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[2024] ZAFSHC 314
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Selesho N.O and Another v Kelello Moroesi Alphonsina Mangoejane Marematlou Group Holdings and Others (1372/2024) [2024] ZAFSHC 314 (3 October 2024)
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Certain
personal/private details of parties or witnesses have been
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IN
THE HIGH COURT OF SOUTH AFRICA
FREE
STATE DIVISION, BLOEMFONTEIN
Reportable:
NO
Of
Interest to other Judges: NO
Circulate
to Magistrates: NO
Case
no:
1372/2024
In
the matter between:
MASIKILO
FLORENCE SELESHO N.O.
1
st
Applicant
IZAK
JACOBUS MARIUS VAN ZYL N.O
.
2
nd
Applicant
[in
their capacities as trustees for the time being of
the
LEAGANG FAMILY TRUST
,
IT 0[…]5(B)
]
and
KELELLO
MOROESI ALPHONSINA MANGOEJANE
1
st
Respondent
MAREMATLOU
GROUP HOLDINGS (PTY) LTD
2
nd
Respondent
[Registration
no.: 2015/448417/07]
JENN
TRAINING AND CONSULTANCY (PTY) LTD
3
rd
Respondent
[Registration
no.: 2016/002123/07)
MAREMATLOU
TRAINING INSTITUTE (PTY) LTD
4
th
Respondent
[Registration
no.: 2016/001856/07]
THE
STANDARD BANK OF SOUTH AFRICA LTD
5
th
Respondent
[Registration
no.: 1962/000738/06]
KELELLO
MOROESI ALPHONSINA MANGOEJANE N.O
6
th
Respondent
[in
her capacity as trustee for the time being of
the
MASEMO TRUST
,
IT 0[…]6(B)
]
Coram:
DAFFUE J
Heard
:
6 JUNE 2024
Delivered
:
3 OCTOBER 2024
Summary:
The
applicants as trustees of a trust obtained an
interim
order to
pendente lite
prevent unlawful transactions on the bank
account of a company (the third respondent) by its director (the
first respondent). Prior
to the order being granted, immediately
before and after the death of the chief executive officer of the
company, the first respondent
unlawfully paid and/or withdrew
millions of Rands from the third respondent’s bank account. The
trust is an equal shareholder
in the second respondent, a related
company which is the holding company of the third respondent. On the
extended return date of
the rule
nisi
the first and third
respondents relied on several points of law without filing answering
affidavits to contest the alleged unlawful
payments.
Held
that the rule
nisi
should be confirmed to enable the
applicants to institute action, including a derivative action if so
advised, whilst maintaining
the
status
quo
as set out
in the rule
nisi
.
ORDER
1.
The rule
nisi
dated 11 March 2024 is confirmed with the
exclusion of paragraph 2.3 and subject to the amendment of paragraph
3 thereof which
shall read as follows:
‘
3.
Paragraphs 2.1 and 2.2 above shall serve as interim interdicts with
immediate effect pending
the institution, within 60 days from date of
the finalisation of this application, of an action, application, or
other legal relief
against the 1
st
respondent and/or any
of the other respondents.’
2.
The first and third respondents shall pay
the costs of the
application, including the costs reserved on 18 April 2024, on the
following basis: the first respondent on an
attorney and client scale
and the third respondent on a party and party scale, such costs to
include the fees of two counsel to
be taxed on scale C and A in
respect of the senior and junior counsel respectively.
JUDGMENT
Daffue
J
Introduction
[1]
This is the return date of a rule
nisi
granted on 11 March
2024 on an ex parte basis. The applicants rely on alleged fraudulent
and/or unlawful payments and/or withdrawals
from a company’s
bank account over a period of three weeks from 6 February 2024 to 1
March 2024 in a total amount of just
less than R14 million.
[2]
In
Bonifacio
and Another v Lombard Insurance Company
[1]
the Supreme Court of Appeal emphasised recently
that
‘[n]o court will give effect to a fraud’
,
quoting in the process the well-known
dictum
of the Queen’s Bench in
Lazarus
Estates Ltd v Beasley,
[2]
to wit that fraud if established,
‘unravels
everything’. In this judgment the court will consider whether
this
dictum
may be applied to the facts presented to it.
The
rule nisi issued on 11 March 2024
[3]
The following order was issued on 11 March 2024:
‘
1. The
Applicants’ non-compliance with the Uniform Rules of Court
relating to time frames, form, service, and Rule 41A
is condoned and
this application is heard as one of urgency in terms of Rule 6(12).
2. A
rule nisi
is issued calling upon the Respondents to show cause, if any, on
18
APRIL 2024
at
09h30
or so soon thereafter as the matter
may be heard, why the following should not be ordered:
2.1 That the 1
st
Respondent be prohibited from making any payment from the bank
account of the 3
rd
Respondent with
account number 0[…]
held with the 5
th
Respondent (hereafter “
the
account
”) without the prior written consent of the
Applicants (represented by the 2
nd
Applicant), which
consent will not be unreasonably withheld;
2.2 That the 5
th
Respondent be authorised forthwith to monitor all payments,
withdrawals, disbursements, or transfers from the account by
implementing
a system or method of prior authorisation thereof by the
Applicants to be represented for that purpose by the 2
nd
Applicant;.
