Immobili Retail Investments (Pty) Ltd (in provisional liquidation) and Others v Absa Bank (Pty) Ltd and Others (20522/09) [2009] ZAGPPHC 101 (26 August 2009)

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[2009] ZAGPPHC 101
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Immobili Retail Investments (Pty) Ltd (in provisional liquidation) and Others v Absa Bank (Pty) Ltd and Others (20522/09) [2009] ZAGPPHC 101 (26 August 2009)

NOT
REPORTABLE
26
AUGUST 2009
IN THE HIGH COURT
OF SOUTH AFRICA
(NORTH
GAUTENG HIGH COURT, PRETORIA)
CASE
NO:
20522/09
IN
THE
MATTERS
UNDER EACH OF THE SEPARATE CASE NUMBERS CITED BELOW, BETWEEN:
IMMOBILI RETAIL INVESTMENTS
(PTY) LTD
(IN
PROVISIONAL LIQUIDATION)
FIRST APPLICANT
(respondent
in case number 49610/08)
BEL AIR
MALL (PTY) LTD
SECOND APPLICANT
(IN
PROVISIONAL LIQUIDATION)
(respondent
in case number 49799/08)
MALL ON
14
TH
(PTY) LTD
THIRD
APPLICANT
(respondent
in case number 50835/08)
VACHERON
PORTFOLIO (PTY) LTD
FOURTH
APPLICANT
(respondent
in case number 10452/09)
GROUNDLIGHT PROPERTY HOLDINGS
(PTY) LTD
FIFTH
APPLICANT
(respondent
in case number 10454/09)
ACCURATE
TRADING 86 (PTY) LTD
SIXTH
APPLICANT
(respondent
in case number 10458/09)
UNIVERSAL
RETAIL PORTFOLIO
(PTY)
LTD
SEVENTH APPLICANT
(respondent
in case number 10456/09)
BLACK
GINGER 223 (PTY) LTD EIGHTH APPLICANT
(
respondent
in case number 10455/09)
TIPTOP
COURT (PTY) LTD NINTH APPLICANT
(respondent
in case number 10457/09)
UNIVERSAL
SEABOARD PROPERTY
MANAGEMENT
(PTY) LTD TENTH APPLICANT
(respondent
in case number 104534/09)
BEFORE
THE WIND INVESTMENTS
(PTY)
LTD
ELEVENTH
APPLICANT
(respondent
in case number 52187/08
UNIVERSAL
RESIDENTIAL HOLDINGS
(PTY)
LTD
TWELFTH APPLICANT
(respondent
in case number 50834/08)
And
ABSA
BANK (PTY) LTD FIRST RESPONDENT
(applicant
in each application brought under each case number against each
applicant, as respondent in each such application, cited
above.)
RETAIL AFRICA WINGSPAN
INVESTMENT
(PTY)
LTD
SECOND
RESPONDENT
BALLITO JUNCTION DEVELOPMENT
(PTY)
LTD
THIRD
RESPONDENT
ROBFAIR
INVESTMENTS 139 CC
FOURTH
RESPONDENT
THE
COMPETITION COMMISSION
FIFTH
RESPONDENT
UNIVERSAL
GUARANTEE
SPV
(PTY) LTD
SIXTH
RESPONDENT
JUDGMENT
PRINSLOO
,
J
[1] This
rather unusual matter came before me on an opposed basis during the
week 27-31 July 2009. Mr Cook SC assisted by Mr Girdwood
and Mr
Nigrini,
appeared for the applicants. Mr Leathern SC, assisted by Ms Naudé,
appeared for the first respondent (ABSA) which
was the only
respondent against which any relief was claimed and the only
respondent which took part in the proceedings. Mr Rogers
SC,
assisted by Mr Wilson, also appeared for ABSA but their contribution
was limited to the dispute flowing from the provisions
of the
Competition Act, no 89 of 1998
, existing between the parties.
PROCEDURAL
SEQUENCE OF EVENTS
[2] The
twelve applicant companies constitute a group of companies which,
although they are not subsidiaries falling in a normal
holding
company structure, are inter-related in that they are all controlled
by the same people (the Theodosiou brothers) and a
company of the
Theodosiou brothers, Universal Property Professionals (Pty) Ltd,
which is referred to as UPP and from which the
group gets its name
,
being the UPP group. The shares in the various companies are in
general held by various and different trusts and companies controlled

by the Theodosiou brothers.
On
this subject, the following can also be stated: as more fully
described hereunder, this court granted provisional winding-up
orders
against the first and second applicants. The first and second
applicants are the main trading companies in the sense that
they both
own shopping centres trading on a daily basis. Presently, the duly
appointed liquidators are conducting the business
of these shopping
centres. The fifth and ninth applicants also own small tenanted
properties. The first, second, third, eleventh
and twelfth
applicants have entered into loan agreements with ABSA. According to
a submission made by counsel for ABSA the rest
of the companies are
security providers for the indebtedness of the other members of the
group.
None
of the applicants are subsidiaries of each other, neither do they
have shareholders in common with any of the other applicants.
They
are also not co-subsidiaries of any one company and it appears that
they don’t have the same directors either.
[3] ABSA
has launched winding-up applications against all the applicants, but
answering affidavits have only been filed by the first
and second
applicants.
[4] ABSA
launched winding-up applications on an urgent basis against the first
applicant and the second applicant in October 2008.
Opposing and
replying papers were filed. The papers in the application involving
the first applicant runs into more than 3000
pages. The application
involving the second applicant is also a lengthy affair.
[5] The
applications came before Sapire AJ on 18 November 2008 and stood down
until 21 November 2008. They were then postponed
at the cost of the
first and second applicants (as respondents) to 27 November 2008 on
which date the matters were fully canvassed
in argument. The two
applications were heard together because the companies are in the
same group engaged in property development.
Their business has been
financed by loans from ABSA. The companies are bound inextricably
together because of cross guarantees
and indemnities. As Sapire AJ
held, the viability of each is dependent on the solvency of the
other. Indeed, before me, it was
generally accepted that the result
of the winding-up application of the first applicant will dictate the
fate of the winding-up
application of the second applicant, and
probably of all the other applicants as well. For purposes of
argument, only the facts
involving the application against the first
applicant were canvassed by counsel.
[6] The
learned judge held that the matters were urgent. In this regard, the
learned judge said the following:
“
There
appears to be no reasons why the merits should not be determined at
the same time, as the issues related to unusually large
amounts and
the financial position of the group to which the companies belong
appeared precariously endanger of imminent collapse
I accepted in the
circumstances that sufficient urgency attached to justify the
enrolment and adjudication of the two applications.”
[7] The
learned judge also held that ABSA is a creditor of both companies in
a “prodigious” amount. He found that the
first and
second applicants had defaulted in the payment of interest on the
loans secured by mortgage bonds passed in favour of
ABSA
hypothecating the applicants’ properties. This also resulted
in ABSA exercising its right through an intermediary company,
to
collect the rentals payable by the lessees of the properties. The
rentals so collected are applied to the interest accruing
from time
to time but there is not sufficient to avoid a shortfall. The two
companies, lacking the means so to do, are unable
to meet ongoing
running expenses without assistance from their directors and
shareholders.
In the proceedings
before me, I was informed by counsel for ABSA that the debt of the
first applicant alone, now exceeds R1-billion.
This was not disputed
by counsel for the applicants. It was also common cause before me
that interest on the indebtedness runs
into millions of Rand per
month.
[8] After
Sapire AJ had heard argument on 27 November 2008, he agreed to
postpone the matter to 10 December 2008, because the two
applicants
(as respondents) had placed great reliance on an offer to purchase
one of the properties, the proceeds of which sale
would be used to
make some payment to ABSA and avoid the winding-up. By the 10
th
of December the applicants could offer no further news about the
proposed sale of the property but now took the point that the

winding-up could not be granted because the employees of the two
companies had not been furnished with notice of the application
as
envisaged by the provisions of section 346A of the Companies Act. For
this purpose the learned judge allowed the matter to stand
down
further so that ABSA could comply with these statutory requirements
if necessary. The applications were postponed to 29 January
2009
when the learned judge placed both the first and second applicants
under provisional winding-up. The return date was fixed
for 24
February 2009. Further provisions in the order, relating to
publications and service on the Receiver of Revenue and the
employees
were complied with.
[9] Before
the return date of 24 February 2009, fixed by the learned judge when
he granted the provisional liquidation orders, the
parties, in
consultation with the Deputy Judge President, agreed on certain time
frames which included extension of the rule to
27 July 2009 and a
provision that the applicants (i.e. the first and second applicants
as respondents) could file further opposing
affidavits to amplify
their existing opposing affidavits by the end of April 2009. There
was also provision for any intervening
creditors, which the first and
second applicants indicated there might be, to file papers by the end
of April 2009. Nothing was
ever heard of these intervening
creditors. The arrangement also provided for the filing of replying
affidavits by ABSA by the
end of May 2009 and for the filing of heads
of argument.
[10] When
Sapire AJ presided over the matter on the return date, namely 24
February 2009, he duly extended the rules in respect
of the first and
second applicants to 27 July 2009 and the timeframe arrangements to
which I have referred were incorporated as
part of this order by
reference to the letter of the Deputy Judge President.
[11] ABSA’s
liquidation application against the third applicant was also enrolled
for hearing before my brother Hartzenberg
on 3 August 2009. In view
of the manner in which the proceedings unfolded before me during the
previous week, the application
in respect of the third applicant, who
by then had not filed an opposing affidavit in any event, was
postponed.
[12] The
applicants did not comply with the order aforementioned and did not
file supplementary affidavits as provided for. In
stead, a fresh
application was launched under a new case number under the above
heading, not only by the first two applicants who
had to face the
hearing involving their possible final liquidation on 27 July 2009,
but the rest of the companies in the UPP group,
or, at any rate, most
of them. The names appear from the heading. This application is
described by the applicants as an interlocutory
application (“the
interlocutory application”). The papers run into more than
2400 pages. Not having complied with
the original order, the
applicants approached the Deputy Judge President with a request that
the interlocutory application should
be heard before the applications
for final winding-up, set down for 27 July. This request was
overruled and it was ordered that
the interlocutory application
should first be heard in the week of 27 July and, depending on the
outcome, the winding-up applications
can be heard during the same
week. As it turns out, it was not practically possible to dispose of
both the matters in the same
week. The interlocutory application was
concluded on Friday afternoon, 31 July 2009 and I reserved judgment,
in view of the urgency
of the matter, to 18 August 2009, extending
the return date in respect of both the first and second applicants,
to the same day.
[13] I add that the
applicants were not content with having launched the interlocutory
application but, on 22 July, two court days
before the proceedings
were due to commence on 27 July, they launched a lengthy postponement
application (“the postponement
application”) which ran
into some 480 pages, after ABSA managed to file a lengthy opposing
affidavit by 24 July, the last
day before the proceedings were set to
commence on Monday 27 July. Identical postponement applications were
launched by the applicants
in respect of the three winding-up
applications involving the first, second and third applicants.
By
way of illustration, the notice of motion of the postponement
application in respect of the winding-up application involving
the
first applicant, contains the following prayers:
“
1. That the
application be postponed to a date to be determined by the above
honourable court.
2. In
the event of the above honourable court refusing to grant a
postponement, that the heads of argument filed under case number

