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2021
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[2021] ZAMPMBHC 53
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Badenhorst N.O v Manyatta Properties Close Corporation and Others (1019/2021) [2021] ZAMPMBHC 53 (12 November 2021)
IN
THE HIGH COURT OF SOUTH AFRICA
MPUMALANGA
DIVISION MBOMBELA (MAIN SEAT
)
CASE
NO.:
1019/2021
REPORTABLE:
YES/
NO
OF
INTEREST TO OTHER JUDGES: YES/
NO
REVISED.
12/11/2021
In
the matter between:
J.J
BADENHORST N.O
Applicant
(Executor
in The Estate Late Ernst Hendrik De Witt)
and
MANYATTA
PROPERTIES CLOSE CORPORATION
First
Respondent
PHILLIPUS
CORNELIUS DE WITT
Second Respondent
MASTER
OF THE HIGH COURT, NELSPRUIT
Third Respondent
NIKIFON
(PTY) LTD
Fourth Respondent
SWANEPOEL
AND PARTNERS INCORPORATED
Fifth Respondent
CHRISTELLE
DE WET
Sixth Respondent
DAVID
BENNETT
Seventh Respondent
THE
REGISTRAR OF DEEDS, MBOMBELA
Eight Respondent
ANNA
MAGDALENA ASHBURNER
Ninth Respondent
ANNA
MAGDALENA ASHBURNER N.O
Tenth Respondent
RONALD
ASHBURNER N.O
Eleventh Respondent
CAROLINE
ELIZABETH VERMEULEN N.O
Twelfth Respondent
ANDRE
ASHBURNER N.O
Thirteenth Respondent
ROANI
ASHBURNER N.O
Fourteenth Respondent
ODUSSEE
TRADING CLOSE CORPORATION
Fifteenth Respondent
This
judgment will be delivered over the zoom platform on 12 November 2021
at 09:00 and electronically distributed to the parties.
A signed
version will be filed in the court file.
JUDGMENT
Roelofse
AJ:
INTRODUCTION
[1]
The
dispute in this application concerns the sale and transfer of a farm
and the subsequent registration of servitudes over a farm.
[1]
[2]
The applicant, in a vindicatory
action, on behalf of the former owner of the farm, Manyatta
Properties Close Corporation (hereinafter
referred to as “Manyatta”),
seeks to annul the sale, transfer and the servitudes and the
re-transfer of the farm to
Manyatta.
[3]
This court must decide whether the
applicant has established a cause of action for the relief he seeks
that is, whether the applicant
must be suited in circumstances where
he reclaims property which belonged to a close corporation from a
third party in a vindicatory
action on behalf of the close
corporation in his capacity as executor of the estate of a deceased
member of the close corporation.
Background
[4]
I commence with a brief background
to the dispute.
[5]
Manyatta
had two members. The second respondent holds 50% members’
interest in Manyatta. Mr. Ernst Hendrik De Witt held the
other 50%
members’ interest. Mr. Ernst Hendrik De Witt (“
the
deceased”
)
passed away on 21 March 2010. Despite the deceased’s passing,
the Companies and Intellectual Properties Commission’s
records
still reflect that the deceased together with the second respondent
hold the members’ interest in Manyatta. The deceased’s
members’ interest must still be dealt with in terms of section
35 of the Close Corporations Act 69 of 1984 (“
the
Corporations Act”
).
[2]
[6]
The applicant is the present
executor of the deceased’s estate, being appointed as such by
the Master of the High Court, Johannesburg
on 5 November 2020. The
erstwhile executrix was removed by order of court on 27 August 2020.
In terms of the deceased’s will,
the deceased’s son,
Ernst Hendrik De Witt Jnr. (“
the
heir”
) is the sole beneficiary of
the deceased’s estate.
[7]
On
18 September 2014, Manyatta sold the farm to the fourth respondent,
Nikifon (Pty) Ltd
[3]
(hereinafter referred to as “
Nikifon
”).
Ownership of the farm was transferred to Nikofin on 24 October 2014.
[8]
On 26 January 2016 and on 19 April
2016, two Notarial Deeds of Servitude were registered in respect of
the farm. In the first instance,
the farm is the servient tenement
and in the second instance, the farm is the dominant tenement.
[9]
The
sixth and seventh respondents are conveyancers and directors of the
fifth respondent (to whom I shall refer to as “
the
conveyancers”)
.
The sixth respondent prepared the documents for the transfer and the
first notarial deed of servitude. The seventh respondent
appeared
before the Registrar in order to effect the registration of transfer
and acted as notary for purposes of the registration
of the first
servitude.
[4]
THE
APPLICANT’S CLAIM
[10]
The
applicant, in his capacity as executor of the deceased’s
estate, approaches this court in motion proceedings on notice
of
motion. The application was issued on 24 March 2021.
[5]
Relief
sought
[11]
In
his notice of motion, the applicant seeks the following relief:
that
the sale agreement and the registration of the servitudes be
cancelled and set aside and declared void
ab
initio
,
alternatively null and void; that Manyatta be declared as the lawful
and rightful owner of the farm; that the transfer of the
farm be
cancelled and set aside and declared void
ab
initio
,
alternatively null and void; that the Registrar of Deeds, Mbombela
[6]
be ordered to cancel the present title deed of the farm, issue a new
title deed in the name of Manyatta and cancel the Notarial
Deeds of
Servitude. In addition, the applicant seeks costs to be paid by those
respondents who opposed the application on an attorney
and own client
scale.
