Roux and Another in their capacities as partners of Kevin Roux Properties v Magnolia Ridge Properties 197 (Pty) Ltd (EL556/2012, ECD1256/2012) [2013] ZAECGHC 44 (10 May 2013)

13

NOT REPORTABLE

IN THE HIGH COURT OF SOUTH AFRICA

(EASTERN CAPE, GRAHAMSTOWN)

Case no: EL556/2012

ECD1256/2012

Date heard: 9 May 2013

Date delivered: 10 May 2013

In the matter between

KEVIN GLYNN ROUX and ELIZABETH

JOHANNA VAN NIEROP in their capacities

as partners of KEVIN ROUX PROPERTIES ............................................Applicant

vs

MAGNOLIA RIDGE PROPERTIES 197

(PTY) LIMITED First Respondent

ZAMBLI 216 (PTY) LIMITED ...................................................Second Respondent

JUDGMENT

PICKERING J:

On 8 February 2013 applicant, a partnership trading as an Estate Agency under the name and style of Kevin Roux Properties in East

London, launched this application in the East London Circuit Local Division citing as respondents Magnolia Ridge Properties 197 (Pty) Ltd, first respondent, and Zambli 216 (Pty) Ltd, second respondent. The matter was originally set down for hearing in East London on 7 May 2013 but, by agreement between the parties, was transferred for hearing on 9 May 2013 to this Court.

In its Notice of Motion applicant seeks, inter alia, the following relief:

“1. That first respondent is ordered to retain in the Trust account of its attorneys of record, Cooper Conroy Bell & Richards Inc., the sum of R1 140 000,00 pending the finalisation of the action instituted by applicants, as plaintiff, under Case no EL 556/2012 ECD1256/2012 out of the above Honourable Court against first respondent as defendant.

3. That first respondent pay the costs of this application.”

The action referred to in paragraph 1 of the Notice of Motion is for payment of a commission in the sum of R1 140 000,00 allegedly owing to applicant arising out of the sale of first respondent’s property to second respondent for the purchase price of R52 000 000,00.

It is common cause that first respondent was established with the sole purpose of acquiring the property in question and “thereafter disposing of it for a profit and the benefit of shareholders.” It is further common cause that first respondent was used as a so-called “one-off investment vehicle” which, once the property in question, its only asset, had been disposed of and the nett proceeds distributed to the shareholders, would be wound up.

On 4 May 2012 applicant’s attorneys addressed a letter (KRP9) to first respondent’s attorneys advising them that applicant

had become aware of the pending transfer of the property to second respondent; that applicant was entitled to commission in the sum of R1 million plus VAT but that no provision had been made in the agreement of sale between first and second respondents for payment thereof to applicant; and seeking an undertaking from first respondent that the amount of R1 million plus VAT would be retained in first respondent’s attorneys trust account pending the outcome of the action which applicant intended to institute against first respondent for payment of the said commission.

On 7 May 2012 first respondent’s attorneys replied as follows (KRP10):

“We have been instructed by our client to inform you that we are to withhold R1 000 000,00 plus VAT from the purchase price received on transfer, pending the resolution of your client’s claim for commission for a period not exceeding 12 months from date of transfer or such extended period as may be mutually agreed upon by your clients and our clients.”

The action was duly instituted in the East London Circuit Local Division on 13 June 2012. When it became clear that the action would not be finalised by 10 May 2013, namely 12 months after the date of the undertaking given by first respondent, applicant sought, on 27 November 2012, an extension of the 12 month period stipulated by first respondent. In response thereto, in an email (KRP11) dated 30 November 2012, first respondent’s attorneys replied raising certain queries, inter alia, as to the basis upon which applicant contended it was entitled to require first respondent to continue to hold the funds in trust and stating that in the event of the funds having been released after 10 May 2013 applicant would in any event have suitable alternative remedies should it eventually be successful in its action.

Applicant construed this reply as being a refusal to agree to an extension of the period of the undertaking and accordingly did not reply thereto. For its part, first respondent took the view that in the light of applicant’s non-response to its letter it was not prepared to grant any further extension.

Applicant accordingly launched the present application which had the obvious purpose of preventing the dissipation of the last of first respondent’s assets pending the finalisation of the action. That action has since been set down for trial in 7 months time on 9 December 2013 in the East London Circuit Local Division.

The application is opposed only by first respondent.

