 – 122. See also email dated 24
February 2020. Index 004 – 125.
[32]
AA
Annexures PART 2 Index 004 – 140 and 142.
[33]
Highveld
7 Properties (Pty) Ltd v Bailes [1999] 4 ALL SA 461 (A); 1999 (4) SA
1307 (A).
[34]
Willes
Principles of the South Africa Law (Juta 6
th
Ed) 303.