Espag and Another v Hattingh (348/08) [2009] ZASCA 104; 2010 (3) SA 22 (SCA) ; [2010] 1 All SA 394 (SCA) (21 September 2009)

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[2009] ZASCA 104
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Espag and Another v Hattingh (348/08) [2009] ZASCA 104; 2010 (3) SA 22 (SCA) ; [2010] 1 All SA 394 (SCA) (21 September 2009)

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THE
SUPREME COURT OF APPEAL
REPUBLIC
OF SOUTH AFRICA
JUDGMENT
Case No: 348/08
In
the matter between:
JOSEF ANDRIES ESPAG
FIRST APPELLANT
PIETER JOHANNES VAN STADEN
SECOND APPELLANT
v
BAREND
DANIëL HATTINGH
RESPONDENT
Neutral citation:
Espag
v Hattingh
(348/2008)
[2009] ZASCA 104
(21 September 2009).
Coram:
Streicher
JA, Leach and Wallis AJJA
Heard: 27 August 2009
Delivered: 21 September 2009
Summary
: Partnership
– misconduct on the part of a partner – no obligation on the
other partners to afford the guilty partner a hearing
before
terminating the partnership.
________________________________________________________________
ORDER
________________________________________________________________
On appeal from:
High Court,
Pretoria (Ledwaba J sitting as court of first instance).
The following order is made:
The appeal succeeds with costs, including the costs of
two counsel.
The order of the court a quo upholding the respondent’s
application and dismissing the appellants’ counter-application is

set aside and is replaced with the following:
‘
1. The applicant’s application is dismissed with
costs, including those costs previously reserved and the costs of two
counsel.
It is declared that:
The partnership between the applicant and the first
and second respondents was dissolved on 3 October 2006 in terms of
clause
13.4 of the parties’ partnership agreement.
In terms of clause 14.2 of the partnership agreement,
the assets and liabilities of the aforementioned partnership
accrued to
the first and second respondents who are entitled to
deal therewith in their new legal practice.
3. The applicant is ordered to pay the costs of the
respondents’ counter-application, including those costs previously
reserved
and the costs of two counsel.’
________________________________________________________________
JUDGMENT
________________________________________________________________
LEACH AJA (STREICHER JA, WALLIS AJA CONCURRING)
[1] The parties are attorneys who practised in
partnership in Polokwane from March 2000 until 3 October 2006.
Unfortunately the
partnership terminated in acrimony, with the
parties unable to reach agreement on the division of the partnership
assets. The appellants
contended that in terms of clause 13.4 of the
parties’ written partnership agreement (dealt with more fully
below) they had been
entitled to require the respondent to withdraw
from the partnership as a result of certain misconduct on his part
and that the
dissolution was to be effected under various provisions
of the partnership agreement which applied in such circumstances. The
provisions
concerned essentially provided for the appellants to
retain the business of the partnership and to pay the respondent the
credit
balance of his capital account in the partnership as
determined in terms of an agreed formula.
On the
other hand, the respondent contended that the appellants had not been
entitled to require him to withdraw from the partnership
and that, by
doing so in the manner they did, they had repudiated the agreement
which had entitled him to cancel it. Consequently
he contended that
the partnership assets fell to be divided under the common law rather
than under the terms of the agreement and
that a liquidator should be
appointed with the power to liquidate the assets, pay the debts and
distribute the balance amongst
the former partners.
[2] Neither side was prepared to give way and, faced
with an impasse, the respondent instituted motion proceedings in the
High Court,
Pretoria seeking an order declaring that the partnership
had been dissolved on 3 October 2006 and appointing a liquidator.
This
application was opposed by the appellants who, in a counter
application, sought an order declaring the partnership to have been

dissolved under the terms of the partnership agreement due to the
respondent’s misconduct and that the partnership assets should

therefore be distributed under the relevant provisions of the
agreement. The matter came before Ledwaba J who, on 16 May 2008,

upheld the respondent’s application and dismissed the appellants’
counter-application. With leave of the court
a
quo
, the appellants now appeal to this court.
[3] After its formation, the partnership appears to have
been busy and successful, and there is no suggestion of any
meaningful
conflict between the respective partners until the final
week of September 2006. The catalyst for the rapid deterioration in
their
relationship which then occurred was the news that the crime
fighting unit commonly known as ‘the Scorpions’ had decided to