It is common cause that applicant seeks a Mareva-type interdict. This form of interdictory relief has been described in Knox D’Arcy Ltd and Others v Jamieson and Others [1996] ZASCA 58; 1996 (4) SA 348 (A) at 373D as an interdict sui generis. At 372B-C the following was stated:

“The interdict prevents the respondent from dealing freely with his assets but grants the applicant no preferential rights over those assets. And ‘anti-dissipation’ suffers from the defect that in most cases and, certainly in the present case, the interdict is not sought to prevent the respondent from dissipating his assets, but rather from preserving them so well that the applicant cannot get his hands on them. Having criticised the names used for the interdict I find myself unfortunately unable to suggest a better one. I console myself with the thought that our law has recognised this type of interdict for many years without giving it any specific name.”

See too Johannes Petrus Oosthuizen t/a Home Builders v Dai Nippon Construction (Pty) Ltd and Another [2007] 1 All SA 610 (T).

As was pointed out in Erasmus: Superior Court Practice at E8 – 6B – B1 an interdict of this nature can have a devastating effect on the affairs of the respondent and also has a huge potential for abuse.

In Knox D’Arcy supra the following was stated at 372G – I:

“The question which arises from this approach is whether an applicant need show a particular state of mind on the part of the respondent, ie that he is getting rid of the funds, or is likely to do so, with the intention of defeating the claims of creditors. Having regard to the purpose of this type of interdict, the answer must be, I consider, yes, except possibly in exceptional cases. As I have said, the effect of the interdict is to prevent the respondent from freely dealing with his own property to which the applicant lays no claim. Justice may require this restriction in cases where the respondent is shown to be acting mala fide with the intent of preventing execution in respect of the applicant’s claim. However, there would not normally be any justification to compel a respondent to regulate his bona fide expenditure so as to retain funds in his patrimony for the payment of claims (particularly disputed ones) against him.”

The requirements of the relief sought are those of an interim interdict together with the further requirement that it be demonstrated that first respondent is about to, or likely to dissipate its assets with the intention of defeating applicant’s claim.

In Eriksen Motors Ltd v Protea Motors and Another 1973 (3) SA 685 (AD) Holmes JA stated as follows at 691C – G:

“The granting of an interim interdict pending an action is an extra-ordinary remedy within the discretion of the Court. Where the

right which it is sought to protect is not clear, the Court’s approach in the matter of an interim interdict was lucidly laid down by INNES, J.A., in Setlogelo v Setlogelo, 1914 A.D. 221 at p. 227. In general the requisites are—

(a) a right which, “though prima facie established, is open to some doubt”;

(b) a well grounded apprehension of irreparable injury;

(c) the absence of ordinary remedy.

In exercising its discretion the Court weighs, inter alia, the prejudice to the applicant, if the interdict is withheld, against the prejudice to the respondent if it is granted. This is sometimes called the balance of convenience.

The foregoing considerations are not individually decisive, but are interrelated; for example, the stronger the applicant’s prospects of success the less his need to rely on prejudice to himself. Conversely, the more the element of “some doubt”, the greater the need for the other factors to favour him. The Court considers the affidavits as a whole, and the interrelation of the foregoing considerations, according to the facts and probabilities; see Olympic Passenger Service (Pty.) Ltd. v. Ramlagan, 1957 (2) S.A. 382 (D) at p. 383D-G. Viewed in that light, the reference to a right which, “though prima facie established, is open to some doubt” is apt, flexible and practical, and needs no further elaboration.

I turn then to consider whether applicant has satisfied the requirements for the granting of the relief sought by it.

Although the papers are voluminous the relevant facts, it seems to me, may be set out reasonably succinctly.

Applicant avers that during or about August or September 2009 it was given an oral mandate by first respondent to find a purchaser for its aforementioned property. According to applicant it was an implied term of the mandate that applicant would be paid a commission equal to the generally acceptable rate of commission payable in consequence of sales of properties of similar nature to that of first respondent.

Applicant contends that it did find a prospective purchaser in the form of second respondent and that this is confirmed in an email

(KRP13) dated 2 September 2009, being part of certain correspondence between persons in authority of the affairs of Business Parties

Limited, a shareholder of first respondent, namely Colin Victor and Owen Holland wherein the following is stated:

“Kevin (applicant) has a buyer for Magnolia at R50 M who is prepared to include a non-refundable deposit in the offer. Please send me an ‘Offer to Purchase doc we can use which you are happy with... Kevin can use this as a base I have modified our offer. Clause 9.2 must be altered other than the dates. Hopefully you can use this.”

