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[2011] ZAKZPHC 38
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Aerterno Investments 215 (Pty) Ltd v Galaxy Minerals (Pty) Ltd and Others (15527/08) [2011] ZAKZPHC 38 (13 May 2011)
1
IN THE HIGH COURT OF
SOUTH AFRICA
KWAZULU-NATAL
PIETERMARITZBURG
C
ase
No 15527/08
In the matter between
AERTERNO INVESTMENTS 215 (PTY) LTD
…..............................................................
PLAINTIFF
And
GALAXY MINERALS (PTY) LTD
….......................................................................
1
ST
DEFENDANT
HONG WEI QU
…...................................................................................................
2
ND
DEFENDANT
THE REGISTRAR OF DEEDS,
KWAZULU-NATAL
….........................................
3
RD
DEFENDANT
____________________________________________________________________________
JUDGMENT
MURUGASEN, J.
Introduction
[1] The plaintiff herein seeks an
order declaring an agreement of sale of immovable property binding on
the parties thereto and
directing that the transfer of the property
be registered. In the alternative the plaintiff seeks an order
against the first and
/or second defendant for repayment of the
purchase price in the sum of one million rand (R1 000 000),
interest thereon
and costs.
The Parties
[2] On 10 December 2006, the
plaintiff, Aerterno Investments 215 (Pty) Ltd Registration No:
2006/23780/07 and the first defendant,
Galaxy Minerals (Pty) Ltd
Registration No: 1993/001625/07 entered into a written agreement of
sale (‘the agreement’)
of immovable property described as
Lot 23 Umfolozi No.13734 Registration Division GU Province of
KwaZulu-Natal in extent 129, 6143
(One Hundred and Twenty Nine Comma
Six One Four Three) Hectares held by the first defendant under Deed
of Transfer No. T18095/93
(‘the property’).
[3] During the negotiation and
conclusion of the agreement, the plaintiff was represented by Ranjini
Naicker and its duly authorised
representative, Rugunathan Naicker
while the first defendant was represented by the second defendant,
Hong Wei Qu, who acted as
the agent of the first defendant by virtue
of a special power of attorney dated 8 May 2002.
The third defendant, the Registrar of
Deeds Kwazulu-Natal, is a party to the action by virtue of the
interdict registered over the
property by the first defendant and the
relief sought by the plaintiff. The third defendant abides the
decision of the court.
The Plaintiff’s Cause of
Action
[4] The plaintiff complied with all
its obligations in terms of the agreement and paid the full purchase
price of R1 million (one million rand)
to the second defendant by 9 June 2008. A material term of
the agreement was that the transfer of
the property would be effected by the first defendant’s
attorney upon compliance by the
plaintiff with its obligations under and in terms of the agreement
[
5]The first defendant has however
repudiated the agreement and refused to effect transfer of the
property to the plaintiff. Further,
pursuant to an application by the
first defendant, the third defendant registered an interdict against
the property, in terms of
which the third defendant may not register
the transfer of the property or any mortgage bond over it or any
other deed encumbering
the property, until the interdict was
cancelled by an order of court. The first defendant has refused to
uplift the interdict in
order to facilitate the registration the
transfer of the property into the name of the plaintiff.
[6]The plaintiff therefore seeks an
order compelling the first defendant to comply with its obligations
to effect transfer of the
property to the plaintiff and directing the
third defendant to uplift the interdict and register the transfer.
Plaintiff’s Alternative
Claim
[7] The plaintiff alleges that it has
effected payment of the full purchase price in the sum of R1 million
rand to the second defendant,
in his capacity as duly authorised
agent of the first defendant, in the
bona fide
and reasonable
belief that there was a valid written agreement, in terms of which
the transfer of the property would be effected
to the plaintiff by
the first defendant. However as a result of the repudiation of the
agreement by the first defendant, the first
defendant alternatively
the second defendant alternatively both defendants have been unjustly
enriched at the expense of the plaintiff
in the sum of R1 000 000
(one million rand) and are obliged to compensate the plaintiff in the
aforesaid sum which they have refused
to do.
[8] The plaintiff seeks therefore, in
the alternative, judgment against the first defendant alternatively
the second defendant alternatively
both defendants, the one paying
the other to be absolved, for payment in the sum of R1 000 000(one
million rand), interest thereon
a tempora mora
, calculated
from the date of service of summons, alternatively from other such
date as the court deems fit to date of payment at
the rate of 15.5%
per annum; and costs.
The Defence
[9] The action is opposed by the first
and second defendants.
The first defendant denies that the
power of attorney on which the plaintiff relies was executed by Kuk
Siu Wah (‘Kuk’
), and contends that what is purported to
be Kuk’s signature on the power of attorney is a forgery. It is
contended further,
that Kuk had no authority to bind the first
defendant as set out in the power of attorney, that the directors and
the shareholders
of the first defendant had not resolved to sell the
property nor authorized anyone to do so on its behalf. Consequently
as the
second defendant did not have any authority to represent the
first defendant in concluding the agreement, there was no valid
agreement
between the plaintiff and the first defendant.
