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[2016] ZAGPPHC 1091
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Osmers NO and Another v Eskom Holdings Limited and Another; Osmers v Eskom Holdings Limited and Another (A377/15; A377/2015) [2016] ZAGPPHC 1091 (14 December 2016)
IN THE HIGH COURT OF
SOUTH AFRICA
(GAUTENG DIVISION,
PRETORIA)
Case
number: A377/15
Date:
14/12/2016
Reportable:
No
Of
interest to other judges: No
Revised.
In
the matter between:
EUGENE
BENJAMIN OSMERS
N.O. FIRST
APPELLANT
HAZEL
HAYNES
N.O. SECOND
APPELLANT
Versus
ESKOM
HOLDINGS
LIMITED FIRST
RESPONDENT
THE
NATIONAL ENERGY REGULATOR SECOND
RESPONDENT
CASE
NO: A377/2015
EUGENE
BENJAMIN OSMERS
Versus
ESKOM
HOLDINGS
LIMITED FIRST
RESPONDENT
NATIONAL
ERNERGY REGULATOR
SECOND
RESPONDENT
JUDGMENT
TOLMAY.
J: INTRODUCTION
[1]
The Appellants instituted two identical applications, wherein they
sought declaratory and interdictory relief against the First
Respondent (Eskom). The first application was instituted on behalf of
the Eugene Osmers Trust (the Trust) by Eugene Benjamin Osmers
and
Hazel Haynes in their capacities as trustees of the Trust under case
number 28214/2014. The second application was launched
by Eugene
Benjamin Osmers in his personal capacity under case number
28157/2014. In both these matters, the Appellants asked the
Court to
grant the following declaratory relief:
1.1 That they are third
parties for purposes of the Electricity Regulation Act, 4 of 2006
(the Act);
1.2 That the First
Respondent is obliged to, in terms of section 21(3) of the Act, to
provide them with non-discriminatory access
to the power systems.
[2]
Despite the reference to sec 21(3) in the application the actual
section under which the applications are brought is sec 22(3).
[3]
The Appellants also sought consequential relief in the form of a
mandatory final interdict compelling Eskom to conclude an agreement
with the Eugene Benjamin Osmers Trust and Eugene Benjamin Osmers.
[4]
Eskom opposed the application and the Second Respondent did not
participate in the application. Having heard argument, in the
Court a
quo,
the Court dismissed the application and later granted the
Appellants leave to appeal to the full Court.
BACKGROUND
[5]
Mr Osmers and Ms Haynes are life partners. Ms Haynes is the sole
member of Amoret Trading 81 CC (Amoret) which conducted a chicken-
and pig-farming business on the farm, Portion 4 of Schalk Farms 3,
Phalaborwa, Limpopo ("Schalk"). The farming business
on
Schalk was operated pursuant to a lease agreement allegedly entered
into by Mr Osmers and Ms Haynes in their capacities as trustees
of
the Trust and Ms Haynes in her capacity as the sole member of Amoret.
It needs mentioning that the alleged lease agreement was
not attached
to the papers.
[6]
Mr Osmers and Ms Haynes allegedly terminated the lease between the
Trust, as represented by themselves, and Amoret, as represented
by Ms
Haynes. They alleged that the Trust took occupation of Schalk from 1
January 2014.
[7]
Pursuant to the aforesaid, Amoret entered into an agreement with
Eskom in terms of which Amoret and Eskom agreed that Eskom
would
provide electricity to Schalk. Eskom provided electricity to
Schalk from 14 December 2010 and levied charges for electricity
consumed. Amoret failed to pay in full and its electricity account
fell into arrears. The last payment to Eskom from Amoret was
received
on 1 March 2012.
[8]
Eskom states that it attempted to mitigate its losses through the
termination of the electricity supply to Schalk but Ms Haynes
and Mr
Osmers frustrated Eskom's efforts, by refusing access to Schalk.
[9]
Amoret, according to Eskom, aided by both Ms Haynes and Mr
Osmers, continued to consume electricity through 2013
until 15
January 2014 when Eskom managed to terminate the electricity supply
to Schalk. As at 10 February 2014, Amoret owed an
amount of R634
939,17 to Eskom.
[10]
Pursuant to the termination of electricity by Eskom, Mr Osmers and Ms
Haynes as trustees of the Trust, applied on 15 January
2014 to Eskom
for the supply of electricity to Schalk. A deposit of R20 295-00 was
paid by the Trust in order to secure the supply
of electricity.
Despite accepting the deposit Eskom refused to supply electricity to
the Trust. After this refusal Mr Osmers applied
on 15 February 2014
in his personal capacity for electricity to be provided to Portion 25
of Silonque, Phlaborwa (Silonque) and
paid a R10 500-00 deposit to
secure the supply of electricity. Schalk and Silonque are apparently
adjoining properties.
[11]
Eskom allocated both these deposits to the debt that accumulated on
Schalk, but refused to supply electricity to Schalk or
Silonque. The
lawfulness of the allocation of the deposits is not the subject of
these appeals.
