Brief Summary

Family Law — Divorce — Claim for dividend from company — Plaintiff, married to first defendant, claims entitlement to dividend from sale of company property — Evidence of oral undertaking and nomination document disputed — Plaintiff's credibility questioned; claim based on alleged undertaking not proven — Amendment to pleadings sought to introduce new basis for claim, opposed by first defendant — Court finds no sufficient evidence to support plaintiff's claims or the validity of the nomination document — Application to amend dismissed, and plaintiff's claims ultimately rejected.

Comprehensive Summary

Summary of Judgment

1. Introduction

The proceedings were a civil action in the KwaZulu-Natal High Court, Durban, concerning entitlement to money retained for distribution by judicial managers following the sale of a company’s principal asset. The litigation effectively required the court to decide whether the plaintiff (an estranged spouse) had established a legal basis to claim a dividend otherwise payable to the first defendant (her husband) as reflected in the company’s records.

In Case No. 5514/2011, the plaintiff was Ms F[…] H[…] and the first defendant was Mr Y[…] A[…] H[…]. The second and third defendants were Neil McHardy N.O. and Andries Geyser N.O., cited in their capacities as the judicial managers of Ajmerwala Proprietary Limited (referred to in the judgment as “Ajmerwala”).

A related matter, Case No. 8486/2015, was also before the court and had been consolidated for purposes of trial. The court recorded that the later action did not occupy trial time and that, at the opening of the trial, it was conveyed that the court effectively had to determine the issue of costs in relation to that later action. The present judgment, however, focused substantively on the plaintiff’s claim in Case No. 5514/2011 and, in particular, an application to amend the particulars of claim made from the Bar at the close of the plaintiff’s case as argued.

The general subject-matter of the dispute concerned competing claims to a shareholders’ dividend arising from the sale in March 2011 of a building known as the Ajmeri Arcade (owned by Ajmerwala). The dividend was retained by the judicial managers pending resolution of whether it was payable to the first defendant as the registered shareholder, or to the plaintiff on the strength of alleged arrangements, documents, or transfers said to have occurred during the marriage.

2. Material Facts

The parties were married by Muslim rites in about 1965, had concluded an ante-nuptial contract, and registered the marriage as a civil marriage in 1969. They became estranged and separated around the beginning of 2003 after an Islamic divorce, but remained married under civil law at the time relevant to the litigation.

Ajmerwala was a family-owned company. The first defendant was reflected in the company’s official records as the holder of 10% of the shares. Ajmerwala owned the Ajmeri Arcade building in Durban. In March 2011, the judicial managers sold the building for R14 100 000, which resulted in a shareholders’ dividend becoming payable. The judicial managers retained the dividend pending the outcome of the dispute between the plaintiff and the first defendant.

The plaintiff’s pleaded case advanced multiple bases to claim the dividend. A first pleaded basis alleged an oral undertaking by the first defendant on 28 September 1992 and thereafter (including 14 April 1997) to pay to the plaintiff the amount payable to him from his interests in Ajmerwala on the sale of the Ajmeri Arcade. The court found there was no evidence of such an undertaking in September 1992, and no evidence of an undertaking to pay anything on 14 April 1997.

A further factual feature that was common cause was the existence of a single-page document dated 24 May 2000 (described by the plaintiff as a “nomination”), on which the first defendant wrote words in his own hand: “I, the undersigned Yusuf Abdul Habib nominate my lawful wife Farida Habib”, and signed at the bottom. It was common cause that when the first defendant signed the page there was a blank space between the handwritten words at the top and his signature at the foot of the page.

The plaintiff later filled in that blank space with substantial additional text asserting that she was the “beneficial and real owner” of shares registered in the first defendant’s name in Ajmerwala and that the first defendant acknowledged holding such shares as “nominee and agent” on her behalf, entitling her to net proceeds and any loan account on sale of Ajmeri Arcade. On the plaintiff’s version, the insertion was made in 2011, when the sale (or proposed sale) of Ajmeri Arcade was known. The judgment recorded that the plaintiff said she wrote the inserted words with assistance from others whom she could not remember, that she “planned it”, and that the court had no doubt she had professional assistance. The pleadings did not reveal the date of the insertion.

There was a dispute of fact regarding why the first defendant signed the original blank document(s) in May 2000. The plaintiff’s version was that she pressed him to transfer assets because he was in debt and owed her money; after she complained there was insufficient space, he signed additional blank pages “in a fit of pique”. The first defendant’s version was that he was leaving for Saudi Arabia and signed the page to enable her to take control of his affairs should something happen to him, leaving it blank due to time constraints. The court held it was unable to resolve this dispute of fact, noting that aspects of the plaintiff’s version seemed more probable, but also describing her evidence as unreliable and emphasising the unexplained 11-year delay before she filled in the page when money was in prospect.