The first defendant contends further
that payments made to the second defendant did not constitute payment
to the first defendant
and that the second defendant had not acted on
its behalf in receiving any payments from the plaintiff; it therefore
denies that
it has been enriched by any payment made by the plaintiff
for which it is obliged to compensate the plaintiff.
[10] The second defendant did not file
a plea although he was represented during the trial. However at the
recommencement of the
trial on the 15 November 2010, the second
defendant filed a notice in terms of which he indicated that he did
not oppose the relief
sought by the plaintiffs and elected to abide
the decision of the court.
Summary of Facts
[11] The following was common cause:-
The property was owned by the first
defendant.
The agreement of sale for the
property was concluded on 10 October 2006 by the plaintiff and the
second defendant acting on the
ostensible authority granted to him
in terms of the special power of attorney executed on 8 May 2002.
The plaintiff was given possession
and occupation of the property in terms of paragraphs 4 and 8 of the
agreement.
The purchase price was paid in full
by the plaintiffs to the second defendant or his wife at his
request. In paragraph 32 of page
101 of exhibit E the second
defendant admits that the R1 million rand paid as purchase price for
the property was ‘consumed’.
The evidence of Devaranjinie Naicker
and Ruganathan Naicker in respect of the payment of the purchase
price as supported by the
proof of payment as contained in Exhibit D
remained uncontroverted.
Kuk had visited South Africa and the
property in 2002, during the period when the special power of
attorney was allegedly executed.
The directors of the first defendant
as at the date of the agreement, 10 October 2006, were Yin Ping Cook
and Siu Wah Kuk. Kuk
was also the chief officer.
The sole shareholder in the first
defendant as from 4 November 1997 is Forest Eight Limited.
The sole shareholder in the Forest
Eight Limited is Yin Ping Cook, who is also the director thereof.
According to the Cipro records, the
second defendant resigned as director of the first defendant on 13
February 2006.
An interdict prohibiting the transfer
of the property is registered over the property.
The Plaintiff’s Case
[12] The plaintiff relied on the
evidence of an expert, and the parties who represented the plaintiff
in the sale to prove that
the agreement was a valid and binding
document.
Mr Michael J Irving (Irving), a
forensic document examiner testified that from a signature analysis
he conducted of the signature
purportedly that of Kuk (‘the
disputed signature’) on the Special Power of Attorney and Kuk’s
undisputed signatures,
he concluded that the signature on Special
Power of Attorney was the original and authentic signature of Kuk. He
conceded however
that in creating the comparative chart he had used
copies of documents, and the utilization of copies of signatures on
these documents
was not the ideal situation.
Irving was a clear and coherent
witness. His expertise was apparent from the manner in which he
explained the process he had employed
in arriving at his conclusion.
He was also an independent witness with no interest in the outcome of
the dispute. His evidence
remained uncontroverted despite his
concession that the documents he examined were copies.
[13] Devaranjinie Naicker (‘Naicker’),
the director of the plaintiff, testified that after an inspection of
the property,
the sale of the property was negotiated by Naicker’s
husband (Mr Naicker) with the second defendant, and purchase price
was
agreed at R1 million (one million rand) which was to be paid in
monthly instalments to the second defendant.
[14] The second defendant advised them
that the property was owned by his grandfather and it was necessary
for him to first discuss
the sale with his grandfather. A meeting
then took place at the offices of the second defendant’s
attorney, Chris van der
Merwe (Van der Merwe). Present at the meeting
were Naicker, her husband, Mr Van der Merwe, the second defendant and
a Chinese gentleman
who acted as interpreter.
The second defendant telephoned his
grandfather on his cell phone; the speaker on the cellphone was
activated to enable those present
to hear the conversation. The
conversation was in Chinese and the Chinese man who was present
translated it into English. The grandfather
agreed to the purchase
price of one million rand, to be paid in instalments to the second
defendant and to immediate occupation
of the property by the
purchaser.
[15] As the parties were satisfied
with the arrangements, Van der Merwe drew up the purchase and sale
agreement (exhibit “D”)
which was signed on 10 October
2006 by Mr Naicker as the duly authorised representative of the
plaintiff, while the second defendant
signed the agreement on behalf
of the seller. The second defendant had shown them a power of
attorney from which the Naickers had
concluded that he had the
authority to sell the property.
By August or September 2008 the
plaintiff had paid the purchase price in full. The Naickers then
approached the second defendant
to effect the transfer of the
property to the plaintiff. The second defendant agreed that the
plaintiff’s attorneys, CKMG
Attorneys, could attend to the
transfer on behalf of the plaintiff. But when attorney Suren Moodley
(Moodley) of CKMG Attorneys
lodged the transfer documents in the
Deeds office for registration, he discovered that there was a
interdict over the property.
The second defendant also had no
knowledge thereof.
[16] As the Naickers had been informed
during the telephonic discussion between the second defendant and his
grandfather, that the
grandfather was satisfied that the purchase
price should be paid to the second defendant, payments were effected
by them into bank
accounts in the names of H Qu, the second defendant
and Zong Qu his wife.
