Mayine Primary Agricultural Co-operative and Another v Cecane and Others (4345/2014) [2015] ZAECGHC 105 (13 October 2015)

SAFLII Note: Certain personal/private details of parties or witnesses have been redacted from this document in compliance with the law and SAFLII Policy

NOT REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

EASTERN CAPE DIVISION, GRAHAMSTOWN

CASE NO: 4345/2014

In the matter between

MAYIME PRIMARY AGRICULTURAL

CO-OPERATIVE

First Applicant

NTOMBOYISE MNYENGEZA

Second Applicant

and

SELBOURNE NDABENI CECANE

First Respondent

SHADRACK NDLOVU MATSHIKIZA

Second Respondent

NONTUTHUZELO ALSWETER PONGOLO

Third Respondent

FEZEKA FRANCIS NGQAKAYI

Fourth Respondent

CASWELL MNINAWA PETENI

Fifth Respondent

LISTER LOVEMORE VEYISHILE

Sixth Respondent

THE MANAGER, ABSA BANK (PTY) LTD

Seventh Respondent

THE MANAGER, FNB (PTY) LTD

Eighth Respondent

JUDGMENT

HARTLE J

1. This is the return day of a rule nisi which the applicants seek confirmation of. Conversely, the first to sixth respondents ask that the rule be discharged with costs on a punitive scale.

2. On 26 March 2015, Maseti AJ granted an order in the following terms:

“1. THAT a Rule Nisi do hereby issue calling upon the First to the Sixth Respondents and all other interested parties to show cause, if any, on the 17th September 2015 by the above Honourable Court, why the final orders in the following terms should not be granted:

1.1 That the Seventh Respondent to freeze account number [....] relating to the Applicant pending;

1.1.1 Finalisation of an audit report to be requested;

1.1.2 Provision of Financial Statements by the First to the Sixth Respondents to the Shiloh Landowner;

1.1.3 Supplying of financial records to the Landowners;

1.1.4 Holding of a general meeting;

1.1.5 That the First to the Sixth Respondent account as to who are the

signatories of the Applicant on the Seventh Respondent;

1.1.6 The determination of the matter in final terms.

2. THAT the First to the Sixth Respondents be and are hereby interdicted from accessing the banking accounts of the Applicant.

3. THAT the First to the Sixth Respondents be and are hereby interdicted from making any withdrawals in the Applicant’s accounts held with the Seventh and Eighth Respondents.

4. THAT the First to the Sixth Respondents to pay costs of this application on the attorney and client scale jointly and severally.

5. THAT the Sheriff of the above Honourable Court be and is hereby directed to assist any professionals, such as Auditors, Accountants and Attorneys to obtain any documentation that may be necessary to ensure that the Respondents comply with the interim interdict referred to in paragraph 1 to 3 above.

6. THAT the orders granted in paragraph 1 to 3 to operate as an interim interdict pending the finalization of this application.

7. THAT the Applicants be and are hereby granted leave to supplement their case in the event of this application being opposed.” (Sic)

3. The interdict remedy was sought against the first to sixth respondents in their capacity as directors of “Mayime Agricultural”, a primary co-operative registered as a non-profit company, with registration number 2003/000057/24 (“the co-operative”). At one stage it was mistakenly thought that the second applicant was a director of the co-operative as well, but by the time the present application was launched she could not have been under any illusion at all that she was still a director. The applicants themselves put up a certificate issued by the then Registrar of Companies and Close Corporations in which the first to the sixth respondents alone are reflected as both founding members and initial directors of the co-operative. The first to the sixth respondents claim that each of them have held these positions of responsibility since 2003.

4. It is common cause that the co-operative, which replaced its predecessor – then a trust trading as the Masimbane Project in 2003, conducts a dairy operation on land owned by members of the Shiloh/ Whittlesea community consisting of two hundred and seventy-eight families for the latter’s benefit. The project is assisted and encouraged by the provincial government which also deploys staff to monitor the operation and to render financial oversight. Some 800 cows belonging to the Amedlelo Enterprise are nurtured on the land with the co-operative providing the necessary infrastructure and milking the cows daily pursuant to a joint venture referred to as a “share milk” agreement. The co-operative receives 50% of the annual income of the project which passes on the benefits to the landowners.

