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[2012] ZAGPPHC 349
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Baard and Another v Koro Creek Home Owners' Association and Another (28281/2012) [2012] ZAGPPHC 349 (14 December 2012)
NOT
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA (NORTH GAUTENG, PRETORIA)
Case
No.: 28281/2012
DATE:14/12/2012
In
the matter between:
SCHALK
LEON
BAARD
............................................................................
FIRST
APPLICANT
BOSVELDSIG
SENTRUM
CC
.................................................................
SECOND
APPLICANT
and
KORO
CREEK HOME OWNERS' ASSOCIATION
................................
FIRST
RESPONDENT
MARJO
PROPERTY AND
DEVELOPMENT
COMPANY
....................................................................
SECOND
RESPONDENT
JUDGMENT
HIEMSTRA
AJ
[1]
The applicants are two owners of erven in the Koro Creek Golf Estate
near Modimolle (Koro Creek).The first respondent is the
Koro Creek
Homeowners Association, a non-profit
company.
The second respondent is Marjo Property and Development Company (Pty)
Ltd, and the developer of Koro Creek.
NATURE OF THE APPLICATION
[2]
The applicant sought the following relief in a Notice of Motion filed
with the Registrar on 21 May 2012:
1.
Regulating the affairs of the First Respondent by directing First
Respondent to impose and collect levies in respect of Koro
Creek Golf
Estate from Second Respondent mutatis mutandis as from other members
of First Respondent;
2.
Restraining First Respondent from collecting levies from Applicants
without simultaneously collecting levies from Second Respondent
in
the same amount, and on the same
principle
as the levies collected from Applicants;
3.
That First and Second Respondent must pay the costs of the
application jointly and severally.
Together
with a Replying Affidavit the applicants filed a Notice of Amendment
of their Notice of Motion in which they seek to amend
prayer 1 to
read as follows:
1.
Regulating the affairs of First Respondent by directing First
Respondent to impose and collect levies in respect of Koro Creek
Golf
Estate from Second Respondent mutatis mutandis as from other members
of First Respondent, and to amend its Memorandum of Incorporation
adopted on 23 June 2012 to reflect that the developer is liable to
pay levies since it was not the sole owner of Nylstroom Extension
7,
Nylstroom Extension 11, Nylstroom Extension 23 and Modimolle
Extension 2.
[3]
The application is brought in terms of s163 of the Companies Act, 71
of 2008 (the Act), which provides for relief from oppressive
or
prejudicial conduct by a company affecting a director or a
shareholder. The first respondent does not have shareholders, but
its
Memorandum provides for voting members in accordance with item 4 of
Schedule 1 to the Act. Where the Act refers to shareholders
in
respect of a profit company, it must be read as “members"
in respect of a non-profit company.
[4]
The applicants, as owners of erven forming part of the Koro Creek
Golf Estate (Koro Creek), were obliged in terms of the now
repealed
Articles of Association (the Articles) of the first respondent to be
members of the first respondent. Each member had
one vote at members’
meetings of the first respondent. The developer remains the owner of
all erven that have not been sold
and had one vote for each erf that
it owns. As appears later, these Articles have been replaced by a
Memorandum of Incorporation
in terms of the new Companies Act 71 of
2008 (the Memorandum). The Memorandum contains similar provisions.
[5]
The objectives of the first respondent in terms of the old Memorandum
of Incorporation and the new Memorandum are broadly to
promote the
group interests of the members of the company by maintaining open
spaces including the golf course, controlling the
aesthetic
appearance of improvements in the development.
[6]
The first phase of the development comprises 455 residential stands
of which 255 have been sold to private individuals and entities.
A
further phase is still to be developed which will result in a final
total of 520 erven at Koro Creek. Therefore, the second respondent
still owns 200 erven in the first phase.
[7]
In terms of the Articles and the Memorandum, the directors of the
first respondent shall from time to time impose levies upon
the
members for the purpose of meeting all the financial obligations of
the company.
