Subject index outline

ABSA Bank Limited v Naude NO and others [2015] JOL 33323 (SCA)

Business rescue – Adoption of business rescue plan – Application for setting aside of plan – Non-joinder – Test for non-joinder – does party have direct and substantial interest in subject matter of litigation which may prejudice non-joined party – Creditors who would be prejudicially affected by setting aside of business rescue plan should be joined as parties to the matter

The appellant bank had voted against a business rescue plan in respect of the second respondent. Despite that, the plan was adopted. As a result, the bank brought an application against the company and the first respondent who was the business rescue practitioner, for a declaratory order that the decision taken at the relevant meeting of creditors, approving the business rescue plan for the company, was unlawful and invalid. A counter-application was brought by the company and the practitioner for a declaratory order that in terms of the old Companies Act 61 of 1973, a cross-suretyship executed by the company and other related companies, in favour of the bank, was void.

The application was dismissed, inter alia, on the basis that the bank had failed to join the creditors of the company and that it was precluded by section 133 of the Companies Act 71 of 2008 from bringing such an application without the written consent of the practitioner or the leave of the Court. The counter-application was dismissed as it was found that the cross-suretyship was valid and not contrary to the provisions of section 226(1) of the old Companies Act 61 of 1973.

In a subsequent application, the bank stated that it seemed that the plan could not be implemented as the bank had not received any payments. In the meanwhile the business rescue plan was implemented and the first payments to creditors, in terms of the business rescue plan, were made. The practitioner deposed to an answering affidavit and raised the issue of the non-joinder of the creditors of the company. The reasons for insisting on joinder of the creditors were that the setting aside of the business rescue plan would undo their vote in favour of such plan and it would require each creditor to return all monies that were paid to it pursuant to such plan. The bank averred that the notice given to creditors in terms of section 130 of the Companies Act 71 of 2008 was sufficient.

Held that notice in accordance with the provisions of section 130(3) is confined to matters where an application is brought prior to the adoption of a business rescue plan. The court held further that the argument by the bank that the issue of non-joinder did not arise because the creditors had knowledge of the proceedings, due to the notices dispatched to them, and did not intervene, was without substance. The test whether there has been non-joinder, is whether a party has a direct and substantial interest in the subject matter of the litigation which may prejudice the party that has not been joined. If an order or judgment cannot be sustained without necessarily prejudicing the interest of third parties that had not been joined, then those third parties have a legal interest in the matter and must be joined. In this case, as explained above, if the creditors were not joined their position would be prejudicially affected. Consequently, the court below was correct in upholding the non-joinder point.

The appeal was dismissed with costs.

Communicare and others v Khan and another [2015] JOL 33681 (SCA)

Company law – Members of company – Right to vote at general meeting – Member’s right to vote at a general meeting would ordinarily fall within the category of personal membership rights and not corporate rights

The high court granted an order that the election of certain directors of the two appellant companies was invalid and had to be set aside. The companies’ articles of association provided that a third of the members of the boards of the companies was obliged to retire by rotation at the end of each year. At the meeting question, the retiring directors were excluded from voting in the election of their successors.

Two of the grounds upon which the appellants opposed the relief sought by the respondents and which formed the basis of the appeal, were that the resolutions were validly passed and in any event, that the respondents lacked the necessary locus standi to challenge their validity. The locus standi of the respondents was challenged on the basis that where a majority of members at a general meeting are lawfully entitled to correct, condone or ratify irregular conduct by the company in the management of its internal affairs, a court will not intervene at the behest of a member to compel the company to rectify such conduct. therefore, the appellant contended that individual members such as the respondents had no right to enforce corporate rights, except when the irregularity complained of could not be remedied by the company, or the member’s individual membership rights had been affected adversely. It was submitted that on the facts of the present case, the right of the respondents to vote at the annual general meetings of the appellants, was a corporate right, and not an individual member’s right.

Held that the issue for determination was whether the respondents had the power to approach a court to enforce, against the appellants, their rights to effectively exercise their votes on the election of directors at the annual general meetings of the appellants.