[17] Naicker was not a confident
witness, but there was no reason to doubt the honesty of her
testimony. It was apparent that the
business affairs of the plaintiff
were controlled and administered by her husband. Nevertheless she
testified consistently about
the negotiations with the second
defendant and the telephonic discussion with his grandfather in China
which culminated in the
conclusion of the agreement. Her evidence was
corroborated by Mr Naicker.
[18] Mr D Naicker testified that while
his wife was the sole director of the plaintiff, he was the person
who attended to the day
to day running and business affairs of the
plaintiff. When they inspected the property, the second defendant was
managing the farm
and conducting sand winning operations on the
property. Although the farm was in a dilapidated condition he had
been keen on acquiring
the property as he was only interested in the
mining of sand.
[19] Mr Naicker confirmed that events
of the meeting held at Mr Van der Merwe’s office during which
arrangements for the sale
were fianlised. From his recollection of
the conversation as interpreted to them, the deal was considered to
be good and the purchase
price, the payment thereof in instalments to
the second defendant and immediate occupation of the property by the
plaintiff was
agreed during the discussion.
[20] From the information provided by
the second defendant, Mr Naicker had understood that the seller was
the second defendant’s
grandfather because he was the ‘head’
of Galaxy Minerals. The second defendant had also advised Naicker
that he was
one of the directors of Galaxy Minerals and had shown him
the power of attorney. As far as he was concerned the shareholders in
the company were the second defendant and his grandfather. He had
never seen the title deed to the property nor did he know that
the
only shareholder of Galaxy Minerals the first defendant was Forest
Eight Ltd.
[21] Mr Naicker confirmed that the
interdict was discovered by their conveyancer when he attempted to
register the transfer of the
property to the plaintiff after the last
instalment of the purchase price had been paid in August 2008. No
rates or taxes were
payable on the property to any local authority,
and no transfer costs had been incurred.
[22] Mr Naicker persisted that
instructions were given by the second defendant’s grandfather
during the telephonic discussion
that the money be paid into the
second defendant’s account and that they had paid the monies as
instructed. He had not queried
the contradiction between the relevant
provision of the purchase and sale agreement that the purchase price
be paid to the seller
and the aforesaid verbal instructions.
Mr Naicker was a credible witness who
testified in a frank and forthright manner. His responses were
immediate and direct, indicating
that he was testifying from his own
knowledge. It was apparent from the evidence of the Naickers that
they had viewed the purchase
of the property as a lucrative business
opportunity and had no doubts or suspicions that the second defendant
was acting within
his authority and with the knowledge of the first
defendant.
That was the case for the plaintiff.
The First Defendant’s Case
[23] Miss Yin Ping Cook (Cook) then
testified on behalf of first defendant. Kuk who had passed away at
the beginning of 2009 was
her father. She denied that Kuk was the
second defendant’s grandfather or that they were related to
each other at all. Kuk
had come to South Africa in the late 1990’s
and had decided to invest in property in South Africa. He then
acquired a number
of properties which were held in the name of
various juristic entities and the directors of the companies that
owned those properties
were Cook and Kuk.
Cook and Kuk were the active directors
of Galaxy Minerals, the first defendant and were appointed on the 28
May 1993. From 1997,
the shares in the first defendant were held by a
company, Forest Eight Ltd, which was registered in the British Virgin
Islands.
[24] Although Kuk was in South Africa
in May 2002 and she was in Hong Kong at the time, they maintained
regular communication in
respect of their business affairs by
telephone and telefax. Kuk did not tell her about the power of
attorney that he had allegedly
signed or that he intended selling the
property about which he would have consulted with her. Kuk had not
returned to South Africa
after 2002. From then he and Cook were
resident in Hong Kong most of the time. They lived in close proximity
to each other and
discussed all their business interests including
those in Hong Kong and South Africa.
[25]
She was
adamant that she and her father as directors of the first defendant
had never discussed or agreed that the property be sold,
or that the
second defendant be authorized to act on behalf of the first
defendant. Further, as the property was a major asset
of the first
defendant, she considered it ‘impossible’ that Kuk would
have agreed that the purchase price be paid to
the second defendant.
Nor did Cook in her capacity as sole director of Forest Eight Ltd,
intend or agree to sell the property.
Cook denied that Kuk did not accept
several offers to purchase the property during the period 2002 to
2006 because the offers were
not high enough, but persisted that the
offers were not accepted because he did not intend to sell the
property but to develop
it.
[26] The operations that were
conducted on the property were to win sand and supply water. There
were some houses on the property
which were rented out. Kuk had
decided to expand this initial business and his intention was to
build more houses on the property
and perhaps cultivate a plantation.
In order to develop the property, Kuk brought a group of Chinese from
China to work on it.
Although she had not met the people
who were recruited, the decision to send workers from China to South
Africa was a joint decision
and she was aware of the terms and
conditions of their employment. Kuk had been advised that the entry
of the recruits into South
Africa would be facilitated if they were
made directors. Kuk and Cook had discussed the issue and taken a
joint decision on utilizing
this method to get people into South
Africa. The documentation appointing the workers as directors was
prepared in South Africa
before the recruits arrived.
