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[2008] ZAWCHC 163
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Cununghame and Another v First Ready Development 249 (9988/2006) [2008] ZAWCHC 163; [2008] 4 All SA 88 (C) (12 March 2008)
IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE
NO: 9988/2006
In
the matter between:
ANOTHONY
ROBERT JOHN CUNINGHAME
First
Applicant
WIMBLEDON
LODGE (PROPRIETARY) LIMITED
Second
Applicant
and
FIRST
READY DEVELOPMENT 249
(ASSOCIATION INCORPORATED IN TERMS
OF
SECTION 21)
Respondent
[Registration
Number:)
JUDGMENT
DELIVERED ON 12 MARCH 2008
ROSE
-INNES
AJ
:
Introduction
[1]
The Harbours Edge Hotel ("the hotel") is part of Harbour
Island, a development in Gordons Bay consisting of a harbour,
residential and commercial buildings. The hotel is a sectional title
scheme with trie sectional title units comprising hotel
rooms and
commercial areas. The commercial areas include conference rooms, a
wellness centre and restaurants. The hotel was established
ten years
ago.
[2]
The hotel operates as a commercial hotel. The hotef rooms and
conference areas are leased to the public, who also make use
of the
other facilities. The owners of the units which comprise the hotel
rooms participate in what is described as a rental
pool scheme,
regulated by rental pool agreements. The rooms are made available
for use as part of the hotel operations. The idea
is that the owners
should participate in the revenue generated by the rental pool
scheme.
[3]
The respondent, First Ready Development 249 ("the company"),
is an association incorporated in terms of section
21 of the
Companies Act 61 of 1973 ("the Companies Act"). The
company is the management company responsible for the
administration
of the rental pool.
[4]
The first applicant, Anthony Cuninghame fCuninghame") is a
practising land surveyor. He is a former director of the company.
He
was also a member of the company. HEs membership was suspended and
thereafter terminated and the validity thereof is in
issue.
The
second applicant, Wimbledon Lodge (Pty) Ltd ("Wimbledon
Lodge"), is the owner of two sectional units in the hotel,
consisting of hotel rooms. Cuninghame is the sole director and
sharehotder of Wimbledon Lodge.
[5]
The operation of the hotel and the rental pool scheme has had a
troubled history. This has given rise to considerable litigation.
1
The applicants now seek the winding-up of the company on the basis
that it is just and equitable to do so in terms of section
344(h) of
the Companies Act. The contention advanced on the papers that the
company should be wound-up because it is unable to
pay its debts was
not pursued in argument.
[6]
The appiicants seek a final winding-up order despite the fact that
no provisional order has been granted. This is competent
in an
appropriate case.
2
The company opposes the application and asks that it be dismissed.
The parties are in agreement that if a winding-up order is
to be
granted it should be a final order. This application was brought as
a matter or urgency on 15 September 2G06. The papers
that have been
filed are voluminous.
3
In addition to the usual three setsof affidavits, various
supplementary affidavits have been filed.
4
The application has been postponed on a number of occasions. The
matter has been fully ventilated and was argued over three days.
In
these circumstances the applicants' approach of seeking a final
rather than a provisional winding-up order is the appropriate
one.
[7]
The onus rests on the applicants to establish that it is just and
equitable for the company to be liquidated. As a final liquidation
is sought the applicants must establish their case on a balance of
probabilities, rather than
prima
facie
which
is the degree of proof required for a provisional liquidation
order.
5
The lengthy affidavits reveal that there are material disputes of
fact on many issues. The well established approach, where disputes
of fact arise in motion proceedings, is that final relief may be
granted if the facts averred in the applicant's affidavits which
have been admitted by the respondent together with the facts alleged
by the respondent, justify such an order. In certain instances
the
denial by a respondent may not give rise to a real, genuine or
bona
fide
dispute
of fact. There may also be exceptions to this general rule, for
example, where the allegations ordenials by the respondent
are so
far-fetched or clearly untenable that the Court is justified in
rejecting them merely on the papers.
6
[8]
Counsel for the applicants, recognising the disputes of fact which
exist, argued the matter on what they contended were the
admitted
facts. The applicants did not seek an order referring any disputes
of fact for the hearing of oral evidence.
