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[2021] ZAECELLC 1
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Youmessi Trading CC v Khaka Siphunzi (1057/2017) [2021] ZAECELLC 1 (19 January 2021)
IN THE HIGH COURT OF
SOUTH AFRICA
EASTERN CAPE LOCAL
DIVISION: EAST LONDON
CASE
NO. 1057/2017
ECD:2557/2017
In the matter between:
YOUMESSI
TRADING
CC
Plaintiff
and
KHAKA
SIPHUNZI
Defendant
JUDGMENT
JOLWANA J:
Introduction
[1]
The plaintiff’s main claim against the defendant is for arrear
rentals allegedly owed by the defendant to the plaintiff
in the sum
of R936 611.00 for the months of April 2015 to August 2017, a period
of more than two years. The plaintiff also
claims other
ancillary relief also related to the main claim. The
plaintiff’s claims arose out of an alleged oral lease
agreement
in respect of certain premises situated at no.59 Buffalo Street in
East London (the premises). On the other hand,
the defendant
has, in addition to filling an amended plea in which his defence in
denial of liability is set out, also filed a
counterclaim to the
plaintiff’s claim.
The pleadings
[2] In its particulars of
claim the plaintiff pleads that on or about the 1 April 2015 it
entered into an oral lease agreement (the
lease) with the defendant.
The lease was apparently a necessary appendage and ancillary to the
sale of business agreement
between the same parties for the sale of
Hartwick Technical College entered into in writing on 25 March 2015.
The terms of
the said lease were that the plaintiff would let an
immovable property situated at no.59 Buffalo Street, East London
where the
subject matter of the sale of business agreement, Hartwick
Technical College (the college) was apparently situated.
[3] Some of the material
terms of the alleged lease as pleaded by the plaintiff were that the
defendant would pay to the plaintiff
R30 000.00 per month in advance
until the sum of R400 000.00 being part payment of the purchase price
for the college due on the
1 April 2015 was paid. After the sum
of R400 000.00 would have been paid the monthly rental was to be
reduced to R25 000.00
per month. The said rental would escalate
at the rate of 10% per annum. It is further alleged that the
defendant took
occupation of the premises on the 1 April 2015 and has
been in occupation since then. What can be gleaned from some of
the
pleaded material terms of the lease is that the lease was
inextricably linked to the sale of business agreement.
[4] Because of the
interconnectedness and the intertwined nature of the evidence
relating to the lease and the sale of business
agreement I shall
interchangeably refer to either or both agreements. I
quote hereunder the purchase consideration
clause of the written sale
of business agreement in which some of the intended lease terms are
also foreshadowed. It reads:
“
4.1 The
purchase consideration for the sale of the Business is: R700 000.00.
4.2 The purchaser will satisfy the
purchase consideration by:
4.2.1 making
payment to the Seller as follows:
R400 000.00 on the
1 April 2015;
R100 000.00 on the 30 June 2015;
R100 000.00 on the 31 August 2015;
R100 000.00 on the 30 September 2015;
4.3 Pending payment of the balance of
the purchase consideration, ownership in and to the Sale Assets will
remain vested in the
Seller.
4.4 The parties place on record that:
4.4.1 the purchaser is already leasing
the premises on which the school is doing business from the Seller
and is in arrears with
rent, water and electricity in the amount of
R121 611.40. The parties will entered into a further agreement
regarding the
payment of this amount.
4.4.2 the purchaser will after paying
the initial R400 000.00 be allowed to pay R25 000.00 rent per month.
(Reduced from R30
000.00 pm).”
[5] The defendant pleads
that the business, the college was sold to him as a going concern.
Furthermore, it was agreed orally
between himself and Mr Youmessi on
1 April 2015 that the plaintiff would cause to be ceded to the him
the main lease of the premises
by the landlord and only thereafter
would he start honouring the lease. The plaintiff failed to
have the main lease ceded
to the defendant and instead insisted on
demanding rentals which the defendant refused to pay without the main
lease between the
landlord and the plaintiff being ceded to him.
[6] The defendant has
also filed a counterclaim in which he claims that the college was
sold to him as a going concern and the plaintiff
failed to perform
its obligations pertinent thereto. In light of the defendant’s
failure to perform the terms pertinent
to the sale of the business as
a going concern and income earning activity as agreed, he seeks the
nullification of the contract
for the sale of the college. He
also seeks full restitution of the purchase consideration in the sum
of R700 000.00 which
he paid to the plaintiff. The defendant
further pleads that one of the material terms of the sale of business
agreement was
that the school was accredited and/or licensed with the
Department of Higher Education to operate as an independent college.
The defendant pleads that the school was in fact not registered or
licensed and therefore the plaintiff could not and in fact did
not
deliver registration licences for the school to the defendant. The
plaintiff also failed to cede, assign such licences
to the defendant
as part of the business assets as agreed.