5. The seventh and eighth respondents are Absa and First National Banks carrying on business in Queenstown respectively, with whom the co-operative holds banking accounts. It is accepted that the first mentioned account is the one into which the profits from the “share milk” agreement are paid and that the last mentioned account is used for the distribution of dividends

to the landowners. The two banks were ostensibly cited for their interest in the matter. Although they were initially served

with a copy of the applicants’ notice of motion and founding papers and annexures, it does not appear from the court file,

however, that they were served with a copy of the rule nisi or any pleadings delivered subsequently thereto.

6. The impetus of the application at the relevant juncture in time was the alleged discovery by “the Shiloh landowners” on or about 29 October 2014 that the second applicant had been removed as a signatory of the co-operative’s banking account held with the seventh respondent which was believed to have happened surreptitiously, and which situation the landowners (misguidedly in my view) sought to address by freezing the account and precluding the first to sixth respondents from having access to or making

withdrawals from the account. The First National Bank account was included for good measure as the related account to which funds from the Absa Bank account were being moved.

7. Secondly, a concern seems to have arisen generally that the first to sixth respondents are suspected of being in breach of their fiduciary duties in a number of respects and are not accounting to the aggrieved group of landowners as they feel should be happening. The involvement of the second applicant previously in the capacity of co-signatory to the Absa banking account and, as everyone mistakenly believed a director of the co-operative, appears to have appeased them before that accountability was not in issue.

8. Whilst no litigation was proposed to be instituted to address these issues in the long term, the drastic interim remedy of freezing the Absa banking account and preventing all of the directors from accessing or making withdrawals from either account was granted pending the vague steps outlined in paragraph 1.1 of the interim order for a lengthy period of seven months. By the return date no supplementary papers were filed and counsel did not even bother to file heads of argument to suggest a basis why final relief should be granted.

9. There are obvious reasons why the rule nisi should not be confirmed. The first reason lies in the fact that the requirements for the grant of a final interdict have not been established. In this regard it is trite that the applicants must establish (a) a clear right; (b) an injury actually committed or reasonably apprehended; and (c) the absence of similar protection by any ordinary remedy. All three requisites must be present.

10. The first applicant purports to be the co-operative itself, but an action cannot be prosecuted by the entity except by resolution of its authorized representatives who it is accepted by the applicants, albeit reluctantly, are the first to sixth respondents. (The latter deny that they have authorized the first applicant to bring these proceedings.) What is evident however, both from the replying affidavit put forward and the submissions made on behalf of the applicants at the hearing is that a handful of landowners, limited to 43 out of the 278, are the real litigants behind the application, spearheaded by one Ndima Pukwana in his purported capacity as the “chairperson of the task team of the Shiloh landowners”. The first to the sixth respondents deny that they comprise an officially recognized task team, but acknowledge them as a group of aggrieved landowners who they say are sowing discord and spreading lies and false rumours about them.

11. Whilst I accept notionally that the first applicant, acting as a band of members, might as persons who hold membership in and specified rights in respect of the co-operative have beneficial or other recognizable interests in relation to the co-operative’s affairs and standing in terms of the Companies Act[1] (and the Co-operative’s Act[2] if applicable) to assert them, this is not how the first applicant’s case has been pleaded. The first applicant’s in its replying affidavit sought to remedy the defect of suing in the name of the co-operative by attaching a resolution from the 43 landowners authorizing the litigation not on their behalf but on behalf of the co-operative itself, but self-evidently such purported authorization is meaningless. Counsel for the applicants sought to persuade me that this was a derivative action, but the common law right of a person other than the company to bring or prosecute any legal proceedings on behalf of that company has long been abolished. The rights in section 165 (1) of the Companies Act are in substitution for such abolished right.