[7]
[12]
The
applicant sets out the purpose of the application in his founding
affidavit as follows:
[8]
“
This
is an Application in which the Applicant seeks an order from the
above Honorable Court, inter alia, cancelling and setting
aside the
fraudulent, unlawful and irregular transfer of and registration of
ownership
[of the farm],
in
the name of Nikifon (Pty) Ltd, (the Fourth Respondent), which
transfer was registered by the Eighth Respondent on 24 October
2014,
and to set aside all subsequent registrations, of unlawful notarial
servitudes, registered on 5 May 2016 against the Title
Deeds by
virtue of there being a defect in the real agreement and fraud as set
out below.”
The
applicant’s allegations
[13]
The background given in the
introduction above is contained in the applicant's founding affidavit
and are common cause.
[14]
The applicant alleges in his
founding affidavit that the sale and transfer of the farm was
fraudulent, brought about through collusion
between the second and
fourth to seventh respondents, and therefore there was a defect in
the underlying transaction upon which
ownership was transferred.
[15]
The basis for this allegation
is that, at the time of the entering into of the sale agreement and
the subsequent transfer, the second
respondent purported to act on
behalf of Manyatta in circumstances where the second respondent had
no authorization to do so from
the erstwhile executrix. In addition,
the second respondent, purporting to act on behalf of Manyatta signed
a power of attorney
on behalf of Manyatta and a resolution purporting
to be by the members of Manyatta authorizing the second respondent to
act in
a representative capacity on behalf of Manyatta. In terms of
this resolution, the conveyancers were authorized to appear before
the Registrar of Deeds on behalf Manyatta to register the deed of
transfer into the name of Nikifon.
[16]
The
applicant’s founding affidavit is replete with allegations that
the second and the fourth respondents as well as the conveyances
acted unlawfully, fraudulently in collusion and also in some
instances, in respect of the conveyancers that they acted grossly
negligent by not complying with provisions of Deeds Registries
Act
[9]
, the Corporations Act,
Companies Act
[10]
, the
Administration of Estates Act
[11]
and the regulations promulgated in terms of the aforesaid legislation
by transferring the farm into the name of Nikifon without
complying
with the said legislation.
[12]
[17]
In
addition, the applicant sets out in his founding affidavit
[13]
that the conveyancers had a duty do certain things upon receiving the
instruction to attend to the transfer including doing a deeds
search
on the property and a Company Search in order to establish who the
members of the registered owner of the property were.
The applicant
further alleges
[14]
that the
sixth respondent as the preparer of the transfer / conveyancing
documents had a duty to prepare certain documents for
signature by
the seller including: a power of attorney; a preparation certificate
signed by the sixth respondent were in the sixth
respondent took
responsibility for the correctness of all the facts contained in the
power of attorney; a duty to ensure that the
person signing on behalf
of the close cooperation was duly authorised to do so; and to obtain
a power of attorney from the second
respondent and the deceased and
in the absence of the deceased from the erstwhile executor. All of
these lapses in the alleged
duties that rested upon the sixth
respondent are set out by the applicant to support the allegation
that the conveyancers acted
fraudulently, in collusion with the
second and fourth respondents, alternatively that they acted grossly
negligent.
[18]
The
Applicant alleges
[15]
that the
second respondent had no authorization from the erstwhile executrix
to have signed the resolution for the members’
signature in
which the authorization for the transaction as well as the signing of
the powers of the second respondent was set
out. The applicant
alleges that therefore that the second respondent was never
authorized by a resolution for members signature
to sign the power of
attorney to pass transfer on behalf of Manyatta to Nikifon.
[19]
In
paragraph 86
[16]
of the
founding affidavit, the applicant says as follows:
“
It
is therefore with respect, patently clear that the second respondent
had never authority to act as a representative capacity
on behalf of
the first respondent, to sell or cause the transfer of
[the
farm]
and that the Fifth, Sixth and
Seventh Respondents had no valid authorization to effect transfer by
the Eighth Respondent into the
name of the Fourth Respondent, having
grossly violated the acts and regulations as set out above”
[20]
It is on this these
allegations that the applicant alleges that there is a clear and
patent defect in the real agreement of sale
and the subsequent
transfer as Manyatta never had the intention and could not form the
intention to sell and transfer the property.
[21]
The
applicant bolsters his case in paragraph 88
[17]
of the founding affidavit as follows:
“
It
is also, with respect, clear that the Fifth, Sixth and Seventh
Respondents, either fraudulently and in collusion with the Second
and
Fourth respondents, alternatively in a reckless, alternatively
grossly negligent manner, did not comply with their statutory
duties
and participated in a fraudulent sale and transfer, dispossessing the
First Respondent of its only an extremely valuable
farm as, at a
fraction of its true value”
[22]
The applicant repeats at a multitude
of places in the founding affidavit the allegations of fraud and
collusion that were allegedly
committed by the second respondent and
the conveyancers. It is not necessary to refer to all the references
where the applicant
repeats these allegations.
[23]
In addition, the applicant relies on
the fiduciary duty that rested upon the second responded to terms of
the Corporations Act to
act in the best interests of Manyatta. The
applicant proceeds to state that the purchase price was never
transferred into Manyatta’s
bank account and that it is
suspected that the money was directly paid into a bank account
nominated by the second respondent.