[8]
Article 5.2 of the Articles provides as follows;
““
The
members, save for the owner or owners of the property who shall have
no liability in this regard, shall be liable in respect
of any levy
made in terms of Article 5.1 in equal shares, ...” [my
emphasis]
[9]
The parties are ad idem that the article means that it is the
developer that is excluded from the payment of levies. “[T]he
owner of the property” can only mean the owner of the total
undeveloped property prior to the subdivision into erven. That
is the
developer.
[10]
The oppressive conduct that the applicants complain of is that the
first respondent does not require the second respondent,
which is
also a member, to pay levies in respect of the erven not yet sold.
This places a heavier burden on the other members.
[11]
It was argued on behalf of the applicants that it was the clear
intention of the parties that this would only prevail during
the
“development period”, which is defined as: “the
period from the incorporation of the company until the developer
ceases to be the registered owner of more than 50% of the erven. ”
The
second respondent denies that the exemption only applies during the
development period.
[12]
I can find nothing in the Articles that point to such a "clear
intention”. Reference to the development period is
made in
several articles, but in each instance the aim is to ensure that the
developer retains control of the affairs of the company
during the
development period.
[13]
The following clauses make provision for the rights of the developer
during the development period:
[13.1]
Article 4, which reads as follows:
“
4.
MEMBERS
4.1
The following persons shall be the first members of the company
4.1.1
During the development period 6 nominees of the developer who are
registered owners of the land; and
4.1.2
any person, including the developer, who is the registered owner of
the land.”
“
[T]he
land” is defined as:
“
any
Erf on the property, or any approved subdivided portion thereof
excluding the streets.”
The
significance of the six nominees of the developer escapes me. These
nominees must be owners of “the land” and therefore
qualify for membership in terms of 4.1.2 in any event. Any other
person who is the registered owner of the land is also a member
in
terms of 4.1.2, even during the “development period”.
Article
4.6 provides that the developer shall cease to be a member when it is
no longer the registered owner of any erven. In terms
of Article 4.5,
the same applies to any other member.
[13.2]
Article 13.3 provides for a quorum at meetings of members and
provides as follows:
“
13.3.1
during the development period, seven members, of whom one members
shall be a nominee of the developer, personalty present
and entitled
to vote;
13.3.2
after the development period, members representing 25% of the total
number of stands, personally present and entitled to
vote. Provided
that there shall never be less than seven members present in person.”
[13.3]
Article 14.1 deals with voting rights of developer at meetings of the
company and provides in 14.1.2 that the developer shall;
“
14.1.2.1
during the development period, have the same number of votes as there
is the number of members in the company, excluding
the developer, in
addition to the vote conferred upon the developer in terms of Article
14.1.1;
14.1.2.2
after the development period, one vote for each portion of land or
Erf still registered in its name.”
[13.4]
Article 15 provides for the number of directors of the company and
sub-article
15.1.2
provides that;
“
During
the development period the developer shall be entitled to appoint
seven directors on written notice to the company and, on
similar
written notice, to remove and replace any such directors.”
[13.5]
Article 21 deals with proceedings of directors. Sub-article 21.7
provides that during the development period not less than
2 of
directors required to constitute a quorum shall be directors
appointed by the developer.
[14]
There is nothing in the articles that limits the developer’s
exemption from paying levies to the development period.
The only
significance of the “development period" seems to be that
during the period, the developer controls the first
respondent
through the measures specified above. After the development period
control of the company shifts the members who have
become owners of
erven. I therefore disagree with the applicant that the special
dispensation for the developer in respect of the
payment of levies
was intended to prevail only during the development period. After the
development period, the members of individual
erven may amend the
Memorandum in any way they can achieve through their voting power.