12. The second applicant, although co-incidentally referred to by the first applicant as a member of the co-operative and a landowner, supports the first applicant’s application in her capacity as a “director and signatory to the (co-operative’s) bank account at Absa Bank”. Since she accepts that she is neither, these appellations are irrelevant in the context of her standing or the relief sought.

13. Although the first to sixth respondents concede that the second applicant is a member of the co-operative and a landowner, not much other information is put forward by her so as to give proper context to her legal standing or the nature of the right(s) purportedly asserted by her or the rest of the group for that matter. The situation would have been helped by including a copy of the co-operative’s memorandum of incorporation or constitution, or referring to the appropriate and relevant extracts therefrom. This would have given a clearer context of any landowner’s entitlement as a certified member and/or their expectations vis a vis the co-operative. While it may be understood that the landowners have rights because the property on which the project is being undertaken is theirs, this does not automatically translate into a “clear right” in the context of the specific relief being sought in the application. This detail is regrettably not outlined with any clarity and is largely left for the court to fathom.

14. But even assuming generously in the applicants’ favour, however, that they are certified members each with a vested interest in enforcing and or maintaining the necessary standards of accountability expected from the directors of the co-operative,

they have in my view not established the next requisite for the grant of a final interdict either.

15. This is because the evidence fails to establish on a balance of probabilities flowing from the undisputed facts that any of the applicants’ rights as members of the co-operative have been interfered with. Neither is it reasonable in the pleaded circumstances to apprehend that any injury will result. It is trite that mere assertions of fear are insufficient to satisfy this requirement for the grant of a final interdict.

16. The mischief which the applicants seek to contain is vaguely and haphazardly asserted as follows:

16.1 The first applicant claims that the landowners discovered on 29 October 2014 that the second applicant had been “unlawfully, falsely and fraudulently” removed as a signatory “without her knowledge.” Despite this scurrilous averment - which ostensibly was a foundation for the alleged urgency, no basis is laid in the papers as to how this conclusion is justified. The attached letter from the seventh respondent, which merely confirms that the second applicant does not hold signing powers with the bank on the account, does not bear this out;

16.2 The applicants sought to bolster the suggestion of underhand activity on the part of the directors’ in respect of the Absa bank account by referring to “gross irregularities” in respect thereof, but this is nothing more than a hearsay allegation. The applicants’ attorney, Mr. Akhona Pele, was expected to confirm this in an affidavit, but all he contributed was a further hearsay affidavit in this regard which falls to be struck out. (I deal with this aspect further below.);

16.3 The further allegation is made that the founding directors “put out and represented” to the then Registrar of Companies I presume that they were the only directors to the exclusion of the second applicant, thereby disqualifying her from registration as such, but no founding certificate of incorporation or constitution or other document was put up to support the allegation that she was also supposed to be included as a director for the complaint to have any validity. If this had occurred incidentally, it

is not appreciated on what basis a court would be justified some twelve years later (especially in the absence of any review

being sought in respect of the alleged deliberate conduct of the other directors in excluding her) in freezing a bank account and

refusing the directors access to the co-operative’s bank accounts for that supposed reason;

16.4 Also suggested is that the agreement of the landowners in founding the co-operative was to the effect that the first to sixth respondents be appointed managers only as opposed to founding members and directors. Not only are the details of the supposed agreement withheld, but the applicants clearly appear to be under the misguided advice that the registered directors and members are the “owners” of the co-operative, which they self-evidently are not;

16.5 It is alleged that no accounting records have been “forthcoming” but no date or context is provided to support the implication that the directors are not being transparent or accounting as they should. A reference is made to the landowners’ expectation that there would be accountability from the directors “in the manner in which (it) is operated, managed and the manner in which the funds are distributed,” (sic) but the allegation is left up in the air without any context;

16.6 A further hearsay allegation (which similarly falls to be struck out) is made by the first applicant that the second applicant does not know exactly how much is paid into the Absa Bank account arising from the “share milk” agreement because “some of the information was hidden from her by the other directors”. This is co-incidentally not confirmed by the second applicant, neither is the allegation explained or given a relevant context. Elsewhere the landowners recklessly assert that the directors hide information from them relating to the account as if this is a deliberate act on their part, but again the allegation is given no flesh and appears to be spurious;

