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[2012] ZAECELLC 10
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Kriel and Another v Kriel and Others (EL: 169/2012, ECD: 469/2012) [2012] ZAECELLC 10 (18 May 2012)
11
IN THE HIGH COURT OF
SOUTH AFRICA
(EASTERN CAPE
DIVISION – EAST LONDON)
Case no: EL: 169/2012
ECD: 469/2012
Date Heard: 15/05/2012
Date Delivered:
18/05/2012
In the matter between:
ANTHONY JOHN KRIEL
….................................................
1
ST
PLAINTIFF
EDEN BRUCE KRIEL
…......................................................
2
ND
PLAINTIFF
And
GEOFFREY COLIN KRIEL
….............................................
1
ST
DEFENDANT
COLIN GRAHAM KRIEL
…...............................................
2
ND
DEFENDANT
ROGER CHARLES KRIEL
….............................................
3
RD
DEFENDANT
MRS ERLEEN ERNA
KRIEL
…..........................................
4
TH
DEFENDANT
GLEN EDEN HOLIDAY
RESORT CC
…...............................
5
TH
DEFENDANT
JUDGMENT
SMITH J:
[1] The Plaintiffs
instituted action against the Defendants for an order,
inter alia,
in the following terms:
That the First
Defendant be directed to provide to the Plaintiffs full financial
statements, records and accounts (including management
accounts, and
verifying and supporting documentation and vouchers) in respect of
the business of the Fifth Defendant for all
relevant years of its
operation while he was manager thereof;
Debatement of such
accounts;
(c) That, after
debatement of such accounts, the First Defendant pay to the
Plaintiffs (and to the Second and Third Defendants)
such sum as is
determined to be the value of the parties’ respective 20%
interest in the Fifth Defendant, in respect of accrued
funds that
should have been distributed to members.
[2] The Plaintiffs,
together with the First, Second and Third Defendants are all members
of a close corporation, namely Glen Eden
Resorts CC (the Fifth
Defendant) and each hold 20% financial interest therein.
[3] The substantive
relief is sought against the First Defendant only and the other
Defendants have been cited as interested parties
only.
[4] The First, Second
and Third Defendants have excepted to the Plaintiff’s
particulars of claim on the basis that they do
not disclose a cause
of action. The Defendant’s exception is founded on the
assertion that members of a close corporation
have no entitlement in
law to enforce obligations owed by an employee of a close corporation
to that entity and that such obligations
may only be enforced by the
employer, being the close corporation. The First Defendant, as
employee of the Fifth Defendant, is
therefore by law not liable to
account to the Plaintiffs or any other members of the close
corporation other than in accordance
with the provision of s.49 or
s.50 of the Close Corporations Act, no 69 of 1984 (“the
Close
Corporations Act&rdquo
;).
[5] The Plaintiffs seek
the relief against First Defendant on the basis of the following
factual averments:
(a) At all material
times since 2004 the First Defendant had been employed by the Fifth
Defendant as manager thereof and that he
in this capacity (together
with his wife) controlled the daily business affairs of the Fifth
Defendant, including receipting of
income from its various business
sites;
(b) The First Defendant
and his wife had been paid a monthly salary by Fifth Defendant in
respect of the aforesaid services;
In his aforesaid
capacity the First Defendant and his wife had full and sole control
of the records of income generated by the
Fifth Defendant and
expenses incurred by Fifth Defendant with regard to, amongst others,
maintenance and salaries. The First
Defendant also had full control
of the books of accounts of the Fifth Defendant;
The members of the
Fifth Defendant had agreed, during December 2008, to scale down and
eventually cease the Fifth Defendant’s
business at the end of
February 2009;
(e) The Plaintiffs have
on various occasions after the termination of the Fifth Defendant’s
commercial activities, during
2010 and 2011, requested the First
Defendant to provide full and proper accounting in respect of his
management of the Fifth Defendant.
This was required in order to
enable Plaintiffs to assess the veracity of accounting and to
determine the value of their members’
interest and payments to
be made to them;
(f) During 2011 the
Plaintiffs were informed by a chartered accountant, one Mr Van Wyk,
that the accounting records of the Fifth
Defendant (which have been
provided to him by the First Defendant) were inappropriate and
incomplete and that it appeared there
were accounting anomalies,
including invalid expenses which may have been deducted from the
Fifth Defendant’s account. Mr
Van Wyk also advised that a more
extensive examination of the books and records was required in order
to determine the Fifth Defendant’s
true financial position
during the period of First Defendant’s management thereof;
(g) The Plaintiffs
subsequently called upon First Defendant to provide a full and
comprehensive account of the financial activities
of the Fifth
Defendant and to provide management accounts, financial statements
and other appropriate financial data and bookkeeping
information to
enable the Plaintiffs to verify the profit generated by the Fifth
Defendant for the financial years ending in February
2005, 2006,
2007, 2008 and 2009 and to enable them to verify the amounts due to
them and the other members of the Fifth Defendant;
and
(h) Notwithstanding due
demand the First Defendant has failed and/or refused to provide the
Plaintiffs with the required information
and documentation.