continue with an earlier investigation into the affairs of Mr N A
Ramatlhodi, at the time the Premier of the Limpopo Province,
and also
matters relating to the close corporation known as Thaba Pula
Investments CC (‘Thaba Pula’) in which a local businessman,
Mr
Eli Stroh, held a member’s interest.
[4] Through a series of transactions, some involving the
wife of the Premier, Thaba Pula had acquired land earmarked for land
restitution.
It paid R1,5m for the land but shortly thereafter sold
it to the state at almost double that price. The respondent had
provided
Thaba Pula with professional services during this process.
Not only were the circumstances of the purchase and resale of the
land
somewhat suspicious but, on an occasion in 2005 when it was
mentioned that members of the Scorpions were present at Eli Stroh’s

business premises and had asked to see all documentation relating to
Thaba Pula, the respondent promptly left his office, taking
the
firm’s Thaba Pula file with him. Quite naturally, the appellants
suspected that the file contained information the respondent
did not
want the Scorpions to discover.
[5] Although the appellants took the matter no further
in 2005, they became concerned in the last week of September 2006
when they
heard that the Scorpions had decided to revive their
earlier investigation into Mr Ramatlhodi and his affairs. In the
absence of
the respondent who was recovering from a recent
eye-operation, they decided to make a few enquiries of their own.
According to
the appellants, they then learned for the first time
that the respondent held a 50% member’s interest in Thaba Pula.
They further
allege that, on inspecting the partnership’s books of
account, they ascertained that Mr Ramatlhodi had been paid an amount
of
some R260 000 by way of a cheque drawn on the partnership’s
trust account for which they could find no explanation. From this

they drew the inference that the payment had been for an improper
purpose.
[6] In addition, the appellants claim that they learned
that from 1995 to September 2006 the respondent had performed a great
deal
of professional work in connection with a certain piece of
farmland and claims relating thereto, originally on behalf of a Mr F

W C Botha who had held certain rights in the land and, subsequently,
for a private company known as Chir Beleggings (Pty) Ltd (‘Chir’)

that had purchased those rights from Botha. The land in question had
been expropriated by the state but had never been used for
the
purpose for which it had been expropriated. After Chir had purchased
the land rights from Botha, it obtained transfer of the
land from the
state but subsequently resold it to the state at a handsome profit.
They also learned for the first time that the
respondent held a 50%
shareholding in Chir through his family trust and that, apart from
the fees incurred by Chir bringing an
application against the state,
which the respondent had himself paid, the respondent had not charged
fees for all the professional
work he had done for both Botha and
Chir in regard to the land in question for some eleven years. The
work had therefore effectively
been rendered at the firm’s expense
and resulted in the respondent receiving a substantial personal
benefit through his family
trust.
[7] The appellants were most unhappy about what they had
learned, and took the view that the respondent was guilty of gross
misconduct
which entitled them to request him to withdraw from the
partnership under clause 13.4 of the written partnership agreement
which
provided for the partnership to be dissolved in the following
circumstances:
‘
Indien ’n vennoot hom
skuldig maak aan growwe wangedrag, of in geval van enige optrede of
versuim wat ’n grond sal wees vir
ontbinding van die vennootskap
deur ’n bevoegde hof, dan sal die vennootskap ontbind word indien
minstens drie kwart van die
agterblywende winsdelende vennote hom
skriftelik versoek om uit te tree, met kennisgewingtydperk soos deur
hulle bepaal.
’
[8] Accordingly, on 3 October 2006 the appellants
confronted the respondent about the Thaba Pula and Chir matters and
asked him
to withdraw from the partnership. Although there is a
dispute which cannot be resolved on the papers in regard to the
respondent’s
reaction on being so confronted, it is common cause
that the appellants proceeded to hand the respondent a draft
agreement relating
to the dissolution of the partnership and the
distribution of its assets. After considering its contents, the
respondent refused
to sign this draft and, in a memorandum addressed
to the appellants later that day, expressed the view that the
appellants’ conduct
in requesting him to do so amounted to a
repudiation of the partnership agreement. In response, the appellants
wrote to the respondent
acknowledging receipt of his memorandum and
putting him to terms to vacate his office by 1pm that day. In these
unhappy circumstances
the partnership came to an end.
[9] The nub of the dispute turns on the appellants’
reliance on clause 13.4 of the partnership agreement. It is therefore
convenient
to deal at this stage with two defences raised by the
respondent flowing from the provisions of this clause. Firstly, it
was contended
both in the papers and in the respondent’s heads of
argument that the appellants had not complied with the clause as they
had
failed to give him a written request to withdraw on a period of
notice. On appeal, while counsel for the respondent did not abandon