[7]
In a worryingly terse plea to the very detailed counterclaim, the
plaintiff basically admits that the business was indeed sold
as a
going concern. However, it denies everything else and pleads
for the dismissal of the counterclaim. As indicated
hereinbefore the amount claimed by the plaintiff is in respect of
arrear rentals mainly. It follows that the main issue in
the
first instance is whether an oral lease was agreed to and if so the
terms thereof.
The evidence
[8] For some
incomprehensible reason the parties agreed in the pre-trial
conference minute that it is the defendant that would start
to lead
evidence. The plaintiff’s counsel insisted on this being
the case as agreed between the parties with the rider
that the
defendant would lead all his evidence both in respect of the
counterclaim and the defence in the main case. That
is how the
evidence evolved with the defendant being the first to take the
witness stand as agreed between the parties.
[9] The defendant
testified that early in 2015 he met a certain Mr Baguma who worked
for the plaintiff. Mr Baguma told him
that the college was
being sold. At that stage he had just started his firm as an
attorney and this looked like a good business
opportunity to
supplement the income of his practise with another income stream.
At the time coincidentally, he already knew
the owner of the college,
Mr Youmessi who confirmed that indeed he was selling the college.
He was taken to the place of
business of the college and in the
premises there were some desks and a reception area. He was
impressed with what he saw
and thought it to be a good opportunity
which he did not want to miss.
[10] After some
negotiations he and Mr Youmessi agreed on a purchase price of R700
000.00 for the college and the payment terms.
One of the
express terms of the agreement during those negotiations was that the
college was sold as a going concern and income
generating activity.
He looked at the terms of the written agreement presented to him by
Mr Youmessi focusing on the purchase
price and the payment terms and
thereupon signed the sale of business agreement. Indeed he paid
the purchase price as agreed.
His understanding was that the
college was licensed to operate as a college and registered with the
Department of Higher
Education.
[11] After he signed the
sale of business agreement, Mr Youmessi presented to him a lease
agreement which he was required to sign.
He refused to sign the
lease. He told Mr Youmessi that he would not sign it because
his understanding was that the sale of
business as a going concern
also meant that the lease was to be assigned to him. The lease
presented to him reflected an
entity called Silver Solutions CC as
the landlord. He also demanded to be furnished with the lease
agreement between the
plaintiff and the landlord or owner of the
premises which Mr Youmessi failed to do. He refused to be a
sub-tenant of Mr Youmessi
who did not own the premises.
[12] The plaintiff
insisted that he should be his sub-tenant but eventually they agreed
that the plaintiff would engage with the
landlord. While they
were still discussing the issue of the lease he continued to honour
his obligations and paid the purchase
price in full as he was really
excited about the business opportunity. Towards the end of 2015
which was after he had paid
the purchase price in full he enquired
about the transfer of the operating licences for the college.
Mr Youmessi indicated
that he would look for the licences as he was
not sure where they were. At some stage he went to the
Department of Education
in Mdantsane to verify if the school was
registered or not. He was surprised to learn that in fact it
was not registered.
He was concerned about this development as
it meant that he would have to run the school illegally if he
continued with it.
He would be faced with a situation in which
the school could be closed down by the Department of Education for
want of registration.
The plaintiff failed to comply with the
agreement in that he failed to transfer licences for the school as
provided for in the
sale of business agreement. The college
therefore could not have been sold to him as a going concern as it
was unlicensed
and could not operate legally. He never intended
to agree to buy an unlicensed business that could not operate
legally.
It was for this reason that he filed a counterclaim
for the cancellation of the sale of business agreement and the
restitution
of the purchase consideration.
[13] Under
cross-examination the defendant conceded that when he ultimately
realized that the college was not licensed he never
cancelled the
sale of business agreement. He testified that he always thought
that the plaintiff would be able to sort out
the problem of the
licences. He denied that he bought the college knowing that it
was not licensed to operate as a school
with the Department of
Education. He also denied that what he had agreed to buy was in
fact a computer training business
that did not require to be
registered with the Department of Education. The case for the
defendant was thereafter closed.
[14] Before Mr Youmessi
who testified for the plaintiff started with his evidence, counsel
for the plaintiff sought to introduce
through an application, what
she said was a computer licence or certificate which had not been
discovered. There was no explanation
why it was not discovered.
Worse still, the trial had started and proceeded until the
defendant concluded all his evidence
and closed his case. Only
after the defendant had testified and had been cross examined at
length and the plaintiff was about
to lead his evidence on the second
day of the trial was it sought to introduce this document.
There was no explanation for
this disregard of the discovery
procedural rules in which it was also sought to introduce a document
contrary to trial procedures.
I dismissed this application in
the absence of any plausible explanation for this flagrant violation
of trial procedures.