According to the applicant, this
constitutes theft by the second respondent.
[24]
In
his founding affidavit, the applicant also cites various provisions
of the aforesaid statutes to sustain the relief he seeks.
In
particular, the applicant relies upon sections 42
[18]
,
43
[19]
and 54
[20]
of the Corporations Act come to the ultimate conclusion that the sale
of the farm is null and void is to be declared as such. Save
for the
provisions of the Corporations Act the applicant relies upon, it is
not necessary for purposes of this judgment to set
out all the other
provisions of the other statutes the applicant refers to in this
regard.
[25]
In respect of section 42 of the
Corporations Act, the applicant alleges that the second respondent
and Nikifon acted in collusion
to commit fraud as both knew
or
reasonably should have known of the fact that the second respondent
had not received written consent and was not duly authorized
on
behalf of the deceased as the deceased had passed away approximately
four years before the conclusion of the sale agreement.
By selling
the farm for well below its market value, so the applicant alleges
and by misappropriating the proceeds of the sale,
the second
respondent breached his fiduciary duty towards Manyatta.
[26]
In respect of section 43 of the
Corporations Act, the applicant alleges that the second respondent is
liable to Manyatta for the
purported losses it had suffered.
[27]
In
concluding the basis upon which the applicant seeks relief the
applicant says as follows in the founding affidavit:
[21]
“
I
respectfully submit that, where the registration of transfer of
immovable property is affected pursuant to fraudulent, unlawful
and
irregular documents and or actions, and where there is no intention
on the part of the seller to pass ownership of the immovable
property, and where the peremptory requirements of statutes and
regulations, such as section 46 of the closed Corporations Act
were
not comply with, that ownership does not lawfully pass to the person
in which name the property is registered, and in this
instance that
not lawfully and validly pass from the First Respondent to the Fourth
Respondent.”
“
The
registration of Portion 33 of the farm Rietfontein, had taken place
as a result of a series of fraudulent and reckless actions
by the
Second, Fourth, Fifth, Sixth and Seventh Respondents, rendering the
registration of the transfer to the Fourth Respondent,
void ab
initio, alternatively voidable.”
[28]
In
his replying affidavit, significantly, the applicant confines his
cause of action as follows:
[22]
“
I
respectfully submit that the applicants claim is one of the
vindication
(res vindicatio)
and therefore the applicants if vindictive
reclaim is clearly a claim based on ownership of a thing owned by the
first respondent
on whose behalf the applicant is entitled to
institute proceedings as referred to above, as well as a statutory
claim declaring
the sale void ab initio, alternatively voidable.
I respectfully submit
that it is evident from the Notice of Motion, and the relief sought
therein a set out in the Applicant's founding
affidavit, that the
Applicant seeks a mandamus order in the form of vindictively relief,
on behalf of and for the benefit of the
First Respondent, from the
above Honorable Court, and not merely a declaratory order”
THE
OPPOSING RESPONDENTS’
[23]
VERSION AND DEFENCE
The
second respondent’s version
[29]
The second respondent filed an
affidavit wherein he sets out that he has no income and survives on a
government old age pension.
He has no meaningful assets and do not
have any financial means to oppose the application. For those reasons
he does not oppose
the application save for pleading that no cost
order be made against him. In his affidavit he confirms that he
abides the results
of the application.
[30]
The second respondent gives the
history of the property. During the period 1995 to 2005 the members
of Manyatta where the second
respondent and his son-in-law who each
owned 50% of the member’s interest in Manyatta. The property
was acquired with the
financial assistance of a mortgage bond granted
by FNB bank.
[31]
The arrangement between Manyatta,
his son in law and himself was that the second respondent would live
on the farm and carry the
operational expenses of the farm. The
arrangement was furthermore that the son-in-law would carry the
monthly mortgage bond instalments
which amounted to about R3000 to
R3500 per month.
[32]
During 2005, the son-in-law
indicated that he wanted out and that he no longer wanted to be a
member of Manyatta because he did
not want to service the mortgage
payment instalments anymore.
[33]
The second respondent engaged the
deceased and asked him whether he would be interested in taking over
the son in law’s members’
interest. No money was required
to be paid for the transfer of the son in law’s members
interest in Manyatta. The members’
interest in Manyatta was
subsequently transferred to the deceased on 24 June 2005 without the
deceased paying any renumeration
for the membership. The second
respondent proceeded with the normal day-to-day running of the farm
including effecting improvements.
Save for the mortgage bond
payments, the second respondent carried all the expenses associated
with the farm. The second respondent
alleges that the deceased, while
alive, infrequently paid the mortgage bond instalments. Unbeknown to
the second respondent, the
outstanding bond repayments were not fully
attended to by the deceased.
[34]
After the deceased’s death,
the second respondent was informed by the bank that the bank bond
payments were still in arrears.
The bank threatened with the
repossession of the property. The second respondent had to make
arrangements with the bank regarding
the mortgage bonding instalments
so that the property would not be repossessed.
[35]
At the deceased funeral the heir and
the second respondent had a discussion over the farm. The hair
informed the second respondent
that he was not interested in the farm
at all. The second respondent accepted that the heir would leave the
running of the farm
and all decisions concerning the farm and
Manyatta to himself. The second respondent accepted that the heir was
not going to pay
the mortgage bond instalments as deceased was
supposed to do. From there on, the second respondent says that he ran
farm and Manyatta
as his own.