20522/09 (my note: this is the interlocutory application) be allowed
as heads of argument in the liquidation application (my note:

because no heads of argument were filed in the winding-up
application, despite the provisions of the court order,
supra
.)
3. That the founding
affidavit filed in this application serve as a supplementary
affidavit in the liquidation application, alternatively
that leave to
supplement the answering affidavit be granted to the applicant on
such terms as the court may deem just.
4. Costs of suit,
only in the event of the application being opposed.”
[14] At
the commencement of the proceedings, I was informed by counsel for
the applicant that the postponement application is conditional
upon
the interlocutory application being dismissed. Because the
interlocutory application was only concluded on the Friday afternoon,

and judgment had to be reserved, the request for a postponement
became academical in nature, and I will deal with the destiny of
the
postponement application, and the costs flowing there from, at the
end of this judgment.
[15] At
this point, I deem it appropriate to state that, in my view, the
manner in which the applicants set about these proceedings
and
launched the interlocutory and postponement applications, amounts to
an abuse of the court process and the lack of due regard
for the
convenience of the court and the litigants concerned. In my view,
the issues raised in the interlocutory application (to
which I will
refer in due course) ought more properly to have been raised in the
supplementary opposing affidavit to the winding-up
applications, by
30 April, as provided for in the order of court. For example, issues
relating to discovery, referral to evidence,
and the alleged
contraventions of the provisions of the
Competition Act, ought
properly to have been raised in such supplementary opposing
affidavits, and dealt with in reply, so that everything could have

been canvassed in the winding-up application in the week of 27-31
July. By launching the separate interlocutory and postponement

applications, in the manner and at the time when they did, the
applicants must have realised that the winding-up applications would,

inevitably, not be finalised in the week ending on 31 July. This
would result in the winding-up process being delayed further,
a
result which the applicants, desperately, wanted to achieve.
The
delay in the disposing of the winding-up process, whatever the
outcome may ultimately be, is unsatisfactory, particularly from
the
point of view of ABSA. This court has already held,
supra,
that the applications against the first and second applicants (as
respondents) are urgent. The substantial costs of the liquidators,

running the two shopping centres, have a negative effect on the costs
of the liquidation process. The value of the two shopping
centres,
owned by the two applicants, has dropped substantially. This is
evident from the papers and not in dispute. This is
probably due, in
my view, to the world wide economic recession and related factors
such as an overabundance of shopping centre
selling space. In the
interim, the debt, interest wise, increases by millions of Rand per
month, as I have pointed out.
INITIAL,
AND ULTIMATE, RELIEF SOUGHT IN THE INTERLOCUTORY APPLICATION
[16] During
the course of the proceedings before me, the applicants applied for,
and were granted, the amendment of the original
notice of motion in
the interlocutory application by replacing it with an amended notice
of motion. The amendment was, by and
large, aimed at introducing a
prayer for referral of the issues defined in the competition
complaint lodged by the applicants,
to the Competition Tribunal for
considerations on the merits thereof in terms of
section 65(2)(b)
of
the
Competition Act. Such
referral would also lead to the
determination of the liquidation applications being held over pending
determination of the issues
by the Competition Tribunal.
[17] It is
convenient to quote the prayers contained in the amended notice of
motion:
“
1. That
the applicants’ failure to file their replying affidavit
timeously on 12 June 2009 in terms of a directive by the
honourable
his Lordship Mr Justice Shongwe is hereby condoned. (My note: the
condonation was granted by agreement at the commencement
of the
proceedings.)
2. Consolidating
in terms of
rule 11
read with rule 10 of the Uniform Rules of court
each of the liquidation applications issued by the first respondent
against the
first to twelfth applicants herein under the case
numbers referred to in the heading of this notice of motion (“the
liquidation
application”); (my note: this prayer was abandoned
during the course of the proceedings before me.)
3. Directing that
the provisions of rule 35 of the Uniform Rules of Court apply to the
liquidation applications.
4. 4.1 Holding
over the final determination of the liquidation application pending
discovery and filing of opposing affidavits by
the first to the
twelfth applicants as envisaged in prayer 5 below.
4.2
Alternatively
,
holding over the final determination of the liquidation applications
brought against the forth to the tenth applicants by the
first
respondent, pending the final determination of an action to be
instituted by the fourth to the tenth applicants within 30
days of
the date of this order for rectification of the loan agreements,
attached to the founding affidavit as annexures “DT8”
and
“DT9”, by incorporating clauses 16.7 and 17.7 of the
approval letters attached to the founding affidavit as annexures

“DT6” and “DT7”, therein. (my note: this
prayer was also abandoned during the proceedings before me.)
5. Granting
leave to the first to twelfth applicants to file opposing affidavits
in the liquidation applications within a period
of 60 days of the
first respondent complying with the order sought in prayer 3 above.
(The prayer dealing with discovery.)
6.
6.1 Alternatively
to prayers 3, 4.1, 4.2 and 5 above, that the liquidation applications
be referred to trial, alternatively to oral
evidence on the
particular issues which are incapable of resolution on application in
motion proceedings,
6.2 Alternatively
directing that oral evidence be heard on the specified issues as
defined in the founding affidavit, answering
affidavit and replying
affidavit filed of record in these proceedings under rule 6(5)(g) of
the Uniform Rules of Court with a view
to resolving their disputes of
fact and to that end directing that the deponents to the affidavits
in these proceedings and the
liquidation proceedings and other
persons appear personally and be examined and cross-examined as
witnesses and granting leave
to the applicants to
subpoena
those persons (‘the witnesses’):
6.2.1 granting
leave to the first to twelfth applicants to file opposing affidavits
and/or supplementary opposing affidavits in
the liquidation
applications within a period of sixty days of the examination and
cross-examination of the witnesses;
6.2.2 Holding over
the final determination of the liquidation applications pending the
examination and cross-examination of the
witnesses;
6.2.3 That
the applicants file opposing affidavits or supplementary affidavits,
if any, in the liquidation applications within a
period of sixty days
of the examination and cross-examination of the witnesses;
6.2.4 Granting
leave to the applicants to issue
subpoenas
duces tecum
to
the witnesses (my note: the relief sought in the whole of prayer 6
was abandoned during the proceedings before me.)
7.
7.1 Directing that the issues as defined in the competition
complaint and application for the revocation of the mergers, marked

“DT3” to the founding affidavit and “DT16” to
the replying affidavit (“the issues”) be and
are hereby
referred to the Competition Tribunal for consideration on the merits
thereof in terms of section 65(2)(b) of the Competition
Act, 89 of
1998 (“the Act”);
7.2 Directing that
the determination of the liquidation application be held over pending
the determination of the issues by the
Competition Tribunal;
8. Costs
against the opposing respondents.”
[18]
As
I pointed out when quoting the prayers, the only remaining relief now
sought in the interlocutory application, in respect of
which I have
to give judgment, amounts to the following:
1. The
prayer that I should direct, as intended by the provisions of Rule
35(13), that the provisions of Rule 35 relating to discovery
shall
mutatis
mutandis
apply to this application (prayer 3).
2. That the
applicants be granted leave to file opposing affidavits in all twelve
liquidation applications within a period of 60
days after the
discovery process has been finalised (prayer 5).
3. That the
competition complaints be referred to the Competition Tribunal in
terms of
section 65(2)(b)
of the
Competition Act and
that the
liquidation process be stayed accordingly (prayer 7).
THE
ESSENCE OF THE CASE PRESENTED BY THE APPLICANTS IN THE INTERLOCUTORY
APPLICATION
[19] This
is an entirely new case. It was not raised, in any manner, in the
opposing affidavit filed by the first and second applicants
(as
respondents) in the two winding-up applications. It emerged for the
first time in the interlocutory application (and perhaps
in some
correspondence shortly preceding that) which application was launched
in April 2009, some one and a half months after the
order,
supra,
was made on 24 February 2009 dealing with the timeframes leading up
to the intended hearing of the final liquidation applications

scheduled for 27 July 2009.
[20] Before
attempting to summarise the essence of this new case, it is fair to
point out that, in my view, it is patently obvious
that the first and
second applicants (and probably the rest of the applicants who are
facing liquidation applications by ABSA)
are unable to pay their
debts and to meet their obligations towards ABSA. This aspect was
not contested on behalf of the applicants
during the proceedings
before me. No effort was made, in the course of the voluminous
papers filed by the applicants in the interlocutory
application, to
suggest when and how these debts can or will be paid. In the
circumstances, as stated in the heads of argument
filed on behalf of
the applicants, and which applicable passage from the heads will be
quoted later, the applicants, in order to
avoid liquidation, “will
ultimately be driven” to rely on this new case presented.
[21] I
now attempt to summarise the essence of the case as follows: during
the course of the last couple of years, since about
2006, ABSA, in
the course of granting loans to the applicants and financing their
property development exploits, became so involved
in the various
projects that an “umbrella partnership or joint venture
agreement” was established between ABSA and
all the applicants.
Two ABSA officials served as directors on the boards of two of the
universal group of companies, namely the
third applicant, Mall on
14
th
(Pty) Ltd, and another company of the universal group, which was not
cited as an applicant, namely Mogale City Mall (Pty) Ltd,
(“Mogale”).
ABSA officials took an active part in the business of the various
applicants. In the process of this
“partnership” having
developed, certain fiduciary duties were given rise to. In breach of
the fiduciary duties, ABSA
got involved in a merger with a company
Retail Africa Wingspan Investments (Pty) Ltd (“Wingspan”).
This merger was
approved by the Competition Commission. Wingspan is
a competitor in the property market, and ABSA, by getting into bed
with Wingspan,
conspired to eliminate the applicants, or some of
them, from the market to open the way for ABSA and Wingspan to profit
from the
demise of the applicants and even take over some of their
assets in the liquidation process. ABSA also, in order to achieve
this
result, prematurely, or in some way irregularly, foreclosed on
some of the debts (more particularly the debt of the third applicant)

and, in so doing, set up the applicants for the untimely winding-up
processes. Because of the process of cross collateralisation,

negotiated over time between ABSA and the universal companies
(applicants), the relevant contracts provided that default by one

amounts to default by all, so that all the companies are in danger of
being liquidated. In the process of undermining the Universal

companies or applicants (“Universal”) in this manner,
ABSA also has the benefit of intimate knowledge of the affairs
of
Universal which it could comfortably pass on to Wingspan to
facilitate the whole undermining process. ABSA also connived with

Wingspan to take control of the third respondent, Ballito Junction
Development (Pty) Ltd, (“Ballito”) after having

initially, on the strength of the “umbrella joint venture”,
actively assisted Universal to develop the Ballito project.
Of
course, Ballito, in the circumstances, cannot, and does not, feature
as an applicant. Mogale also does not feature as an applicant.
Only
Mall on 14
th
is one of the applicants. Mall on 14
th
(“MO 14”) owns property, yet to be developed, near the
14
th
Street off ramp in Roodepoort which is far removed, and not
commercially linked, from and to the Lonehill and Bel Air shopping

centres owned by the first and second applicants, the final
winding-up applications in respect of which served before me during

the course of these proceedings.
[22] Some
of the issues which, according to counsel for the applicants, fall to
be considered for purposes of the interlocutory
applications, are
these: the question whether ABSA competes in the retail development
industry and therefore competes with Universal
in that industry, the
question whether Universal and Wingspan are competitors in that
industry and the question whether, if ABSA
does not itself compete
with Universal in that industry, it has none the less become
Universal’s competitor by virtue of
its relationship with
Wingspan.
These
questions will receive attention and scrutiny when I later consider
the request (that is paragraph 7 of the Notice of Motion)
for a
referral to the Competition Tribunal.
[23]In
their eloquently crafted heads of argument, counsel for the
applicants described the other, and perhaps more pertinent, questions