A further undisputed documentary fact was that in April 1997 the first defendant signed a letter addressed to Ajmerwala’s auditors instructing them to transfer his entire shareholding and loan account “at the earliest date possible” to the plaintiff, and to prepare a share transfer form, cession of loan account, deed of donation, and any other necessary documents, and to phone him when the documents were ready for signature. The court accepted the first defendant’s evidence that this letter was prepared by his accountant and that it was written in response to pressure for family security. The court noted that the transfer contemplated by the letter was not carried out.

On the evidence accepted by the court, there was also a later transaction involving a different asset, referred to at trial as the “Famous View Property”, owned through a company whose shares were held by the first defendant’s family. The first defendant’s evidence was that, in the presence of the accountant, the parties’ daughter asked him to give the plaintiff the house instead of the Ajmerwala shares to provide security. The first defendant’s evidence was that the plaintiff agreed to take the Famous View shares in preference to the Ajmerwala minority shareholding, and that he made clear that if she took the Famous View shares “that is it”. The shares were in fact transferred to the plaintiff only.

The court found that, on the only acceptable evidence, the plaintiff’s claim to Ajmerwala shares only resurfaced about 14 years later when it became known that the sale of Ajmeri Arcade would result in money becoming payable to shareholders. The court considered the prolonged inactivity inconsistent with the proposition that the plaintiff regarded herself as having acquired Ajmerwala shares by cession in 1997.

3. Legal Issues

The central legal questions were whether the plaintiff had proved any of the pleaded bases for entitlement to the dividend payable to the first defendant as reflected in Ajmerwala’s records, and, if not, whether the plaintiff should be allowed a late amendment to introduce a new cause of action based on an alleged cession of the first defendant’s shares and loan account in April 1997.

The dispute involved a combination of fact and law, and the application of law to fact. Factually, it concerned what the parties intended in 1997 (and possibly 2000), whether there was a genuine authorisation to complete the “nomination” document, and whether the later Famous View transaction replaced or cancelled any earlier arrangement regarding Ajmerwala shares. Legally, it concerned the principles governing cession/transfer of rights in shares, including the relevance of the parties’ intention and the abstract theory of transfer requiring a real agreement. Procedurally, it required the court to exercise a discretion on whether to allow a last-minute amendment and to evaluate prejudice and whether the new claim had been sufficiently ventilated and carried prospects of success.

4. Court’s Reasoning

The court’s assessment of the evidence began with an explicit evaluation of the plaintiff as a witness. The judgment described her as an extremely unsatisfactory witness who frequently rambled and whose evidence was often incoherent and directed at past grievances rather than the material issues. The court recorded that plaintiff’s counsel accepted that the case should not depend on her credibility and that where credibility issues arose, reliance should be placed on documentary support. This approach was endorsed as correct.

On the pleaded claims, the court held the evidence did not support any of the pleaded bases. The alleged 1992 undertaking and alleged later undertakings (including in April 1997) to pay the proceeds of Ajmerwala interests upon sale were not established on the evidence. The court treated the April 1997 documentary letter not as proof of an undertaking to pay proceeds, but rather as an instruction to begin steps for a formal transfer which in fact did not occur.

Regarding the “nomination” document, the court accepted that the plaintiff herself inserted the material terms later, in circumstances where the blank space had existed when the first defendant signed in 2000. The court was unable to resolve the parties’ competing versions as to why the blank pages were signed, but reasoned that the long delay in using the document and the plaintiff’s conduct in completing it only once money was in prospect undermined her contention that she had a subsisting authorisation from 2000 to complete it as she did in 2011. The court also recorded that, on balance, it understood the plaintiff’s evidence to mean that whatever authority she claimed in 2000 did not continue to subsist in 2011. Within the pleaded framework, the plaintiff’s attempt to found “beneficial ownership” on that document and earlier events was therefore not sustained.

The plaintiff then sought, at the end of argument, to amend her particulars of claim from the Bar. The proposed amendment shifted the basis to an allegation that on or before 14 April 1997 the first defendant orally undertook to cede all his shares and loan account in Ajmerwala to the plaintiff, and that the cession “as a matter of fact and of law” took place at that time. The first defendant objected, contending the new claim was not pleaded, not properly ventilated in evidence, and that it lacked prospects.

In addressing the amendment, the court applied the approach that an amendment sought at the last possible moment, without a request to recall witnesses or lead additional evidence, raises concerns of unfairness and prejudice, and that disruption caused by an amendment can justify refusal. The court noted that the plaintiff’s counsel did not seek to recall witnesses or postpone, instead contending the issue had been sufficiently canvassed and no prejudice would result.

Substantively on the proposed amended claim, the court analysed the law relating to transfer of rights in shares by cession. It considered reliance placed by the plaintiff on Botha v Fick. The court held that the plaintiff read too much into that authority. The judgment accepted that it is not always necessary for delivery of a share certificate or an amendment to the company register to bring about a transfer of rights embodied in shares, and that a cession may in some transactions occur pari passu with the agreement to transfer. However, the court emphasised that the key enquiry is when the parties intended the transfer of rights to take place.