[12]
Eskom contends that the sole purpose of the applications for the
supply of electricity was to circumvent the debt created by
Amoret
and contended that it should not be ordered to enter into agreements
with Mr Osmers and the Trust, and that the corporate
veil should be
lifted as Mr Osmers and Ms Haynes are hiding behind the corporate
identity to avoid paying the debt incurred by
Amoret.
THE
CAUSE OF ACTION
[13]
The Appellants brought their applications in terms of sec 22(3) of
the Act.
[14]
The Appellants seek an order that they be declared third parties for
purposes of the Act, and that Eskom be ordered, in terms
of sec 22(3)
of the Act to provide non-discriminatory access to the power systems.
[15]
In order to determine whether the Appellants are entitled to the
relief sought one needs to look at the statutory framework
under
which Appellants approached the Court. The heading of the Act sets
out the purpose of the Act as follows:
"To establish a
national regulatory framework for the electricity supply industry; to
make the National Energy Regulator of
South Africa the custodian and
enforcer of the national electricity regulatory framework; to provide
for licences and registration
as
the manner in which
generation, transmission, distribution, reticulation, trading and the
import and export of electricity are regulated;
to regulate the
reticulation of electricity by municipalities; and to provide for
matters connected therewith."
[16]
The purpose of this Act, it would seem, is to make Second Respondent
the custodian and enforcer of the national electricity
regulatory
framework and then proceed to deal with licences and registration
pertaining to the supply of electricity. It appears
to be common
cause between the parties that Eskom is a licensee in terms of the
Act.
[17]
Section 22(3) on which the Appellants rely falls under Chapter 3 of
the Act. The caption of this Chapter reads as follows:
"Electricity
licences and registration".
[18]
Section 22(3) provides as follows:
"A transmission
or distribution licensee must, to the extend provided for in the
licence, provide non-discriminatory access
to the transmission and
distribution power systems to third parties".
[19]
It is important to determine the nature of the relationship between
the Appellants and Eskom in order to establish whether
the Appellants
are third parties. The Appellants carry the
onus
to prove that
they are indeed third parties. A third party is not defined in the
Act. The Respondents argued that third parties
are for example
municipalities to whom First Respondent provide electricity and does
not include the Appellants, who are customers
of Eskom. If one
considers the heading of the Act, which refers specifically to
municipalities, there may be merit in this argument.
[20]
In the Act a customer is defined as follows:
"customer"
means a person who purchases electricity or a service relating to the
supply of electricity".
The Appellants purchased and want to
purchase electricity and therefore must be customers. The Electricity
Supply Agreements entered
into between Eskom and Mr Osmers, attached
to the papers defines the person to whom electricity is supplied,
i.e. Mr Osmers, as
a customer.
[21]
In order to determine whether the section find application one should
not only try and define a third party but needs
to read the
whole section. This section implores Eskom to supply
"non-discriminatory
access
to the transmission
and distribution of power
systems
to third parties."
[22]
The Appellants have to show not only that they are third parties but
that Eskom will discriminate against them if electricity
is not
supplied to them. In Oxford English Dictionary discrimination is
defined as:
"The practice or instance of discriminating
against people on grounds of race, colour, sex, social status, age
etc.; an unjust
or prejudicial distinction".
At the heart of
the definition lies unfair treatment of someone in this matter the
refusal to supply electricity was based on the
fact that Amoret
didn't pay its account. It was thus a business decision based on the
circumstances of the case. There is no indication
of any
discrimination by Eskom in refusing to supply electricity to the
Appellants.
[23]
If one considers the Act and the section I am of the view that the
Appellants failed to prove that section 22(3) applies to
them.
PIERCING
THE CORPORATE VEIL
[24]
Eskom argued that as a result of the facts set out above that the
Appellants failed to establish the existence of a distinct
legal
personality of Amoret and the Trust and failed to establish that the
legal personalities are not being used as a fai;:ade
to avoid paying
for electricity consumed by Amoret.
[25]
The Appellants are of the view that the requirements for the piercing
of the corporate veil have not been met. It was argued
that an
application to Court, presumably in the form of a declaratory order,
is required and that the close corporation should
be joined in the
proceedings.
[1]
[26]
It is trite that the proverbial corporate veil will only be pierced
where special circumstances exist. Fraud will be such a
special
circumstance but it is not essential. In certain circumstances, the
corporate veil will also be pierced, for example where
the
controlling shareholders do not treat the company as a separate
entity, but instead treat it as their alter ego to promote
their
private, extra-corporate interests.
[2]
It was argued that the required special circumstances do not exist
and that the piercing or lifting of the corporate veil in the
circumstances of this case is not appropriate.
[27]
Eskom's counsel on the other hand argued that Amoret and the Trust
were mere instrumentalities or business conduits for promoting,
not
their own business or affairs, but those of their controlling members
and trustees, being Mr Osmers and Mrs Haynes. For all
practical
purposes, it was argued, the two concerns are in truth one.
[3]
[28]
A consideration of the authorities shows that Courts will ignore or
look behind the separate legal personality of a company
where justice
requires it.