THE FACTUAL BACKGROUND
[1]
The first respondent filed an affidavit, but indicated therein that
it does not oppose the application. The affidavit, according
to the
deponent, aims to place the first respondent’s actions or
inactions in perspective. The first respondent further asks
that the
contents of the affidavit be considered when the court exercises its
discretion in making a costs order. The deponent
states that the
first respondent had considered amending the Articles to make
provision for the payment of levies by all members,
including the
developer. However, it decided against it because an amendment of the
Articles required a special meeting convened
for that purpose at
which 75% of members vote in favour of the amendment. The second
respondent controlled, according to the deponent,
43% of the votes,
so that it would be in the position to block any amendment. The first
respondent further wished to maintain a
good relationship with the
developer.
Application to strike out
[2]
In the second respondent’s answering affidavit, the deponent
states that whatever the position might have been in terms
of the
Articles, the situation has been put to rest by the adoption of the
Memorandum at the first respondent’s Annual General
Meeting
(AGM) held on 23 June 2012. (This was after the founding affidavit
had been deposed to and this application had been launched).
The
notice of the AGM included the following:
“
4.
MEMORANDUM OF INCORPORATION
4.1
In consequence of the new
Companies Act (Act
71 of 2008) (“the
Act”), the company’s current Articles need amendments to
comply with the requirements of the
Act.
4.2
A copy of the concept Memorandum of Incorporation is attached and
Members are required to file their written proposals, if any,
before
12h00 on Wednesday, 20 June 2012 at the offices of the HOA. To assist
Members in this regard, they can contact Bennie Burger
at... [Bennie
Burger is the attorney of the first respondent]
4.3
The following resolution is required:
Resolution:
That the Company’s current Articles be replaced with the
Memorandum of Incorporation, attached as Addendum “A””
[3]
The amended Memorandum contains (clause11 of Part E of Schedule 1)
that reads as follows:
“
The
members, save for the developer who shall have no liability in this
regard, and owners of sectional title units within then
development
who shall be levied in terms of paragraph 12 hereof, shall be liable
in respect of any levy made in equal shares ...”
The
resolution was adopted by a vote of 36 against 2. The second
respondent abstained from voting and thus did not utilise the block
of votes it had in accordance with the number of erven it still
owned. It was therefore carried by a majority of members other
than
the developer. The clause is not a new provision. It simply removes
any uncertainty that might have existed in Article 5.2.,
mentioned
above. It makes it clear that the party exempted from paying levies
is the developer.
[18]
The adoption of the Memorandum was first revealed in the second
respondent’s answering affidavit. In fact it took place
after
the application had been launched and the founding affidavit deposed
to. This prompted the applicant to amend its Notice
of Motion to
incorporate a prayer for an order directing the first respondent to
amend its Memorandum in order to reflect that
the developer is liable
to pay levies and to attempt to make out a case in its replying
affidavit for such relief. It is trite
that an applicant must make
out its case in its founding affidavit and not make out a new case in
its replying affidavit. The second
respondent accordingly applied for
the striking out of the offending paragraphs. I do not find it
necessary to deal with each paragraph
sought to be struck out. It is
in essence all the paragraphs dealing with the allegations regarding
the adoption of the Memorandum
of Incorporation.
[19]
The new matter set out in the Replying Affidavit and the amendment of
the Notice of Motion were clearly caused by new developments
and the
information brought to light in the answering affidavit. It may, in
the discretion of the court be allowed. This is a case
where the
court should permit the applicant to amend its notice of motion and
to make out a case for the new relief sought. The
second respondent
has in any event filed a Duplicating Affidavit dealing with the
allegations made in the Replying Affidavit. This
obviates the need to
consider the striking out of the impugned parts of the Replying
Affidavit.. I allowed the second respondent
to file such an
affidavit.
[20]
I shall therefore decide the case on all the material before me.