7
Counsel for the respondent, while submitting that I should refuse
the application on the papers, contended in the alternative
that in
the exercise of my discretion I should refer certain disputes of
fact for the hearing of oral evidence. These disputes
of fact were
not defined with any precision. The general rule of practice remains
that an application to refer disputed factual
issues for oral
evidence should be made prior to argument on the merits. It is oniy
in exceptional cases that a Court should
be asked to decide the
issues without oral evidence if it can, and to apply in the
alternative for the matter to be
referred
to
oral
evidence.
8
[9]
It is therefore necessary to determine whether the applicants have,
on a balance of probabilities, established on the affidavits,
in
accordance with the
Plascon-Evans
rule
r
that it is just and equitable for the company to be finally
wound-up. There are two principal issues which arise. Firstly, do
the applicants or either of them have standing to bring a just and
equitable winding-up? Secondly, are there grounds which justify
the
final liquidation of the company on the basis that it is just and
equitable to do so? The applicants rely in this regard
on a number
of alfegations, including the disappearance of the company's
substratum, the contention that it is carrying on business
unlawfully and that its affairs are being mismanaged. It is
necessary to set out a brief history relevant to a determination
of
these issues.
The
relevant
factual
background
[10]
The hotel was developed by Casisles Coastal Property investments CC
("the developer"). It was completed in 1997
and has been
in operation since then. At that time the sectional title scheme was
registered and the Harbour's Edge Body Corporate
was established.
[11]
Agreements of sale were concluded between the developer and various
purchasers in terms whereof the purchasers acquired sectional
title
units comprising rooms in the hotel. One such purchaser was
Wimbledon Lodge. The agreements of sale incorporated rental
pool
agreements to which the developer, the purchaser and
themanagement company, at that stage Harbour's Edge Hotel
(Pty)
Limited, were party.
[12]
The salient features of the agreements of sale and rental pool
agreements can be summarised as follows. The hotel would operate
as
a commercial apartment hotel. It would have hotel rooms and other
facilities such as conference rooms and restaurants.
9
The purchasers agreed to place the units at the disposal of the
management company. The developer similarly agreed to place certain
sections which it had retained at the disposal of the management
company. In this way the entire hotel would be at the disposal
of
the management company so as to enable it to contract with the
operator for the operation of the hotel.
10
[13]
The rental pool agreements constituted a scheme in terms whereof the
owners of the hotel rooms let their units to the management
company
so that the management company could let the rooms to guests.
11
The rental pool agreements were concluded in respect of the hotel
rooms (excluding the penthouses) but not the commercial areas,
which
were the subject matter of other agreements. The units leased to the
management company are pooled and the rental payable
to the owners
is determined in accordance with a formula provided for in
theagreement.
12
The owner is liable to pay the management company an operating levy
to cover the operating costs of the units, the payments made
by the
management company to the operator in consideration of its operating
the units and the costs of running the management
company.
13
[14]
The terms of the rental pool agreements are such that the owners
effectively invest in the hotel, with their returns being
dependant
on how successful it is. They no doubt anticipated that they would
derive rental income from the profitable operation
of the hotel and
the rental pool. At the same time they are also liable for operating
levies to meet operational costs. Their
investment in the hotel
through the units acquired by them is consequently not without risk.
[15]
The rental pool agreements are for an initial period of five years,
with a further period of five years at the option of
the management
company. Thereafter they continue indefinitely until terminated by
the management company or the owners acting
unanimously giving nine
months written notice.
14
[16]
The rental pool agreements contemplated that an operator could be
appointed by the management company in respect of the hotel.
Villa
Via Cape Town (Pty) Limited was initially appointed as the hotel
operator and it performed this function for a period.
As reflected
in the rental pool agreements the operator would receive a monthly
management fee in accordance with a management
agreement to be
concluded between the developer and the operator.
15
[17]
The initial management company, Harbour's Edge Hotel (Pty) Limited,
was liquidated in 1999. In 2001 its right, title and
interest in and
to the rental pool agreements were assigned to the company. Pursuant
thereto the company assumed the role of
the management company in
place of Harbour's Edge Hotel.