On the same date Colin Victor sent to applicant a document headed “Offer to Purchase” (KRP14) this obviously being the draft “Offer to purchase doc” referred to in the email (KRP13). On clause 9 thereof the following appears:

“Name of agency: Kevin Roux

Amount/Rate of commission: R1 000 000,00

Payable by: Seller”

Thereafter, an Offer to Purchase (KRP1) signed by second respondent on 21 October 2011, was submitted by second respondent to first

respondent. In terms thereof the amount/rate of commission payable by first respondent to “Kevin Roux/Smada Investments” was to be 3% plus VAT. The offer was not accepted by first respondent.

An Option Agreement (KRP2) in respect of the said property was thereafter prepared by first respondent’s attorneys and signed

on or behalf of first respondent on 15 November 2010. Clause 9 thereof records that a commission of R1 000 000,00 plus VAT would be payable by first respondent to “Kevin Roux/Smada Investments”.

A further Option Agreement (KRP3) prepared by first respondent’s attorneys and signed by first respondent on 18 November 2010, provided similarly for payment of a commission by first respondent to “Kevin Roux/Smada Investments” in the sum of R1 000 000,00 plus VAT.

This was followed by yet another Option Agreement (KRP4) signed by second respondent on 31 January and first respondent on 1 February

2011, again recording an obligation by first respondent to pay commission to “Kevin Roux/Smada Investments” in the sum of R1 000 000,00 plus VAT.

Thereafter a sale was ultimately concluded between first and second respondents in respect of the property during November 2011. In terms of the Deed of Sale (KRP5) the purchase price was the sum of R52 000 000,00. Clause 9 thereof recorded as follows:

“The Purchaser warrants that no commission is payable to any estate agent, including Kevin Roux Properties, in respect of the sale and transfer and indemnifies the Seller against any claims for commission by any estate agent or trader. In the event of any claim being made upon the Seller for commission, then the Purchaser shall be obliged to settle or defend same and indemnify the Seller against the claim and costs of defence as required by the Seller from time to time.”

The property was transferred to second respondent during May 2012.

Applicant avers, in its particulars of claim, that it performed its obligations in terms of first respondent’s mandate to it and that it was the effective cause of the successful sale by first respondent of the property to second respondent. It avers accordingly that first respondent became liable to pay to applicant the sum of R1 000 000,00 plus VAT as commission.

First respondent denies, both in its plea in the main action and in its answering affidavit, that it entered into any agreement of mandate with applicant. It contends that if applicant entered into any such agreement with regard to the sale of the property then such agreement was entered into by applicant with second respondent. It points out that there is what it terms “a glaring contradiction” between the averments contained in the particulars of claim and in the applicant’s founding affidavit as to the date upon which the alleged mandate agreement was entered into. Whereas in the founding affidavit applicant states that the agreement was entered into during August/September 2009, the particulars of claim allege that the agreement was entered into during January 2011. First respondent states that it would appear in the circumstances that applicant has abandoned reliance upon the alleged oral agreements which are specifically pleaded in its particular of claim. In reply hereto applicant states that the reference in the particulars of claim to January 2011 was erroneous and that an application would be made in due course to amend its particulars of claim to reflect the correct date as being August/September 2009.

In this regard Mr. Cole, who appeared for first respondent, submitted that as things stand and before any amendments to the pleadings are effected, the applicant has no existing claim against first respondent based on an alleged agreement of mandate entered into

during August/September 2009 and that in the circumstances applicant has made out no prima facie case whatsoever.

I disagree. As set out above applicant contends that the reference in the particulars of claim to January 2011 is erroneous. This averment is made under oath as opposed to the averments contained in the particulars of claim. If in due course an application to amend the particulars of claim is granted any validity Mr. Cole’s submission might have had would fall away. In these circumstances it would, in my view, constitute a grave injustice to applicant to find, at this stage, on the basis of this submission and prior to the application to amend being heard, that applicant has not made out a prima facie case.

Mr. Cole submitted further that in any event there was nothing in the above correspondence which justified the conclusion that applicant had entered into an agreement of mandate with first respondent. He pointed out that first respondent has denied that the aforementioned Colin Victor was ever authorised to represent it and submitted that, as a matter of law, Mr. Victor, as a shareholder, had no authority to bind first respondent even if he did enter into any agreement with applicant. He submitted that it was clear from the correspondence that applicant had approached the aforementioned Business Partners Limited with an indication that it had a buyer who was interested in first respondent’s property and had requested that Business Partners Limited provide a template Offer to Purchase. That Offer to Purchase, as consequentially amended, was submitted, not to Business Partners Limited, but to the first respondent as an unsolicited Offer to Purchase. Mr. Cole addressed further submissions with regard to the conflicting amounts of commission alleged to be payable to applicant and to reference to Smada Investments contained in the various documents. In the result, so Mr. Cole submitted, applicant had provided no basis whatsoever for its allegations.