which arise in the light of the new case now presented by the
applicant as follows:
“
66. The
next main question which we address below together with the first, is
whether ABSA ever formed a joint venture or had a
similar
partnership/based association with Retail Africa and with Universal.
That question is at least material to – and
we submit may well
be decisive on – the questions:
66.1 Whether ABSA
has a motive to harm and undermine Universal on the one hand, and to
form a relationship with Retail Africa/Wingspan
on the other;
66.2 Whether
ABSA owed fiduciary duties to Universal and if so, whether it has
breached them in the specific and general respects
Universal contends
ABSA has, such as committing breaches of trust, acting in bad faith
towards Universal, usurping its corporate
opportunities, or not
disclosing its conflicting or potentially conflicting interests in
other parties or their developments which
compete with Universal and;
66.3 Whether
ABSA’s breaches of its fiduciary duties are material to the
liquidation application.”
[24] Counsel
for the applicants then described the questions which will have to be
decided when the applications for final liquidation
(for present
purposes of the first and second applicants) come up for
adjudication. At the same time counsel describe the essence
of the
new defence. They do so in the following terms:
“
67.1 Whether
any such bre
aches
of fiduciary duties, and the repugnant conduct comprising them, are
material for purposes of the discretionary power which
rests in this
Honourable Court to dismiss the liquidation applications, for such
reasons alone, and
67.2 Whether
those breaches, if established, would disclose a substantive defence
to the liquidation applications insofar as they
may establish that
the applications are a part of an unlawful attempt by ABSA to profit
from its breaches of fiduciary duties;
or insofar as they constitute
unlawful competition.”
[25]
Counsel
for the applicants also describe the issues which, according to them,
will arise during the final liquidation proceedings
against the first
and second applicants, and in view of the new defence raised, as
follows:
“
They
(the defences raised) go predominantly to the question of the
exercise by the Court of its discretion to wind-up the Universal

companies in circumstances where ABSA approaches the Court not with
clean hands, but in circumstances where it – both in
its
dealings with Universal and in the manner in which it has brought the
liquidation application – has acted unconscionably.”
[26] Counsel
then appeared to go on to concede or acknowledge that the first and
second applicants (and perhaps the other applicants
as well) will
ultimately have to rely solely on the new defences raised when it
comes to contesting the final liquidation application.
Earlier in
this judgment I undertook to quote the relevant passage from the
Heads of Argument offered by counsel for the applicant:
“
10.
It
seems inevitable in view of the series of loan agreements concluded
by some of the Universal companies and security provided
by others in
terms of other written agreements, and the onerous terms of these
documents, that Universal will ultimately be driven
to rely upon the
Court’s discretion not to wind-up the companies based upon the
abuse by ABSA of the winding-up process.”
I add that the
sentiments here expressed are in line with the impression I gained,
during the proceedings before me, that it is
generally acknowledged
that the first and second applicants (and perhaps, the other
applicants as well, given the security cross-collateralisation)
are
not able to pay the ABSA debts, let alone the ever escalating debts
as I have described. It appears, therefore, and I can
put it no
stronger than that, that whatever defences may have been raised
originally, in opposition to the liquidation applications,
have now
been scaled down in favour of the new defences as described. It
should also be remembered that this Court granted provisional
orders
after hearing full argument on the merits.
[27] For
present purposes, it is important to point out that counsel for the
applicants then stated that: “For that reason,
(the fact that
the applicants now have to rely on the new defences going to the
discretion of the Court) it is material to Universal
that it be
favoured with discovery by ABSA to enable it to put forward its
defences in persuasive fashion.” It is true that
counsel for
the applicants argued that the applicants had shown that there is a
sound basis for their contentions but it was generally
acknowledged,
as appears from the words quoted, that the applicants are seeking an
order authorising discovery in terms of
rule 35(13)
,
supra
,
in the hope that they will unearth support for their contentions in
some of the documents so made available for inspection. In
this
regard, I add that, although there are strong suggestions made by the
applicant of possible foul play on the part of ABSA,
I am of the view
that the applicants were unable to present direct and admissible
factual evidence in support of these contentions.
This can be the
only reason why the discovery order is sought.
[28] This
brings me to an attempt at describing exactly what it is that I am
called upon to decide in this rather unusual interlocutory

application (running into almost 2500 pages).
I also discussed
this issue with Mr Cook during the course of his able address before
me.
It
appears that the applicants must show (presumably on a balance of
probabilities) that they made out a case on these papers for
foul
play on the part of ABSA of the kind which will probably persuade the
court hearing the final liquidation application to exercise
its
discretion against ABSA, even though the applicants are obviously
unable to pay their debts, and, for that reason, fall to
be
liquidated under normal circumstances. Such a finding then ought to
persuade me that the type of exceptional circumstances
exist, see
infra
,
which would justify an order providing for discovery in terms of
rule
35(13).
[29] It
seems to me that for purposes of this enquiry, and in order to decide
whether it is likely that the final winding-up will
be refused in the
circumstances of this particular case, I must also bear in mind that
a debtor’s case based on foul play
is only likely to avoid
liquidation if it is shown that the predominant motive, or purpose of
the applicant in seeking the liquidation
order, is something other
than a
bona
fide
attempt to enforce payment of its claim. In this regard I was
referred by counsel for the applicants themselves, to the case of
Payslip
Investment Holdings CC v Y2K Tec Limited
2001
(4) SA 781
(C) at 789B-G where the learned judge said the following:
“
In
the circumstances, the inference is justified, in my view,
particularly after the bank guarantee have been furnished, that the

predominant motive or purpose of applicant in seeking the liquidation
order, is something other that a
bona
fide
attempt to enforce payment of its claim.”
In
this regard counsel for the applicant
s
referred me to other decisions, including
Millward
v Glaser
1950 (3) SA 547
(W) from which judgment it is clear, according to
counsel for the applicants, that the discretion is a narrow one, but
that where
the sole, or at least the predominant motive actuating the
applicant is not to bring about the winding-up of the company for its

own sake, a Court will exercise its discretion not to wind-up.
Having
considered the winding-up application with regard to the first
applicant (on counsel’s advise I did not read the papers

relating to the winding-up of the second applicant, because I was
told by counsel on both sides that the winding-up application
of the
second applicant is likely to follow the result of the winding-up
application of the first applicant) I deem it appropriate
to remark
that I cannot see a likelihood of the Court ultimately finding that:
“
The
predominant motive or purpose of the applicant in seeking the
liquidation order is something other than a
bona
fide
attempt to enforce payment of its claim.”
As
stated in the authorities quoted: ABSA, one of the big four
commercial banks in the country, is owed massive amounts of money

(more than R1 Billion) by the first applicant alone) by the
applicants, and the debt is escalating by millions of Rand per month.

The properties of the applicants, serving as security, are dropping
in value at a drastic rate as I have already pointed out.
On a
general reading of the papers in the winding-up application, I cannot
see how it can be said that the liquidation was launched
because of a
motive or for a purpose other than a
bona
fide
attempt to enforce payment of the claim. As I have pointed out, such
a defence was also not raised at the time when the opposing
affidavit
was filed. Moreover, it seems to me that the cross-collateralisation
exercise, in order to make all the Universal companies
liable for the
debts of each other, fortifies a conclusion that the winding-up was
nothing else than a
bona
fide
attempt to enforce payment of the claim.
I
am alive to the fact that the final winding-up is to be decided by
another court, and that the discretion, as discussed, will
be
exercised by another court, and that I ought to be slow to usurp the
functions of that court and to express views on the merits
of the
final liquidation prematurely, but, because this issue resorts under
the inquiry which I have to conduct, as described,
it seems to be
appropriate for me to express the views in the way that I did: the
view that I have expressed forms part of the
reasons which I am
obliged to furnish for coming to a decision in respect of this
interlocutory application.
[30] Another
factor, which, in my view, I ought to take into account for purposes
of the enquiry placed before me and for the decision
thereof, is the
legal position with regard to ordering discovery in motion
proceedings as intended by
rule 35(13).
This is the only relief
left, barring the proposed referral to the
Competition
Tribunal, after most of the other relief mentioned in the amended
notice of motion was abandoned,
supra.
The
sub-rule provides that the rule relating to the discovery shall
mutatis
mutandis
apply, insofar as the court may direct, to applications. Such a
direction by the court is an essential prerequisite for the rule
to
apply. See Erasmus:
Superior
Court Practice
,
at B1-262A.
The aforesaid
learned author says the following in this regard:
“
Though
the provisions of this rule relating to discovery apply to
applications as far as the Court may direct, discovery is rare
and
unusual in application proceedings and should be ordered by the court
only in exceptional circumstances … the notion
of exceptional
circumstances does not exist in a vacuum: it is to be gauged within
the broader context of the values of fairness,
equity, openness and
transparency. The factors taken into consideration include that the
claim was for a substantial amount of
money, the nature of the
defendant’s defence, the relevance of the documentation
requested, whether the application was a
fishing expedition, the
timing of the application, that there was a reasonable apprehension
that not all the documentation was
before the court for the just and
fair resolution of the dispute.”
In
Moulded
Components v Coucourakis and Another
1979 (2) SA 457
(W) Botha, J, as he then was, said the following at
462E-F and at 470D-E:
“
I
consider that the Court will exercise an inherent jurisdiction to
order production for such inspection. I should add, however,
that I
have no doubt that such a situation would be an unusual one and that
this is a power that the court would exercise very
sparingly.”
… “In application proceedings we know that discovery is
a very, very rare and unusual procedure
to be used and I have no
doubt that that is a sound practice and it is only in exceptional
circumstances, in my view, that discovery
should be ordered in
application proceedings.”
It
should, however, be pointed out that counsel for the applicants
referred me to what may be a contrary view to be found the recently