[18]
The directors of the company are Craig Needham ("Needham"),
Georgio Stavrou ("Stavrou"), and Bryan Logan
("Logan").
Cuninghame was a director until his appointment was terminated on 14
August 2003. There are seven registered
members, including Needham,
Stavrou, Logan
T
Anthony de la Fontaine {"de la Fontaine") and Alexander
Acavalos ("Acavalos").
[19]
it appears from the papers that a division exists between two
factions regarding the operation of the hotel and the rental
pool
scheme and the role which should be played by the company in that
regard. This division lies at the heart of the history
of litigation
to which reference has been made and this application for winding-up
in particular. On the one hand there are the
applicants who are
supported in their endeavour to wind-up the company by a large
number of rental pool owners. They take the
view that it was the
intention that the company would only manage the rental pool scheme
and not conduct a large scale hotel
operation which it is now doing.
They object to the fact that the company is effectively controlled
by a minority grouping through
their interests in a company Meridian
Bay Restaurant (Pty) Limited ("Meridian Bay"). The
Meridian Bay interests are
represented by Stavrou, de la Fontaine
and Acavalos. The Meridian Bay interests on the other hand assert
that the hotel business
is being legitimately pursued in accordance
with the company's objects and in the interests of all the owners of
sectional title
units, including the rental pool owners.
[20]
Meridian Bay owns 12 sectional title units in the hotel. These units
include section 1, which is utilised as a parking area,
sections 7,
10 and 120, which are utilised as conference rooms and a wellness
centre and section 21, which was intended to be
utilised as a
kitchen but has been converted into a suite. Another company
Dreamcatcher Six (Proprietary) Limited ("Dreamcatcher")
owns thirteen sectional title units in the scheme. Meridian Bay and
Dreamcatcher are directly or indirectly owned and controlled
by
Stavrou, de la Fontaine and Acavalos.
The
applicants' standing
[21]
in terms of section 346(1 ){c) of the Companies Act an application
for the winding-up of a company may be made by a member
irrespective
of whether his name has been entered in the register of members.
Section 346(2) requires that the member must have
been registered in
the register of members for a period of six months immediately prior
to the date of the application. Cuninghame
claims standing on the
basis that he is a member of the company and that he has been so
registered for the requisite period.
The company denies his
standing, contending that his membership of the company was
suspended and thereafter terminated.
[22]
Wimbledon Lodge relies on the fact that it is a contingent creditor,
in terms of section 346(1)(b) of the Companies Act,
by virtue of the
provisions of the rental pool agreement. A contingent creditor is
one who by reason of some existing
vircuium
juris
has
a claim against acompany which may ripen into an enforceable debt on
the happening of some future event or on some future
date.
16
The company does not dispute that Wimbledon Lodge is a contingent
creditor but contends that it does not have sufficient interest
to
seek a winding-up.
[23]
Cuninghame's name was entered in the register of members of the
company on 9 October 2000. As section 103(2) of the Companies
Act
recognises he therefore became a member of the company. The general
rule is that a person whose name is on the register of
members
remains a member until his name is removed from the register.
17
[24]
Cuninghame's membership of the company was suspended on 8 August
2006. The winding-up application was brought on 15 September
2006.
The company disputed Cuninghame's standing on the grounds that his
membership had been suspended. Thereafter on 25 October
2006 the
company terminated Cunninghames membership. Cuninghame maintains
that the suspension and subsequent termination of his
membership was
an unlawful attempt to frustrate his right to seek a winding-up of
the company.
[25]
When the winding-up application was brought Cuninghame was still a
member of the company and his name was stilt reflected
on the
register of members. At that stage his membership had been suspended
but not yet terminated. Generally an applicant must
have standing at
the stage when proceedings are initiated.
18
A suspension of membership is typically for a limited period and it
may or may not, depending on the circumstances, ultimately
result in
the person ceasing to be a member. At the time the winding-up
application was brought, while Cuninghame's membership
of the
company had been suspended, it had not yet terminated. He should
therefore be regarded as a member of the company who
is entitled to
bring an application for winding-up in terms of section 346(1 )(c).