Five persons including the second
defendant were recruited and brought to South Africa by the end of
2001.Three recruits, including
the second defendant, were appointed
directors of the first defendant and given signing powers on its bank
account; the other two
were appointed directors of their other
companies. All of them were aware that objective underlying the
appointment was to facilitate
their entry and the appointment was not
permanent. They had signed the letters of appointment and
resignation, and obtained work
permits in 2001 before they left Hong
Kong for South Africa.
Cook alleged that the resignation was
only effected approximately four years later because of delay on the
part of their attorneys.
As the recruits knew that their
directorships were for the sake of convenience they were not informed
when their resignation was
registered.
[27] The second defendant had
therefore been a director of the first defendant from 14 May 2001 to
13 February 2006. They had decided
to appoint him as he was young and
had potential to be trained to run the operations on the property.
There was a verbal agreement
that his salary of R3000 per month, his
accommodation and communication i.e. telefax and cellphone costs
would be paid; but there
was no formal written employment contract.
Cook had stopped paying for the second defendant’s cellphone
account even prior
to 2007 as he had failed to furnish her with the
accounts. He had not been removed as a signatory to the account. Cook
denied that
the second defendant was authorized or entitled to set
the purchase price off against the salary owed to him.
[28] The interdict was only obtained
in 2008 because when they were unexpectedly served with summons in
respect of a property held
by another of their companies, Flourishing
Trading, they instructed their attorney to investigate their other
properties. It was
then discovered that other properties had been
sold despite the title deeds being in their possession, as Kuk had
himself arranged
for the title deeds to be held at the banks.
The title deed for the property was
kept in a bank in South Africa before 2006 and thereafter in a bank
in Hong Kong. It therefore
became necessary to protect the properties
and the interdict was registered as a safeguard. At the time when the
interdict was
registered over the property, she was not aware of the
sale agreement and the second defendant had not informed her about
it. There
were currently a number of actions in respect of properties
sold under similar circumstances by the second defendant.
[29] She was also certain that Kuk was
sufficiently proficient in English to have understood the contents of
the special power of
attorney the second defendant relied on as
authority to sell the property. But as Kuk had always utilized the
same firm of attorneys,
Webber Wentzel Bowens (WWB) to attend to
their legal affairs in South Africa, had he required a power of
attorney he would have
requested WWB to prepare the document. When a
South African property was sold in South Africa in their absence,
Cook and Kuk would
execute a power of attorney in favour their
attorneys.
[30] In December 2006 the second
defendant had informed her that he had created a power of attorney,
similar to the disputed document
(Exhibit D) in respect of another
company which authorized him similarly to deal with its property by
utilizing a blank signed
sheet of paper as Kuk had left blank signed
pages with him. When she queried this with Kuk, he had responded that
it was possible
that he may have signed blank pages on condition that
they would be used on his instructions and a copy of the complete
letter
was to be sent to him wherever he was. But he had not left a
blank signed page authorising the second defendant to sell the
property
or to be utilized as a power of attorney.
[31] When Cook spoke to the second
defendant about the transfer of the property owned by Oriental
Products, she did not speak to
him about the property owned by the
first defendant because they had possession of the title deeds. The
title deeds for the Oriental
Products property had been given to the
second defendant because they had attempted to sell that property.
The second defendant had also been
authorized to sign the sale agreement in respect of two properties
owned by another of their
companies, Flourishing Trading, by way of a
power of attorney prepared by attorneys Webber Wentzel Bowens. The
sole shareholder
in Flourishing trading was Forest Eight, the sole
director of which is Cook. Those sales were also subject to
litigation because
the purchase price had not been paid to the
seller.
[32] The property is the only fixed
asset owned by the first defendant, Cook only had knowledge of the
company’s internal
operational costs and that it was registered
for VAT but she was unaware of the other taxes or dues payable
because that was handled
by the auditor.
Cook was not an impressive witness.
Even allowing for the process of interpretation, her answers were
frequently incoherent, rambling
and convoluted. She rarely answered
the questions put to her directly. It was apparent from her testimony
that she was not involved
in the day to day conduct of the affairs of
their South African companies. It was also difficult to reconcile her
apathy and ignorance
about the property and the operations conducted
on it by the second defendant with her allegations that she was
actively involved
and party to all decisions concerning all the
business interests of their companies.
Issues for determination :
[33] The first issue that lies for
determination is whether the special power of attorney dated 8 May
2002 constituted valid and
binding authority conferred by the first
defendant on the second defendant to represent the first defendant in
the conclusion of
the sale and registration of transfer of the
property.
There are two legs to this
determination:
whether Kuk had the authority to bind
the first defendant by executing the power of attorney in favour of
the second defendant;
and
whether his signature on the power of
attorney was genuine.
If the plaintiff were to prove on a
balance of probabilities that the agreement was valid and binding on
the parties, then the second
issue for determination would be whether
the plaintiff had complied with its obligations under the agreement
and is entitled to
an order for specific performance.
