Gardener and Another v Walters N.O. and Another (843/02) [2002] ZAWCHC 25; [2002] 3 All SA 702 (C) (3 May 2002)

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[2002] ZAWCHC 25
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Gardener and Another v Walters N.O. and Another (843/02) [2002] ZAWCHC 25; [2002] 3 All SA 702 (C); 2002 (5) SA 796 (C) (3 May 2002)

IN
THE HIGH COURT OF SOUTH AFRICA
(CAPE
OF GOOD HOPE PROVINCIAL DIVISION)
CASE NO: 843/02
In
the matter between:
PETER
GRAHAM GARDENER 1
ST
APPLICANT
RODNEY
MITCHELL
2
ND
APPLICANT
and
ROBERT JOHN
WALTERS N.O. 1
ST
RESPONDENT
GAVIN
CECIL GAINSFORD N.O. 2
ND
RESPONDENT
[in
their capacities as the duly appointed joint liquidators
of
LeisureNet Limited (in
liquidation)
]
In
re the
ex parte
application of:
ROBERT
JOHN WALTERS N.O. 1
ST
APPLICANT
GAVIN
CECIL GAINSFORD N.O. 2
ND
APPLICANT
JUDGMENT: 3 MAY 2002
NEL,
J:
The
Applicants (‘
Gardene
r’
and ‘
Mitchell
’)
seek an order setting aside two orders made by Louw J, at the
instance of the Respondents (the ‘
Liquidators
’)).
The applications were brought
ex
parte
for the issue of
letters of request to the Royal Court of Jersey to recognize the
appointment of Walters and Gainsford as the duly
appointed
liquidators of LeisureNet Limited (in liquidation) (‘
LeisureNet
’)
and in that capacity to allow them to institute proceedings in Jersey
for the purposes of investigation and the recovery of
LeisureNet
assets.
Background
LeisureNet
was a public company listed on the JSE Stock Exchange and owned,
inter alia
the Health and Racquet Club business which operated 85 health clubs
in South Africa. It also held 57,8% of the ordinary issued
share
capital in Healthland International Limited (formerly LeisureNet
International Limited) (
LeisureNet
International)
registered
in Malta. This company was the holding company of the offshore
operations of LeisureNet and had 17 subsidiaries in Europe
and
Australia which owned 22 operating health clubs with a further 17
under development in the U.K., Spain, Germany, Austria and
Australia.
Gardener and Mitchell were the joint chief executive directors of
LeisureNet.
LeisureNet
had committed itself to support Healthland International through
direct funding and by extensive guarantees although
it could not by
itself fund expansion. Without adequate funding Healthland
International and its subsidiaries could not operate
as sustainable
enterprises. It is alleged that LeisureNet’s financial position
had been materially misrepresented to it’s
bankers, creditors and
shareholders, particularly in relation to its 31 December 1999 annual
financial statements. This false
picture, it is alleged, was
attributable to
inter alia
,
a questionable accounting policy, the gross exaggeration of it
debtors, and the non-disclosure of potential financial obligations

amounting to almost R1 billion.
LeisureNet
was placed under a provisional winding-up order on 7 October 2000 on
the basis that it was unable to pay it debts. The
order was made
final on 30 November 2000. The failure of LeisureNet also meant the
demise of it’s offshore operations. The
collapse of the group is
said to be the largest corporate collapse in South African history.
The total value of it’s shares
trade during 1999 was R425,695,000.
Prior
to 1 May 1999 LeisureNet International held a 50% interest in
Healthland Germany Limited which in turn had a wholly owned

subsidiary Healthland Germany GmbH which operated the health clubs in
Germany and Austria and whose managing director was one Johan
Moser
(
Moser
).
The other 50% shares in Healthland Germany were held by Dalmore
Limited (
Dalmore
)
registered in Jersey. It was generally believed that Dalmore
belonged to Moser.
On
16 April 1999 Dalmore sold it’s 50% shareholding in Healthland
Germany to LeisureNet International for the sum of DM10 million.
The
purchase price was paid in cash.
The
application by the liquidators for the issue of the letters of
request was brought after the discovery that LeisureNet funds
in an
amount of DM 10 million earmarked for the development of fitness
clubs in Spain had been misappropriated and, on the instructions
of
Gardener, had been channeled through a number of overseas bank
accounts for the payment of the purchase price of the shares
bought
by LeisureNet International. The recipient of the funds was Dalmore
but from Dalmore DM 4 million of the DM 10 million
was channelled to
Ajax Way Investments Limited (‘
Ajax
Way’
) and Clockwork
Limited (‘
Clockwork
’)
companies created for the benefit of Gardener and his family and
Mitchell and his family. Both companies are registered in
the
British Virgin Islands and administered and controlled by the
Insinger Trust registered in Jersey.
Dalmore
was administered by Ernst & Young Trust Company (Jersey) Limited
(now known as the Royal Bank of Canada Trust Company
(International)
Limited). The shareholders of Dalmore are Cacique Investments
Limited, Damor Investments Limited and Paternoster
Nominees Limited,
all with the same registered office address as Dalmore. The
shareholders of these companies are not known.
According to the
evidence of Mr Joubert Rabie (
Rabie
)(since
denied by him), Gardener and Mitchell were each the beneficial owners
of 20% of the shares in Dalmore. Rabie is an attorney,
an erstwhile
director of LeisureNet, and a long time friend and business associate
of Gardener, Mitchell and Moser. According
to him, he is the
beneficial owner of 15% of Dalmore and Moser the beneficial owner of
45%. At no stage did Gardener or Mitchell
disclose their interests in
Dalmore or in the sale of the shares to the LeisureNet boards.
The
liquidators have also ascertained that as at the end of 1999 an
amount of DM 160,000 had been paid to Dalmore by LeisureNet