published fifth edition of Herbstein and Van Winsen:
The
Civil Practice of the High Court of South Africa
:
“
It
is not clear why discovery in application proceedings has been stated
to be very rare, and unusual. In every application where
disputes of
fact emerged which are referred to oral evidence discovery is
ordered. It is only when no dispute of fact exists that
discovery
would be superfluous. ‘Exceptional circumstances’ is not
a requirement of the rule, and no authority to
that effect was quoted
[in
Moulded
Components
].
In addition the particular application was refused not because of a
lack of exceptional circumstances but because it had been
brought at
a late stage and regarded as a ‘type of fishing expedition’.
It might be that the learned judge had been
influenced by the former
Transvaal
rule 52
which required ‘very exceptional
circumstances’ for discovery before the close of pleadings”.
Of course, in the
present case, the original prayer to have the applications referred
to oral evidence was abandoned, so that the
question of discovery
flowing from such an order does not arise.
Nevertheless, in the
context of this case and the allegations of impropriety on the part
of ABSA, it may be useful to consider the
words of Jones, J in the
case of King Williams Town TLC v Border Alliance Taxi Association,
2002 (4) SA 152
at 156 where he states the following:
“
Another
argument with which I propose dealing at this stage is the suggestion
that the application should be referred to oral evidence
to enable
the respondent to explore allegations that members of the TLC had
acted from corrupt or improper motives and have taken
the decision to
close the Cathcart Street Taxi Rank in bad faith. The reference to
oral evidence or to trial is a proper course
if there is evidence of
corruption or bad faith. The respondent suggests that individual
counsellors may have some interest in
the commercial development for
which the Cathcart Street Taxi Rank has for many years been
earmarked,
but
it alleges no factual foundation for this suggestion
.
It makes the following further allegations: …
Vague
and insubstantial allegations like these are insufficient to create
the kind of dispute of fact which should be referred for
oral
evidence (
Room
Hire Co (Pty) Ltd v Jeppe Street Mansions (Pty) Ltd
1949 (3) SA 1155
(T) at 1163-5;
Da
Mata v Otto NO
1972 (3) SA 858A
at 882D-H.)
If
the respondent genuinely intends to raise a serious matter such as
corruption as an issue it must bring proceedings founded on
fact, not
rumour, innuendo or inference based only on speculation. Otherwise,
the door is open to all litigants to frustrate legal
action brought
against them on notice of motion merely by alleging a rumour of
impropriety.
The suggestion of possible dishonesty cannot be addressed in this
application because I cannot regard it as a genuine dispute
of fact.”
(Emphasis added.)
[31] Against
this background, I have to make a few remarks about the allegations
offered by the applicants on the subject of the
alleged impropriety
or foul play on the part of ABSA.
There
is a host of allegations based on utterances made by probably half a
dozen or more ABSA officials over the years. These
officials are or
were of differing seniority and they belonged to different sections
of the ABSA structure such as “ABSA
Equity” and “ABSA
Debt”. Inferences are drawn from these utterances and
assumptions are made. These “theories”
are further
embroidered upon in the lengthy founding papers of the almost 500
page postponement application launched a couple of
days before the
proceedings commenced before me.
In the context of
this judgment, it is logistically not possible, and in my opinion not
necessary, to deal with each and every
one of these allegations, and
the counter allegations or denials offered by ABSA.
[32] In
my opinion, it is, however, fair to remark that the applicants could
offer no concrete evidence of the alleged foul play
or impropriety
and could do no better than to offer the “rumour, innuendo or
inference based only on speculation” referred
to by Jones, J in
die King Williamstown case,
supra.
Indeed, it appears
that the applicants acknowledge that they do not have the factual
evidence at their disposal: in the replying
affidavit they state the
following:
“
14
ABSA’s criticism that Universal’s case consists of
speculation, is not only inaccurate, it also misses the point.
It is
correct that Universal cannot now provide the direct evidence and
certainty in support of its case – and will present
in the main
applications. But it is sufficient I am advised for purposes of this
application to set out, to the best of Universal’s
ability, the
basis for its case that the liquidation applications
would
appear to be
an abuse and, given the opportunity to examine that
prima
facie
case further, has a reasonable prospect of succeeding as a defence to
the main liquidation applications.” (The emphasis
is that of
the applicants and not mine.)
The applicants also
say the following in their replying affidavit:
“
168
I
accept that Universal faces a tough task to provide the requisite
proof in the liquidation applications to support its case that
ABSA
has abused Universal’s trust and has acted unlawfully. These
are serious charges, and I am fully aware of the implications
of
making such charges falsely or lightly
.
I am however, convinced that they are well founded. I submit
Universal has provided more than ample support
for
present purposes
to establish that: ABSA has a motive to undermine Universal because
in fact it competes directly with Universal; it is in fact
a joint
venture partner of Universal’s; it in fact owed and owes
Universal fiducially duties (which it openly denies) and
it plainly
stands to benefit enormously from Universal’s demise.”
(My emphasis.)
It
appears to me that this is the sort of mischief or shortcomings which
Jones J had in mind in the
King
Williamstown
case, albeit in the context of a referral to evidence. These words
of the applicants, in my view, also amount to an acknowledgement
that
the discovery exercise they are calling for will amount to nothing
less than a fishing expedition in the hope that something
will be
revealed to substantiate their case. The prayer for discovery was
also brought at a late stage and only in reply and,
as I have
demonstrated, long after the original “defences” were
advanced in opposition to the winding-up application.
These are the
same grounds upon which Botha J, according to
Herbstein
van Van Winsen
,
supra
,
declined to order discovery. They are also some of the grounds
listed by Erasmus,
supra,
as factors to be taken into account before deciding whether or not to
order discovery in terms of
rule 35(13).
[33] It
is perhaps useful to refer to one example of the many emails and
other utterances by a number of ABSA officials over the
years
selected by the applicants to support their case based on foul play
on the part of ABSA and the breach of fiduciary duties.
It concerns
2008, one Dabner, appointed by ABSA to represent it on operational
issues concerning the Mall on 14
th
(“MO 14
th”
)
development. Dabner felt that he was entitled to some information
regarding the development which was in the possession of Universal

and he said the following in an email of 14 August 2008 to a
Universal representative:
“
Could
you advise as to why you are reluctant to forward the information to
us? We are once again not being given access to information
which
we are quite entitled to as partners in this venture. The
partnership has not been dissolved and before such time as it has
we
have rights
.”
(Emphasis added by the applicants.)
In
my view this is not an indication of an umbrella partnership
involving all the applicant companies and ABSA. It is common cause

that ABSA took a minority shareholding in only two of the companies,
namely Mogale and MO 14
th
.
If an ABSA official uses the word “partnership” in the
limited sense of the involvement of ABSA in MO 14
th
,
I fail to see how it can be interpreted as a concession of the
existence of an umbrella joint venture type of partnership which
may
or may not give rise to fiduciary duties. It is also fair to assume
that Dabner, who is probably not legally trained, was
not applying
his mind to issues such as umbrella partnerships and fiduciary duties
when he made these utterances.
At this point it is
convenient to quote an extract from the ABSA opposing affidavit to
the interlocutory application where ABSA
explains its stance about
the alleged “joint venture partnership” and also explains
its typical policy when it comes
to taking a minority shareholding in
certain projects which it is financing:
“
8.7 Theodosiou
also seeks to advance (for the first time) a conspiracy theory in
terms of which ABSA is alleged to have switched
its supposed
exclusive ‘joint venture partnership’ with Universal for
one with the Retail Africa Group, and has furthermore
applied for the
liquidation of the Universal companies in order to destroy a
competitor to its new partnership with the Retail
Africa Group.
Theodosiou appears to suggest that this theory underlies, and is
supported by, the alleged non-notification referred
to above (my
note: this deals with alleged non-disclosure by ABSA when applying
for certain mergers to the Competition Tribunal.
Further reference
to these details will be made hereunder, when the relief prayed for
in paragraph 7 of the Notice of Motion comes
under scrutiny.)
8.8 There
is, however, no basis whatsoever for the above conspiracy theory.
ABSA never had any kind of exclusive ‘joint venture

partnership’ with Universal, nor does it have one with the
Retail Africa Group or with any other property developer. ABSA’s

typical policy is to extend debt finance, make commercial loans and
short term (minority) equity investments in particular property

developments which it determines to be commercially feasible on a
project-specific basis, and it seeks negative control of those

projects (by way of a minority equity interest that permits it to
veto certain decisions that require a super-majority of votes;
and by
minority representation on the board of directors) in order to
protect its equity investment. It is important to understand
in this
regard that ABSA is simply a financier of certain property
developments, and is not a property developer. Accordingly,
ABSA’s
only interest is to seek a return on its investment over the short
term and not to compete with other property developers
in the
property development market.”
[34] As
I indicated, ABSA only got involved on this basis with Mogale and MO
14th. ABSA’
s 30%
investment in the Mogale project was notified
to the Competition Commission and unconditionally approved by the
latter in July
2008. The 30% investment in MO 14th was not
notifiable to the Commission because it did not meet the relevant
merger thresholds.
The 30% investment in Wingspan, cited as the
second respondent in the interlocutory application, was notified to
the Commission
and unconditionally approved by the Tribunal on 8
October 2008. More reference to these issues will be made when the
relief sought
in paragraph 7 of the notice of motion comes up for
consideration.
[35] Counsel
for ABSA, in argument before me, and when dealing with these
allegations of an “umbrella agreement” referred
me to the
fact that the previous attorney of record of Universal (who’s
mandate evidently has been terminated) wrote a lengthy
letter to
ABSA’s attorney on 17 October 2008, shortly before the
liquidation applications relating to the first and second
applicants
were launched. I was informed that it appears form the evidence that
this letter was drafted after some six weeks of
consultation between
the previous attorney and counsel and, presumably, Universal
officials. The letter is annexure “2A”
to the founding
affidavit in the winding-up application of the first applicant (as
respondent). In that letter, the only reference
to an “umbrella
agreement” has to do with the MO 14
th
project. No reference is made to a “general umbrella
agreement” involving the whole Universal group.
[36] Counsel
for ABSA also submitted, convincingly in my view, that, far from
unexpectedly foreclosing on the debt and setting up
the first and
second applicants for liquidation against the spirit of the
so-called “umbrella agreement”, as argued
by the
applicants, the foreclosure was preceded by a long process of
negotiation and warnings to the applicants that steps will
be taken
if payment was not forthcoming, in one particular instance by 31 July
2008. Already in April 2008, one Murgatroyd, who
was in charge of
administering this debt on behalf of ABSA, wrote the following email
in this regard:
“Gentlemen,
This will not be
dealt with as part of the current request doing the rounds.
I will be short in
my reply. This matter is simple.
1.
For
the CPF debt exposed (R100 million) in MO 14
th
there is a mortgage (R208 million). This stays as is.
2. Repayment of the
debt must take place by 31 July 2008.
3. No increases in
the debt will take place between now and repayment date unless we
have irrevocable undertakings/bank guarantees
acceptable to ABSA.
4. The
UPP says in MO 14
th
are
to be returned as security for the wider group debt.
5. If 3 is
acceptable to us then a CPF debt application will be prepared and
sent to heaven for approval.
Hope this helps.”
The
reference to heaven is to Barclays Bank in London which, as a
majority ABSA shareholder, also had to sanction the advances made
to
Universal. I was informed that it was Barclays which insisted on the
cross-collateralisation in order to bind all the Universal
companies
to facilitate the collection of the debts.
After
the Murgatroyd email,
supra,
meetings were held between the ABSA and Universal representatives and
efforts were made by the latter to bring about an extension
of time
for payment. The whole chronology of events was spelt out by counsel
for ABSA. I see no point in repeating it for purposes
of this
judgment. For example, on 7 May 2008, Ms. Corbett, a senior
Universal official, sent an email to one Evans, an advisor,
saying
the following:
“
As
you are aware the situation with ABSA has become quite serious. Do
you have any contacts that we can maybe approach at Standard
Bank or
Nedbank that we can look at to take out the ABSA debt. Maybe you and
I can meet before the First Africa meeting on Monday
to discuss a
strategy.” Evans could not assist in the end.
[37] In
an effort to avoid the looming foreclosure after the payment date of
31 July 2008, mooted by Murgatroyd already in April,
supra,
one of the Theodosiou brothers himself, Mr A Theodosiou, wrote the
following letter to ABSA on 19 May 2008:
“
We are very
grateful for the offer of the additional facilities, as detailed in
your term sheets. We beg you however, to please
accept the date
changes as suggested by us, for the reasons we detailed below.
The
rapidly increasing interest rate situation
has created a recessionary mood in the economy, making purchasers
very slow, cautious and methodical in their purchasing decisions.