[36]
In
paragraph 35
[24]
the second
respondent says as follows:
“
Neither
the Heir, nor the executrix of the deceased estate enquired about the
farm or the first respondent. Neither the Heir, nor
the first
respondent enquired whether they could contribute to the expenses of
the farm. Neither the heir, nor the first respondent
enquired what
profits where made (none was made). They left me to manage the farm
and the first respondent as my own.”
[37]
The second respondent says that,
after a second fire outbreak on the farm he experienced financial
difficulties to retain the farm
as well as running it on an
economically viable basis. He was forced to start working again in
formal employment outside the farm
to make ends meet. The only viable
option left to the second respondent was to sell the farm to get a
break-even point. The second
respondent denies the allegations of
fraud and theft. The money from the sale was used to settle
Manyatta’s debt
The
conveyancers’ defence and version
[38]
The sixth respondent deposed to an
answering affidavit. The answering affidavit is deposed on behalf of
the fifth and seventh respondents
as well.
[39]
The conveyancers raise certain
preliminary defences including: that the applicant`s claim has
prescribed; the application does not
disclose a cause of action; the
motion proceedings above embarked upon or the wrong procedure in view
of the foreseeable factual
disputes; such discretion a Court as in
respect of a derivative action should not be exercised in favour of
the applicant.
[40]
I briefly deal with the preliminary
defences.
Prescription
[41]
The
conveyancers allege that the applicants claim is a derivative action
on behalf of Manyatta that the sale and transfer of the
farm be set
aside. The right to exercise the provisions of section 46(b)
[25]
of the Corporations Act is a personal right which belonged to the
deceased’s executrix in her capacity as such. It is not
a
corporate right which belonged to Manyatta. It is a right that the
executrix could potentially have enforced against the second
respondent and the other member of Manyatta.
[42]
To
the extent that the executrix had recourse in terms of section 46(b)
of the Corporations Act in that the written consent of a
member of a
corporation holding at least a member’s interest of at least
75%, or members holding together at least that percentage
of the
members’ interests in the corporation is required for a
disposal of all or the greater portion of the assets of the
corporation or for any disposal of the corporation’s immovable
property
[26]
, the conveyancers
allege, the applicant’s claim against Manyatta and the second
respondent has prescribed in terms of the
provisions of section 11(d)
of the prescription Act 68 of 1969, the sale being concluded and
given effect to more than three years
prior to the application being
served.
[43]
The conveyancers allege that section
54(1) of the Corporations Act provides for any member of a closed
corporation to be an agent
of the close corporation. The conveyancers
allege that, given the facts set out by the second respondent namely
that neither the
heir nor the executrix made any claim or showed
interest in Manyatta or the farm despite being fully aware of the
existence of
Manyatta and the farm, the second respondent was
authorized to bind Manyatta through the sale agreement. As such,
according to
the conveyancers, the applicant does not disclose a
cause of action for the relief he seeks. In this sense therefore, and
in terms
of the provisions of section 54(2) of the close Corporations
Act, the second respondent had authority to sell the property.
Dispute
of fact
[44]
The conveyancers refer to various
disputes of fact which ought to have been known to the applicant when
the application was instituted.
It is not necessary for purposes of
this judgment to go into bold the disputes of fact that are raised
safe to say that in this
court’s view such disputes that are
identified by the conveyancers existed at the time the application
was launched.
Derivative
action
[45]
The conveyancers state that the
court must not exercise its discretion by allowing the applicant to
succeed by virtue of a derivative
action in the exercise of the
courts discretion because: the heir informed the second respondent
that he was not interested in
the form at all; at no stage that the
heir or the executrix express any interest for any obligations or
claiming any right as member
of Manyatta; the second respondent
established that the money that was generated from the sale of the
farm was utilized to pay
Manyatta’s debts. Therefore, it will
not be in the interest and benefit of the creditors that the proceeds
will be used to
benefit the disinherited heir. The conveyancers
allege that the executrix took no steps to transfer the deceased 50%
members interest
in the respondent. The applicant himself also did
not seek to do so.
[46]
In addition, the inventory that was
completed by the executrix made no mention of the deceased membership
interest in the Manyatta.
This is borne out by the inventory of the
deceased estate that was completed by the heir.
Defence
on the merits and version
[47]
In respect of the merits, that is,
the manner in which the farm was transferred and the manner in which
the conveyancers conducted
themselves, they deny any allegation of
negligence, fraud, collusion and dishonesty.
[48]
The conveyancers’ version is
that the second respondent told the director of Nikifon and the
conveyancers that he owned the
farm through Manyatta. The second
respondent regarded himself as the owner of the members’
interest although the deceased
was also registered as a member. The
conveyancers confirm that the second respondent alone signed all the
documentation for transfer
and the sale agreement as well as the
documents presented to him by the conveyancers.
[49]
The conveyancers allege that the
second respondent “…
was
effectively the only member of Manyatta and that the heir and the
executrix regarded him as such
. In
substantiation of this allegation, the conveyancers allege that no
mention is made of the deceased’s 50% interest in
the
inventory.
[50]
With regards to section 46(b) of the
Corporations Act, the conveyancers allege that the fact that the
executrix did not give consent
to sell the farm does not mean that
the second respondent did not have the power to sell the farm as
section 46(b) regulated a
corporation’s internal affairs.