2.3 That the 1
st
,
3
rd
and 4
th
Respondents be prohibited from
exposing Mr. Petrus Hendrik Herbst to any form of “occupational
detriment”, as defined
in
Section 1
of the
Protected
Disclosures Act 26 of 2000
;
2.4 That the 1
st
Respondent be ordered to pay the costs of this application on a scale
as between attorney and client,
alternatively
that the costs
of the application be paid by any respondents opposing the
application, jointly and severally with the 1
st
Respondent, the one to pay the others to be absolved;
3. Paragraphs 2.1,
2.2 and 2.3 above shall serve as interim interdicts with immediate
effect pending the institution, within
60 days from date of the
finalisation of this application, of an action, application, or other
legal relief against the 1
st
Respondent (or, if needed,
any of the other Respondents) for any damage suffered or to be
suffered by the Applicants;.
4. This application
and order shall be served on the Respondents in terms of the Rules;’
The
parties
[4]
Masikilo Florence Selesho N.O. and Izak Jacobus Marius
van Zyl N.O.
(in their capacities as trustees of the Leagang Family Trust) are
respectively the first and second applicants in
these proceedings. I
will herein later refer to them as the trustees and to the Leagang
Family Trust as the Leagang Trust. Although
Jacob Mohlouwa Selesho in
his alleged representative capacity as trustee of the Leagang Trust
is cited as the third applicant,
this is an obvious mistake. He
passed away a few days prior to the institution of these proceedings.
More about this later.
[5]
Kelello Moroesi Alphonsina Mangoejane in her personal
capacity is
cited as the first respondent. She is a major female and sole
director of the second, third and fourth respondents
and also the
sole trustee of the Masemo Trust. She is cited as the sixth
respondent in her representative capacity as trustee of
the Masemo
Trust. Although Jacob Mohlouwa Selesho is cited the seventh
respondent, it being alleged that he is a co-trustee of
the Malemo
Trust, this is incorrect as he has passed away as mentioned above.
[6]
The second, third and fourth respondents are private
companies, to
wit Marematlou Group Holdings (Pty) Ltd, Jenn Training and
Consultancy (Pty) Ltd and Marematlou Training Institute
(Pty) Ltd
respectively.
[7]
The Standard Bank of South Africa Ltd is cited as the
fifth
respondent, it being the financial institution where the third
respondent’s bank account is kept.
Court
processes since the rule nisi
[8]
The application is opposed by first and third respondents
only. They
decided not to file answering affidavits, but to rely on a notice in
terms of rule 6(5)(d)(iii) of the Uniform Rules
of Court. It is their
case that the questions of law raised by them are dispositive of the
application. I may just mention that,
unlike as generally
encountered, the notice relied upon by first and third respondents
consists of 18 pages, containing much legal
argument. Five points of
law are relied upon which will be dealt with in due course.
[9]
The notice in terms of rule 6(5)(d)(iii) was filed on
17 April 2024,
a day before the return date of the rule
nisi
, although the
notice of motion with annexures and court order had been served on
all the respondents more than five weeks earlier,
to wit on 11 March
2024. The first and third respondents failed to utilise rule 6(8)
which was available to them. They could have
anticipated the return
date with 24 hours’ notice.
[10]
As a direct consequence of the late filing of the aforesaid notice,
the rule
nisi
was extended and the application postponed by
agreement to the opposed roll of 6 June 2024, costs to stand over.
[11]
Heads of argument were eventually filed and after considering oral
argument,
leave was granted to the parties to file supplementary
notes.
Brief
factual background
[12]
It is apposite to deal with some preliminary issues before
considering the
factual background. Rule 6(5)(d)(iii) reads as
follows:
‘
Any person
opposing the grant of an order sought in the notice of motion must—
(i)
…
(ii)
…
(iii)
if such person intends to raise any question of law
only
, such
person must deliver notice of intention to do so, within the time
stated in the preceding subparagraph, setting forth such
question.
(emphases added)
[13]
It is an accepted practice that a respondent should file their
answering affidavit
on the merits at the same time they take
preliminary objections on points of law. If this is not done, the
court considering the
application may be placed in a difficult
position. If the legal points are dismissed, the court may consider
the application on
the merits without giving the respondent an
opportunity to file an answering affidavit, alternatively, it could
postpone the matter
to enable the respondent to file an answering
affidavit. The alternative approach often causes unnecessary delay in
the proceedings
and a piecemeal handling of the application.
In
casu,
the first and third respondents made it clear, to my mind,
that they were prepared to fall and stand by the points of law taken.
In his supplementary note filed with leave of the court after oral
argument, Adv S Grobler SC suggested that the first and third
respondents might have filed answering affidavits if the applicants
clearly indicated in the founding affidavit that they intended
instituting proceedings in terms of s 165 of the Companies Act 71 of
2008 (the
Companies Act). Notwithstanding deliberations
during oral
argument dealing particularly with
s 165
and the court’s view
in this regard, leave was not sought to file answering affidavits.
[14]
In
Boxer
Superstores Mthatha and Another v Mbenya
[3]
the Supreme Court of Appeal held as follows:
‘
The
employer’s objection to the application challenges its
viability in the forum the employee has chosen. As yet there is
no
answering affidavit, and we must at this stage take the allegations
in the founding affidavit to be established facts, determining
whether, if they are true, the high court has jurisdiction.’
It is apparent that the
court is entitled to accept the applicants’ allegations in the
founding affidavit and annexures thereto
as established facts in the
absence of a contradictory answering affidavit. Therefore, it is now
appropriate to mention the facts
presented by the applicants.
[15]
At all
relevant times the Leagang Trust was managed by three trustees, to
wit the first and second applicants and the deceased,
Jacob Mohlouwa
Selesho who passed away on 26 February 2024. The second applicant has
been appointed as executor in the deceased
estate of Jacob Mohlouwa
Selesho and his surviving spouse, Masikilo Florence Selesho, the
first applicant.