[34] In the event that the court
determines the aforegoing issues in favour of the first defendant
then it lay to be determined
whether the first defendant,
alternatively the second defendant alternatively both defendants
jointly and severally were unjustly
enriched at the expense of the
plaintiff and should be ordered to pay the purchase price together
with interest to the plaintiff.
Argument
[35] In respective of the main claim,
Mr Naidoo submitted on behalf of the plaintiff that the evidence by
the Naickers to the effect
that the plaintiff had complied with its
obligations under the purchase and sale agreement between the
plaintiff and the first
defendant and that the full purchase price
had been paid by them should be accepted as it was not seriously
challenged or undermined
by evidence in rebuttal.
Further, as Kuk was in South Africa at
the time when the power of attorney was executed and this fact was
supported by the conclusion
of the expert Irving that the signature
on the document was that of Kuk and not a forgery, the court ought to
find that the power
of attorney was valid, and the second defendant
was duly authorized to sign the agreement on behalf of the first
defendant.
[36]
Consequently the court ought to exercise its discretion in favour of
the plaintiff and order specific performance, particularly
as the
first defendant could not rely on S228 of the Companies Act as it had
not furnished documents in support of Cook’s
evidence that the
property was the only fixed asset of the company. Alternatively the
probabilities favoured the finding that Kuk
had authorized the sale
with the knowledge of Cook, which constituted substantial compliance
with S 228.
The
final submission in respect of the main claim was that the Turquand
rule ought to be applied in favour of the plaintiff.
[37]
In respect of the alternative claim Mr Naidoo contended that the
first defendant was liable for the actions of its duly authorized
agent, the second defendant and that the parties ought to be held
jointly and severally liable to repay the purchase price to the
plaintiff.
[38] On behalf of the first defendant,
Mr King submitted that there were three possibilities in respect of
the power of attorney:
that it was a genuine document, or that it was
a forgery, or that the signature was genuine but the rest of the
document was created
out of a blank signed page.
However even if the power of attorney
were found to be genuine, the plaintiff had failed to discharge the
onus on it to prove that
the second defendant was properly authorized
to conclude the sale of the property on behalf of the first
defendant. As the power
of attorney only authorized the second
defendant to act on behalf of Kuk acting alone, it did not confer the
authority on him to
represent the first defendant as there was no
resolution by its two directors to sell the property. Nor was there a
resolution
in compliance with S228 of the Companies Act as the
property was the only asset of the first defendant. The only
shareholder in
the first defendant is a company Forest Eight Ltd, and
Ms Cook as the only director of the shareholder, testified that there
was
no decision or resolution to sell the property. Consequently the
power of attorney does not constitute authorization of the second
defendant to conclude the agreement, and the agreement cannot be
enforced against the first defendant. He therefore submitted that
the
action against the first defendant should be dismissed with costs.
The onus on the plaintiff
[39] As the relief for specific
performance sought by the plaintiff is premised on the existence of a
valid agreement of sale of
the property, the onus lies on the
Plaintiff to prove that :-
1 Kuk had the authority to execute the
power of attorney on behalf of the first defendant and to bind the
first defendant by his
signature on the document and the signature on
the power of attorney was that of Kuk .(
Scala Café v Rand
Advance (Pty) Ltd
1975 (1) NPD 28)
;
2 the second defendant was therefore
duly authorized by first defendant in writing under a valid power of
attorney to execute the
formalities on behalf of it as seller and
transferor of ownership in the property, and that the authority
existed at the time of
the sale; the agreement was therefore valid
and binding on the parties thereto;
3 the plaintiff had complied with its
obligations under and in terms of the agreement., but the first
defendant failed to effect
registration of transfer of the property
to the plaintiff. The plaintiff is entitled to claim specific
performance.
The Special Power of Attorney:
Legal requirements for validity
[40]
Section 2 (1) of the Alienation of Land Act 51 of 1983 prescribes
that:-
‘
No alienation of land
after the commencement of this section shall, subject to the
provisions of section 28, be of any force or
effect unless it is
contained in a deed of alienation signed by the parties thereto or by
their agents acting on their written
authority.’
'Deed
of alienation' is defined in the Alienation of Land Act is a document
or documents under which land is alienated.
The agreement is therefore a deed of
alienation, but as it was signed by the second defendant who
purported to an agent of the first
defendant, it can only be of force
and effect if the second defendant acted on the written authority of
the first defendant.
Although it has been held that the
provisions of S 2(1) of the Alienation of Land Act are circumscribed
by S69 of the Companies
Act No 61 of 1973, in terms of which a
company may be bound by a person acting on its express or implied
authority which need not
be in writing (
Myflor Investments (Pty)
Ltd v Everett 2001(2) SA 1083 (C) at page 1096)
, the plaintiff
and the second defendant have relied specifically on the special
power of attorney to constitute the express written
authority
conferred by the first defendant on the second defendant to conclude
the sale.
[41]
Ex facie
the special power
of attorney, it was executed by Kuk in his capacity as director and
major shareholder in the first defendant.