The
ninth to eleventh and fourteenth respondent’s defence and
version
[51]
These respondents were cited as they
have an interest in the servitudes that were registered. I deem it
not necessary to set out
these respondents’ defence and version
in detail. However, these respondents raise certain preliminary
defences of which
the following is pertinent in this application: the
applicant lacks
locus standi
for he is neither a member of Manyatta nor has membership been
transferred to him; the application is an abuse of process in that
factual disputes were foreseeable; the application lacks a cause of
action in that the intention of both Manyatta and the fourth
respondent was to transfer ownership of the farm to the fourth
respondent, therefore there was no defect in the real agreement;
prescription in that the right to set the sale aside accrued when the
contract was concluded and as such, the cause of action arose
and the
debt fell due on 18 September 2014 while the application was served
on 4 May 2021.
[52]
With regards to the allegations of
fraud, gross negligence and collusion, these respondents have nothing
to offer. It is understandable
for they were not involved in the
alleged conduct. These respondents allege that all the applicant does
is to speculate and make
inferences from the facts corroborated by
the documentary evidence.
The
fourth and fifteenth respondents’ defence and version
[53]
The fourth and fourteenth
respondents also allege that any possible cause of action which the
applicant may have had has become
described and that any claim, of
the kind set forth in the notice of motion, constitutes a debt which
is by now been extinguished
as a result of prescription.
[54]
The fourth and fifteenth respondents
allege that a claim based upon the
rei
vindicatio
is not capable of
description as such a claim is not a debt as contemplated in the
Prescription Act. The fourth and fifteenth respondents
allege that,
to the extent that the applicant claims the retransfer of the farm to
Manyatta, such a claim can only be pursued by
an owner, which in this
instance is Manyatta and not the applicant.
[55]
In the remainder of the answering
affidavit, fifth and fourteenth respondents set out the circumstances
under which the agreement
was concluded. In my view it is not
necessary to set out the fifth and fourteenth respondents’
version in detail.
DISCUSSION
[56]
Most
of the facts pertaining to the sale of the farm, the transfer thereof
and the registration of the Notarial Deeds of Servitude
are common
cause. What is not common cause is the allegations of fraud,
negligence and collusion that is made by the application
against the
second respondent and the conveyancers. In answer to the denial by
the conveyancers and the version put up by the second
respondent, the
applicant, in his replying affidavit says as follows:
[27]
“
I
f
the Conveyancers were innocent and had so accepted the fraud of the
Second Respondent the Conveyancers, through their grossly
reckless
and/ or grossly negligent conduct, in dereliction of their duties to
comply with the statute and regulations referred
to in the Answering
Affidavit to the Fourth and Fifteenth Respondents, was the cause that
the fraud was perpetrated and further
through their non-compliance
with the provisions of the close Corporations Act, they caused the
transfer to be void ab initio,
alternatively voidable.”
[57]
I must first determine what the
applicant’s cause of action is for it is the cause of action as
pleaded that will eventually
determine whether the relief that is
sought may be granted or not.
[58]
Initially, the applicant’s
cause of action is obscured for his reliance upon a multitude of
statutory provisions without disclosing
which provision will underpin
the relief that he is seeking. The best this court could make out was
that the applicant seeks the
nullification of the sale agreement on
the basis of the absence of a real agreement by Manyatta to effect
transfer of the farm
to Nikifon as a result of the alleged fraud
perpetrated by the second respondent which was facilitated by the
conveyancers’
conduct.
[59]
During argument, counsel appearing
for the applicant rightly accepted that the applicant’s claim
is founded upon the
rei vindicatio
.
The parties are furthermore in agreement that a claim founded upon
the
rei vindicatio
cannot proscribe.
[60]
An
owner is entitled to reclaim possession of his or her property with
the
rei
vindicatio
.
In order for this cause of action to succeed, the plaintiff (or in
this case the applicant) had to allege and prove ownership
of the
thing.
[28]
[61]
It is common cause that Manyatta was
the owner of the farm. The applicant could not allege nor could he
prove that he, even in his
official capacity, was the owner of the
farm. His vindication claim must therefore fail unless he can
establish that he is in effect
laying claim based on the
rei
vindicatio
on Manyatta’s behalf,
that is, through a derivative action on behalf of Manyatta.
[62]
This is exactly what the applicant
attempts. The applicant alleges that he is entitled to institute the
claim on behalf of Manyatta,
in other words, on behalf of the
deceased in his capacity as the executor of the deceased’s
estate. This would constitute
a derivative action.
[63]
Section 50(1) of the Corporations
Act provides for derivative actions. It reads as follows:
“
Proceedings
against fellow-members on behalf of corporation.—(1) Where a
member or a former member of a corporation is liable
to the
corporation—
(a)
to make an initial contribution or
any additional contribution contemplated in subsection (1) and (2)
(a), respectively, of section
24; or
(b)
on account of—
(i)
the breach of a duty arising from
his or her fiduciary relationship to the corporation in terms of
section 42; or
(ii)
negligence in terms of section 43,
any other member of
the corporation may institute proceedings in respect of any such
liability on behalf of the corporation against
such member or former
member after notifying all other members of the corporation of his or
her intention to do so.”
[64]
Section 50(1) of the Corporations
Act is intended to enable members of a corporation to, on behalf of
the corporation, hold members
liable to the corporation for any loss
suffered by the corporation due to the conduct of those members.
“Loss suffered”
is not confined to monetary loss, it may
also include interdictory or declaratory relief.