[4]
It is
not in dispute that the remaining two trustees are entitled to
continue with the business of the Leagang Trust.
[5]
[16]
The second
respondent is a holding company and sole shareholder of the third and
fourth respondents.
[6]
The
Leagang Trust and the Masemo Trust are equal shareholders of the
second respondent.
[7]
It is the
applicants’ case that they as trustees of the Leagang Trust, it
being a shareholder of the second respondent, have
the necessary
locus
standi
in these proceedings.
[17]
The third
respondent conducts a thriving business in the field of educational
intervention and
inter
alia
provides bridging courses for learners from grade 9 to 12 to prepare
them for their school examinations. Third respondent’s
major
clients are the Departments of Education of the Eastern Cape and Free
State Provinces. The business income and expenses of
the third
respondent flow through its business account held at the Loch Logan
Branch, Bloemfontein of the Standard Bank, the fifth
respondent. The
third respondent provides the services of teachers as well as meals,
transport and study material for learners.
[8]
[18]
Before
passing away, the deceased was the chief executive officer of the
third respondent and oversaw its business affairs. He became
critically ill to such an extent that by 11 February 2024 he did not
communicate per email anymore.
[9]
Although the first respondent is the sole director of second and
third respondents, she was not actively involved in the third
respondent’s aforesaid business.
[19]
On 8 March
2024, Pieter Hendrik Herbst, an internal accountant of the fourth
respondent, also responsible for the internal bookkeeping
of the
third respondent, compiled a report.
[10]
The accountant detected several alleged fraudulent and/or unlawful
payments. Three payments in the total amount of R7.5 million
were
made by first respondent from the account of third respondent to
Nestassest (Pty) Ltd (Nestassest), a company that is neither
a
supplier, nor a creditor of the third respondent. The first
respondent is the sole director and shareholder of Nestassest. The
three payments were made between 6 February 2024 and 27 February
2024.
[20]
A further
five payments were made from the third respondent’s bank
account pertaining to a construction project in respect
of a property
in Berg-en-Dal, Woodland Hills Estate, Bloemfontein, registered in
the name of the first respondent. These payments
were made between 27
February 2024 and 1 March 2024 in the total amount of
R6 433 567.19.
[11]
It is the applicants’ case that all these payments coincided
with the declining health and eventual death of the deceased
and that
first respondent acted in conflict with her fiduciary duties and
abused her position as director to improperly advance
her personal
interests to the detriment of the second respondent as holding
company and its shareholders, including the applicants
in their
aforesaid representative capacities.
[21]
By the time
the founding affidavit was deposed to, the third respondent’s
bank account still reflected a positive balance
of
R33 104 779,31.
[12]
The first respondent had free and unfettered access to these funds
until the issue of the rule
nisi
.
If her spending pattern over a period of less than a month is
considered, much of those funds might have been channelled to other
accounts to the detriment of the third respondent, its creditors,
contract parties and shareholders. It is reiterated that the
third
respondent’s business includes the provision of meals,
transport and study material for learners.
[22]
As
mentioned, the first and third respondents decided not to file an
answering affidavit, but to rely on points of law. Consequently,
the
allegations in the founding affidavit shall be taken as established
facts. Repetitive averments are made by the applicants
that the first
respondent fraudulently and unlawfully made payments and/or
withdrawals from the third respondent’s bank account.
It is
trite that it is inappropriate and unwise during motion procedure to
make findings of fraud or deceit on the basis of untested
allegations
which are denied on grounds that cannot be described as far-fetched
or untenable.
[13]
This does
not apply
in
casu
,
save insofar as it may be found that certain allegations were not
based on fact, but incorrect conclusions have been drawn from
the
facts. However, I could not detect any incorrect conclusions.
[23]
I am satisfied, in the absence of an affidavit to dispute the serious
allegations
referred to above, that the first respondent acted
mala
fide
and could not provide a sensible and legally tenable
explanation for these withdrawals. There is really no reasonable
explanation
that she could possibly present pertaining to the Herbst
report and the withdrawal of nearly R14 million from the third
respondent’s
bank account in the three weeks prior to and just
after the deceased’s passing. I accept for purposes of
adjudication of
this application that it is common cause that the
aforesaid payments and/or withdrawals were fraudulently and
unlawfully made.
The first three payments were made to Nestassest who
is not a supplier or creditor of the third respondent. The next five
payments
were made to an architect, quantity surveyor and a building
contractor in respect of the first respondent’s personal
property
project.
[24]
Having indicated that the facts presented by the applicants should be
accepted
as correct, it is now an opportune moment to deal with the
points of law raised by the first and third respondents. I shall deal
with them in the order as pleaded.
Points
of law
First
point of law
[25]
It is the
first and third respondents’ case that the relief sought and
obtained by the applicants constitutes final and not
interim
relief. This point of law should be dismissed without further ado.
Although the
interim
order was granted with immediate effect, there can be no doubt that
this court order is susceptible of alteration by the court.
I accept
that it is not merely the form of the order that must be considered,
but also and predominately, its effect. Although
the order can be
regarded as a restraint order, it makes provision for the first
respondent to conduct the affairs of the third
respondent, subject to
the terms of the order. The court has not been told in which manner
the third respondent’s business
activities have been or will be
curtailed or negatively affected. In my view, the facts
in
casu
are totally different from those in
Metlika
Trading Ltd and Others v Commissioner, SARS
[14]
where the court dealt with an order for the return of an aircraft to
South Africa with immediate effect.