[15] The plaintiff called
Mr Hobbs, the owner of the premises which are the subject matter of
these proceedings in respect of the
lease. His evidence was
that his company entered into a written lease agreement with Mr
Youmessi on the basis that he would
become the main tenant and could
sublet the premises. Their relationship has been in existence
since about 2002. They
had no objection to the college using
the premises. He testified that since 2006, their lease
agreement with Mr Youmessi
had been renewed several times and each
renewal referred to the original lease whose terms were binding on
the parties.
[16] That original lease
is dated 23 January 2006 and is between Mr Hobbs’ company,
Hysalsea Properties CC on the one hand
and Amos Youmessi, Hortence
Nono, Viviane Laure Nguetchou and Joseph Alex Buffet Tchapjou on the
other hand. Under cross-examination
Mr Hobbs was referred to
clause 7 of that lease agreement which reads:
“
That the
Lessee shall not have the right to cede or assign this lease or to
sublet the whole or any portion of the property hereby
let without
the written consent of the Lessor first had and obtained, which
consent shall not be withheld unreasonably, in the
case of
sub-letting only.”
[17] Mr Hobbs confirmed
that he had not given any written consent to Mr Youmessi to sublet
the premises to the defendant.
His arrangement with him was
that Mr Youmessi would pay a single rental to them for the whole
property and could sublet it to various
tenants. He said that
Mr Youmessi never conveyed the desire of the defendant to rent
directly from them instead of being
a sub-tenant. His attention
was drawn to the email dated 26 August 2016 from Mr Youmessi in which
Mr Youmessi said; “
the guy who is renting the school
upstairs (Khaka Siphunzi), he wants to rent the place straight from
you. How do you see
that?
” He could not
remember if he responded to that specific email. However, he
was certain that the response would
have been negative as they did
not want to have any direct relationship with subtenants.
Furthermore, he knew from Mr Youmessi
that the defendant was not
paying rentals.
[18] Mr Youmessi also
testified on behalf of the plaintiff. His evidence was that he
has lived in south Africa for 23 years.
He was born in Cameroon
but is also a South African citizen. He entered into the
written sale of business agreement for the
college with the defendant
on 25 March 2015. The agreement was that the defendant would
buy the business from him but he
would need to rent the premises from
him as he was a managing agent for the premises. He received
the first payment in respect
of the purchase price in the sum of R400
000.00 on 01 April 2015. At that stage he had already told the
defendant that he
would need to rent the premises from him.
[19] He gave a written
lease agreement between himself representing Silver Solutions 956 CC
to the defendant to sign. However,
the defendant refused to
sign the said lease but did not tell him his reasons for refusing to
sign it. This surprised him
because when the sale of business
agreement was entered into the agreement was that rentals of R25
000.00 would be paid to him
for the premises. He also confirmed
that the defendant raised with him the issue of his desire to lease
the premises from
the landlord much later when they went to the
magistrates’ court for the first time. He complied with
the sale of business
agreement provisions for the delivery, ceding,
assigning and transferring of the assets of the business and licences
to the defendant.
[20] He testified that he
had a certificate for the school only in respect of computer
training. His agreement with the defendant
was that the
defendant would himself apply for the other necessary certificates or
licences. That computer training licence
gave him the authority
to train students. The discussion between himself and the
defendant took place in the presence of
Eddie who was his manager for
the school. That licence was already at the school hanging on
the wall. He never handed
the licence over to the defendant
physically. The keys to the business were with the school
manager who was also going to
be the defendant’s partner.
[21] Under
cross-examination he confirmed that the business was an educational
institution. He conceded that he never had
any certificate of
registration for the college or any certificate to admit learners and
cause them to write examinations.
However, he had informed the
defendant that he did not have those certificates. He had told
the defendant that the college
was not registered with the Department
of Education.
[22] He testified that
the unsigned lease was prepared for him by his attorney Mr Deon
Stander as a standard lease which he then
adapted for the defendant.
He gave the lease to the defendant for his signature about two days
after the sale of business
agreement was signed. However, the
defendant did not accept it saying he did not want to sign it but he
did not tell him
any reason for his refusal to sign the lease
agreement. He testified that it was only in 2016 that he
learned that the defendant
did not want to sublet the premises from
him but wanted to have a lease agreement directly with the actual
landlord, Mr Hobbs.
He insisted that in 2015 when he presented
the draft lease to the defendant the defendant never told him that he
wanted to lease
directly from Mr Hobbs and did not want to be his
sub-tenant.
[23] He also gave
evidence the essence of which was that the rental he would collect
from the defendant would have been more than
the actual rental due to
Mr Hobbs. He would collect more and pay over to Mr Hobbs less
than he collected. There was
a mark-up from his actual rental
obligation to Mr Hobbs as he put it, “
so that he could
eat
”. He also confirmed that he never obtained a
written authority from Mr Hobbs to sublet the premises to the
defendant
as required by the original 2006 lease between Mr Hobbs and
himself and his partners.