International as commissions. According to Rabie a further amount of
£245,608-90 had been paid to Dalmore during the period April
2000 to
July 2000. The payments were made into a bank account held in the
name of Dalmore at the Royal Bank of Scotland, Jersey.
It was paid
on the specific instruction of Gardener although there was a general
instruction during July 2000 to withhold payments
to creditors.
According to Rabie, after a deduction of DM 60,000 per transaction
had been paid to a wholly owned subsidiary of
Dalmore, the
commissions were paid to the owners of Dalmore, in accordance with
their proportionate shares.
Gardener
and Mitchell contend that these payments were made as management fees
as agreed upon with the boards of the LeisureNet
companies. They
state that they were employed by Ajax Way and Clockwork but had
donated their offshore work to these companies.
They were each
entitled to take up 5% founders shareholding in LeisureNet
International and Lnet (Australia) (Pty) Limited. The
shares were
taken up in the names of Ajax Way and Clockwork.
While
these explanations as to the payment of the commissions might prove
to be correct, no explanation is advanced for their failure
to
disclose their interests in Ajax Way and Clockwork to the LeisureNet
boards and auditors. In fact, they had denied having any
such
interest.
A
letter dated 18 March 1999 addressed to the auditors of LeisureNet
and signed by Gardener reads as follows:
‘
It is recorded that
certain amounts are paid by a subsidiary of LeisureNet Limited to
Ajax Way Investments Limited, a company incorporated
under the laws
of the British Virgin Islands having registration number 275080
(“Ajax”), in terms of a management contract
entered into by Ajax
with such subsidiary. It is recorded further that Ajax is the holder
of shares in certain other subsidiaries
of LeisureNet Limited.
This
letter serves to confirm that no profit, advantage or other benefit
accrues to me, my immediate family or any trust, corporate
body or
other entity in which I or my immediate family have an interest, in
respect of any such amounts paid or benefits accruing
to Ajax.’
A similar letter relating to Clockwork was signed
by Mitchell.
In addition, in
disclosure schedules for the use of the auditors of LeisureNet
International, both Gardener and Mitchell declared
that they did not
have any related party relationships with Kinsman and Ajax Way and
with Moreland and Clockwork.
In the replying
affidavit by Gardener these allegations were not denied but were
dismissed as irrelevant and vexatious.
The First Application by the
Liquidators
In
their first application for the issue a letter of request, the
Liquidators stated as follows:
‘
107
.
It
further appears from evidence led before the commission that Dalmore
received very substantial payments from LeisureNet and/or
its
subsidiaries by way of commissions. Dalmore was not an operating
company. The evidence shows that Gardener and Mitchell were
also the
recipients of a part of these funds in breach of their fiduciary
duties as directors. I have indicated above that an
amount of £245
608,90 was paid to Dalmore by way of commission.
The LeisureNet
liquidators have been unable to investigate the full circumstances
relating to transaction described above.
They do not have access
to the books, records and other relevant documents of Dalmore. It
is also evident that Mitchell
and Gardener relied on the corporate
personality of Dalmore and the anonimity which it ensured in order
to conceal their
unlawful activities. It is imperative that the
ultimate destination of the substantial funds paid to Dalmore be
ascertained.
In particular, confirmation is sought of Rabie’s
evidence before the commission that Gardener and Mitchell were
recipients
of a substantial part of these funds.
113 The LeisureNet
liquidators seek recognition of their appointment as joint
liquidators of LeisureNet for the purpose of obtaining
access to the
books and records of Dalmore at its registered office or elsewhere in
the Island of Jersey. These records may reflect
the nature and
extent of Mitchell and Gardener’s interest in Dalmore. As I have
stated above the corporate personality of Dalmore
was used in an
enterprise in which the former chief executive offices of LeisureNet,
Gardener and Mitchell abstracted the amount
of DM10 million from
LeisureNet International and thus enriched themselves. They sought
to conceal their own involvement in the
transaction by utilizing
Dalmore as a front company, a company in which they held a beneficial
interest. These funds are recoverable
from Gardener and Mitchell by
the LeisureNet liquidators. It is in relation to these
investigations that access to the books and
record of Dalmore is
sought. It appears that the secret commissions paid to Dalmore may
also be recoverable.
The
LeisureNet liquidators also wish to ascertain whether Dalmore is in
possession of the funds transferred to it by LeisureNet