THE AMENDED MEMORANDUM
[21]
The issue of the exemption of the developer to pay levies first
became contentious on 30 April 2010. It was raised per letter
by the
first applicant, through his attorney, in which he enquired from the
first respondent whether there existed an agreement
with the second
respondent that the second respondent would not pay levies. The first
respondent replied that no such agreement
existed. The first
applicant’s attorney then enquired as to the reason why the
second respondent did not pay levies. The
first respondent’s
attorney replied on 3 June 2010 and referred the first applicant’s
attorney to Article 5.2 which
exempts the developer from paying
levies. The matter was then raised at the first respondent’s
Annual General Meeting of
1 May 2010. The minutes reflect that the
meeting had decided that it was a matter between the first applicant
and the developer
and was not to be discussed at the meeting. The
deponent to the founding affidavit says that the issue had been
“brushed
aside” The second respondent denies this and
says that it had not been on the agenda and that it was not an issue
that could
be discussed and decided without it being placed on the
agenda with a motivation. Annual General Meetings were held in 2011
and
on 23 June 2012 without the applicants or any other members
raising it.
[22]
The first applicant admits that the Memorandum had been adopted by a
vote of 36 to two. He admits that proper notice had been
given of the
meeting, that the adoption of the Memorandum had been on the agenda,
and that a copy of the proposed Memorandum had
been attached to the
notice. He says, however, that no mention was made of the proposed
clause 11 of Part E of Schedule 1, which
specifically excludes the
developer from the payment of levies. As a lay member, as in the case
of other lay members, he had merely
glanced at the proposed
Memorandum and accepted that the substitution of the Articles was a
mere technical requirement of the Act.
The first applicant did not
attend the AGM. However, he attached a confirmatory affidavit by a
certain Mr Jacob Stolp who had attended
the meeting. He said that at
the meeting, Mr Bennie Burger, a director of the first respondent and
attorney of the first respondent,
made a presentation of about 30
minutes explaining the reasons for the proposal to adopt the
Memorandum, but that he made no mention
of the impugned clause. He
further said that Mr Burger had mentioned that there had been a
dispute between the developer and an
owner of erven in Koro Creek,
but said that the first respondent would abide by any court order as
it did not wish to become involved
in a dispute between neighbours.
It is not stated explicitly, but the dispute to which Mr Burger
referred is probably the dispute
which is the subject matter of this
application.
[23]
According to the first applicant, supported by Mr Stolp, the first
and second respondent had “sneaked” the new
clause into
the Memorandum.
[24]
It is difficult to accept this contention. The Memorandum did not
change the meaning of Article 5.2. It merely clarified it.
It
maintained the status quo. It must be remembered that the applicants’
contention is not that the Article 5.2 obliges the
second respondent
to pay levies, but rather that that the exemption applied only during
the development period. As I have said,
there is nothing in the
Articles that limits the exemption to that period.
[25]
The correct course of action for the applicants to compel the second
respondent to pay levies is to place the issue on the
agenda of a
general meeting of members, to debate it and to vote for an
appropriate amendment of the Memorandum. The members who
have
purchased erven now represent a majority of the members. In terms of
s 16(1 )(c)(ii) of the Act, the memorandum of incorporation
of a
company may be amended by special resolution if it is adopted at a
shareholders meeting. S 1 of the Act defines “special
resolution” as
“
(a)
In the case of a company, a resolution adopted with the support of at
least 75% of the voting rights exercised on the resolution,
or a
different percentage as contemplated in section 65(1)—
(i)
At a shareholders meeting, or
(ii)
...”
[26]
Article 3.8 (2) of the amended Memorandum of Incorporation has, in
accordance with s 65(1) of the Act, determined a different
percentage
for the adoption of a special resolution, namely 65%. At the time of
the signing of the founding affidavit, the developer
still con-
trolled 43% of the votes and the other members 57%. Assuming that the
percentages are the same by the time of such a
meeting of members,
and assuming that the developer exercises its full voting power in
opposition to such an amendment, and all
the other members vote in
favour of the amendment, the proposal would be defeated. Of course,
the situation will change as more
erven are sold and the members who
have purchased erven will in due course command sufficient votes to
enforce the amendment.