In my view, on an application of the well known principles applicable, set out in Webster v Mitchell 1948 (1) SA 1186 (W) at 1180 as qualified in Gool v Minister of Justice 1955 (2) SA 682 (C) at 688 E, these submissions cannot be sustained.

It must be borne in mind that applicant relies upon an alleged oral agreement of mandate. As was submitted by Mr. De la Harpe, who appeared for applicant, it is plain, having regard to the documentation, that there is more than a mere allegation by applicant

of the existence of the oral mandate. The documentation, whilst obviously by itself not establishing the granting of the mandate,

lends a degree of credence at this stage to the averments of the applicant as set out in the particulars of claim. In particular the fact that the documents prepared by first respondent’s attorneys make reference to applicant being entitled to commission is relevant, whatever first respondent’s explanation for this may be.

Whilst a different view as to the weight, if any, to be attached to the documentation may be taken at the trial, when the issue is fully ventilated during the course of oral testimony, I cannot, on these papers, disregard it as Mr. Cole submitted I should.

In my view therefore applicant has indeed established a prima facie right, albeit open to some doubt.

The next issue is whether applicant has a well-grounded apprehension of irreparable harm.

In paragraph 33 of applicant’s founding affidavit the following is stated:

“I had always understood that first respondent was established with the sole purpose of acquiring the property, earning an income from it and thereafter disposing of it for a profit and the benefit of shareholders. I have been reliably informed, and verily believe, that first respondent was used as a one off investment vehicle and in these circumstances, when it has disposed of its only asset, it is to be expected that all the nett proceeds would be distributed to shareholders and first respondent wound up.”

First respondent’s response thereto is as follows:

“This is admitted. It is respectfully submitted that this does not mean that the applicant does not have recourse or remedies in order to ensure that it receives payment should it be successful in its action against the first respondent. The respondent is merely attempting to obtain security for its claim utilising the interim interdict process, which it is not entitled to do. The Shareholders of the first respondent are all persons of substance and substantial means.”

It is common cause that first respondent has disbursed all but the sum of R1 million plus VAT which is presently being held in the trust account of its attorneys.

In the abovementioned email (KRP11) of 30 November first respondent stated, inter alia, the following:

“Has your client taken into consideration, the fact that our client has its normal commercial financial obligations, including payment to the South African Revenue Services and certain creditors, to meet on an ongoing basis and payments to shareholders? The balance of convenience therefore certainly favours our client.”

With regard to this email applicant states that it cannot accept that first respondent did not have sufficient funds available out of the sale of the property to make payment of its commercial obligations and tax. It states that in the circumstances “it can only be that what is wanted is that it distribute the remaining one million to its shareholders and as much is stated”. Applicant therefore challenges first respondent to set out fully its dealings with the purchase price and to detail what creditors and tax obligations it still has outstanding. First respondent, however, did not accept this challenge, merely contenting itself with the averment that “it is a fact that first respondent has ongoing expenses and taxes to meet. The first respondent is entitled to utilise the funds available to it in order to meet these expenses.”

I agree with the submission by Mr. De la Harpe that this is no answer at all. It would have been a simple matter for first respondent to have detailed those expenses and taxes, if they existed. It is, moreover, in my view, quite improbable that a company in first

respondent’s position, which has agreed to hold the sum of R1 million plus VAT in trust for a period of at least one year, and possibly longer, would not have made provision for payment of any future expenses and taxes out of the remaining balance of the purchase price. According to first respondent these expenses are “ongoing”. If so, it may be asked how first respondent has managed to meet those expenses over the period of the past year.

In my view, the only plausible inference to be drawn is that first respondent does not in fact require the money for expenses and taxes but that, as it impliedly admits, it intends upon expiry of the undertaking, to disburse the money and to make further distributions

by way of dividends to its shareholders. In the event of the monies being so disbursed first respondent will be left as a hollow shell with no assets whatsoever. In my view the only plausible inference to be drawn from this is that it wishes to defeat applicant’s

claim against it.

Mr. Cole, however, has contended that applicant will not be left remediless in the event of the money being disbursed by first

respondent. He submitted that applicant could proceed against first respondent’s shareholders who, it is alleged, are “all persons of substance and substantial means.” He was, however, unable to enlighten me as to what remedy in law existed such as to enable applicant to recover monies directly from first respondent’s shareholders in the event of its claim against first respondent succeeding and, in my view, Mr. De la Harpe is correct in his submission that no such remedy exists.