International being the pound sterling equivalent of DM10 million,
If so, they will seek to recover these funds for the benefit
of
LeisureNet’s creditors.
The
LeisureNet liquidators also require access to the books, bank
records and bank statemtents of the Royal Bank of Scotland in
Jersey
for purposes of further investigation into possible payments to
Mitchell and Gardener in relation to commissions paid
to Dalmore by
LeisureNet.
116. In the
circumstances, the LeisureNet liquidators seek an order for the issue
of letters of request requesting the Samedi Division
of the Royal
Court of Jersey or any other court of competent jurisdiction to act
in the aid of the High Court of South Africa
for the purpose of
recognizing the appointment of the applicants as the duly appointed
joint liquidators of LeisureNet.
The
order was sought in the following terms:
That
letters of request be issued requesting the Royal Court of Jersey to
act in aid of the High Court of South Africa (Cape of
Good Hope
Provincial Division) for the purposes of recognizing the appointment
of the applicants as the duly appointed joint
liquidators of
LeisureNet Limited (in liquidation) (“LeisureNet”).
That
the applicants are authorized to institute and proceed to the final
determination thereof, such proceedings as may be required
to be
instituted in any Court of competent jurisdiction in Jersey to
obtain recognition of the appointment of the applicants
as the joint
liquidators of LeisureNet.
That
the applicants are authorized to institute and proceed to the final
determination thereof, such proceedings as may be necessary
in the
Royal Court of Jersey for the recovery of all movable property
situated in Jersey which belongs to LeisureNet.
That
the applicants are authorized to institute and proceed to the final
determination thereof, such proceedings as may be necessary
in the
Royal Court of Jersey or any other Court of competent jurisdiction
in Jersey in achieving the proper and effective winding-up
of
LeisureNet.
The
order was granted in chambers on the 8
th
February 2002 and a Letter of Request addressed to the Royal Court of
Jersey was issued by the Registrar. It reads as follows:
TO: THE
ROYAL COURT OF JERSEY
Dear
Sir
LETTER
OF REQUEST – LEISURENET LIMITED (IN LIQUIDATION)
In
my capacity as the Registrar of the High Court of South Africa (Cape
of Good Hope Provincial Division) I am directed to write
this letter
to you as a “letter of request” under and pursuant to an Order of
the High Court of South Africa (Cape of Good
Hope Provincial
Division), made by the Honourable Mr Justice W J Louw on Friday, 8
February 2002, the signed original copy whereof
I annex as “
A
”.
I
confirm and record that pursuant to the said Order of Court, the
certificate of appointment issued by the Master of the High Court
of
South Africa at Cape Town dated 23 March 2001 has been produced to me
in terms of which certificate Robert John Walters and
Gavin Cecil
Gainsford were appointed joint liquidators of LeisureNet Limited (in
liquidation) (“LeisureNet”) (Master’s Reference
No. C1033/2000)
from which I am satisfied that the said Robert John Walters and Gavin
Cecil Gainsford have been appointed joint
liquidators of LeisureNet.
I annex as “
B
”
a true copy of their certificate of appointment.
It
is incumbent upon me to act in terms of the annexed Order of Court
(annexed as “
A
”)
and I accordingly request the Royal Court of Jersey to act in aid of
and to assist the High Court of South Africa:
By
recognizing the winding-up of LeisureNet and the appointment of
Robert John Walters and Gavin Cecil Gainsford as the joint

liquidators of LeisureNet;
By
recognizing the rights, powers and title of the joint liquidators of
LeisureNet to institute such legal proceedings in the
Royal Court of
Jersey as may be necessary;
By
making such order as the Royal Court of Jersey considers just and
appropriate in assisting the High Court of South Africa
in
achieving the most effective administration of LeisureNet’s
winding-up for the benefit of his creditors.
The Second Application by
the Liquidators
On
the 21
st
February 2002 Mr Leonard Katz, the liquidators’ attorney filed a
further affidavit which reads as follows:
I have
been in discussion with Mr Jonathan Speck, a practicing
advocate in Jersey. He has been engaged by the applicants
to
seek the relief set out in the applicant’s founding
affidavit. He has advised me (and I verily believe his