[26}
The company relies on article 2 of the company's articles of
association which regulates membership. The board of directors
has
the power to elect any person as a member and to refuse to admit any
person as a member.
19
Provision is made for the rights of a member to terminate in various
circumstances including his suspension. There is no express
power
given to the directors to suspend or terminate a person's
membership. I cannot on the papers find any satisfactory basis
for
concluding that such a power exists as a matter of necessary
implication and if so, in what circumstances it may be exercised.
The reference in article 2.6.3 to a suspension would be consistent
with a power of suspension to be exercised by way of a general
meeting of members rather than the directors. Even if t were to
assume that the directors have the power in an appropriate case
to
suspend a person's membership, the suspension itself would not bring
that person's membership to an end. Although the articles
contemplate that a member's rights terminate on suspension, a
suspension would not, for the reasons given, deprive the member
of
the right to seek a winding-up. The company's articles are, in terms
of section 65(2) of the Companies Act, to be read subject
to the
provisions of the Act and are not to be interpreted in such a way
that a suspension, in the circumstances of this case,
deprives
Cuninghame of the right to seek a winding-up.
[27]
Cuninghame in any event contends that the suspension and subsequent
termination of his membership were not legitimate but
an attempt to
deprive him of standing to bring winding-up proceedings. It is
common cause that one of the reasons for suspending
Cuninghame's
membership was because the directors were aware
that
he
was considering bringing an application for the winding-up of the
company. This was conveyed to him in his fetter of suspension.
[28]
In
Sweet
v Finbain
issue
was taken with the applicant's standing to wind-up a company of
which he was a member, director and creditor. He had been
removed as
a director and his shareholding had been transferred to another
company. The court found that he had standing as a
creditor to apply
for a winding-up on just and equitable grounds. In reaching this
conclusion the Court hetd
20
that "An
applicant
cannot be in a worse position where the management of a company
unlawfully deletes his name from the register of members,
or causes
his shares to be transferred to another - a matter to which the
Court cannot be required to shut its eyes."
21
[29]
The directors were aware that Cuninghame was considering taking
steps to liquidate the company. The decision to suspend his
membership was motivated by a desire to prevent him from doing so.
It may not have been the only reason advanced for his suspension
but
it was a primary consideration. They wished to deprive him of the
opportunity of bringing liquidation proceedings which he
had
threatened. Indeed when the application was brought the directors
then claimed that he lacked standing because he had been
suspended.
[30]
A company cannot legitimately suspend a person's membership of the
company in order to frustrate the statutory right which
the member
has to seek the winding-up of the company. There may of course be
circumstances where a power to suspend a member
may be properly
exercised for reasons unreEated to an endeavour to avoid a
winding-up at the instance of that member. This is
not such a case.
The suspension of Cuninghame's membership is therefore to be
disregarded for the purposes of determining his
standing.
[31]
As far as Wimbledon Lodge's standing is concerned it brings the
application in its capacity as a contingent creditor. In
terms of
section 346{1}(b) a creditor (including a prospective or contingent
creditor) may bring an application for winding-up.
The Act does not
limit the grounds upon which a creditor may seek a winding-up. A
creditor has standing to bring a winding-up
on just and equitable
grounds where it is shown that the creditor has a sufficient
interest for doing so.
22
Such an approach accords with the general requirement of
locus
standi
in
our law, that a party who seeks relief must demonstrate that he or
she has a sufficient interest in the subject matter of the
proceedings This is to be determined in the light of the particular
facts of each case.
[32]
Having regard to the facts of the present case I am satisfied that
Wimbledon Lodge, as a contingent creditor, has a sufficient
interest
in seeking a just and equitable winding-up of the company to confer
standing upon it. Wimbledon Lodge is the entity
through which
Cuninghame owns units in the hotel. Wimbledon Lodge is a party to a
rental pool agreement and participates in the
rental pool scheme. It
has a real and direct interest in the operation and management of
the hotel and in the affairs of the
company.
[33]
Accordingly both Cuninghame and Wimbledon Lodge have standing to
seek a winding-up of the company on a just and equitable
basis. It
is necessary therefore to consider whether grounds exist for
winding-up the company on that basis.