[6] A plaintiff is
required, in terms of Rule 18(4) of the Uniform Rules of Court, to
provide a “
clear and concise statement of the material
facts’
” upon which he or she relies for his or her
claim. Additionally in terms of Rule 20(2) a plaintiff is required to
state in
the declaration:
“
the
nature of the claim, the conclusions of law which the Plaintiff shall
be entitled to deduce from the facts therein, and a prayer
for the
relief claimed.”
[7] A plaintiff is
therefore required to clearly and concisely state the material facts,
or
facta probanda,
which he or she will have to prove in due
course in order to succeed with his or her claim. Where a plaintiff
relies on a particular
statute it is not necessary to refer to that
statute in the particulars of claim but he or she must aver such
facts as may be necessary
to justify a conclusion that the provisions
of the statute apply. (
Fundstrust (Pty) Ltd (In liquidation) v Van
Deventer 1997 (1) SA 710 (A) at 725H-I.)
[8] A plaintiff seeking
an order for the rendering of accounts, debatement thereof and
payment of monies found to be owing and payable,
must provide a
factual basis for the conclusion that the right to such accounting
exists either on the basis of a fiduciary relationship
or a
contractual obligation. (
Philips v Fieldstone Africa 2004 (3) SA
465 (SCA)
and
Doyle and another v Fleet Motors PE (Pty) Ltd
1971 (3) SA 760
at 762B-763D.)
[9] Mr
De La Harpe,
who appeared on behalf of the Defendants, submitted that the
Plaintiff has failed to provide a factual basis for such a conclusion
and has failed to plead the necessary facts which, on a reasonable
interpretation of the pleading, would place their claims within
the
ambit of either
s.49
or s.
50
of the
Close Corporations Act.
[10
] Mr
Cole,
who
appeared for the Plaintiffs, conceded that the Plaintiffs’
entitlement to the relief which they seek is limited to the
remedies
provided in the afore-mentioned statutory provisions.
[11] The crisp issue
which falls for decision is therefore whether, on a reasonable
interpretation of the factual averments contained
therein, the
Plaintiffs’ particulars of claim can be brought within the
ambit of either
s. 49
or
s. 50
of the
Close Corporations Act. The
answer to this question will determine whether or not the Plaintiffs
have set out sufficient and relevant facts in their particulars
of
claim to sustain a cause of action.
[12]
Section 49
of the
Close Corporations Act provides
as follows:
“
49. Unfairly
prejudicial conduct
(1) Any
member of a corporation who alleges that any particular act or
omission of the corporation or of one or more
other members is
unfairly prejudicial, unjust or inequitable to him or her, or to some
members including him or her, or that the
affairs of the corporation
are being conducted in a manner unfairly prejudicial, unjust or
inequitable to him or her, or to some
members including him or her,
may make an application to a Court for an order under this section.
(2) If
on any such application it appears to the Court that the particular
act or omission is unfairly prejudicial, unjust
or inequitable as
contemplated in
subsection
(1)
, or that the corporation’s affairs are being conducted
as so contemplated, and if
the
Court considers it just and equitable, the Court may with a view to
settling the dispute make such order as it thinks fit, whether
for
regulating the future conduct of the affairs of the corporation or
for the purchase of the interest of any member of the corporation
by
other members thereof or by the corporation.
[13] It is in my view
significant that subsection 1 refers to “
an application to a
Court”
whereas
s. 50
provides that;
“
A
member may institute proceedings in respect of any such liability”.
[14] The provisions of
s.49
are therefore in my view not susceptible to an interpretation
that the term “
application
” refers to all forms of
legal proceedings. The fact that a more general term has been used in
s. 50
, can only mean that the legislature intended to limit legal
proceedings in terms of
s. 49
to motion proceedings only, in order to
facilitate expeditious resolution of disputes between members. This
in my view presents
an insurmountable hurdle to the Plaintiffs’
in their attempt to rely on this section.
[15] Even if I am wrong
in this regard, I am of the view that the Plaintiffs have failed to
plead the facts necessary to place themselves
within the ambit of
this section.