In terms of the wording of
the power of attorney Kuk in his ‘capacity as director and
major shareholder in the company’
authorized the second
defendant ‘to be my duly authorized agent acting for and on my
behalf and especially to do the following
as I could have done’.
Any person who has capacity to enter
into a contract may appoint an agent to act for him; provided that he
has the capacity to execute
personally the act authorized. Therefore
he must have the contractual capacity necessary to enter into a
contract creating the
relationship of principal and agent.
(The
Law of Agency in South Africa J M Silke 3
rd
edition 1981 at page 38)
[42] It is common cause that at the
date of signature of the agreement the first defendant was the
registered owner of the property
and its directors were Kuk and Cook.
An individual director has no authority to bind a company unless the
company is a private
one and he is the sole director (
Henochsburg
on the Companies Act 5
th
Edition page 129
).
The same principle was expressed by
Nicholas J
in
ROSEBANK TELEVISION & APPLIANCE CO (PTY)
LTD v ORBIT SALES CORPORATION (PTY) LTD
1969 (1) SA 300
(T)
at
page 303
‘
But even if it be assumed that
Ginsberg was a director of the defendant during the months of July
and August, 1966, when the purchases
were made from the plaintiff, it
would not, of course, follow from that fact alone that he was
authorised to act on behalf of the
defendant company. A director is
not as such an agent of his company. (See
Robinson
v Randfontein Estates Gold Mining Co. Ltd.
,
1921 AD 168
at
A
pp. 217 -
218, and
Wolpert v Uitzigt
Properties (Pty.) Ltd. and Others
,
1961
(2) SA 257
(W)
at
pp. 267 - 268). It must be proved that he was authorised to act as
the agent.’
Therefore Kuk himself did not have the
status or authority to confer on the second defendant the authority
to act as set out in
the power of attorney. Any decision taken in
connection with the property of the first defendant had to be by way
of a resolution
by both directors.
In the agreement the seller is ‘Galaxy
Minerals (Pty) Ltd Registration No. 93/01625/07 authorised hereto by
a resolution of
directors of the company and duly represented by Hong
Wei Qu’.
[43] Cook’s evidence that no
resolution had been taken to sell the property must be evaluated
against the conspectus of evidence.
The uncontroverted evidence of
Cook was that all business decisions were taken jointly after she and
her father discussed them.
Although she had not actively investigated
the condition of the property or even visited it, and her evidence
belied her assertion
that she was involved in all the affairs of the
companies held by her and Kuk, she nevertheless remained steadfast
that their intention
to develop the property and not to sell it had
remained unchanged. Such intention is consistent with her further
testimony that
workers including the second defendant were brought to
South Africa in 2001, ostensibly as directors of the first defendant
and
employed on the property; a bank account was opened and three of
the employees were given signing powers on the account. It is in
any
event common cause that the second defendant was appointed a director
of the first defendant and employed on the property by
the first
defendant.
[44] Her version is also consistent
with the observation of Mr Naicker when he inspected the property in
2006 prior to conclusion
of the contract, that the property was still
being utilized for the benefit of the first defendant as the sand
winning operation
was in place.
[45] The fact that the title deeds to
the property had been retained and were still in the bank in Hong
Kong, where Kuk had left
it for safekeeping also supports Cook’s
evidence that there was no intention or decision to sell the
property, particularly
as when Cook and Kuk had decided to sell a
property owned by another company, Flourishing Trading, the title
deed had been handed
to the second defendant. This also calls into
question the reason for the provision in the special power of
attorney authorizing
the second defendant to bring an application for
a duplicate original title deed, when it was Kuk who had arranged the
safekeeping
of the title deeds.
Cook’s evidence that all
property transactions for their companies were handled by their usual
attorneys, WWB, who even attended
to the preparation of the necessary
power of attorney if the directors were not in South Africa, was not
disputed. The same attorneys
had prepared the power of attorney for
the sale of the property held by Flourishing Trading. However there
was no involvement of
WWB in the sale of this property; the
purchasers were taken to the second defendant’s attorneys and
then the second defendant
agreed that the plaintiff’s attorneys
could attend to the transfer of the property, despite the contention
that Kuk was aware
of the sale. There is no cogent reason suggested
or apparent as to why he did not utilize the services of his regular
legal representatives
in respect of this sale if it were authorized
by him.
[46] Furthermore although the capacity
of Kuk is described as that of ‘major shareholder’ he was
according to the company
documents furnished by the first defendant
(Exhibit H), not a shareholder. The
sole
shareholder in the first defendant as from 4 November 1997 was Forest
Eight Limited and the sole shareholder in the Forest
Eight Limited is
Yin Ping Cook, who is also the director thereof. Therefore any
decision taken in connection with the alienation
or disposal of the
assets of the first defendant, in particular the sale of the
property, which according to the undisputed evidence
of Cook was its
only fixed asset, had to be by way of a resolution duly taken by Cook
in her capacity as the only member of the
first defendant in
accordance with Section 228 of the Companies Act No 61 of 1973
(‘Section 228), which as at date of the
agreement read as
follows:
‘
S
228
Disposal of undertaking or greater part of assets
of company
(1)
Notwithstanding anything contained in its memorandum or articles, the
directors of a company shall not have the power, save
with the
approval of a general meeting of the company, to dispose of-
(a)
the whole or the greater part of the undertaking of the company; or
(b)
the whole or the
greater part of the assets of the company.