Despite the poor economic climate however, because of the very high
quality of the two investments we have on offer, we have nevertheless

had a favourable response.
At
the time the original dates reflected in your terms sheets were
suggested, the clim
b
in interest rates had been mild and the market was still buoyant and
on this basis, we felt (at that stage) that these dates were

achievable.
In order that we do
not commit to dates that are perhaps not really attainable in this
recessionary economy, we request that you
please consider the dates
we have altered, as being more realistic. Despite this, we will make
every effort to keep, as closely
as we are able, to the original
dates (prior to the requested alterations).
Please accept that
we take our responsibilities to yourselves in the most serious light
and please know that we are working very
hard to ensure that the
income from these investments increases rapidly, to ensure that the
full value of these investments is
realised.” (Emphasis
added.)
The “term
sheets” referred to deal with a progress program with target
dates involving the proposed sale of the two
shopping centres of the
first and second applicants with a view to paying or reducing the
ABSA debts. These dates were rescheduled
from time to time but the
debtors could not meet their commitments.
There
was even a “winding-down” agreement drafted and
considered. According to counsel for ABSA this was done early
in
October 2008, before the launch of the winding-up applications of the
first and second applicants later in October. In terms
of this
agreement the liabilities of all the Universal companies were listed
and would be acknowledged. Arrangements were made
as to marketing of
the shopping centres and there were even options granted to ABSA to
purchase the shopping centres of the first
two applicants. This is
annexure G4 to the opposing affidavit to the interlocutory
application. It is not clear whether the agreement
was actually
signed, but, in my view, it illustrates the mood prevailing between
the parties during the time leading up to the
launching of the
winding-up applications in respect of the first two applicants. My
overall impression is that the applicant company
got into trouble
because of the market forces and the world wide economic downturn as
explained by Mr Theodosiou in his letter,
supra.
I
find no clear evidence of a “conspiracy” or breach of
fiduciary duties, flowing from an “umbrella joint venture

partnership”. As counsel for ABSA point out in the heads of
argument, the applicants have been unable to state when, where
and by
whom the alleged “umbrella” agreement was entered into.
It is also fair to assume that such an agreement, if
it existed,
would have had to be authorised by Barclays Bank in London. The
terms of the alleged agreement were not spelled out
by the applicants
and there was no suggestion of an agreement to the effect that ABSA
would be precluded form protecting its rights
in terms of the series
of loan agreements giving rise to the massive debts (because of the
alleged umbrella agreement). Given
the fact that the applicant
companies are all individual entities which don’t have common
shareholders, there was no indication
of which of these companies, if
any, were parties to the alleged joint venture. It was also not
explained why, if the joint venture
existed, ABSA only had shares in
Mogale and MO 14th and not in all these companies. There was no
suggestion that the “umbrella
agreement”, such as it may
be, precluded ABSA from lending money to other companies outside the
alleged “joint venture”.
Counsel
for ABSA also pointed out that each of the written agreements relied
upon by ABSA in the liquidation applications, contain
“non
variation clauses” so that reliance on another “umbrella
agreement” will be prohibited unless the
original agreements
had been amended and such amendments reduced to writing, which
clearly was not the case. It was also pointed
out by counsel that
ABSA does not only rely on the MO 14
th
breach in failing to make payment on 31 July 2008 which lead to the
foreclosure on the strength of the cross-collateralization.
ABSA
also relies on allegations that the various Universal companies were
in breach of their own agreements which are common cause
in most
instances.
[38] I
repeat my acknowledgement of the fact that the decision in respect of
the final winding-up applications will be made by another
court at a
future date and that I must be slow to pre-judge any of the issues.
Nevertheless, as I have already pointed out, it
seems to me that
these aspects I have mentioned form part of the enquiry before me
when it comes to deciding whether or not to
exercise my discretion in
favour of ordering discovery.
[39] Another
factor, which in my view must be considered for purposes of the
exercise of that discretion is the practical result
of granting a
discovery order: the documents in which the applicants want insight,
and which they listed, are of an extremely wide
ranging nature.
Given the history of this litigation, it is fair to assume, in my
view, that a blanket discovery order is likely
to result in lengthy
interchanges between the parties including interlocutory applications
in terms of
rule 35(3)
flowing from complaints of failure to make
full discovery and related disputes. Such a state of affairs is
likely to delay the
liquidation process almost indefinitely. I
cannot see how such a result, in the context of the present matter
with huge debts
escalating by the day, can be in the interest of
justice. When I debated this with counsel for the applicants, they
offered to
present me with a condensed list of documents the
applicants would seek to inspect in the event of a discovery order
being made.
Counsel was not ready to furnish this list when the
proceedings came to an end on 31 July, but I gave then an opportunity
to do
so during the following week with a corresponding opportunity
to ABSA to comment thereon briefly. I duly received the condensed

list and the comments. Having considered these documents, and, in
particular the wide ranging collection of documents still sought,
I
am not persuaded that this gesture on my part will serve to avert the
“discovery war” which I anticipate and which
I described.
[40] Finally,
I deal with two brief submissions made by counsel for ABSA in the
course of opposing the granting of a discovery order:
1. Any attempt to
justify the discovery of specific documents should have been set out
in the founding affidavit to enable ABSA
to deal therewith. This was
not done. The applicable legal principles are trite.
2. A request for
making the provisions of
rule 35
applicable to the various
applications should have been made by each of the respondents in each
of the liquidation applications
because of the different
circumstances prevailing and the different characteristics of the
companies and the fact that they are
not linked by a common
shareholding.
In my view there is
much to be said for these submissions.
[41] By
way of a concluding remark on this issue, I pose the question whether
the whole exercise embarked upon by the applicants
to make out a case
based on alleged breach of fiduciary duties by ABSA flowing from an
alleged umbrella joint venture partnership
is at all relevant to the
winding-up process initiated in respect of, at least, the first two
applicants. Even if such a breach
is proved, the fact remains that
the applicants are indebted to ABSA in huge amounts, escalating by
the day. I find it difficult
to see how even a finding of a breach
of fiduciary duties as alleged can lead to the liquidation process
being suspended indefinitely.
The debts, surely, cannot remain
unpaid indefinitely to the prejudice of the body of creditors of all
these companies.
[42] For
the record, I add that an earlier point
in
limine
raised on behalf of ABSA with regard to the non-joinder of the
liquidators as co-respondents was not proceeded with. After the

adjournment of the proceedings on 31 July, I was also informed by
counsel for ABSA that an argument raised by them aimed at persuading

me that the third applicant was not properly before me because a
resolution purporting to authorise its directors and attorneys
to
pursue these applications on its behalf was said to be flawed, had
also been abandoned.
[43] For all these
reasons I have come to the conclusion that the applicants have failed
to make out a proper case for a discovery
order as intended by the
provisions of
rule 35(13).
In the result, the relief prayed for in
paragraphs 3, 4.1 and 5 of the Notice of Motion falls to be
dismissed.
PARAGRAPH 7 OF
THE NOTICE OF MOTION: REFERRAL OF THE COMPETITION COMPLAINT AND
APPLICATION FOR THE REVOCATION OF THE MERGERS TO
THE COMPETITION
TRIBUNAL FOR CONSIDERATION ON THE MERITS THEREOF IN TERMS OF SECTION
65(2)(b) OF THE COMPETITION ACT, 89 OF 1998
(“THE ACT”)
AND HOLDING OVER OF THE LIQUIDATION APPLICATIONS PENDING THE
DETERMINATION OF THE ISSUES BY THE COMPETITION
TRIBUNAL
[44] The
relevant portions of section 65(2) of the Act reads as follows:
“Civil
Actions and Jurisdiction –
(1) …
(2) If,
in any action in a
civil
court,
a
party raises an issue concerning conduct that is prohibited in terms
of this
Act,
that court must not consider that issue on its merits, and –
(a) …
(b) otherwise, the
court must refer that issue to the Tribunal to be considered on its
merits, if the court is satisfied that –
(i) the
issue has not been raised in a frivolous or vexatious manner; and
(ii) the
resolution of that issue is required to determine the final outcome
of the action.”
[45] On
a general reading of the introductory portion of sub-section (2), it
seems that this Court, when faced with a request by
a party raising
an issue concerning prohibited conduct in terms of the Act to be
referred to the Tribunal, “must not consider
that issue on its
merits” and refer it to the Tribunal if satisfied on the two
questions raised in section 65(2)(b) namely
that the issue has not
been raised in a frivolous or vexatious manner and that the
resolution of the issue is required to determine
the final outcome of
the action.
I
raised this point with Mr Rogers who presented argument on behalf of
ABSA. He submitted, correctly in my view, that although
section
65(2) states that the Court must not consider the prohibited practice
issue on its merits, the Court obviously can and
must do so for the
limited purpose of assessing whether the issue has been raised in a
frivolous or vexatious manner, since it
would be frivolous or
vexatious for a litigant in civil proceedings to allege a prohibited
practice for which there is manifestly
no legal or factual
foundation. Moreover, the party raising the issue must set out
sufficient admissible evidence to substantiate
the existence of the
alleged prohibited practice and to show why its determination is
required for the civil case, as intended
by section 65(2)(b)(ii). In
support of these submissions, Mr Rogers referred me to the case of
Platinum
Holdings (Pty) Ltd and Three Others v Victoria and Alfred Waterfront
(Pty) Ltd and Another
which judgment was delivered by the Supreme Court of Appeal on 28 May
2004 under case number 428/2003. For some reason, it seems
that this
judgment was not reported. It is convenient to quote a portion of
paragraph [16] of the typed judgment:
“
Section
62(2) (my note: this is an obvious error and should be a reference
to section 65(2)) prohibits a civil court from considering
the merits
of a competition issue; it must refer it to the Competition Tribunal
provided that it is satisfied that the issue has
not been raised
frivolously or vexatiously and that the outcome of the action depends
on the resolution of the competition issue.
It is clear that the
prohibition against consideration of the merits of the competition
issue does not mean that the court can
give no consideration to the
issue at all. It merely means that it may not attempt to resolve the
issue, but the question whether
the competition issue is frivolous or
vexatious is an issue for the Court, not for the Competition
Tribunal.”
Against this
background, it was argued by counsel for ABSA that I am entitled to
consider the matter for these limited purposes
and also to take into
account the submissions made in the heads of argument presented by
counsel. I did not get the impression
that counsel for the
applicants argued otherwise.
[46] In
their original Heads of Argument, counsel for the applicants only
dealt very briefly with the competition issues. Counsel
for ABSA, Mr
Rogers and Mr Wilson, then presented full Heads of Argument on the
competition issues, and, at the commencement of
the proceedings,
counsel for the applicants presented Heads of Argument on the
competition issues in reply to the submissions made
by counsel for
ABSA. I have had the benefit of considering these Heads of Argument
and hearing submissions from both sides during
the proceedings.
[47] There
are four broad categories of prohibited practices proscribed by
chapter 2 of the Act, namely restrictive horizontal practices

(section 4), restrictive vertical practices (section 5), abusive
dominance (section 8) and price discrimination (section 9).
[48] The
forum of first instance with jurisdiction to determine whether a
prohibited practice has occurred is the Competition Tribunal

established by section 26 of the Act, with an appeal lying to the
Competition Appeal Court. There are two ways in which an alleged