advices to be true) that the Royal Court of Jersey will in all
probability grant the relief sought by the applicants
and to
which reference is made in their founding affidavit. However,
after discussions with officials of the Royal
Court of Jersey
he is of the view that the letter of request should be
amplified to include more specifically the
relief sought.
I
annex as “
LCK3
”
a draft order which includes the matters which in his view
ought to be included in the letter of request. I point
out
that Moreland Overseas Limited, Kinsman Consultancy Limited,
Clockwork Limited, Ajax Way Investments Limited
and the
Insinger Trust are entitles with which either Peter Graham
Gardener or Rodney Mitchell, the former chief
executive
officers of LeisureNet, are associated.
In
the circumstances the applicants seek an order amending the
order granted on 7 February 2002 in accordance with
the draft
annexed as “
LCK3
”.
I respectfully
submit that this application is urgent. The lawyers in Jersey
are already seized of the matter and
have made arrangements to
move the application next week. Moreover, the applicants are
concerned that any delay
might result in either Gardener or
Mitchell coming to learn of the application and that if this
happens, they may
attempt to frustrate the execution of any
order granted in favour of the applicants.
In
the circumstances I respectfully ask that an amended order be
granted in the terms set out in “
LCK3
”.
I draw to the attention of this Honourable Court that
reference is made in Walters’ founding affidavit to
Ernst &
Young Trust Company. The name of the aforesaid entities has
been changed to Royal Bank of Canada Trust
Company
(International) Limited. Furthermore, a reference is made in
Walters’ affidavit to Royal Bank of Scotland.
The correct
name is Royal Bank of Scotland International Limited.
On
22 February 2002 Louw J, issued the Second Order with an additional
paragraph 5 which reads as follows:
That the applicants,
without limiting the generality of the aforegoing, are authorized to
institute and proceed to the final determination
thereof in the
Royal Court of Jersey or any other Court of competent jurisdiction
in Jersey:
Proceedings
for injunctive or interdictory relief against any party, including
but not limited to, the Royal Bank of Scotland
International
Limited and the Royal Bank of Canada Trust Company (International)
Limited and/or Ernst & Young Trust Company
(Jersey) Limited and
Standard Chartered Bank Limited;
Proceedings
for an order that any party, including but not limited to, the
Royal Bank of Scotland International Limited and
the Royal Bank of
Canada Trust Company (International Limited and/or Ernst &
Young Trust Company (Jersey) Limited and Standard
chartered Bank
Limited produce to the applicants all documents, papers or other
records relating to or having any connection
with Dalmore Limited
or its subsidiary or subsidiaries.
Proceedings
for an order that any party, including but not limited to, the
Royal Bank of Scotland International Limited and
the Royal Bank of
Canada Trust Company (International) Limited and/or Ernst &
Young Trust Company (Jersey) Limited and
Standard Chartered Bank
Limited produce to the applicants all documents, papers or other
records relating to or having any
connection with Cacique
Investment Limited, Damore Investments Limited and Paternoster
Nominees Limited;
Proceedings
for an order that any party, including but not limited to, the
Royal Bank of Scotland International Limited and
the Royal Bank of
Canada Trust Company (International) Limited and/or Ernst &
Young Trust Company (Jersey) Limited and
Standard Chartered Bank
Limited produce to the applicants all documents, papers or other
records relating to or having any
connection with Peter Graham
Gardener, Rodney Mitchell, Joubert Rabie and Johan Eduard Moster;
Proceedings
for an order that any party, including but not limited to, the
Royal Bank of Scotland International Limited and
the Royal Bank of
Canada Trust Company (International) Limited and/or Ernst &
Young Trust Company (Jersey) Limited and
Standard Chartered Bank
Limited produce to the applicants all documents, papers or other
records relating to or having any
connection with Moreland Overseas
Limited, Kinsman Consultancy Limited, Clockwork Limited, Ajax Way
Investments Limited and
the Insinger Trust;
Proceedings
against any party, including but not limited to, the Royal Bank of
Scotland International Limited and the Royal
Bank of Canada Trust
Company (International) Limited and/or Ernst & Young Trust
Company (Jersey) Limited and Standard Chartered
Bank Limited
restraining them from making any payments or transferring out of
any account in the name of Dalmore Limited, Peter
Graham Gardener,
Rodney Mitchell, Joubert Rabie, Hans Eduard Moser and any person or
entity associated with them;
Proceedings
for an order for the examination of any party, including but not
limited to representatives of the Royal Bank of
Scotland
International :Limited and the Royal Bank of Canada Trust Company
(International) Limited and/or Ernst & Young
Trust Company
(Jersey) Limited and Standard Chartered Bank Limited, before the
Master or any other officer of the Royal Court
of Jersey;
Proceedings
for restraining the disclosure of any order granted by a competent
Court in Jersey and any evidence pursuant thereto.
The
Liquidators sought an order in these terms in the Royal Court of
Jersey. The judgment of the Court (Case no 2002/46) reads
as
follows:
IN
THE MATTER OF LEISURENET LIMITED (IN LIQUIDATION)
AND
IN THE MATTER OF THE REPRESENTATION OF ROBERT JOHN WALTERS
AND
GAVIN CHECH GAINSFORD
Representation by
Joint liquidators seeking the assistance of Royal Court in relation
to the liquidation and winding up of LeisureNet.
Advocate
J. Speck for the Representors
JUDGMENT
THE
DEPUTY BAILIFF:
Robert
John Walters and Gavin Cecil Gainsford are the joint liquidators of
LeisureNet Limited (“LeisureNet”), a public company
which was
listed on the Johannesburg Securities Exchange in South Africa.
LeisureNet was ordered to be wound up on 30
th
November, 2000, by the High Court of South Africa on the grounds
that it was insolvent. It is estimated that its liabilities
exceed
its assets by some R681 million (£42 million at current exchange
rates).
The
joint liquidators now seek the assistance of this Court in relation
to the liquidation and winding up of LeisureNet in the
following
circumstances. On 30
th
November 2000 the High Court in South Africa appointed a
Commissioner pursuant to Section 417 and 418 of the Companies Act of