the point, he found himself unable to advance any meaningful argument
on this issue. His reservation was well founded. The draft

dissolution agreement handed to the respondent at the meeting on 3
October 2006, together with the appellants’ later memorandum
that
day which gave him until 1pm to vacate his office, clearly amounted
to a written request for him to withdraw within that period
of
notice. The fact that this request was forcefully expressed does not
alter its essential nature. There is therefore no merit
in the
argument that this requirement of clause 13.4 was not satisfied by
the appellants.
[10] Secondly, the respondent’s case rested heavily
upon the contention that the appellants had been obliged to raise
their difficulties
with him and to afford him the opportunity of
explaining his conduct before calling upon him to withdraw from the
partnership.
This obligation, so it was argued, was founded upon the
obligation of the partners to act in good faith in their dealings
with
each other.
[11] While partners are undoubtedly obliged to act in
good faith in their dealings with one another, it is not a rule of
our law
that a partner who suspects another partner of misconduct is
obliged, in effect, to apply the
audi alteram
partem
rule before exercising a contractual
right to dissolve the partnership, and there is no need to read such
an obligation into the
agreement of the parties. If the respondent
was guilty of misconduct as envisaged by clause 13.4 the appellants
were lawfully entitled
under the partnership agreement to call upon
him to withdraw, and the fact that they invoked their right to do so
cannot amount
to a breach of good faith. Even if in doing so they
perceived the possibility of an end to the partnership bringing them
other
advantages, this cannot affect the lawfulness or legitimacy of
their conduct. The respondent’s contention that the appellants’

action in calling upon him to withdraw was directed at achieving an
ulterior purpose was not only disputed but is without foundation.
[12] In these circumstances, the cardinal issue is
whether the respondent had indeed been guilty of misconduct as
envisaged by clause
13.4 as, if he was, the appellants were entitled
to call upon him to withdraw from the partnership and the court a quo
erred in
granting the respondent relief. I therefore turn to the
question of the respondent’s alleged misconduct.
[13] All too often in litigation arising out of the
dissolution of a partnership, the papers become burdened by mutual
recriminations
and mudslinging. Unfortunately, that is here the case.
No purpose would be served in attempting to detail the wide-ranging
allegations
levelled by each side against the other as they are
impossible to determine on the papers. Nevertheless, it should be
mentioned
that the respondent denied being a party to any wrongdoing
in respect of the Thaba Pula incident and the appellants did not
attempt
to persuade this court that this could be rejected without
recourse to oral evidence. Consequently, this matter must be
determined
on the basis that the appellants have failed to show any
misconduct on the respondent’s part in respect of the first
complaint
they raised at their meeting on 3 October 2006.
[14] Turning to the Botha/Chir complaint, the
appellants’ case ultimately put up in their papers was far broader
than that with
which they initially confronted the respondent. Their
additional allegations also gave rise to serious factual disputes
which cannot
be resolved on the papers. However, there is no dispute
that for many years the respondent did professional work for Botha
and
for Chir for which he did not levy fees. There is also no doubt
that he neither informed the appellants of this nor sought their

consent not to charge fees.
[15] Under clause 9.2 of the partnership agreement, each
partner was obliged at all times to avoid a conflict between his
interests
and those of the partnership, with the latter always to
have preference. By doing work for Botha and Chir without levying
fees,
particularly over such an inordinately long period, the
respondent put himself in a position of conflict of interest. It was
obviously
in the partnership’s interest for fees to be both charged
and collected. Not only did the respondent fail to act in that
interest
by not charging fees but, by reason of his interest in Chir
through his family trust’s shareholding, it was in his personal
interest
to postpone the payment of fees for as long as possible. It
is not clear what amounts should have been debited, but the total sum

appears to have been in the vicinity of R100 000 and cannot be
regarded as trifling. The respondent thus clearly acted in conflict