The court confirmed that a member’s right to vote at a general meeting and have his vote counted, would ordinarily fall within the category of personal membership rights. Each member has a special interest in the observance of this right, distinct from the general interest which the members have in the observance by the company of its articles. In terms of section 165(1) of the Companies Act 71 of 2008, a personal action by a member at common law, to enforce rights which vest in a member in the articles, does not seem to have been abolished.

The eligibility of retiring directors to vote as members, in respect of the election of directors to fill vacancies in their number, was dependent upon their status as directors remaining as such, until the election took place. The court concluded that on a proper interpretation of the companies’ articles, the directors who retired at an annual general meeting were entitled to vote as members in respect of the election of individuals to fill such vacancies. The exclusion of the retiring directors from voting was accordingly unjustified and the resolutions appointing replacement directors were correctly declared invalid by the High Court and set aside.

The appeal was dismissed with costs.

NAIDOO AND OTHERS v KALIANJEE NO AND OTHERS 2016 (2) SA 451 (SCA)
Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Issued in circumstances where assets already under judicial attachment — Whether magistrate precluded from issuing warrant — Insolvency Act 24 of 1936, s 69(3).

Insolvency — Trustee — Property passing to trustee — Warrant to take possession of insolvent's property — Distinction between such warrant and one issued under CPA — Provisions applicable to issuing of warrant under CPA not applicable to issuing of warrant under Insolvency Act — Insolvency Act 24 of 1936, s 69(3); Criminal Procedure Act 51 of 1977, s 21.
This matter concerned the validity of a search-and-seizure warrant issued by a magistrate in terms of s 69(3) of the Insolvency Act 24 of 1936 (the Act). The liquidators of a close corporation, M & M, of which the first appellant was the sole member, had approached the magistrate for such a warrant on the basis of their reasonable belief that assets of M & M had been concealed. The appellants had subsequently, without success, applied to the court a quo to have the warrant set aside. In the Supreme Court of Appeal, the appellants raised multiple challenges against the validity of the warrant. The court rejected all such challenges and dismissed the appeal.

One challenge was that the liquidators' application constituted an abuse of process, in that (a) the warrant was unnecessary, in that assets which the relevant authorities were empowered in terms of the warrant to attach were already under judicial attachment; and (b) the request for the warrant had been motivated by an improper purpose.

Held, as to (a), that the judicial processes had proven to be ineffective, and the surreptitious concealment of assets long after the formality of their attachment did not preclude a magistrate from issuing a warrant to preserve them. As to (b), the claims to such effect were entirely unsubstantiated. In reality, the existence of a reasonable suspicion that the assets of M & M had been concealed constituted an answer to both allegations.

It was argued that while the issuing of a warrant under s 69(3) constituted the exercise of a judicial discretion, it was not akin to civil proceedings. As such, given that the warrant had included a costs order and, in providing a 'return date', had been granted provisionally, it had been issued beyond the provisions of s 69 of the Act.

Held, that while the clauses relating to costs and the return date were anomalous, it was clear that the warrant had not been issued in the process of civil litigation, but, in the light of its other provisions, it was no more than a warrant issued under s 69. The anomalous provisions, in truth, had no effect — the costs clause was unenforceable, while the reference to a 'return date' did not mean that the warrant was 'provisional'.

The appellants also contended that, in light of the wording in s 69(4) of the Act that the warrant 'be executed in a like manner as a warrant to search for stolen property', one had to regard such a warrant as one issued under the provisions of the Criminal Procedure Act 51 of 1977 (CPA). The warrant under consideration did not, however, match up to the strict requirements of a criminal warrant and had to be set aside.

Held, that there were fundamental differences between a warrant issued under s 69 of the Act and a criminal warrant, and, as such, the former could not be construed as being akin to a warrant issued under s 21 of the CPA, nor necessarily subject to the same limitations and restrictions attendant upon criminal warrants. Further, the reference to s 21 of the CPA in the warrant meant simply that it had to be executed in the manner set forth under such section, and not that it was, or was to be regarded as, a warrant issued under the CPA. As such, the appellants' argument, that the warrant had to comply with the provisions of s 21 of the Criminal Procedure Act and that it was therefore necessary for a specific police officer to be identified in the warrant as the person who should effect the search and seizure, fell away.