[27]
The question before me is whether the situation as described above
constitutes oppressive conduct on the part of the first
respondent,
justifying an order directing the first respondent to amend its
Memorandum to reflect that the developer is liable
to pay levies
SECTION 163
OF THE
COMPANIES ACT, 71
OF 2008
[28]
The section provides as follows:
"163
Relief from oppressive or prejudicial conduct or from abuse of
separate juristic personality
1
of company
(1)
A shareholder or a director of a company may apply to a court for
relief if—
(a)
any act or omission of the company, or a related person, has had a
result that is oppressive or
unfairly
prejudicial to, or that unfairly disregards the interests of, the
applicant;
(b)
the business of the company, or a related person, is being or has
been carried on or conducted in a manner that is oppressive
or
unfairly prejudicial to, or that unfairly disregards the interests
of, the applicant, or
(c)
the powers of a director or prescribed officer of the company, or a
person related to the company are being or have been exercised
in a
manner that is oppressive or unfairly prejudicial to, or that
unfairly disregards the interests of, the applicant.
(2)
Upon considering an application in terms of subsection (1), the court
may make any interim or final order it considers fit,
including—
(a)
An order restraining the conduct complained of;
(b)
An order appointing a liquidator, if the company appears to be
insolvent;
(c)
An order placing the company under supervision and commencing
business rescue pro
ceedings
in terms of Chapter 6, if the court is satisfied that the
circumstances set out in
section 131
(4) (a) apply;
(d)
An order to regulate the company’s affairs by directing the
company to amend its Memo-
randum
of Incorporation or to create or amend a unanimous shareholder
agreement;
(e)
An order directing the issue of exchange of shares;
(f)
An order—
(i)
appointing directors in place of or in addition to all or any of the
directors then in office; or
(ii)
declaring any person delinquent or under probation, as contemplated
in
section 162
;
(g)
an order directing the company or any other person to restore to a
shareholder any part of the consideration that the shareholder
paid
for shares , or pay the equivalent value, with or without conditions;
(h)
an order varying or setting aside a transaction or an agreement to
which the company is a party and compensating the company
or any
other party to the transaction or agreement;
(i)
an order requiring the company, within a time specified by the court,
to produce to the court or an interested person financial
statements
in a form required by this Act, or an accounting in any other form
the court may determine;
(j)
an order to pay compensation to an aggrieved person, subject to any
other law entitling that person to compensation;
(k)
an order directing rectification or the registers or other records of
a company, or (I) an order for the trial of any issue
as determined
by the court.
(3)
if an order made under this section directs the amendment of the
company’s Memorandum of Incorporation—
(a)
the directors must promptly file a notice of amendment to give effect
to that order, in accordance with section 16 (4); and
(b)
no further amendment altering, limiting or negating the effect of the
court order may be made to the Memorandum of Incorporation,
until a
court orders otherwise.”
[29]
I have quoted the full section in order to demonstrate the wide
powers of the court in applications of this nature. The power
that
the applicants seek this court to exercise is the one set out in s
16(2)(d), namely an order to regulate the company’s
affairs by
directing the company to amend its Memorandum of Incorporation.
[30]
S 163 is the successor of s 252 of the old
Companies Act, but
it is
not identical. Both refer to acts or omissions that have certain
results. The results of the alleged acts or omissions are
described
in different terms, but their meanings are essentially similar.
S252
uses the words “unfairly prejudicial, unjust, or inequitable”
while
s 163
uses the words, “oppressive”, “unfairly
prejudicial” and “unfairly disregards the interests of
the
applicant." The heading to
s 252
also uses the word
“oppressive” but it does not appear in the section
itself.