[65]
In
expressing her views on section 50(1) of the Corporations Act, TSHIKI
J (as she then was) in
Packaging
& stapling CC v Fromm System Africa and Others
[29]
,
at paragraph 21, said as follows:
“
In
Volume 3 of Henochsberg 4 , Meskin states:
‘
The
intention of the Legislature in enacting these provisions [sec 42] is
to provide a statutory cause of action for a corporation
in respect
of breach of fiduciary duty by a member thereof.
The section should be
read with section 50(1)(b)(i) in terms of which any other member of
the corporation may enforce such cause
of action by legal proceedings
on behalf of the latter. The two sections together constitute a
legislative prescription of that
which obtains in the case of a
company at common law’.
I agree with the views
expressed by Meskin supra.”
I also agree with Meskin.
[66]
A
claim in terms of section 50(1) of the Corporations Act is a claim in
the hands of the corporation instituted by a member/s against
the
other member/s of the corporation.
[30]
[67]
Although the second respondent is
cited in this application, no relief is sought against him as one of
the members of Manyatta.
Relief is sought against the other
respondents, in particular the vindicatory relief is sought against
Nikifon. The relief that
is sought against the other respondents will
only follow if the applicant succeeds in his vindication claim. All
of them are third
parties in relation to Manyatta.
[68]
The point is this - section 50(1) of
the Corporations Act envisages derivative actions by member/s on
behalf of a corporation against
fellow member/s and not third
parties. The applicant must therefore be non-suited to the extent
that he seeks vindicatory relief
against third parties.
[69]
The applicant says he has a
statutory claim declaring the sale void
ab
initio
, alternatively voidable. In my
view, any such claim has prescribed and, in any event the applicant,
in reply and argument confined
his claim to a vindicatory action.
[70]
In respect of the relief claimed
pertaining to the registration of the servitudes, same can only be
granted if the sale agreement
and subsequent transfer of the farm is
quashed. For the reasons set out above, the agreement and the
transfer remain intact and
consequently also the Notarial Deeds of
Servitude.
[71]
The application must be dismissed on
the aforesaid grounds.
COSTS
[72]
I see no reason why costs should not
follow the result. The conveyancers seek costs
de
bonis propriis
on an attorney and
client scale against the applicant. In my view, such a cost order is
warranted. What follows is why.
[73]
The applicant’s cause of
action founded upon fraud, gross negligence coupled with direct
allegations of collusion between
the second respondent and the
conveyancers were obviously unsustainable and the allegations were
made without any proper consideration
of the veracity or gravity
thereof. The applicant was acutely aware that neither the heir nor
the executrix mentioned the deceased’s
membership interest in
Manyatta. As a matter of fact, the heir himself completed the
deceased’s inventory. This ought to
have forewarned the
applicant that there may be a plausible explanation for the heir and
executrix’s conduct. He should have
investigated the exact
circumstances regarding the farm and the members’ involvement
in Manyatta before he chose to make
the scurrilous, defamatory and
unacceptable allegations against the second and fourth respondents
and the conveyancers.
[74]
It
also is clear that the allegations of fraud and gross negligence were
made by the applicant without having regard to what fraud
and
negligence actually constitutes. Fraud requires intention for fraud
is committed when a knowingly false representation is made
by one
person to another person intending that the representee will act on
the representation and the representation must have
induced the
representee to act in response to the representation.
[31]
Negligence is of course something entirely different from fraud.
Negligence is constituted when a reasonable person (
diligens
paterfamilias
)
in the position of the defendant would foresee the reasonable
possibility that the conduct (whether an act or omission) would
injure another’s person or property and cause patrimonial loss;
such a reasonable person would take reasonable steps to guard
against
such occurrence; and the defendant failed to take such reasonable
steps.
[32]
It is not possible
to commit fraud and to be negligent at the same time in respect of
the same act.
[75]
The applicant chose to make express
allegations of fraud, corruption and other acts of gross negligence
against the second respondent
and the conveyancers. The applicant has
swung his pendulum between fraud and gross negligence coupled with
allegations of collusion.
This the applicant persisted with in his
reply even after the respondents set out their versions. In this
regard, the versions
of the second, fourth and sixth respondents
should have dispelled any notion of fraud and gross negligence.
[76]
The sixth respondent, in her
answering affidavit, sets out that the applicant used the words
“fraud/fraudulent/fraudulently”
twenty-three times and
the word “collusion” seven times in the founding
affidavit. Even after the applicant were given
the second, sixth and
seventh respondents’ versions, he persisted with his scurrilous
and unfounded accusations of impropriety
against the sixth and
seventh respondents.
[77]
I
am mindful of the fact that an award of attorney-and-client costs is
not easily granted by a court and only awarded on rare occasions
where special circumstances are present.
[33]
In
Telkom SA Soc Ltd and Another v Blue Label Telecoms Ltd and Others
[2013] 4 All SA 346
(GNP) at para [34] and [35]
,
Fabricius J held:
“
Costs
are ordinarily ordered on the party and party scale. Only in
exceptional circumstances and pursuant to a discretion judicially
exercised is a party ordered to pay costs on a punitive scale. Even
more exceptional is an order that a legal representative should
be
ordered to pay the costs out of his own pocket. It is quite correct,
as was submitted, that the obvious policy consideration
underlying
the court’s reluctance to order costs against legal
representatives personally, is that attorneys and counsel
are
expected to pursue their client’s rights and interests
fearlessly and vigorously without undue regard for their personal
convenience. In that context they ought not to be intimidated either
by their opponent or even, I may add, by the court. Legal
practitioners must present their case fearlessly and vigorously, but
always within the context of set ethical rules that pertain
to them,
and which are aimed at preventing practitioners from becoming parties
to a deception of the court. It is in this context
that society and
the courts and the professions demand absolute personal integrity and
scrupulous honesty of each practitioner.