LAND AND AGRICULTURAL DEVELOPMENT BANK OF SOUTH AFRICA t/a THE LAND BANK v FACTAPROPS 1052 CC AND ANOTHER 2016 (2) SA 477 (GP)
Mortgage — Mortgage bond — Nature — Not only applying to immovable property — Special notarial bond constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.

Mortgage — Notarial bond — Special notarial bond — Nature — Constituting mortgage bond — Security by Means of Movable Property Act 57 of 1993, s 4; Insolvency Act 24 of 1936, s 2.

Prescription — Extinctive prescription — Period of prescription — Debt secured by special notarial bond — Special notarial bond constituting mortgage bond to which 30-year prescription period applying — Prescription Act 68 of 1969, s 11(a)(i).
Subsection 11(a)(i) of the Prescription Act 68 of 1969 provides for a prescription period of 30 years in respect of 'any debt secured by mortgage bond'. The correct interpretation of s 11(a)(i) is that a special notarial bond is included in the reference to 'mortgage'. It follows that the applicable period of prescription of a debt secured by a special notarial bond is 30 years.

The notion that mortgage bonds must in all instances apply to immovable property is negated by the substitution (effected by s 4 of the Security Act 57 of 1993) of the definition of 'special mortgage' in s 2 of the Insolvency Act 24 of 1936, to include both 'a mortgage bond hypothecating immovable property and a notarial mortgage bond hypothecating specially described movable property'. Both confer a real right of security upon registration in the Deeds Office. 

Delict'>MASSTORES (PTY) LTD v PICK 'N PAY RETAILERS (PTY) LTD AND ANOTHER 2016 (2) SA 586 (SCA) 
Delict — Specific forms — Interference with contractual relationship — What constitutes — A and B both leasing spaces in shopping centre — In terms of A's contract with landlord, A restrained from operating supermarket; in terms of B's contract with landlord, B given exclusive right to operate supermarket — A operating supermarket in breach of its restraint preventing B from obtaining performance in terms of its right to exclusivity — Whether requirements of delict met.

Delict — Specific forms — Interference with contractual relationship — Inducement not prerequisite for successful action.

Lease — Huur gaat voor koop rule — When applicable — Inapplicability of rule to 'collateral rights' unconnected with lease — Exclusivity clause in lease agreement integral part of that lease and not collateral right.
The appellant in this matter, Masstores (Pty) Ltd (Masstores), leased part of the shopping centre, Capegate, in terms of an agreement entered into with the owner (lessor) at the time, the Capegate Regional Centre Joint Venture (JV). Such agreement contained a restraint provision to the effect that Masstores would not operate as a 'general food supermarket'. The first respondent, Pick 'n Pay Retailers (Pty) Ltd (Pick 'n Pay), had also entered into a lease agreement with the JV in terms of which it leased a part of the shopping centre. That lease agreement secured Pick 'n Pay a right of exclusivity by providing that the lessor would not permit any other supermarket to be operated in the shopping centre. However, in the view of Pick 'n Pay, Masstores did commence operating a general food supermarket when the latter launched its Foodco concept in its Game store in Capegate. Arising therefrom, Pick 'n Pay launched an application in the court a quo, seeking a final interdict against Masstores, restraining it from interfering in the contractual relationship between Pick 'n Pay and the second respondent, Hyprop Investments Ltd, being the JV's successor in title (Hyprop), by carrying on a business exclusively granted to Pick 'n Pay in terms of the latter's lease agreement. The court a quo granted the interdict. Masstores appealed such order.

The first question that called for the Supreme Court of Appeal to decide was whether Masstores had operated a general food supermarket, thereby breaching its agreement with Hyprop, and trading in competition with Pick 'n Pay. It held that it had. This was in the light of the photographic evidence, the ordinary dictionary definition of 'supermarket', and Masstores' views of its own affairs.