It would appear that, in the event of first respondent becoming an empty shell, applicant’s only remedy would be to seek first respondent’s liquidation and then to pursue whatever remedies it might have in terms of sections 29, 30 and 31 of the Insolvency Act no 24 of 1936. This is of little comfort to applicant. As was submitted by Mr. De la Harpe, none of these remedies are necessarily viable and might result in a time-consuming exercise in futility. Nor, in my view, are the provisions of sections 4, 46 and 218 of the Companies Act, No 71 of 2008, relied upon by Mr. Cole, of assistance to first respondent. Having regard to plaintiff’s claim it is clear, in my view, that should first respondent distribute the said amount by way of the payment of dividends to its shareholders it would inevitably fail to satisfy the solvency and liquidity test referred to in sections 4 and 46 immediately after completing the proposed distribution. It must also be borne in mind that first respondent has no obligation whatsoever to distribute the last of its assets to its shareholders.

I am satisfied therefore that applicant has demonstrated a well-grounded apprehension of irreparable harm in the event of the interdict not being granted.

This aspect of the matter is closely tied up with the issue as to whether or not applicant has an alternative satisfactory remedy.

I am satisfied for the reasons set out above that, even if applicant does have an alternative remedy of sorts, that remedy is far from being satisfactory.

I turn then to consider the issue of the balance of convenience. It is useful to set out in full the passage at 383 D – G in Olympic Passenger Service (Pty) Ltd v Ramlagan supra referred to in Eriksen’s case supra:

“It thus appears that where the applicant’s right is clear, and the other requisites are present, no difficulty presents itself about granting an interdict. At the other end of the scale, where his prospects of ultimate success are nil, obviously the Court will refuse an interdict. Between those two extremes fall the intermediate cases in which, on the papers as a whole, the applicants’ prospects of ultimate success may range all the way from strong to weak. The expression “prima facie established though open to some doubt” seems to me a brilliantly apt classification of these cases. In such cases, upon proof of a well grounded apprehension of irreparable harm, and there being no adequate ordinary remedy, the Court may grant an interdict—it has a discretion, to be exercised judicially upon a consideration of all the facts. Usually this will resolve itself into a nice consideration of the prospects of success and the balance of convenience—the stronger the prospects of success, the less need for such balance to favour the applicant: the weaker the prospects of success, the greater the need for the balance of convenience to favour him. I need hardly add that by balance of convenience is meant the prejudice to the applicant if the interdict be refused, weighed against the prejudice to the respondent if it be granted.”

Mr. Cole stressed that, because of the devastating effect that an interdict such as presently sought can have and because of the huge potential for abuse, the balance of convenience had to be very carefully weighed. In this regard he submitted that applicant’s

prospects of success in the main action were at best remote and that accordingly applicant was obliged to establish clearly that the balance of convenience favoured it. He submitted that, on the contrary, the balance of convenience favoured first respondent

inasmuch as its funds, which it required for its ongoing business operations, had been tied up for a year.

I have dealt above with first respondent’s failure to furnish any detail as to its “ongoing” expenses and the fact that first respondent, in order not to delay the transfer of the property to second respondent, had been prepared to furnish the undertaking for a period of at least one year. Nothing that first respondent has placed before me has persuaded me that its circumstances have changed to such an extent that it, as opposed to its shareholders, would be unduly prejudiced should the interdict be granted. It is clear, however, that applicant would be severely prejudiced should the interdict not be granted and should it eventually succeed in its claim. This is not a case, in my view where, by granting the relief sought, the Court would be compelling first respondent “to regulate its expenditure” so as to retain funds in its patrimony for the payment of applicant’s claim against it. Rather, the Court would be preventing first respondent from disbursing its only remaining asset with the aim of defeating applicant’s claim against it.

The application must therefore succeed.

The following order will issue:

1. First respondent is ordered to retain in the Trust account of its attorneys of record, Cooper Conroy Bell & Richards Inc., the sum of R1 140 000,00 pending the finalisation of the action instituted by applicant, as plaintiff, under Case no EL 556/2012, ECD1256/2012 out of the above Honourable Court against first respondent as defendant.

2. First respondent is ordered to pay the costs of this application.

___________________

J.D. PICKERING

JUDGE OF THE HIGH COURT

Appearing on behalf of Applicant: Adv. Cole

Instructed by: Bax Kaplan Inc.: Mr. Moolman

Appearing on behalf of First Respondent: Adv. De la Harpe

Instructed by: Cooper Conroy Bell & Richards Inc.: G.S. Bell