(2) No resolution of the company
approving any such disposal shall have effect unless it authorizes or
ratifies in terms the specific
transaction. ‘
(3)
The requirements contained in this section in respect of transactions
falling within the
provisions
of subsection (1), shall be in addition to any other requirements,
including the
limitation
of voting rights, relating to such transactions that may be imposed
by the
Securities
Regulation Panel in terms of Section 440c or in terms of any other
law.”
The
evidence of Cook is clear and consistent in this respect – she
did not authorize or ratify any decision to sell the property.
Kuk
therefore did not himself have the authority to sell the property or
to authorize the second defendant to do so on his behalf
as is
purported in the special power of attorney. It must therefore follow
that as the second defendant was not authorized to deal
with the
property on behalf of the first defendant, he could not enter into an
agreement of sale of the property purporting to
be the duly
authorized agent of the first defendant.
[47]
I am unable to find as urged by Mr Naidoo that the probabilities
favour the finding that the requisite meetings did take place
and the
provisions of Section 228 were complied with as there is nothing to
gainsay the assertions of Cook to the contrary.
The Turquand Rule :
[48] Mr Naidoo has also contended that
the Turquand Rule should be applied in favour of the plaintiff,
despite the provisions of
Section 228. The rule is generally
expressed by saying that a person dealing with a company in good
faith is entitled to assume
that all internal formalities or acts of
management have been duly performed and carried out by the company.
[49] While there is controversy as to
whether a third party to whom the invalid disposal was made is
entitled to enforce it against
the company by means of the
application of the rule in the
Turquand
case
(
Royal British Bank v Turquand
[1855] EngR 531
;
(1856) 119 ER 474
)
since the invalidity does not entail
that the related contract between the company and the third party is,
as between them, void
or unenforceable, the issue of whether Section
228 may be made subservient to the Turquand rule is comprehensively
considered and
in my view properly decided in
Farren
v Sun Service SA Photo Trip Management
2004 (2) SA 146
(C)
and
I therefore find the reliance of Mr King on
Farren
more persuasive.
[50] The judgment acknowledges that
Section 228 was introduced for the protection of the shareholders who
have placed the control
of the company in the hands of the directors.
Hence the requirement that the shareholders must approve, authorize
or ratify a transaction
when the whole or greater part of the
company’s assets are being disposed of. Relying on the judgment
of
EM Grosskopf JA
in
Bevray
Investments (Edms) Bpk v Boland Bank Bpk 1993 (3) SA 597
(A) at 622–623
, t
he
learned judge concluded that the Legislature intended the provisions
of the section to prevail while the application of the Turquand
rule
would negate the provisions of S228.
‘
[14] If it is accepted that the
objective of the Legislature was to protect the shareholders, then
surely that intention should
be given effect to, for otherwise
'admitting the application of the
Turquand
rule may resolve the
dilemma, but will nullify the efficacy of s 228 and will defeat the
object of the Legislature' (L Hodes 'Disposal
of Assets - s 228' 1978
The South
C
African Company Law
Journal
F - 6, F - 13). As
pointed out by Prof
Fourie
,
Von Willich's
view,
by implication, is that the Legislature intended to curb the
authority of directors well knowing that the
Turquand
rule would effectively
neutralise the provisions of s 228 and that this could never have
been the intention. I agree.’
(page 155)
I am in agreement with the learned
judge that the Turquand rule should not prevail over the provisions
of Section 228.
[51]
Consequently the sale of the property entered into by the second
defendant on the fallacious authority evinced by the power
of
attorney and in contravention of the prescriptive provisions of
Section 228 is not a valid transaction which is binding on the
parties thereto.
[52] There is in the premises no need
for the determination by this court of the authenticity of the
signature of Kuk on the power
of attorney. It does seem appropriate
however to note that although the evidence of Mr Irving that the
signature on the power of
attorney was genuinely that of Kuk was very
persuasive and uncontroverted, it must be weighed against the
uncontroverted evidence
of Cook that the second defendant admitted to
her that he used pages blank except for the signature of Kuk to
create complete documents,
similar to the power of attorney in this
case. Furthermore, the incorrect description of Kuk as major
shareholder of the first
defendant in the document supports the
inference that the power of attorney was drafted by a person or
persons who did not have
knowledge of the actual status of Kuk within
the structure the first defendant.
[53] The first defendant may however
be held liable if it represented in some way that the second
defendant was its authorized agent.
‘
One of the requirements for
holding a principal liable on the basis of the ostensible authority
of its acknowledged agent is a representation,
by words or conduct,
made by the principal, and not merely by the agent, that the agent
had authority to act as he or she had done.
Assurances by the agent
as to the existence or extent of his or her authority are therefore
of no consequence.’