16.7 The applicants refer to an application brought by the first respondent in the Whittlesea magistrate’s court to remove the second applicant as a director because she would “not allow the respondents to distribute the monies of the applicant as they want.” The selective attachment of the affidavit of the second respondent to the exclusion of other critical documentation filed in that litigation (or the exchange of relevant documentation concerning the matter which would give it the proper tone) smacks in my view of an attempt to mislead this court. Much was made by the applicants of the mystery around her removal as a signatory to the Absa Bank account and her absolute surprise in this regard, when in reality a look at the pleadings and correspondence as

a whole suggest something completely different and devoid of any sinister or improper undertones. Having regard thereto

the applicants could be under no illusion of the portent that she was to be removed as a signatory to the Absa Bank account because the legitimate directors took a resolution as early as 24 April 2013 already to remove her on this basis for the reasons stated therein which, to the contrary, point to her lack of co-operation and frustration of the co-operatives objectives to the disadvantage of the landowners who could not, inter alia, be paid their dividends;

16.8 Also misleading is the allegation that the removal of the second applicant was not sanctioned by the landowners and therefore that “any efforts to do so were “misplaced, misguided and scrupulous (sic)”. So too is the adjunct to the allegation that such conduct was also not in the interest of applicant. On the contrary the decision was ostensibly properly taken by a resolution of the legitimate directors. The applicants could not on the probabilities have been unaware of this step taken despite their feigned ignorance and surprise;

16.9 The further scurrilous suggestion is made that “the directors of the applicant are no longer serving the interest of the Shiloh landowners, but that of themselves, as there is no accountability to the landowners as they should have done,”

but again this supposed breach of their fiduciary duty is given no flesh ;

16.10 Also recklessly suggested is the assertion that the anticipated full accounting to the community arising from the “share milk” agreement has not happened since “no meeting was ever convened, no financial statements (were) ever produced or arrangements made that same be seen to be done (whatever this may mean).” Also on the subject of accounting is the suggestion that the directors have not to the knowledge of the applicants (they do not say if they ever enquired in this regard) opened an interest bearing account as they ought to have since the project started;

16.11 It is asserted, again rather recklessly, that a fraud and corruption case has been opened with the Whittlesea police for the “criminal conduct by the respondents” but nothing further is expounded; and

16.12 Without stating any basis for such conclusion, the applicants also allege that funds of the co-operative in its banking accounts are being “diminished” by the first to sixth respondents which implies that they are pilfering same. The applicants claim further that it is a grave concern, no doubt to give credence to the supposed skullduggery on the part of the directors, that monies are moving in and out of the bank accounts “without fully accounting and benefiting of the landowners” (sic);

17. The second applicant adds to these vague allegations that she had entertained suspicions about the applicants’ directors for the various reasons referred to by her, all of which are denounced by the first to sixth respondents as specious. I add that absolutely no dates are furnished by the second applicant regarding when these significant events supposedly happened according

to her.

18. The first to sixth respondents deny emphatically that they have accessed funds of the co-operative without the knowledge of the landowners or that they have operated the entity’s affairs on any basis other than “above board” and through public meetings in which they account to the landowners. They further deny any financial irregularities or improper use of funds. An affidavit of a manager deployed by the provincial government has been put up in support of the fact that the co-operative’s affairs are handled transparently and appropriately in which he further confirms that no financial mismanagement has been in evidence under his oversight.

19. I am satisfied that nothing more need by said by the first to sixth respondents to meet the obviously vague and embarrassing allegations against them which the applicants have not troubled themselves to be precise about. The main foundation of any application is the allegation of fact stated therein. The onus is on the applicants to set out clearly and comprehensively what their case is about to justify the relief sought by them. In the present instance there is nothing but fluff and conjecture to satisfy

that requirement, leaving aside the slanderous allegations against the directors which have been shamelessly put forward by the

applicants without any substantiation.