South Africa in order to enquire into the trade, dealings, affairs
and property of LeisureNet. We have received evidence on
affidavit
concerning the evidence which emerged from the hearings before the
Commissioner.
The
story is a complicated one but, for our purposes, can be reduced to
the following: LeisureNet, through subsidiaries, was
the owner of
50% of Healthland Germany Limited (“Healthland Germany”), a
United Kingdom company, which in turn owned Healthland
Germany GmbH,
a company incorporated and carrying on business in Germany. The
other 50% of Healthland Germany was owned by Dalmore
Limited
(“Dalmore”) a company incorporated in Jersey and administered by
Royal Bank of Canada Trust Company (International)
Limited. It was
said before the Commissioner that the joint chief executive officers
of LeisureNet, namely Peter Gardener and
Rodney Mitchell, each
beneficially owned 20% of Dalmore.
On
16
th
April 1999 LeisureNet – through a subsidiary called LeisureNet
International Limited – purchased Dalmore’s 50% interest
in
Healthland Germany for DM10million. It is said that this was a
fraudulent transaction in a number of respects:-
The
price was grossly inflated. At the time Healthland Germany was
technically insolvent and worth almost nothing.
The
beneficial interest of Mr Gardener and Mr Mitchell in Dalmore was
unknown to the remaining members of the board of directors
of
LeisureNet when they agreed to the transaction.
The
board of LeisureNet understood that the purchase price was to be
funded by the issue of shares in LeisureNet but, in fact,
the
price was paid by way of a cash payment.
It
is also alleged, on the basis of evidence given before the
Commissioner, that unjustified commissions of some £245,000 were

paid to Dalmore and other sums were paid to four companies
incorporated in the British Virgin Islands but administered in
Jersey.
In
short, it is alleged that the two chief executive officers have
improperly extracted company funds for their own benefit and
the
joint liquidators wish, if appropriate, to trace and recover these
monies. They have obtained a letter of request from the
High Court
of South Africa seeking the Court’s assistance.
Article
48 of the
Bankrupcy
(Desastre) (Jersey) Law 1990
contains statutory provisions governing requests by foreign courts;
but that is of no assistance in this case. The article is
applicable
only to designated countries and territories and South Africa has
not been so designated as yet.
It
is however clear that the Court has an inherent jurisdiction to make
orders in aid on the basis of comity and reciprocity (e.g.
Re
First International Bank of Grenada Limited
(Jersey Unreported) 23
rd
January 2002).
It
is clear from the very detailed memorandum before us from South
African counsel to the liquidators that the High Court of South