Pick 'n Pay's claim was based in delict, namely the unlawful interference (in this case by Masstores) in a contractual relationship (between Pick 'n Pay and Hyprop). The central question, then, was whether Pick 'n Pay had successfully met the requirements to establish such a delict, namely: an unlawful act; which constituted an interference in the contractual relationship; and which was committed with some form of dolus. Related was the question whether, as was claimed by Masstores, to be successful in its claim for unlawful interference in a contractual relationship, Pick 'n Pay had to prove an inducement by Masstores of Hyprop.

Held, that Pick 'n Pay had established the requirements for its delictual claim. Masstores, in becoming aware of Pick 'n Pay's rights to exclusivity yet continuing to trade as a supermarket, acted contrary to the restraint contained in its lease and in defiance of the demand to cease trading as a supermarket. In doing so it acted wrongfully in preventing Pick 'nPay from obtaining the performance to which it was entitled by virtue of its contractual right of exclusivity. Further, in failing to heed the demand from Hyprop to desist from conducting a supermarket, it acted with direct intent, or, at the very least, dolus eventualis.

Held, that inducement or enticement is not a requirement in a claim based on unlawful interference in a contractual relationship. Delictual actions in interference cases, in addition to those where inducement or enticement features, include those where there is a breach of a legal duty or the infringement of a subjective right; this case would fall into the latter category.

On behalf of Masstores it was further argued that Pick 'n Pay's personal right to exclusivity, which it had negotiated with JV, the owner of Capegate at the time, did not bind successive owners, ie Hyprop. The huur gaat voor koop rule which might otherwise have been of assistance to Pick 'n Pay, so it was argued, was limited to a lessor's obligation to give possession and a lessee's concomitant obligation to pay rental; the right to exclusivity, however, was a 'collateral right' unconnected with the lease.

Held, that, in respect of the lease entered into by Pick 'n Pay, the right to exclusivity was a sine qua non for its tenancy. Thus understood, the right to exclusivity was integral to the right of occupancy and could not be regarded as a collateral right. Appeal dismissed.
OCTOBER AND ANOTHER NO v HENDRICKS AND ANOTHER 2016 (2) SA 600 (WCC)
Land — Unlawful occupation — Eviction — Statutory eviction — Unlawful occupier — Whether holder of bare ownership in context of usufruct could be unlawful occupier — Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998, s 1.

Usufructuary - person in charge-consent of usufructuary essential

This case concerned the executor of an estate who applied in that capacity as the owner of a property to evict certain 'unlawful occupiers' under the Prevention of Illegal Eviction from and Unlawful Occupation of Land Act 19 of 1998.

The case raised the position of a usufructuary and holder of bare ownership in the context of the Act, and the question whether a holder of bare ownership could be an 'unlawful occupier'. An 'unlawful occupier' is defined as 'a person who occupies land without the . . . consent of the owner or person in charge, or without any other right in law to occupy the land . . .' (s 1).

Held, that an owner might, or might not be, the person in charge of the land (the person with authority to permit others to enter or reside on it); and that it was the consent of the person in charge that was relevant. In the context of a usufruct, the usufructuary would be the person in charge; and a holder of bare ownership occupying without the consent of the usufructuary could be an 'unlawful occupier

City of Tshwane Metropolitan Municipality v Mitchell [2016] 2 All SA 1 (SCA)

Administrative law – Property – Section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 – Interpretation of – Whether security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser – Debt not extinguished on transfer of property, but municipality must comply with jurisdictional requirements in terms of own by-laws before pursuing owner for debt.

The interpretation of section 118(3) of the Local Government: Municipal Systems Act 32 of 2000 was at the heart of the present matter. The question on appeal was whether the security provided for in section 118(3) in favour of a municipality, for moneys owed to it for services delivered in respect of fixed property, is extinguished when the property is sold at a sale in execution and subsequently transferred to the purchaser.

In February 2013, the respondent purchased immovable property situated within the appellant’s municipal boundaries at a sale in execution.

