Cape Empowerment Trust Ltd v Comwezi Security Services (Pty) Ltd and Another (19719/12) [2012] ZAWCHC 380 (5 December 2012)

IN THE HIGH COURT OF

SOUTH AFRICA

(WESTERN CAPE HIGH COURT, CAPE TOWN)

Case No: 19719/12

In the matter between:

CAPE EMPOWERMENT TRUST LIMITED ..........................Applicant

and

COMWEZI SECURITY SERVICES (PTY) LTD ..........1st Respondent

MOHAMED SHAFFIE MOWZER N.O. .......................2nd Respondent

(In his capacity as trustee for the Grapsy Trust Master Reference IT1751/95)

JUDGMENT : 5 DECEMBER 2012

TRAVERSO,

DJP

[1] The applicant is Cape Empowerment Trust (Pty) Limited. The first respondent is Comwezi Security Services (Pty) Limited, which conducts business principally in the provision of guarding and security services for State enterprises, private individuals and corporations. The first respondent was at all material times represented herein by the second respondent, Mohamed Shaffie Mowzer, who was the Chief Executive Officer of the first respondent, but also the sole trustee of the Grapsy Trust.

[2] On 26 February 2009 the parties entered into a “Loan and Cession in Security Agreement". A dispute arose between the parties because of the failure of the first respondent to repay the loan on the due date for payment. The parties thereafter entered into a settlement agreement in terms whereof they resolved their differences (“the Settlement Aggremnet”).

[3] In terms of this agreement the applicant subscribed to twenty five ordinary shares in the issued share capital of the first respondent. The subscription price of the shares was paid in cash by way of set off against the outstanding amount due by the first respondent under the loan agreement. The applicant was entitled immediately after signature of the Settlement Agreement to conduct a due diligence investigation in respect of the affairs of the first respondent.

[4] This application concerns, in the main, the interpretation of the following clauses of the Settlement Agreement.

Clause 7.7 of the Settlement Agreement provides:

"7.7 CET shall, for purposes of the resolutive condition contained herein, notify Comwezi by not later than 3 months after the Signature Date whether or not it is satisfied with the outcome of its due diligence investigation and accordingly whether it wishes to proceed with this transaction, provided that if CET fails to so notify Comwezi timeously, CET shall be deemed not to be satisfied. ”

Clause 10 provides:

"10.

RESOLUTIVE CONDITION

10.1. The parties agree that this Settlement Agreement is subj^ctiq the resolutive condition that CET has completed the due diligence

investigation set out in clause 7 in re$pieciof Comwezi and has notified Comwezi in writing ih^t it is satisfied with the outcome

thereof by no later than 3 (three) months after the Signature Date.

10.2. In the event of CET hot notifying Comwezi that it is satisfied with the outcome of the due diligence investigation, this Settlement

Agreement will automatically fail and be of no further force and effect and the Parties quo ante as near as possible and ho party

shall have any claim against the other party arising frdm this Settlement Agreement and for the avoidance of doubt; the Parties will then only be able to rely on the terms of the Loan Agreement to enforce its rights against the other.

10.3. The resolutive condition contained herein is imposed for the benefit of CET and may be waived or relaxed, in writing, by CET prior to the period of 3 (three) months after the Signature Date”

[5] From time to time the applicant extended the three month period contemplated by clause 10 of the Settlement Agreement - ultimately

until 4 November 2011.

[6] However, during or about October 2011 the applicant brought an application in terms whereof it sought orders to compel the first

respondent to make available to the applicant the documentation required to perform the due diligence. This matter came before Louw, J, who on 10 October 2011 granted the following order:

“1. The first respondent is ordered, within ten court days of the date of this order,

1.1. to make available to the applicant all documentation relating to the first respondent in respect of all its affairs and business,

including the documents listed in annexure ‘A - to the notice of motion;

1.2. to give the applicant access to its premises and to its books of account and bank statements as well as any source documents relating to any and all of its books of account and affairs; and

1.3. to give all reasonable assistance to the applicant in conducting a due diligence investigation in respect of the business and the affairs of the first respondent together with the second respondent, who is similarly ordered;”

[7] The respondents appealed this order and the appeal was heard by the Supreme Court of Appeal on 31 August 2012, and on 21 September 2012 the Supreme Court of Appeal dismissed the appeal of the first and second respondents against the order

[8] In this application the applicant seeks an order:

8.1. directing that the Settlement Agreement remains valid and binding; and

8.2. directing that respondents comply with the order of this Court (per Louw, J) granted on 11 October 2012.

[9] The applicant contends that the result of the respondents’ failed appeal was that they had to comply with Louw, J’s order within 10 days of 21 September 2012, being the date upon which the Supreme Court of Appeal handed down its judgment.