Africa would offer reciprocal assistance in such circumstances
In
essence the joint liquidators ask for the following relief:-
That
their authority and status be recognized and enforced by this
Court.
That
certain banks and the company administrators of Dalmore and the
BVI companies disclose information concerning the matters
in
question.
That
the same institutions disclose documents concerning the matters
in question:
That
injunctive relief freezing the appropriate assets be granted for a
limited period pending consideration whether, following
production
of the information and documents, substantive proceedings for
recovery of funds should be instituted.
We
consider it appropriate to grant the assistance requested by the
letter of request and articulated in the terms of the prayer
of the
representation. The prayer is granted subject to the following
points:-
Paragraphs
(d) to (g), which require disclosure of information and documents,
are granted subject to receipt of an undertaking
that the joint
liquidators will pay the reasonable costs of the named institutions
in complying with the orders.
The freezing
injunctions contained at paragraphs (h) to (k) inclusive will be
limited to a period of two months. This is intended
to give time
for substantive proceedings to be instituted which could then seek
injunctive relief if appropriate. There will
be liberty to apply
so that the joint liquidators will be able to apply for an
extension of these injunctions should this become
necessary.
iii. Paragraph (k)
will be extended to cover the four BVI companies.
The application for
paragraph (l), which was a gagging order, was withdrawn by Mr Speck
during the course of the hearing.
We are not willing
to grant paragraph (m) which allows the joint liquidators to
summon an officer of the relevant institutions
before the Viscount
for examination in relation to these matters. The request is too
general. Should the exercise of this
power become necessary, the
joint liquidators may apply to this Court for a specific order
setting out the grounds upon which
it is required.
As to paragraph (n)
we confirm that the joint liquidators may make use of the copy
documents and information disclosed for
the purpose of tracing
actions elsewhere and for the purposes of reporting to the
Commissioner and for the purposes of any
proceedings before the
High Court of South Africa but not for any other purpose. If they
do require to use the documents
for any other purpose, they will
need to make specific application to this Court
The
application by Gardener and Mitchell
Initially
Gardener and Mitchell sought to set aside both orders made by Louw J
on the grounds that:
the orders had been granted ex
parte and despite the fact that serious allegations of fraud had
been made against them and
that the orders could partially at
least, affect their interests, they had not been granted the
opportunity to be heard;
the liquidators had failed to
place all relevant information before the Court, more
particularly the contention that the
value of the Healthland
shares was in fact substantial and not minimal;
the contention of the liquidators
that payment for the Healthland shares should have been by way of
LeisureNet shares issued
to Dalmore and not in cash was
misconceived;
the order of the Jersey Court
would affect their privacy.
However, during the course of the argument on
their behalf, it was conceded that no grounds exist for setting aside
the first order
as that order only relates to the recognition of the
Liquidators as the duly appointed liquidators of LeisureNet, their
authorization
to institute proceedings in Jersey to recover moveable
property belonging to LeisureNet and to the proper and effective
winding-up
of LeisureNet.
The application to
set aside the order dated 8 February 2002 must therefore be
dismissed.
Similarly it was
conceded that no grounds exist to set aside Paragraphs 1-4 of the
Second Order (a mere duplication of the First
Order). Gardener and
Mitchell having disavowed any interest in Dalmore, it was further
conceded that no grounds exist to set aside
paragraphs 5.1, 5.2, 5.3
and 5.7 of the Second Order as these paragraphs only relate to the
Royal Bank of Scotland International
Limited, the Royal Bank of
Canada Trust Company (Jersey) Limited, Dalmore Limited, its
subsidiaries and its shareholders Cacique
Investments Limited, Damore
Investments Limited and Paternoster Nominees Limited.
The
remaining paragraphs in the Second Order read as follows:
5. That
the applicants, without limiting the generality of the aforegoing,
are authorized to institute and proceed to the final
termination
thereof in the Royal Court of Jersey or any other Court of competent
jurisdiction in Jersey:
…………………
“
5.4 Proceedings for
an order that any party, including not limited to, the Royal Bank of
Scotland International Limited and the
Royal Bank of Canada Trust
Company (International) Limited and/or Ernst & Young Trust
Company (Jersey) Limited and Standard
Chartered Bank Limited produce
to the applicants all documents, papers or other records relating to
or having any connection with
Peter Graham Gardener, Rodney Mitchell,
Joubert Rabie and Johan Eduard Moster;
Proceedings
for an order that any party, including but not limited to, the
Royal Bank of Scotland International Limited and
the Royal Bank of
Canada Trust Company (International) Limited and/or Ernst &
Young Trust Company (Jersey) Limited and
Standard chartered Bank
Limited produce to the applicants all documents, papers or other
records relating to or having any
connection with Moreland Overseas
Limited, Kinsman Consultancy Limited, Clockwork Limited, Ajax Way
Investments Limited and
the Insinger Trust;
Proceedings
against any party, including but not limited to, the Royal Bank of
Scotland International Limited and the Royal
Bank of Canada Trust
Company (International) Limited and/or Ernst & Young Trust
Company (Jersey) Limited and Standard Chartered
Bank Limited
restraining them from making any payments or transferring out of
any account in the name of Dalmore Limited, Peter
Graham Gardener,
Rodney Mitchell, Joubert Rabie, Hans Eduard Moser and any person or
entity associated with them.”
It
is clear from the papers that there might be a
bona
fide
dispute about the
value of the Healthland shares. It is equally clear, what ever the
impression of the LeisureNet board might
have been, that the purchase
price of the shares was probably payable in cash, and not by the
issuing of LeisureNet shares to Dalmore.
For
the purposes of this application, I am prepared to accept that if
Louw J had been fully informed of the Rabie valuation of the
shares
in Healthland Germany, and if his attention had been more pertinently
drawn to the interpretation of the payment clause
as contended for by
Gardener and Mitchell, he might have come to a different conclusion.
However I doubt that he would have.
In my view, as indicated
hereinafter, it was not necessary for the liquidators to establish a
prima facie
case or to show a reasonable prospect of success. In any event, the
uncontradicted allegations of the liquidators do show the
necessity
for enquiries in Jersey.
These
allegations are that while Gardener and Mitchell were the joint chief
executives of LeisureNet:-
The
financial position of LeisureNet had been materially
misrepresented to its bankers, creditors and shareholders