The
grounds for a just and equitable winding-up
[34]
The company is an association not for gain incorporated under
section 21 of the Companies Act. It was acquired as a shelf
company
and in terms of the original memorandum of association its main
business and main object were described as housing development
for
the underprivileged. On 16 July 2002 the company's main business and
main object were amended to allow it to manage a hotel.
On 23 March
2004 and pursuant to a special resolution the memorandum was again
amended. In its amended form the main business
of the company is
described as being "to manage, operate, administer, let, market
and lease furnished hotel apartments,
conference and restaurant
facilities". The main object is reflected as being "to
conduct its main business on behalf
of the owners of the furnished
hotel apartments, conference facilities and restaurant facilities,
or on behalf of any scheme
and/or rental pool to which the said
owners may belong".
[35]
The applicants contend that it is just and equitable that the
company be wound-up in terms of section 344(h) of the Companies
Act.
They rely in this regard essentially on three averments. Firstly, it
is contended that the company's substratum has disappeared.
Secondly, they argue that the company is carrying on business
unlawfully. Thirdly, they complain that the affairs of the company
are being mismanaged.
[36]
Section 344(h) provides that the court may wind-up a company if it
appears that it is just and equitable to do so. This ground
postdates,
not
facts, but a broad conclusion of law, justice and equity as a ground
for winding-up. The power is to be exercised judicially
with due
regard to the justice and equity of the competing interests of all
concerned.
25
[37]
The courts have developed certain general principles which serve as
useful guides for determining whether or not it is just
and
equitable for a company to be wound-up in a particular case. Five
broad categories have evolved in which in appropriate cases,
it has
been considered just and equitable for a company to be wound-up.
26
These five categories are: disappearance of the company's
substratum; illegality of objects and fraudulent purpose; deadlock
in the company's administration; fraud, misconduct and oppression;
and domestic companies. These categories do not represent
a closed
list and each case must be considered on its own facts.
(i)
The
contention that the company's substratum has disappeared
[38]
The applicants develop their argument that the company's substratum
has disappeared as follows. The main object and sole
business of the
company, as an association not for gain, was the administration of
the rental pool agreements. Its activities
were to be confined to
that The company's main business is now of a very different
character, involving a large hotel operation.
In the circumstances
its substratum has disappeared.
[39]
The main object of the company was initially housing development for
the underprivileged. When the company was acquired by
the then
trustees of the Harbour's Edge Body Corporate its main object and
main business were amended to allow it to administer
the rental pool
scheme. The applicants' complaint is that in 2002, when those
representing the Meridian Bay interests acquired
control of the
company, its purpose changed dramatically. It was no longer utilised
for the exclusive benefit of the rental pool
owners generally, but
to further the interests of Stravrou, de la Fontaine and Acavalos,
through Meridian Bay in particular.
Other business activities, such
as the running of the conference centre and wellness centre, were
now engaged in. In 2004 the
main object and main business of the
companywere again amended to allow the company to operate conference
and restaurant facilities.
[40]
Section 55 of the Companies Act allows a company by special
resolution, to alter the provisions of its memorandum with respect
to its objects and powers. The company has done so from time to time
to align its objects and powers with the nature of its business
operations. There has been no challenge to the amendments made to
the memorandum.
23
The contention that the company's substratum has disappeared and the
related contention that it is acting unlawfully must be
viewed in
the light of the memorandum as amended.
[41]
It is so that the hotel's operations have changed somewhat over the
years. Conference, restaurant and spa facilities have
been
introduced and expanded. Such facilities were in fact contemplated
from the outset as appears from the development plans
incorporated
in the rental pool agreements. They are the sort of facilities that
are often undertaken as part of the operation
of a hotel. The
provision of these facilities accords with the objects of the
company stated in its memorandum. The company has
the capacity to
carry on the hotel operations conducted by it. There is no basis for
concluding that in terms of its memorandum
its functions are to be
confined to the management of the rental pool to the exclusion of
other aspects of the hotel business.
[42]
The fact that the hotel operations now include additional facilities
such as a conference centre, wellness centre and restaurants
does
not support the contention that the company's substratum has
disappeared. It is if anything indicative of the development
of the
hotel business.