[16] The jurisdictional
facts that must be pleaded to justify an order in terms of this
section are:
(a) that the impugned
act is “
unfairly prejudicial, unjust or inequitable
”
to the member; or that
(b) the affairs of the
corporation are conducted in a manner which is “
unfairly
prejudicial, unjust or inequitable
” to the members seeking
the order;
(c) that the nature of
the relief sought is to remedy the matters complained; and
(d) it is just and
equitable that such relief be granted.
[17] Although it would
be unduly restrictive to insist on the exact wording of the statute
to be used in pleadings, I am unable
to find any factual averment
even remotely suggesting that the Plaintiffs were relying on this
statutory provision and that they
were therefore entitled to deduce
this conclusion of law from the facts stated in their particulars of
claim.
[18] The relevant
portions of
s. 50
read as follows:
“
50. Proceedings
against fellow-members on behalf of corporation
Where a member or a
former member of a corporation is liable to the corporation—
…
(
b
) on account
of—
the
breach of a duty arising from his or her fiduciary relationship to
the corporation in terms of
section
42
; or
negligence
in terms of
section
43
,
any
other member of the corporation may institute proceedings in respect
of any such liability on behalf of the corporation against
such
member or former member after notifying all other members of the
corporation of his or her intention to do so
.”
[19] A plaintiff
relying on this provision has to plead:
(a) a breach of a
fiduciary duty owed to the corporation in terms of
s. 42
; or
(b) negligence in terms
of
s. 43
; and
(c) that he or she has
notified all other members of his or her intention to institute legal
proceedings.
[20] I am similarly
unable to find any factual averments in the Plaintiffs’
particulars of claim which can be construed to
suggest that they were
relying on an alleged breach of a fiduciary duty, and if so, what
duty the First Defendant was alleged to
have breached. They have also
not averred that they have given due notice to other members of their
intention to institute the
proceedings in terms of
s. 50
, as is
required by the said section. The factual averments all relate to the
alleged conduct of the First Respondent in his capacity
as employee
and manager of the corporation.
[21] The Plaintiffs
face another difficulty in their attempt to bring their claims within
the ambit of this section.
Section 50
envisages that the legal
proceedings should be brought by a member “
on behalf of the
corporation”
. The Plaintiffs do not purport to bring the
proceedings on behalf of the corporation but in their individual
capacities as members
thereof. Nowhere is it averred that the First
Defendant is in breach of his fiduciary duties to the Fifth
Defendant. The particulars
of claim are in my view therefore also not
susceptible to the interpretation that the claims are based on the
provisions of
s.50.
[22] Mr Cole’s
reliance on the judgment of Plasket J in the
Price v Van Zyl and
Others
(unreported Case no 366/2004 delivered on 2 December 2004)
is in my view misplaced. In that matter the plaintiff sought the
relief
on the basis of an allegation that the defendant’s
conduct constituted a breach of the terms of the shareholders’
agreement.
The issue which the learned judge was called upon to
decide was therefore whether the shareholders’ agreement
created a fiduciary
relationship between the parties, either
expressly or impliedly through the operation of law. The issue which
falls for decision
in this matter is whether or not the Plaintiffs’
particulars of claim contain the relevant factual averments required
to
bring them within the ambit of either of the abovementioned
statutory provisions, it being common cause that these statutory
provisions
provide the only legal bases for the relief sought by the
Plaintiffs.
[23] For these reasons
I am of the view that the Plaintiffs have failed to set out
sufficient factual averments in their particulars
of claim to justify
the conclusion that they have placed reliance on the provisions of
either
s. 49
or
s. 50
, or both.
[24] I am therefore of
the view that the Plaintiffs’ particulars of claim do not
contain sufficient factual averments to sustain
a cause of action and
that the exception must therefore succeed.
[25] In the result the
exception is upheld and the Plaintiff’s claims are dismissed
with costs.
_______________________
J.E SMITH
JUDGE OF THE HIGH
COURT
Appearances
Counsel for the
Plaintiff : Advocate Cole
Attorney for the
Plaintiff : Russell Incorporated
10 Rochester Road
Vincent
EAST LONDON
Ref: Mr B SPARGS/Jo-Ann
Counsel for the
Defendant : Advocate De La Harpe
Attorney for the 1
st
and 2
nd
: Drake Flemmer and Osmond
Defendants Tewkesbury
House
22 James Road
SOUTHERNWOOD
EAST LONDON
Ref: AJ
Pringle/vsk/K194
Date Heard : 15 May
2012
Date Delivered : 18 May
2012