[24] He further testified
that he established the college in January 2014 when it had its first
intake of students. He was
offering matric rewriting and
computer training. When students failed matric, and wanted to
repeat it they would come to
the college. Thereafter the
plaintiff’s case was closed.
The analysis
[25] The common cause
facts are that a business sale agreement was entered into between the
plaintiff and the defendant on 25 March
2015 in writing for the
purchase of the college by the defendant. The purchase price
was R700 000.00 which was paid in full
in terms of that agreement by
the 30 September 2015. A written lease agreement was presented
by Mr Youmessi to the defendant
shortly after the sale of business
agreement was entered into. The defendant refused to sign the
said lease agreement.
The defendant never paid any rental
whatsoever for the premises.
[26] The sale of business
agreement also reflected arrear rentals of R121 611.40 which amount
is described in vague terms as being
for rent, water and electricity
with an indication that as at the date of the conclusion of the sale
of business agreement the
purchaser was already leasing the
premises. This is just one of many aspects of the plaintiff’s
case that is confusing,
if not concerning and the evidence did not
help to clarify many of those aspects as will be shown later.
Even more confusing
is the fact that the agreement having been
entered into on 25 March 2015 which date according to the agreement
itself was also
the effective date of the sale of business agreement,
the amount owing in April 2015 started with an opening balance of
R149 310.40.
This amount appears as an opening balance from
annexure B to the particulars of claim which is the plaintiff’s
breakdown
of the amount owing since April 2015 to August 2017.
However, how the amount of R121 611.40 arose was not explained by Mr
Youmessi when he testified.
[27] During his main
evidence Mr Youmessi was taken through the breakdown contained in
annexure B by his counsel. However,
no attempt at all was made
to explain this opening balance. In fact giving evidence on
this amount was completely ignored.
This is rather strange
considering that that document, annexure B to the particulars of
claim was intended to substantiate and
provide a breakdown of the
total amount claimed being R1 015 179.90. The other amounts are
different monthly rentals and
service amounts. Again there was
no evidence of invoices having been sent to the defendant for any of
the amounts claimed
at any stage in respect of any of the months from
April 2015 to August 2017. The only evidence of a demand having
been made
to the defendant was a letter of demand sent by the
plaintiff’s attorneys on 31 July 2017 which was shortly before
the summons
was issued. There was no real evidence of meetings
having taken place between the parties in which the escalating rental
situation was discussed and undertakings for payments made for a
period of over two years. Throughout all this period, if
the
evidence of Mr Youmessi is anything to go, the defendant was in
occupation of the premises and running the school. This
is also
strange considering that Mr Youmessi did not own the premises and had
rental obligations to Mr Hobbs.
[28] There was also no
clear evidence of a hand over of the premises to the defendant having
taken place. Considering that
the business was sold as a going
concern, there was no evidence of Mr Youmessi having called a meeting
of his employees to tell
them that the business was under new
ownership. There was no handover of books or even accounting
records, financial statements,
student rolls or even the staff roll.
There was no evidence of the defendant being introduced to the stake
holders of the
business, the parents, the students and most
importantly the staff or even a list of debtors for outstanding fees.
[29] Even in respect of
the formal documentation for the college, there are a lot of
disjunctures and disconnections about which
the plaintiff did not
give any evidence to try and clarify them. For instance there
was not a single document reflecting
the existence of the college.
The entity under which the college was allegedly run is Youmessi
Trading CC a registered close
corporation whose sole member was Mr
Youmessi. Indeed the sale of business was done under the name
of the close corporation
which is the plaintiff in these
proceedings. However, the claim is not for the payment of the
purchase price which was in
any event paid in full. The claim
is in respect of rentals said to be owing by the defendant.
However, there is no
relationship between the plaintiff and the
premises in the sense of a lease agreement with the owner of the
premises. The
main lease agreement is between the owner and the
four individuals mentioned earlier. In fact there was no
evidence of the
plaintiff having had any dealings with the owner of
the premises, not even rental invoices. One would have expected
this
relationship to exist for many reasons but especially because
according to the evidence of Mr Youmessi the plaintiff was a rental
agent for the owner of the premises to whom rentals were paid by
tenants and in turn paid over by him to the owners. There
was
neither documentation nor oral evidence in this regards.
[30] This is, in my view,
hugely problematic in that it begs the question whether the plaintiff
had any premises to rent out or
sublet to anybody including the
defendant. There was no evidence in this regard at all.
At the very basic level, there
were no invoices issued, even for a
single month by the plaintiff to the defendant. No demands were
made save for the letter
of demand in July 2017. If the
plaintiff had no premises to rent out or even sublet it is difficult
to understand how the
plaintiff could have even a sublease agreement
with the defendant about which the plaintiff’s evidence was, at
best extremely
poor and at times downright misleading. There
was unbelievable paucity of the evidence of the oral lease having
been entered
into.
[31] There are many other
problems in the plaintiff’s case. Mr Youmessi admitted
that the unsigned lease agreement discovered
by defendant is a
correct document which he presented to the defendant for signature.