[43]
The applicants point to the fact that the conference and spa
facilities are intended to operate at a profit. They are leased
by
Meridian Bay to the company at what are described by the applicants
as substantial rentals. To the extent that there is any
suggestion
that the leases were improperly concluded or that the rentals are
inflated and not market related there is a dispute
of fact which
cannot be resotved on the papers. Meridian Bay does benefit from the
rental income derived from the lease of these
units. These
facilities are also to the potential benefit of the owners of the
sectional title units comprising the hotel rooms.
They are
facilities which should attract guests to the hotel for the ultimate
benefit of the rental pool system as a whole. The
fact that the
conference and wellness centres may in the past have operated at a
loss may be a poor reflection of that part of
the business
operations. It is not however a basis for concluding that the
company's substratum has disappeared.
[44]
Generally a company's substratum has disappeared if it has become
impossible for the company to achieve its objects. It must
be
established that it has become legally or objectively impossible for
the company to achieve its objects.
24
The case law provides a number of instances where it has been found
that the substratum has disappeared. For example where a
company has
been formed for one purpose and that purpose has been accomplished
or its accomplishment has become impossible then
the shareholders
are entitled to a winding-up and a return on their investment.
25
Where a company lacks the necessary capital or the ability to raise
capital topursue its objects this may demonstrate that it
is
impossible for it to achieve its object.
26
[45]
In the present case it has not been established that it is
impossible for the company to achieve its objects. It is pursuing
the objects reflected in the memorandum by operating a hotel and
rental poo! scheme, it is not suggested that the company lacks
sufficient capital to do so. In terms of the rental pool agreements
any losses are effectively to be funded by the owners of
the units.
[46]
The applicants and those who support the winding-up application are
no doubt unhappy about the fact that the rental pool
scheme has not
been as commercialty successful as they would have hoped. They may
not have derived the returns they wished for
from their investments.
They are also concerned about the fact that the rental pool
agreements may remain in force for a long
period of time. For these
and other reasons they wish to put an end to the venture. The doubts
which the applicants and others
may have about the rentat pool
scheme and the relative lack of financial success are not a basis
for concluding that the company's
substratum has disappeared. A just
andequitable winding-up is not an escape mechanism for dissatisfied
investors in a company.
27
(it)
The
allegation that the company is unlawfully carrying on business
[47]
The allegation that the company is acting contrary to its memorandum
by conducting the business of a hotel has been dealt
with in the
context of the contention that its substratum has disappeared. It
was also argued on behalf of the applicants that
the company was
acting contrary to section 21(2){a) of the Companies Act and that
this justified its winding-up on a just and
equitable basis. Section
21(2)(a) requires that the memorandum of an association not for gain
shall contain the following provision:
"The
income and property of the association whencesoever derived shatl be
applied solely towards the promotion of its main
object, and no
portion thereof shall be paid or transferred directly or indirectly
by way of dividend, bonus or otherwise howsoever,
to the members of
the association or to its holding company or subsidiary: Provided
that nothing herein contained shall prevent
the payment in good
faith of reasonable remuneration to any officer or servant of the
association or to any member thereof in
return for any services
rendered to the association."
[48]
In argument it was contended that the rental paid by the company to
Meridian Bay in respect of the conference and spa areas
contravened
section 21(2)(a). It was suggested that they constituted payments
directly or indirectly made to certain members
of the company who
were shareholders of Meridian Bay.
28
This contention cannot be sustained.
[49]
Section 21(1) sets out the essential features of an association not
for gain. It must be formed for a lawful purpose. Its
main object
must be the promotion of religion, arts, services, education,
recreation or any other cultural or social activity
or communal or
group interests. Its profits (if any) and other income are to be
applied in promoting its main object and the
payment of any dividend
to its members is prohibited. Section 21(2)(a) gives further effect
to this last requirement. The memorandum
of the company contains the
provisions required by this section. A company such as the
respondent, managing a rental pool scheme
and hotel business, is not
one that would typically be regarded as an association not for gain
having a main object to be found
amongst those listed in section
21(2). The validity of the company's
incorporation
as an association not for gain has however not been questioned.