[26]
The first and third respondents’ submission that the
ex
parte
order could not be revisited, for example in terms of
either
rule 6(8)
, or
rule 6(12)(c)
, or on the return date, is
untenable. Instead of anticipating the return day with 24 hours’
notice in terms of
rule 6(8)
, or utilising the
rule 6(12)(c)
process
in seeking a reconsideration of the order, the first and third
respondents elected to waive reliance on these express
rules
which have been created for the benefit of a respondent confronted
with an order granted in their absence.
[27]
The submission that the applicants as shareholders would remain in
control
of the finances with the ability to transact on the third
respondent’s bank account is rejected as false. Nothing
prohibits
the first respondent as sole director to conduct the
business of the third respondent and to transact on its bank account
for legitimate
purposes. No interpretation of the wording in
paragraph 2.1 could lead to the conclusion presented by the first and
third respondents.
The business of third respondent will continue as
usual, but the first respondent is not allowed to take from the
cookie jar to
which she is not entitled.
Second
point of law
[28]
This is not really a point of law insofar as it is submitted that the
applicants
have failed to establish a clear right, that they have
suffered harm or a reasonable apprehension of harm and that there was
no
other suitable alternative remedy available. These are
requirements for final interdicts, which is not the situation
in
casu
, but nevertheless, it could not be raised as a point of law.
It should have been properly dealt with in answering the applicants’
allegations, where after their counsel would be entitled to make the
necessary legal submissions why interdictory relief should
not have
been granted. I shall deal with the requirements for an
interim
interdict and whether these have been met during my final
evaluation of the parties’ submissions.
Third
point of law
[29]
It is
submitted that the order is unintelligible, lacking in clarity and
unenforceable in law. Mr Grobler relied on
Eke
v Parsons
[15]
in this regard. Reliance is also placed on the management powers and
functions of directors and
s 66
of the
Companies Act. It
is trite, as
confirmed in
s 66
, that the business and affairs of a company must be
managed by or under the direction of its board of directors. The same
principle
applies
in
casu
insofar as the first respondent as the sole director must manage the
affairs of the third respondent. More will be said later about
the
fiduciary duties of directors and the first respondent’s
obvious lack of understanding these. Much is made of the fact
that it
is expected of the Standard Bank as fifth respondent to monitor all
payments, withdrawals, disbursements or transfers from
the third
respondent’s bank account, whilst the method is not explained
in the order. The Standard Bank did not object and/or
respond to
explain that the order is unintelligible. Also, the first respondent
did not explain under oath that she had experienced
any problems in
her management of the third respondent’s business or its bank
account for proper business purposes since
the order on 11 March
2024. No complaint was raised by the first and third respondents that
the second applicant precluded them
from conducting business as well
as the bank account efficiently. If there was indeed a problem, I
would have expected these respondents
to state this under oath. A
period of nearly three months has lapsed since the rule
nisi
was issued till the hearing of the application on the extended return
date.
Fourth
point of law
[30]
It is submitted that the applicants as shareholders of the second
respondent
(Marematlou Holdings) have no suitably close legal
interest necessary to confer
locus standi
in court proceedings
pertaining to the proper management and/or financial position of the
third respondent. Marematlou Holdings,
the second respondent, has an
interest in the management of third respondent as its holding
company, so it was submitted, and not
the applicants. Marematlou
Holdings is the sole shareholder of the third respondent.
Consequently, so it was submitted, only Marematlou
Holdings has
locus
standi
to apply for relief in terms of
s 77
or any other
statutory remedy contemplated in the
Companies Act and/or
s 424 of
the 1973
Companies Act (the
1973 Act). Chapter 14 of the 1973 Act,
which includes s 424, still applies.
[31]
The relevant portion of
s 77(2)
of the
Companies Act reads
as
follows:
‘
(2)
A
director of a company may be held liable-
(a)
in
accordance with the principles of the common law relating to breach
of a fiduciary duty, for any loss, damages or costs sustained
by the
company as a consequence of any breach by the director of a duty
contemplated in
section 75
,
76
(2) or
76
(3)
(a)
or
(b)
;
or
(b)
in
accordance with the principles of the common law relating to delict
for any loss, damages or costs sustained by the company as
a
consequence of any breach by the director of- ….’
[32]
It is accepted, as Mr Grobler submitted, that the relief in
s 77
is
not available to the applicants
in casu.
Nothing more needs to
be said in this regard. In his heads of argument and during oral
argument Mr Grobler accepted that the applicants
would be entitled to
rely on
s 165
of the
Companies Act altho
ugh he emphasised that this
‘is a notional remedy only’. Derivative actions are now
regulated by
s 165.
I shall deal with such possible action hereunder
when I evaluate the parties’ submissions.
Fifth
point of law
[33]
It was submitted that the applicants do not have
locus standi
to apply for any relief in favour of Mr Herbst on the basis that the
information disclosed by him constitutes a protected disclosure
within the ambit of the
Protected Disclosures Act 26 of 2000
.
[34]
The fourth respondent is Mr Herbst’s employer. It did not
oppose the
application and it is accepted that it abides this court’s
decision. Mr Herbst is clearly a whistle-blower who came to the
assistance of the applicants. He is not cited as an applicant. Adv P
Zietsman SC submitted that the court should come to the aid
of the
applicants and confirm the rule
nisi
, also in respect of
paragraph 2.3 thereof, bearing in mind the circumstances of this
case. I considered whether there could be
any prejudice to the
respondents if
interim
relief is granted to protect the
whistle-blower from disciplinary measures and even dismissal.