with the best interests of the partnership in this regard.
[16] Due to the disputes of fact that appear on the
papers, the non-debiting of these fees is the only aspect of the
respondent’s
conduct with which he was confronted on 3 October 2006
that may be taken into account in considering whether the appellants
were
entitled to request his withdrawal. However, the appellants are
certainly not limited to this issue as it is well established that
an
innocent party seeking to justify the cancellation of a contract may
afterwards rely on any other ground which existed at, but
was only
discovered after, the time of cancellation.
1
And in regard to the respondent’s conduct, there are two further
issues in respect of which there is no dispute of fact which
are
relevant to the issue whether the respondent was guilty of misconduct
as envisaged by clause 13.4 of which the appellants
only came to
learn after 3 October 2006.
[17]
Section 51(4)
of the
Administration of Estates Act,
66 of 1965
provides that an executor of an estate shall not be
entitled to receive any remuneration before distribution of the
assets has
taken place ‘. . . unless payment of such remuneration
has been approved in writing by the Master’. That the respondent
was
well aware of these provisions is evidenced by a letter he wrote
to the Master on 30 June 2004 in his capacity as co-executor in
the
estate of the late S R Pohl, in which he asked for permission
for 80% of the executor’s fee to be paid under
s 51(4).
However,
despite such written consent not having been forthcoming, the
respondent proceeded to pay out at least R72 276 in respect
of
executor’s fees.
[18] Importantly, this was not the only incident of the
respondent drawing executor’s fees from estates of which he was the
executor
without having obtained the necessary written authority. On
10 March 2006, he debited executor’s fees of R20 520 against the
estate of the late J G Vorster, just two days after the liquidation
and distribution account had been lodged. Similarly, in the
estate of
the late M Mangena, he drew an executor’s fee of R10 320 on 8 June
2006, within days of the liquidation and distribution
account being
lodged. In the case of the estate of the late T Joubert, he withdrew
R25 080 in respect of executor’s fees on 13
February 2006, more
than three months before the liquidation and distribution account was
lodged. And in the estate of the late
M E Maponyi, he
withdrew executor’s fees of R58 140 and R74 100 in June and
September 2005, respectively.
[19] The respondent admitted to charging and receiving
these fees without the necessary written authority, despite the
Master in
a letter dated 30 June 2005 having pertinently and
unequivocally drawn it to his attention that fees were not to be paid
out of
estates without written authority under
s 51(4).
He failed to
offer any meaningful explanation for having done so. Instead he
merely stated that he had erred in this regard and
offered his
apologies, although he went on to remark that the debiting of fees
before finalisation of the estate accounts is a
reasonably general
practice and one not necessarily censured by the Master. This is a
startling observation in the light of his
admission that he had made
substantial withdrawals from these estates in respect of fees, well
knowing that the withdrawals were
unlawful. The respondent acted in
blatant disregard of statutory provisions designed to provide
protection for the funds of others
held in trust and helped himself
to moneys that were not due at that time. This cannot be taken as a
trivial irregularity. Rather,
it amounts to gross misconduct on his
part.
[20] A second instance of misconduct discovered by the
appellants after the cancellation of the partnership agreement
relates to
the respondent’s administration of the estate of the
late S R Pohl (out of which he irregularly paid his executor’s fees
as
already mentioned). On 20 April 2006, acting in his capacity as a
conveyancer, he issued a certificate under
s 42(1)
of the
Administration of the Estates Act 66 of 1965 stating that the
proposed transfer of the farm Vygeboomspruit 358 was in accordance

with the final liquidation and distribution account of the estate
which had lain open for inspection without objection. Pursuant

thereto the farm was transferred out of the estate into the name of
an heir, one Montagu Ross Pohl, a son of the deceased.
[21] The certificate issued by the respondent was
deliberately false. Not only did he know that the deceased’s widow
and a minor
child had objected to the account in 2004, but he knew
that the Master had upheld the objection in February 2005. He also
knew
that he and his co-executor had brought review proceedings
against the Master’s decision to uphold the objection and that such

review was still pending when he issued the false certificate in
April 2006. The sole explanation offered by the respondent for
his
action in giving a false certificate was that the deceased’s son,
to whom the property was transferred, had been in urgent
need of
capital and needed the farm to be transferred to him so that he could
burden it by way of a bond and thereby obtain the
funds he needed to
continue farming. That may well be so, but the fact remains that in
order to circumvent the provisions of s
42, which would otherwise
have acted as a bar to the farm being transferred to the heir, the
respondent deliberately issued a false
certificate in order to
facilitate the transfer of an immovable property out of the estate
well knowing that there had been an
objection to the liquidation and
distribution account. In my view this was a deliberate flouting of
the law and constitutes a grave
infraction of his duties as an
attorney and conveyancer.
2
[22] The cumulative effect of the respondent’s failure
to debit fees to his own advantage in the Botha/Chir matter; his
taking
fees from estates he was administering without the written
consent of the Master; and his action in issuing a false certificate