[10] As a matter of law, the noting of an appeal, and the prosecution thereof, suspended the operation of Louw, J’s judgment, and, self-evidently the effect of the Supreme Court of Appeal judgment was to reinstate the previously suspended judgment of Louw, J. As a matter of pure logic the applicant must be entitled to the benefit thereof.

[11] The respondents are resisting this application on the basis that the Settlement Agreement lapsed by virtue of the non- fulfilment of the resolutive condition by 4 November 2011.

[12] This contention is however fatally flawed. Prior to 4 November 2011, on 10 October 2011, this Court, per Louw, J. directed the respondents within 10 days to make available to the applicant such documentation as it requires in order to conduct a due diligence investigation.

[13] Prior to the expiry of the 10 day period and by notice dated 12 October 2011 the respondents sought leave to appeal the order.

[14] In consequence of the dismissal of the appeal, and on 3, 8 and 10 October 2012, the respondents were again requested, inter alia, to make available to the applicant all documentation relating to the first respondent in respect of its affairs and business, including the documents listed in Annexure “A” to the Notice of Motion by not later, ultimately, than 24 October 2012.

[15] This application was launched prior to 24 October 2012.

[16] If I were to accept the contentions of the respondents that the agreement had lapsed as a result of the conditional character of the agreement, it would render the order of Louw, J nugatory and would, in addition, enable the respondents to benefit from their own default. In this regard see the following dictum of Nienaber, J in Moodlev & Another v. Moodlev & Another. 1990 (1) SA 427 (D & CLD) at 431 F-H:

“The rationale for the rule was said to be (if I may again paraphrase) that a party to a contract ought not to be allowed, by his own wrongful conduct, to advantage himself or to disadvantage his counterpart. To permit the repudiating party to take advantage of the other side’s failure to do something, when that failure is attributable to his own repudiation, is to reward him for his repudiation; conversely, it would disadvantage the other party to be obliged to make the; e$ort and incur the expense of tendering guarantee or of performing some other att when such a step, because of the repudiation, has become nothing but an idle gesture.”

(See too: Erasmus v Pienaar 1984 (4) SA 9 (T); Metalmil (Ptv) Ltd v. AECI Explosives & Chemicals Ltd. [1994] ZASCA 96; 1994 (3) SA 673 (AD) at 683.)

[17] It was argued that respondents, in asserting that the agreement had lapsed and was invalid, repudiated the Settlement Agreement. I agree with this submission. It is trite that repudiation not only entitles the innocent party to cancel, but that, for as long as the repudiation endures, it suspends the obligation of the innocent party to perform in terms of the agreement. (See Moodlev: Erasmus: and Metalmil cases supra.)

[18] Mr. Rosenberg, for the respondents, argued that the principles enunciated in those cases do not find application in this case

because the entitlement of the applicant to extend the period of fulfilment of the condition cannot be a contractual obligation owed to it by the first respondent, and which it is excused from performing because first respondent’s repudiatory conduct

renders such performance an exercise in futility, this is so, he argued, because the effect of no notification being given by 4

November 2011 was that the agreement lapsed.

[19] I do not agree with this contention. The applicant in its founding papers made it clear that it was relying on both the repudiation

mentioned above and the breach by the respondents in failing to make available the documentation to enable the applicant to complete its due diligence.

[20] It is clear that the applicant’s right to conduct a due diligence investigation was foundational to the Settlement Agreement.

It is not disputed that the respondents have not complied with Louw, J’s order. The respondents cannot be allowed to take advantage of its own wrongful conduct. Their reluctance to permit the applicant to conduct a due diligence is manifest. Their contention now that the agreement had lapsed, is without substance and the applicant is right in its contention that this conduct amounts to a repudiation. The consequences of this are stated above.

[21] In the circumstances I am of the view that the applicant should succeed and I make the following order:

21.1. It is declared that the Settlement Agreement concluded between the parties on 8 June 2011 (Annexure JDV2 to the founding affidavit)

remains valid and binding;

21.2. The respondents are ordered to comply with the order of this Court granted under Case Number 2353/2011 on 11 October 2011 by:

21.2.1. making available to the applicant all documentation relating to the first respondent in respect of all its affairs and business,

including the documents listed in Annexure “A” to the Notice of Motion;

21.2.2. giving the applicant access to its premises and to its books of account and bank statements as well as any source documents relating to any and all of its books of account and affairs; and

21.2.3. giving all reasonable assistance to the applicant in conducting a due diligence investigation in respect of the business and the affairs of the first respondent together with the second respondent;

within a period of ten (10) days from the date of this judgment.

21.3. The first and second respondents are directed, jointly and severally, the one paying the other to be absolved, to pay the costs of this application including the costs of two Counsel.