In terms of section 118(1), a registrar of deeds may not register the transfer of property, except on production of a clearance certificate confirming that all amounts due to the municipality in respect of that property for service fees, levies, rates and taxes for the two years preceding the date of application for the certificate, had been paid in full. When the respondent applied for a clearance certificate, the appellant issued a written statement reflecting an outstanding amount in respect of municipal service fees, levies and rates. That amount included debts older than two years preceding the date of the application for a clearance certificate.

The amount in question was disputed by the respondent, and the appellant amended the amount to represent only the debt due for the two years preceding the date of the respondent’s application for issue of the certificate. Consequently, the historical debt was left still outstanding, due and payable if it had not become prescribed.

The respondent sold the property to a third party (“Prinsloo”) who, before taking transfer, applied to the appellant for the supply of municipal services. A municipal official refused to open an account in her name and informed her that she would be held liable for the historical debt. Prinsloo, accordingly, gave instructions to the attorney who was to deal with the transfer not to proceed with it until the issue of the historical debt had been resolved. The respondent then approached the High Court for a declaration that he, or his successors in title of the property, were not liable for the historical debt owed to the appellant by previous owners. Finding in the respondent’s favour, the High Court held that the security provided by section 118(3) in favour of the respondent was extinguished by the sale in execution and subsequent transfer of that property into the name of the applicant.

Held – In the case of City of Tshwane Metropolitan Municipality v Mathabathe and another [2013] 3 All SA 227 (2013 (4) SA 319) (SCA), the present Court clearly held that a transfer of property from one owner to another does not extinguish the security created by section 118(3). In distinguishing between that case and the present one, the court a quo was wrong. The Court disagreed with the respondent’s submission that section 118(3) of the Act should be interpreted in accordance with the common law relating to the effect of a sale in execution on the rights of bondholders. No distinction can therefore be drawn between property sold either at a sale in execution or in a private sale when considering the question whether the hypothec created by section 118(3) survives transfer. It follows that the court below erred in concluding that the appellant’s statutory hypothec had been extinguished by the sale in execution and subsequent transfer of the property into the name of the respondent.

The Court held that there was nothing preventing the appellant from perfecting its security over the property to ensure payment of the historical debt. Perfecting its security would involve obtaining a court order, selling the property in execution and applying the proceeds to pay off the outstanding historical debt. Counsel for the appellant conceded that before a municipality can look to an owner for payment, it has to comply with its own by-law, and has to show that there is no occupier on the property concerned and the person who had entered into the contract to receive the services cannot be traced or has absconded, is unable to pay, or does not exist.

The majority of the court concluded that the court below should not have made the orders it granted and the respondent’s application should have been dismissed. The appeal was thus upheld.

Southern Value Consortium v Tresso Trading 102 (Pty) Limited (Klopper NO and another as intervening business rescue practitioners)

[2015] JOL 34787 (WCC)

Company law – Company in business rescue – Ejectment application – Defence – Sections 133(1), 134(1)(c) – Companies Act 71 of 2008

Mini Summary

Having granted an order ejecting the respondent from certain property, the court provided its reasons.

In August 2014, the applicant and respondent concluded a lease agreement in terms of which applicant let the property to respondent. About eight months later, the applicant informed the respondent that it was in breach of the agreement of lease by failing to make payment of the rental and additional charges.

In the present application, the applicant stated that it had cancelled the lease agreement and that it was entitled to eject respondent from the property. The respondent had been placed under business rescue, and the intervening parties were the business rescue practitioners. They raised a number of defences in limine. They argued that there was a conflict in the identity of the entities which claim to represent the applicant; that there was no proof that the applicant’s manager was authorised to bring the present application on behalf of applicant; that the applicant had come to court with dirty hands in that it had unlawfully dispossessed respondent from the property by changing the locks; and that the applicant’s attachment of respondent’s movables was irregular. The substantive defence was that applicant was precluded by the provisions of sections 133(1) and 134(1)(c) of the Companies Act 71 of 2008 from pursuing the present application.