prohibited practice can come before the Tribunal for adjudication:
1. Upon a referral
of a “complaint” to the Tribunal by the Competition
Commission or by a complainant pursuant to the
complaint procedures
in the Act;
2. Upon referral to
the Tribunal by the High Court pursuant to section 65(2) of the Act.
With regards to the
first method (the complaint procedure) a complaint must be initiated
by the Commission or submitted to the Commission
by a complainant in
terms of section 49B. The Commission must in either event conduct an
investigation into the complaint and
within a year it must either
refer the complaint to the tribunal or issue a notice of non-referral
in which latter event the complainant
may refer the complaint to the
Tribunal. The procedure before the Tribunal is by way of an exchange
of affidavits followed by
a trial.
[49] With
regard to the second method (the section 65(2) procedure raised in
paragraph 7 of the amended Notice of Motion) counsel
for ABSA pointed
out that this procedure has nothing to do with the complaint
procedures,
supra,
and the Commission is not involved at all. The text of section 65(2)
and the ambit within which the Court must decide whether
or not to
grant the request for the referral have been dealt with. If the
court refers the issue to the Tribunal, the latter is
seized directly
with jurisdiction. The Commission has no jurisdiction in the matter,
since the Commission’s statutory power
to investigate
prohibited conduct is triggered only when a complaint is being
initiated under section 49B and where the referral
to the Tribunal
will potentially come from the Commission or from the complainant
rather than from a civil court.
[50] Counsel
for ABSA, correctly in my view, argued that the onus to bring about a
referral in terms of section 65(2) is on the
party who wants the
issue to be referred to the tribunal. This party must set out
sufficient admissible evidence to substantiate
the existence of the
alleged prohibited practice and to say why its determination is
required for the civil case. Unless the party
does so, the court
cannot be satisfied that the issue is not being raised frivolously or
vexatiously and that its adjudication
is required for the civil case.
Section 65(2) provides that the Court must refer the issue
if
it is satisfied
of the relevant matters. The party seeking the referral must satisfy
the Court on those matters and must therefore adduce the
necessary
evidence.
Given
this
onus,
so counsel for ABSA argued, it is not permissible for the party who
seeks the referral merely to allege that he suspects or believes
that
a prohibited practice may have occurred. He must positively allege a
prohibited practice and adduce admissible evidence in
its support or
at least satisfy the court that he has admissible evidence at his
disposal to support his case on the issue. This
party can also not
attempt to justify the referral by contending that the issue can be
investigated by the Commission using its
statutory investigative
powers. When the matter is referred to the Tribunal in terms of
section 65(2), the Commissioner has no
investigative powers or
involvement. The referring party must therefore be able to establish
his case in the Tribunal without
the Commission’s help, and in
order to satisfy the court that he is not acting frivolously or
vexatiously he needs to show
in the civil case that he has evidence
at his disposal to prosecute the issue in the Tribunal. I find
myself in respectful agreement
with these submissions.
[51] It
appears that the applicants, when launching the interlocutory
application, envisaged in their founding papers a stay of
the High
Court proceedings once a complaint had been lodged with the
Commission. The applicants stated that it would apply to
his court
for a stay pursuant to section 65 once the complaint had been lodged.
For this reason, it appears, the original notice
of motion in the
interlocutory application contained no prayer for a stay in order to
allow the competition issues to be adjudicated
by the competition
authorities. Such a prayer was only introduced in the amendment in
the form of paragraph 7. Counsel for ABSA
point out that although
the applicants are free to initiate a complaint with the Commission,
such complaint has no relevance to
the pending liquidation
application in this court. The only way in which the alleged
prohibited conduct can be made relevant in
the liquidation
proceedings is in terms of section 65(2), but, as indicated, the
section 65 procedures do not involve the initiating
of a complaint
with, nor investigation by the Commission. The applicants initiated a
complaint on 11 June 2009 by submitting the
prescribed form to the
Commission. In terms of the Act the Commission therefore has until 11
June 2010 to investigate the complaint,
whereafter the Commission may
elect to refer the complaint to the Tribunal or to issue a notice of
non-referral, in which latter
event the applicants could within the
prescribed time refer the complaint to the Tribunal.
After
the paragraph 7 relief was introduced in the amended notice of
motion, there appeared to be two parallel processes underway:
the
section 65(2) request which, if granted, will result in the Tribunal
being directly seized with the issue without any further

investigation by or referral from the Commission. There is also the
complaint initiated with the Commission which is a different
route to
a possible referral to the Tribunal. Counsel for ABSA argued that
these two processes cannot run in tandem. They argue
that the
complaint lodged with the Commission is at best for Universal a fall
back position in case this Court refuses to make
a referral in terms
of section 65(2). Either way, the complaint lodged with the
Commission has no significance as such for this
Court. The only
question for this Court is whether the applicants have, in the
liquidation proceedings, raised an issue which
passes muster for the
referral to the Tribunal in terms of section 65(2). In their Heads
of Argument, counsel for the applicants
disagree with this
contention. They refer to the Competition Tribunal judgment in
JJP
Bezuidenhout v Patensie Sitrus Beherend Ltd [
1999-2000]
CPLR 201
(CT). They argue that in terms of this authority, there is
nothing wrong with a parallel running of a complaint to the
Commission
along with a referral from the High Court to the Tribunal
under section 65(2). In his address, Mr Rogers argued that the
Patensie
case is to be distinguished because it was a combination of a
referral under section 65(2) and an application for interim relief.

Therefore, there were not two parallel processes. It seems to me
that this whole issue is a peripheral one for present purposes.
It
appears to me that what I have to decide is whether the applicants
have managed to raise an issue which passes muster for a
referral to
the Tribunal in terms of section 65(2).
[52] I
now turn to consider a series of arguments presented by counsel for
ABSA in their opposition to the request for a referral.
(i)
The
competition issues were not timously raised
[53] In
the founding papers in the interlocutory application the applicants
did not identify the prohibited practices which in their
view should
be referred to the Tribunal in terms of section 65(2). This was done
for the first time in the replying papers filed
on 19 June 2009. In
essence, the replying papers in the interlocutory application
represent the first occasion on which the applicants,
in answer to
the liquidation applications, raised an issue purportedly requiring
adjudication by the Tribunal. This was about
eight months after the
liquidation applications were launched against the first and second
applicants and a month and a half after
the deadline (30 April 2009)
set by the Court for the delivery by the applicants of supplementary
answering affidavits in those
two liquidation applications and of
answering papers in all the remaining liquidation applications. It
was in these supplementary
answering affidavits, so it was argued,
that the competition issues ought to have been raised. In my view
there is much to be
said for these submissions. There is no proper
explanation for this disregard of the agreed timetable. The
interlocutory application
was launched on 3 April and the applicants
do not state that any of the facts on which the competition complaint
is based only
came to light thereafter. The issues should have been
raised in the supplementary answering affidavits which had to be
filed by
30 April. Even if it were permissible for the applicants to
raise the competition issues, by way of an interlocutory application,

the details and evidence for the complaint and the prayer for a
section 65(2) referral should have been contained in the founding

papers. A case cannot be made out in reply. These principles are
trite. No condonation was sought for this default on the part
of the
applicants. In their Heads of Argument, counsel for the applicants
point out that there is only a highly technical and
formal dimension
to this objection. They submit that the alleged non-disclosures with
regard to the mergers and also the “factual
matrix” on
which the complaint would rest was raised in the founding papers.
They argue that the basic facts that underlie
the complaint are the
same basic facts on which the applicants rely in the founding papers
to seek an entitlement to discovery
to place itself in the position
fully to substantiate and establish “the conspiracy theory”.
[54] The
fact remains that the section 65 referral was not muted in the
founding papers and in the original notice of motion. This
is
something which ought to be considered when the request for a
referral is adjudicated upon.
(ii)
The
section 65 (2) request is premature
[55] It
was argued on behalf of ABSA that what section 65(2) envisages is
that the civil litigant will raise the issue in the ordinary
way in
the course of pleadings. In liquidation proceedings, the issue ought
to be raised by the respondent company in the answering
papers in the
liquidation application where the defences and the request for a
referral would be set out. This would be dealt
with in reply by the
applicant and decided by the court. If the prohibited practice issue
were the only defence, the court would
have to assess whether the
respondent has made out a case for the referral. If there were other
defences as well (as in the present
case, and I was informed by
counsel for the applicants that these defences have not been
abandoned) the Court would need to adjudicate
those other issues
first, because if the respondent succeeded in the other defences
(resulting in the dismissal of the liquidation
application) the
resolution of the competition issue would not be required in order to
determine the final outcome as intended
by section 65(2)(b)(ii). The
same would apply if grounds for liquidation were otherwise made out
because a successful outcome
in the Tribunal would then not result in
the Court refusing the liquidation applications. In that case it
will be established
that the issues in question have been raised
frivolously and vexatiously and that the determination is in any
event not required
for the adjudication of the liquidation
application. It would be intolerable, so it was argued on behalf of
ABSA, for the parties
or the tribunal to be put to the expensive and
lengthy procedure of a referral in circumstances where, in the event,
the court
was able to dispose of the main case without needing to
have the competition issue answered.
[56] It
was argued on behalf of ABSA that the applicants’ course of
action involves an impermissible departure from the procedure

mandated by section 65(2): instead of raising the competition issue
in answering papers in the liquidation applications, the applicants

initiated these proceedings under a separate case number, thereby
becoming an applicant in the interlocutory proceedings and purporting

to arrogate to itself the last word in reply. On the applicants own
version, the answering papers in the liquidation applications
are not
complete and ought to be supplemented. In the answering affidavits
to the liquidation applications the applicants raised
defences which
do not concern the competition issue (and which they haven’t
abandoned) and further non competition defences
are foreshadowed in
the interlocutory papers. Accordingly, so it is argued, and before
there can be any question of a referral
to the Tribunal, the
pleadings in all the liquidation applications must be closed. This
includes the delivery of further affidavits
which the applicants may
be permitted to file and the filing of replying affidavits by ABSA.
If the pleadings in the liquidation
application are closed the Court
will first need to hear argument concerning the non-competition
defences raised and decide those
defences and only if those defences
fail the court will then know that all that remains is the
competition issue which can then
be decided to determine whether it
would effect the outcome of the liquidation applications as intended
by the provisions of section
65(2)(b)(ii).
[57] For
all these reasons, it is argued, convincingly in my view, that the
request for a referral, before the pleadings are close
in the
liquidation applications, is premature and ought to be denied for
that reason alone.
[58] Counsel
for the applicants argued that this contention on behalf of ABSA
ignores the relationship between the competition issue
and the other
issues raised by Universal in resisting the winding-up. They argue
that all the arguments advanced by the applicants
in resisting the
winding-up ultimately relate to the question whether the Court
should, in the exercise of its discretion, order
the winding-up in
circumstances where there is conduct which, on Universal’s
contentions, is unconscionable. They argue
that the
unconscionability inherent in the alleged anti-competitive conduct of
ABSA is not neatly severable from that inherent
in the “conspiracy
theory” in such a way as to make it sensible for the Court to
consider these issues piecemeal.
I have difficulty with this
argument. The fact is that neither the competition issues nor the
“conspiracy theory”
were raised in lengthy opposing
affidavits presented by the first and second applicants in the
winding-up applications. If a Court
were to find that final
liquidation ought to follow irrespective of the alleged competition
issues or “conspiracy theory”,
which possibility I mooted
when dealing with the question of relevance earlier in this judgment,
it would mean that the resolution
of the competition issues is not
required to determine the final outcome of the liquidation
application as intended by the requirements
of section 65(2)(b)(ii).
[59] Against
this background, I am of the view that the referral issue was raised
prematurely and irregularly. It should have been
raised in the
supplementary opposing affidavit which the court ordered to be filed
by 30 April. Instead, it was raised (effectively
only in reply, as I
have pointed out) in a lengthy interlocutory application launched
well before the 30
th
of April under a different case number and without an adequate
explanation by the applicants for the failure on their part to comply

with the court order in the first place. They also did not apply for
condonation for this failure. The interlocutory application

introduced a host of issues, such as discovery, referral to evidence,
and rectification, in my view all aimed at delaying the liquidation

process, and only introduced the referral issue in the reply. When
all this had to be heard, by direction of the Deputy Judge
President,
before the liquidation applications, it meant that the referral
debate was effectively placed on the agenda before the
general
exercise of adjudicating upon the final liquidation applications came
into play. In my view this approach is not in line
with what is
intended by the requirements of section 65(2)(b), and, in that sense,
the request for a referral is premature. A
premature consideration
of the referral issue, to the exclusion of all the facts and issues
flowing from the final liquidation
applications, also, in my view,
makes it difficult for the applicants to discharge the
onus,
supra
,
of satisfying the Court that resolution of the competition issues is
required to determine the final outcome of the liquidation