That draft lease agreement reflects
as parties thereto Silver
Solutions 956 CC t/a Kombou Guard Service and Property and the
defendant. This entity is not the
plaintiff nor a party in
these proceedings. This agreement was presented to the
defendant for signature shortly after 25
March 2015 according to Mr
Youmessi. The defendant refused to sign that lease agreement
as, according to the defendant’s
evidence he wanted to be the
tenant of the owners of the premises and not Mr Youmessi’s or
the plaintiff’s sub-tenant.
On the other hand Mr
Youmessi’s evidence was that the defendant never stated his
reasons for refusing to sign the lease agreement.
This is
particularly also hugely problematic and in fact improbable because
at that stage the sale of business agreement had just
been signed.
The parties were still happy with one another with a
substantial part payment in the sum of R400 000.00 scheduled
to be
made on the 01 April 2015, within a week after the 25 March 2015.
Indeed that payment was made to Mr Youmessi.
[32] Leaving that aside,
the rental clause on the draft lease reflects rental amounts of
R5000.00 for October 2014 and R30 000.00
each from November 2014 to
March 2015, R25 000.00 from 01 April 2015 to August 2015, R27 500.00,
from September 2015 to 31 August
2016, R30 250.00 from 01 September
2015 to 31 August 2017. This is also hugely problematic because
it is common cause that
the sale of business agreement was entered
into in March 2015. Most confusing is also the fact that the
term of the lease
was intended to be reckoned from 01 October 2014 to
31 August 2017. In an attempt to get clarity for some of these
confusions
and the contradictory evidence of the plaintiff, I asked
Mr Youmessi when he established the college. His evidence was
that
he opened the school in 2014. This means that in less than
a year in October 2014, if the draft lease is anything to go by,
the
school was already in the hands of the defendant. The basis on
which the defendant would have taken over the premises
in October
2014 were not dealt with at all by Mr Youmessi considering that the
business was only sold in March 2015.
[33] The relationship
between Silver Solutions and the plaintiff is unclear in as much as
there was no evidence of who the members
of Silver Solutions were.
It is unclear how and if the plaintiff ever came into the picture in
respect of the rentals if
the rental agency was under the name of
Silver Solutions, the entity through which Mr Youmessi intended to
enter into a lease agreement
with the defendant. Again, there
was no evidence of the existence of a relationship between Silver
Solutions and the owners
of the premises on the one hand and the
tenants to the premises being those four individuals mentioned
earlier and Silver Solutions
on the other hand.
[34] The bigger question
in my view is whether the college, which was the subject matter of
the sale of business agreement and the
catalyst to the oral lease
even really existed when it was sold. Beyond the plaintiff’s
mere say so, there was no evidence
at all of the college being in
existence. For instance, one would expect a school to have
documents of its enrolment of students
from 2014 when it was
established. There was none. The evidence of the
existence of teachers or even contracts of employment
for any person
who may have served as a teacher or even a cleaner for the school or
even security personnel. These type of
employees would have
necessitated the registration of those employees with the South
African Revenue Services and the Labour Department
for tax and
Unemployment Insurance Fund purposes.
[35] The business itself
would have been required to make annual declarations of income and
expenditure and would be assessed for
tax in respect of income
generated. There was no evidence on any of these issues,
documentary or otherwise. There was
no evidence of even bank
statements showing money in respect of fees being deposited into the
school account and salaries for teachers
and even stationery or other
normal requirements for a school, none whatsoever. There was no
evidence of the bank details
and signing authorities having been
changed to reflect the defendant. This is important because the
college was sold as a
going concern. There was no evidence that
Mr Youmessi notified the tax authorities that he no longer owned the
college especially
after the purchase price was paid in full.
This would have been necessary so that tax liability for the business
which had
been sold as a going concern shifted to the defendant.
[36] It is equally
troubling that Mr Youmessi did not bring evidence even from a former
employee of the school, a former parent
whose child received tuition
from the college or even a former pupil of the school. Mr
Youmessi’s evidence was that
the school was run by a principal
or as he put it “someone like a principal.” Why
this person was not called
to testify on any of the issues so that he
would shed some light on the existence of the school or even of it
being handed over
at some point to the defendant and run by the
defendant. I am resorting to the questions around these issues
because the
evidence of the plaintiff was that the college was not
registered with the Department of Education. Mr Youmessi’s
evidence
was, at some stage, that some of the grade 12 pupils who
were his students did obtain grade 12 certificates. He later
changed
to say that what he offered was a matric rewrite presumably
for those who would have failed grade 12.
[37] Again applying some
measure of benevolence to his evidence it might very well be that he
did not have to register them with
the Department of Education as the
students might do that themselves as private candidates.
However, the fact that there
was no evidence of any pupil, teacher,
parent, employee or anyone or even the registration of the college as
a business with this
country’s tax authorities all point to the
possibility of an empty shell or a sham. The evidence of the
college’s
existence is non-existent not even insufficient.