Eventually I came to the conclusion
that it would be legally
untenable to grant relief in favour of a person who is not cited as
an applicant.
Evaluation
of the parties’ submissions
[35]
I have
already dealt to an extent with the five points of law relied upon by
the first and third respondents. I shall now deal with
the
submissions in more detail. I reiterate that the application will be
adjudicated based on the accepted facts and having regard
to the
legal submissions made by the parties. It is appropriate to consider
the applicants’
locus
standi
.
Mr Grobler strenuously submitted, relying on the judgment of
Du
Bruyn v Steinhoff International Holdings NV and Others
[16]
(Du Bruyn)
that the applicants do not have
locus
standi
,
either in the present proceedings, or in any proceedings they intend
to institute against the first respondent. He is mistaken.
First,
paragraph 3 of the rule
nisi
is
perfectly clear and unambiguous. It refers to ‘an action,
application, or other legal relief against the 1
st
Respondent (or, if needed, any of the other Respondents) for any
damage suffered or to be suffered by the Applicants.’ Second,
De Bruyn
is distinguishable on the facts from the present factual matrix. In
De Bruyn
the shareholders intended to launch a class action against the
directors of Steinhoff as well as its auditors, alleging that they
were liable for the shareholders’ losses caused by the fallen
value of Steinhoff’s shares. Reliance was
inter
alia
placed
on
s 22
pertaining to reckless trading,
ss 28
to
30
pertaining to
financial information,
s 76
pertaining to the directors’
standards of conduct, as well as
s 218(2)
and
s 20(6)
of the
Companies Act.
[36]
In
Hlumisa
Investment Holdings RF Ltd and Another v Kirkinis and Others
[17]
(Hlumisa)
the shareholders filed proceedings against the directors and auditors
of African Bank. The principal issue was whether
s 218(2)
of the
Companies Act permitted
their claims against the directors. This in
turn raised the applicability of the rule against recovery of
reflective loss which
prevents shareholders from bringing claims
where their loss merely reflects the company’s loss. In such
case the company
is the proper entity to claim the loss. The Supreme
Court of Appeal made the point that derivative claims were not an
issue in
that appeal, but made the following comment:
[18]
‘
We
pause to note that
Novatrust
also
dealt with derivative claims. In a situation
where
wrongdoers themselves control the company, so that they can prevent
the taking of the necessary steps, any one or more of
its members may
bring what is known as a derivative action, that is, an action by an
individual shareholder, in own name
,
against the wrongdoers for relief to be granted to the company,
the
action being one on the company's behalf
. In
England and Wales derivative actions are comprehensively regulated by
part 11
of ch 1 of the Companies Act, 2006. In South Africa it is
regulated by s 165 of the Companies Act. In both statutes there are
requirements
that must be met before such a claim may be brought.
Derivative claims are not at issue in this appeal.’
(emphasis
added)
[37]
Mr Grobler
relied heavily on the rule against claims by shareholders for
reflective loss. He submitted that on a proper interpretation
of the
founding affidavit no other deduction can be made other than that the
applicants intended to claim damages from the first
respondent only.
This according to him, is not legally tenable. According to him the
legal principle in this regard was set out
in
Hlumisa
in the
following
dictum
:
[19]
‘
A
good starting point in considering whether the exceptions were
correctly upheld, is a revisiting of the rule against claims by
shareholders for reflective loss. In
Itzikowitz
this court restated, with reference
to the prevailing authorities, the following established principle:
'The
notion of a company as a distinct legal personality is no mere
technicality — a company is an entity separate and distinct
from its members and property vested in a company is not and cannot
be regarded as vested in all or any of its members….
A
shareholder's general right of participation in the assets of the
company is deferred until winding-up, and then only subject
to the
claims of creditors.'
’
It
should be noted that the court continued on the topic in the
remainder of the judgment.
[38]
As
mentioned, Mr Grobler submitted that the applicants’ intended
claim is based on reflective loss and therefore untenable.
Their
intended action is worthless according to him. I do not agree. I am
satisfied that paragraph 3 of the rule
nisi
is wide enough for the applicants to also rely on a derivative
action. It should be mentioned that the applicants specifically
pleaded that they intend to institute legal proceedings against the
first respondent and if needed, any other respondent, to protects
the
shareholder’s rights, including but not necessarily limited to
an action in terms of s 77 of the Companies Act, or s
424 of the 1973
Act, or alternatively for damages under the common law.
[20]
[39]
The
applicants have a right to ensure that no further funds of the third
respondent are misappropriated by the first respondent.
This court
cannot close its eyes and ignore the millions of Rands which have
been siphoned by the first respondent. I rely on the
following
dictum
of the Appellate Division (now the SCA) in
Airoadexpress
(Pty) Ltd v Chairman, Local Road Transportation Board, Durban and
Others,
[21]
confirming the court’s inherent jurisdiction to grant
interim
relief to avoid injustice and hardship. It held that:
‘
[a]
n
inherent power of this kind is a salutary power which should be
jealously preserved and even extended where exceptional circumstances
are present and where, but for the exercise of such power, a litigant
would be remediless …’
I am not prepared to send
the applicants home without a remedy. It cannot be expected that they
should sit and observe how the third
respondent’s funds are
siphoned by the first respondent in a situation where either second
or third respondent refuses to
prevent that. It cannot be forgotten
that the first respondent is the controlling mind and sole director
of these respondents.