See Kekana v Society of
Advocates of South Africa
[1998] ZASCA 54
;
1998 (4) SA 649
(SCA) at 655- 656 (also
reported at
[1998] All SA 577
(SCA) Ed). It is true that legal
representatives sometimes make errors of law, omit to comply fully
with the Rules of Court or
err in other ways related to the conduct
of the proceedings. This is an everyday occurrence. This does not
however per se ordinarily
result in the court showing its displeasure
by ordering the particular legal practitioner to pay the costs from
his own pocket.
Such an order is reserved for conduct which
substantially and materially deviates from the standard expected of
the legal practitioners,
such that their clients, the actual parties
to the litigation, cannot be expected to bear the costs, or because
the court feels
compelled to mark its profound displeasure at the
conduct of an attorney in any particular context. Examples are,
dishonesty, obstruction
of the interests of justice, irresponsible
and grossly negligent conduct, litigating in a reckless manner,
misleading the court,
and gross incompetence and a lack of care.”
[78]
In my view, the applicant’s
conduct warrants censure. His conduct substantially and materially
deviated from what is expected
from legal representatives. In this
matter, the applicant acted both as attorney and client. Therefore,
even more, blame for the
applicant’s unacceptable conduct only
lies with him. There is no reason why the deceased estate should be
mulcted in costs.
It is the applicant that made the offensive
allegations. He must bear the brunt of the punitive costs order.
[79]
I invited the parties to make
written submissions after the matter was argued over what steps the
court should consider if the court
finds that the allegations of
fraud were without foundation and were found to be meritless. Only
the respondents furnished me with
their views. The applicant did not
heed my invitation. The respondents were of the view that a punitive
costs order against the
applicant in his personal capacity would
suffice. I agree.
In
the premises, the following order is made:
1.
The application is dismissed.
2.
The applicant is ordered to pay the second,
fourth to seventh, ninth to eleventh and fifteenth respondents’
costs on an attorney-and-client
scale
de
bonis propriis.
Roelofse
AJ
Acting
Judge of the High Court
DATE
OF HEARING: 7 October 2021
DATE
OF JUDGMENT: 12 November 2021
APPEARANCES
FOR
THE APPLICANT:
Adv Murphy
INSTRUCTED
BY:
J.J Badenhorst and Associates Attorneys Incorporated
FOR
THE FOURTH AND
FIFTEENTH
RESPONDENTS: Adv Van
der Merwe SC
INSTRUCTED
BY:
Braam van Rensburg Attorneys
FOR
THE FIFTH TO
SEVENTH
RESPONDENTS:
Adv Maritz SC
INSTRUCTED
BY:
Savage Jooste & Adams Incorporated
FOR
THE NINTH TO
ELEVENTH
AND
FOURTEENTH
RESPONDENTS:
Mr Janse van Vuuren
INSTRUCTD
BY :
Luneburg & Janse van Vuuren Attorneys
[1]
Portion
33 of the farm Rietfontein 274, Registration Division JT.
[2]
Section
35 provides as follows:
“
35.
Disposal of interest of deceased member.—Subject to any other
arrangement in an association agreement, an executor of
the estate
of a member of a corporation who is deceased shall, in the
performance of his or her duties—
(a)
cause the deceased member’s
interest in the corporation to be transferred to a person who
qualifies for membership of a
corporation in terms of section 29 and
is entitled thereto as legatee or heir or under a redistribution
agreement, if the remaining
member or members of the corporation (if
any) consent to the transfer of the member’s interest to such
person; or
(b)
if any consent referred to in
paragraph (a) is not given within 28 days after it was requested by
the executor, sell the deceased
member’s interest—
(i)
to the corporation, if there is any
other member or members than the deceased member;
(ii)
to any other remaining member or
members of the corporation in proportion to the interests of those
members in the corporation
or as they may otherwise agree upon; or
(iii)
to any other person who qualifies
for membership of a corporation in terms of section 29, in which
case the provisions of subsection
(2) of section 34 shall mutatis
mutandis apply in respect of any such sale.”
[3]
The
fourth respondent.
[4]
Both
servitudes were for pipelines to run over the respective properties.
The tenth to fifteenth respondents all have an interest
in the
registration of the servitudes. It is not necessary for purposes of
this judgment to indicate each of their involvement
or interest in
the servitudes and the registration thereof.
[5]
Service
of the application was effected upon the respondents between 20
March 2021 and 1 July 2021.
[6]
The
eighth respondent.
[7]
The
fourth to seventh respondents and the tenth to eleventh and
fourteenth respondents filed noticed to oppose the application.
[8]
Paragraph
24 at page 22.
[9]
Act
47 of 1937.
[10]
Act
71 of 2008.
[11]
Act
66 of 1965.
[12]
Paragraph
68 of the founding affidavit at page 30.
[13]
Paragraph
70 at page 30.
[14]
Paragraph
71 at page 30.
[15]
Paragraph
81 at page 33.
[16]
Page
33 of the record.