particularly in relation to its 31 December 1999 annual financial
statements;
That DM10 million
specifically earmarked for expansion in Spain had, on the
instructions of Gardener, been diverted to Dalmore;
That DM4 million of the
DM10 million had been channeled from Dalmore to Ajax Way and
Clockwork for the benefit of Gardener
and Mitchell or their
families
That
millions of Rand had been paid to Dalmore as ‘commissions’
even at a time when other creditors were kept waiting;
That
Gardener and Mitchell had never disclosed their interests in
Dalmore, Ajax Way and Clockwork to the boards of LeisureNet
and
had in fact denied having such interest.
- That three versions had been
advanced why DM4 million had been channeled to Gardener and Mitchell,
namely
Gardener and Mitchell beneficially
own 40% of the shareholding of Dalmore (Rabie’s evidence before
the Commission);
Gardener and Mitchell beneficially
owned 20% of the shareholding in Healthland Germany, the
shareholding having been held by
Dalmore on their behalf (a later
version of Rabie’s);
Gardener and Mitchell did not own
any shares in Dalmore or Healthland Germany. The DM4 million was
paid to them by Moser.
No details of the agreement or the
background thereto are provided (the version of Gardener and
Mitchell in this application).
In
these circumstances where millions of LeisureNet funds have
disappeared into pockets created by Gardener and Mitchell in offshore

havens, a proper and thorough investigation is not only warranted but
essential for the proper winding up of LeisureNet. On
reconsideration of the matter I will certainly not set aside the
orders.
The
contention that the orders should not have been granted because the
information sought by the liquidators is private and confidential