[40]
It is an
established principle that a company is a legal entity distinct from
its shareholders and that the property owned by a
company is its
property and not that of the shareholders. The same principle applies
when a company is a subsidiary or even a wholly
owned subsidiary of
another company. In terms of s 66(1) of the Companies Act the board
of directors of a subsidiary independently
manages and directs the
business and affairs of that company, the effect being that the board
of directors of a holding company
could not dictate the decisions of
the subsidiary’s board of directors.
[22]
Insofar as it was submitted that the rule
nisi
interferes with the rights and obligations of the first respondent as
director, I am satisfied that if the order is considered
in
perspective and bearing in mind the common cause facts, the
submission is not justified.
[41]
Mr Grobler pertinently submitted, without any factual foundation,
that the
evidence does not indicate any misappropriation or
fraudulent transactions by the first respondent. He submitted that
directors
are entitled to use company funds to pay for their personal
expenses, an occurrence that often takes place which is then recorded
as director’s loans in the records of the company. That is
indeed so, but it is apparent from the founding affidavit that
this
is not what happened
in casu
. Again, it is emphasised that the
applicants’ allegations were not contested and must be accepted
as common cause. A company
director must act
bona fide
and in
the best interests of the company. Although directors do not owe
fiduciary duties to company shareholders individually,
it is trite
that they owe such duties to their companies. The first respondent
enriched herself and failed her fiduciary duties
towards the third
respondent in the process. First, at least three payments were made
to the company, Nestassest, of which the
first respondent is the sole
director and shareholder and which is not a supplier or creditor of
the third respondent. Second,
huge amounts of money were paid over in
a period of about three weeks immediately prior to and after the
death of the deceased
which payments had nothing to do with the third
respondent’s business and without any of these payments being
reflected as
loans made by the company to the first respondent as its
director. Third, these payments relate to the payment of professional
people in respect of the personal housing project of the first
respondent, totally unrelated to the business of the third
respondent.
[42]
The relevant portions of s 165 of the Companies Act read as follows:
‘
165
Derivative actions
(1)
…
(2)
A
person may serve a demand upon a company to commence or continue
legal proceedings, or take related steps, to protect the
legal
interests of the company if the person-
(a)
is
a shareholder
or a person entitled to be registered as a shareholder,
of
the company or of a related company
;
(b)
is
a director or prescribed officer of the company or of a related
company;
(c)
is
a registered trade union that represents employees of the company, or
another representative of employees of the company; or
(d)
has
been granted leave of the court to do so, which may be granted only
if the court is satisfied that it is necessary or expedient
to do so
to protect a legal right of that other person.
(3)
A
company that has been served with a demand in terms of subsection (2)
may apply within 15 business days to a court to set
aside the demand
only on the grounds that it is frivolous, vexatious or without merit.
(4) …
(5)
A
person who has made a demand in terms of subsection (2) may apply to
a court for leave to bring or continue proceedings in the
name and on
behalf of the company, and the court may grant leave only if-
(a)
…
(6)
In exceptional circumstances, a person contemplated in subsection
(2) may apply to a court for leave to bring proceedings in the
name
and on behalf of the company without making a demand
as
contemplated in that subsection, or without affording the company
time to respond to the demand in accordance with subsection
(4), and
the court may grant leave only if the court is satisfied that-
(a)
the
delay required for the procedures contemplated in subsections (3) to
(5) to be completed may result in-
(i)
irreparable
harm to the company; or
(ii)
substantial
prejudice to the interests of the applicant or another person
;
(b)
there
is a reasonable probability that the company may not act to prevent
that harm or prejudice, or act to protect the company's
interests
that the applicant seeks to protect; and
(c)
that
the requirements of subsection (5)
(b)
are
satisfied.’
(emphasis added)
[43]
It is also
apposite to quote the following exposition of the Supreme Court of
Appeal in
Hlumisa
,
dealing with the well-known
Foss
v Harbottle
rule:
[23]
‘
The
approach taken in
Giles v Rhind
was, of course, to
mitigate the inflexible proper plaintiff rule set out more than 175
years ago in
Foss v Harbottle
.
Prudential
Assurance
set that case, which is the genesis of the rule
against claims for reflective loss by shareholders, in historic
perspective
and in relation to derivative claims. In
Prudential
Assurance
(at 210 – 212) the Court of Appeal stated
the following:
'A
derivative action is an exception to the elementary principle that A
cannot, as a general rule, bring an action against B for
to recover
damages or secure other relief on behalf of C for an injury done by B
to C. C is the proper plaintiff because C is the
party injured, and,
therefore, the person in whom the cause of action is vested. This is
sometimes referred to as the rule in
Foss v Harbottle
[1843] EngR 478
;
(1843)
2 Hare 461
when applied to corporations, but it has a wider scope and
is fundamental to any rational system of jurisprudence. The rule
in
Foss v Harbottle
also embraces a related
principle, that an individual shareholder cannot bring an action in
the courts to complain of an irregularity
(as distinct from an
illegality) in the conduct of the company's internal affairs if the
irregularity is one which can be cured
by a vote of a company in
general meeting.
The
classic definition of the rule in
Foss
v Harbottle
is stated in the
judgment of Jenkins LJ in
Edwards
v Halliwell
[1950] 2 All ER
1064
at 1066 – 7 as follows. (1) The proper plaintiff in an
action in respect of a wrong alleged to be done to a corporation is,
prima facie, the corporation. (2) Where the alleged wrong is a
transaction which might be made binding on the corporation and on
all
its members by a simple majority of the members, no individual member
of the corporation is allowed to maintain an action in
respect of
that matter because, if the majority confirms the transaction,
cadit
quaestio
; or, if the majority
challenges the transaction, there is no valid reason why the company
should not sue. (3) There is no room
for the operation of the rule if
the alleged wrong is
ultra
vires
the corporation, because
the majority of members cannot confirm the transaction. (4) There is
also no room for the operation
of the rule if the transaction
complained of could be validly done or sanctioned only by a special
resolution or the like, because
a simple majority cannot confirm a
transaction which requires the concurrence of the greater majority.