[50]
Section 21{2)(a) has three main features. The first part thereof
requires that the income and property of the company be applied
solely towards the promotion of its main object. Secondly, this
feature is then amplified by the specific prohibition against the
payment or transfer of income or property to the members of the
association or to a holding or subsidiary company. Thirdly, there
is
a provisio which permits the payment in good faith of reasonable
remuneration to any officer, servant or member of the association
for
services rendered to the association.
[51]
The fact that the company leases areas of the hotel in order to
provide conference and spa facilities is in accordance with
its main
object. The availability of such facilities serves to promote the
hotel to hotel guests and others who may use the facilities.
The
conclusion of these leases and the payment of rental in terms thereof
is therefore not contrary to the company's main object.
[52]
The payment of rental to Meridian Bay does not in the circumstances
constitute a payment or transfer of income or property
of the company
to the members thereof as contemplated by section 21(2)(a). Even if
it were to beregarded as such a payment or transfer
it would fall
within the terms of the proviso to that section. It would be the
payment in good faith of reasonable remuneration
in return for
services rendered to the company. The ordinary meaning of the phrase
"the
payment
... of reasonable remuneration ... in return for any services
actually rendered'
is
the payment of a sum of money as compensation for an act which has
been performed or a need which has been provided.
29
The making available of the areas which comprise the conference and
spa facilities in terms of the lease agreements constitutes
the
provision of services to the company, in return for which rental is
paid.
[53]
Accordingly the company has not been acting contrary to the
provisions of section 21(2)(a), Even if it were the appropriate
remedy would be to interdict that particular conduct rather than
liquidate the company.
(iii)
The
alleged mismanagement of the company
[54]
Where there is a justifiable lack of confidence in the conduct and
management of the company's affairs it may be just and equitable
for
the company to be wound-up. For the loss of confidence to be
justifiable it must be based on some misconduct or impropriety
which
undermines a reasonable shareholders confidence that the company's
affairs are being properly conducted in the interests
of all
shareholders. This requirement has been expressed in differing
formulations. The fact that some shareholders may question
the
business rationale or operational efficiency is not in itself a basis
for liquidation.
[55]
The applicants contend that certain of the directors and members of
the company, in particular those who control Meridian Bay,
have
mismanaged the affairs to the company to such an extent that it would
be just and equitable to wind the company up. Various
allegations
have been advanced in this regard.
[56]
Certain of these allegations have already been dealt with. I have
referred above to the complaint that those persons who represent
the
Meridian Bay interests are conducting the affairs of the company for
their own benefit. It is said that they have acted contrary
to their
fiduciary duties in conctuding lease agreements between Meridian Bay
and the company and procuring the payment by the
company of
substantial rental income. Given the disputes of fact that exist in
this regard there is no basis for finding, on the
papers, the alleged
breach of fiduciary duties.
[57]
A number of other complaints are raised by the applicants. They point
to the fact that large amounts of money have been spent
by the
company in legal fees in various legal proceedings, including this
application. The
[60]
In the light of the conclusion to which I have come it is unnecessary
to deal with the respondent's striking out application.
[61]
I therefore conclude that the applicants have not made out a case for
the winding-up of the company on a just and equitable
basis. The
parties are agreed that the costs of two counsel are warranted.
[62]
The order which I accordingly make is as follows:
(i)
the
application for the winding-up of the respondent is dismissed;
(ii)
the
applicants are to pay the respondent's party and party costs, jointly
and severally, the one paying the other to be absolved
with such
costs to include the costs of two counsel.
L
A ROSE-INNES, AJ
1
This
litigation
[Deludes
the
following which are recited in some detail in the founding
affidavit:
the
winding-up
of the former management company Harbour's Edge Hotel (Fty) Ltd; an
application for the removal of the trustees of
the Harbour's Edge
Body Corporate;
the
winding-up
of the original developer Casisles Coastal Property Investments CC;
an application for the appointment of an administrator
of the
sectional title scheme; an application for the appointment of a
curator ad litem to the Harbour's Edge Body Corporate;
an
application to interdict the transfer pursuant to agreements of sale
of 40 units in the sectional title scheme; actions instituted
by the
administrator for the payment of levies; an action instituted by
the
curator
ad litem declaring that sections
2
Johnson
v Hirotec (Pty) Ltd
[2000] ZASCA 131
;
2000 (4) SA 930
SCA at para 9
3
They
exceed 2400 pages.
