La Lucia Sands Share Block Ltd v Flexi Holiday Club and Others (NCT/5486/2012/R4) [2013] ZANCT 18 (10 June 2013)

IN THE NATIONAL CONSUMER TRIBUNAL

HELD IN CENTURION

Case number: NCT/5486/2012/R4

DATE:10/06/2013

In the matter between:

LA LUCIA SANDS SHARE BLOCK LTD …............................................................Applicant

and

FLEXI HOLIDAY CLUB …............................................................................. 1st Respondent

STUART JOHN LAMONT...............................................................................2nd Respondent

ANTHONY NICHOLAS RIDL..........................................................................3rd Respondent

CLUB LEISURE GROUP (PTY) LTD …...........................................................4th Respondent

THE CLUB LEISURE GROUP........................................................................5th Respondent

CORAM:

Ms Yasmin Carrim - Presiding Member

Ms Diane Terblanche - Member & Chairperson

Prof Bonke Dumisa - Member & Deputy – Chairperson

Date of Hearing: 16 November 2012

JUDGMENT AND REASONS

The Applicant is La Lucia Sands Share Block Limited, a share block company duly incorporated in terms of the Share Blocks Control Act 59 of 1980, registration number 1976/001166/06 (hereinafter “the Applicant”).

The Applicant was represented at the hearing by Mr N Tee.

The first Respondent is Flexi Holiday Club, an entity claiming to be a common law body corporate and a duly constituted club (hereinafter “the First Respondent”).

The second Respondent is Stuart John Lamont, an adult male, owner of 50% of the Club Leisure Group, the Chairman of the Club Leisure Group, a director of all the companies in the Club Leisure Group and a trustee of Flexi Club as well as a trustee of all the other clubs in the Club Leisure Group (hereinafter “the Second Respondent”).

The third Respondent is Anthony Nicholas Ridl, an adult male, owner of the other 50% of the Club Leisure Group, a director of all the companies in the Club Leisure Group and a trustee of Flexi Club as well as trustee of all the other clubs in the Club Leisure Group (hereinafter “the Third Respondent”).

The fourth Respondent is Club Leisure Group (Pty) Ltd, a company duly incorporated in terms of the laws of South Africa (hereinafter “the Fourth Respondent”).

The fifth Respondent is the Club Leisure Group, a group of companies, trusts, clubs, associations, home owners associations, other entities and foreign holdings, all of which comprise the Group (hereinafter “the Fifth Respondent”).

The Respondents were represented by Mr IL Topping.

This application is brought in terms of Section 4(1)(d) of the Consumer Protection Act 68 of 2008 (the “CPA” or the “Act”), for leave to the Applicant to act in the public interest and to then, if permission is granted, file five consumer complaints with the National Consumer Commission.

Prior to the hearing the Presiding member directed that the parties should make submissions to the panel specifically on -

Whether it is competent under section 4(1)(d) for the Applicant to approach the Tribunal directly without first lodging such application together with a complaint to the National Consumer Commission, having regard to the wording of section 4(1)(d) read together with regulation 4A and Table 2 of the National Consumer Tribunal Regulations; and

What relief can be granted to the Applicant in circumstances where the Applicant has not approached the National Consumer Commission prior to approaching the Tribunal directly.

Point in limine

The Respondents raised in limine that –

The Applicant has not been authorized by its members to bring this action, specifically as First Respondent is a member of the Applicant and have not granted its consent.

Further, if the individual directors of the Applicant have grounds for a valid complaint, this application should have been launched in their own names.

The Applicant countered this by setting out the general operation of law with regard to board of directors not being answerable to shareholders, it is answerable to the company. In the articles of La Lucia Sands, Article 51 authorises the directors to initiate, conduct and defend legal proceedings. And therefore the fact that First Respondent did not authorise this motion, does not denude the directors from suing and being sued.

The Respondents conceded that the Applicant can legitimately and in ordinary circumstances act through its directors. However when the company purports to act in the public interests more might be required.

The crisp question before the Tribunal is therefore not only whether the Board of Directors of the Applicant can validly act on behalf of the company, but also whether the Applicant as a juristic entity. i.e. Share Block Scheme, through its Directors has authority to act in the public interest.

The CPA in section 4(1) provides for any person to bring an action in the various capacities set out in the subsection. This is very broad as indicated by the word “any”. “Person” in section 1 of the CPA includes a juristic person and therefore includes the Applicant entity. The only qualifying factor being whether the Tribunal grants leave or not.

The Applicant as a juristic entity has to be authorized to act. The next inquiry for the Tribunal is whether the Applicant has been duly authorized to act in the public interest. In this regard the Tribunal considered –

The La Lucia Memorandum and Articles of Association which provides that:

Memorandum of Association – 3

The main object of the company is:

To operate a share block scheme in respect of certain immovable property owned by the company, described as –

Lot 1881 La Lucia (Extension No. 13), situate in the Borough of Umhlanga and in the North Coast Regional Water Services Area, Country of Victoria. Province of Natal, in extent 1,0710 (one comma nought seven one nought) Hectares

Memorandum of Association - 5(a)

The company shall only have such powers as may be necessary to enable it to realize, subject to the Share Blocks Control Act, its main object and objects ancillary to that main object”

Articles of Association – 51

The business of the company shall be managed by the directors who may pay all expenses incurred in getting up and registering the company, and may exercise all such powers of the company as are not by the Statutes or these Articles required to be exercised by the company at any meeting of members, subject nevertheless to the provisions of these Articles or the Statutes and to such regulations being not inconsistent with these Articles or the Statutes, as may be prescribed by the company at any such meetings; but no regulation made by the company at such meeting shall invalidate any prior act of the directors which would have been valid if that regulation had not been made.