(5)
There is an exception to the rule
where what has been done amounts to fraud and the wrongdoers are
themselves in control of the
company.
In this case the rule is relaxed in favour of the aggrieved minority,
who are allowed to bring a minority shareholders' action
on behalf of
themselves and all others. The reason for this is that,
if
they were denied that right, their grievance could never reach the
court because the wrongdoers themselves, being in control,
would not
allow the company to sue.
'
’
(emphasis added)
[44]
Mr
Grobler relied on
Featherbrooke
Homeowners’ Association NPC v Mogale City Local Municipality
(Featherbrooke)
[24]
in support of his submission that the applicant is indeed seeking
final relief. It is evident that the relief is couched in the
form of
relief
pendente
lite.
However, he submitted that the third respondent is prohibited on a
permanent basis to freely conduct its banking affairs with the
Standard Bank insofar as ongoing obligations and/or restrictions are
placed on that company. He submitted, relying on
Jacobs
v Baumann N.O.,
[25]
that it is not merely the form of the order, but predominately its
effect that must be considered. I do not agree that the effect
of the
order is permanent. The facts in this case are clearly
distinguishable from the facts in
Featherbrooke.
I
quote from paragraph 24 in
Featherbrooke
:
‘
[24]
It is perhaps opportune at this stage to comment on the nature of the
order granted by the High Court
against Mogale City. It is based on
the relief sought by Featherbrooke, which was framed as an
application for an interim interdict.
But in substance, it was for a
final interdict. This is borne out by the nature of the order it
granted against Mogale City.
Almost
everything that Mogale City has been ordered to do is permanent, and
imposes on-going obligations on it. No court would be
able to reverse
any of those in a subsequent hearing
.
The High Court failed to grasp this rudimentary conceptualisation,
and erred by applying the test for an interim interdict, instead
of
one for a final order.
The order is,
in substance, final. This rendered nugatory, the envisaged hearing in
part B
.’
(emphasis
added and footnote omitted)
[45]
The order
in
casu
is clear insofar as it is intended that paragraphs 2.1, 2.2 and 2.3
shall serve as
interim
interdicts pending institution of the legal processes mentioned in
paragraph 3 thereof. Obviously, if the intended action or application
is not instituted timeously, or eventually dismissed, the rule
nisi
will
be discharged automatically. I mentioned above that the rule
nisi
in respect of paragraph 2.3 thereof shall not be confirmed.
[46]
I am
satisfied that the applicants have proven a
prima
facie
right. Mr Grobler submitted both in his written heads of arguments
and orally during the hearing that s 165 of the Companies Act
presents an available remedy. He conceded that s 165(6) is wide
enough to be relied upon, but submitted that the applicants did
not
seek
interim
relief pending an application in terms of s 165. They indicated
nowhere in their papers, so he submitted, that they would be relying
on a derivative action. This may be so, but I have referred earlier
to the allegation in paragraph 48 of the founding affidavit.
Also and
as stated earlier, in my view paragraph 3 of the rule
nisi
is wide enough to rely on a derivative action. It is reiterated that
s 165(2) provides that appropriate relief may be sought by
a
shareholder of the company or of a related company.
No doubt, the Leagang Trust is a shareholder of the second
respondent, the holding company of the third respondent. Obviously,
the second respondent is a related company of the third respondent.
Consequently, the Leagang Trust falls squarely within the parameters
of s 165(2).
Section
424 of the 1973 Act deals with the liability of company directors and
others for the fraudulent conduct of the company’s
business.
The aim is to declare the person who was knowingly a party to
fraudulent conduct personally liable. It is doubtful whether
the
applicants could have obtained
interim
relief against the third respondent in order to seek relief against
the first respondent in accordance with s 424, but it is not
necessary to make any finding in this regard.
[26]
It is recognised that the first respondent as sole director of the
third respondent, and no one else, is responsible for the fraudulent
transactions relied upon by the applicants. On the uncontested
version of the applicants the first respondent used the third
respondent’s
bank account as her personal purse.
[47]
A proper case has been made out to show a well-grounded apprehension
of irreparable
harm. It would be a fruitless exercise to continue
with legal action against any of the respondents if the third
respondent’s
bank account is not managed as contained in the
rule
nisi
. The third respondent’s business should be
allowed to continue without being handicapped by an unscrupulous
director, siphoning
its funds for her personal use. The Leagang Trust
as shareholder of the second respondent, who in turn is the sole
shareholder
of the third respondent, stands to suffer irrevocably if
the rule
nisi
is discharged. The bank account needs to be
protected to ensure that the third respondent remains in a position
to continue with
its business activities for the benefit of its
shareholder and ultimately the Leagang Trust.
[48]
The third respondent’s bank account is not frozen. The first
respondent
as director is allowed to continue transacting on the
account in order to lawfully conduct the third respondent’s
business.
The monitoring of the bank account has not caused any
friction or problems. If it was the case, either the Standard Bank
would
have complained, or the first respondent would have recorded
any problems experienced in an affidavit. Neither of this occurred.