applications, as intended by the provisions of section 65(2)(b)(ii).
[60] Nevertheless,
in their comprehensive heads of argument, and after raising the issue
that the request for a referral is premature,
counsel for ABSA made a
series of submissions on the section 65(2) issues on the basis that
even if the liquidation pleadings were
closed and even if the
competition issue were the only defence in the liquidations
applications, the request for a referral must
nevertheless fail on
both of the section 65(2) qualifications.
(iii)
THE
SECTION 65(2) ISSUES
[61] Paragraph 7 of
the amended Notice of Motion asks for the referral of two broad
matters to the Tribunal in terms of section
65(2) namely (a)
Universal’s application for the revocation of certain mergers,
and (b) the issues in the complaint document
concerning alleged
prohibited conduct.
(a)
Revocation
of mergers
[62] The merger
approvals which the applicants attack are the approvals granted by
the Tribunal in respect of the following two
large mergers:
(1) ABSA’s
increase in its shareholding in Ballito Junction Development (Pty)
Ltd (“BJD”) from 50% to 100% (approved
by the Tribunal on
23 September 2008.)
(2) ABSA’s
acquisition of a 30% shareholding (together with minority
protections) in Wingspan (approved by the Tribunal on
8 October
2008).
[63] On
27 March 2009 (about six months after approval and implementation of
the two mergers) the applicants (Universal) wrote to
the Commission
alleging that ABSA had been guilty of non-disclosure and deceit in
seeking merger approval and requesting the revocation
of the merger
approvals.
[64] Universal’s
letter to the Commission was in essence a request for the Commission
to investigate the alleged non-disclosure
and deceit with a view to
bringing a revocation application in terms of section 16(3) of the
Act.
[65] On
24 June 2009 the Commission notified Universal’s attorneys (a
copy of the letter was placed before me during the proceedings)
that
the Commission had considered Universal’s allegations, and
analysed the facts available to the Commission and had concluded
that
there had been no non-disclosure or deceit and that there were
insufficient grounds for the Commission to bring a revocation

application.
[66] Counsel
for ABSA submitted that this is the end of this particular line of
attack by Universal. The Act does not entitle Universal
itself to
bring an application for revocation. At most, Universal might
perhaps apply to review and set aside the Commission’s
decision
not to bring a revocation application. There is no basis for
concluding that Universal will bring such an application
or, if it is
brought, that it has any prospect of success.
[67] It
was also argued by counsel for ABSA that Universal’s attempt to
have the mergers revoked does not have anything to
do with section
65(2). The only thing that can be referred by the Court to the
Tribunal in terms of section 65(2) is “an
issue concerning
conduct that is prohibited in terms of the Act.” The conduct
which the Act prohibits is, as noted, set
out in sections 4, 5, 8 and
9. The disputed disapproval of a merger in terms of Chapter 3 is not
an issue which the Court can
refer to the Tribunal in terms of
section 65(2) because it does not concern prohibited conduct.
Moreover, so it was argued, to
permit such a referral would in effect
be to grant a civil litigant the right to seek revocation in
circumstances where section
16(3) reserves this right exclusively to
the Commission. In concluding their argument, counsel for ABSA
submitted that the attempt
to include the revocation of the mergers
as an issue in the liquidation proceedings was frivolous and
vexatious. The revocation
issue is not something which
jurisdictionally falls within the ambit of section 65(2). It was also
argued that the applicants fail
to state why the merger ruling could
be relevant to the liquidation applications.
(b)
The
alleged prohibited conduct
[68] At
the outset it was submitted by counsel for ABSA that the complaints
as a whole are imprecisely formulated and unsupported
by factual
(including expert) evidence. They also pointed out that the
applicants have made no proper attempt to show why a determination
of
the complaints by the Tribunal would be relevant to the outcome of
the liquidations.
[69] Counsel
also point out that Universal does not claim to have evidence to
enable it successfully to prosecute the complaints.
The deponent to
the replying affidavit admits that Universal “cannot now
provide the direct evidence and certainty in support
of its case”.
He claims, however that “it is sufficient … for
purposes of this application to set out, to the
best of Universal’s
ability, the basis for its case that the liquidation applications
would
appear to be
(Universal’s emphasis) an abuse and, given the opportunity to
examine that prima facie case further, has a reasonable prospect
of
succeeding as a defence to the main liquidation applications.”
In order to succeed, so it was argued, it is necessary
for Universal
to show not merely that the liquidation proceedings would,
prima
facie,
“appear to be an abuse”, but rather that they do in fact
constitute an abuse. This, on the deponent’s own version,

Universal (the applicants) failed to do. In their complaint to the
Commission (which, as noted, is irrelevant in the context of
a
section 65(2) referral) the applicants also asked the Commission to
use its powers to investigate and procure information. This
once
again demonstrates, so it was argued, that the applicants do not have
any “direct evidence” to support their various

allegations.
[70] Not
all the complainants listed in the complaint to the Commission are
parties (as applicants or otherwise) to the interlocutory

application. One such absent party is a company called Mogale City
Mall (Pty) Ltd (“MCM”) which is relevant to the
so-called
Krugersdorp issue raised in the complaint.
(aa)
The
Krugersdorp issue
[71] The
applicants allege that ABSA has been guilty of a section 4(1)(a)
contravention in respect of certain property in Krugersdorp.
This
section concerns restrictive horizontal practices between two or more
competitors which substantially lessened competition
in a relevant
market. The applicants contend that ABSA has cooperated with one of
ABSA’s competitors in a way which reduces
competition in a
relevant market.
[72] MCM
owns a vacant property in Krugersdorp (the Mogale City Property)
intended for development as a shopping mall. MCM is currently
owned
as to 70% by a company controlled by Theodosiou Trusts and 30% by
ABSA. The acquisition of the 30% stake was approved by
the
Competition Tribunal as a merger on 7 July 2008.
[73] ABSA’s
conduct which is alleged to contravene section 4(1)(a) has to do with
its supposed involvement in another vacant
property in Krugersdorp
(“the Heritage Mall property”) also intended for
development into a shopping centre. The applicants’
case is
that the Heritage Mall property is owned by Heritage Village Shopping
Centre (Pty) Centre (“HVS”), that HVS
is owned by
Wingspan and that ABSA has a joint venture with Wingspan to develop
the Heritage Mall property. The argument is that
ABSA and Wingspan,
by virtue of their interest in the Heritage Mall Property, are
competitors who are acting in concert with detrimental
effects for
MCM and the latter’s competing property (the Mogale City
property.)
[74] It
is argued on behalf of ABSA that this complaint is fraught with
difficulties. There is no expert evidence to identify the
relevant
market. A proper factual foundation for market definition is absent.
There is also a failure to distinguish between
the two product
markets identified by the applicants namely super-regional malls and
regional malls. The applicants have also
provided no evidence that
Wingspan (in which ABSA has a 30% stake) owns HVS (the owner of the
Heritage Mall property). ABSA alleged
in its answering papers that
Wingspan has no interest in HVS, and that HVS is owned by certain
individuals and trusts. These facts
are confirmed by Mr Kruger, a
director of Wingspan. Certain of the shareholders of HVS are also
involved in Wingspan but obviously
this does not mean that ABSA,
through its 30% shareholding in Wingspan, also has an interest in
HVS.
I point out that
this issue which, in my view, is in any event not relevant to the
decision of the winding-up applications of the
first and second
applicants, attracted a great deal of debate between the parties
during the proceedings before me. Further affidavits
were filed by
both sides to persuade me that Wingspan does (or does not) have an
interest in HVS. The last of this flurry of affidavits
which I
allowed as part of the record just before the proceedings adjourned
on 31 July, is an affidavit by Etienne Martin Eygenberger,
a director
of Wingspan. He states that Wingspan had a shareholding in Heritage
Village Shopping Centre (Pty) Ltd (“HVS”)
before 28
February 2008. Because this shareholding was to be specifically
excluded from the ABSA/Wingspan transaction, Wingspan’s

shareholding in HVS was transferred to Kruger Investment Trust and
three other trusts (collectively called “the trust”).

The trust is entirely unrelated to Wingspan. The effective date of
the transfer was 28 February 2008, well before the merger
was
approved. I see no reason to reject this evidence. I find no direct
evidence on oath offered by the applicants which can
positively
discredit the evidence of Eygenberger. In any event, as I have
stated, this appears to me to be a peripheral issue,
at best, for
present purposes.
It consequently
appears that ABSA has no involvement at all in any property in
Krugersdorp, other than the Mogale City Property
(through ABSA’s
30% shareholding in MCM).
The
case of the complainants is not that ABSA and Wingspan each have
their own shopping centre interests in Krugersdorp and that
they have
agreed as to how they will conduct those respective businesses. The
complaint concerns alleged cooperation between ABSA
and Wingspan as
alleged controllers of a single business (the Heritage Mall
Property). It is argued that their co-operation in
respect of a
single business can never amount to a restrictive horizontal practice
between them, because the evil at which section
4(1) is aimed is
co-operative conduct between two or more businesses operating at the
same level in the supply chain and which
should be competing
independently.
[75] There
is another argument on behalf of ABSA in that both the Mogale City
Property and the Heritage Mall Property are vacant,
and development
is some years off. Accordingly, the owners of these properties
cannot yet be competitors with each other in the
market for
super-regional or regional malls in Krugersdorp. MCM and HVS are
only potential competitors, and one or both of them
may in the event
never develop their properties into shopping centres. On behalf of
the applicants, a submission was made that
in a proper case, the
competition legislation can also be applied in the case of potential
competitors. I deem it unnecessary to
express a view on this
argument.
[76] In
the end, counsel for ABSA argue that the whole Krugersdorp issue is
in any event irrelevant to the fate of the liquidations.
If any
party is being harmed by ABSA’s supposed anti-competitive
conduct in Krugersdorp it must be MCM. MCM, while it is
the
thirteenth applicant in the complaint lodged with the Commission, is
not one of the Universal applicants in the interlocutory
application
nor is it a company for who’s liquidation ABSA has applied.
The fact that MCM is not a Universal applicant must
also lead to the
conclusion that the Universal applicant did not have
locus
standi
to seek a referral of this particular complaint to the Tribunal in
terms of section 65(2). Counsel for ABSA argue, correctly in
my
view, that the fact that the Krugersdorp issue is patently irrelevant
to the liquidation applications provides further support
for
concluding that the raising of this issue in the liquidations is
frivolous and vexatious.
(bb)
The
Roodepoort issue
[77] The
applicants also allege the section 14(a) contravention by ABSA in
respect of certain property in Roodepoort.
[78] The
third applicant is Mall on 14
th
(Pty) Ltd (“MO 14”). MO 14 evidently owns a vacant
property in Roodepoort (“the MO 14 property”) which
the
latter intents to develop as a super-regional shopping centre. ABSA
in February 2008 acquired a 30% shareholding in MO 14
by way of a
transaction which was below the thresholds described for merger
approval under the Act.
[79] There
is an existing regional Shopping Centre in Roodepoort called the
Clearwater Mall. The applicants alleged that it “suspects”

that ABSA and Retail Africa (not Wingspan) have a “substantial
interest” in the Clearwater Mall. The factual basis
for this
“suspicion” is not set out. The basis of the section
4(1)(a) complaint in respect of the Roodepoort property
is
essentially the same as in the case of the Krugersdorp Property,
namely that ABSA and Retail Africa, as competitors in the shopping