On a preponderance of probabilities the college that was sold did not
exist,
was probably a sham or even fraudulence on Mr Youmessi’s
part. What is troubling was his audacity to come to this Court
to enforce a lease agreement based on a possibly fraudulent
transaction of a sale of a business that did not exist for premises
that were probably never occupied or really handed over for
occupation to the defendant.
[38] The definition
clause of the sale of business agreement refers to the “
Effective
Date of Accounts
” which itself refers to financial
statements of the seller for the period ending on the day immediately
preceding the effective
date. No evidence of any financial
statements being or having been given to the defendant nor was
evidence of their existence
proferred. Reference is also made
to “fixed” assets. These are defined as “fixtures
and fittings,
furniture, office equipment and motor vehicles of the
business as set out in the schedule attached hereto as Annex “A””.
However, the schedule was not attached to the agreement nor was there
evidence of any of these assets being handed over or their
inventory
given either to the defendant or even evidence of their existence
tendered during trial. It is difficult to avoid
the suspicion
that the sale of business agreement was deliberately designed to give
credence to the existence of the college that
was sold as a going
concern and to hide the fact that it was possibly a fraudulent
vehicle true which the defendant, despite being
an attorney was duped
into parting with R700 000.00 for nothing, exploiting his
gullibility.
[39] It is hugely
significant that the business that was sold to the defendant was
described as being a going concern. The
term “
going
concern
” received the attention of the Constitutional Court
in
National Education Health and Allied Workers Union v University
of Cape Town and Others
2003 (3) SA 1
(CC) at page 27 para 56.
In that case Ngcobo J stated:
“
The phrase
‘going concern’ is not defined in the LRA. It must
therefore be given its ordinary meaning unless the
context indicates
otherwise. What is transferred must be a business in operation
‘so that the business remains the
same but in different
hands’. Whether that has occurred is a matter of fact
which must be determined objectively in
the light of the
circumstances of each transaction. In deciding whether a
business has been transferred as a going concern,
regard must be had
to the substance and not the form of the transaction. A number
of factors will be relevant to the question
whether a transfer of a
business as a going concern has occurred, such as the transfer or
otherwise of assets both tangible or
intangible, whether or not
workers are taken over by the new employer, whether customers are
transferred and whether or not the
same business is being carried on
by the new employer. What must be stressed is that this list of
factors is not exhaustive
and that none of them is decisive
individually. They must all be considered in the overall
assessment and therefore should
not be considered in isolation.”
[40] The non-performance
of all or any of the obligations and undertakings referred to above
is not only the evidence of the sale
of business as a going concern
not having occurred but, most importantly in this case, it is also
the evidence of the non-existence
of the business that was being
sold. If it did not exist, it could not be sold at all.
The belief of the defendant
as to its actual existence and his
entering into the contract on the basis of the misrepresentations by
the plaintiff about the
actual state of affairs is irrelevant in my
view, to the question whether in fact the business so sold actually
existed.
[41] There is yet another
feature of the plaintiff’s case that is bewildering. The
leased premises are simply referred
to as No. 59 Buffalo Street, East
London. This is not at all a description of the property
intended to be let to the defendant.
It is common cause that in
that address there were various tenants for various portions of the
property. The question then
is whether the description of the
portion intended to be let to the defendant was stated and agreed
upon. There is no evidence
in this regard. None of the
documents or the evidence even vaguely define the square meterage
intended to be let to the defendant.
This is significant
because according to the original lease the agreement between
Hysalsea Properties CC and Mr Youmessi and his
partners was for “
a
portion of the building (approximately 400 m
2
)
situated on second floor at 59 Buffalo Street, East London
.”
Nowhere are the premises actually occupied by the college properly
defined in the draft lease or even pleaded.
This is just one of
the many problems confronting the plaintiff’s claim which he
sought to enforce in these proceedings.
His evidence did
nothing to deal with any of these issues at all. Again, all of
this goes to the question whether it can
be said, even with some
benevolence, that there was a valid agreement of lease.
[42] As regards the
misrepresentations in respect of the sale of business agreement for
which the defendant, through a counterclaim
seeks restitution, I find
a principle set out many centuries ago to be absolutely apposite.
In
Wiley v African Reality Trust Ltd
1908 TH 104
at 111-112
the court quoted the said principle from
Redgrave v Hurd
(1881) 20 Ch D 1
13 as follows:
“
If a man is
induced to enter into a contract by a false representation it is not
sufficient answer to him to say, ‘if you
had used due diligence
you would have found out that the statement was untrue’.
You had the means afforded you of discovering
its falsity, and did
not choose to avail yourself of them’.”