4
An
affidavit an behalf of the union representing the company's
employees was by agreement handed up sit the bearing of the
application.
5
Kalil
v Decote* fPtvl Ltd and another
1988(1) SA 943 (A) at 979 A - E,
Faarwater
v South Sahara Investments fPfrfl Ltd
[2005] 4 All SA 185
(SCA) at para 3.
6
Fiasco
n-Evans Faints Limited v Van Riebeeck Faints fFty) Limited
19S4f3) SA 623(A) at 634 E - 635C.
7
Kali]
supra at979C-D.
8
Kalil
supra at 981 F - G,
Administrator,
Transvaal and Others v Theletsane and Others
1991{2)
SA 192(A) at 20OC,
DeReszke
v Marais and Others
2006(1) SA 401(C) at 413 B
9
This
appears from the plans anneied to the agreement of sale.
10
See
in particular clause 8
of
the agreement of sale and clause
44
of
the rental pool agreement.
11
See
the definition of "rental pool"' in the rental pool
agreement
12
Clause
13 read with clause 10.
13
Clause
9 of the rental pool agreement read with the definition of
"operating Levy".
14
Clause
6 of the rental pool agreement.
15
Clause
14 of the rental pool agreement. The management agreement itself is
not part of the papers but the budget annexed to the
rental pool
agreement makes provision for a management fee of R796 091,00 for
the first year.
16
GiUis-Mason
Construction Co fPM Ltd v Overvaal Crushers fPtv) Ltd
!971 <1}SA524 (T) at 528 C - D;
Spendiff
NO v JAJ Distributors tPtv) Ltd
19S9 (4) SA 126 (Q at 136B-
17
Blackmail
Commentary
on the Companies Act
Vol 1,5 - 296.
18
SneiidiTf
v J A J Distributors
supra at 13SH-I.
19
Article
2.6.
20
1984{3)SA
441
(W).
At 445 C-D.
21
See
akb
Barnard
v Car] Greaves Brokers jTlvi Ltd & Others
{case number 802iy2006) and two related cases, unreported judgment
of the Cape of Goad Hope Provincial Division delivered on
22
January
2007.
22
Sweet
v Fmbain
op
cit
445
B -E,
Kia
Intertrade Johannesburg fPtvl Ltd v Infinite Motors (Ptv) Ltd
[19991 2 Ail SA 268(W)
at
277b-d,
279i-2S0a;
Barnard
v Carl Greaves Brokers
op
est,
15-20.
23
Section
252(2)(a) of the Act provides a remedy to a member who complains
that the alteration of the memorandum is oppressive or
unfairly
prejudicial. An application may be made within six weeks of the
special resolution.
24
Pienaar
v Thusano Foundation & Another
1992f2> SA 552 (BGD) at 582 G-H,
Alpha
Bank Bpk en Andere v Registrateur van Banke en Andere
1996(1) SA 330 (A) at 344C-D,
Atkinson
v Rare Earth Extraction Co Ltd
2002(2) SA 547(C) at 552 E - F, Blackman op crt 14 -106 -14 -107.
25
Strong
v J Brough & Son fStratfield) (Ptv) Ltd
(1991) 5 ACSR 296 300 SC (NSW).
26
Pienaar
v Thusano Foundation
,
supra,
at
440 B - C
T
Alpha
Bank v REgistrateur van Bank
supra
at
344C-D;
Atkinson
v Rare Earth Extraction Co Ltd
suprazt
552
E - F.
27
Robs
on v War Works fFtvl Ltd
20trlffl SA 1117(C) at 1127 G.
28
This
particular contention is one that was not explicitly raised in the
affidavits filed by the applicants. I shall assume in
the
applicants' favour that it was a matter of legal argument which
arose from the facts set out in the affidavits.
29
cf
Maseti
v Key, NO and Others
195H21SA 187(C) at 192 D -E.