20. Regarding the third requisite for the grant of a final interdict, I would not be remiss in remarking that the remedy which suggests itself to disgruntled members of any co-operative must lie in its statute(s) and in the applicable legislation pertaining to the governance of such entity. The Companies Act, especially having regard to its stated purposes in section 7 thereof, is replete

with simple and mostly extra curial tools and remedies which avail themselves to aggrieved members with legitimate concerns. The evidence falls way short of establishing that the only course of conduct which was open to the embittered landowners - even assuming generously in their favour that they were entitled to enquire into and be advised through the application who the new signatory on the Absa bank account was after the second applicant ceased to hold signing powers, was to seek an interdict to freeze the account and refuse all the directors access to any of the co-operative’s bank accounts. Certainly no reason is established on the papers to justify such a drastic remedy while carrying out their due diligence investigations. On the contrary the probabilities on the undisputed facts point to an absence of any antecedent request for information before launching into the present application. Therefore, even assuming an injury actually committed or reasonably apprehended by the applicants regarding the directors’ alleged failure to account to their satisfaction, I would not exercise my discretion in favour of granting the applicants a mandamus (reading between the lines this is what may have been envisaged in paragraph 1.1 of the interim order read with paragraph 5 thereof) when it was open to them to simply ask and, if denied their reasonable request, to use the machinery of the Companies Act to obtain the required information or documentation .

21. There are in my view further reasons why the rule should not be confirmed rooted in an absence of any urgency to begin with, and the obvious lack of candour on the part of the applicants which I have already alluded to, but I need not deal with these aspects specifically in the light of my finding above that the applicants have failed to satisfy the necessary requirements for the grant of a final interdict.

22. It is regrettable that the interim order was granted at all, especially since the grounds furnished for urgency were questionable and, in respect of the averment that there were irregularities on the Absa Bank account, based on inadmissible and misleading hearsay evidence. The applicants were at liberty to amplify their papers in this regard, but took no steps in this direction. The application was in any event only argued long after it was issued, by when any urgency would naturally have dissipated and their attorneys would have had the opportunity to obtain a firsthand affidavit from Mr. Roger Barendse at Absa Bank who purportedly informed Mr. Pele that there were “serious irregularities” in respect of the account.

23. The fact that the duty judge issued a directive in terms of Rule 12(a)(i) of the Joint Rules of Practice does not, as Mr. Mpahlwa submitted on behalf of the applicants, relieve a litigant from establishing that it was proper in the first place to seek such a directive or for the court to dispense with the forms and services provided by the Rules of the High Court on specified grounds of urgency. Mr. Mpahlwa suggested in his heads of argument that there was “no debate” that the matter was urgent since the duty judge issued a directive, but this is putting the provisional cart before the horse. The issue of a directive in terms of the practice rules is nothing more than a rough and ready assessment by the duty judge based on the say so of counsel in a certificate of urgency that the circumstances warrant the matter being heard at a time other than on a normal motion court day. The basis for urgency must still be established in the papers and any issue in this regard can be revisited by the court at any time.

24. Ostensibly the interim order was issued without any judgment being delivered or reasons being furnished. As early as 17 April 2015 the first to the sixth respondents filed a “notice of application for leave to appeal and request for reasons for the interim order”. The application for leave to appeal was only heard on 12 August 2015 and judgment delivered on 3 September 2015, days before the matter was argued before this court. Ironically the fact that the court issuing the interim order had failed to furnish reasons constituted a ground upon which the applicants objected to the first to the sixth respondents’ application for leave to appeal.[3] In the result the application for leave to appeal was struck from the roll and the first to sixth respondents granted leave to lodge their notice of application for leave to appeal afresh. Of course there was no opportunity to do that since the matter was argued before this court on 17 September 2015.