S 163
sets out the nature of the orders a court may make in
the event of such conduct and it includes an order an order to
regulate the
company’s affairs by directing the company to
amend its Memorandum of Incorporation or to create or amend a
unanimous shareholder
agreement. (Sub-section (2) (d)).
HAVE THE APPLICANTS ESTABLISHED
OPPRESSIVE CONDUCT?
[31]
The question before me is whether the omission of the first
respondent to impose levies on the second respondent is oppressive,
prejudicial or that it unfairly disregards the interests of the
applicant. It could also be argued that the alleged “sneaking-in”
of the new Clause 11 of Part E of Schedule 1 into the Memorandum is
an act that constitutes oppressive conduct.
[32]
The applicants set out the degree to which the monthly levies imposed
on them and other owners of erven have increased over
the years. They
have increased from R500 to R990 per erf. They contend that these
levies are almost double of what they could have
been had the
developer also paid levies.
[33]
The second respondent, at the time of the signing of the Founding
Affidavit owned 200 erven. Its monthly liability for levies,
had it
been obliged to pay them, would on that basis amount to R198 000. It
cannot be established from the papers whether the second
respondent
can afford such a liability.
[34]
The second respondent contends in the Answering Affidavit, that it
had incurred huge capital expenditure in the development
of Koro
Estate which it has to protect. The applicants, on the other hand,
state that they agree that this is the case, but that
the capital
expenditure had already been incurred and that there is no reason why
the second respondent should continue to enjoy
the exemption after
the development period.
[35]
I am not convinced that the applicants’ contention in this
regard holds water. It may well be that the second respondent
has
already done the development, but that does not mean that it has
recouped its investment. It derives its profits from the selling
of
the unsold erven. However, if that is offset by huge levy
obligations, it may not be able to do so. The second respondent’s
liability will of course decrease as it sells more erven to members
of the public. At the same time the members who purchased erven
will
gain more voting power and will eventually command sufficient votes
to force and\ amendment of the Memorandum.
[36]
It was held in the unreported judgment by Murphy J in The Wilds Home
Owners Association & Others v Van Eeden & Others,
Case No.
53643/09 that the amending of the articles (or memorandum of
incorporation) of a company should only be ordered as a last
resort.
The articles (and the memorandum) are the contract bringing about the
association and the basis for the members doing business
together. By
becoming a shareholder (or member) in a company a person agrees to be
bound by the decisions taken in accordance with
the provisions and
prescriptions of the articles or memorandum. A court accordingly
should be loath to re-write the bargain struck
between the members
with each other, especially where the impetus to do so is at the
instance of a minority who think that the
terms of the agreement are
unfair or no longer in their interests. The articles or memorandum
may be changed by a special resolution,
which can only be carried by
the prescribed majority of members.
[37]
Any unfairness or oppression, if such exists, is of limited duration.
The members who have purchased erven are already close
to the
required 65% majority. If there is support for their case, they
should in the near future have the necessary votes to amend
the
Memorandum.
[38]
I therefore find that the applicants have failed to make out a case
for the relief they seek.
In
the result, the application is dismissed with costs.
J.
HIEMSTRA
ACTING
JUDGE OF THE HIGH COURT
Date
heard: 19 November 2012
Date
of judgment: 12 December 2012
Counsel
for the applicant: Adv J.G. Bergentuin SC
Attorney
for the applicant: Abel Muller & Son, c/o Ross & Jacobsz
Counsel
for the respondent: Adv M.P. Van der Merwe
Attorney
for the respondent: J.C. Grobler St Burger Attorneys
1
“the abuse of separate juristic personality” in the
heading to the section is a relic of the wording of the section
before it was amended by the
s 102
of the
Companies Act Amendment
Act 3 of 2011 .Before its amendment, subsection (4) dealt
specifically with abuse of the separate juristic personality of a
company. That subsection has been deleted. The retention of the
words in the heading is clearly an oversight.