borders on the grotesque. It is illustrative of the attitude of so
many managers of companies who seem to believe that they should
be
allowed to walk away scot-free from financial disasters which they
have created.
The
remaining questions are whether the applications should have been
brought
ex parte
and the orders granted without notice to Gardener and Mitchell and
whether they have the necessary
locus
standi
to intervene.
The Issue of Letters of
Request
In the United Kingdom the issue of letters of
request to act in aid of a Court was also known in the Ecclesiastical
Courts.
Phillimore
“Ecclesiastical Law” at page 1278.
This procedure, which seems to have become peculiar to insolvency
proceedings, and is also
known as ‘process in aid’ or ‘orders
in aid’ was formally introduced into bankruptcy by the Bankruptcy
Court Act 1869.
Section
74 of the Bankruptcy Act of 1869 read as follows:
‘
British
Courts and their officers shall severally act in aid of, and be
auxiliary to, each other in all matters of Bankruptcy; and
an order
of the Court seeking aid, together with a request to another of the
said Courts, shall be deemed sufficient to enable
the latter Court to
exercise, in regard to matters directed by such order, the like
jurisdiction which the Court which made the
request, as well as the
Court to which the request is made, could exercise in regard to
similar matters within their respective
jurisdictions.’
Since that date numerous applications for the
issue of letters of request or for the recognition of foreign
trustees have been brought
in the Courts of the old South African
colonies and later in the Courts of the Union of South Africa. In
‘The Judicial Practice,
of South Africa’ by
C.H. van Zyl
,
2 e.d. the following appears at p285-286.
“
Our Supreme Court
in February, 1884 (not reported), acting on this request, gave an
order, not only to recognize the English order,
but even cancelled
the Colonial sequestration of the estate, including the appointment
of the Trustees thereunder, and vested all
the movable assets of the
estate in the English Trustees, By virtue of the same section again,
our Supreme Court and the Grigualand
West Court, in November, 1886,
granted similar orders seeking the aid of the English Bankrupcy
Courts and requesting them to recognize,
as Trustees in England, the
appointment of Colonial Trustees is the insolvent estate of
Christopher Firbank, and of the estate
of Firbank, Pauling & Co.
(neither of which is reported).
The
application here is by petition to the Court by the Trustees, setting
forth the circumstances why they wished to be recognized
as such in
England; and concluding with a prayer:-
To
act in aid.
To
declare the property (in England) vested in the Colonial Trustees.
To
order that the administration be proceeded with by the Trustees, or
by their lawfully appointed agents; and
For
general relief, &c.
The Supreme Court has
confirmed the appointment of a trustee elected in Griqualand West,
and appointed by the High Court there,
for the purpose of enabling
him to dispose of landed property in this Colony beyond the
jurisdiction of the said High Court.”
See
also the numerous cases cited and summarized by
Bisset
and Smith
in ‘The Digest
of South African Case Law’ Vol III p.411-417.
A
similar procedure but without the intervention of Courts, is the
recognition of a foreign executor by the Master of the High Court
in
South Africa or by the Registrar of the Chancery Division of the High
Court in the U.K for the purposes of administering deceased
estates.
The
issuing of letters of request is also known and recognized in
International law and is based on the ‘universality’ of
sequestration,
reciprocity and the comity of nations. See generally
Story
‘Commentaries on the Conflict of Laws’ 6 ed. par. 26-38 a,
Bar
‘TheTheory and Practice
of Private International Law 2 ed. par. 476-477 and
Fletcher
‘The Law of Insolvency’ p. 609-611 as follows:-
“
As already
explained above, the fundamental principal long accepted by English
law is that the law of the company’s domicile is
primarily
competent to control all questions concerning the company’s initial
formation, and subsequent existence, as a legal
person. As was also
explained above, the domicile of a company is for this purpose
treated as being, possibly immutably, located
in the country under
the laws of which the company originally underwent formal
incorporation and registration so as to attain a
legal identity and
status. From this fundamental principle it follows that English
private international law will accord recognition
to a foreign
dissolution of a company which has taken place under the law of the
company’s domicile, as understood by English
law: if the true
construction of the effect of the winding up according to the foreign
legal system is to bring to an end the company’s
legal existence,
that consequence will be accepted and recognized at English law.
……………………………………………………………………….
From
the general principles stated in the previous subsection if follows
that a liquidator appointed under the law of the company’s
place of
incorporation will be recognized at English law as having authority
to wind up the company, and to represent it in legal
proceedings
brought either against or on behalf of the company, provided that
such representative authority is conferred upon him
by the law
governing his appointment”
See also,
Ex parte
B.Z. Stegmann
1902 TS 40
at 48-55.
Reference
was made to a
dictum
from the judgment in
Ex
Parte Wessels and Venter NNO
:
In re
Pyke-Nott’s
Insolvent Estate
1996(2) SA
677 (O) at 681 that letters of request ought to be granted by the
Court only –
‘
if the applicants
have made out a prima facie case or have shown reasonable prospects
of success that an examination of witnesses
and documents in England
may lead to the discovery of further assets in the insolvent estate.’
I
do not agree. A Court is approached to issue a letter of request to
a Court in a foreign country to recognizes the liquidator
and is not
asked to approve or to sanction the actions of the liquidator. If
the Master or creditors are of the view that the
liquidators are
acting irresponsibly or is wasting money they have other avenues to
explore. In my view, all that has to be stated
is that the
liquidator believes that proceedings should be initiated in the
foreign country. Whether this belief is based on impeccable

information or is merely based on unsupported hearsay, is irrelevant.
If a liquidator is
bona
fide
of the view that
proceedings should be taken in another country, it should be his
decision, and his alone.
As
indicated above the effect of the issue of the letters of request
following upon the orders of Louw J amounted to nothing more
then a
request to the Court of Jersey to allow the liquidators to perform
the functions conferred upon them by the South African
Companies Act.
No order was sought against Gardener and Mitchell, no order was
granted against them and no rights or interests
of either are
affected by the orders. Subsequent proceedings which might affect
them are governed by the laws and procedure of
the Island of Jersey.
Accordingly,
in my view it was not necessary to notify Gardener and Mitchell of
the intention to apply for the issue of the letters
of request, and
they do not have the necessary
locus
standi
to intervene. See
United Watch and Diamond
Company v Disa Hotels
1972 (4) SA 409
(C).
It
follows that the application by Gardener and Mitchell to set aside
the Second Order should be also be dismissed.
Gardener and Mitchell applied to strike out a
number of paragraphs in the affidavit of Walters on the grounds of
irrelevance or
vexatiousness. Some of the passages are certainly
irrelevant but as prejudice was not shown, the application must be
dismissed.
In
the result
The
application to set aside the orders granted by Louw J on the 8
th
February and the 22 February 2002, is dismissed, with costs,
including the costs attendant on the employment of two counsel;
The application to strike out is
dismissed with costs.
H
C NEL