centre property market, are co-operating with each other in a way
which lessens competition and weakens MO 14’s position
as a
“potential” competitor.
[80] Again,
counsel for ABSA point, in compelling fashion, to a number of
obstacles in the way of this complaint. As in the Krugersdorp
case,
there is no proper factual or expert foundation for the market
definition on which the complaint is premised. As in the
Krugersdorp
case, there is a failure to maintain a proper distinction between the
two product markets alleged by Universal, namely
super-regional
shopping centres and regional shopping centres. The next objection,
which appears to provide a clear and simple
basis for rejecting the
Roodepoort complaint, is that Universal has provided no evidence of
the involvement of either ABSA or Retail
Africa in the Clearwater
Mall. Universal does not even positively assert that ABSA or Retail
Africa does have any such interest.
Only a “suspicion”
is recorded. ABSA has a 30% shareholding in Wingspan. Wingspan has
nothing to do with Clearwater
Mall. ABSA has no shareholding in or
other venture with Retail Africa, and specifically has no such
arrangement with Retail Africa
insofar as the Clearwater Mall is
concerned.
The
same argument as that raised under the Krugersdorp heading also
applies, namely cooperation in respect of a single business
cannot
amount to a restrictive horizontal practice because the evil at which
section 4(1) is aimed is co-operative conduct between
two or more
businesses. Of course, this point needs only be raised if there were
to be any connection between ABSA and Clearwater
Mall, which there
isn’t. The Roodepoort issue is also, like the Krugersdorp
issue, devoid of foundation, frivolous and vexatious,
so it is
argued. In my view there is much to be said for this argument.
(cc)
The
Ballito issue
[81] Unlike
the Krugersdorp and Roodepoort issues, this only involves a single
property,
a
shopping centre in Kwazulu-Natal called Ballito Junction.
[82] Ballito
Junction is owned by Ballito Junction Development (Pty) Ltd, (“BJD”).
At one point BJD was owned 50/50
by Robfair Investments no 139 CC
(“Robfair”) and ABSA. At that stage Ballito Junction had
nothing to do with Universal.
In December 2006 a company apparently
controlled by the Theodosiou brothers, Ballito Shopping Mall (Pty)
Ltd (“BSM”),
concluded an agreement to purchase Ballito
junction from BJD. ABSA provided a guarantee in connection with that
transaction.
The guarantee was subsequently withdrawn and BJD
cancelled the sale agreement on 29 April 2008. The circumstances
surrounding
the withdrawal of the guarantee and the cancellation of
the purchase agreement are contentious, but it is common cause that
subsequent
litigation between BJD and BSM resulted in a final order
dated 31 March 2009 declaring BSM’s purchase of Ballito
Junction
to have been validly cancelled and interdicting BSM from
passing itself off to tenants as the owner or managing agent of
Ballito
Junction. The right was reserved to BSM to institute an
action for damages against BJD within 30 days, which BSM failed to do
but, as far as I can make out, instituted an action out of time only
days before these proceedings before me commenced.
[83] ABSA
subsequently concluded a transaction to buy out Robfair’s 50%
interest in BJD, and this acquisition was approved
as a merger by the
Tribunal on 23 September 2008.
[84] Universal
contends in its complaint that ABSA connived at the cancellation of
BSM’s purchase of Ballito Junction because
it was co-operating
with Wingspan and Retail Africa in a joint venture in order to
exploit Ballito Junction. Presumably this co-operation
with Retail
Africa and Wingspan is set to contravene section 4(1)(a).
[85] Counsel
for ABSA again raised a number of difficulties facing this complaint.
There is the usual problem with market definition.
There is no
evidence for such a market definition. There is no evidence of the
geographic limits of the alleged market. There
is no evidence of the
alleged joint venture between ABSA and Retail Africa or Wingspan in
respect of Ballito Junction. ABSA owns
100% of BJD, the owner of
Ballito Junction. ABSA in its answering papers has asserted that
neither Wingspan nor Retail Africa
has any interest in BJD or Ballito
Junction, although ABSA disclosed that at the time its answering
affidavit was filed ABSA was
in preliminary discussions with Retail
Africa concerning a development agreement in relation to Ballito
Junction. Even if this
were to happen, it would be irrelevant from
the perspective of section 4(1)(a). Universal has not alleged that
there are any regional
shopping centres in the relevant geographic
market apart from Ballito Junction. Universal’s complaint is
entirely concerned
with competition for control of a single shopping
centre, namely Ballito Junction, and a section 4(1)(a) contravention
cannot occur
in such a setting. For that to happen, there would need
to be collusion between two or more competitors, each having its own
shopping
centre in the relevant geographic market.
[86] The
Ballito complaint is therefore, so it is argued, frivolous and
vexatious. I agree with this submission, and also with the
next
submission that the Ballito issue, like the Krugersdorp and
Roodepoort issues, is irrelevant to the fate of the liquidation

applications applicable to these proceedings. BSM is also not one of
the Universal applicants in the interlocutory application
nor has
ABSA applied for BSM’s liquidation.
[87] In
all the circumstances, I am not satisfied, in the context of these
proceedings, that the aforementioned issues have not
been raised in a
frivolous or vexatious manner and/or that the resolution of such
issues is required to determine the final outcome
of the liquidation
applications.
(iv)
Abuse
of dominance – property market
[88] The
discussion up to now involved the Krugersdorp, Roodepoort and Ballito
issues in the context of section 4(1)(a). Universal
in its complaint
also alleges that ABSA has in respect of the said properties been
guilty of abuse of dominance in contravention
of sections 8(c) and
8(d) of the Act.
[89] Broadly
speaking, Universal’s contention is that ABSA as a dominant
firm has abused its dominance to exclude Universal
from competing in
respect of the Mogale City Property (Krugersdorp), the MO 14 property
(Roodepoort) and the Ballito property (KZN).
The focus of the
section 8 attack is not collusion between ABSA and other competitors
but rather a unilateral exercise of market
power to exclude a
competing firm. Counsel for Absa again list a number of shortcomings
of this complaint. There is no evidence
to show accurate market
definition (section 8(d) lists certain very specific forms of
exclusionary conduct). Universal made no
attempt to identify which
of these forms of conduct ABSA has supposedly perpetrated. For this
reason alone, it is argued that
Universal’s unsubstantiated
invocation of these provisions is further testimony to the frivolous
and vexatious nature of
the complaint as a whole.
[90] Counsel
for ABSA also go to the trouble, in their Heads of Argument, to
discuss why the section 8(c) complaint is baseless
in respect of each
of the three properties, namely Krugersdorp, Roodepoort and Ballito.
I do not propose dealing with the individual
objections and arguments
raised. As regards Krugersdorp, MCM is not a Universal applicant.
Even if MCM has been a victim of an
abuse of dominance (which is
convincingly disputed by counsel) it would be irrelevant to the
liquidation applications.
[91] As
to Roodepoort, the alleged abuse of dominance (also convincingly
disputed) is in any event irrelevant to the fate of the
liquidation
applications for reasons similar to those stated in respect of
section 4(1)(a), which I have dealt with.
[92] As
regards Ballito, it is submitted by counsel that because only a
single property is involved (Ballito Junction) rather than
alleged
competition between two or more shopping centres in the area, there
is no scope for a section 8(c) complaint. It is not
Universal’s
case that ABSA, as a dominant owner of shopping centres in a relevant
part of KZN, is preventing Ballito Junction
from emerging as a
competitor to ABSA’s existing shopping centres. Rather, one
has a single shopping centre of which ABSA
rather than BSM has
acquired control. There is also the usual problem with market
definition. As with the other complaints, the
alleged abuse of
dominance is irrelevant to the liquidation applications. BSM is not
even a Universal applicant and no effect on
any of the Universal
applicants has been demonstrated.
(v)
Abuse
of dominance – financing market
[93] Counsel,
in their Heads of Argument, point out that in paragraph 43 of the
complaint, Universal claims that ABSA is dominant
in the “upstream”
market for the “financing of the development of super-regional
and regional mall shopping centres”.
No specific abuse of
dominance in that upstream market is levelled against ABSA in the
rest of the complaint, and the alleged
dominance therefore appears to
be irrelevant for present purposes.
[94] Given
the remarks I have made about the complaint as a whole, and, in
particular, the question of relevance, I don’t
propose dealing
any further with the arguments presented in this regard by counsel
from both sides.
(vi)
Alleged
contravention of
section 5
of the
Competition Act
[95
] As
regards the
section 5
complaint, that is purportedly based on ABSA’s
vertical relationship with Retail Africa as its financier, it is
alleged by
Universal that:
“
100.1 Tenants
do not have the benefit of upstream competition that would enable
them to enter into the most favourable lease agreements.
100.2 ABSA and the
relevant respondents will be in a position to enforce their will on
the tenants, including charging monopoly
rent.”
[96] It
is argued on behalf of ABSA that it was clearly demonstrated in
respect of the
section 4
complaint, which I dealt with in some
detail, that Universal failed utterly to make out this alleged
anti-competitive effect.
The
section 5
complaint, so the argument
goes, also suffers from the additional, and fatal, difficulty that
Universal would have to show that
such effects arose from its
(vertical) position of financing to Retail Africa and not from its
alleged (horizontal) conspiracy
with Retail Africa, which is the
subject matter of the
section 4
complaint.
It
is not explained how the mere provisioning of financing by ABSA to
Retail Africa could have the alleged anti-competitive effect.
The
section 5
complaint is also inconsistent with Universal
section 4
complaint that the same effects were in fact caused by the parties’
horizontal “conspiracy” with each other.
I fail to see
how the resolution of these issues can be required to determine the
final outcome of the liquidation application.
(vii)
Conclusion
on the application for a referral in terms of
section 65(2)
[97] In
view of all these submissions made by counsel, which I have dealt
with, and in view of the other remarks I have made on
the subject, I
am not satisfied that the issues have not been raised in a frivolous
and vexatious manner and that the resolution
of the issues is
required to determine the final outcome of the liquidation
applications.
[98] In
the circumstances, the application for the referral to the Tribunal
in terms of section 65(2) of the Act ought to be dismissed.
SHOULD
THE FIRST AND SECOND APPLICANTS BE ALLOWED TO FILE FURTHER ANSWERING
AFFIDAVITS ON NON-COMPETITION ISSUES
?
[99] It
was contemplated in the February order,
supra,
that they would be allowed to do so by 30 April. As explained, they
failed to comply with this order and were parties to the
interlocutory
and postponement applications instead. There was no
proper explanation for this failure, neither was there an application
for
condonation.
[100] Nevertheless,
because it was contemplated from the outset, it seems that the first
and second applicants ought, in the interest
of justice, to be
allowed a further opportunity to file further answering affidavits on
non-competition issues with regard to the
winding-up applications.
Extension of the
return date
[101] For
reasons mentioned, the winding-up applications in respect of the
first and second applicants could not be dealt with on
the return
date which was fixed at 27 July 2009. At the conclusion of the
proceedings before me, I extended the dates until 18
August, and
later to 26 August, to enable me to deliver this judgment.
[102] The return
dates will have to be extended further for purposes of the hearing of
the applications for final liquidation.
During the course of the
hearing before me, no dates were yet available in the fourth term for
this purpose. I must consequently
select a date in the fourth term
which may or may not have to be amended further depending on
availability from the Registrar’s
point of view and other
considerations.
THE
COSTS OF FOUR COUNSEL?
[103] ABSA
employed the services of two separate counsel to present argument on
the highly specialised field of the competition
issues. In the
circumstances, counsel argued that I should allow the costs of four
counsel in the event of the interlocutory application
being
dismissed.
[104] Although I
appreciate the reason for employing the services of separate counsel,
I consider that to be a luxury which ought
to be for the account of
ABSA so that I only propose awarding the costs of two counsel.
THE
ORDER
[105] I make the
following order:
1. The interlocutory
application is dismissed.
2. The applicants,
jointly and severally, are ordered to pay the first respondent’s
costs relating to the interlocutory application,
including the costs
flowing from the employment of two counsel.
3. No order is made
in respect of the postponement applications in case 49610/08 and
49799/08.
4. The costs flowing
from the said two postponement applications are reserved.
5. The
return dates in the liquidation applications of the first and second
applicants (as respondents in cases 49610/08 and 49799/08

respectively are extended to 9 November 2009.
6. The
first and second applicants (as such respondents) are given leave to
file supplementary affidavits on non-competition issues
in respect of
the liquidation applications within fifteen (15) court days from date
of this order and the first respondent, as
applicant in the
liquidation applications, is given leave to file replying affidavits
within fifteen (15) court days from receipt
of such supplementary
opposing affidavits, if any.
7. The
applicants, jointly and severally, are ordered to pay the wasted
costs occasioned by the postponement of the aforesaid two
liquidation
applications, which will include the costs flowing from the
employment of two counsel.