25. In the meantime the affairs of the co-operative have been in limbo for several months while the applicants have ostensibly done nothing to advance their so called concerns that the first to sixth respondents are not accounting to them as members by performing the steps referred to in paragraph 1.1 of the interim order.[4] An interdict which restrains an entity by its authorized and legitimate agents from having access to its banking accounts and freezing its funds even pending a well considered action is a serious matter and can have a devastating impact on its affairs. Our courts have warned that such an interdict also has a huge potential for abuse.[5] It is my view that such intervention was never warranted in all the circumstances.

26. In the premises the rule is discharged with costs on the scale of attorney and own client, which must be borne by the second applicant and the 43 landowners who have given their names to the purported resolution to institute this application.

27. The costs of the application to strike out the hearsay evidence in the affidavit of the attorney are to be borne by Mr. Pele himself, also on the scale of attorney and own client. In this regard one of the principal bases upon which urgency was founded and the court persuaded to issue an interim order to freeze the Absa Bank account and confound the legitimate directors from operating the co-operative’s banking account is Mr. Pele’s hearsay allegation that there were serious irregularities in respect of the Absa Bank account. In this regard he purported to file a confirmatory affidavit in which he simply stated that:

“a) On the 29th October 2014 at 12.35 afternoon had a telephonic conversation with Mr. Roger Barendse who is the (Area Sales Manager : Enterprise Business) Midland Area and who informed me the following:

a. That there were serious irregularities in respect of account : 4059 06 5017” (sic).

28. What the irregularities were was simply not stated but the assertion was clearly proffered for effect and to bolster the applicants’ case on urgency and to justify the relief sought by them. The court was invited to subpoena Mr. Barendse “should the need arise” but this is not its duty.

29. As a general rule hearsay evidence is not permitted in affidavits but in interlocutory matters where urgency or other special circumstances appear a court may allow a deponent to state that he is informed and verily believes certain facts on which he relies for relief. But then he is required to set out the full facts upon which he bases his grounds for belief and how he obtained the information. Failure to do so constitutes an irregularity. In this instances a failure to give a proper context to the serious allegation, and a reason why it should be believed and justified the issue of a “prohibitory interdict” accordingly to Mr. Pele, equally constitutes an irregularity. I have no hesitation in striking out his affidavit in its entirety. Given the particular concern which would obviously be generated by the allegation, it was particularly reckless for the applicants to rely on the hearsay allegation in contention. Mr. Pele as an officer of this court should have known better and for this reason it is appropriate in my view to penalize him by making a punitive costs order in this regard.

30. In conclusion I issue the following order:

1. The affidavit of Mr. Akhona Quiote Pele is struck out in its entirely on the ground that it constitutes inadmissible hearsay evidence;

2. The costs of the striking out application are to be paid by Mr. Akhona Quiote Pele on the scale of attorney and own client;

3. The rule is discharged; and

4. The costs of the main application are payable by the second applicant and the 43 landowners listed at pages 177 – 178 of the indexed papers, such costs to include the costs reserved on 13 November 2014, 11 December 2014 and 12 February 2015 respectively.

_________________

B C HARTLE

JUDGE OF THE HIGH COURT

DATE OF HEARING : 18 September 2015

DATE OF JUDGMENT: 13 October 2015

Appearances:

For the applicants: Mr Mpahlwa, instructed by Akhona Pele Attorneys, c/o Mili Attorneys, Grahamstown (Ref. D Mili/zandi/M1271)

For the first to sixth respondent: Mr Sandi, instructed by Bacela Bukula & Associates, c/o Yokwana Attorneys, Grahamstown (Ref. Mr Yokwana/C7)

[1] No 71 of 2008.

[2] No. 14 of 2005.

[3] It appears from the judgment delivered in the application for leave to appeal that the applicants’ counsel had contended that since no formal application had been made for reasons to be furnished, the application for leave to appeal was therefore

defective for non-compliance with rule 49(1)(b).

[4] I was informed as much by Mr. Mpahlwa from the bar.

[5] Knox D’Arcy Ltd v Jameson [1996] ZASCA 58; 1996 (4) SA 348 (A) at 379E – 380D approving the warning by Stegmann J in Knox D’Arcy Ltd v Jameson 1994 (3) SA 700 (W) at 708B-D.