The balance of convenience favours proper monitoring of the account
in the interest of the third respondent, its sole shareholder
and
eventually the Leagang Trust. On the other hand, there cannot be any
prejudice or inconvenience for the first respondent if
she is
prevented from continuing her fraudulent course of action. I have
considered the harm to be endured to the applicants in
their
representative capacities as trustees of the Leagang Trust if the
rule
nisi
is to be discharged and they eventually succeed,
compared to the harm borne by the first and third respondents if the
applicants
ultimately fail. In my view this is a clear case where the
court should not give effect to fraud.
[49]
There is no alternative satisfactory remedy available to the
applicants. The
first respondent has shown that she cannot be
trusted.
Conclusion
[50]
I am satisfied that the applicants have a right to obtain an
interim
interdict to maintain the
status quo
pending finalisation of
legal action to be instituted, including if so advised, a derivative
action. I agree with Mr Zietsman that
if an interdict is not granted,
the remedy provided for in s 165 would be rendered nugatory as this
case illustrates. Consequently,
I am satisfied that the first and
second applicants, the present trustees of the Leagang Trust, are
entitled to the relief claimed.
The rule
nisi
shall, except
for paragraph 2.3 and subject to the amendment of paragraph 3, be
confirmed. Paragraph 3 should be amended, as requested
by the
applicants during oral argument, to delete the reference to ‘damage
suffered or to be suffered by the applicants’.
Such an
amendment is of a technical nature and cannot prejudice the
respondents.
[51]
There is no reason not to grant the applicants the costs of the
opposed application.
In the notice of motion they sought punitive
costs on an attorney and client scale against the first respondent
and the usual costs
order against any respondents that might oppose
the application. Mr Zietsman submitted during oral argument that
first respondent
should pay the costs on an attorney and client scale
and that third respondent be ordered to pay applicants’ costs
on a party
and party scale which is in line with the notice of
motion. The first respondent’s actions reminded me of an
unscrupulous
person - having no morality or conscience - just waiting
for a convenient opportunity to commit gross mismanagement in a
culture
of self-indulgence. Furthermore, counsel’s fees shall
be taxed on scale C and A in respect of the senior and junior counsel
respectively. Both parties employed two counsel and novel arguments
were raised. Therefore, the costs of two counsel are warranted.
Order
[52]
Consequently, the following order is issued:
1.
The rule
nisi
dated 11 March 2024 is confirmed with the
exclusion of paragraph 2.3 and subject to the amendment of paragraph
3 thereof which
shall read as follows:
‘
3.
Paragraphs 2.1 and 2.2 above shall serve as interim interdicts with
immediate effect pending
the institution, within 60 days from date of
the finalisation of this application, of an action, application, or
other legal relief
against the 1
st
respondent and/or any
of the other respondents.’
2.
The first and third respondents shall pay
the costs of the
application, including the costs reserved on 18 April 2024, on the
following basis: the first respondent on an
attorney and client scale
and the third respondent on a party and party scale, such costs to
include the fees of two counsel to
be taxed on scale C and A in
respect of the senior and junior counsel respectively.
JP
DAFFUE J
On
behalf of the applicants:
Advv
P Zietsman SC and
HJ
van der Merwe
Instructed
by:
Symington
& de Kok
BLOEMFONTEIN
On
behalf of the 1
st
&3
rd
respondent:
Advv
S Grobler SC and
R van
der Merwe
Instructed
by:
Stander
& Associates
BLOEMFONTEIN
[1]
(247/2023)
[2024] ZASCA 86
(4 June 2024) para 18.
[2]
[1956] 1 QB 702
at 712.
[3]
2007
(5) SA 450
(SCA) para 4.
[4]
Record p 9 & Annexure FA1 to the founding affidavit, the letters
of executorship, p 30.
[5]
Record p 9 & Annexure FA2 to the founding affidavit, being the
trust deed, p 31.
[6]
Record p 14, para 23 & Annexures FA9 and FA10, pp 68&69.
[7]
Record p 14, para 24 & Annexures FA11 and FA12, being the
relevant share certificates, pp 70&71.
[8]
Record p 16 para 32.
[9]
Record p 74: Schedule B to annexure FA13.
[10]
Record p 72: Annexure FA13.
[11]
Record pp 19&20, paras 44&45.
[12]
Record p 21, para 51, read with schedule F of annexure FA13, p 96.
[13]
Pepkor
Holdings Ltd and Others v AJVH Holdings (Pty) Ltd and Others
2021
(5) SA 115
(SCA) para 39.
[14]
2005 (3) SA 1
(SCA) para 24.
[15]
2016 (3) SA 37
(CC) para 64.
[16]
2022 (1) SA 442 (GJ).
[17]
2020
(5) SA 49 (SCA).
[18]
Ibid
para 32.
[19]
Ibid
para
24; see also para 25 and further and para 37 in particular.
[20]
Record:
para 48 of the founding affidavit.
[21]
[1986] ZASCA 6
;
1986 (2) SA 663
(A) 676A-D.
[22]
Pepkor
Holdings Ltd and Others v AJVH Holdings (Pty) Ltd and Others
2021
(5) SA 115
(SCA) paras 43&44;
confirming
the principles laid down in
Hlumisa
Investment Holdings RF Ltd and Another v Kirkinis and Others
2020 (5) SA 419
(SCA) paras 17&24.
[23]
Hlumisa
loc cit
para 34.
[24]
(1106/2022)
[2024]
ZASCA 27
(22
March 2024) para 24.
[25]
2009
(5) SA 432 (SCA).
[26]
The same applies to s 77 of the Companies Act quoted partially
above; in terms of this section it is for the company to hold
its
director liable for the breach of fiduciary duties.