(Glofinco v ABSA Bank Ltd t/a
United Bank
2002 (6) SA 470
(SCA) )
‘
But the fact of agency, or the
extent of the authority of an agent, cannot generally be proved by
the declarations of the alleged
agent. In considering whether the
plaintiff has discharged the onus on it, a court cannot rely upon
statements, conduct and admissions
of the agent himself to establish
authority where that is the very fact in issue. The evidence must be
sought elsewhere.’
(The
Law of Agency in South Africa J M Silke 3
rd
edition 1981 at page 91)
[54] There is no evidence that any
such representations that the second defendant was its agent were
made by the first defendant
whether by way of words or conduct. It
was the second defendant who assured the Naickers that he was duly
authorized to represent
the first defendant by way of the power of
attorney and as a director of the first defendant.
In the premises, the first defendant
cannot be held liable for the acts of the second defendant.
[55]
The plaintiff ‘s prayer for an order declaring the agreement of
sale valid and binding on the parties and specific performance
therefore lies to be refused.
Unjust
Enrichment
[56] The Naickers’ evidence that
the full purchase price was paid in installments to the second
defendant or his wife on his
instructions was supported by vouchers
and not denied by the second defendant. He in fact admitted that the
purchase price had
been ‘consumed’.
Clause 1 of the agreement provides for
payment of the purchase price to the seller, the first defendant. The
Naickers testified
that the second defendant had informed them that
his grandfather had agreed that the purchase price should be paid to
him, which
is clearly contrary to the agreement. Nor was the
agreement varied in this respect in compliance with the nonvariation
clause (ie
clause 11) in the agreement.
Mr Naidoo sought to persuade the court
that as the second defendant was the duly authorized agent of the
first defendant, the first
defendant is liable for the actions of its
agent and is accordingly liable to compensate the plaintiff to the
value of the purchase
price.
[57] I am unable to find any merit in
this submission, particularly as it has already been determined that
the second defendant
was not the duly authorized agent of the first
defendant. Furthermore, by the plaintiff’s own testimony, the
purchase price
was not paid to the first defendant but to the second
defendant.
Mr Naicker testified that every time he
made a payment he called the second defendant to confirm which
account the money should
be paid into, and some of the payments were
made at the request of the second defendant into the account of his
wife.
Nor has it been disputed by the second defendant that he
received the sum of R1million (one million rand) from the plaintiff.
The plaintiff’s alternative
claim against the first defendant must fail as it has not proved that
the first defendant has
been unjustly enriched at the expense of the
plaintiff.
[58] On the other hand the second
defendant received the payments from the plaintiff in his personal
capacity as he was not the
duly authorized agent of the seller and
‘consumed’ same. He was the only party that was unjustly
enriched at the expense
of the plaintiff and is consequently solely
liable to compensate the plaintiff in the sum of R1 000 000 ( one
million rand).
Costs
[59] The first defendant has submitted
that a costs order in its favour should include the costs occasioned
by the engagement of
senior counsel. Given the issues for
determination, the significance of the outcome to the first
defendant, and the value of the
property subject to the disputed
sale, I am satisfied that the engagement of senior counsel was
warranted.
[60] This action was necessitated as a
result of the conduct of the second defendant. Not only did he
misrepresent to the plaintiff
that he was duly authorized to sell the
property on behalf of the plaintiff, but he also accepted payment of
the purchase price
ostensibly on behalf of the first defendant, which
he utilized for his own benefit. In the
bona fide
belief that
the second defendant was the duly authorized agent of the first
defendant, the plaintiff sought to implement its right
to take
transfer of the property against the first defendant, alternatively
to recover the purchase price from the first defendant.
The first defendant on the other hand
was compelled to defend the action of the plaintiff as it sought not
only to preserve its
asset, but also to resist payment of a
substantial sum of money which it had not received. This was also a
consequence of the conduct
of the second defendant.
In the premises the second defendant
ought to bear the costs of the action.
Order
The Plaintiff’s action
against the First Defendant is dismissed.
The Second Defendant is ordered to
pay the costs of the First Defendant, such costs to include the
costs of senior counsel.
Judgment in favour of the
Plaintiff is granted against the Second Defendant for :
3.1 Payment in the sum of
R1 000 000 (one million rand)
3.2 Interest on the aforesaid sum
at the rate of 15,5% per annum calculated from date of service of
summons to date of payment
3.3 Costs of suit
Date of Hearing : 16
th
November 2010
Date of Judgment : 13
th
May
2011
Counsel for Plaintiff : Advocate D
Naidoo
Instructed by : CKMG Attorneys c/o
Udesh Ramesar Attorneys
Counsel for 1
st
Defendant :
Advocate JC King SC
Instructed by : Shepstone & Wylie
Attorneys c/o Tomlinson Mnguni James
Counsel for 2
nd
Defendant :
Advocate HK Gunase
Instructed by : Vinay Yetwaru
Attorneys
c/o Udesh Ramesar Attorneys
Counsel for 3
rd
Defendant :
no appearance