[43] This dictum is
eminently applicable in this case in which the defendant is after all
an attorney whose naivety in how he failed
to do basic due diligence
like simply asking for a tax clearance certificate for the business
he was acquiring is shocking to say
the least. He could easily
have also insisted on some proof that the school legally existed
beyond the presence of some desks
and a reception area before parting
with R700 000.00 which no doubt, is a substantial amount of money.
However, all of that
does not disentitle him to restitution of the
amounts paid. The plaintiff’s case was, both in respect
of his claim
for arrear rentals and in respect of the plea to the
counterclaim badly pleaded. Mr Youmessi’s evidence in
respect
of both the main claim and the counterclaim was not only so
inadequate as to be non-existent and connived. It was also
founded
on falsity craftily designed to cover the possible rental
fraudulence he sought to enforce in these proceedings or the fleecing
of the defendant which was done with near perfection.
[44] The process of
assessing the evidence and the conclusions reached based on that
assessment is founded on our litigation principles
and
jurisprudential underpinnings of our law of evidence which are
largely trite. In this regard I can do no better or give
no
better elucidation thereof than refer to
Stellenbosch Farmers’
Winey Group Ltd v Martell et Cie
2003 (1) SA 11
(SCA) para 14-15
in which Nienaber JA said:
“
The
technique generally employed by courts in resolving factual disputes
of this nature may conveniently be summarised as follows.
To
come to a conclusion on the disputed issues a court must make
findings on (a) the credibility of the various factual witnesses;
(b)
their reliability, and (c) the probabilities. As to (a), the
court’s finding on the credibility of a particular
witness will
depend on its impression about the veracity of the witness.
That in turn will depend on a variety of subsidiary
factors, not
necessarily in order of importance, such as (i) the witness’
candour and demeanour in the witness-box, (ii)
his bias, latent and
blatant, (iii) internal contradictions in his evidence, (iv) external
contradictions with what was pleaded
or put on his behalf, or with
established fact or with his own extra curial statements or actions,
(v) the probability or improbability
of particular aspects of his
version, (vi) the calibre and cogency of his performance compared to
that of other witnesses testifying
about the same incident or
events. As to (b) a witness’ reliability will depend,
apart from the factors mentioned under
(a) (ii), (iv) and (v) above,
on (i) opportunities he had to experience or observe the event in
question and (ii) the quality,
integrity and independence of his
recall thereof. As to (c), this necessitates analysis and
evaluation of the probability
or improbability of each party’s
version on each of the disputed issues. In light of the
assessment of (a), (b) and
(c) the court will then, as a final step,
determine whether the party burdened with the onus of proof has
succeeded in discharging
it. The hard case, which will
doubtless be the rare one, occurs when a court’s credibility
findings compel it in one
direction and its evaluation of the general
probabilities in another. The more convincing the former, the
less convincing
will be the later. But when all factors are
equipoised probabilities prevail.”
[45] The onus was
obviously on the plaintiff to prove the existence of the oral lease
alleged on a balance of probabilities.
He could not point to a
single incident or fact that would support the contention that the
lease was entered into. For instance
payment of rentals for
some months would have supported the assertion of the parties having
entered into an oral lease agreement.
It is clear from the
manner in which the purchase price was paid that the defendant was
not in any financial difficulties during
that period. The
purchase price was paid on the agreed terms. Even after the
purchase price was paid in full with the
last instalment being paid
on the 30 September 2015 in the sum of R100 000.00, not a single
rental amount was paid by the defendant.
All of this is just
one of the many factors which show the improbability of the lease
agreement having been entered into orally
or otherwise.
[46] Mr Youmessi’s
employee and manager of the school was one Eddie about whom he gave
very little information, strangely
opting instead to create a
distance of sorts between himself and Eddie while suggesting some
form of proximity and even alleging
a non-existent partnership
between Eddie and the defendant. This was also one of the many
improbabilities or even worse,
misleading evidence given by Mr
Youmessi. In my view, on a balance of probabilities the school
or college did not exist when
it was sold.
[47] The last thing that
I consider it necessary to deal with is the fact that the business
was not registered as a school as required
by the legal framework.
Mr Youmessi could not register the school as it simply did not
exist. Again if he had registered
it, that would have helped to
establish the
de facto
and the
de jure
existence of the
school. Running or establishing a college without it being
registered is not permitted by the
Further Education and Training
Colleges Act 16 of 2006
.
Section 29
of this Act reads:
“
An
application for registration as a private college must be made to the
registrar in the manner determined by the registrar and
must be
accompanied by the prescribed fee.”
[48]
Section 30
provides:
“
(1) The
registrar must register an applicant as a private college if the
registrar has reason to believe that the applicant –
(a)
is financially capable of satisfying its
obligations to prospective students; and
(b)
with regard to all its further education
and training programmes –
(i)
will maintain acceptable standards that are
not inferior to standards at comparable public colleges;
(ii)
will comply with the requirements of
Umalusi; and
(iii)
complies with any other reasonable
requirement prescribed by the Minister”
[49] None of these
provisions were complied with by Mr Youmessi when he allegedly
established the college. When he testified
he vacillated
between the school being a college that rendered computer training or
being there to offer “matric rewrites”
as he called
them. On the other hand the name Hartwick Technical College
creates the impression of some subjects of a technical
nature being
offered by the school. However, Mr Youmessi could not even
state what subjects were offered by the school.