[17]
Page
34 of the record.
[18]
Section
42 of the Corporations Act reads as follows:
“
Fiduciary
position of members.—(1) Each member of a corporation shall
stand in a fiduciary relationship to the corporation.
(2) Without prejudice
to the generality of the expression “fiduciary relationship”,
the provisions of subsection (1)
imply that a member—
(a)
shall in relation to the
corporation act honestly and in good faith, and in particular—
(i)
shall exercise such powers as he or
she may have to manage or represent the corporation in the interest
and for the benefit of
the corporation; and
(ii)
shall not act without or exceed the
powers aforesaid; and
(b)
shall avoid any material conflict
between his or her own interests and those of the corporation, and
in particular—
(i)
shall not derive any personal
economic benefit to which he or she is not entitled by reason of his
or her membership of or service
to the corporation, from the
corporation or from any other person in circumstances where that
benefit is obtained in conflict
with the interests of the
corporation;
(ii)
shall notify every other member, at
the earliest opportunity practicable in the circumstances, of the
nature and extent of any
direct or indirect material interest which
he or she may have in any contract of the corporation; and
(iii)
shall not compete in any way with
the corporation in its business activities.
(3) (a) A member of a
corporation whose act or omission has breached any duty arising from
his or her fiduciary relationship shall
be liable to the corporation
for—
(i)
any loss suffered as a result
thereof by the corporation; or
(ii)
any economic benefit derived by the
member by reason thereof.
(b) Where a member
fails to comply with the provisions of subparagraph (ii) of
paragraph (b) of subsection (2) and it becomes
known to the
corporation that the member has an interest referred to in that
subparagraph in any contract of the corporation,
the contract in
question shall, at the option of the corporation, be voidable:
Provided that where the corporation chooses not
to be bound a Court
may on application by any interested person, if the Court is of the
opinion that in the circumstances it
is fair to order that such
contract shall nevertheless be binding on the parties, give an order
to that effect, and may make
any further order in respect thereof
which it may deem fit.
(4) Except as regards
his or her duty referred to in subsection (2) (a) (i), any
particular conduct of a member shall not constitute
a breach of a
duty arising from his or her fiduciary relationship to the
corporation, if such conduct was preceded or followed
by the written
approval of all the members where such members were or are cognisant
of all the material facts.
[19]
Section
43 of the Corporations Act reads as follows:
“
Liability
of members for negligence.—(1) A member of a corporation shall
be liable to the corporation for loss caused by
his or her failure
in the carrying on of the business of the corporation to act with
the degree of care and skill that may reasonably
be expected from a
person of his or her knowledge and experience.
(2) Liability
referred to in subsection (1) shall not be incurred if the relevant
conduct was preceded or followed by the written
approval of all the
members where such members were or are cognisant of all the material
facts.
[20]
Section
54 of the Corporations Act reads as follows:
“
Power
of members to bind corporation.—(1) Subject to the provisions
of this section, any member of a corporation shall in
relation to a
person who is not a member and is dealing with the corporation, be
an agent of the corporation.
(2) Any act of a
member shall bind a corporation, whether or not such act is
performed for the carrying on of business of the
corporation unless
the member so acting has in fact no power to act for the corporation
in the particular matter and the person
with whom the member deals
has, or ought reasonably to have, knowledge of the fact that the
member has no such power.
[21]
Paragraphs
156 and 157 at page 53.
[22]
Paragraphs
97 and 98 at page 1040.
[23]
The
fourth to seventh, ninth to eleventh and fourteenth and fifteenth
respondents delivered notices of intention to oppose the
application.
[24]
Paragraph
35 at page 531.
[25]
Section
46(b) of the Corporations Act provides:
“
subject
to the provision of section 47, members shall have equal rights in
regard to the management of the business of the corporation
and in
regard to the power to represent the corporation in the carrying on
of its business: Provided that the consent in writing
of a member
holding a member’s interest of at least 75 per cent, or of
members holding together at least that percentage
of the members’
interests, in the corporation, shall be required for—
(i)
a change in the principal business
carried on by the corporation;
(ii)
a disposal of the whole, or
substantially the whole, undertaking of the corporation;
(iii)
a disposal of all, or the greater
portion of, the assets of the corporation; and
(iv)
any acquisition or disposal of
immovable property by the corporation;
[26]
It
is common cause that the farm constituted the greater portion of
CC’s assets.
[27]
Paragraph
38 at page 649.
[28]
See:
Goudini Chrome (Pty) Ltd v MCC Contracts (Pty) Ltd [1993] 1 All SA
259 (A).
[29]
(966/2010)
[2010] ZAECPEHC 80 (23 November 2010).
[30]
See:
VRM Boerdery CC and Another v Van Zyl (3554/2013) [2014] ZAECGHC 46
(28 May 2014).
[31]
See:
HULETT AND OTHERS v HULETT
[1992] 2 All SA 308
(A) at pages 325 and
326; RUTO FLOUR MILLS (PTY) LTD v MORIATES AND ANOTHER
[1957] 3 All
SA 28
(T).
[32]
See:
KRUGER v COETZEE [1966] 2 All SA 490 (A).
[33]
See:
L F BOSHOFF INVESTMENTS (PTY) LTD v CAPE TOWN MUNICIPALITY; CAPE
TOWN MUNICIPALITY v L F BOSHOFF INVESTMENTS (PTY) LTD
[1969] 1 All
SA 430
(C).