[4]
[29]
The argument on behalf of Eskom was that the determination to
disregard the distinctness provided in terms of a company's separate
legal personality appears in each case to reflect a policy-based
decision. The Court will weigh the importance of giving effect
to the
legal concept of juristic personality, acknowledging the material
practical and legal considerations that underpin the legal
fiction,
against the adverse moral and economic effects of countenancing an
unconscionable abuse of the concept by the founders,
shareholders or
controllers of a company. The Courts have shown, it was argued, an
acute appreciation that juristic personality
is a statutory creation
and that their separate existence remains a figment of law,
liable to be curtailed or withdrawn when
the objects of their
creation are abused or thwarted.
[5]
[30]
Eskom's argument went further to state that, equally the core idea of
a Trust is the separation of ownership (or control) from
enjoyment.
Though a trustee can also be a beneficiary, the central notion is
that the person entrusted with control exercises it
on behalf of and
in the interests of another. It was argued that this is why a sole
trustee cannot also be the sole beneficiary,
such a situation would
embody an identity of interests that is inimical to the trust idea,
and no trust would come into existence.
[6]
[31]
Applying the legal principles to the facts, it was argued that the
calculated manner in which the appellants shielded Amoret
from its
contractual obligations is a clear sign of the unconscionable
flouting of separate legal personality. Eskom was, for a
period in
excess of a year, prevented from terminating the supply of
electricity of Schalk as both Ms Haynes and Mr Osmers, in
breach of
the contract that Amoret entered into with Eskom, prevented Eskom
from entering the property for purposes of terminating
the power
supply.
[32]
As a result of Eskom being denied access to Schalk, Amoret continued
to incur a debt it was unable to settle throughout
2013 to the
detriment of Eskom. Ms Haynes, Amoret and Mr Osmers, enjoyed the
benefit of unpaid electricity from March 2012 until
January 2014.
[33]
When Eskom terminated the supply of electricity, the appellants
almost immediately applied for it to be reconnected through
the
veneer of the Trust. The Trust applied for the reconnection a day or
so after the termination of the supply of electricity
to Schalk.
Shortly after Eskom refused the Trust's application, Mr Osmers in
February 2014, applied for a new electricity connection
to Silonque.
[34]
I agree with Eskom's argument that the coordinated manner in which
the Appellants operated, using the juristic personality
of Amoret, to
enjoy the use of electricity, accumulate the debt and thereafter use
the juristic personality of the Trust to frustrate
the termination
of the electricity supply, and obtain a new supply contract
with Eskom requires of the Court in the interest
of justice to lift
the corporate veil and see the machinations of how the appellants
attempted to escape from paying for the electricity
they consumed.
[35]
Eskom does not, at this stage, seek to hold Mr Osmers and Ms Haynes
personally liable for the debts of the Trust or Amoret,
nor does it
ask for any declaratory relief which may impact on the rights of
Amoret. Eskom merely argues that a peek behind the
corporate veil is
required to establish why it should not be obliged to enter into an
electricity supply agreement with either
Mr Osmers or the Trust.
[36]
I am of the view that as no declaratory order is sought or any relief
claimed against Amoret, there exists no basis on which
Amoret should
join the proceedings. I am further of the view that in the
particular circumstances of this case one should
lift the corporate
veil insofar it is necessary to establish whether Eskom should be
obliged to enter into an electricity supply
agreement with the
Appellants. After doing so I find that no such obligation should be
put on Eskom.
[37]
Consequently I am of the view that no case was made out for the
granting of the orders sought by the Appellants.
[38]
Consequently the following order is made:
1.
The
appeals in both application 2821412014 and 28157/2014 are dismissed;
and
2.
The
Appellants are ordered to pay the costs of the appeal relating to
each of the applications.
_________________
R
G TOLMAY
JUDGE
OF THE HIGH COURT
________________
S
P MOTHLE
JUDGE
OF THE HIGH COURT
________________
N
JANSE VAN NIEUWENHUIZEN
JUDGE
OF THE HIGH COURT
DATE
OF HEARING:
2 NOVEMBER 2016
DATE
OF JUDGMENT:
14 DECEMBER 2016
ATTORNEY
FOR APPELLANT:
MAGDA KETS INCORPORATED
ADVOCATE
FOR APPELLANT:
ADV R RAUBENHEIMER
ATTORNEY
FOR RESPONDENT:
RENQUE KUNENE INC
ADVOCATE
FOR RESPONDENT: AND M
MAJOZI
[1]
Sec 65, The Close Corporation Act 59 of 1984
[2]
See Airport Cold Storage (Ply) Ltd v Ebrahim and Others
2008 (2) SA
203
(C) para 25.
[3]
Airport Cold Storage supra at para 26.
[4]
Ex parte Gore N.O. and 37 Others NNO 2013 All SA (2) (WCC) 437 at
para 28.
[5]
Airport Cold Storage supra at para 29.
[6]
See Land Agricultural Development Bank of South Africa v Parker and
Others
2004 All SA 261
at para 19.