He then boldly
testified that there was no requirement for registration which is
obviously not true. If the college was intended
to offer
training or tuition outside the framework of the
Further Education
and Training Colleges Act then
the school had to be registered under
the
South African Schools Act 84 of 1996
.
[50]
Section 46
of this
Act provides:
“
(1) No
person may establish or maintain an independent school unless it is
registered by the Head of Department.
(2) The Member of the Executive
Council must, by notice in the Provincial Gazette, determine the
grounds on which an independent
school may be granted or withdrawn by
the Head of Department.
(3) A Head of Department must register
an independent school if he or she is satisfied that –
(a) the standards to be maintained by
such school will not be inferior to the standards in comparable
public schools;
(b) the admission policy of the school
does not discriminate on the grounds of race; and
(c) the school complies with the
grounds for registration contemplated in subsection (2).
(4) Any person who contravenes
subsection (1) is guilty of an offence and upon conviction liable to
a fine or imprisonment for a
period of three months.”
[51] All of these
provisions in both pieces of legislation are very stringent
legislative requirements carefully designed to eliminate
the
proliferation of illegal schools or colleges that offer unaccredited
certificates or diplomas. In some cases, unsuspecting
parents
are swindled of their hard earned money through bogus schools or
colleges. The formal registration of training institutions
is
very important especially in this country in which many parents are
desperate for the education of their children and will send
them to
any school that is conveniently within reach. Some of them
simply do not have the wherewithal of checking if the
institution is
registered or not. The legislative framework is very clear, for
a school or college to be established, it
must be registered failing
which it is an illegal operation, designed to exploit the ordinary
people’s unquenchable thirst
for the education of their
children. Clearly the defendant was a victim of Mr Youmessi’s
craftiness who sold him a
school or college that did not exist, at
least legally and therefore it could not be sold as a going concern.
[52] As I said before Mr
Youmessi has failed to discharge the onus of establishing that an
oral lease agreement was entered into
between the plaintiff and the
defendant. The defendant gave very clear and candid evidence
and testified about his desire
to venture into business. He saw
the business being sold by Mr Youmessi as a good vehicle for that.
However, he did
not do even the very basics of due diligence and Mr
Youmessi exploited, unlawfully, the defendant’s gullibility and
naiveté.
In the process the defendant carelessly lost
R700 000.00 in return for nothing and now seeks, in his counterclaim,
restitution
thereof. The purported sale of business agreement
was as bogus as the object of the sale itself, the college and the
defendant
is entitled to restitution. It is, in my view, in the
interests of justice that the said agreement be nullified and the
plaintiff
be ordered to repay to the defendant the amount of the
purchase price which the defendant was hoodwinked into paying to the
plaintiff.
[53] On the dicta of
Goldin J in
Musgrove & Watson (Rhodesia) v Rotta
1978 (2)
SA 918
(R) at 925 C – E, when a person such as the defendant is
fraudulently deceived into signing a document buying a non-existent
school or a school that did not exist in law, no valid contract comes
into effect and the defendant is entitled to the restitution
of the
amount paid as purchase price for something that did not exist.
On consideration of all probabilities the defendant
must succeed in
his counterclaim for the restitution of the amount paid. The
plaintiff having failed to prove the existence
of the oral lease for
which he came before this court claiming to have entered into with
the defendant in order for the latter
to run, in those premises, a
school or college that did not exist, the plaintiff’s claim for
arrear rentals and other amounts
claimed must fail.
[54] In the result the
following order shall issue:
1. The plaintiff’s
claim for arrear rentals and other amounts claimed is dismissed with
costs.
2. The defendant succeeds
in his counterclaim.
3. The purported
agreement for the sale of Hartwick Technical College entered into on
25 March 2015 is declared invalid and of no
force or effect.
4. The
plaintiff is ordered to repay to the defendant the sum of R700 000.00
being in respect of the purchase price for the sale
of the business
referred to in 3 above together with interest thereon at the legal
rate from the date on which the said amount
was paid to date of
payment.
5. The
plaintiff is ordered to pay all costs of suit in respect of the
counterclaim.
_________________________
M.S. JOLWANA
JUDGE OF THE HIGH
COURT
Appearances
Counsel for the
plaintiff: MS VAN VUUREN
Instructed by: DEON
STANDER ATTORNEYS
EAST
LONDON
Counsel for the
Defendant: MR KALIMASHE
Instructed by: SIPUNZI
ATTORNEYS
EAST
LONDON
Last heard on: 17
September 2020
Delivered on: 19 January
2021