That there is a resolution by the Board to the Applicant to institute the action. The resolution is annexed to the Founding Affidavit, marked Annexure “A” thereof and appears on page 41 of the record.

The Board of directors is authorized to make decisions to sue and can be sued in terms of section 51 of La Lucia Sands Memorandum and Articles.

Section 7(1) of the Share Blocks Control Act, Act No. 59 of 1980 provides that “The main object and business of any share block company shall be to operate a share block scheme in respect of immovable property”.

The breadth of what could be covered by matters ancillary to the objects of the share block scheme and whether the nature of the complaints put forward by the Applicant is such that indeed it could be encompassed by “ancillary matters” require consideration in the context of the allegations made against the Respondents.

These allegations are that –

The Respondents’ members are not entitled to resign their membership.

The Respondents’ members who fail to pay/honour their subscription and other fees are blacklisted in the credit bureaux.

The First Respondent and various entities in the Fifth Respondent sell points to consumers to become members of the First Respondent at a price which exceeds the market value of the points.

The Respondents engage in marketing practices which are allegedly designed to mislead consumers as to the proper distinction between genuine and non-genuine “timeshare” interests referred to as “points”. The Applicant alleges that the Respondents market that points are better than timeshare because points give consumers more “flexibility”.

The Respondents oversell points; overbook accommodation and do not guarantee members their preferred holidays and ;

The Respondents discriminate by granting “important members” a preference for accommodation.

Section 7 of the Act sets out the main objects of the share block company and use agreement namely “(1) The main object and business of any share block company shall be to operate a share block scheme in respect of immovable property owned or leased by it.”

In terms of the Share Block Control Act, the right Boards may exercise are determined by “…its main object referred to in section 7 (1) and shall include objects ancillary to that main object; and (b) a share block company shall have only such powers as may be necessary to enable it to realize, subject to the provisions of the Act”1

It is conceivable that some of the concerns raised by the Applicant about the purported undesirable business practices of the Respondents (under paragraph 19) might adversely impact on the Applicant’s operations, specifically as consumers may allegedly not resign their points and the misleading marketing and advertising in that it impacts on the Applicant’s market share and could be regarded as ancillary matters.

The Applicant has, in our view, demonstrated that litigating in the public interests on behalf of the members of the Respondents’ is in terms of “…its main object referred to in section 7 (1) and … objects ancillary to that main object;

As per Davis J and Van Heerden J, in Rail Action Group and Others v Transnet Ltd t/a Metrorail and Others (No. 1) 2003 (5) SA 518 C, “If a plaintiff with a good case is turned away merely because he is not sufficiently affected personally, that means that some government agency is left free to violate the law, and that is contrary to the public interest. Litigants are unlikely to spend their time and money unless they have some real interest at stake. In rare cases where they wish to sue merely out of public interest, why should they be discouraged?” The Rail Commuter Action Group-case sets the appropriate precedent for deciding this matter.

The learned judges Davis and Van Heerden, in the Rail Commuter Action Group-case, held that any restrictive approach to the standing of people acting in the public interest is “incompatible with the spirit, purport, and objects of Section 38 of the Constitution”.

Based on the submissions by the Applicant, it is clear that the general public which invests in share block schemes is entitled to demand that their investments are adequately protected. It is therefore in the public interest that any possible contraventions of the CPA by the Respondents be investigated in order to ascertain that their business practices are not to the detriment of the investors; so that reasonable checks and balances be put in place in order to protect consumer rights in share block schemes like those of the Respondents.

The Applicant thus, in terms of Section 4(1)(d) of the CPA, has locus standi to approach the Tribunal, acting in the public interest, in order to have this matter investigated and to have some appropriate relief granted.

The matter must, however, first be investigated by the National Consumer Commission, in terms of Sections 69 and 71 of the CPA, for any undesirable practice and / or prohibited conduct before it can be adjudicated by the Tribunal.

The Applicant is therefore granted leave by the Tribunal to refer the matter to the National Consumer Commission for investigation.

Handed down at Centurion on 10 June 2013

[signed]

Ms D Terblanche

Member & Chairperson

Ms Y Carrim (Presiding Member) and Prof B Dumisa (Member & Deputy-Chairperson) concurring.

1 Section 8 (of Share Block Control Act) Capacity and powers of share block company. (1) Notwithstanding anything to the contrary contained in any law— (a) the capacity of a share block company shall be determined by its main object referred to in section 7(1) and shall include objects ancillary to that main object; (b) a share block company shall have only such powers as may be necessary to enable it to realize, subject to the provisions of this Act, its main object and the said ancillary objects;

1 Section 8 (of Share Block Control Act) Capacity and powers of share block company.

(1) Notwithstanding anything to the contrary contained in any law—

(a) the capacity of a share block company shall be determined by its main object referred to in section 7(1) and shall include objects ancillary to that main object;

(b) a share block company shall have only such powers as may be necessary to enable it to realize, subject to the provisions of this Act, its main object and the said ancillary objects;