in the Pohl estate, clearly amounted to gross misconduct as envisaged
by clause 13.4 of the partnership agreement. The appellants
were
therefore fully entitled to request his withdrawal from the
partnership as they did on 3 October 2006.
[23] In an attempt to overcome the obvious consequences
of such a finding, it was argued on behalf of the respondent that the
appellants
should not be allowed to rely upon the clause as they had
not approached the court with clean hands. This argument was based on

the contention that the appellants had known about the Scorpions’
interest in the Thaba Pula transactions for a year before they
asked
the respondent to withdraw from the partnership, during which period
they did nothing about the matter. The argument, as
I understood it,
was that this delay amounted to a breach of the reciprocal duty of
good faith which exists between partners and,
in effect, constituted
a repudiation of the partnership agreement, the provisions of which
the appellants were therefore not entitled
to enforce.
[24] This argument is logically flawed. There is a
dispute in regard to the Thaba Pula incident, with the respondent
contending
that he had done nothing wrong and denying that he had
absconded from the office with the Thaba Pula file in 2005 as the
appellants
allege. These disputes cannot be resolved on the papers,
and it therefore cannot lie in the respondent’s mouth to complain
that
his partners did nothing about a transaction which, on his
version, was innocent and about which they had nothing to complain.
In addition, the appellants’ allegation that the information which
caused them to suspect the respondent of gross misconduct only

emerged during the last week of September 2006 is not gainsaid, and
it was only then that they had sufficient cause to confront
him. In
these circumstances it can neither be said that the appellants did
not have clean hands nor that they had repudiated the
partnership
agreement and were not entitled to enforce its terms.
[25] To summarise, the respondent made himself guilty of
gross misconduct as contemplated in clause 13.4 of the agreement and
the
appellants were therefore entitled to call upon him to withdraw
from their partnership, as they did on 3 October 2006. Their

action in doing so was lawful and did not amount to a repudiation of
the terms of the partnership agreement. The partnership was

accordingly dissolved in terms of the provisions relating thereto
contained in the partnership agreement itself. In these
circumstances,
the court
a quo
erred in holding that the appellants were not entitled to request the
respondent to withdraw. Instead, it ought to have dismissed
the
respondent’s application and upheld the appellants’ counter
application.
[26] The parties were agreed that in the event of this
court reaching the conclusion it has, an order in the terms set out
below
would be appropriate.
[27] The following order is made:
(a) The appeal succeeds with costs, including the costs
of two counsel.
(b) The order of the court a quo upholding the
respondent’s application and dismissing the appellants’ counter
application is
set aside and is replaced with the following:
1. The applicant’s application is dismissed with
costs, including those costs previously reserved and the costs of two
counsel
2. It is declared that:
2.1 The partnership between the applicant and the first
and second respondents was dissolved on 3 October 2006 in terms of
clause
13.4 of the parties’ partnership agreement.
In terms of clause 14.2 of the partnership agreement,
the assets and liabilities of the aforementioned partnership
accrued to
the first and second respondents who are entitled to
deal therewith in their new legal practice.
3. The applicant is ordered to pay the costs of the
respondents’ counter-application, including those costs previously
reserved
and the costs of two counsel.
_____________________
L E LEACH
ACTING JUDGE OF APPEAL
APPEARANCES:
COUNSEL FOR APPELLANTS: J P Vorster SC; H H Steyn (
heads of argument prepared by AP Joubert SC; HH
Steyn).
INSTRUCTED BY: Fourie Fismer Inc;
Pretoria
CORRESPONDENT: Symington & De Kok;
Bloemfontein
COUNSEL FOR RESPONDENT: Q Pelser SC; N Erasmus
INSTRUCTED BY: Rooth Wessels Maluleke Attorneys;
Pretoria
CORRESPONDENT: Rosendorf Reitz Barry; Bloemfontein
1
See eg
Datacolor
International (Pty) Ltd v Intamarket (Pty) Ltd
[2000] ZASCA 82
;
2001 (2) SA 284
(SCA) para 28.
2
Compare
Incorporated
Law Society, Transvaal v Meyer
1981
(3) SA 962
(T) at 973H.