To clarify the distinction, the court referred to LAWSA’s differentiation between the obligationary agreement to cede in future and the real agreement of cession (the actual transfer). The court stated that cession (as a mode of transfer used for shares) takes place when the parties agree it should take place, and that nothing more is required unless their agreement or mutual intention is that additional steps are required. The judgment considered that an agreement could validly provide that transfer would occur only upon the completion of formalities (such as amendment of the register and delivery of a share certificate). It located this approach within the abstract theory of transfer, requiring a real agreement with intention on the part of the transferor to transfer ownership and intention on the part of the transferee to become owner, citing Legator McKenna and Another v Shea and Others.

Applying these principles to the evidence, the court found that the April 1997 letter raised questions rather than answering them. The letter’s request that transfer be effected “at the earliest date possible” and that various documents be prepared and then signed suggested the first defendant’s intention might have been for transfer to occur only once formalities were complete. The court held that the exchanges and conduct around April 1997 were canvassed only cursorily in evidence, and crucially, no question had been put to the first defendant about when he intended transfer to occur, nor to the plaintiff about her intention. The court therefore concluded that the grounds underpinning the proposed amended claim had not been fully canvassed, which was unsurprising given that the case had not been pleaded on that basis.

The court nevertheless went further and held that even on the evidence available, a clear answer to the proposed claim existed. It accepted evidence of the subsequent Famous View transaction, in terms of which (on the only acceptable evidence) the plaintiff agreed to take the Famous View shares instead of the Ajmerwala shares, and that this arrangement was treated as final. The court reasoned that even if the plaintiff’s theory of cession were applied, then on the accepted evidence the Ajmerwala shares would have been ceded back to the first defendant (or the earlier agreement to cede cancelled). The court also considered the plaintiff’s long inaction until the dividend became imminent as inconsistent with her having believed she already owned the Ajmerwala shares from 1997.

On this cumulative reasoning—insufficient ventilation and, in any event, lack of prospects of success on the evidence—the court found no justification for granting the amendment.

5. Outcome and Relief

The court dismissed the plaintiff’s application to amend her particulars of claim from the Bar, and ordered the plaintiff to pay the costs of that application, including the costs incurred in preparing and delivering written argument on the amendment issue.

The court dismissed the plaintiff’s claim in the main action (Case No. 5514/2011) with costs.

The court ordered the plaintiff in the present action to pay the first defendant’s costs in the consolidated action under Case No. 8486/2015, recording that there was no reason why the costs of that later action should not follow the costs of the present one.

The court directed that the costs orders included the costs of two counsel where employed, as both sides had employed two counsel and agreed such an order was appropriate.

Cases Cited

Botha v Fick [1994] ZASCA 184; 1995 (2) SA 750 (A).

Legator McKenna and Another v Shea and Others 2010 (1) SA 35 (SCA).

Robinson v Randfontein Estates Gold Mining Company Limited 1921 AD 168.

Sefalana Employee Benefits Organisation v Haslam and Others [2000] ZASCA 1; 2000 (2) SA 415 (SCA).

Smyth v Investec Bank 2018 (1) SA 494 (SCA).

Legislation Cited

No legislation was cited in the judgment.

Rules of Court Cited

No rules of court were cited in the judgment.

Held

The court held that the plaintiff failed to prove the claim on any of the bases pleaded, including alleged undertakings to pay proceeds and reliance on a “nomination” document that the plaintiff had completed years after it was signed in blank.

The court held that the plaintiff’s last-minute attempt to amend her particulars of claim to introduce a claim based on an alleged cession of shares and loan account in April 1997 should be refused because the issues underlying that claim were not properly ventilated in the trial and, in any event, the evidence available indicated the amended claim would not succeed.

The plaintiff’s claim was dismissed with costs, including costs of two counsel, and the plaintiff was also ordered to pay the first defendant’s costs in the related consolidated action.

LEGAL PRINCIPLES

A late amendment, especially one sought at the end of a trial and without seeking to recall witnesses or lead additional evidence, may be refused where the new cause is not properly ventilated on the existing record and where allowing it would cause prejudice or disruption. The court approached the amendment question by assessing whether the new issues had been fully canvassed and whether the proposed claim showed prospects of success on the evidence already led.

In relation to the transfer of rights in shares by cession, the judgment applied the principle that it is not invariably necessary for a share certificate to be delivered or for the company register to be amended before rights embodied in shares can be transferred; however, whether the rights have been transferred depends on when the parties intended the transfer to take effect in the particular transaction.

The judgment applied the conceptual distinction between an obligationary agreement to cede in the future and the real agreement of cession (the act of transfer), recognising that these juristic acts may coincide but remain distinct in function. In applying the abstract theory of transfer, the court treated a valid transfer as requiring a real agreement comprising intention by the transferor to transfer ownership and intention by the transferee to acquire ownership, and accepted that parties may intend that transfer only occurs upon completion of agreed formalities.

F.H v Y.A.H and Others (5514/2011, 8486/2015) [2019] ZAKZDHC 31 (18 December 2019)